<PAGE>
[Logo] M F S(R) Annual Report
INVESTMENT MANAGEMENT December 31, 1998
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
A Series of MFS(R) Variable Insurance Trust(SM)
MFS(R) NEW DISCOVERY
SERIES
[Graphic Omitted]
<PAGE>
<TABLE>
MFS(R) NEW DISCOVERY SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman, Chief Executive Officer, and 500 Boylston Street
Director, MFS(R) Investment Management(SM) Boston, MA 02116-3741
Nelson J. Darling, Jr. DISTRIBUTOR
Professional Trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment Management Company; SHAREHOLDER SERVICE CENTER
Real Estate Consultant MFS Service Center, Inc.
P.O. Box 2281
PORTFOLIO MANAGER Boston, MA 02107-9906
Brian E. Stack*
For additional information,
CHAIRMAN AND PRESIDENT contact your financial adviser.
Jeffrey L. Shames*
CUSTODIAN
TREASURER State Street Bank and Trust Company
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
- --------------------------------------------------------------------------------
</TABLE>
<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:
The Series commenced operations on May 1, 1998, and from that date through
December 31, 1998, provided a total return of 2.20%. For the same period, the
Russell 2000 Total Return Index, an unmanaged index comprised of 2,000 of the
smallest U.S.-domiciled company common stocks (on the basis of capitalization)
that are traded in the United States on the NYSE, AMEX, and NASDAQ, returned
- -11.94%.
We feel the portfolio's strong performance results from our focus on seeking
companies that we believe can produce sustainable and predictable growth in
unit sales, revenue, and earnings. To find such companies we rely on MFS(R)
Original Research(SM), through which stocks are selected after in-depth
fundamental analysis of companies' earnings outlooks, managements, business
models, competitive strategies, market positions, and growth prospects. Based
on our findings, we select companies that we believe are best positioned to
become major enterprises over a period of three-to-five years. In choosing
stocks, we are careful to assure that the prices we pay are in line with the
companies' actual fundamental strengths and long-term growth prospects. This
research-intensive process allows us to own companies early in their
development cycles before they become widely known to investors and that enjoy
growth rates above those of the overall market.
As our investors are aware, researching small companies is far more difficult
than researching big companies, simply because there is very little known
about most small companies. So it's imperative that we use our proprietary
research process to the fullest to find the best companies for this portfolio.
Strong research has helped us invest in companies like Envoy, which makes
technology that automates paperwork used by medical organizations to reduce
the sizable transaction costs involved in health care. Customers understand
the importance of the productivity enhancements and cost reductions that Envoy
enables, and its earnings growth reflects that. The stock is up nearly 50% as
of December 31. Another interesting company we have uncovered is Catalina
Marketing, which runs a network that issues instant coupons at supermarkets.
As a customer's goods are scanned, the Catalina system identifies the customer
as a potential target for coupons for complementary or competitive products,
and these coupons are issued at the register. The company is also developing
an Internet component to its business by which shoppers' "census" information
is collected and fed to a Web site that issues even more closely targeted
coupons directly to consumers over the Internet. This type of innovation can
drive growth further and has given us even more confidence in the company.
If the weakness in corporate earnings growth in the large-cap sector continues
to impact investors' psychology, we could face some additional choppiness
among the small stocks as well. However, as investors turn their attention to
stocks that can provide strong earnings growth at reasonable prices, we
believe small stocks should be quite attractive long-term investment options.
While I'm confident that the potential for a sustained rebound in small-cap
stocks is good, it would not be prudent to attempt to predict when, and for
how long, that may occur.
I think it's of value to our investors to know that the commitment to research
that MFS made when it inaugurated one of the industry's first research
departments in 1932 is thoroughly ingrained in our corporate culture today. I
believe it is this commitment that enables us to select stocks that can
perform well over the long term, even with the special challenges involved in
small-cap investing.
Respectfully,
/s/ Brian E. Stack
Brian E. Stack
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager'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.
<PAGE>
PORTFOLIO MANAGER'S PROFILE
Brian E. Stack is Senior Vice President -- Investments of MFS Investment
Management(R) and portfolio manager of MFS(R) Institutional Emerging Equities
Fund, MFS(R) New Discovery Fund, and the New Discovery Series offered through
MFS(R)/Sun Life annuity products, and MFS(R) New Discovery Series, part of
MFS(R) Variable Insurance Trust.
Mr. Stack joined MFS in 1993 as an equity research analyst following the
chemical, hospital management, health maintenance organizations, medical
services, and business services industries and was named a portfolio manager
in 1996. He has worked as an equity analyst since 1987. He is a graduate of
Boston College and has an M.B.A. degree from the University of Virginia.
OBJECTIVE AND POLICIES
The Series seeks capital appreciation.
Commencement of investment operations: May 1, 1998
Size: $1.14 million net assets as of December 31, 1998
This report is prepared for the general information of contract owners. 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>
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 May 1, 1998, through December 31, 1998)
MFS Russell Consumer
New 2000 Price
Discovery Total Return Index
Series Index - U.S.
- ----------------------------------------------------
5/98 $10,000 $10,000 $10,000
12/98 10,220 8,806 10,105
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
10 Years/Life
- -------------------------------------------------------------------------------
MFS New Discovery Series* + 2.20%
- -------------------------------------------------------------------------------
Russell 2000 Total Return Index# -11.94%
- -------------------------------------------------------------------------------
Consumer Price Index#+ + 1.05%
- -------------------------------------------------------------------------------
*For the period from the commencement of the Series' investment operations,
May 1, 1998, through
December 31, 1998.
#Source: CDA/Wiesenberger. "Life" refers to the period from May 1, 1998,
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.
Investing in small or emerging growth companies involves greater risk than is
customarily associated with more-established companies. These risks may
increase share price volatility.
<PAGE>
PORTFOLIO OF INVESTMENTS - December 31, 1998
Stocks - 95.4%
- -------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
U.S. Stocks - 92.5%
Advertising - 2.6%
Pharmaceutical Marketing Service, Inc.* 1,100 $ 15,812
Snyder Communications, Inc.* 110 3,713
TMP Worldwide, Inc.* 239 10,038
----------
$ 29,563
- -------------------------------------------------------------------------------
Airlines - 1.4%
Atlas Air, Inc.* 252 $ 12,332
Skywest, Inc. 130 4,250
----------
$ 16,582
- -------------------------------------------------------------------------------
Biotechnology - 2.0%
IDEXX Laboratories, Inc.* 868 $ 23,355
- -------------------------------------------------------------------------------
Building - 0.3%
Eagle Hardware & Garden, Inc.* 101 $ 3,283
- -------------------------------------------------------------------------------
Business Machines - 2.5%
Affiliated Computer Services, Inc., "A"* 643 $ 28,935
- -------------------------------------------------------------------------------
Business Services - 18.1%
Billing Concepts Corp.* 422 $ 4,642
BISYS Group, Inc.* 378 19,514
Bright Horizons Family Solutions, Inc.* 115 3,105
Catalina Marketing Corp.* 149 10,188
Ceridian Corp.* 125 8,727
Data Broadcasting Corp.* 240 4,290
Dendrite International, Inc.* 232 5,793
DST Systems, Inc.* 509 29,045
Envoy Corp.* 275 16,019
Fiserv, Inc.* 138 7,098
Global Directmail Corp.* 349 8,158
Interim Services, Inc.* 596 13,931
International Network Services* 44 2,926
Learning Tree International, Inc.* 814 7,377
Memberworks, Inc.* 84 2,478
Meta Group, Inc.* 283 8,419
Modis Professional Services, Inc.* 518 7,511
NOVA Corp.* 492 17,066
Paymentech, Inc.* 214 3,959
Personnel Group of America, Inc.* 184 3,220
Professional Detailing, Inc.* 99 2,797
Renaissance Worldwide, Inc.* 720 4,410
Technology Solutions Co.* 1,402 15,028
----------
$ 205,701
- -------------------------------------------------------------------------------
Computer Software - Services - 0.2%
Hyperion Solutions Corp.* 120 $ 2,160
- -------------------------------------------------------------------------------
Computer Software - Systems - 12.1%
Acxiom Corp.* 287 $ 8,897
Aspen Technology, Inc.* 426 6,177
Black Box Corp.* 141 5,340
Cadence Design Systems, Inc.* 19,694
Cambridge Technology Partners, Inc.* 435 9,624
<PAGE>
U.S. STOCKS - CONTINUED
Computer Software - Systems - continued
Checkfree Holdings Corp. 147 $ 3,436
Compuware Corp.* 12 937
Edify Corp.* 48 399
Fair, Isaac & Co., Inc. 57 2,633
Harbinger Corp.* 417 3,336
JDA Software Group, Inc.* 406 3,933
Peerless Systems Corp.* 107 910
RWD Technologies, Inc.* 33 714
SCB Computer Technology, Inc.* 193 1,906
Security Dynamics Technologies, Inc.* 390 8,970
Sterling Software, Inc.* 94 10,663
Summit Design, Inc.* 14 2,924
SunGard Data Systems, Inc.* 8 11,430
Synopsys, Inc.* 40 18,445
Transaction System Architects, Inc., "A"* 3 14,150
Vantive Corp.* 1 2,728
-----------
$ 137,246
- -------------------------------------------------------------------------------
Consumer Goods and Services - 2.5%
Alternative Resources Corp.* 323 $ 3,432
Galileo International, Inc.* 204 8,874
InfoUSA, Inc., "A"* 931 4,539
InfoUSA, Inc., "B"* 442 2,320
LoJack Corp.* 286 3,396
Sportsline USA, Inc.* 355 5,525
-----------
$ 28,086
- -------------------------------------------------------------------------------
Electrical Equipment - 0.8%
AFC Cable Systems, Inc.* 118 $ 3,968
Barnett, Inc.* 195 2,681
Belden, Inc. 124 2,627
-----------
$ 9,276
- -------------------------------------------------------------------------------
Electronics - 6.2%
Actel Corp.* 112 $ 2,240
Analog Devices, Inc.* 354 11,107
Burr-Brown Corp.* 459 10,758
Cable Design Technologies Corp.* 386 7,141
DuPont Photomasks, Inc.* 82 3,480
Kulicke & Soffa Industries, Inc.* 211 3,745
Lattice Semiconductor Corp.* 195 8,952
Microchip Technology, Inc.* 74 2,738
Photronics, Inc.* 307 7,358
PMC-Sierra, Inc.* 127 8,017
SIPEX Corp.* 162 5,690
----------
$ 71,226
- -------------------------------------------------------------------------------
<PAGE>
U.S STOCKS - CONTINUED
Entertainment - 4.5%
Citadel Communications Corp.* 107 $ 2,769
Cox Radio, Inc., "A"* 34 1,436
Gemstar International Group Ltd.* 418 23,930
Harrah's Entertainment, Inc.* 227 3,561
Heftel Broadcasting Corp., "A"* 107 5,270
Jacor Communications, Inc.* 224 14,420
----------
$ 51,386
- -------------------------------------------------------------------------------
Financial Institutions - 1.1%
Conning Corp. 118 $ 2,449
Student Loan Corp. 59 2,648
Waddell & Reed Financial, Inc., "A" 312 7,390
----------
$ 12,487
- -------------------------------------------------------------------------------
Food and Beverage Products - 0.4%
Mondavi (Robert) Corp.* 101 $ 4,128
- -------------------------------------------------------------------------------
Insurance - 0.9%
Annuity & Life Re Holdings Ltd. 127 $ 3,413
Executive Risk, Inc. 64 3,516
MONY Group, Inc.* 105 3,288
----------
$ 10,217
- -------------------------------------------------------------------------------
Medical and Health Products - 2.0%
AmeriSource Health Corp., "A"* 41 $ 2,665
Haemonetics Corp.* 90 8,873
PSS World Medical, Inc.* 479 11,017
----------
$ 22,555
- -------------------------------------------------------------------------------
Medical and Health Technology and Services - 10.7%
ABR Information Services, Inc.* 250 $ 4,906
Concentra Managed Care, Inc.* 1,074 11,478
Cytyc Corp.* 239 6,154
Hologic, Inc.* 368 4,462
IDX Systems Corp.* 211 9,284
Impath, Inc.* 447 11,845
Mid Atlantic Medical Services, Inc.* 428 4,200
NCS Healthcare, Inc., "A"* 288 6,840
Orthodontic Centers of America, Inc.* 224 4,354
Parexel International Corp.* 335 8,375
Quorum Health Group, Inc.* 73 4,826
Schein (Henry), Inc.* 134 5,997
Steris Corp.* 213 6,057
Superior Consultant Holdings Corp.* 84 3,654
Total Renal Care Holdings, Inc.* 59 15,047
Ventana Med Systems, Inc.* 324 7,007
Virgin Islands Technologies, Inc.* 669 6,941
----------
$ 121,427
- -------------------------------------------------------------------------------
<PAGE>
U.S. STOCKS - CONTINUED
Oil Services - 1.3%
Dril-Quip, Inc.* 72 $ 1,278
Global Industries, Inc.* 1,034 6,333
Input/Output, Inc.* 560 4,095
National Oilwell, Inc.* 135 1,510
Weatherford International, Inc.* 103 1,996
----------
$ 15,212
- -------------------------------------------------------------------------------
Oils - 0.3%
Newfield Exploration Co.* 184 $ 3,841
- -------------------------------------------------------------------------------
Pharmaceuticals - 0.5%
Sepracor, Inc.* 63 $ 5,552
- -------------------------------------------------------------------------------
Pollution Control - 0.5%
Superior Services, Inc.* 291 $ 5,838
- -------------------------------------------------------------------------------
Printing and Publishing - 2.0%
Applied Graphics Technologies, Inc.* 109 $ 1,798
CMP Media, Inc., "A"* 264 4,818
Scholastic Corp.* 304 16,302
----------
$ 22,918
- -------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.5%
Kilroy Realty Corp. 95 $ 2,185
MeriStar Hospitality Corp.* 180 3,341
----------
$ 5,526
- -------------------------------------------------------------------------------
Restaurants and Lodging - 1.8%
Buffets, Inc.* 566 $ 6,756
Landry's Seafood Restaurants, Inc.* 397 2,977
Mortons Restaurant Group, Inc.* 155 2,926
Papa John's International, Inc.* 65 2,868
Sonic Corp.* 210 5,224
----------
$ 20,751
- -------------------------------------------------------------------------------
Special Products and Services - 2.8%
Caliber Learning Network, Inc.* 452 $ 1,921
Edutrek International, Inc., "A"* 256 1,472
Equity Corp. International* 186 4,941
Gartner Group, Inc.* 134 2,847
M/A/R/C, Inc. 68 723
Newport News Shipbuilding, Inc. 414 13,843
Sylvan Learning Systems, Inc.* 82 2,501
Watsco, Inc. 195 3,266
----------
$ 31,514
- -------------------------------------------------------------------------------
Stores - 6.9%
AnnTaylor Stores Corp.* 165 $ 6,507
BJ's Wholesale Club, Inc.* 128 5,928
Copart, Inc.* 294 9,518
CSK Auto Corp.* 313 8,353
Duane Reade, Inc.* 50 1,925
Elder-Beerman Stores Corp.* 494 5,712
Gymboree Corp.* 613 3,908
<PAGE>
U.S. STOCKS - CONTINUED
Stores - continued
Micro Warehouse, Inc.* 196 $ 6,627
Office Depot, Inc.* 143 5,282
Petco Animal Supplies, Inc.* 709 7,135
Pier 1 Imports, Inc. 414 4,011
Regis Corp. 258 10,320
Stage Stores, Inc.* 302 2,831
----------
$ 78,057
- -------------------------------------------------------------------------------
Telecommunications - 6.8%
Adelphia Communications Corp.* 89 $ 4,072
Advanced Fibre Communications* 196 2,144
American Tower Corp., "A"* 248 7,331
Aspect Telecommunications Corp.* 1,281 22,097
Hyperion Telecommunications, Inc., "A"* 4 61
Intermedia Communications, Inc.* 660 11,385
International Telecommunication Data Systems, Inc.*500 7,375
IXC Communications, Inc.* 156 5,245
Lightbridge, Inc.* 625 3,438
Natural Microsystems Corp.* 58 422
Nextlink Communications, Inc., "A"* 196 5,561
Proxim, Inc.* 3 80
Transaction Network Services, Inc.* 321 6,440
VDI Media* 203 1,929
----------
$ 77,580
- -------------------------------------------------------------------------------
Transportation - 0.8%
Carey International, Inc.* 165 $ 2,887
Coach USA, Inc.* 171 5,932
----------
$ 8,819
- -------------------------------------------------------------------------------
Total U.S. Stocks $1,053,221
- -------------------------------------------------------------------------------
Foreign Stocks - 2.9%
Canada - 0.4%
Four Seasons Hotels, Inc. (Restaurants and Lodging)147 $ 4,300
- -------------------------------------------------------------------------------
Netherlands - 0.2%
Brunel International N.V. (Human Resources)* 75 $ 1,516
- -------------------------------------------------------------------------------
United Kingdom - 2.3%
CBT Group PLC, ADR (Computer Software - Personal
Computers)* 1,258 $ 18,713
Saville Systems PLC, ADR (Computer Software -
Systems)* 396 7,524
----------
$ 26,237
- -------------------------------------------------------------------------------
Total Foreign Stocks $ 32,053
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $990,981) $1,085,274
- -------------------------------------------------------------------------------
<PAGE>
Convertible Preferred Stock - 0.1%
- -------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.1%
Concentra Managed Care, Inc., 4.50%
(Identified Cost, $1,344) 2,000 $ 1,525
- -------------------------------------------------------------------------------
Short-Term Obligations - 3.5%
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -------------------------------------------------------------------------------
Federal Home Loan Bank, due 1/04/99,
at Amortized Cost $ 40 $ 39,986
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,032,311) $1,126,785
Other Assets, Less Liabilities - 1.0% 11,495
- -------------------------------------------------------------------------------
Net Assets - 100.0% $1,138,280
- -------------------------------------------------------------------------------
* - Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,032,311) $ 1,126,785
Cash 8,175
Foreign currency, at value (identified cost, $11) 12
Receivable for Series shares sold 8
Receivable for investments sold 12,995
Interest and dividends receivable 170
-----------
Total assets $ 1,148,145
-----------
Liabilities:
Payable for investments purchased $ 9,830
Payable to affiliate for management fee 27
Accrued expenses and other liabilities 8
-----------
Total liabilities $ 9,865
-----------
Net assets $ 1,138,280
===========
Net assets consist of:
Paid-in capital $ 1,098,684
Unrealized appreciation on investments and translation
of assets and Liabilities in foreign currencies 94,475
Accumulated net realized loss on investments and
foreign currency transactions (54,879)
-----------
Total $ 1,138,280
===========
Shares of beneficial interest outstanding 111,350
=========
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $10.22
=========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Operations
- -------------------------------------------------------------------------------
PERIOD ENDED DECEMBER 31, 1998*
- ------------------------------------------------------------------------------
Net investment loss:
Income -
Interest $ 1,655
Dividends 574
Foreign taxes withheld (3)
---------
Total investment income $ 2,226
---------
Expenses -
Management fee $ 4,893
Trustees' compensation 754
Shareholder servicing agent fee 190
Administrative fee 57
Custodian fee 2,166
Printing 6,246
Auditing fees 10,121
Legal fees 2,855
Miscellaneous 1,082
---------
Total expenses $ 28,364
Reduction of expenses by investment adviser (21,983)
Fees paid indirectly (129)
---------
Net expenses $ 6,252
---------
Net investment loss $ (4,026)
---------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $ (50,850)
Foreign currency transactions (3)
---------
Net realized loss on investments and
foreign currency transactions $ (50,853)
---------
Change in unrealized appreciation -
Investments $ 94,474
Translation of assets and liabilities in foreign currencies 1
---------
Net unrealized gain on investments and
foreign currency translation $ 94,475
---------
Net realized and unrealized gain on investments
and foreign currency $ 43,622
---------
Increase in net assets from operations $ 39,596
=========
*For the period from the commencement of the Series' investment operations,
May 1, 1998, through December 31, 1998.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
PERIOD ENDED DECEMBER 31, 1998*
- -------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (4,026)
Net realized loss on investments and foreign currency
transactions (50,853)
Net unrealized gain on investments and foreign currency
translation 94,475
----------
Increase in net assets from operations $ 39,596
----------
Net increase in net assets from Series share transactions $1,098,684
----------
Total increase in net assets $1,138,280
Net assets:
At beginning of period --
----------
At end of period $1,138,280
==========
*From the commencement of the Series' investment operations,
May 1, 1998, through December 31, 1998.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Financial Highlights
- -------------------------------------------------------------------------------
PERIOD ENDED DECEMBER 31, 1998*
- -------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment loss(S) $(0.04)
Net realized and unrealized gain on investments and foreign currency 0.26
------
Total from investment operations $ 0.22
------
Net asset value - end of period $10.22
======
Total return 2.20%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.17%+
Net investment loss (0.74)%+
Portfolio turnover 130%
Net assets at end of period (000 omitted) $1,138
*For the period from the commencement of the Series' investment operations,
May 1, 1998, through December 31, 1998.
+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)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 this limitation, the net investment loss per share and ratios
would have been:
Net investment loss $(0.28)
Ratios (to average net assets):
Expenses## 5.22%+
Net investment loss (4.79)%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS New Discovery Series (the Series) is a diversified series of MFS(R)
Variable Insurance Trust(SM) (the Trust) which is comprised of the following
13 series: MFS(R) Bond Series, MFS(R) Emerging Growth Series, MFS(R)/Foreign &
Colonial Emerging Markets Equity Series, MFS(R) Growth with Income Series,
MFS(R) High Income Series, MFS(R) Limited Maturity Series, MFS(R) Money Market
Series, MFS New Discovery Series, MFS(R) Research Series, MFS(R) Total Return
Series, MFS(R) Utilities Series, MFS(R) Value Series, and MFS(R) World
Governments 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 16
shareholders in 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.
Short Sales - The Series may enter into short sales. A short sale transaction
involves selling a security which the Series does not own with the intent of
purchasing it later at a lower price. The Series will realize a gain if the
security price decreases and a loss if the security price increases between
the date of the short sale and the date on which the Series must replace the
borrowed security. Losses can exceed the proceeds from short sales and can be
greater than losses from the actual purchase of a security. The amount of any
gain will be decreased, and the amount of any loss increased, by the amount of
the premium, dividends, or interest the Series may be required to pay in
connection with a short sale. Whenever the Series engages in short sales, its
custodian segregates cash or marketable securities in an amount that, when
combined with the amount of proceeds from the short sale deposited with the
broker, at least equals the current market value of the security sold short.
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. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest 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, $4,026 was reclassified from accumulated net
investment loss to accumulated net realized loss on investments due to the
differences between book and tax accounting for currency transactions and the
offset of net investment loss against short-term capital gains. This change
had no effect on the net assets or net asset value per share. At December 31,
1998, realized gain on investments and foreign currency transactions under
book accounting were different from tax accounting due to temporary
differences in accounting for wash sales.
(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 0.90%
of average daily net assets. The Series has a temporary expense reimbursement
agreement whereby MFS has voluntarily agreed to pay all of the Series'
operating expenses, exclusive of management fees. The Series in turn will pay
MFS an expense reimbursement fee not greater than 0.25% of average daily net
assets. To the extent that the expense reimbursement fee exceeds the Series'
actual expenses, the excess will be applied to amounts paid by MFS in prior
years. At December 31, 1998, the aggregate unreimbursed expenses owed to MFS
by the Series amounted to $21,983.
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
$2,095,154 and $1,052,798, 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 $1,104,107
----------
Gross unrealized appreciation $ 96,918
Gross unrealized depreciation (74,240)
----------
Net unrealized appreciation $ 22,678
==========
(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 (without par
value). Transactions in Series' shares were as follows:
PERIOD ENDED DECEMBER 31, 1998*
--------------------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 112,023 $1,104,461
Shares reacquired (673) (5,777)
------- ---------
Net increase 111,350 $1,098,684
======= ==========
*For the period from the commencement of the Series' investment operations,
May 1, 1998, through December 31, 1998.
(6) Line of Credit
The Series and other affiliated funds participate in a $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 fund, 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 period ended December 31, 1998, was $1.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Variable Insurance Trust and Shareholders of MFS
New Discovery Series:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS New Discovery Series (one of
the series constituting MFS Variable Insurance Trust) as of December 31, 1998,
the related statement of operations, the statements of changes in net assets
and financial highlights for the period from May 1, 1998 (commencement of
investment of operations) to December 31, 1998. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these statements and financial
highlights based on our audit.
We conducted our audit 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
audit provides 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 the MFS New
Discovery Series at December 31, 1998, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated period in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 1999
<PAGE>
(C) 1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VND-2 2/99 23M
