<PAGE>
[Logo] M F S(R) ANNUAL REPORT
INVESTMENT MANAGEMENT DECEMBER 31, 1999
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) EMERGING MARKETS
EQUITY SERIES
(FORMERLY MFS(R)/FOREIGN & COLONIAL EMERGING MARKETS
EQUITY SERIES)
<PAGE>
<TABLE>
MFS(R) EMERGING MARKETS EQUITY SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman and Chief Executive Officer, 500 Boylston Street
MFS Investment Management(R) Boston, MA 02116-3741
Nelson J. Darling, Jr.+ DISTRIBUTOR
Private investor and trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow+ Boston, MA 02116-3741
Private investor and real estate consultant;
Vice Chairman, Capitol Entertainment SHAREHOLDER SERVICE CENTER
Management Company (video franchise) MFS Service Center, Inc.
P.O. Box 2281
CHAIRMAN AND PRESIDENT Boston, MA 02107-9906
Jeffrey L. Shames*
For additional information,
DIRECTOR OF INTERNATIONAL EQUITY RESEARCH contact your financial consultant.
David A. Antonelli*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
AUDITORS
ASSISTANT TREASURERS Deloitte & Touche LLP
Mark E. Bradley*
Ellen Moynihan* WORLD WIDE WEB
James O. Yost* www.mfs.com
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Adviser
+ Independent Trustee
- -------------------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
One could easily argue that the Internet represents the greatest technological
development most of us may see in our lifetimes. There is no disputing that this
new communication medium is changing forever the way we work, play, and shop.
One might also argue that investing in this new technology represents the
investment opportunity of a lifetime. The question for any investor is whether
and how to take advantage of it.
The popular press, it seems, would have us believe that by surfing the Web, we
can learn everything we need to know about investing. Indeed, there is no doubt
that Internet-delivered information and brokerage services enable individual
investors to be well-informed and to trade at bargain prices. But we believe the
facts argue that, for most of us, professionally managed investment portfolios
purchased through a financial consultant will continue to be one of the best
products for long-term investing in this new millennium.
Why do we believe managed portfolios plus professional advice will continue to
define the best course of action for many investors? Let's look at some of the
characteristics of a successful long-term investment approach:
o HAVING A PLAN AND STICKING TO IT: Our experience is that successful
investors -- those whose lives are enriched by the fruits of their investing
-- share two characteristics. They have a plan for reaching their monetary
goals, and they stick with that plan through up markets and down. And for
many investors, working with a financial consultant may be the best way to
develop a plan. Although the Internet abounds with calculators for
developing all sorts of investment plans, none has your consultant's high
level of experience and an understanding of your unique situation. And no
calculator can counsel you during a down market, when you may be tempted to
abandon your goals and your plan.
o DIVERSIFICATION: Few individual investors can afford to own a large number
of holdings, so poor performance of one company can potentially drag down
their entire personal portfolio. This is especially true when investing in
volatile new areas such as the Internet. On the other hand, a diversified,
professionally managed investment portfolio that owns dozens or even
hundreds of holdings is better positioned to survive a disappointment in one
or several investments.
o GOOD IN A DOWN MARKET: As we enter the tenth year of the greatest bull
market in history, it's easy to forget that market downturns are an almost
inevitable part of investing. Few investment portfolios, of course, are
going to be up when the overall market is down. But we believe diversified,
professionally managed investment portfolios may be less likely to suffer
the extreme downturns experienced by a large number of individual holdings
when the market heads south.
o MFS ORIGINAL RESEARCH(R): The Internet is one of the greatest research tools
ever invented, but it's still not the same as being eyeball to eyeball with
the management of a company and discussing their plans for their firm's
future.
o GOOD PERFORMANCE AT AN ACCEPTABLE LEVEL OF RISK: Investing in individual
stocks or bonds does indeed offer the potential of exhilarating performance
that few managed portfolios even attempt. The downside is that the most
exciting investments are also likely to be the ones that give you sleepless
nights. The diversification and professional management of investment
portfolios help make them inherently less risky than individual stock
picking, and managed portfolios are available in a wide range of risk
profiles.
We believe that now, more than ever, managed investment portfolios sold by an
investment professional may offer many investors the best way to participate in
whatever investment opportunities the new millennium may bring. The combination
of professional portfolio management and professional advice recognizes the key
reason that investors give us their money: because they don't want to make a
hobby or a second profession out of investing; they simply want their money to
work for them so they have a better likelihood of realizing their dreams.
As always, we appreciate your confidence in MFS 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(R)
January 15, 2000
Investments in variable products will fluctuate and may be worth more or less
upon redemption. Please see your financial consultant for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the 12 months ended December 31, 1999, the Series provided a total return of
38.18% (including the reinvestment of any distributions). This compares to a
66.41% return for the Morgan Stanley Capital International (MSCI) Emerging
Markets Free (EMF) Index, a broad, unmanaged, market-capitalization-weighted
index of equities in emerging markets, and to a 68.95% return for the Lipper
Emerging Markets Portfolios Index (the Lipper Index). The Lipper indices are
unmanaged indices of the largest qualifying portfolios within their respective
investment objectives, adjusted for the reinvestment of capital gain
distributions and income dividends.
Emerging markets overall performed well during the recent period, led primarily
by rebounding markets in Asia. Latin America and Central Europe lagged for most
of the period, but did well during the last month or so. Specifically, the
portfolio benefited by being underweighted in Taiwan, but being underweighted in
India, South Korea, and Greece hurt performance. In the latter two markets,
smaller companies have done especially well as domestic retail investors have
gone on a buying spree. We chose to concentrate on investments in larger
companies because smaller companies within emerging markets tend to be very
illiquid.
In addition some markets in Eastern Europe have been disappointing performers,
primarily due, in our view, to a slowdown in exports to Western Europe. Holdings
in Poland and Hungary have hurt the portfolio's performance, with leading
companies such as Hungarian telecommunications company Magyar Tavkozlesi
underperforming.
We believe the Mexican market has risen sharply because of a combination of
rising global oil prices and the continued strength of the U.S. economy. Our
holdings in Mexico, such as telecommunications company Telefonos de Mexico, have
done very well. We feel most Latin American economies, however, have yet to
begin a full-fledged recovery. Brazil, the region's largest economy, continues
to suffer from the effects of internal politics and the devaluation of its
currency, the real, in January of 1999. Recently, though, the situation in
Brazil has started to improve; the market was up sharply in November, led by
blue-chip companies such as Petroleo Brasileiro (Petrobras), one of Brazil's
largest energy companies.
The recovery in the Japanese economy has so far had a limited effect on the rest
of the region. Asian emerging market economies appear to us to have rebounded
due to their own domestic factors. One of the best-performing markets in the
region has been South Korea, which has undertaken structural reform. In that
country, Samsung Electronics has done very well for the portfolio. Taiwan is
another economy that has benefited from an improvement in the electronics
business. Thailand, on the other hand, has lagged the region, partly because its
banking sector has yet to address the issue of nonperforming loans.
As of the end of the period, our largest country positions are in South Korea,
where we expect a strong recovery in the economy and the corporate sector;
Brazil, whose economy we feel will recover strongly in the year 2000; and
Mexico, which we believe will continue to benefit from firm oil prices and a
healthy U.S. economy. Our overall outlook for emerging markets is positive. We
see recoveries in Japan and Germany benefiting Asia and Eastern Europe,
respectively. We expect commodity prices to remain stable in 2000, which should
help the export bases of emerging market countries. Finally, we believe emerging
market stock valuations will remain comparatively low, and therefore attractive,
in relation to historical levels and current U.S. stock valuations.
Respectfully,
/s/ David A. Antonelli
David A. Antonelli
Director of International Equity Research
Note to shareholders: Effective December 1, 1999, the committee of MFS
international equity research analysts will be responsible for the day-to-day
management of the Series under the general supervision of Mr. Antonelli.
The opinions expressed in this report are those of the Director of International
Equity Research and are current 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.
<PAGE>
SERIES FACTS
Objective: Seeks capital appreciation.
Commencement of investment operations: October 16, 1997
Size: $1.4 million net assets as of December 31, 1999
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. (See Notes to Performance Summary.)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the Series' investment operations,
October 16, 1997, through December 31, 1999. Index information is from November
1, 1997.)
MFS MSCI Lipper
Emerging Emerging Emerging
Markets Markets Markets
Equity Series Free Index Portfolios Index
- -------------------------------------------------------------
10/97 $10,000 $10,000 $10,000
12/97 9,000 9,867 9,630
12/98 5,997 7,367 7,043
12/99 8,286 12,259 11,899
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH DECEMBER 31, 1999
1 Year Life*
- ------------------------------------------------------------------------------
Cumulative Total Return +38.18% -17.14%
- ------------------------------------------------------------------------------
Average Annual Total Return +38.18% - 8.16%
- ------------------------------------------------------------------------------
COMPARATIVE INDICES(+)
1 Year Life*
- ------------------------------------------------------------------------------
MSCI Emerging Markets Free Index# +66.41% +9.86%
- ------------------------------------------------------------------------------
Lipper Emerging Markets Portfolios Index+ +68.95% +8.35%
- ------------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations,
October 16, 1997, through December 31, 1999. Index information is from
November 1, 1997.
(+) Average annual rates of return.
# Source: Standard & Poor's Micropal, Inc.
+ Source: Lipper Analytical Services, Inc.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including all charges and expenses, for any other MFS product is available
from your financial consultant, or by calling MFS at 1-800-225-2606. Please
read it carefully before investing or sending money.
<PAGE>
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.
MORE RECENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. 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.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably
affected by changes in interest rates and currency exchange rates, market
conditions, and the economic and political conditions of the countries where
investments are made. These risks may increase share price volatility. See the
prospectus for details.
<PAGE>
PORTFOLIO OF INVESTMENTS - December 31, 1999
Stocks - 98.8%
- ------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ------------------------------------------------------------------------------
Argentina - 0.1%
Banco de Galicia y Buenos Aires S.A. de C.V.,
ADR (Banks and Credit Cos.) 70 $ 1,387
- ------------------------------------------------------------------------------
Brazil - 7.9%
Aracruz Celulose S.A. (Forest and Paper Products) 240 $ 6,300
Banco Itau S.A. (Banks and Credit Cos.) 64,000 5,499
Caemi Mineracao e Metalurgica S.A. (Minerals) 52,000 3,744
Cia Brasileira de Distribuicao Grupo Pao de Acucar,
ADR (Supermarkets) 230 7,432
Companhia Cervejaria Brahma, ADR (Beverages) 100 1,400
Companhia Vale do Rio Doce, ADR (Mining) 330 9,148
Companhia Vale do Rio Doce, Preferred (Mining) 200 5,543
Petroleo Brasileiro S.A. (Oils) 299 7,624
Petroleo Brasileiro S.A., Preferred (Oils) 108,000 27,539
Tele Centro Sul Participacoes S.A.
(Telecommunications)* 589,600 6,340
Tele Centro Sul Participacoes S.A., ADR
(Telecommunications) 30 2,723
Tele Centro Sul Participacoes S.A., Preferred
(Telecommunications)* 297,000 5,431
Telemig Celular Participacoes (Telecommunications) 70 3,233
Telesp Participacoes S.A. (Telecommunications) 160 3,910
Telesp Participacoes S.A., Preferred
(Telecommunications)* 400 9,712
Unibanco S.A. (Banks and Credit Cos.) 120,700 8,029
----------
$ 113,607
- ------------------------------------------------------------------------------
Chile - 0.4%
Distribucion Y Servicio S.A., ADR (Supermarkets) 300 $ 5,850
- ------------------------------------------------------------------------------
China - 3.6%
China Telecom Hong Kong Ltd. (Telecommunications)* 410 $ 52,711
- ------------------------------------------------------------------------------
Colombia - 0.1%
Bancolombia S.A. (Banks and Credit Cos.) 300 $ 1,387
- ------------------------------------------------------------------------------
Czechoslovakia - 0.5%
SPT Telecom A S (Telecommunications)* 450 $ 7,245
- ------------------------------------------------------------------------------
Egypt - 0.6%
Egypt Mobile Phone (Telecommunications)* 180 $ 8,257
- ------------------------------------------------------------------------------
Estonia - 0.6%
AS Eesti Telekom GDR (Telephone)## 400 $ 8,140
- ------------------------------------------------------------------------------
Greece - 5.2%
Alpha Credit Bank S.A., GDR (Banks and Credit Cos.) 200 $ 15,668
Antenna TV S.A., ADR (Broadcasting)* 600 10,275
Athens Medical Center, GDR (Medical Services) 70 3,626
Hellenic Telecommunication Organization S.A., GDR
(Telecommunications) 1,100 26,060
National Bank of Greece, GDR (Banks and Credit Cos.) 100 7,373
Panafon S.A. (Telecommunications)* 900 12,090
----------
$ 75,092
- ------------------------------------------------------------------------------
Hong Kong - 3.2%
China Telecom Ltd. (Telecommunications)* 2,000 $ 12,479
Hutchison Whampoa Ltd. (Conglomerate) 1,000 14,537
I-CABLE Communications Ltd. (Telecommunications
and Cable)* 3,000 4,072
Li & Fung Ltd. (Consumer Products)* 6,000 15,052
----------
$ 46,140
- ------------------------------------------------------------------------------
Hungary - 2.4%
Magyar Olaj Es Gazipari KT (Gas) 100 $ 2,079
Magyar Tavkozlesi Rt., ADR (Telecommunications)* 730 26,280
OTP Bank Rt. (Banks and Credit Cos.) 50 2,929
Richter Gedeon Veg (Medical & Health Products)* 50 3,300
----------
$ 34,588
- ------------------------------------------------------------------------------
India - 6.6%
ICICI Ltd. (Financial Institution)* 1,000 $ 13,875
Infosys Technologies Ltd., ADR
(Computer Software - Services) 130 42,900
Ranbaxy Laboratories Ltd (Pharmaceutical Products) 500 10,890
Satyam Infoway Ltd (Internet Services)* 25 3,875
Videsh Sanchar Nigam Ltd., GDR (Telecommunications)## 1,000 24,450
----------
$ 95,990
- ------------------------------------------------------------------------------
Indonesia - 1.2%
H M Sampoerna Tbk (Tobacco) 5,000 $ 12,742
PT Gudang Garam TBK (Tobacco) 2,000 5,391
----------
$ 18,133
- ------------------------------------------------------------------------------
Israel - 1.8%
ECI Telecom Ltd. (Telecommunications) 150 $ 4,744
Partner Communications Co Ltd. (Telecommunications)* 820 21,217
----------
$ 25,961
- ------------------------------------------------------------------------------
Malaysia - 2.6%
Malayan Banking Berhad (Banks and Credit Cos.) 2,000 $ 6,750
Malaysian Pacific Industries Berhad (Electronics) 2,000 12,250
Resorts World Berhad (Entertainment) 2,000 5,450
Sime Darby Berhad (Holding Company) 5,000 6,025
Telekom Malaysia Berhad (Telecommunications) 2,000 7,350
----------
$ 37,825
- ------------------------------------------------------------------------------
Mexico - 11.2%
Cemex S.A. (Construction)* 240 $ 6,690
Cifra S.A. de C.V. (Retail)* 4,600 9,234
Cifra S.A. de C.V., ADR (Retail)* 110 2,214
Coca-Cola Femsa S.A. ADR (Beverages) 560 9,835
Fomento Economico Mexicano S.A. (Food and
Beverage Products) 240 10,680
Grupo Continential, S.A. (Food and Beverage Products) 1,900 2,770
Grupo Financiero Banorte S.A. de C.V. (Finance)* 2,500 3,777
Grupo Mexico, S.A. (Metals) 1,100 5,457
Grupo Modelo S.A. de C.V. (Brewery) 5,700 15,658
Grupo Television S.A. de C.V., GDR (Entertainment)* 110 7,508
Kimberly-Clark de Mexico S.A. de C.V.
(Forest and Paper Products) 4,700 18,373
Nuevo Gurpo Iusacell SA de CV (Telecommunications)* 170 2,539
Organiz Soriana S.A., "B" (General Merchandise)* 2,000 9,192
Pan American Beverage (Food and Beverage Products) 400 8,225
Telefonos de Mexico S.A. (Utilities - Telephone) 8,500 47,596
Tubos de Acero de Mexico S.A. (Steel) 100 1,356
----------
$ 161,104
- ------------------------------------------------------------------------------
Philippines - 4.0%
Bank of Philippine Islands (Banks and Credit Cos.) 4,500 $ 12,985
Metro Bank & Trust Co. (Banks and Credit Cos.) 1,900 13,707
Philippine Long Distance Telephone Co., ADR
(Utilities - Telephone) 700 17,848
SM Prime Holding, Inc. (Real Estate) 70,000 13,234
----------
$ 57,774
- ------------------------------------------------------------------------------
Poland - 1.2%
Agora S.A. (Entertainment)*## 400 $ 5,900
Bank Rozwoju Eksportu S.A. (Banks and Credit Cos.) 150 4,758
Polski Koncern Naftowy S.A. (Oil Services)* 600 7,350
----------
$ 18,008
- ------------------------------------------------------------------------------
Singapore - 3.5%
Datacraft Asia Ltd. (Telecommunications) 3,000 $ 24,900
Natsteel Electronics Ltd. (Electronics) 3,000 15,856
Overseas Chinese Bank (Banks) 1,000 9,189
----------
$ 49,945
- ------------------------------------------------------------------------------
South Africa - 6.2%
De Beers Centenary AG (Diamonds - Precious Stones) 400 $ 11,642
De Beers Consolidated Mines Ltd. (Mining) 100 2,894
Dimension Data Holdings Ltd. (Financial Institutions) 2,100 13,180
Imperial Holdings Ltd. (Conglomerate)* 1,000 10,943
Liberty Life Association of Africa Ltd. (Insurance) 700 8,081
Nedcor Ltd. (Banks and Credit Cos.)* 500 11,138
Sasol Ltd. (Oils) 1,700 14,346
South African Breweries Ltd. (Brewery) 1,300 13,233
South African Breweries Ltd., ADR (Brewery) 400 4,036
----------
$ 89,493
- ------------------------------------------------------------------------------
South Korea - 12.1%
Housing & Commercial Bank of Korea
(Banks and Credit Cos.) 700 $ 22,203
Hyundai Electronics Industries Co.
(Electronic Compo-Semicon) 440 9,343
Kookmin Bank (Banks and Credit Cos.) 800 12,546
Korea Telecom Corp. (Telecommunications)* 590 44,103
Korea Thrunet Co Ltd. (Internet Services)* 30 2,036
LG Chemical Ltd. (Chemicals) 300 9,489
Pohang Iron & Steel Co. Ltd. (Construction) 180 19,784
Pohang Iron & Steel Co. Ltd., ADR (Construction) 70 2,450
Samsung Corp. (Electronics) 600 8,987
Samsung Electronics (Electronics) 170 39,841
Samsung Securities Co. Ltd. (Finance) 130 3,940
----------
$ 174,722
- ------------------------------------------------------------------------------
Spain - 1.3%
Repsol S.A., ADR (Oil Services) 460 $ 10,695
Terra Networks, S.A. (Internet Content)* 140 7,649
----------
$ 18,344
- ------------------------------------------------------------------------------
Switzerland - 0.7%
Compagnie Financiere Richemont AG (Conglomerate) 4 $ 9,549
- ------------------------------------------------------------------------------
Taiwan - 13.4%
Acer Inc. (Computers - Micro) 1,400 $ 19,600
Advanced Semiconducor, Inc., GDR (Electronics) 900 17,280
ASE Test Ltd. (Electronics)* 780 19,013
Far Eastern Textile Ltd. (Apparel & Textiles)* 300 7,095
Fubon Insurance Co., GDR (Insurance) 800 6,520
R.O.C. Taiwan Fund (Closed-end Mutual Fund)* 1,530 12,909
Ritek Corp. (Computer - Software Systems)* 400 4,480
Taipei Fund (Finance)* 6 60,042
Taiwan Semiconductor Manufacturing Co. Ltd., ADR
(Electronics) 1,040 46,800
----------
$ 193,739
- ------------------------------------------------------------------------------
Thailand - 2.3%
Thai Farmers Bank (Banks and Credit Cos.) 3,800 $ 6,377
Total Access Communications Public Co., Ltd., ADR
(Telecommunications)* 7,000 27,580
----------
$ 33,957
- ------------------------------------------------------------------------------
Turkey - 2.3%
Yapi ve Kredi Bankasi (Banks and Credit Cos.) 066,000 $ 32,938
- ------------------------------------------------------------------------------
United Kingdom - 2.5%
Anglo American PLC (Metals) 200 $ 12,878
Anglo American PLC, ADR (Metals) 50 3,256
Antofagasta Holdings PLC (Minerals) 500 3,471
Coca-Cola Beverages PLC (Beverages)* 6,100 11,619
Standard Chartered PLC (Banks and Credit Cos.)* 300 4,770
----------
$ 35,994
- ------------------------------------------------------------------------------
United States - 0.8%
Firstcom Corp. (Telecommunications)* 300 $ 11,025
- ------------------------------------------------------------------------------
Venezuela - 0.5%
Ca la Electricidad de Caracas, ADR
(Utilities - Electric) 200 $ 3,100
Mavesa S.A. (Consumer Goods and Services) 1,500 4,594
----------
$ 7,694
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,256,311) $1,426,599
Other Assets, Less Liabilities - 1.2% 17,218
- ------------------------------------------------------------------------------
Net Assets - 100.0% $1,443,817
- ------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -----------------------------------------------------------------------------
DECEMBER 31, 1999
- -----------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,256,311) $1,426,599
Foreign currency, at value (identified cost, $19,020) 19,219
Receivable for Fund shares sold 114
Dividends receivable 1,518
Deferred organization expenses 5,124
Other assets 9
----------
Total assets $1,452,583
----------
Liabilities:
Payable to custodian $ 4,501
Payable to affiliates -
Management fee 49
Accrued expenses and other liabilities 4,216
----------
Total liabilities $ 8,766
----------
Net assets $1,443,817
==========
Net assets consist of:
Paid-in capital $1,803,940
Unrealized appreciation on investment and transactions
of assets and liabilities in foreign currencies 170,095
Accumulated net realized loss on investments and
foreign currency transactions (522,487)
Accumulated distributions in excess of net investment income (7,731)
----------
Total $1,443,817
==========
Shares of beneficial interest outstanding 176,967
=======
Net asset value per share
(net assets / shares of beneficial interest outstanding) $8.16
=====
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
- ---------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 1,875
Dividends 24,490
Foreign taxes withheld (1,880)
---------
Total investment income $ 24,485
---------
Expenses -
Management fee $ 16,503
Administrative fee 170
Trustee compensation 2,431
Shareholder servicing agent fee 463
Custodian fee 6,946
Auditing fees 17,621
Printing 29,699
Amortization of organization expenses 1,838
Legal fees 2,177
Miscellaneous 2,572
---------
Total expenses $ 80,420
Reduction of expenses by investment adviser (59,692)
Fees paid indirectly (924)
---------
Net expenses $ 19,804
---------
Net investment income $ 4,681
---------
Realized and unrealized loss on investments:
Realized loss (identified cost basis) -
Investment transactions $(176,289)
Foreign currency transactions (11,872)
---------
Net realized loss on investments and foreign
currency transactions $(188,161)
---------
Change in unrealized appreciation -
Investments $ 650,675
Translation of assets and liabilities in foreign currencies 42
---------
Net unrealized gain on investments and foreign currency
transactions $ 650,717
---------
Net realized and unrealized gain on investments and
foreign currency $ 462,556
---------
Increase in net assets from operations $ 467,237
=========
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 4,681 $ 22,768
Net realized loss on investments and foreign
currency transactions (188,161) (337,126)
Net unrealized gain (loss) on investments 650,717 (338,982)
----------- -----------
Increase (decrease) in net assets
from operations $ 467,237 $ (653,340)
----------- -----------
Distributions declared to shareholders -
From net investment income $ (454) $ (21,980)
From paid-in capital -- (1,067)
----------- -----------
Total distributions declared to shareholders $ (454) $ (23,047)
----------- -----------
Net increase (decrease) in net assets from
Series share transactions $ (438,585) $ 734,941
----------- -----------
Total increase in net assets $ 28,198 $ 58,554
Net assets:
At beginning of year 1,415,619 1,357,065
----------- -----------
At end of year (including accumulated
distributions in excess of net investment
income of $7,731 and $197, respectively) $ 1,443,817 $ 1,415,619
=========== ===========
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED
----------------------- DECEMBER 31,
1999 1998 1997*
- --------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of year $ 5.90 $ 9.00 $ 10.00
--------- --------- ---------
Income from investment operations# -
Net investment income (loss)(S) $ 0.02 $ 0.11 $ -- +++
Net realized and unrealized gain on investments
and foreign currency transactions 2.24 (3.11) (1.00)
--------- --------- ---------
Total from investment operations $ 2.26 $ (3.00) $ (1.00)
--------- --------- ---------
Less distributions declared to shareholders -
From net investment income $ -- +++ $ (0.10) $ --
From paid-in capital -- -- +++ --
--------- --------- ---------
Total distributions declared to shareholders $ -- $ (0.10) $ --
--------- --------- ---------
Net asset value - end of year $ 8.16 $ 5.90 $ 9.00
========= ========= =========
Total return 38.18% (33.37)% (10.00)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.57% 1.53% 1.50%+
Net investment income 0.35% 1.49% 0.16%+
Portfolio turnover 148% 73% 8%
Net assets at end of year (000 Omitted) $ 1,444 $ 1,416 $ 1,357
(S) Subject to reimbursement by the Series, MFS has voluntarily agreed under a temporary expense
reimbursement agreement to pay all of the Fund's operating expenses exclusive of management fee.
In consideration, the fund pays MFS a fee not greater than 0.25% of average daily net assets. To
the extent actual expenses were over this limitation, the net investment loss per share would have
been:
Net investment loss $ (0.27) $ (0.02) $ (0.15)
Ratios (to average net assets):
Expenses## 6.09% 3.26% 5.92%+
Net investment loss (4.17)% (0.24)% (4.26)%+
* For the period from the commencement of the investment operations, October 16, 1997, through
December 31, 1997.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Emerging Markets Equity Series, formerly known as MFS(R)/Foreign & Colonial
Emerging Markets Equity Series, (the Series) is a diversified series of MFS
Variable Insurance Trust (The Trust). 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, 1999, there were 7 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. The series
can invest in foreign securities. 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 in good faith, at fair value, by 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. 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.
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 be reported in the financial statements as distributions from paid-in
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, 1999, $11,701 and $60 were reclassified to
accumulated net realized loss on investments and foreign currency transaction
and paid-in capital, respectively, from accumulated distribution in excess of
net investment income 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.
At December 31, 1999, the Series, for federal income tax purposes, had a capital
loss carryforward of $493,472 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on December 31, 2007, ($151,300), December 31, 2006, ($332,045), and
December 31, 2005, ($10,127).
(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 1.25% 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, distribution, and service 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, 1999, aggregate unreimbursed expenses amounted to $98,099.
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 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 $1,877,851
and $2,202,108, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Series, as computed on a federal income tax basis, are
as follows:
Aggregate cost $1,265,320
----------
Gross unrealized appreciation $ 206,938
Gross unrealized depreciation (30,543)
----------
Net unrealized appreciation $ 176,395
==========
(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, 1999 YEAR ENDED DECEMBER 31, 1998
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 26,133 163,817 229,218 1,803,559
Shares issued to shareholders in reinvestment
of distributions 55 454 3,872 23,047
Shares reacquired (89,207) (602,856) (143,964) (1,091,665)
------- --------- -------- -----------
Net increase (decrease) (63,019) $(438,585) 89,126 $ 734,941
======= ========= ======== ==========
</TABLE>
(6) Line of Credit
The Series and other affiliated funds participate in an $820 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, 1999, was $10. The Series had no
borrowings during the year.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Variable Insurance Trust and Shareholders of MFS
Emerging Markets Equity Series:
We have audited the accompanying statement of assets and liabilities of MFS
Emerging Markets Equity Series, formerly known as MFS(R)/Foreign & Colonial
Emerging Markets Equity Series, (the Series) (one of the series constituting the
MFS Variable Insurance Trust) including the Portfolio of Investments, as of
December 31, 1999, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's 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 securities owned as of
December 31, 1999, 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Emerging Markets Equity Series as of December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the three years in the period then ended, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 3, 2000
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and
on behalf of the MFS funds, is committed to the effective
use of technology in managing our portfolio investments,
delivering high-quality service to MFS fund shareholders, [Graphic Omitted]
retirement plan participants, and MFS' institutional
clients, and supporting the financial consultants who sell
our products.
MFS can now say that it is ready for the Year 2000. Our testing has demonstrated
that MFS' computer hardware and software will recognize "00" as the Year 2000
and will not confuse those digits with 1900. All of our critical business
applications and processes have been successfully tested, and we have adopted
companywide policies that will help us maintain our readiness through the
remainder of the year. Any new technology that is brought into the company
before the end of the year will be held to the same stringent standards as our
current technology. We have also developed a vendor readiness survey, contacted
over 700 of our vendors, and established an ongoing process to review responses,
as well as to review readiness statements of new vendors and products.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While
MFS is taking significant steps to protect the integrity of its internal
systems, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on MFS fund shareholders, retirement plan
participants, or institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com, call our toll-free line, 1-800-637-4406, or
write to the MFS Year 2000 Program Management Office by e-mail at [email protected] or
by letter at 500 Boylston Street, Boston, MA 02116-3741.
<PAGE>
(C) 2000 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
VEM-2 02/00 2.3M
