MFS Variable Insurance Trust SM Semiannual report 6/30/07 VFR-SEM

Transcription

1 MFS Research Series MFS Variable Insurance Trust SM Semiannual report 6/30/07 VFR-SEM

2 MFS RESEARCH SERIES TABLE OF CONTENTS LETTER FROM THE CEO 1 PORTFOLIO COMPOSITION 2 EXPENSE TABLE 3 PORTFOLIO OF INVESTMENTS 4 FINANCIAL STATEMENTS 7 NOTES TO FINANCIAL STATEMENTS 12 BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 17 PROXY VOTING POLICIES AND INFORMATION 17 QUARTERLY PORTFOLIO DISCLOSURE 17 CONTACT INFORMATION BACK COVER The 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. NOT FDIC INSURED MAY LOSE VALUE NO BANK OR CREDIT UNION GUARANTEE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

3 LETTER FROM THE CEO Dear Contract Owners: The past year has been a great example of why investors should keep their eyes on the long term. In 2006 the Dow Jones Industrial Average returned 19%. As of mid-may 2007, it had returned another 8% and continued to reach new highs. But the Dow s upward rise has not been without hiccups. After hitting new records in February, the Dow lost 5.8% between February 20 and March 5, as stocks were sold off around the globe. As we have said before, markets are volatile, and investors should make sure they have an investment plan that can carry them through the peaks and troughs. If you are focused on a long-term investment strategy, the short-term ups and downs of the markets should not necessarily dictate portfolio action on your part. Both the bond and stock markets are cyclical. In our view, investors who remain committed to a long-term plan are more likely to achieve their financial goals. We believe you should not let the headlines guide you in your investment decisions and should be cautious about overreacting to short-term volatility. In any market environment, we believe individual investors are best served by following a three-pronged investment strategy of allocating their holdings across the major asset classes, diversifying within each class, and regularly rebalancing their portfolios to maintain their desired allocations. Of course, these strategies cannot guarantee a profit or protect against a loss. Investing and planning for the long term require diligence and patience, two traits that in our experience are essential to capitalizing on the many opportunities the financial markets can offer through both up and down economic cycles. Respectfully, Robert J. Manning Chief Executive Officer and Chief Investment Officer MFS Investment Management August 15, 2007 The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed. 1

4 PORTFOLIO COMPOSITION Portfolio structure Common Stocks 99.3% Cash & Other Net Assets 0.7% Top ten holdings Altria Group, Inc. 3.4% United Technologies Corp. 2.3% Exxon Mobil Corp. 2.2% Intel Corp. 2.2% JPMorgan Chase & Co. 2.1% Genzyme Corp. 2.0% Danaher Corp. 1.9% MetLife, Inc. 1.9% AT&T, Inc. 1.8% Bank of America Corp. 1.8% Equity sectors Financial Services 20.4% Technology 14.5% Health Care 11.6% Energy 10.5% Industrial Goods & Services 8.3% Retailing 7.3% Consumer Staples 7.2% Utilities & Communications 6.9% Leisure 4.6% Basic Materials 4.1% Special Products & Services 2.3% Transportation 1.6% Percentages are based on net assets as of 06/30/07. The portfolio is actively managed and current holdings may be different. 2

5 EXPENSE TABLE Series Expenses Borne by the Contract Holders During the Period, January 1, 2007 through June 30, 2007 As a contract holder of the series, you incur ongoing costs, including management fees; distribution (12b-1) fees; and other series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the series and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, January 1, 2007 through June 30, Actual expenses The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1, ), then multiply the result by the number in the first line under the heading entitled Expenses Paid During Period to estimate the expenses you paid on your account during this period. Hypothetical example for comparison purposes The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the series actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the series actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight the series ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the series is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the series) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the series through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher. Share Class Initial Class Service Class Annualized Expense Ratio Beginning Account Value 1/01/07 Ending Account Value 6/30/07 Expenses Paid During Period (p) 1/01/07-6/30/07 Actual 0.89% $1, $1, $4.63 Hypothetical (h) 0.89% $1, $1, $4.46 Actual 1.14% $1, $1, $5.93 Hypothetical (h) 1.14% $1, $1, $5.71 (h) 5% class return per year before expenses. (p) Expenses paid is equal to each class annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. 3

6 PORTFOLIO OF INVESTMENTS (unaudited) 6/30/07 The Portfolio of Investments is a complete list of all securities owned by your series. It is categorized by broad-based asset classes. Issuer Shares/Par Value ($) COMMON STOCKS % Aerospace - 3.7% Lockheed Martin Corp. 43,140 $ 4,060,768 United Technologies Corp. 96,770 6,863,896 $ 10,924,664 Alcoholic Beverages - 0.5% Diageo PLC 72,900 $ 1,513,977 Apparel Manufacturers - 1.5% Coach, Inc. (a) 22,890 $ 1,084,757 NIKE, Inc., B 54,300 3,165,147 $ 4,249,904 Biotechnology - 4.8% Amgen, Inc. (a) 89,520 $ 4,949,561 Genzyme Corp. (a) 89,050 5,734,820 Millipore Corp. (a) 44,780 3,362,530 $ 14,046,911 Broadcasting - 1.6% Citadel Broadcasting Corp. (l) 3,392 $ 21,878 News Corp., A 61,600 1,306,536 Viacom, Inc., B (a) 16, ,882 Walt Disney Co. 44,170 1,507,964 WPP Group PLC 75,050 1,122,451 $ 4,660,711 Brokerage & Asset Managers - 5.4% Affiliated Managers Group, Inc. (a)(l) 22,210 $ 2,859,760 Deutsche Boerse AG 12,490 1,415,759 E*TRADE Financial Corp. (a) 61,630 1,361,407 Franklin Resources, Inc. 20,250 2,682,518 Goldman Sachs Group, Inc. 15,990 3,465,833 Mellon Financial Corp. 61,760 2,717,440 TD Ameritrade Holding Corp. (a)(l) 71,800 1,436,000 $ 15,938,717 Business Services - 0.7% Cognizant Technology Solutions Corp., A (a) 27,320 $ 2,051,459 Cable TV - 1.6% Comcast Corp., Special A (a) 98,540 $ 2,755,178 Time Warner Cable, Inc. (a) 45,820 1,794,769 $ 4,549,947 Chemicals - 0.7% PPG Industries, Inc. 24,920 $ 1,896,661 Computer Software - 3.0% Adobe Systems, Inc. (a) 69,670 $ 2,797,251 Microsoft Corp. 73,260 2,158,972 Oracle Corp. (a) 190,700 3,758,697 $ 8,714,920 Issuer Shares/Par Value ($) COMMON STOCKS - continued Computer Software - Systems - 0.8% International Business Machines Corp. 20,900 $ 2,199,725 Conglomerates - 1.0% Siemens AG 21,250 $ 3,057,182 Consumer Goods & Services - 1.2% Apollo Group, Inc., A (a) 30,780 $ 1,798,475 Procter & Gamble Co. 28,770 1,760,436 $ 3,558,911 Containers - 0.5% Owens-Illinois, Inc. (a) 40,510 $ 1,417,850 Electrical Equipment - 4.6% Danaher Corp. 75,460 $ 5,697,230 Rockwell Automation, Inc. 69,270 4,810,109 W.W. Grainger, Inc. 33,600 3,126,480 $ 13,633,819 Electronics - 5.2% Applied Materials, Inc. 141,160 $ 2,804,849 Intel Corp. 272,060 6,464,146 Marvell Technology Group Ltd. (a) 111,900 2,037,699 SanDisk Corp. (a) 51,870 2,538,518 Taiwan Semiconductor Manufacturing Co. Ltd., ADR 137,080 1,525,700 $ 15,370,912 Energy - Independent - 2.3% Apache Corp. 26,810 $ 2,187,428 CONSOL Energy, Inc. 15, ,377 Devon Energy Corp. 29,870 2,338,522 Ultra Petroleum Corp. (a) 26,620 1,470,489 $ 6,732,816 Energy - Integrated - 4.5% Exxon Mobil Corp. 78,460 $ 6,581,225 Hess Corp. 73,610 4,340,046 TOTAL S.A., ADR 29,080 2,354,898 $ 13,276,169 Food & Beverages - 2.6% General Mills, Inc. 23,890 $ 1,395,654 Nestle S.A. 5,561 2,111,480 PepsiCo, Inc. 64,510 4,183,474 $ 7,690,608 Food & Drug Stores - 1.0% CVS Corp. 81,810 $ 2,981,975 Gaming & Lodging - 1.4% International Game Technology 46,230 $ 1,835,331 Royal Caribbean Cruises Ltd. (l) 52,260 2,246,135 $ 4,081,466 4

7 Portfolio of Investments (unaudited) continued Issuer Shares/Par Value ($) COMMON STOCKS - continued General Merchandise - 2.0% Family Dollar Stores, Inc. (l) 70,190 $ 2,408,921 Macy s, Inc. 65,840 2,619,115 Wal-Mart Stores, Inc. 15, ,461 $ 5,754,497 Health Maintenance Organizations - 1.0% WellPoint, Inc. (a) 38,140 $ 3,044,716 Insurance - 5.6% Aflac, Inc. 52,580 $ 2,702,612 Chubb Corp. 47,380 2,565,153 Genworth Financial, Inc., A 106,270 3,655,688 Hartford Financial Services Group, Inc. 20,040 1,974,140 MetLife, Inc. 87,760 5,658,765 $ 16,556,358 Internet - 1.7% Google, Inc., A (a) 9,230 $ 4,830,797 Major Banks - 6.7% Bank of America Corp. 105,290 $ 5,147,628 Bank of New York Co., Inc. 121,560 5,037,446 JPMorgan Chase & Co. 128,640 6,232,608 State Street Corp. 48,860 3,342,024 $ 19,759,706 Medical & Health Technology & Services - 0.5% DaVita, Inc. (a) 25,000 $ 1,347,000 Medical Equipment - 1.7% Boston Scientific Corp. (a) 195,260 $ 2,995,288 C.R. Bard, Inc. 8, ,407 St. Jude Medical, Inc. (a) 31,520 1,307,765 $ 5,038,460 Metals & Mining - 1.2% BHP Billiton PLC 129,550 $ 3,592,069 Natural Gas - Distribution - 0.5% Questar Corp. 27,400 $ 1,448,090 Natural Gas - Pipeline - 1.7% Williams Cos., Inc. 155,480 $ 4,916,278 Network & Telecom - 2.1% Cisco Systems, Inc. (a) 172,300 $ 4,798,555 Motorola, Inc. 82,100 1,453,170 $ 6,251,725 Oil Services - 3.7% GlobalSantaFe Corp. (l) 30,968 $ 2,237,438 Halliburton Co. 41,300 1,424,850 National Oilwell Varco, Inc. (a) 18,830 1,962,839 Noble Corp. 33,360 3,253,267 Schlumberger Ltd. 23,100 1,962,114 $ 10,840,508 Issuer Shares/Par Value ($) COMMON STOCKS - continued Other Banks & Diversified Financials - 2.2% American Express Co. 62,690 $ 3,835,374 Countrywide Financial Corp. 29,540 1,073,779 UBS AG 27,122 1,620,863 $ 6,530,016 Personal Computers & Peripherals - 1.7% EMC Corp. (a) 99,770 $ 1,805,837 Network Appliance, Inc. (a) 112,900 3,296,680 $ 5,102,517 Pharmaceuticals - 3.6% Merck & Co., Inc. 26,100 $ 1,299,780 Roche Holding AG 25,480 4,518,689 Wyeth 80,670 4,625,618 $ 10,444,087 Railroad & Shipping - 0.4% Burlington Northern Santa Fe Corp. 14,720 $ 1,253,261 Real Estate - 0.5% Equity Residential, REIT 34,930 $ 1,593,856 Specialty Chemicals - 1.7% Air Products & Chemicals, Inc. 30,640 $ 2,462,537 Praxair, Inc. 34,160 2,459,178 $ 4,921,715 Specialty Stores - 2.8% CarMax, Inc. (a) 62,900 $ 1,603,950 Lowe s Cos., Inc. 94,130 2,888,850 Nordstrom, Inc. 26,130 1,335,766 Staples, Inc. 93,900 2,228,247 $ 8,056,813 Telecommunications - Wireless - 0.5% Leap Wireless International, Inc. (a) 3,500 $ 295,750 Rogers Communications, Inc., B 29,180 1,247,041 $ 1,542,791 Telephone Services - 2.5% AT&T, Inc. 125,240 $ 5,197,460 Qwest Communications International, Inc. (a)(l) 132,240 1,282,728 TELUS Corp. (non-voting shares) 15, ,552 $ 7,407,740 Tobacco - 3.5% Altria Group, Inc. 144,220 $ 10,115,591 Trucking - 1.2% FedEx Corp. 32,400 $ 3,595,428 Utilities - Electric Power - 1.7% DPL, Inc. (l) 24,130 $ 683,844 FPL Group, Inc. 25,780 1,462,757 Integrys Energy Group, Inc. (l) 12, ,924 NRG Energy, Inc. (a) 54,260 2,255,588 $ 5,057,113 Total Common Stocks (Identified Cost, $261,299,750) $291,550,436 5

8 Portfolio of Investments (unaudited) continued Issuer Shares/Par Value ($) SHORT-TERM OBLIGATIONS - 0.5% Cargill, Inc., 5.37%, due 7/02/07, at Amortized Cost and Value (t)(y) $ 1,582,000 $ 1,581,764 COLLATERAL FOR SECURITIES LOANED - 4.8% Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 13,945,851 $ 13,945,851 Total Investments (Identified Cost, $276,827,365) $307,078,051 OTHER ASSETS, LESS LIABILITIES - (4.6)% (13,486,914) NET ASSETS % $293,591,137 (a) Non-income producing security. (l) All or a portion of this security is on loan. (t) Security exempt from registration with the U.S. Securities and Exchange Commission under Section 4(2) of the Securities Act of (y) The rate shown represents an annualized yield at time of purchase. The following abbreviations are used in this report and are defined: ADR American Depository Receipt REIT Real Estate Investment Trust See Notes to Financial Statements 6

9 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited) This statement represents your series balance sheet, which details the assets and liabilities comprising the total value of the series. At 6/30/07 Assets Investments, at value, including $13,618,562 of securities on loan (identified cost, $276,827,365) $307,078,051 Cash 147 Receivable for investments sold 7,133,977 Receivable for series shares sold 66,684 Interest and dividends receivable 241,578 Other assets 2,997 Total assets $314,523,434 Liabilities Payable for investments purchased $6,610,730 Payable for series shares reacquired 235,230 Collateral for securities loaned, at value 13,945,851 Payable to affiliates Management fee 18,101 Shareholder servicing costs 1,199 Distribution fees 396 Administrative services fee 494 Payable for independent trustees compensation 1,238 Accrued expenses and other liabilities 119,058 Total liabilities $20,932,297 Net assets $293,591,137 Net assets consist of: Paid-in capital $512,889,892 Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies 30,241,906 Accumulated net realized gain (loss) on investments and foreign currency transactions (250,150,695) Undistributed net investment income 610,034 Net assets $293,591,137 Shares of beneficial interest outstanding 14,910,495 Initial Class shares Net assets $274,271,902 Shares outstanding 13,924,906 Net asset value per share $19.70 Service Class shares Nets assets $19,319,235 Shares outstanding 985,589 Net asset value per share $19.60 See Notes to Financial Statements 7

10 FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited) This statement describes how much your series earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by series operations. Six months ended 6/30/07 Net investment income Income Dividends $1,874,329 Interest 69,371 Foreign taxes withheld (19,992) Total investment income $1,923,708 Expenses Management fee $1,087,352 Distribution fees 22,377 Shareholder servicing costs 51,084 Administrative services fee 29,712 Independent trustees compensation 6,316 Custodian fee 30,368 Shareholder communications 47,398 Auditing fees 22,634 Legal fees 3,342 Miscellaneous 14,086 Total expenses $1,314,669 Fees paid indirectly (807) Reduction of expenses by investment adviser (724) Net expenses $1,313,138 Net investment income $610,570 Realized and unrealized gain (loss) on investments Realized gain (loss) (identified cost basis) Investment transactions $19,113,454 Foreign currency transactions (1,123) Net realized gain (loss) on investments and foreign currency transactions $19,112,331 Change in unrealized appreciation (depreciation) Investments $7,951,519 Translation of assets and liabilities in foreign currencies (8,488) Net unrealized gain (loss) on investments and foreign currency translation $7,943,031 Net realized and unrealized gain (loss) on investments and foreign currency $27,055,362 Change in net assets from operations $27,665,932 See Notes to Financial Statements 8

11 FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions. Change in net assets Six months ended 6/30/07 (unaudited) Year ended 12/31/06 From operations Net investment income $610,570 $2,025,428 Net realized gain (loss) on investments and foreign currency transactions 19,112,331 23,527,274 Net unrealized gain (loss) on investments and foreign currency translation 7,943,031 2,765,933 Change in net assets from operations $27,665,932 $28,318,635 Distributions declared to shareholders From net investment income Initial Class $(1,919,641) $(1,405,149) Service Class (88,798) (46,251) Total distributions declared to shareholders $(2,008,439) $(1,451,400) Change in net assets from series share transactions $(16,341,885) $(45,597,506) Total change in net assets $9,315,608 $(18,730,271) Net assets At beginning of period 284,275, ,005,800 At end of period (including undistributed net investment income of $610,034 and $2,007,903, respectively) $293,591,137 $284,275,529 See Notes to Financial Statements 9

12 FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the series financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single series share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the series share class (assuming reinvestment of all distributions) held for the entire period. Initial Class Six months ended Years ended 12/31 6/30/ (unaudited) Net asset value, beginning of period $18.04 $16.41 $15.30 $13.35 $10.78 $14.32 Income (loss) from investment operations Net investment income (d) $0.04 $0.12 $0.07 $0.06 $0.10 $0.06 Net realized and unrealized gain (loss) on investments and foreign currency (3.57) Total from investment operations $1.79 $1.71 $1.18 $2.10 $2.65 $(3.51) Less distributions declared to shareholders From net investment income $(0.13) $(0.08) $(0.07) $(0.15) $(0.08) $(0.03) Net asset value, end of period $19.70 $18.04 $16.41 $15.30 $13.35 $10.78 Total return (%) (k)(r)(s) 9.97(n) (b) 24.71(j) (24.54) Ratios (%) (to average net assets) and Supplemental data: Expenses before expense reductions (f) 0.89(a) Expenses after expense reductions (f) 0.89(a) N/A N/A Net investment income 0.44(a) Portfolio turnover Net assets at end of period (000 Omitted) $274,272 $267,602 $289,472 $339,259 $352,464 $488,917 See Notes to Financial Statements 10

13 Financial Highlights continued Service Class Six months ended Years ended 12/31 6/30/ (unaudited) Net asset value, beginning of period $17.94 $16.33 $15.23 $13.30 $10.74 $14.27 Income (loss) from investment operations Net investment income (d) $0.02 $0.09 $0.04 $0.03 $0.07 $0.04 Net realized and unrealized gain (loss) on investments and foreign currency (3.56) Total from investment operations $1.75 $1.66 $1.15 $2.05 $2.61 $(3.52) Less distributions declared to shareholders From net investment income $(0.09) $(0.05) $(0.05) $(0.12) $(0.05) $(0.01) Net asset value, end of period $19.60 $17.94 $16.33 $15.23 $13.30 $10.74 Total return (%) (k)(r)(s) 9.79(n) (b) 24.37(j) (24.72) Ratios (%) (to average net assets) and Supplemental data: Expenses before expense reductions (f) 1.14(a) Expenses after expense reductions (f) 1.14(a) N/A N/A Net investment income 0.19(a) Portfolio turnover Net assets at end of period (000 Omitted) $19,319 $16,674 $13,533 $9,424 $6,693 $6,211 (a) Annualized. (b) The series net asset value and total return calculation include a non-recurring accrual recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. The non-recurring accrual resulted in an increase in the net asset value of $0.01 per share based on shares outstanding on the day the proceeds were recorded. (d) Per share data are based on average shares outstanding. (f) Ratios do not reflect reductions from fees paid indirectly. (j) The series net asset value and total return calculation include proceeds received on March 26, 2003 for the partial payment of a non-recurring litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions. The proceeds resulted in an increase in the net asset value of $0.02 per share based on shares outstanding on the day the proceeds were received. Excluding the effect of this payment from the ending net asset value per share, the Initial Class and Service Class total returns for the year ended December 31, 2003 would have each been lower by approximately 0.22%. (k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. (n) Not annualized. (r) Certain expenses have been reduced without which performance would have been lower. (s) From time to time the series may receive proceeds from litigation settlements, without which performance would be lower. See Notes to Financial Statements 11

14 NOTES TO FINANCIAL STATEMENTS (unaudited) (1) Business and Organization MFS Research Series (the series) is a 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 June 30, 2007, there were 95 shareholders. (2) Significant Accounting Policies General The preparation of financial statements in conformity with U.S. 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, including securities of emerging market issuers. 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. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries. Investment Valuations Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as reported by an independent pricing service on the market or exchange on which they are primarily traded. For securities for which there were no sales reported that day, equity securities are generally valued at the last quoted daily bid quotation as reported by an independent pricing service on the market or exchange on which they are primarily traded. For securities held short for which there were no sales reported for the day, the position is generally valued at the last quoted daily ask quotation as reported by an independent pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at their net asset value per share. Securities and other assets generally valued on the basis of information from an independent pricing service may also be valued at a brokerdealer bid quotation. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates reported by an independent pricing service. The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the series investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the series valuation policies and procedures, market quotations are not considered to be readily available for many types of debt instruments and certain types of derivatives. These investments are generally valued at fair value based on information from independent pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the series net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the series net asset value may be deemed to have a material affect on the value of securities traded in foreign markets. Accordingly, the series foreign equity securities may often be valued at fair value. The adviser may rely on independent pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the series net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of 12

15 Notes to Financial Statements (unaudited) continued investments used to determine the series net asset value may differ from quoted or published prices for the same investments. In September 2006, FASB Statement No. 157, Fair Value Measurements (the Statement ) was issued, and is effective for fiscal years beginning after November 15, 2007 and for all interim periods within those fiscal years. This Statement provides a single definition of fair value, a hierarchy for measuring fair value and expanded disclosures about fair value measurements. Management is evaluating the application of the Statement to the series, and believes the impact will be limited to expanded disclosures resulting from the adoption of this Statement in the series financial statements. Repurchase Agreements The series may enter into repurchase agreements with institutions that the series investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. The series requires that the securities collateral in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the series to obtain those securities in the event of a default under the repurchase agreement. The series monitors, on a daily basis, the value of the collateral to ensure that its value, including accrued interest, is greater than amounts owed to the series under each such repurchase agreement. The series and other funds managed by Massachusetts Financial Services Company (MFS), may utilize a joint trading account for the purpose of entering into one or more repurchase agreements. Foreign Currency Translation 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. Security Loans State Street Bank and Trust Company ( State Street ), as lending agent, may loan the securities of the series to certain qualified institutions (the Borrowers ) approved by the series. The loans are collateralized at all times by cash and/or U.S. Treasury securities in an amount at least equal to the market value of the securities loaned. State Street provides the series with indemnification against Borrower default. The series bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the series and the lending agent. On loans collateralized by U.S. Treasury securities, a fee is received from the Borrower, and is allocated between the series and the lending agent. Net income from securities lending is included in interest income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income. Indemnifications Under the series organizational documents, its officers and trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the series. Additionally, in the normal course of business, the series enters into agreements with service providers that may contain indemnification clauses. The series maximum exposure under these agreements is unknown as this would involve future claims that may be made against the series that have not yet occurred. Investment Transactions and Income Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. All discount is accreted for tax reporting purposes as required by federal income tax regulations. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the series is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or exinterest date in an amount equal to the value of the security on such date. The series may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the series or in unrealized gain/loss if the security is still held by the 13

16 Notes to Financial Statements (unaudited) continued series. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations. Fees Paid Indirectly The series custody fee is reduced according to an arrangement that measures the value of cash deposited with the custodian by the series. This amount, for the six months ended June 30, 2007, is shown as a reduction of total expenses on the Statement of Operations. Tax Matters and Distributions The series intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. Accordingly, no provision for federal income tax is required in the financial statements. Foreign taxes, if any, have been accrued by the series in the accompanying financial statements. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes. Book/tax differences primarily relate to wash sale loss deferrals. The tax character of distributions made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders is as follows: 12/31/06 Ordinary income (including any short-term capital gains) $1,451,400 The federal tax cost and the tax basis components of distributable earnings were as follows: As of 6/30/07 Cost of investments $277,086,469 Gross appreciation $35,611,747 Gross depreciation (5,620,165) Net unrealized appreciation (depreciation) $29,991,582 As of 12/31/06 Undistributed ordinary income $2,007,903 Capital loss carryforwards (269,003,922) Other temporary differences (292) Net unrealized appreciation (depreciation) 22,040,063 The aggregate cost above includes prior fiscal year end tax adjustments. As of December 31, 2006, the series had capital loss carryforwards available to offset future realized gains. Such losses expire as follows: 12/31/09 $(106,152,709) 12/31/10 (162,851,213) $(269,003,922) Multiple Classes of Shares of Beneficial Interest The series offers multiple classes of shares, which differ in their respective distribution fees. All shareholders bear the common expenses of the series based on daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. (3) Transactions with Affiliates Investment Adviser The series has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the series. The management fee is computed daily and paid monthly at an annual rate of 0.75% of the series average daily net assets. The investment adviser has agreed in writing to reduce its management fee to 0.65% of average daily net 14

17 Notes to Financial Statements (unaudited) continued assets in excess of $1 billion. This written agreement may be rescinded only upon consent of the series Board of Trustees. For the six months ended June 30, 2007, the series average daily net assets did not exceed $1 billion and therefore, the management fee was not reduced. Distributor MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the series. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of The series distribution plan provides that the series will pay MFD distribution fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the series to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the series, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution fees to financial intermediaries. Shareholder Servicing Agent MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the series for its services as shareholder servicing agent. For the six months ended June 30, 2007, the fee was $50,743, which equated to 0.035% annually of the series average daily net assets. MFSC also receives payment from the series for out-of-pocket expenses paid by MFSC on behalf of the series. For the six months ended June 30, 2007, these costs amounted to $271. The series may also pay shareholder servicing related costs to non-related parties. Administrator MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the series. Under an administrative services agreement, the series partially reimburses MFS the costs incurred to provide these services. The series is charged a fixed amount plus a fee based on calendar year average net assets. The series annual fixed amount is $17,500. The administrative services fee incurred for the six months ended June 30, 2007 was equivalent to an annual effective rate of % of the series average daily net assets. Trustees and Officers Compensation The series pays compensation to independent trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The series does not pay compensation directly to trustees or officers of the series who are also officers of the investment adviser, 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, MFD, and MFSC. Other This series and certain other MFS funds (the funds) have entered into a services agreement (the Agreement) which provides for payment of fees by the funds to Tarantino LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the Agreement with Tarantino LLC at any time under the terms of the Agreement. For the six months ended June 30, 2007, the fee paid to Tarantino LLC was $760. MFS has agreed to reimburse the series for a portion of the payments made by the funds to Tarantino LLC in the amount of $724, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO. (4) Portfolio Securities Purchases and sales of investments, other than U.S. government securities, purchased option transactions, and short-term obligations, aggregated $125,288,223 and $142,440,155, respectively. 15

18 Notes to Financial Statements (unaudited) continued (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: Six months ended 6/30/07 Year ended 12/31/06 Shares Amount Shares Amount Shares sold Initial Class 1,013,221 $19,061,476 1,612,041 $27,590,411 Service Class 98,678 1,858, ,447 4,761,887 1,111,899 $20,919,569 1,892,488 $32,352,298 Shares issued to shareholders in reinvestment of distributions Initial Class 101,892 $1,919,641 82,365 $1,405,149 Service Class 4,733 88,798 2,722 46, ,625 $2,008,439 85,087 $1,451,400 Shares reacquired Initial Class (2,021,484) $(38,378,368) (4,505,343) $(76,253,036) Service Class (47,155) (891,525) (182,776) (3,148,168) (2,068,639) $(39,269,893) (4,688,119) $(79,401,204) Net change Initial Class (906,371) $(17,397,251) (2,810,937) $(47,257,476) Service Class 56,256 1,055, ,393 1,659,970 (850,115) $(16,341,885) (2,710,544) $(45,597,506) (6) Line of Credit The series and other funds managed by MFS participate in a $1 billion unsecured committed line of credit provided by a syndication of banks under a credit agreement. In addition, the series and other funds managed by MFS have established uncommitted borrowing arrangements with certain banks. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the Federal Reserve funds rate plus 0.30%. In addition, a commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. For the six months ended June 30, 2007, the series commitment fee and interest expense were $885 and $1,956, respectively, and are included in miscellaneous expense on the Statement of Operations. 16

19 BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT A discussion regarding the Board s most recent review and renewal of the series Investment Advisory Agreement with MFS is available by clicking on the series name under Variable Insurance Trust in the Products and Performance section of the MFS Web site (mfs.com). PROXY VOTING POLICIES AND INFORMATION A general description of the MFS series proxy voting policies and procedures is available without charge, upon request, by calling , by visiting the Proxy Voting section of mfs.com or by visiting the SEC s Web site at Information regarding how the series voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC s Web site at QUARTERLY PORTFOLIO DISCLOSURE The series will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The series Form N-Q may be reviewed and copied at the: Public Reference Room Securities and Exchange Commission 100 F Street, NE, Room 1580 Washington, D.C Information on the operation of the Public Reference Room may be obtained by calling the Commission at The series Form N-Q is available on the EDGAR database on the Commission s Internet Web site at and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following address: publicinfo@sec.gov or by writing the Public Reference Section at the above address. 17

20 CONTACT US Web site mfs.com Account service and literature Shareholders a.m. to 5 p.m. ET Investment professionals a.m. to 5 p.m. ET Mailing address MFS Service Center, Inc. Attn: Institutional Alliance Services (IAS) P.O. Box Boston, MA Overnight mail MFS Service Center, Inc. Attn: Institutional Alliance Services (IAS) 500 Boylston Street Boston, MA