<PAGE>
[logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS ANNUAL REPORT
WE INVENTED THE MUTUAL FUND(R) DECEMBER 31, 1998
[graphic omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) RESEARCH
SERIES
<PAGE>
MFS(R) RESEARCH SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman, Chief Executive 500 Boylston Street
Officer, and Director, MFS Boston, MA 02116-3741
Investment Management(R)
DISTRIBUTOR
Nelson J. Darling, Jr. MFS Fund Distributors, Inc.
Professional Trustee 500 Boylston Street
Boston, MA 02116-3741
William R. Gutow
Vice Chairman, SHAREHOLDER SERVICE CENTER
Capitol Entertainment MFS Service Center, Inc.
Management Company; P.O. Box 2281
Real Estate Consultant Boston, MA 02107-9906
ASSOCIATE DIRECTOR OF For additional information,
EQUITY RESEARCH contact your financial adviser.
Alec C. Murray*
CUSTODIAN
CHAIRMAN AND PRESIDENT State Street Bank and Trust Company
Jeffrey L. Shames*
AUDITORS
TREASURER Deloitte & Touche LLP
W. Thomas London*
WORLD WIDE WEB
ASSISTANT TREASURERS www.mfs.com
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- -------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Contract Owners:
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual fund
- -- our Massachusetts Investors Trust (MIT) -- was introduced to the public on
March 21, 1924. Since then, MFS Investment Management(R), the company that
grew out of that original fund, has helped guide shareholders through many
economic and investment cycles, primarily by focusing on the long-term
opportunities created by an expanding global economy. As of December 31, 1998,
MFS manages nearly $100 billion, and the firm's 2,000 people serve almost four
million investors and their financial advisers worldwide.
One of the elements in the success of MIT did not exist before our founders
invented it in 1924. That is daily redemption. This innovation meant that if
you wanted to sell your investment in any MFS mutual fund, you would have the
security of knowing that you could do so immediately by exchanging into
another MFS fund. Or, if you needed your money for other purposes, it could
quickly be wired or mailed to you. This daily redemption feature, through
which new shares were created when people invested in MIT and were redeemed
when people sold, brought another important change to the industry. Now, the
price of a mutual fund's shares wasn't determined by supply and demand, but by
the value of the securities owned by the fund.
Another factor in our growth was the development of one of the industry's
first in-house research departments in 1932. Unlike companies that rely on
Wall Street research reports, which can be used by many investors at the same
time, MIT's managers built its long-term track record by visiting companies,
talking to managers and competitors, and "kicking the tires" so they could
judge the quality and potential of each company's products and services for
themselves. Today, MFS has more than 100 full-time portfolio managers, stock
analysts, and credit analysts who track the equity and bond markets. That
number includes over 35 equity analysts who specialize in industries such as
aviation, media, technology, automobiles, and utilities.
While MIT introduced the daily redemption feature, that was not our only
invention. We also established the nation's first global bond fund, first
high-yield municipal bond fund, and first high-yield municipal closed-end bond
fund.
We are proud of the record of MIT and of the funds in the MFS Family of Funds,
but we are also proud of our long-standing relationship with financial
advisers. Not only do we believe investors can benefit from the advice of
these experts but, as was shown during the market volatility of 1998, people
who work with financial advisers are less likely to abandon their carefully
designed, long-term investment strategies.
If there is a common thread running through these milestones, it is our
always-increasing commitment to providing you with the best possible
investment management and shareholder service, just as we have done for the
past 75 years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your
investment needs in the next century. We appreciate your confidence and
welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
January 15, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Contract Owners:
For the 12 months ended December 31, 1998, the Series provided a total return
of 23.39%, compared to a 28.58% return for the Standard & Poor's 500 Composite
Index (the S&P 500), a popular unmanaged index of common stock total return
performance.
Regarding the underperformance of the Series in comparison to the S&P 500, it
pays to bear in mind that this portfolio is truly a "best ideas" portfolio
that invests in what we feel are strong stocks regardless of their market
capitalizations or industry sectors. The roller-coaster ride that the market
has been on in the past few months has been driven by a narrow band of large-
capitalization, multinational companies, while the portfolio has significant
holdings in small- and mid-cap stocks. As a result, this portfolio does not
move in lock-step with the S&P 500, and we feel this flexibility will better
position the portfolio for long-term growth as the valuation gap between large
and small companies closes. We manage the portfolio through MFS Original
Research(R), whereby we select companies that we feel can demonstrate earnings
growth in a variety of market conditions. This approach is very important in a
market such as this one in which we see few companies with the ability to
raise prices on their products.
While volatility bothers some investors, we believe it has created some
compelling bargains for what we feel are fundamentally sound companies. We
tried to take advantage of these during the market's downturn and added to
positions that had shown weaker stock prices but still demonstrated a sound
fundamental outlook. Now, with share prices rebounding across market
capitalizations, we are paying additional attention to companies' valuations.
If we find instances of valuations that are not supported by stocks'
fundamentals, we will pare back our positions in an attempt to preserve any
possible gains for investors.
Two of our best ideas are MCI WorldCom and Lucent Technologies, both of which
are benefiting from the growth in demand for data communications products. We
believe MCI WorldCom has achieved the best strategic position in the industry
by focusing on the business market, which is the fastest-growing and most
profitable segment of the data communications and Internet arena. It is also
expanding internationally and has been successfully taking market share from
larger, more-entrenched European telecommunications companies, many of which
were formerly nationalized industries. MCI is following the same
entrepreneurial model in Europe that it did in the United States, where it had
similar success in competition with AT&T. Finally, we feel the stock's current
valuation, or the ratio of its share price to its projected earnings, is
attractive at 22 times 1999 earnings estimates. Lucent Technologies is the
leading telecommunications equipment supplier in the United States. It
continues to benefit from increased capital spending, as telecommunications
companies such as MCI WorldCom and AT&T spend to accommodate the growth in
data and Internet traffic. Lucent is also increasing its market share
overseas. Though the stock is not inexpensive at 40 times its estimated 1999
earnings growth, we believe that its strong growth justifies its valuation.
We continue to be overweighted in growth areas such as technology, health
care, and consumer staples. In technology the Series features Microsoft, our
largest holding, Cisco, Intel, and Oracle. We see positive prospects for
continued earnings growth in these companies as very positive as the world's
corporations continue to leverage all types of technology to reduce costs and
boost productivity. In health care, our weightings have changed little from
one year ago and include major pharmaceutical companies such as Pfizer,
American Home Products, and Bristol-Myers Squibb, all of which have strong
product pipelines and should benefit from the worldwide trend toward increased
prescription volume. We also have large holdings in consumer staples companies
such as Colgate Palmolive and Clorox, both of which we see as benefiting from
continued consumer confidence in a growing economy.
On the flip side, we are underweighted in a number of cyclical and commodity-
driven industries such as oil, chemical, and paper and forest products. We see
these industries suffering from pricing pressures that have hurt their ability
to generate consistent earnings growth.
MFS' commitment to research has not wavered since the company's inception in
1924. However, it's fair to say that the process has evolved. In 1924, MFS had
virtually no dedicated analysts. Portfolio managers did their own research and
made the investment decisions, and that heritage of informed stock selection
is deeply ingrained in our corporate culture. We started our internal research
department in 1932, and today we have a large global team of analysts who
examine individual companies firsthand by meeting with company managements,
interviewing customers, quizzing suppliers, and evaluating new products. This
experience is important in building our track record, as seasoned MFS
investment professionals pass along their knowledge and the corporate culture
to new analysts.
Respectfully,
/s/ Alec C. Murray
Alec C. Murray
Associate Director of Equity Research
The committee of MFS research analysts is responsible for the day-to-day
management of the Series under the general supervision of Mr. Murray.
The opinions expressed in this report are those of the Associate Director of
Equity Research and are only through the end of the period of the report as
stated on the cover. The director's views are subject to change at any time
based on market and other conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
This report is prepared for the general information of contract holders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other
MFS product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
OBJECTIVE AND POLICIES
The Series seeks long-term growth of capital and future income.
Commencement of investment operations: July 26, 1995
Size: $567.8 million net assets as of December 31, 1998
PERFORMANCE SUMMARY
The information below illustrates the historical performance of the Series in
comparison to various market indicators. Benchmark comparisons are unmanaged
and do not reflect any fees or expenses. It is not possible to invest directly
in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from August 1, 1995, through December 31, 1998)
MFS S&P 500 Consumer
Research Composite Price Index
Series Index - U.S.
----------------------------------------------------
8/95 $10,000 $10,000 $10,000
12/95 11,062 11,080 10,060
12/96 13,530 13,620 10,400
12/97 16,270 18,170 10,580
12/98 20,080 23,355 10,767
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year 3 Years 10 Years/Life
- -------------------------------------------------------------------------------
MFS Research Series* +23.39% +21.99% +22.52%
- -------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index** +28.58% +28.23% +28.16%
- -------------------------------------------------------------------------------
Consumer Price Index**+ + 1.80% + 2.30% + 2.19%
- -------------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations,
July 26, 1995, through December 31, 1998.
** Source: CDA/Wiesenberger. "Life" refers to the period from August 1, 1995,
through December 31, 1998.
+ The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
NOTES TO PERFORMANCE SUMMARY
All results are historical and assume the reinvestment of dividends and
capital gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Performance results
reflect any applicable expense subsidies and waivers, without which the
results would have been less favorable. Subsidies and waivers may be rescinded
at any time. See the prospectus for details.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the annuity product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - December 31, 1998
Stocks - 96.5%
<CAPTION>
- ------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 90.6%
Aerospace - 2.7%
Lockheed-Martin Corp. 38,700 $ 3,279,825
United Technologies Corp. 110,900 12,060,375
------------
$ 15,340,200
- ------------------------------------------------------------------------------------------------------
Automotive - 0.5%
Federal-Mogul Corp. 45,800 $ 2,725,100
- ------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 2.4%
Bank of New York, Inc. 125,700 $ 5,059,425
Chase Manhattan Corp. 71,264 4,850,406
Wells Fargo Co.* 94,850 3,788,072
------------
$ 13,697,903
- ------------------------------------------------------------------------------------------------------
Business Machines - 1.9%
Sun Microsystems, Inc.* 64,500 $ 5,522,812
Xerox Corp. 45,700 5,392,600
------------
$ 10,915,412
- ------------------------------------------------------------------------------------------------------
Business Services - 0.2%
Modis Professional Services, Inc.* 75,200 $ 1,090,400
- ------------------------------------------------------------------------------------------------------
Chemicals - 0.5%
Cambrex Corp. 50,900 $ 1,221,600
E. I. du Pont de Nemours & Co. 33,500 1,777,594
------------
$ 2,999,194
- ------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 5.2%
Microsoft Corp.* 214,400 $ 29,734,600
- --------------------------------------------------------------------------------------------------------
Computer Software - Services - 0.8%
EMC Corp.* 53,500 $ 4,547,500
- ------------------------------------------------------------------------------------------------------
Computer Software - Systems - 7.5%
BMC Software, Inc.* 166,700 $ 7,428,569
Cadence Design Systems, Inc.* 165,450 4,922,137
Computer Associates International, Inc. 153,125 6,526,953
Compuware Corp.* 100,200 7,828,125
Oracle Corp.* 295,600 12,747,750
Synopsys, Inc.* 56,900 3,086,825
------------
$ 42,540,359
- ------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 11.0%
Monsanto Co. 98,800 $ 4,693,000
Black & Decker Corp. 29,900 1,676,269
Clorox Co. 41,100 4,800,994
Colgate-Palmolive Co. 57,600 5,349,600
Dial Corp. 145,600 4,204,200
Gillette Co. 119,900 5,792,669
Newell Co. 62,000 2,557,500
Philip Morris Cos., Inc. 145,100 7,762,850
Procter & Gamble Co. 87,200 7,962,450
Tyco International Ltd. 231,674 17,476,907
------------
$ 62,276,439
- ------------------------------------------------------------------------------------------------------
Containers - 0.6%
Smurfit Stone Container Corp.* 222,885 $ 3,524,369
- ------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.5%
Emerson Electric Co. 135,700 $ 8,209,850
- ------------------------------------------------------------------------------------------------------
Electronics - 3.0%
Analog Devices, Inc.* 197,366 $ 6,192,358
Intel Corp. 79,600 9,437,575
Lattice Semiconductor Corp.* 29,200 1,340,463
------------
$ 16,970,396
- ------------------------------------------------------------------------------------------------------
Entertainment - 4.2%
CBS Corp. 186,600 $ 6,111,150
Disney (Walt) Co. 215,200 6,456,000
Jacor Communications, Inc.* 4,100 263,937
MediaOne Group, Inc.* 88,300 4,150,100
Time Warner, Inc. 106,400 6,603,450
------------
$ 23,584,637
- ------------------------------------------------------------------------------------------------------
Financial Institutions - 6.8%
American Express Co. 29,400 $ 3,006,150
Associates First Capital Corp., "A" 139,692 5,919,449
Bear Stearns Cos., Inc. 75,700 2,829,288
CIT Group, Inc., "A" 73,700 2,344,581
Citigroup, Inc. 64,500 3,192,750
Federal Home Loan Mortgage Corp. 103,100 6,643,506
Federal National Mortgage Assn. 79,700 5,897,800
First Union Corp. 100,756 6,127,224
Morgan Stanley Dean Witter & Co. 40,000 2,840,000
------------
$ 38,800,748
- ------------------------------------------------------------------------------------------------------
Food and Beverage Products - 3.0%
Archer-Daniels-Midland Co. 142,030 $ 2,441,141
Dean Foods Co. 44,700 1,824,319
Hershey Foods Corp. 74,400 4,626,750
Hormel Foods Corp. 47,800 1,565,450
McCormick & Co., Inc. 59,100 1,998,319
Ralston-Ralston Purina Co. 136,300 4,412,712
------------
$ 16,868,691
- ------------------------------------------------------------------------------------------------------
Insurance - 6.0%
Allstate Corp. 46,100 $ 1,780,613
CIGNA Corp. 55,600 4,298,575
Conseco, Inc. 123,290 3,768,051
Equitable Cos., Inc. 104,800 6,065,300
Hartford Financial Services Group, Inc. 87,900 4,823,512
Lincoln National Corp. 83,500 6,831,344
Nationwide Financial Services, Inc., "A" 54,200 2,801,462
ReliaStar Financial Corp. 81,514 3,759,833
------------
$ 34,128,690
- ------------------------------------------------------------------------------------------------------
Machinery - 0.2%
Federal Signal Corp. 45,600 $ 1,248,300
- ------------------------------------------------------------------------------------------------------
Manufacturing - 0.2%
Illinois Tool Works, Inc. 18,000 $ 1,044,000
- ------------------------------------------------------------------------------------------------------
Medical and Health Products - 5.4%
American Home Products Corp. 222,400 $ 12,523,900
Bristol-Myers Squibb Co. 51,900 6,944,869
Pfizer, Inc. 87,200 10,938,150
------------
$ 30,406,919
- ------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 6.0%
Cardinal Health, Inc. 47,300 $ 3,588,888
Guidant Corp. 73,900 8,147,475
HBO & Co. 362,700 10,404,956
HealthSouth Corp.* 334,176 5,158,842
United Healthcare Corp. 153,300 6,601,481
------------
$ 33,901,642
- ------------------------------------------------------------------------------------------------------
Oil Services - 0.1%
Cooper Cameron Corp.* 33,500 $ 820,750
- ------------------------------------------------------------------------------------------------------
Oils - 0.2%
Mobil Corp. 14,500 $ 1,263,313
- ------------------------------------------------------------------------------------------------------
Pollution Control - 0.4%
Browning Ferris Industries, Inc. 84,100 $ 2,391,594
- ------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 2.0%
Cendant Corp.* 121,500 $ 2,316,094
CKE Restaurants, Inc. 110,990 3,267,268
McDonalds Corp. 73,400 5,624,275
------------
$ 11,207,637
- ------------------------------------------------------------------------------------------------------
Special Products and Services - 0.4%
Newport News Shipbuilding, Inc. 71,800 $ 2,400,812
- ------------------------------------------------------------------------------------------------------
Stores - 6.4%
American Stores Co. 45,900 $ 1,695,431
CompUSA, Inc.* 117,900 1,540,069
CVS Corp. 136,200 7,491,000
Dayton Hudson Corp. 98,500 5,343,625
Home Depot, Inc. 69,500 4,252,531
Office Depot, Inc.* 98,200 3,627,263
Rite Aid Corp. 227,300 11,265,556
TJX Cos., Inc. 41,100 1,191,900
------------
$ 36,407,375
- ------------------------------------------------------------------------------------------------------
Supermarkets - 2.9%
Albertsons, Inc. 27,300 $ 1,738,669
Meyer (Fred), Inc.* 122,600 7,386,650
Safeway, Inc.* 123,800 7,544,062
------------
$ 16,669,381
- ------------------------------------------------------------------------------------------------------
Telecommunications - 7.3%
3Com Corp.* 90,100 $ 4,037,606
Aspect Telecommunications Corp.* 61,500 1,060,875
Cisco Systems, Inc.* 88,275 8,193,023
Intermedia Communications, Inc.* 58,900 1,016,025
Lucent Technologies, Inc. 55,700 6,127,000
MCI WorldCom, Inc.* 215,241 15,443,542
Sprint Corp. 55,900 4,702,587
Sprint PCS* 27,900 645,188
------------
$ 41,225,846
- ------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.5%
CalEnergy Co., Inc.* 88,300 $ 3,062,906
- ------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.8%
Columbia Energy Group 34,600 $ 1,998,150
KN Energy, Inc. 66,800 2,429,850
------------
$ 4,428,000
- ------------------------------------------------------------------------------------------------------
Total U.S. Stocks $514,432,963
- ------------------------------------------------------------------------------------------------------
Foreign Stocks - 5.9%
Bermuda - 0.8%
Ace Ltd. (Insurance) 80,000 $ 2,755,000
EXEL Ltd., "A" (Insurance) 22,319 1,673,925
------------
$ 4,428,925
- ------------------------------------------------------------------------------------------------------
France - 0.7%
Alcatel Alsthom Compagnie, ADR (Telecommunications) 167,900 $ 4,103,056
- ------------------------------------------------------------------------------------------------------
Italy - 0.8%
San Paolo-Imi S.p.A (Banks and Credit Cos.) 249,366 $ 4,409,281
- ------------------------------------------------------------------------------------------------------
Netherlands - 1.0%
ING Groep N.V. (Financial Services)* 93,145 $ 5,674,436
- ------------------------------------------------------------------------------------------------------
Switzerland
Amoco Corp. (Oils) 6,500 $ 383,500
- ------------------------------------------------------------------------------------------------------
United Kingdom - 2.6%
British Aerospace PLC (Aerospace and Defense)* 359,698 $ 3,061,087
British Petroleum PLC, ADR (Oils) 103,774 9,858,530
Jarvis Hotels PLC (Restaurants and Lodging)+ 369,700 717,556
LucasVarity PLC (Automotive) 371,800 1,239,726
------------
$ 14,876,899
- ------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 33,876,097
- ------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $444,806,329) $548,309,060
- ------------------------------------------------------------------------------------------------------
Short-Term Obligation - 4.3%
- ------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- ------------------------------------------------------------------------------------------------------
Federal Home Loan Bank due 1/04/99, at Amortized Cost $24,280 $ 24,271,300
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $469,077,629) $572,580,360
Other Assets, Less Liabilities - (0.8)% (4,802,808)
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $567,777,552
- ------------------------------------------------------------------------------------------------------
* Non-income producing security.
+ Restricted security.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $469,077,629) $572,580,360
Cash 18,978
Receivable for Series shares sold 1,199,623
Receivable for investments sold 2,370,763
Interest and dividends receivable 323,954
Deferred organization expenses 2,883
Other assets 1,873
------------
Total assets $576,498,434
------------
Liabilities:
Payable for Series shares reacquired $ 281,357
Payable for investments purchased 8,361,946
Payable to affiliates -
Management fee 11,560
Shareholder servicing agent fee 539
Accrued expenses and other liabilities 65,480
------------
Total liabilities $ 8,720,882
------------
Net assets $567,777,552
============
Net assets consist of:
Paid-in capital $458,770,007
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 103,502,108
Accumulated undistributed net realized gain on investments
and foreign currency transactions 4,188,027
Accumulated undistributed net investment income 1,317,410
------------
Total $567,777,552
============
Shares of beneficial interest outstanding 29,806,071
==========
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $19.05
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 3,971,852
Interest 945,583
Foreign taxes withheld (72,555)
-----------
Total investment income $ 4,844,880
-----------
Expenses -
Management fee $ 3,066,232
Trustees' compensation 1,971
Shareholder servicing agent fee 143,089
Administrative fee 48,598
Custodian fee 147,112
Printing 90,074
Auditing fees 8,571
Legal fees 1,975
Amortization of organization expenses 1,837
Miscellaneous 9,619
-----------
Total expenses $ 3,519,078
Fees paid indirectly (14,290)
-----------
Net expenses $ 3,504,788
-----------
Net investment income $ 1,340,092
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 5,924,035
Foreign currency transactions (16,216)
-----------
Net realized gain on investments and foreign
currency transactions $ 5,907,819
-----------
Change in unrealized appreciation (depreciation) -
Investments $78,554,977
Translation of assets and liabilities in foreign
currencies (1,829)
-----------
Net unrealized gain on investments and foreign
currency translation $78,553,148
-----------
Net realized and unrealized gain on investments and
foreign currency $84,460,967
-----------
Increase in net assets from operations $85,801,059
===========
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<CAPTION>
- ------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,340,092 $ 611,791
Net realized gain on investments and foreign currency
transactions 5,907,819 7,534,897
Net unrealized gain on investments and foreign currency
translation 78,553,148 23,009,657
------------ ------------
Increase in net assets from operations $ 85,801,059 $ 31,156,345
------------ ------------
Distributions declared to shareholders -
From net investment income $ (587,939) $ --
From net realized gain on investments and foreign currency
transactions (7,710,146) --
------------ ------------
Total distributions declared to shareholders $ (8,298,085) $ --
------------ ------------
Net increase in net assets from Series share transactions $204,429,719 $218,978,128
------------ ------------
Total increase in net assets $281,932,693 $250,134,473
Net assets:
At beginning of period 285,844,859 35,710,386
------------ ------------
At end of period (including accumulated undistributed net
investment income of $1,317,410 and $581,473,
respectively) $567,777,552 $285,844,859
============ ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 PERIOD ENDED
-------------------------------------------- DECEMBER 31,
1998 1997 1996 1995*
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $15.80 $13.13 $10.89 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.06 $ 0.05 $ 0.06 $ 0.05
Net realized and unrealized gain on
investments and foreign currency transaction 3.59 2.62 2.37 1.01
------ ------ ------ ------
Total from investment operations $ 3.65 $ 2.67 $ 2.43 $ 1.06
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.03) $ -- $(0.02) $(0.03)
From net realized gain on investments and
foreign currency transactions (0.37) -- (0.16) (0.14)
In excess of net realized gain on investments
and foreign currency transactions -- -- (0.01) --
------ ------ ------ ------
Total distributions declared to
shareholders $(0.40) $ -- $(0.19) $(0.17)
------ ------ ------ ------
Net asset value - end of period $19.05 $15.80 $13.13 $10.89
====== ====== ====== ======
Total return 23.39% 20.26% 22.33% 10.62%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.86% 0.92% 1.01% 1.02%+
Net investment income 0.33% 0.34% 0.47% 1.15%+
Portfolio turnover 83% 99% 56% 28%
Net assets at end of period (000 omitted) $567,778 $285,845 $35,710 $2,530
* For the period from the commencement of the Series' investment operations, July 26, 1995, through December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Series has an expense offset arrangement which reduces the Series' custodian fee based upon the amount of cash
maintained by the Series with its custodian and dividend disbursing agent. The Series' expenses are calculated without
reduction for this expense offset arrangement.
(S) Prior to January 1, 1998, subject to reimbursement by the Series, the investment adviser agreed to maintain the expenses
of the Series, exclusive of management fees, at not more than 0.25% of average daily net assets. To the extent actual
expenses were over or under this limitation, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $ 0.06 $ -- $(0.08)
Ratios (to average net assets):
Expenses## 0.88% 1.48% 3.90%+
Net investment income (loss) 0.38% -- (1.73)%+
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Research Series (the Series) is a diversified series of MFS Variable
Insurance Trust (the Trust) which comprises the following 13 series: MFS(R)
Bond Series, MFS(R) Emerging Growth Series, MFS(R)/Foreign & Colonial Emerging
Markets Equity Series, MFS(R) World Governments Series, MFS(R) Growth with
Income Series, MFS(R) High Income Series, MFS(R) Limited Maturity Series,
MFS(R) Money Market Series, MFS(R) New Discovery Series, MFS Research Series,
MFS(R) Total Return Series, MFS(R) Utilities Series, and MFS(R) Value Series.
The Trust is organized as a Massachusetts business trust and is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The shareholders of each Series of the Trust
are separate accounts of insurance companies which offer variable annuity and/
or life insurance products. As of December 31, 1998, there were 59
shareholders of the Series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the Series in connection
with its organization have been deferred and are being amortized on a
straight-line basis over a five-year period beginning on the date of
commencement of Series operations.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividends received in additional securities are recorded on
the ex-dividend date in an amount equal to the value of the security on such
date.
Fees Paid Indirectly - The Series' custody fee is calculated as a percentage
of the Series' month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Series. This amount is shown as a reduction of expenses on the Statement
of Operations.
Tax Matters and Distributions - The Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Series files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Series' tax return.
Distributions to shareholders are recorded on the ex-dividend date. The Series
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. During
the year ended December 31, 1998 $16,216 was reclassified from accumulated
undistributed net investment income to accumulated undistributed net realized
gain on investments and foreign currency transactions due to differences
between book and tax accounting for currency transactions. This change had no
effect on the net assets or net asset value per share.
(3) Transactions with Affiliates
Investment Adviser - The Series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the Series' average daily net assets.
The Series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain officers and
Trustees of the Series are officers or directors of MFS and MFS Service
Center, Inc. (MFSC).
Administrator - The Series has an administrative services agreement with MFS
to provide the Series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Series pays MFS an administrative
fee at the following annual percentages of the Series' average daily net
assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Series' average daily net assets at an effective annual
rate of 0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$511,037,084 and $325,019,045, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $472,890,759
------------
Gross unrealized appreciation 112,414,032
Gross unrealized depreciation $(12,724,431)
------------
Net unrealized appreciation $ 99,689,601
============
(5) Shares of Beneficial Interest
The Series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Series' shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 14,540,832 $251,911,169 20,904,749 $305,485,116
Shares issued to shareholders
in reinvestment of
distributions 472,018 8,298,082 -- --
Shares reacquired (3,301,687) (55,779,532) (5,529,553) (86,506,988)
---------- ------------ ---------- ------------
Net increase 11,711,163 $204,429,719 15,375,196 $218,978,128
========== ============ ========== ============
</TABLE>
(6) Line of Credit
The Series and other affiliated funds participate in an $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Series' shares. Interest is charged to each Series, based on its borrowings,
at a rate equal to the bank's base rate. In addition, a commitment fee, based
on the average daily unused portion of the line of credit, is allocated among
the participating funds at the end of each quarter. The commitment fee
allocated to the Series for the year ended December 31, 1998, was $3,098.
(7) Restricted Securities
The Series may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At December 31,
1998, the Series owned the following restricted securities (constituting 0.13%
of net assets) which may not be publicly sold without registration under the
Securities Act of 1933. The Series does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations furnished by dealers or by a pricing service, or if not available,
are valued at fair value as determined in good faith by or at the direction of
the Trustees.
<TABLE>
<CAPTION>
DATE OF SHARE
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jarvis Hotels PLC 6/24/96 - 1/05/98 369,700 $970,613 $717,556
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Variable Insurance Trust and the Shareholders of
MFS Research Series:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Research Series (the Series)
(one of the series constituting the MFS Variable Insurance Trust) as of
December 31, 1998, the related statement of operations for the year then
ended, the statement of changes in net assets for the years ended December 31,
1998, and 1997, and the financial highlights for each of the years in the
four-year period ended December 31, 1998. These financial statements and
financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at December 31, 1998 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Research
Series at December 31, 1998, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 1999
<PAGE>
FEDERAL TAX INFORMATION
The Fund has designated $756,545 as a capital gain dividend.
For the year ended December 31, 1998, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations came to
20.13%.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VFR-2 2/99 106M
