N-CSRS 1 dncsrs.htm MFS VARIABLE INSURANCE TRUST II N-CSRS MFS VARIABLE INSURANCE TRUST II N-CSRS
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF

REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-3732

MFS VARIABLE INSURANCE TRUST II

(Exact name of registrant as specified in charter)

500 Boylston Street, Boston, Massachusetts 02116

(Address of principal executive offices) (Zip code)

Susan S. Newton

Massachusetts Financial Services Company

500 Boylston Street

Boston, Massachusetts 02116

(Name and address of agents for service)

Registrant’s telephone number, including area code: (617) 954-5000

Date of fiscal year end: December 31

Date of reporting period: June 30, 2011*

This Form N-CSR pertains to all of the series of the Registrant other than MFS Global Governments Portfolio, MFS Government Securities Portfolio, MFS High Yield Portfolio, MFS Massachusetts Investors Growth Portfolio, MFS Money Market Portfolio and MFS Total Return Portfolio.

Table of Contents
ITEM 1. REPORTS TO STOCKHOLDERS.

Table of Contents

LOGO

 

MFS® International Growth Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

FCI-SEM

Table of Contents

MFS® INTERNATIONAL GROWTH PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      6   
Statement of operations      7   
Statements of changes in net assets      8   
Financial highlights      9   
Notes to financial statements      11   
Board review of investment advisory agreement      17   
Proxy voting policies and information      17   
Quarterly portfolio disclosure      17   
Further information      17   
MFS® privacy notice      18   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

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MFS International Growth Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS International Growth Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure

LOGO

 

Top ten holdings  
LVMH Moet Hennessy Louis Vuitton S.A.     2.6%   
BHP Billiton Ltd.     2.4%   
Groupe Danone     2.3%   
Schneider Electric S.A.     2.1%   
Taiwan Semiconductor Manufacturing Co. Ltd., ADR     1.8%   
Compass Group PLC     1.8%   
Reckitt Benckiser Group PLC     1.8%   
Linde AG     1.8%   
Legrand S.A.     1.7%   
Dassault Systems S.A.     1.6%   

 

Currency exposure weightings (y)  
European EMU     31.2%   
United Kingdom     13.5%   
United States     13.2%   
Switzerland     10.3%   
Japan     7.5%   
Australia     4.1%   
Brazil     4.0%   
Hong Kong     3.7%   
Canada     2.2%   
Other Countries     10.3%   
Equity sectors  
Financial Services     15.3%   
Basic Materials     11.9%   
Retailing     10.6%   
Consumer Staples     10.5%   
Health Care     10.1%   
Technology     9.6%   
Special Products & Services     8.3%   
Industrial Goods & Services     6.9%   
Energy     5.1%   
Transportation     3.6%   
Utilities & Communications     2.3%   
Autos & Housing     2.3%   
Leisure     1.5%   

 

Issuer country weightings (x)  
France     15.1%   
United Kingdom     13.5%   
Switzerland     10.3%   
Germany     8.0%   
Japan     7.5%   
Brazil     5.5%   
Canada     4.5%   
Australia     4.1%   
Netherlands     3.6%   
Other Countries     27.9%   
 

 

(x) Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s total net assets.
(y) Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s total net assets.

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS International Growth Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      1.06%         $1,000.00         $1,045.49         $5.38   
  Hypothetical (h)      1.06%         $1,000.00         $1,019.54         $5.31   
Service Class   Actual      1.31%         $1,000.00         $1,044.33         $6.64   
  Hypothetical (h)      1.31%         $1,000.00         $1,018.30         $6.56   

 

(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.

 

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MFS International Growth Portfolio

 

PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 98.0%     
Airlines – 0.9%     
Copa Holdings S.A., “A”      34,760      $ 2,319,882   
    

 

 

  
Alcoholic Beverages – 3.9%     
Diageo PLC      164,366      $ 3,358,166   
Heineken N.V.      50,797        3,054,815   
Pernod Ricard S.A. (l)      34,046        3,355,801   
    

 

 

  
     $ 9,768,782   
    

 

 

  
Apparel Manufacturers – 5.4%     
Compagnie Financiere Richemont S.A.      30,505      $ 1,997,384   
Li & Fung Ltd.      1,413,200        2,842,264   
LVMH Moet Hennessy Louis Vuitton S.A.      36,287        6,530,338   
Swatch Group Ltd.      3,974        2,003,189   
    

 

 

  
     $ 13,373,175   
    

 

 

  
Automotive – 1.9%     
Honda Motor Co. Ltd.      67,300      $ 2,593,984   
Magna International, Inc.      37,920        2,049,197   
    

 

 

  
     $ 4,643,181   
    

 

 

  
Broadcasting – 1.5%     
Publicis Groupe S.A. (l)      67,264      $ 3,750,523   
    

 

 

  
Brokerage & Asset Managers – 2.7%     
Aberdeen Asset Management PLC      562,235      $ 2,013,164   
BM&F Bovespa S.A.      315,700        2,089,630   
Deutsche Boerse AG      34,754        2,640,881   
    

 

 

  
     $ 6,743,675   
    

 

 

  
Business Services – 8.3%     
Accenture PLC, “A”      62,040      $ 3,748,457   
Amadeus IT Holding S.A. (a)      89,788        1,863,248   
Capita Group PLC      185,057        2,125,088   
Compass Group PLC      462,870        4,464,731   
Hays PLC      904,916        1,495,916   
Infosys Technologies Ltd., ADR      16,720        1,090,646   
Intertek Group PLC      68,464        2,167,959   
LPS Brasil – Consultoria de Imoveis S.A.      40,300        981,258   
Michael Page International      305,035        2,619,179   
    

 

 

  
     $ 20,556,482   
    

 

 

  
Computer Software – 3.5%     
Check Point Software Technologies Ltd. (a)      46,350      $ 2,634,998   
Dassault Systems S.A. (l)      45,491        3,873,026   
SAP AG      37,462        2,268,090   
    

 

 

  
     $ 8,776,114   
    

 

 

  
Computer Software – Systems – 0.8%     
NICE Systems Ltd., ADR (a)      54,570      $ 1,984,165   
    

 

 

  
Construction – 0.4%     
Bellway PLC      79,153      $ 908,312   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Consumer Products – 2.8%     
Reckitt Benckiser Group PLC      80,678      $ 4,454,258   
Uni-Charm Corp.      55,000        2,403,558   
    

 

 

  
     $ 6,857,816   
    

 

 

  
Electrical Equipment – 3.7%     
Legrand S.A.      98,454      $ 4,146,843   
Schneider Electric S.A.      30,639        5,118,467   
    

 

 

  
     $ 9,265,310   
    

 

 

  
Electronics – 4.6%     
ASML Holding N.V.      63,480      $ 2,346,221   
Infineon Technologies AG      192,929        2,168,823   
Samsung Electronics Co. Ltd.      3,192        2,480,948   
Taiwan Semiconductor Manufacturing Co. Ltd., ADR      358,700        4,523,207   
    

 

 

  
     $ 11,519,199   
    

 

 

  
Energy – Independent – 1.3%     
CNOOC Ltd.      748,000      $ 1,757,267   
INPEX Corp.      188        1,387,953   
    

 

 

  
     $ 3,145,220   
    

 

 

  
Energy – Integrated – 2.8%     
OAO Gazprom, ADR      162,150      $ 2,364,147   
Petroleo Brasileiro S.A., ADR      40,030        1,355,416   
Suncor Energy, Inc.      83,788        3,283,930   
    

 

 

  
     $ 7,003,493   
    

 

 

  
Engineering – Construction – 1.2%     
JGC Corp.      107,000      $ 2,930,356   
    

 

 

  
Food & Beverages – 3.8%     
Groupe Danone      75,292      $ 5,617,551   
Nestle S.A.      60,467        3,757,836   
    

 

 

  
     $ 9,375,387   
    

 

 

  
Food & Drug Stores – 2.5%     
Dairy Farm International Holdings Ltd.      206,100      $ 1,690,020   
Lawson, Inc.      31,300        1,643,880   
Tesco PLC      448,415        2,893,130   
    

 

 

  
     $ 6,227,030   
    

 

 

  
General Merchandise – 0.6%     
Lojas Renner S.A.      38,800      $ 1,479,255   
    

 

 

  
Internet – 0.7%     
Yahoo Japan Corp.      4,898      $ 1,686,170   
    

 

 

  
Machinery & Tools – 2.0%     
KONE Oyj “B”      42,885      $ 2,694,678   
Schindler Holding AG      19,722        2,397,369   
    

 

 

  
     $ 5,092,047   
    

 

 

  
 

 

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MFS International Growth Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Major Banks – 6.0%     
Credit Suisse Group AG      58,558      $ 2,277,546   
Erste Group Bank AG (l)      54,305        2,846,826   
HSBC Holdings PLC      332,965        3,304,683   
Julius Baer Group Ltd.      64,976        2,684,052   
Standard Chartered PLC      143,248        3,765,861   
    

 

 

  
     $ 14,878,968   
    

 

 

  
Medical & Health Technology & Services – 2.2%     
Diagnosticos da America S.A.      122,100      $ 1,642,969   
Fleury S.A.      83,700        1,219,044   
Fresenius Medical Care AG & Co. KGaA      34,642        2,589,670   
    

 

 

  
     $ 5,451,683   
    

 

 

  
Medical Equipment – 3.0%     
Essilor International S.A.      30,153      $ 2,445,615   
Sonova Holding AG      28,416        2,653,174   
Synthes, Inc. (n)      13,948        2,453,654   
    

 

 

  
     $ 7,552,443   
    

 

 

  
Metals & Mining – 4.3%     
BHP Billiton Ltd.      125,998      $ 5,955,080   
Iluka Resources Ltd.      150,275        2,726,190   
Teck Resources Ltd., “B”      41,314        2,099,862   
    

 

 

  
     $ 10,781,132   
    

 

 

  
Oil Services – 1.0%     
Saipem S.p.A.      48,348      $ 2,495,981   
    

 

 

  
Other Banks & Diversified Financials – 6.2%     
Akbank T.A.S.      378,220      $ 1,747,782   
Banco Santander Brasil S.A., ADR      317,820        3,721,672   
Bank Rakyat Indonesia      2,729,500        2,076,744   
China Construction Bank      1,360,410        1,132,301   
Credicorp Ltd.      20,020        1,723,722   
HDFC Bank Ltd.      38,418        2,161,901   
Sberbank of Russia      407,510        1,499,637   
Siam Commercial Bank Co. Ltd.      358,200        1,294,067   
    

 

 

  
     $ 15,357,826   
    

 

 

  
Pharmaceuticals – 4.9%     
Bayer AG      38,835      $ 3,122,190   
Novo Nordisk A/S, “B”      16,517        2,072,894   
Roche Holding AG      15,023        2,514,108   
Santen, Inc.      48,100        1,955,290   
Teva Pharmaceutical Industries Ltd., ADR      54,900        2,647,278   
    

 

 

  
     $ 12,311,760   
    

 

 

  
Precious Metals & Minerals – 0.6%     
Newcrest Mining Ltd.      38,260      $ 1,552,995   
    

 

 

  
Railroad & Shipping – 2.7%     
Canadian National Railway Co.      47,140      $ 3,766,486   
Kuehne & Nagel, Inc. AG      19,360        2,938,253   
    

 

 

  
     $ 6,704,739   
    

 

 

  
Real Estate – 0.4%     
Brasil Brokers Participacoes      225,500      $ 1,105,357   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Specialty Chemicals – 7.0%     
Akzo Nobel N.V.      55,649      $ 3,510,423   
L’Air Liquide S.A.      18,619        2,668,713   
Linde AG      25,016        4,385,883   
Nitto Denko Corp.      6,400        325,093   
Shin-Etsu Chemical Co. Ltd.      71,600        3,840,570   
Symrise AG      86,300        2,750,751   
    

 

 

  
     $ 17,481,433   
    

 

 

  
Specialty Stores – 2.1%     
Hennes & Mauritz AB, “B”      43,670      $ 1,505,791   
Industria de Diseno Textil S.A.      41,273        3,761,101   
    

 

 

  
     $ 5,266,892   
    

 

 

  
Telecommunications – Wireless – 0.9%   
MTN Group Ltd.      102,415      $ 2,179,526   
    

 

 

  
Telephone Services – 1.4%     
China Unicom Ltd.      1,728,000      $ 3,499,128   
    

 

 

  
Total Common Stocks
(Identified Cost, $208,768,099)		      $ 244,025,437   
    

 

 

  
    Strike
Price		     First
Exercise		              
RIGHTS – 0.0%       
Business Services – 0.0%       
LPS Brasil Consultoria de Imoveis S.A.
(1 share for 1 right) (Identified Cost, $0) (a)		     BRL 39.43        6/30/11        487      $ 0   
       

 

 

  
MONEY MARKET FUNDS (v) – 2.4%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value         5,948,802      $ 5,948,802   
       

 

 

  
COLLATERAL FOR SECURITIES LOANED – 4.2%   
Navigator Securities Lending Prime Portfolio, 0.23%, at Cost and Net Asset Value (j)         10,406,516      $ 10,406,516   
       

 

 

  
Total Investments
(Identified Cost, $225,123,417)		         $ 260,380,755   
       

 

 

  
OTHER ASSETS, LESS
LIABILITIES – (4.6)%		           (11,388,967 ) 
       

 

 

  
Net Assets – 100.0%        $ 248,991,788   
       

 

 

  

 

(a) Non-income producing security.

 

(j) The rate quoted is the annualized seven-day yield of the portfolio at period end.

 

(l) A portion of this security is on loan.

 

(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $2,453,654 representing 1.0% of net assets.

 

(v) Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

ADR   American Depository Receipt

 

PLC   Public Limited Company

See Notes to Financial Statements

 

 

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MFS International Growth Portfolio

 

FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  
Investments –      
Non-affiliated issuers, at value (identified cost, $219,174,615)      $254,431,953      

Underlying affiliated funds, at cost and value

      5,948,802            

Total investments, at value, including $10,022,115 of securities on loan (identified cost, $225,123,417)

      $260,380,755            
Cash      22,812      
Foreign currency, at value (identified cost, $769,198)      771,089      
Receivables for      

Investments sold

      3,369,966      

Fund shares sold

      46,843      

Interest and dividends

      718,053      

Other assets

      4,421            

Total assets

               $265,313,939   

Liabilities

                  
Payables for      

Investments purchased

      $5,031,470      

Fund shares reacquired

      752,873      
Collateral for securities loaned, at value      10,406,516      
Payable to affiliates      

Investment adviser

      12,536      

Shareholder servicing costs

      141      

Distribution and/or service fees

      448      
Payable for Trustees’ compensation      4,029      

Accrued expenses and other liabilities

      114,138            

Total liabilities

               $16,322,151   

Net assets

               $248,991,788   

Net assets consist of

                  
Paid-in capital      $182,130,781      
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (net of $22,127 deferred country tax)      35,233,520      
Accumulated net realized gain (loss) on investments and foreign currency transactions      26,411,268      

Undistributed net investment income

      5,216,219            

Net assets

               $248,991,788   

Shares of beneficial interest outstanding

               17,216,732   

 

     Net assets      Shares
outstanding		     

Net asset value

per share

  

Initial Class

      $215,849,432         14,909,935         $14.48   

Service Class

      33,142,356         2,306,797         14.37   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment income                  
Income      

Dividends

      $4,338,580      

Interest

      87,448      

Dividends from underlying affiliated funds

      3,577      

Foreign taxes withheld

      (412,179 )          

Total investment income

               $4,017,426   

Expenses

      

Management fee

      $1,138,609      

Distribution and/or service fees

      40,118      

Shareholder servicing costs

      14,151      

Administrative services fee

      42,622      

Trustees’ compensation

      14,396      

Custodian fee

      73,830      

Shareholder communications

      6,616      

Auditing fees

      27,811      

Legal fees

      3,766      

Miscellaneous

      17,549            

Total expenses

               $1,379,468   

Fees paid indirectly

      (24 )          

Net expenses

               $1,379,444   

Net investment income

               $2,637,982   

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions (net of $5,513 country tax)

      $6,861,610      

Foreign currency transactions

      (124,582 )          

Net realized gain (loss) on investments and foreign currency transactions

               $6,737,028   

Change in unrealized appreciation (depreciation)

      

Investments (net of $21,679 decrease in deferred country tax)

      $2,246,151      

Translation of assets and liabilities in foreign currencies

      (20,027 )          

Net unrealized gain (loss) on investments and foreign currency translation

               $2,226,124   

Net realized and unrealized gain (loss) on investments and foreign currency

               $8,963,152   

Change in net assets from operations

               $11,601,134   

See Notes to Financial Statements

 

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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.

 

    

 

 

 Six months ended

6/30/11

(unaudited

   

  

) 

     

 

 Year ended

12/31/10

   

  

Change in net assets

      

From operations

                  

Net investment income

      $2,637,982         $2,797,449   

Net realized gain (loss) on investments and foreign currency transactions

      6,737,028         27,881,035   

Net unrealized gain (loss) on investments and foreign currency translation

      2,226,124         7,205,823   

Change in net assets from operations

      $11,601,134         $37,884,307   

Distributions declared to shareholders

                  

From net investment income

      $—         $(1,936,143 ) 

Change in net assets from fund share transactions

      $(15,413,539 )       $9,593,366   

Total change in net assets

      $(3,812,405 )       $45,541,530   

Net assets

                  

At beginning of period

      252,804,193         207,262,663   

At end of period (including undistributed net investment income of $5,216,219 and
$2,578,237, respectively)

      $248,991,788         $252,804,193   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $13.85         $12.13           $8.90           $17.63           $17.93           $15.42   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.15         $0.15           $0.14           $0.16           $0.21           $0.23   

Net realized and unrealized gain (loss) on investments and foreign currency

        0.48         1.68           3.20           (6.04 )         2.57           3.70   

Total from investment operations

        $0.63         $1.83           $3.34           $(5.88 )         $2.78           $3.93   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.11 )         $(0.11 )         $(0.19 )         $(0.27 )         $(0.11 ) 

From net realized gain on investments

        —         —           —           (2.66 )         (2.81 )         (1.31 ) 

Total distributions declared to shareholders

        $—         $(0.11 )         $(0.11 )         $(2.85 )         $(3.08 )         $(1.42 ) 

Net asset value, end of period

        $14.48         $13.85           $12.13           $8.90           $17.63           $17.93   

Total return (%) (k)(s)

        4.55 (n)       15.16           38.06           (39.82 )         16.58           26.04   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses (f)

        1.06 (a)       1.09           1.25           1.22           1.11           1.12   

Net investment income

        2.11 (a)(l)       1.21           1.39           1.25           1.16           1.40   

Portfolio turnover

        30         66           56           73           56           86   

Net assets at end of period (000 omitted)

        $215,849         $221,456           $179,925           $87,034           $139,633           $140,242   

See Notes to Financial Statements

 

 

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Financial Highlights – continued

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $13.76         $12.06           $8.84           $17.53           $17.85           $15.36   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.13         $0.11           $0.12           $0.13           $0.15           $0.19   

Net realized and unrealized gain (loss) on
investments and foreign currency

        0.48         1.67           3.18           (6.00 )         2.56           3.69   

Total from investment operations

        $0.61         $1.78           $3.30           $(5.87 )         $2.71           $3.88   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.08 )         $(0.08 )         $(0.16 )         $(0.22 )         $(0.08 ) 

From net realized gain on investments

        —         —           —           (2.66 )         (2.81 )         (1.31 ) 

Total distributions declared to shareholders

        $—         $(0.08 )         $(0.08 )         $(2.82 )         $(3.03 )         $(1.39 ) 

Net asset value, end of period

        $14.37         $13.76           $12.06           $8.84           $17.53           $17.85   

Total return (%) (k)(s)

        4.43 (n)       14.86           37.69           (39.96 )         16.26           25.75   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses (f)

        1.31 (a)       1.34           1.50           1.46           1.37           1.37   

Net investment income

        1.88 (a)(l)       0.94           1.17           1.04           0.85           1.15   

Portfolio turnover

        30         66           56           73           56           86   

Net assets at end of period (000 omitted)

        $33,142         $31,348           $27,338           $18,056           $28,689           $22,979   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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.

 

(l) Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by companies in which the fund invests and the actual annual net investment income ratio may differ.

 

(n) Not annualized.

 

(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS International Growth Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests 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 provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

 

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Notes to Financial Statements (unaudited) – continued

 

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities:            

France

      $37,506,877         $—         $—         $37,506,877   

United Kingdom

      33,570,447         —         —         33,570,447   

Switzerland

      25,676,565         —         —         25,676,565   

Germany

      19,926,288         —         —         19,926,288   

Japan

      —         18,766,854         —         18,766,854   

Brazil

      13,594,601         —         —         13,594,601   

Canada

      11,199,475         —         —         11,199,475   

Australia

      —         10,234,265         —         10,234,265   

Netherlands

      8,911,459         —         —         8,911,459   

Other Countries

      49,555,888         15,082,718         —         64,638,606   
Mutual Funds      16,355,318         —         —         16,355,318   
Total Investments      $216,296,918         $44,083,837         $—         $260,380,755   

For further information regarding security characteristics, see the Portfolio of Investments.

Of the level 2 investments presented above, equity investments amounting to $32,779,512 would have been considered level 1 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund 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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. 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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.

 

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Notes to Financial Statements (unaudited) – continued

 

Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $1,936,143   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $225,779,269   
Gross appreciation      38,995,245   
Gross depreciation      (4,393,759 ) 
Net unrealized appreciation (depreciation)      $34,601,486   
As of 12/31/10   
Undistributed ordinary income      4,590,472   
Undistributed long-term capital gain      18,333,928   
Other temporary differences      (41,541 ) 
Net unrealized appreciation (depreciation)      32,377,014   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

 

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Notes to Financial Statements (unaudited) – continued

 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $1,752,956   
Service Class      —         183,187   
Total      $—         $1,936,143   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $1 billion of average daily net assets      0.90%   
Next $1 billion of average daily net assets      0.80%   
Average daily net assets in excess of $2 billion      0.70%   

The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.

The investment adviser has agreed to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses, such that total annual operating expenses do not exceed 1.35% of average daily net assets for the Initial Class shares and 1.60% of average daily net assets for the Service Class shares. This written agreement will continue until April 30, 2013. For the six months ended June 30, 2011, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2011, the fee was $14,141, which equated to 0.0112% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2011, these costs amounted to $10.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0337% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

 

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Notes to Financial Statements (unaudited) – continued

 

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $2,046 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $75,882,862 and $90,158,526, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      914,471         $12,681,030         5,318,787         $62,995,452   

Service Class

      210,318         2,907,340         529,150         6,406,687   
     1,124,789         $15,588,370         5,847,937         $69,402,139   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         142,981         $1,752,956   

Service Class

      —         —         15,004         183,187   
     —         $—         157,985         $1,936,143   
Shares reacquired            

Initial Class

      (1,997,125 )       $(28,458,198 )       (4,301,835 )       $(55,307,266 ) 

Service Class

      (181,812 )       (2,543,711 )       (532,563 )       (6,437,650 ) 
     (2,178,937 )       $(31,001,909 )       (4,834,398 )       $(61,744,916 ) 
Net change            

Initial Class

      (1,082,654 )       $(15,777,168 )       1,159,933         $9,441,142   

Service Class

      28,506         363,629         11,591         152,224   
     (1,054,148 )       $(15,413,539 )       1,171,524         $9,593,366   

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $1,014 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

15

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MFS International Growth Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affliated Funds    Beginning
Shares/Par
Amount		    Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio    2,123,761      37,670,554         (33,845,513 )       5,948,802   
Underlying Affliated Funds    Realized
Gain (Loss)		    Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio    $—      $—         $3,577         $5,948,802   

 

16

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MFS International Growth Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

17

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

•MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

•MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

•MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

19

Table of Contents

LOGO

Table of Contents

LOGO

 

MFS® Blended Research®

Core Equity Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

CGS-SEM

Table of Contents

MFS® BLENDED RESEARCH® CORE EQUITY PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      6   
Statement of operations      7   
Statements of changes in net assets      8   
Financial highlights      9   
Notes to financial statements      11   
Board review of investment advisory agreement      16   
Proxy voting policies and information      16   
Quarterly portfolio disclosure      16   
Further information      16   
MFS® privacy notice      17   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Blended Research Core Equity Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

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

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MFS Blended Research Core Equity Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure

LOGO

 

Top ten holdings  
Exxon Mobil Corp.     4.4%   
Apple, Inc.     2.8%   
Chevron Corp.     2.8%   
Citigroup, Inc.     2.0%   
Oracle Corp.     2.0%   
Google, Inc., “A”     2.0%   
Intel Corp.     1.9%   
McDonald’s Corp.     1.8%   
Pfizer, Inc.     1.8%   
Procter & Gamble Co.     1.8%   
Equity sectors  
Financial Services     16.0%   
Technology     15.9%   
Health Care     11.7%   
Energy     10.6%   
Consumer Staples     8.2%   
Utilities & Communications     7.6%   
Industrial Goods & Services     6.4%   
Leisure     6.2%   
Retailing     5.7%   
Basic Materials     5.5%   
Transportation     2.6%   
Autos & Housing     2.5%   
Special Products & Services     0.4%   
 

 

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS Blended Research Core Equity Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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        

Annualized

Expense Ratio

     

Beginning

Account Value

1/01/11

     

Ending

Account Value

6/30/11

     

Expenses Paid

During Period (p)

1/01/11-6/30/11

  
Initial Class   Actual      0.60%         $1,000.00         $1,081.22         $3.10   
  Hypothetical (h)      0.60%         $1,000.00         $1,021.82         $3.01   
Service Class   Actual      0.85%         $1,000.00         $1,079.91         $4.38   
  Hypothetical (h)      0.85%         $1,000.00         $1,020.58         $4.26   

 

(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.

 

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MFS Blended Research Core Equity Portfolio

 

PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 99.3%     
Aerospace – 3.9%     
Lockheed Martin Corp.      63,720      $ 5,159,406   
Northrop Grumman Corp.      98,880        6,857,328   
United Technologies Corp.      102,390        9,062,539   
    

 

 

  
     $ 21,079,273   
    

 

 

  
Automotive – 1.5%     
Johnson Controls, Inc.      196,500      $ 8,186,190   
    

 

 

  
Biotechnology – 1.4%     
Amgen, Inc. (a)      129,480      $ 7,555,158   
    

 

 

  
Broadcasting – 1.8%     
CBS Corp., “B”      184,840      $ 5,266,092   
Viacom, Inc., “B”      86,150        4,393,650   
    

 

 

  
     $ 9,659,742   
    

 

 

  
Brokerage & Asset Managers – 1.1%     
Blackrock, Inc.      31,602      $ 6,061,580   
    

 

 

  
Business Services – 0.4%     
Accenture PLC, “A”      32,800      $ 1,981,776   
    

 

 

  
Cable TV – 1.3%     
DIRECTV, “A” (a)      134,590      $ 6,839,864   
    

 

 

  
Chemicals – 2.7%     
3M Co.      69,920      $ 6,631,912   
E.I. du Pont de Nemours & Co.      141,590        7,652,940   
    

 

 

  
     $ 14,284,852   
    

 

 

  
Computer Software – 5.9%     
Autodesk, Inc. (a)      149,570      $ 5,773,402   
Microsoft Corp.      181,540        4,720,040   
Oracle Corp.      329,920        10,857,667   
Symantec Corp. (a)      300,340        5,922,705   
VeriSign, Inc.      125,020        4,183,169   
    

 

 

  
     $ 31,456,983   
    

 

 

  
Computer Software – Systems – 3.7%   
Apple, Inc. (a)      45,520      $ 15,279,698   
International Business Machines Corp.      27,170        4,661,014   
    

 

 

  
     $ 19,940,712   
    

 

 

  
Construction – 1.0%     
Owens Corning (a)      141,790      $ 5,295,857   
    

 

 

  
Consumer Products – 1.8%     
Procter & Gamble Co.      149,060      $ 9,475,744   
    

 

 

  
Electrical Equipment – 1.3%     
General Electric Co.      361,970      $ 6,826,754   
    

 

 

  
Electronics – 2.6%     
Intel Corp.      460,820      $ 10,211,771   
JDS Uniphase Corp. (a)      99,280        1,654,005   
Teradyne, Inc. (a)      127,280        1,883,744   
    

 

 

  
     $ 13,749,520   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Energy – Integrated – 8.8%     
Chevron Corp.      145,640      $ 14,977,618   
ConocoPhillips      89,200        6,706,948   
Exxon Mobil Corp.      292,290        23,786,560   
Marathon Oil Corp.      34,280        1,805,870   
    

 

 

  
     $ 47,276,996   
    

 

 

  
Food & Beverages – 4.1%     
Coca-Cola Co.      48,610      $ 3,270,967   
Dr Pepper Snapple Group, Inc.      151,200        6,339,816   
General Mills, Inc.      166,420        6,194,152   
PepsiCo, Inc.      92,040        6,482,377   
    

 

 

  
     $ 22,287,312   
    

 

 

  
Food & Drug Stores – 2.5%     
CVS Caremark Corp.      197,630      $ 7,426,935   
Kroger Co.      56,140        1,392,272   
Whole Foods Market, Inc.      76,190        4,834,256   
    

 

 

  
     $ 13,653,463   
    

 

 

  
Forest & Paper Products – 0.7%     
Domtar Corp.      39,920      $ 3,781,222   
    

 

 

  
General Merchandise – 1.3%     
Macy’s, Inc.      234,310      $ 6,851,224   
    

 

 

  
Health Maintenance Organizations – 2.1%   
Aetna, Inc.      142,560      $ 6,285,470   
Humana, Inc.      59,700        4,808,238   
    

 

 

  
     $ 11,093,708   
    

 

 

  
Insurance – 4.3%     
ACE Ltd.      30,250      $ 1,991,055   
Aflac, Inc.      111,190        5,190,349   
Allied World Assurance Co.      39,290        2,262,318   
Berkshire Hathaway, Inc., “B” (a)      8,700        673,293   
Prudential Financial, Inc.      103,160        6,559,944   
Travelers Cos., Inc.      111,620        6,516,376   
    

 

 

  
     $ 23,193,335   
    

 

 

  
Internet – 2.0%     
Google, Inc., “A” (a)      21,220      $ 10,745,384   
    

 

 

  
Machinery & Tools – 0.3%     
Cummins, Inc.      14,160      $ 1,465,418   
    

 

 

  
Major Banks – 4.3%     
Bank of America Corp.      709,000      $ 7,770,640   
JPMorgan Chase & Co.      110,520        4,524,689   
KeyCorp      491,860        4,097,194   
PNC Financial Services Group, Inc.      94,340        5,623,607   
Wells Fargo & Co.      39,760        1,115,666   
    

 

 

  
     $ 23,131,796   
    

 

 

  
Medical & Health Technology & Services – 1.2%     
McKesson Corp.      79,440      $ 6,645,156   
    

 

 

  
 

 

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MFS Blended Research Core Equity Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Medical Equipment – 2.1%     
Medtronic, Inc.      178,280      $ 6,869,128   
Thermo Fisher Scientific, Inc. (a)      71,100        4,578,129   
    

 

 

  
     $ 11,447,257   
    

 

 

  
Metals & Mining – 1.7%     
Cliffs Natural Resources, Inc.      70,230      $ 6,492,764   
Steel Dynamics, Inc.      149,020        2,421,575   
    

 

 

  
     $ 8,914,339   
    

 

 

  
Natural Gas – Distribution – 0.6%     
NiSource, Inc.      174,430      $ 3,532,208   
    

 

 

  
Natural Gas – Pipeline – 1.8%     
El Paso Corp.      183,350      $ 3,703,670   
Williams Cos., Inc.      196,750        5,951,688   
    

 

 

  
     $ 9,655,358   
    

 

 

  
Network & Telecom – 1.7%     
Cisco Systems, Inc.      122,150      $ 1,906,762   
F5 Networks, Inc. (a)      24,220        2,670,255   
Riverbed Technology, Inc. (a)      110,610        4,379,050   
    

 

 

  
     $ 8,956,067   
    

 

 

  
Oil Services – 1.8%     
Halliburton Co.      149,450      $ 7,621,950   
National Oilwell Varco, Inc.      28,730        2,246,973   
    

 

 

  
     $ 9,868,923   
    

 

 

  
Other Banks & Diversified Financials – 5.4%     
American Express Co.      91,080      $ 4,708,836   
Capital One Financial Corp.      135,090        6,980,100   
Citigroup, Inc.      262,363        10,924,795   
Discover Financial Services      244,860        6,550,005   
    

 

 

  
     $ 29,163,736   
    

 

 

  
Pharmaceuticals – 4.9%     
Abbott Laboratories      170,460      $ 8,969,605   
Johnson & Johnson      117,650        7,826,078   
Pfizer, Inc.      465,540        9,590,124   
    

 

 

  
     $ 26,385,807   
    

 

 

  
Pollution Control – 0.9%     
Republic Services, Inc.      156,640      $ 4,832,344   
    

 

 

  
Printing & Publishing – 1.3%     
Moody’s Corp.      181,580      $ 6,963,593   
    

 

 

  
Railroad & Shipping – 1.3%     
CSX Corp.      266,530      $ 6,988,417   
    

 

 

  
Real Estate – 0.9%     
Annaly Mortgage Management, Inc., REIT      280,840      $ 5,066,354   
    

 

 

  
Restaurants – 1.8%     
McDonald’s Corp.      114,830      $ 9,682,466   
    

 

 

  
Specialty Chemicals – 0.4%     
Rockwood Holdings, Inc. (a)      41,340      $ 2,285,689   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Specialty Stores – 1.9%     
Abercrombie & Fitch Co., “A”      93,500      $ 6,257,020   
PetSmart, Inc.      86,110        3,906,811   
    

 

 

  
     $ 10,163,831   
    

 

 

  
Telecommunications – Wireless – 0.8%   
MetroPCS Communications, Inc. (a)      251,990      $ 4,336,748   
    

 

 

  
Telephone Services – 2.1%     
AT&T, Inc.      165,030      $ 5,183,592   
CenturyLink, Inc.      147,590        5,967,064   
    

 

 

  
     $ 11,150,656   
    

 

 

  
Tobacco – 2.3%     
Altria Group, Inc.      253,410      $ 6,692,558   
Philip Morris International, Inc.      83,420        5,569,953   
    

 

 

  
     $ 12,262,511   
    

 

 

  
Trucking – 1.3%     
United Parcel Service, Inc., “B”      92,990      $ 6,781,761   
    

 

 

  
Utilities – Electric Power – 2.3%     
AES Corp. (a)      464,930      $ 5,923,208   
American Electric Power Co., Inc.      105,150        3,962,052   
Public Service Enterprise Group, Inc.      74,140        2,419,930   
    

 

 

  
     $ 12,305,190   
    

 

 

  
Total Common Stocks
(Identified Cost, $487,468,757)		      $ 533,262,274   
    

 

 

  
MONEY MARKET FUNDS (v) – 0.0%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      195      $ 195   
    

 

 

  
Total Investments
(Identified Cost, $487,468,952)		      $ 533,262,469   
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – 0.7%		        3,676,807   
    

 

 

  
Net Assets – 100.0%      $ 536,939,276   
    

 

 

  

 

(a)   Non-income producing security.

 

(v)   Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

PLC   Public Limited Company

 

REIT   Real Estate Investment Trust

See Notes to Financial Statements

 

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $487,468,757)

      $533,262,274      

Underlying affiliated funds, at cost and value

      195            

Total investments, at value (identified cost, $487,468,952)

      $533,262,469            

Receivables for

      

Investments sold

      4,097,440      

Fund shares sold

      30,873      

Dividends

      670,179      

Receivable from investment adviser

      1,673      

Other assets

      8,239            

Total assets

               $538,070,873   

Liabilities

                  

Payable to custodian

      $414,669      

Payable for fund shares reacquired

      583,331      

Payable to affiliates

      

Shareholder servicing costs

      305      

Distribution and/or service fees

      2,401      

Payable for Trustees’ compensation

      8,957      

Accrued expenses and other liabilities

      121,934            

Total liabilities

               $1,131,597   

Net assets

               $536,939,276   

Net assets consist of

                  

Paid-in capital

      $590,396,485      

Unrealized appreciation (depreciation) on investments

      45,793,517      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      (112,252,737 )    

Undistributed net investment income

      13,002,011            

Net assets

               $536,939,276   

Shares of beneficial interest outstanding

               15,616,208   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $359,747,547         10,434,270         $34.48   

Service Class

      177,191,729         5,181,938         34.19   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment income                  

Income

      

Dividends

      $5,812,120      

Dividends from underlying affiliated funds

      1,954            

Total investment income

               $5,814,074   

Expenses

      

Management fee

      $1,501,062      

Distribution and/or service fees

      227,947      

Shareholder servicing costs

      30,489      

Administrative services fee

      91,792      

Trustees’ compensation

      30,919      

Custodian fee

      26,043      

Shareholder communications

      20,563      

Auditing fees

      23,154      

Legal fees

      3,766      

Miscellaneous

      21,202            

Total expenses

               $1,976,937   

Fees paid indirectly

      (3 )    

Reduction of expenses by investment adviser

      (108,795 )          

Net expenses

               $1,868,139   

Net investment income

               $3,945,935   

Realized and unrealized gain (loss) on investments

                  

Realized gain (loss) on investment transactions (identified cost basis)

               $36,070,765   

Change in unrealized appreciation (depreciation) on investments

               $2,795,998   

Net realized and unrealized gain (loss) on investments

               $38,866,763   

Change in net assets from operations

               $42,812,698   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		   
  
) 		     
 		 Year ended
12/31/10		   
  

Change in net assets

      

From operations

                  

Net investment income

      $3,945,935         $9,058,282   

Net realized gain (loss) on investments

      36,070,765         30,651,867   

Net unrealized gain (loss) on investments

      2,795,998         41,875,927   

Change in net assets from operations

      $42,812,698         $81,586,076   

Distributions declared to shareholders

                  

From net investment income

      $—         $(9,141,057 ) 

Change in net assets from fund share transactions

      $(51,339,394 )       $(87,431,906 ) 

Total change in net assets

      $(8,526,696 )       $(14,986,887 ) 

Net assets

                  

At beginning of period

      545,465,972         560,452,859   

At end of period (including undistributed net investment income of $13,002,011 and
$9,056,076, respectively)

      $536,939,276         $545,465,972   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $31.89         $27.84           $22.80           $35.51           $33.89           $30.15   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.26         $0.51           $0.43           $0.48           $0.38           $0.37   

Net realized and unrealized gain (loss) on
investments and foreign currency

        2.33         4.05           5.16           (12.74 )         1.64           3.62   

Total from investment operations

        $2.59         $4.56           $5.59           $(12.26 )         $2.02           $3.99   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.51 )         $(0.55 )         $(0.45 )         $(0.40 )         $(0.25 ) 

Net asset value, end of period

        $34.48         $31.89           $27.84           $22.80           $35.51           $33.89   

Total return (%) (k)(r)(s)

        8.12 (n)       16.46           25.26           (34.95 )         5.95           13.30   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        0.64 (a)       0.65           0.66           0.64           0.62           0.61   

Expenses after expense reductions (f)

        0.60 (a)       0.60           0.60           0.60           0.61           N/A   

Net investment income

        1.53 (a)       1.77           1.81           1.60           1.07           1.18   

Portfolio turnover

        44         68           74           76           102           35   

Net assets at end of period (000 omitted)

        $359,748         $360,667           $361,105           $342,241           $673,008           $826,937   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $31.66         $27.66           $22.62           $35.23           $33.65           $29.96   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.21         $0.43           $0.37           $0.41           $0.29           $0.28   

Net realized and unrealized gain (loss) on
investments and foreign currency

        2.32         4.01           5.14           (12.66 )         1.63           3.61   

Total from investment operations

        $2.53         $4.44           $5.51           $(12.25 )         $1.92           $3.89   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.44 )         $(0.47 )         $(0.36 )         $(0.34 )         $(0.20 ) 

Net asset value, end of period

        $34.19         $31.66           $27.66           $22.62           $35.23           $33.65   

Total return (%) (k)(r)(s)

        7.99 (n)       16.12           25.00           (35.12 )         5.69           13.04   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        0.89 (a)       0.90           0.91           0.90           0.87           0.86   

Expenses after expense reductions (f)

        0.85 (a)       0.85           0.85           0.85           0.86           N/A   

Net investment income

        1.28 (a)       1.52           1.57           1.35           0.84           0.88   

Portfolio turnover

        44         68           74           76           102           35   

Net assets at end of period (000 omitted)

        $177,192         $184,799           $199,348           $193,658           $338,647           $319,869   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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 fund may receive proceeds from litigation settlements, without which performance would be lower.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Blended Research Core Equity Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may

 

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Notes to Financial Statements (unaudited) – continued

 

include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities      $533,262,274         $—         $—         $533,262,274   
Mutual Funds      195         —         —         195   
Total Investments      $533,262,469         $—         $—         $533,262,469   

For further information regarding security characteristics, see the Portfolio of Investments.

Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.

Investment Transactions and Income – Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $9,141,057   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/10   
Cost of investments      $490,175,176   
Gross appreciation      66,122,256   
Gross depreciation      (23,034,963 ) 
Net unrealized appreciation (depreciation)      $43,087,293   

 

As of 12/31/10   
Undistributed ordinary income      9,056,076   
Capital loss carryforwards      (145,617,278 ) 
Net unrealized appreciation (depreciation)      40,291,295   

 

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Notes to Financial Statements (unaudited) – continued

 

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $(73,792,613 ) 
12/31/17      (71,824,665 ) 
Total      $(145,617,278 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $6,266,489   
Service Class      —         2,874,568   
Total      $—         $9,141,057   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.55% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, and brokerage commissions, such that total annual operating expenses of the fund do not exceed 1.25% of the fund’s average daily net assets. MFS’ agreement to limit the fund’s total annual operating expenses is contained in the investment advisory agreement between MFS and the fund and may not be rescinded without shareholder approval. In addition, the investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses, such that total annual operating expenses do not exceed 0.60% of average daily net assets for the Initial Class shares and 0.85% of average daily net assets for the Service Class shares. This written agreement will continue until April 30, 2013. For the six months ended June 30, 2011, this reduction amounted to $108,795 and is reflected as a reduction of total expenses in the Statement of Operations.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2011, the fee was $30,481, which equated to 0.0112% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2011, these costs amounted to $8.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0336% of the fund’s average daily net assets.

 

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Notes to Financial Statements (unaudited) – continued

 

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $4,496 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $240,484,862 and $289,096,749, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      36,368         $1,225,778         51,684         $1,484,658   

Service Class

      11,950         391,450         146,260         4,101,313   
     48,318         $1,617,228         197,944         $5,585,971   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         206,526         $6,266,489   

Service Class

      —         —         95,345         2,874,568   
     —         $—         301,871         $9,141,057   
Shares reacquired            

Initial Class

      (913,292 )       $(30,731,596 )       (1,916,648 )       $(55,333,836 ) 

Service Class

      (666,439 )       (22,225,026 )       (1,613,548 )       (46,825,098 ) 
     (1,579,731 )       $(52,956,622 )       (3,530,196 )       $(102,158,934 ) 
Net change            

Initial Class

      (876,924 )       $(29,505,818 )       (1,658,438 )       $(47,582,689 ) 

Service Class

      (654,489 )       (21,833,576 )       (1,371,943 )       (39,849,217 ) 
     (1,531,413 )       $(51,339,394 )       (3,030,381 )       $(87,431,906 ) 

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $2,218 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

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MFS Blended Research Core Equity Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      1,951,910         41,001,856         (42,953,571 )       195   
Underlying Affiliated Funds    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $1,954         $195   

 

15

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MFS Blended Research Core Equity Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

16

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

18

Table of Contents

LOGO

Table of Contents

LOGO

 

MFS® Global Research Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

RES-SEM

Table of Contents

MFS® GLOBAL RESEARCH PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      7   
Statement of operations      8   
Statements of changes in net assets      9   
Financial highlights      10   
Notes to financial statements      12   
Board review of investment advisory agreement      19   
Proxy voting policies and information      19   
Quarterly portfolio disclosure      19   
Further information      19   
MFS® privacy notice      20   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ

NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Global Research Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS Global Research Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure

LOGO

 

Top ten holdings  
Apple, Inc.     2.7%   
Groupe Danone     1.8%   
Royal Dutch Shell PLC, “A”     1.7%   
Oracle Corp.     1.6%   
Exxon Mobil Corp.     1.6%   
Target Corp.     1.5%   
EMC Corp.     1.3%   
Fluor Corp.     1.3%   
Heineken N.V.     1.3%   
Rio Tinto Ltd.     1.2%   

 

Currency exposure weightings (t)  
United States     49.4%   
Euro     17.1%   
United Kingdom     8.7%   
Japan     5.6%   
Switzerland     3.5%   
Hong Kong     3.4%   
India     2.4%   
Brazil     1.9%   
Canada     1.9%   
Other Countries     6.1%   
Global equity sectors  
Capital Goods (s)     21.4%   
Financial Services     20.3%   
Energy     15.8%   
Technology     12.1%   
Consumer Cyclicals     8.7%   
Health Care     8.3%   
Consumer Staples     7.2%   

Telecommunications/Cable Television

     5.5%   

 

Issuer country weightings (e)  
United States     47.8%   
United Kingdom     8.7%   
Japan     5.6%   
France     5.0%   
Germany     4.8%   
Netherlands     4.3%   
Switzerland     3.5%   
India     2.4%   
Brazil     1.9%   
Other Countries     16.0%   
 

 

(e) Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s total net assets.
(s) Includes securities sold short.
(t) Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s total net assets.

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS Global Research Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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        

Annualized

Expense Ratio

     

Beginning

Account Value

1/01/11

     

Ending

Account Value

6/30/11

     

Expenses Paid

During Period (p)

1/01/11-6/30/11

  
Initial Class   Actual      0.95%         $1,000.00         $1,065.00         $4.86   
  Hypothetical (h)      0.95%         $1,000.00         $1,020.08         $4.76   
Service Class   Actual      1.20%         $1,000.00         $1,063.84         $6.14   
  Hypothetical (h)      1.20%         $1,000.00         $1,018.84         $6.01   

 

(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.

Expenses Impacting Table

Expense ratios include 0.02% of investment related expenses from short sale dividend and interest expenses.

 

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MFS Global Research Portfolio

 

PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 99.7%   
Aerospace – 1.6%   
Honeywell International, Inc.      13,900      $ 828,301   
Precision Castparts Corp.      7,850        1,292,503   
Rolls Royce Holdings PLC      40,988        424,305   
    

 

 

  
     $ 2,545,109   
    

 

 

  
Alcoholic Beverages – 1.3%   
Heineken N.V.      33,124      $ 1,992,001   
    

 

 

  
Apparel Manufacturers – 1.0%   
Li & Fung Ltd.      198,000      $ 398,223   
LVMH Moet Hennessy Louis Vuitton S.A.      1,429        257,168   
NIKE, Inc., “B”      9,970        897,101   
    

 

 

  
     $ 1,552,492   
    

 

 

  
Automotive – 2.7%   
Bayerische Motoren Werke AG      16,244      $ 1,620,904   
DENSO Corp.      16,100        597,772   
General Motors Co. (a)      10,200        309,672   
Honda Motor Co. Ltd.      21,800        840,250   
Johnson Controls, Inc.      9,450        393,687   
Mando Corp.      2,627        547,250   
    

 

 

  
     $ 4,309,535   
    

 

 

  
Biotechnology – 0.4%   
Gilead Sciences, Inc. (a)      15,390      $ 637,300   
    

 

 

  
Broadcasting – 1.0%   
Nippon Television Network Corp.      3,470      $ 493,782   
Publicis Groupe S.A. (l)      11,747        654,992   
Viacom, Inc., “B”      7,280        371,280   
    

 

 

  
     $ 1,520,054   
    

 

 

  
Brokerage & Asset Managers – 2.1%   
Affiliated Managers Group, Inc. (a)      7,910      $ 802,470   
BM&F Bovespa S.A.      15,200        100,609   
Deutsche Boerse AG      16,512        1,254,711   
Franklin Resources, Inc.      9,060        1,189,487   
    

 

 

  
     $ 3,347,277   
    

 

 

  
Business Services – 1.4%   
Accenture PLC, “A”      20,710      $ 1,251,298   
Cognizant Technology Solutions Corp., “A” (a)      7,880        577,919   
Mitsubishi Corp.      17,100        428,439   
    

 

 

  
     $ 2,257,656   
    

 

 

  
Cable TV – 1.1%   
Comcast Corp., “Special A”      31,850      $ 771,726   
DIRECTV, “A” (a)      9,900        503,118   
Virgin Media, Inc.      17,270        516,891   
    

 

 

  
     $ 1,791,735   
    

 

 

  
Chemicals – 1.7%   
Celanese Corp.      25,600      $ 1,364,736   
Ecolab, Inc.      6,430        362,523   
Monsanto Co.      10,110        733,379   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Chemicals – continued   
Nufarm Ltd. (a)      64,792      $ 313,276   
    

 

 

  
     $ 2,773,914   
    

 

 

  
Computer Software – 2.7%   
Autodesk, Inc. (a)      15,240      $ 588,264   
Check Point Software Technologies Ltd. (a)      18,460        1,049,451   
Oracle Corp.      78,300        2,576,853   
    

 

 

  
     $ 4,214,568   
    

 

 

  
Computer Software – Systems – 4.7%   
Acer, Inc.      257,679      $ 451,576   
Apple, Inc. (a)(s)      12,850        4,313,360   
EMC Corp. (a)      76,860        2,117,493   
International Business Machines Corp.      3,160        542,098   
    

 

 

  
     $ 7,424,527   
    

 

 

  
Conglomerates – 0.2%   
Hutchison Whampoa Ltd.      35,000      $ 379,470   
    

 

 

  
Construction – 1.1%   
Anhui Conch Cement Co. Ltd.      139,000      $ 654,888   
Corporacion GEO S.A.B. de C.V., “B” (a)      29,150        67,096   
Duratex S.A.      9,360        79,227   
Owens Corning (a)      17,830        665,951   
Urbi Desarrollos Urbanos S.A. de C.V. (a)      151,550        332,521   
    

 

 

  
     $ 1,799,683   
    

 

 

  
Consumer Products – 2.7%   
Avon Products, Inc.      50,290      $ 1,408,120   
Kimberly-Clark de Mexico S.A. de C.V., “A”      110,300        725,756   
Procter & Gamble Co.      21,310        1,354,677   
Reckitt Benckiser Group PLC      15,447        852,834   
    

 

 

  
     $ 4,341,387   
    

 

 

  
Electrical Equipment – 2.6%   
Danaher Corp. (s)      34,780      $ 1,842,992   
Schneider Electric S.A.      5,443        909,293   
Siemens AG      9,788        1,344,178   
    

 

 

  
     $ 4,096,463   
    

 

 

  
Electronics – 2.3%   
Advanced Micro Devices, Inc. (a)      86,189      $ 602,461   
ASML Holding N.V.      18,020        666,019   
First Solar, Inc. (a)(l)      4,640        613,733   
Microchip Technology, Inc.      21,750        824,543   
Samsung Electronics Co. Ltd.      996        774,130   
Samsung Electronics Co. Ltd., GDR      542        210,079   
    

 

 

  
     $ 3,690,965   
    

 

 

  
Energy – Independent – 4.7%   
Apache Corp.      10,200      $ 1,258,578   
Bankers Petroleum Ltd. (a)      70,104        500,094   
Cabot Oil & Gas Corp.      15,290        1,013,880   
Cairn Energy PLC (a)      68,388        455,282   
EOG Resources, Inc.      5,650        590,708   
 

 

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MFS Global Research Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Energy – Independent – continued   
INPEX Corp.      163      $ 1,203,385   
Occidental Petroleum Corp.      15,540        1,616,782   
Reliance Industries Ltd.      38,163        769,393   
          
     $ 7,408,102   
          
Energy – Integrated – 5.3%   
BG Group PLC      33,430      $ 758,661   
BP PLC      227,415        1,674,026   
Exxon Mobil Corp. (s)      30,990        2,521,966   
QEP Resources, Inc.      19,780        827,397   
Royal Dutch Shell PLC, “A”      74,236        2,642,639   
          
     $ 8,424,689   
          
Engineering – Construction – 2.2%   
Fluor Corp.      31,010      $ 2,005,107   
JGC Corp.      35,000        958,528   
Keppel Corp. Ltd.      59,400        537,467   
          
     $ 3,501,102   
          
Food & Beverages – 2.7%   
Bunge Ltd.      6,440      $ 444,038   
General Mills, Inc.      28,510        1,061,142   
Groupe Danone      37,677        2,811,089   
          
     $ 4,316,269   
          
Food & Drug Stores – 1.1%   
Lawson, Inc.      8,700      $ 456,925   
Tesco PLC      193,142        1,246,133   
          
     $ 1,703,058   
          
Gaming & Lodging – 0.6%   
Sands China Ltd. (a)      337,600      $ 919,851   
          
General Merchandise – 2.3%   
Kohl’s Corp.      22,820      $ 1,141,228   
Target Corp.      52,200        2,448,702   
          
     $ 3,589,930   
          
Insurance – 4.0%   
ACE Ltd.      16,990      $ 1,118,282   
AIA Group Ltd. (a)      86,600        301,401   
Hiscox Ltd.      152,849        1,027,625   
ING Groep N.V. (a)      93,875        1,155,631   
MetLife, Inc.      29,730        1,304,255   
Swiss Re Ltd.      24,437        1,372,192   
          
     $ 6,279,386   
          
Internet – 0.6%   
Google, Inc., “A” (a)      1,980      $ 1,002,632   
          
Machinery & Tools – 1.6%   
BEML Ltd.      15,120      $ 196,245   
Cummins, Inc.      4,800        496,752   
Glory Ltd.      20,400        459,188   
MAN SE      2,862        381,664   
Schindler Holding AG      5,433        660,425   
Sinotruk Hong Kong Ltd.      522,500        366,238   
          
     $ 2,560,512   
          
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Major Banks – 7.6%   
Bank of America Corp.      75,750      $ 830,220   
BNP Paribas      21,833        1,685,321   
Credit Suisse Group AG      29,379        1,142,662   
Erste Group Bank AG (l)      19,966        1,046,676   
Goldman Sachs Group, Inc.      8,010        1,066,051   
JPMorgan Chase & Co.      44,680        1,829,199   
Julius Baer Group Ltd.      18,304        756,108   
KBC Group N.V. (l)      20,310        798,164   
Standard Chartered PLC      27,485        722,556   
SunTrust Banks, Inc.      31,310        807,798   
Toronto-Dominion Bank      8,538        723,975   
Westpac Banking Corp.      26,730        641,204   
          
     $ 12,049,934   
          
Medical & Health Technology & Services – 0.9%   
Miraca Holdings, Inc.      20,500      $ 831,692   
Rhoen-Klinikum AG      26,980        651,041   
          
     $ 1,482,733   
          
Medical Equipment – 2.4%   
Becton, Dickinson & Co.      9,470      $ 816,030   
Medtronic, Inc.      31,780        1,224,483   
St. Jude Medical, Inc.      13,760        656,077   
Thermo Fisher Scientific, Inc. (a)      16,890        1,087,547   
          
     $ 3,784,137   
          
Metals & Mining – 3.2%   
Iluka Resources Ltd.      30,490      $ 553,129   
Rio Tinto Ltd.      26,370        1,900,494   
Steel Authority of India Ltd.      109,232        336,523   
Sumitomo Metal Industries Ltd.      157,000        353,120   
Teck Resources Ltd., “B”      35,541        1,806,439   
Usinas Siderurgicas de Minas Gerais S.A., IPS      24,300        213,315   
          
     $ 5,163,020   
          
Natural Gas – Distribution – 0.2%   
Tokyo Gas Co. Ltd.      88,000      $ 398,082   
          
Network & Telecom – 0.4%   
Cisco Systems, Inc.      20,960      $ 327,186   
Finisar Corp. (a)      14,230        256,567   
Nortel Networks Corp. (a)      11,112        556   
          
     $ 584,309   
          
Oil Services – 2.1%   
AMEC PLC      20,610      $ 359,889   
Halliburton Co.      34,020        1,735,020   
Schlumberger Ltd.      10,210        882,144   
Technip      3,880        415,973   
          
     $ 3,393,026   
          
Other Banks & Diversified Financials – 6.0%   
Banco Santander S.A., IEU      107,100      $ 1,255,842   
Bank Rakyat Indonesia      976,500        742,971   
China Construction Bank      1,413,860        1,176,789   
Federal Bank Ltd.      108,953        1,105,587   
ICICI Bank Ltd.      54,948        1,346,826   
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Other Banks & Diversified Financials – continued   
Komercni Banka A.S.      3,473      $ 846,970   
Sberbank of Russia      257,480        947,526   
Visa, Inc., “A”      15,550        1,310,243   
Zions Bancorporation      31,250        750,313   
    

 

 

  
     $ 9,483,067   
    

 

 

  
Pharmaceuticals – 4.6%   
Abbott Laboratories      30,040      $ 1,580,705   
Bayer AG      10,082        810,555   
Pfizer, Inc.      56,620        1,166,372   
Roche Holding AG      9,716        1,625,978   
Sanofi-Aventis      15,852        1,274,442   
Teva Pharmaceutical Industries Ltd., ADR      17,350        836,617   
    

 

 

  
     $ 7,294,669   
    

 

 

  
Precious Metals & Minerals – 0.6%   
Anglo American Platinum Corp. Ltd.      2,398      $ 222,713   
Newcrest Mining Ltd.      16,359        664,021   
    

 

 

  
     $ 886,734   
    

 

 

  
Railroad & Shipping – 0.7%   
CSX Corp.      27,950      $ 732,849   
East Japan Railway Co.      5,900        339,038   
    

 

 

  
     $ 1,071,887   
    

 

 

  
Real Estate – 0.6%   
GSW Immobilien AG (a)      13,233      $ 453,839   
Hang Lung Properties Ltd.      104,000        430,766   
    

 

 

  
     $ 884,605   
    

 

 

  
Restaurants – 1.0%   
McDonald’s Corp.      18,410      $ 1,552,331   
    

 

 

  
Special Products & Services – 0.0%   
Hutchison Port Holdings Trust, IEU (a)      5,000      $ 4,225   
    

 

 

  
Specialty Chemicals – 2.6%   
Airgas, Inc.      14,220      $ 995,969   
Akzo Nobel N.V.      25,001        1,577,101   
Formosa Plastics Corp.      91,000        329,809   
Linde AG      6,689        1,172,736   
    

 

 

  
     $ 4,075,615   
    

 

 

  
Specialty Stores – 1.7%   
Abercrombie & Fitch Co., “A”      8,660      $ 579,527   
Industria de Diseno Textil S.A.      7,454        679,264   
Tiffany & Co.      12,510        982,285   
Urban Outfitters, Inc. (a)      15,710        442,237   
    

 

 

  
     $ 2,683,313   
    

 

 

  
Telecommunications – Wireless – 1.0%   
Vodafone Group PLC      631,123      $ 1,674,359   
    

 

 

  
Telephone Services – 3.4%   
American Tower Corp., “A” (a)      9,370      $ 490,332   
AT&T, Inc.      33,410        1,049,408   
China Unicom Ltd.      388,000        785,684   
Royal KPN N.V.      98,199        1,428,305   
Telecom Italia S.p.A.      332,049        386,420   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Telephone Services – continued   
Telecom Italia S.p.A.      332,653      $ 462,860   
Telecomunicacoes de Sao Paulo S.A., ADR      27,843        826,937   
    

 

 

  
     $ 5,429,946   
    

 

 

  
Tobacco – 0.5%   
Japan Tobacco, Inc.      197      $ 760,268   
    

 

 

  
Trucking – 1.0%   
Expeditors International of Washington, Inc.      15,940      $ 815,969   
Yamato Holdings Co. Ltd.      46,500        730,369   
    

 

 

  
     $ 1,546,338   
    

 

 

  
Utilities – Electric Power – 3.5%   
American Electric Power Co., Inc.      18,090      $ 681,631   
CEZ AS      16,438        845,862   
CMS Energy Corp.      75,760        1,491,714   
Energias de Portugal S.A.      261,092        927,246   
Fortum Corp.      33,848        980,221   
Tractebel Energia S.A.      32,470        572,149   
    

 

 

  
     $ 5,498,823   
    

 

 

  
Total Common Stocks
(Identified Cost, $138,189,234)		      $ 158,081,088   
    

 

 

  
MONEY MARKET FUNDS (v) – 0.2%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      275,875      $ 275,875   
    

 

 

  
COLLATERAL FOR SECURITIES LOANED – 1.1%   
Navigator Securities Lending Prime Portfolio, 0.23%, at Cost and Net Asset Value (j)      1,785,515      $ 1,785,515   
    

 

 

  
Total Investments
(Identified Cost, $140,250,624)		      $ 160,142,478   
    

 

 

  
SECURITIES SOLD SHORT – (0.4)%   
Machinery & Tools – (0.4)%   
Caterpillar, Inc.
(Proceeds Received, $344,098)		      (5,300 )    $ (564,238 ) 
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – (0.6)%		        (993,044 ) 
    

 

 

  
Net Assets – 100.0%      $ 158,585,196   
    

 

 

  

 

(a) Non-income producing security.

 

(j) The rate quoted is the annualized seven-day yield of the portfolio at period end.

 

(l) A portion of this security is on loan.

 

(s) Security or a portion of the security was pledged to cover collateral requirements for securities sold short. At June 30, 2011, the value of securities pledged amounted to $891,651.

 

(v) Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

ADR   American Depository Receipt

 

GDR   Global Depository Receipt

 

IEU   International Equity Unit

 

IPS   International Preference Stock

 

PLC   Public Limited Company

See Notes to Financial Statements

 

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $139,974,749)

      $159,866,603      

Underlying affiliated funds, at cost and value

      275,875            

Total investments, at value, including $1,760,010 of securities on loan (identified cost, $140,250,624)

      $160,142,478            

Foreign currency, at value (identified cost, $277,519)

      278,452      

Deposits with brokers for securities sold short

      252,351      

Receivables for

      

Investments sold

      2,984,325      

Interest and dividends

      410,541      

Other assets

      2,654            

Total assets

               $164,070,801   

Liabilities

                  

Payables for

      

Securities sold short, at value (proceeds received, $344,098)

      $564,238      

Investments purchased

      2,968,389      

Fund shares reacquired

      77,574      

Collateral for securities loaned, at value

      1,785,515      

Payable to affiliates

      

Investment adviser

      6,684      

Shareholder servicing costs

      90      

Distribution and/or service fees

      215      

Payable for Trustees’ compensation

      2,657      

Accrued expenses and other liabilities

      80,243            

Total liabilities

               $5,485,605   

Net assets

               $158,585,196   

Net assets consist of

                  

Paid-in capital

      $179,320,464      

Unrealized appreciation (depreciation) on investments and translation of assets
and liabilities in foreign currencies (net of $4,779 deferred country tax)

      19,672,434      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      (43,640,731 )    

Undistributed net investment income

      3,233,029            

Net assets

               $158,585,196   

Shares of beneficial interest outstanding

               7,749,142   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $142,608,756         6,963,120         $20.48   

Service Class

      15,976,440         786,022         20.33   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment income                  

Income

      

Dividends

      $2,430,581      

Interest

      48,847      

Dividends from underlying affiliated funds

      152      

Foreign taxes withheld

      (195,159 )          

Total investment income

               $2,284,421   

Expenses

      

Management fee

      $604,089      

Distribution and/or service fees

      20,796      

Shareholder servicing costs

      8,999      

Administrative services fee

      27,348      

Trustees’ compensation

      9,131      

Custodian fee

      50,589      

Shareholder communications

      9,503      

Auditing fees

      27,163      

Legal fees

      3,766      

Dividend and interest expense on securities sold short

      10,434      

Miscellaneous

      12,838            

Total expenses

               $784,656   

Fees paid indirectly

      (11 )          

Net expenses

               $784,645   

Net investment income

               $1,499,776   

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions (net of $159 country tax)

      $9,730,424      

Written option transactions

      4,158      

Securities sold short

      (61,453 )    

Foreign currency transactions

      18,073            

Net realized gain (loss) on investments and foreign currency transactions

               $9,691,202   

Change in unrealized appreciation (depreciation)

      

Investments (net of $14,289 decrease in deferred country tax)

      $(973,325 )    

Securities sold short

      (20,285 )    

Translation of assets and liabilities in foreign currencies

      (12,938 )          

Net unrealized gain (loss) on investments and foreign currency translation

               $(1,006,548 ) 

Net realized and unrealized gain (loss) on investments and foreign currency

               $8,684,654   

Change in net assets from operations

               $10,184,430   

See Notes to Financial Statements

 

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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.

 

    

 

 

 Six months ended

6/30/11

(unaudited

   

  

) 

     
 		 Year ended
12/31/10		   
  

Change in net assets

      

From operations

                  

Net investment income

      $1,499,776         $1,800,366   

Net realized gain (loss) on investments and foreign currency transactions

      9,691,202         10,963,173   

Net unrealized gain (loss) on investments and foreign currency translation

      (1,006,548 )       5,583,187   

Change in net assets from operations

      $10,184,430         $18,346,726   

Distributions declared to shareholders

                  

From net investment income

      $—         $(2,115,081 ) 

Change in net assets from fund share transactions

      $(12,791,319 )       $(22,699,043 ) 

Total change in net assets

      $(2,606,889 )       $(6,467,398 ) 

Net assets

                  

At beginning of period

      161,192,085         167,659,483   

At end of period (including undistributed net investment income of $3,233,029 and
$1,733,253, respectively)

      $158,585,196         $161,192,085   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class     

Six months

ended
6/30/11

     Years ended 12/31  
         2010        2009        2008        2007        2006  
       (unaudited)                                            

Net asset value, beginning of period

        $19.23        $17.29           $13.30           $21.04           $18.73           $17.04   
Income (loss) from investment operations                                                               

Net investment income (d)

        $0.19        $0.20           $0.20           $0.19           $0.10           $0.13   

Net realized and unrealized gain (loss) on investments and foreign currency

        1.06        1.97           4.03           (7.81 )         2.37           1.67   

Total from investment operations

        $1.25        $2.17           $4.23           $(7.62 )         $2.47           $1.80   
Less distributions declared to shareholders                                                               

From net investment income

        $—        $(0.23 )         $(0.24 )         $(0.12 )         $(0.16 )         $(0.11 ) 

Net asset value, end of period

        $20.48        $19.23           $17.29           $13.30           $21.04           $18.73   

Total return (%) (k)(s)

        6.50 (n)      12.66           32.44           (36.43 )         13.24           10.62   

Ratios (%) (to average net assets)

and Supplemental data:

                                                               

Expenses (f)

        0.95 (a)      0.97           0.98           0.87           0.83           0.82   

Net investment income

        1.89 (a)(l)      1.18           1.42           1.06           0.48           0.76   

Portfolio turnover

        31        59           63           144           84           87   

Net assets at end of period (000 omitted)

        $142,609        $144,156           $149,758           $134,672           $268,217           $309,757   
Supplemental Ratios (%):                                                               

Ratio of expenses to average net assets excluding short sale dividend and interest expense (f)

        0.93 (a)      0.96           0.98           N/A           N/A           N/A   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

 

Service Class     

Six months

ended
6/30/11

      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $19.11         $17.18           $13.21           $20.89           $18.60           $16.93   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.16         $0.16           $0.17           $0.14           $0.05           $0.09   

Net realized and unrealized gain (loss) on investments and foreign currency

        1.06         1.96           3.99           (7.76 )         2.36           1.65   

Total from investment operations

        $1.22         $2.12           $4.16           $(7.62 )         $2.41           $1.74   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.19 )         $(0.19 )         $(0.06 )         $(0.12 )         $(0.07 ) 

Net asset value, end of period

        $20.33         $19.11           $17.18           $13.21           $20.89           $18.60   

Total return (%) (k)(s)

        6.38 (n)       12.42           32.03           (36.57 )         12.97           10.32   

Ratios (%) (to average net assets)

and Supplemental data:

                                                                

Expenses (f)

        1.20 (a)       1.22           1.23           1.12           1.08           1.07   

Net investment income

        1.62 (a)(l)       0.93           1.21           0.81           0.23           0.54   

Portfolio turnover

        31         59           63           144           84           87   

Net assets at end of period (000 omitted)

        $15,976         $17,036           $17,901           $18,199           $28,832           $29,316   
Supplemental Ratios (%):                                                                

Ratio of expenses to average net assets excluding short sale dividend and interest expense (f)

        1.18 (a)       1.21           1.23           N/A           N/A           N/A   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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.

 

(l) Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by companies in which the fund invests and the actual annual net investment income ratio may differ.

 

(n) Not annualized.

 

(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. Excluding the effect of the proceeds received from a non-recurring litigation settlement against Enron Corp., the Initial Class and Service Class total returns for the year ended December 31, 2008 would have each been lower by approximately 0.86%. Excluding the effect of the proceeds received from a non-recurring litigation settlement against Tyco International Ltd., the Initial Class and Service Class total returns for the year ended December 31, 2010 would have been lower by approximately 0.71% and 0.70%, respectively.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Global Research Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests 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 provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as provided by a third-party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as provided by a third-party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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

 

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Notes to Financial Statements (unaudited) – continued

 

investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities:            

United States

      $75,245,589         $—         $—         $75,245,589   

United Kingdom

      13,738,804         —         —         13,738,804   

Japan

      —         8,850,838         —         8,850,838   

France

      8,008,278         —         —         8,008,278   

Germany

      7,689,629         —         —         7,689,629   

Netherlands

      6,819,057         —         —         6,819,057   

Switzerland

      5,557,366         —         —         5,557,366   

India

      196,245         3,558,330         —         3,754,575   

Brazil

      3,048,080         —         —         3,048,080   

Other Countries

      14,400,730         10,968,142         —         25,368,872   
Mutual Funds      2,061,390         —         —         2,061,390   
Total Investments      $136,765,168         $23,377,310         $—         $160,142,478   
Short Sales      $(564,238 )       $—         $—         $(564,238 ) 

For further information regarding security characteristics, see the Portfolio of Investments.

Of the level 2 investments presented above, equity investments amounting to $16,936,030 would have been considered level 1 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.

Derivatives – The fund uses derivatives for different purposes, including to earn income and enhance returns, to increase or decrease exposure to a particular market, to manage or adjust the risk profile of the fund, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.

The derivative instruments used by the fund were written options and purchased options. At June 30, 2011, the fund did not have any outstanding derivative instruments.

 

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Notes to Financial Statements (unaudited) – continued

 

The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk    Investment
Transactions
(Purchased Options)		      Written Options  
Equity      $(4,604 )       $4,158   

There is no unrealized gain (loss) from derivative transactions at period end.

Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swaps and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.

Written Options – In exchange for a premium, the fund wrote put options on securities that it anticipated the price would increase. At the time the option was written, the fund believed the premium received exceeded the potential loss that could result from adverse price changes in the options’ underlying securities. In a written option, the fund as the option writer grants the buyer the right to purchase from, or sell to, the fund a specified number of shares or units of a particular security, currency or index at a specified price within a specified period of time.

The premium received is initially recorded as a liability on the Statement of Assets and Liabilities. The option is subsequently marked-to-market daily with the difference between the premium received and the market value of the written option being recorded as unrealized appreciation or depreciation. When a written option expires, the fund realizes a gain equal to the amount of the premium received. The difference between the premium received and the amount paid on effecting a closing transaction is considered a realized gain or loss. When a written put option is exercised, the premium reduces the cost basis of the security purchased by the fund.

At the initiation of the written option contract, for exchange traded options, the fund is required to deposit securities or cash as collateral with the custodian for the benefit of the broker. For over-the-counter options, the fund may post collateral subject to the terms of an ISDA Master Agreement as generally described above if the market value of the options contract moves against it. The fund, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities underlying the written option. Losses from writing options can exceed the premium received and can exceed the potential loss from an ordinary buy and sell transaction. Although the fund’s market risk may be significant, the maximum counterparty credit risk to the fund is equal to the market value of any collateral posted to the broker. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above.

 

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Notes to Financial Statements (unaudited) – continued

 

Written Option Transactions

 

    

Number of

contracts

      Premiums
received		  
Outstanding, beginning of period      —         $—   
Options written      297         4,158   
Options expired      (297 )       (4,158 ) 
Outstanding, end of period      —         $—   

Purchased Options – The fund purchased call options for a premium. Purchased call options entitle the holder to buy a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing call options may be used to hedge against an anticipated increase in the dollar cost of securities or currency to be acquired or to increase the fund’s exposure to an underlying instrument.

The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased call options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased call option, the premium paid is added to the cost of the security or financial instrument.

The risk in purchasing an option is that the fund pays a premium whether or not the option is exercised. The fund’s maximum risk of loss due to counterparty credit risk is limited to the market value of the option. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

Short Sales – The fund entered into short sales whereby it sells a security it does not own in anticipation of a decline in the value of that security. The fund 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 fund replaces the borrowed security. Losses from short sales can exceed the proceeds of the security sold; and they can also exceed the potential loss from an ordinary buy and sell transaction. The amount of any premium, dividends, or interest the fund may be required to pay in connection with a short sale will be recognized as a fund expense. During the six months ended June 30, 2011, this expense amounted to $10,434. The fund 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.

Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund 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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. 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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

 

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Notes to Financial Statements (unaudited) – continued

 

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 expiration of capital loss carryforwards and wash sale loss deferrals.

The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $2,115,081   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $140,595,077   
Gross appreciation      23,885,591   
Gross depreciation      (4,338,190 ) 
Net unrealized appreciation (depreciation)      $19,547,401   
As of 12/31/10   
Undistributed ordinary income      1,733,253   
Capital loss carryforwards      (52,987,481 ) 
Other temporary differences      (200,486 ) 
Net unrealized appreciation (depreciation)      20,535,016   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $(34,265,726 ) 
12/31/17      (18,721,755 ) 
Total      $(52,987,481 ) 

 

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Notes to Financial Statements (unaudited) – continued

 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $1,921,573   
Service Class      —         193,508   
Total      $—         $2,115,081   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $300 million of average daily net assets      0.75%   
Average daily net assets in excess of $300 million      0.675%   

The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2011, the fee was $8,995, which equated to 0.0112% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2011, these costs amounted to $4.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0339% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $1,328 and are included in miscellaneous expense on the Statement of Operations.

 

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Notes to Financial Statements (unaudited) – continued

 

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, short sales, and short-term obligations, aggregated $51,103,785 and $62,700,575, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      4,456         $88,626         17,219         $315,125   

Service Class

      25,693         512,169         76,615         1,283,428   
     30,149         $600,795         93,834         $1,598,553   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         107,231         $1,921,573   

Service Class

      —         —         10,847         193,508   
     —         $—         118,078         $2,115,081   
Shares reacquired            

Initial Class

      (536,048 )       $(10,787,064 )       (1,293,440 )       $(22,290,770 ) 

Service Class

      (131,013 )       (2,605,050 )       (238,078 )       (4,121,907 ) 
     (667,061 )       $(13,392,114 )       (1,531,518 )       $(26,412,677 ) 
Net change            

Initial Class

      (531,592 )       $(10,698,438 )       (1,168,990 )       $(20,054,072 ) 

Service Class

      (105,320 )       (2,092,881 )       (150,616 )       (2,644,971 ) 
     (636,912 )       $(12,791,319 )       (1,319,606 )       $(22,699,043 ) 

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $656 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		    Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio    20      10,257,787         (9,981,932 )       275,875   
Underlying Affiliated Funds    Realized
Gain (Loss)		    Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio    $—      $—         $152         $275,875   

 

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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

21

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LOGO

Table of Contents

LOGO

 

MFS® Technology Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

TKS-SEM

Table of Contents

MFS® TECHNOLOGY PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      6   
Statement of operations      7   
Statements of changes in net assets      8   
Financial highlights      9   
Notes to financial statements      11   
Board review of investment advisory agreement      18   
Proxy voting policies and information      18   
Quarterly portfolio disclosure      18   
Further information      18   
MFS® privacy notice      19   

 

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ

NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Technology Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS Technology Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure (i)

LOGO

 

Top ten holdings (i)  
Apple, Inc.     11.4%   
Oracle Corp.     8.0%   
Google, Inc., “A”     5.9%   
Amazon.com, Inc.     5.3%   
EMC Corp.     5.0%   
International Business Machines Corp.     3.9%   
Qualcomm, Inc.     2.9%   
Visa, Inc., “A”     2.7%   
Advanced Micro Devices, Inc.     2.7%   
Microchip Technology, Inc.     2.3%   
Top five industries (i)  
Computer Software – Systems     25.2%   
Computer Software     19.8%   
Electronics (s)     13.1%   
Internet     8.8%   
Business Services (s)     5.8%   
 

 

(i) For purposes of this presentation, the components include the market value of securities, less any securities sold short, and reflect the impact of the equivalent exposure of derivative positions, if applicable. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value.
(s) Includes securities sold short.

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS Technology Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      1.07%         $1,000.00         $1,032.16         $5.39   
  Hypothetical (h)      1.07%         $1,000.00         $1,019.49         $5.36   
Service Class   Actual      1.32%         $1,000.00         $1,033.03         $6.65   
  Hypothetical (h)      1.32%         $1,000.00         $1,018.25         $6.61   

 

(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.

Expenses Impacting Table

Expense ratios include 0.07% of investment related expenses from short sale dividend and interest expenses that are outside of the expense cap arrangement (See Note 3 of the Notes to Financial Statements).

 

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MFS Technology Portfolio

 

PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 100.6%   
Broadcasting – 2.7%     
Nielsen Holdings B.V. (a)      8,950      $ 278,882   
Viacom, Inc., “B”      7,990        407,490   
    

 

 

  
     $ 686,372   
    

 

 

  
Business Services – 6.5%     
Accenture PLC, “A”      7,800      $ 471,276   
Cognizant Technology Solutions Corp., “A” (a)      7,640        560,318   
Concur Technologies, Inc. (a)      2,380        119,167   
Constant Contact, Inc. (a)      1,600        40,608   
FleetCor Technologies, Inc. (a)      9,510        281,876   
MSCI, Inc., “A” (a)      5,740        216,283   
    

 

 

  
     $ 1,689,528   
    

 

 

  
Computer Software – 19.7%     
Autodesk, Inc. (a)      9,450      $ 364,770   
Autonomy Corp. PLC (a)      14,431        395,359   
BMC Software, Inc. (a)      5,180        283,346   
Check Point Software Technologies Ltd. (a)      2,470        140,420   
Oracle Corp. (s)      63,400        2,086,494   
Parametric Technology Corp. (a)      9,860        226,090   
Red Hat, Inc. (a)      9,680        444,312   
Rovi Corp. (a)      2,740        157,166   
Salesforce.com, Inc. (a)      1,800        268,164   
Symantec Corp. (a)      17,080        336,818   
VeriSign, Inc.      12,160        406,873   
    

 

 

  
     $ 5,109,812   
    

 

 

  
Computer Software – Systems – 25.2%   
Active Network, Inc. (a)      8,040      $ 141,504   
Apple, Inc. (a)(s)      8,840        2,967,323   
EMC Corp. (a)(s)      46,850        1,290,718   
Fusion-io, Inc. (a)      2,620        78,836   
International Business Machines Corp.      5,850        1,003,568   
IntraLinks Holdings, Inc. (a)      5,630        97,286   
NetApp, Inc. (a)      5,570        293,985   
Qlik Technologies, Inc. (a)      4,700        160,082   
Quantum Corp. (a)      25,440        83,952   
ServiceSource International, Inc. (a)      4,720        104,878   
Tech Data Corp. (a)      3,410        166,715   
Verifone Systems, Inc. (a)      3,480        154,338   
    

 

 

  
     $ 6,543,185   
    

 

 

  
Consumer Services – 2.1%     
HomeAway, Inc. (a)      4,060      $ 157,122   
Priceline.com, Inc. (a)      730        373,709   
    

 

 

  
     $ 530,831   
    

 

 

  
Electronics – 15.8%     
Advanced Micro Devices, Inc. (a)      98,897      $ 691,290   
Aeroflex Holding Corp. (a)      7,170        130,136   
ASML Holding N.V.      6,300        232,848   
Broadcom Corp., “A”      9,210        309,824   
Entropic Communications, Inc. (a)      20,660        183,667   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Electronics – continued     
First Solar, Inc. (a)      3,590      $ 474,849   
Hittite Microwave Corp. (a)      1,800        111,438   
JDS Uniphase Corp. (a)      23,460        390,844   
KLA-Tencor Corp.      14,160        573,197   
Microchip Technology, Inc.      15,730        596,324   
O2Micro International Ltd., ADR (a)      9,880        64,220   
SanDisk Corp. (a)      2,500        103,750   
Skyworks Solutions, Inc. (a)      5,600        128,688   
Stratasys, Inc. (a)      3,060        103,122   
    

 

 

  
     $ 4,094,197   
    

 

 

  
Internet – 8.8%     
Demand Media, Inc. (a)      7,990      $ 108,265   
Google, Inc., “A” (a)(s)      3,040        1,539,395   
LinkedIn Corp., “A” (a)      1,700        153,153   
Mail.ru Group Ltd., GDR (a)(z)      4,158        138,129   
OpenTable, Inc. (a)      940        78,133   
WebMD Health Corp. (a)      1,730        78,853   
Yahoo!, Inc. (a)      12,360        185,894   
    

 

 

  
     $ 2,281,822   
    

 

 

  
Leisure & Toys – 1.4%     
THQ, Inc. (a)      101,170      $ 366,235   
    

 

 

  
Network & Telecom – 6.4%     
F5 Networks, Inc. (a)      2,240      $ 246,960   
Finisar Corp. (a)      19,400        349,782   
Juniper Networks, Inc. (a)      1,900        59,850   
Qualcomm, Inc.      13,120        745,085   
Radware Ltd. (a)      3,730        129,953   
Sycamore Networks, Inc.      5,750        127,880   
    

 

 

  
     $ 1,659,510   
    

 

 

  
Other Banks & Diversified Financials – 5.0%     
MasterCard, Inc., “A”      1,930      $ 581,586   
Visa, Inc., “A”      8,320        701,043   
    

 

 

  
     $ 1,282,629   
    

 

 

  
Specialty Stores – 5.3%     
Amazon.com, Inc. (a)      6,770      $ 1,384,397   
    

 

 

  
Telecommunications – Wireless – 1.0%   
SBA Communications Corp. (a)      6,970      $ 266,184   
    

 

 

  
Telephone Services – 0.7%     
Cogent Communications Group, Inc. (a)      10,860      $ 184,729   
    

 

 

  
Total Common Stocks
(Identified Cost, $24,617,172)		      $ 26,079,431   
    

 

 

  
Issuer/Expiration Date/ Strike Price    Number of
Contracts		        
CALL OPTIONS PURCHASED – 0.0%   
Finisar Corp. – July 2011 @ $26 (Premiums Paid, $3,621)      71      $ 355   
    

 

 

  
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer/Expiration Date/ Strike Price    Number of
Contracts		     Value ($)  
    
PUT OPTIONS PURCHASED – 0.0%   
Sierra Wireless, Inc. – September 2011 @ $12.50 (Premiums Paid, $8,415)      55      $ 7,975   
    

 

 

  
Issuer    Shares/Par        

MONEY MARKET FUNDS (v) – 0.7%

  

MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      173,256      $ 173,256   
    

 

 

  
Total Investments
(Identified Cost, $24,802,464)		      $ 26,261,017   
    

 

 

  
Issuer/Expiration Date/ Strike Price    Number of
Contracts		        
PUT OPTIONS WRITTEN – 0.0%   
Red Hat, Inc. – July 2011 @ $42
(Premiums Received, $1,606)		      (44 )    $ (1,012 ) 
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
SECURITIES SOLD SHORT – (4.1)%   
Business Services – (0.7)%     
Computer Sciences Corp.      (5,100 )    $ (193,596 ) 
    

 

 

  
Electronics – (2.7)%     
Atmel Corp. (a)      (6,400 )    $ (90,048 ) 
Celestica, Inc. (a)      (10,000 )      (87,600 ) 
Dolby Laboratories, Inc., “A” (a)      (2,800 )      (118,888 ) 
Fairchild Semiconductor International, Inc. (a)      (7,800 )      (130,338 ) 
Xilinx, Inc.      (7,200 )      (262,584 ) 
    

 

 

  
     $ (689,458 ) 
    

 

 

  
Network & Telecom – (0.7)%     
Sierra Wireless, Inc. (a)      (16,000 )    $ (187,040 ) 
    

 

 

  
Total Securities Sold Short
(Proceeds Received, $1,012,565)		      $ (1,070,094 ) 
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – 2.8%		        729,463   
    

 

 

  
Net Assets – 100.0%      $ 25,919,374   
    

 

 

  
 
(a) Non-income producing security.

 

(s) Security or a portion of the security was pledged to cover collateral requirements for securities sold short and written options. At June 30, 2011, the value of securities pledged amounted to $552,011.

 

(v) Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

 

(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities:

 

Restricted Securities   

Acquisition

Date

    Cost      Value  
Mail.ru Group Ltd., GDR    11/05/10-4/27/11      $143,090         $138,129   
% of Net Assets            0.5%   

The following abbreviations are used in this report and are defined:

 

ADR   American Depository Receipt

 

GDR   Global Depository Receipt

 

PLC   Public Limited Company

See Notes to Financial Statements

 

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MFS Technology Portfolio

 

FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $24,629,208)

      $26,087,761      

Underlying affiliated funds, at cost and value

      173,256            

Total investments, at value (identified cost, $24,802,464)

      $26,261,017            

Deposits with brokers for securities sold short

      991,471      

Receivables for

      

Investments sold

      217,378      

Fund shares sold

      28,605      

Dividends

      1,448      

Receivable from investment adviser

      4,699      

Other assets

      427            

Total assets

               $27,505,045   

Liabilities

                  

Payables for

      

Dividends on securities sold short

      $1,020      

Securities sold short, at value (proceeds received, $1,012,565)

      1,070,094      

Investments purchased

      457,128      

Fund shares reacquired

      21,774      

Written options outstanding, at value (premiums received, $1,606)

      1,012      

Payable to affiliates

      

Shareholder servicing costs

      15      

Distribution and/or service fees

      140      

Payable for Trustees’ compensation

      325      

Accrued expenses and other liabilities

      34,163            

Total liabilities

               $1,585,671   

Net assets

               $25,919,374   

Net assets consist of

                  

Paid-in capital

      $27,650,029      

Unrealized appreciation (depreciation) on investments

      1,401,618      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      (3,072,862 )    

Accumulated net investment loss

      (59,411 )          

Net assets

               $25,919,374   

Shares of beneficial interest outstanding

               3,709,518   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $15,605,762         2,209,383         $7.06   

Service Class

      10,313,612         1,500,135         6.88   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment loss                  

Income

      

Dividends

      $82,939      

Interest

      4,235      

Dividends from underlying affiliated funds

      182      

Foreign taxes withheld

      (553 )          

Total investment income

               $86,803   

Expenses

      

Management fee

      $94,484      

Distribution and/or service fees

      11,444      

Shareholder servicing costs

      1,411      

Administrative services fee

      8,679      

Trustees’ compensation

      1,222      

Custodian fee

      6,611      

Shareholder communications

      3,036      

Auditing fees

      26,650      

Legal fees

      3,766      

Dividend and interest expense on securities sold short

      8,570      

Miscellaneous

      5,848            

Total expenses

               $171,721   

Fees paid indirectly

      (9 )    

Reduction of expenses by investment adviser

      (25,498 )          

Net expenses

               $146,214   

Net investment loss

               $(59,411 ) 

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions

      $1,110,937      

Written option transactions

      155,279      

Securities sold short

      (290,888 )    

Foreign currency transactions

      (1,263 )          

Net realized gain (loss) on investments and foreign currency transactions

               $974,065   

Change in unrealized appreciation (depreciation)

      

Investments

      $(431,656 )    

Written options

      (5,431 )    

Securities sold short

      155,347            

Net unrealized gain (loss) on investments

               $(281,740 ) 

Net realized and unrealized gain (loss) on investments

               $692,325   

Change in net assets from operations

               $632,914   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		   
  
) 		     
 		 Year ended
12/31/10		   
  

Change in net assets

      

From operations

                  

Net investment loss

      $(59,411 )       $(10,781 ) 

Net realized gain (loss) on investments and foreign currency transactions

      974,065         1,919,750   

Net unrealized gain (loss) on investments

      (281,740 )       1,377,709   

Change in net assets from operations

      $632,914         $3,286,678   

Change in net assets from fund share transactions

      $3,790,488         $1,890,876   

Total change in net assets

      $4,423,402         $5,177,554   

Net assets

                  

At beginning of period

      21,495,972         16,318,418   

At end of period (including accumulated net investment loss of $59,411 and
$0, respectively)

      $25,919,374         $21,495,972   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010      2009      2008      2007        2006  
       (unaudited)                                       

Net asset value, beginning of period

        $6.84         $5.67         $3.21         $6.54         $5.44           $4.46   
Income (loss) from investment operations                                                          

Net investment income (loss) (d)

        $(0.01 )       $(0.00 )(w)       $(0.00 )(w)       $(0.00 )(w)       $(0.02 )         $(0.03 ) 

Net realized and unrealized gain (loss) on investments
and foreign currency

        0.23         1.17         2.46         (3.33 )       1.12           1.01   

Total from investment operations

        $0.22         $1.17         $2.46         $(3.33 )       $1.10           $0.98   

Net asset value, end of period

        $7.06         $6.84         $5.67         $3.21         $6.54           $5.44   

Total return (%) (k)(r)(s)

        3.22 (n)       20.63         76.64         (50.92 )       20.22           21.97   
Ratios (%) (to average net assets)
and Supplemental data:		                                                          

Expenses before expense reductions (f)

        1.27 (a)       1.38         1.60         1.39         1.21           1.34   

Expenses after expense reductions (f)

        1.07 (a)       1.07         1.04         1.02         1.00           1.00   

Net investment loss

        (0.39 )(a)       (0.07 )       (0.05 )       (0.00 )(w)       (0.31 )         (0.55 ) 

Portfolio turnover

        48         140         227         244         249           234   

Net assets at end of period (000 omitted)

        $15,606         $15,844         $14,542         $8,051         $21,184           $18,813   
Supplemental Ratios (%):                                                          

Ratio of expenses to average net assets after expense
reductions excluding short sale dividend and interest
expense (f)

        1.00 (a)       1.00         1.00         1.00         N/A           N/A   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010      2009        2008        2007        2006  
       (unaudited)                                           

Net asset value, beginning of period

        $6.66         $5.54         $3.14           $6.42           $5.35           $4.40   
Income (loss) from investment operations                                                              

Net investment income (loss) (d)

        $(0.02 )       $(0.00 )(w)       $(0.01 )         $(0.02 )         $(0.03 )         $(0.04 ) 

Net realized and unrealized gain (loss) on investments
and foreign currency

        0.24         1.12         2.41           (3.26 )         1.10           0.99   

Total from investment operations

        $0.22         $1.12         $2.40           $(3.28 )         $1.07           $0.95   

Net asset value, end of period

        $6.88         $6.66         $5.54           $3.14           $6.42           $5.35   

Total return (%) (k)(r)(s)

        3.30 (n)       20.22         76.43           (51.09 )         20.00           21.59   

Ratios (%) (to average net assets)

and Supplemental data:

                                                              

Expenses before expense reductions (f)

        1.52 (a)       1.63         1.85           1.62           1.46           1.59   

Expenses after expense reductions (f)

        1.32 (a)       1.32         1.29           1.27           1.25           1.25   

Net investment loss

        (0.61 )(a)       (0.04 )       (0.32 )         (0.29 )         (0.56 )         (0.80 ) 

Portfolio turnover

        48         140         227           244           249           234   

Net assets at end of period (000 omitted)

        $10,314         $5,652         $1,776           $990           $3,555           $3,148   
Supplemental Ratios (%):                                                              

Ratio of expenses to average net assets after expense
reductions excluding short sale dividend and interest
expense (f)

        1.25 (a)       1.25         1.25           1.25           N/A           N/A   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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 fund may receive proceeds from litigation settlements, without which performance would be lower. Excluding the effect of the proceeds received from a non-recurring litigation settlement against Nortel Networks Corp., the total returns for the year ended December 31, 2008 would have been lower by approximately 0.58%.

 

(w) Per share amount was less than $0.01.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Technology Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests primarily in securities of issuers in the technology industry. Issuers in a single industry can react similarly to market, economic, political and regulatory conditions and developments.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as provided by a third-party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as provided by a third-party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the

 

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Notes to Financial Statements (unaudited) – continued

 

fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as written options. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities:            

United States

      $24,978,502         $355         $—         $24,978,857   

United Kingdom

      395,359         —         —         395,359   

Israel

      270,373         —         —         270,373   

Netherlands

      232,848         —         —         232,848   

Russia

      —         138,129         —         138,129   

Cayman Islands

      64,220         —         —         64,220   

Canada

      7,975         —         —         7,975   
Mutual Funds      173,256         —         —         173,256   
Total Investments      $26,122,533         $138,484         $—         $26,261,017   
Short Sales      $(1,070,094 )       $—         $—         (1,070,094 ) 
Other Financial Instruments                            
Written Options      $(1,012 )       $—         $—         $(1,012 ) 

For further information regarding security characteristics, see the Portfolio of Investments.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.

Derivatives – The fund uses derivatives for different purposes, including to earn income and enhance returns, to increase or decrease exposure to a particular market, to manage or adjust the risk profile of the fund, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.

The derivative instruments used by the fund were written options and purchased options. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract Tables, generally are indicative of the volume of its derivative activity during the period.

The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2011 as reported in the Statement of Assets and Liabilities:

 

          Fair Value (a)  
Risk    Derivative Contracts    Asset Derivatives      Liability Derivatives  
Equity    Purchased Equity Options      $8,330         $—   
Equity    Written Equity Options      —         (1,012 ) 
Total         $8,330         $(1,012 ) 

 

(a) The value of purchased options outstanding is included in total investments, at value, within the fund’s Statement of Assets and Liabilities.

 

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Notes to Financial Statements (unaudited) – continued

 

The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk    Investment
Transactions
(Purchased Options)		      Written Options  
Equity      $(148,532 )       $155,279   

The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk    Investments
(Purchased Options)		      Written Options  
Equity      $118,710         $(5,431 ) 

Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swaps and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.

Written Options – In exchange for a premium, the fund wrote call options on securities that it anticipated the price would decline and also wrote put options on securities that it anticipated the price would increase. At the time the option was written, the fund believed the premium received exceeded the potential loss that could result from adverse price changes in the options’ underlying securities. In a written option, the fund as the option writer grants the buyer the right to purchase from, or sell to, the fund a specified number of shares or units of a particular security, currency or index at a specified price within a specified period of time.

The premium received is initially recorded as a liability on the Statement of Assets and Liabilities. The option is subsequently marked-to-market daily with the difference between the premium received and the market value of the written option being recorded as unrealized appreciation or depreciation. When a written option expires, the fund realizes a gain equal to the amount of the premium received. The difference between the premium received and the amount paid on effecting a closing transaction is considered a realized gain or loss. When a written call option is exercised, the premium received is offset against the proceeds to determine the realized gain or loss. When a written put option is exercised, the premium reduces the cost basis of the security purchased by the fund.

At the initiation of the written option contract, for exchange traded options, the fund is required to deposit securities or cash as collateral with the custodian for the benefit of the broker. For over-the-counter options, the fund may post collateral subject to the terms of an ISDA Master Agreement as generally described above if the market value of the options contract moves against it. The fund, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities underlying the written option. Losses from writing options can exceed the premium received and can exceed the potential loss from an ordinary buy

 

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Notes to Financial Statements (unaudited) – continued

 

and sell transaction. Although the fund’s market risk may be significant, the maximum counterparty credit risk to the fund is equal to the market value of any collateral posted to the broker. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above.

Written Option Transactions

 

    

Number of

contracts

      Premiums
received		  
Outstanding, beginning of period      1,352         $59,762   
Options written      7,015         342,945   
Options closed      (3,821 )       (223,585 ) 
Options exercised      (990 )       (48,736 ) 
Options expired      (3,512 )       (128,780 ) 
Outstanding, end of period      44         $1,606   

Purchased Options – The fund purchased call and put options for a premium. Purchased call and put options entitle the holder to buy and sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing call options may be used to hedge against an anticipated increase in the dollar cost of securities or currency to be acquired or to increase the fund’s exposure to an underlying instrument. Purchasing put options may hedge against a decline in the value of portfolio securities or currency.

The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased call and put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased call option, the premium paid is added to the cost of the security or financial instrument. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.

The risk in purchasing an option is that the fund pays a premium whether or not the option is exercised. The fund’s maximum risk of loss due to counterparty credit risk is limited to the market value of the option. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

Short Sales – The fund entered into short sales whereby it sells a security it does not own in anticipation of a decline in the value of that security. The fund 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 fund replaces the borrowed security. Losses from short sales can exceed the proceeds of the security sold; and they can also exceed the potential loss from an ordinary buy and sell transaction. The amount of any premium, dividends, or interest the fund may be required to pay in connection with a short sale will be recognized as a fund expense. During the six months ended June 30, 2011, this expense amounted to $8,570. The fund 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.

Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

 

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Notes to Financial Statements (unaudited) – continued

 

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 expiration of capital loss carryforwards, wash sale loss deferrals, and straddle loss deferrals.

The fund declared no distributions for the year ended December 31, 2010.

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $24,822,964   
Gross appreciation      2,819,133   
Gross depreciation      (1,381,080 ) 
Net unrealized appreciation (depreciation)      $1,438,053   
As of 12/31/10   
Capital loss carryforwards      (3,997,652 ) 
Other temporary differences      (235,586 ) 
Net unrealized appreciation (depreciation)      1,869,669   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $(2,853,626 ) 
12/31/17      (1,144,026 ) 
Total      $(3,997,652 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. 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 fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $1 billion of average daily net assets      0.75%   
Average daily net assets in excess of $1 billion      0.70%   

The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.

 

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Notes to Financial Statements (unaudited) – continued

 

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses (such as short sale dividend and interest expenses incurred in connection with the fund’s investment activity), such that total annual operating expenses do not exceed 1.00% of average daily net assets for the Initial Class shares and 1.25% of average daily net assets for the Service Class shares. This written agreement will continue until April 30, 2013. For the six months ended June 30, 2011, this reduction amounted to $25,498 and is reflected as a reduction of total expenses in the Statements of Operations.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2011, the fee was $1,408, which equated to 0.0112% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2011, these costs amounted to $3.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0689% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $192 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, short sales, and short-term obligations, aggregated $16,286,212 and $12,241,842, respectively.

 

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Notes to Financial Statements (unaudited) – continued

 

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      155,638         $1,109,198         264,700         $1,607,870   

Service Class

      1,089,837         7,621,165         719,608         4,429,714   
     1,245,475         $8,730,363         984,308         $6,037,584   
Shares reacquired            

Initial Class

      (263,253 )       $(1,874,416 )       (511,495 )       $(3,035,186 ) 

Service Class

      (437,807 )       (3,065,459 )       (192,036 )       (1,111,522 ) 
     (701,060 )       $(4,939,875 )       (703,531 )       $(4,146,708 ) 
Net change            

Initial Class

      (107,615 )       $(765,218 )       (246,795 )       $(1,427,316 ) 

Service Class

      652,030         4,555,706         527,572         3,318,192   
     544,415         $3,790,488         280,777         $1,890,876   

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $96 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      166,838         8,369,477         (8,363,059 )       173,256   
Underlying Affiliated Funds    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $182         $173,256   

 

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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

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LOGO

Table of Contents

LOGO

 

MFS® International Value Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

FCG-SEM

Table of Contents

MFS® INTERNATIONAL VALUE PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      7   
Statement of operations      8   
Statements of changes in net assets      9   
Financial highlights      10   
Notes to financial statements      12   
Board review of investment advisory agreement      18   
Proxy voting policies and information      18   
Quarterly portfolio disclosure      18   
Further information      18   
MFS® privacy notice      19   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS International Value Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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PORTFOLIO COMPOSITION

 

Portfolio structure (i)

LOGO

 

Top ten holdings (i)  
KDDI Corp.     3.2%   
GlaxoSmithKline PLC     3.0%   
Heineken N.V.     2.9%   
Nestle S.A.     2.9%   
Royal Dutch Shell PLC, “A”     2.7%   
Vodafone Group PLC     2.6%   
Sanofi-Aventis     2.6%   
Roche Holding AG     2.5%   
BP PLC     2.5%   
British American Tobacco PLC     2.4%   

 

Currency exposure weightings (i)(t)  
Euro     25.8%   
United Kingdom     25.7%   
Japan     23.5%   
Switzerland     12.0%   
United States     4.0%   
Taiwan     2.3%   
Sweden     1.6%   
South Korea     1.1%   
Denmark     1.0%   
Other Countries     3.0%   
Equity sectors (i)  
Consumer Staples     18.6%   
Financial Services     16.7%   
Health Care     15.4%   
Utilities & Communications     9.0%   
Technology     7.8%   
Energy     6.6%   
Industrial Goods & Services     5.0%   
Special Products & Services     4.6%   
Basic Materials     3.2%   
Retailing     2.9%   
Transportation     2.5%   
Leisure     2.3%   
Autos & Housing     1.5%   

 

Issuer country weightings (e)(i)  
United Kingdom     25.7%   
Japan     24.9%   
Switzerland     12.0%   
Germany     8.5%   
France     7.5%   
Netherlands     5.9%   
United States     3.9%   
Taiwan     2.3%   
Sweden     1.6%   
Other Countries     7.7%   
 

 

(e) Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s total net assets.
(i) For purposes of this presentation, the components include the market value of securities, less any securities sold short, and reflect the impact of the equivalent exposure of derivative positions, if applicable. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value.
(t) Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s total net assets.

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS International Value Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      1.02%         $1,000.00         $1,067.99         $5.23   
  Hypothetical (h)      1.02%         $1,000.00         $1,019.74         $5.11   
Service Class   Actual      1.27%         $1,000.00         $1,067.40         $6.51   
  Hypothetical (h)      1.27%         $1,000.00         $1,018.50         $6.36   

 

(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.

 

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MFS International Value Portfolio

 

PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 96.1%     
Aerospace – 1.1%     
Cobham PLC      1,385,046      $ 4,703,728   
          
Alcoholic Beverages – 2.9%     
Heineken N.V.      212,649      $ 12,788,223   
          
Automotive – 0.6%     
USS Co. Ltd.      35,840      $ 2,780,097   
          
Broadcasting – 1.6%     
Fuji Television Network, Inc.      2,410      $ 3,573,940   
Nippon Television Network Corp.      24,520        3,489,201   
          
     $ 7,063,141   
          
Brokerage & Asset Managers – 1.5%     
Computershare Ltd.      184,873      $ 1,758,794   
Daiwa Securities Group, Inc.      1,084,000        4,775,557   
          
     $ 6,534,351   
          
Business Services – 4.6%     
Amadeus IT Holding S.A. (a)      238,637      $ 4,952,109   
Bunzl PLC      362,028        4,532,090   
Compass Group PLC      635,400        6,128,913   
Nomura Research, Inc.      206,000        4,508,888   
          
     $ 20,122,000   
          
Chemicals – 1.0%     
Givaudan S.A.      4,304      $ 4,553,563   
          
Computer Software – 0.7%     
OBIC Co. Ltd.      17,020      $ 3,169,117   
          
Computer Software – Systems – 2.4%     
Acer, Inc.      2,014,636      $ 3,530,598   
Asustek Computer, Inc.      147,000        1,463,912   
Konica Minolta Holdings, Inc.      379,000        3,162,277   
Venture Corp. Ltd.      321,000        2,234,990   
          
     $ 10,391,777   
          
Construction – 0.9%     
Geberit AG      16,825      $ 3,986,369   
          
Consumer Products – 5.7%     
Henkel KGaA, IPS      98,021      $ 6,804,487   
Kao Corp.      395,200        10,386,178   
KOSE Corp.      89,400        2,318,703   
Reckitt Benckiser Group PLC      96,746        5,341,377   
          
     $ 24,850,745   
          
Containers – 0.4%     
Brambles Ltd.      225,536      $ 1,752,171   
          
Electrical Equipment – 1.6%     
Legrand S.A.      105,101      $ 4,426,812   
Spectris PLC      94,919        2,425,258   
          
     $ 6,852,070   
          
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Electronics – 3.0%     
Halma PLC      458,803      $ 3,050,724   
Samsung Electronics Co. Ltd.      5,969        4,639,341   
Taiwan Semiconductor Manufacturing Co. Ltd., ADR      411,348        5,187,098   
          
     $ 12,877,163   
          
Energy – Independent – 1.3%     
INPEX Corp.      753      $ 5,559,196   
          
Energy – Integrated – 5.3%     
BP PLC      1,485,993      $ 10,938,554   
Royal Dutch Shell PLC, “A”      335,022        11,926,050   
          
     $ 22,864,604   
          
Food & Beverages – 5.6%     
Barry Callebaut AG      1,458      $ 1,444,560   
Groupe Danone      137,831        10,283,598   
Nestle S.A.      200,388        12,453,492   
          
     $ 24,181,650   
          
Food & Drug Stores – 2.3%     
Lawson, Inc.      93,900      $ 4,931,641   
Tesco PLC      810,528        5,229,448   
          
     $ 10,161,089   
          
General Merchandise – 0.2%     
Daiei, Inc. (a)      210,050      $ 765,655   
          
Insurance – 7.2%     
Amlin PLC      232,431      $ 1,514,917   
Catlin Group Ltd.      312,082        2,014,024   
Euler Hermes      17,091        1,443,945   
Hiscox Ltd.      477,555        3,210,669   
ING Groep N.V. (a)      449,196        5,529,747   
Jardine Lloyd Thompson Group PLC      227,128        2,482,445   
Muenchener Ruckvers AG      30,217        4,620,732   
SNS REAAL Groep N.V. (a)      188,598        842,092   
Swiss Re Ltd.      88,347        4,960,882   
Zurich Financial Services Ltd.      18,841        4,764,314   
          
     $ 31,383,767   
          
Leisure & Toys – 0.4%     
Sankyo Co. Ltd.      35,100      $ 1,814,058   
          
Machinery & Tools – 2.3%     
Glory Ltd.      95,200      $ 2,142,879   
Neopost S.A. (l)      58,653        5,038,695   
Schindler Holding AG      21,570        2,622,009   
          
     $ 9,803,583   
          
Major Banks – 3.7%     
HSBC Holdings PLC      857,071      $ 8,506,444   
Julius Baer Group Ltd.      47,524        1,963,138   
Sumitomo Mitsui Financial Group, Inc.      130,700        4,022,417   
UniCredito Italiano S.p.A.      696,665        1,474,992   
          
     $ 15,966,991   
          
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Medical & Health Technology & Services – 2.3%     
Kobayashi Pharmaceutical Co. Ltd.      72,300      $ 3,641,232   
Miraca Holdings, Inc.      110,700        4,491,137   
Rhoen-Klinikum AG      75,921        1,832,011   
    

 

 

  
     $ 9,964,380   
    

 

 

  
Medical Equipment – 1.8%     
Smith & Nephew PLC      324,593      $ 3,464,356   
Synthes, Inc. (n)      24,530        4,315,179   
    

 

 

  
     $ 7,779,535   
    

 

 

  
Network & Telecom – 1.7%     
Ericsson, Inc., “B”      370,033      $ 5,335,327   
Nokia Oyj      317,547        2,058,393   
    

 

 

  
     $ 7,393,720   
    

 

 

  
Other Banks & Diversified Financials – 2.5%     
Anglo Irish Bank Corp. PLC (a)      249,800      $ 0   
Chiba Bank Ltd.      232,000        1,454,513   
DnB NOR A.S.A.      260,750        3,634,449   
Hachijuni Bank Ltd.      234,000        1,315,426   
Joyo Bank Ltd.      317,000        1,333,647   
Jyske Bank A.S. (a)      17,519        691,781   
Sapporo Hokuyo Holdings, Inc.      260,100        1,085,567   
Sydbank A.S.      31,473        702,473   
Unione di Banche Italiane ScpA      149,176        839,783   
    

 

 

  
     $ 11,057,639   
    

 

 

  
Pharmaceuticals – 11.3%     
Bayer AG      99,811      $ 8,024,435   
GlaxoSmithKline PLC      617,560        13,221,988   
Hisamitsu Pharmaceutical Co., Inc.      40,900        1,743,847   
Roche Holding AG      66,004        11,045,808   
Sanofi-Aventis      142,239        11,435,489   
Santen, Inc.      88,200        3,585,376   
    

 

 

  
     $ 49,056,943   
    

 

 

  
Printing & Publishing – 0.3%     
United Business Media Ltd.      143,142      $ 1,278,480   
    

 

 

  
Real Estate – 1.8%     
Deutsche Wohnen AG      262,007      $ 4,559,392   
GSW Immobilien AG (a)      93,507        3,206,920   
    

 

 

  
     $ 7,766,312   
    

 

 

  
Specialty Chemicals – 1.8%     
Shin-Etsu Chemical Co. Ltd.      89,000      $ 4,773,893   
Symrise AG      96,459        3,074,562   
    

 

 

  
     $ 7,848,455   
    

 

 

  
Specialty Stores – 0.4%     
Esprit Holdings Ltd.      509,472      $ 1,587,033   
    

 

 

  
Telecommunications – Wireless – 5.8%   
KDDI Corp.      1,929      $ 13,879,351   
Vodafone Group PLC      4,328,063        11,482,282   
    

 

 

  
     $ 25,361,633   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Telephone Services – 3.2%     
China Unicom Ltd.      1,084,000      $ 2,195,055   
Royal KPN N.V.      457,696        6,657,189   
TDC A/S (a)      344,505        3,144,042   
Telecom Italia S.p.A.      1,606,785        1,869,888   
    

 

 

  
     $ 13,866,174   
    

 

 

  
Tobacco – 4.4%     
British American Tobacco PLC      239,319      $ 10,489,641   
Japan Tobacco, Inc.      1,799        6,942,753   
Swedish Match AB      44,841        1,503,632   
    

 

 

  
     $ 18,936,026   
    

 

 

  
Trucking – 2.5%     
Deutsche Post AG      240,710      $ 4,625,118   
Yamato Holdings Co. Ltd.      410,500        6,447,664   
    

 

 

  
     $ 11,072,782   
    

 

 

  
Total Common Stocks
(Identified Cost, $394,436,889)		       $ 417,894,220   
    

 

 

  
Issuer/Expiration Date/Strike Price    Par Amount of
Contracts		        
CALL OPTIONS PURCHASED – 0.0%   
EUR Currency – August 2011 @ JPY 120    EUR  11,438,785      $ 104,299   
EUR Currency – January 2012 @ JPY 121    EUR  2,395,591        76,110   
    

 

 

  

Total Call Options Purchased

(Premiums Paid, $471,028)

  

  

   $ 180,409   
    

 

 

  
PUT OPTIONS PURCHASED – 0.0%   
JPY Currency – August 2011 @ $0.0108    JPY  1,372,654,146      $ 1,373   
JPY Currency – January 2012 @ $0.011    JPY  289,346,781        10,995   
    

 

 

  

Total Put Options Purchased

(Premiums Paid, $300,187)

  

  

   $ 12,368   
    

 

 

  
Issuer    Shares/Par        
MONEY MARKET FUNDS (v) – 3.5%     
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      15,010,197      $ 15,010,197   
    

 

 

  
COLLATERAL FOR SECURITIES LOANED – 0.8%   
Navigator Securities Lending Prime Portfolio, 0.23%, at Cost and Net Asset Value (j)      3,568,885      $ 3,568,885   
    

 

 

  
Total Investments
(Identified Cost, $413,787,186)		       $ 436,666,079   
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – (0.4)%		         (1,777,540 ) 
    

 

 

  
Net Assets – 100.0%      $ 434,888,539   
    

 

 

  
 

 

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Portfolio of Investments (unaudited) – continued

 

 

(a)   Non-income producing security.

 

(j)   The rate quoted is the annualized seven-day yield of the portfolio at period end.

 

(l)   A portion of this security is on loan.

 

(n)   Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $4,315,179, representing 1.0% of net assets.

 

(v)   Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

ADR   American Depository Receipt

 

IPS   International Preference Stock

 

PLC   Public Limited Company

Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:

 

EUR   Euro

 

JPY   Japanese Yen

See Notes to Financial Statements

 

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $398,776,989)

      $421,655,882      

Underlying affiliated funds, at cost and value

      15,010,197            

Total investments, at value, including $3,472,657 of securities on loan (identified cost, $413,787,186)

      $436,666,079            

Foreign currency, at value (identified cost, $503,392)

      505,846      

Receivables for

      

Fund shares sold

      265,108      

Interest and dividends

      1,474,634      

Other assets

      5,627            

Total assets

               $438,917,294   

Liabilities

                  

Payable for fund shares reacquired

      $323,969      

Collateral for securities loaned, at value

      3,568,885      

Payable to affiliates

      

Investment adviser

      21,788      

Shareholder servicing costs

      246      

Distribution and/or service fees

      4,939      

Payable for Trustees’ compensation

      6,129      

Accrued expenses and other liabilities

      102,799            

Total liabilities

               $4,028,755   

Net assets

               $434,888,539   

Net assets consist of

                  

Paid-in capital

      $424,607,103      

Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies

      22,881,103      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      (23,951,659 )    

Undistributed net investment income

      11,351,992            

Net assets

               $434,888,539   

Shares of beneficial interest outstanding

               26,364,108   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $67,794,526         4,070,884         $16.65   

Service Class

      367,094,013         22,293,224         16.47   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment income                  

Income

      

Dividends

      $9,768,179      

Interest

      207,279      

Dividends from underlying affiliated funds

      15,734      

Foreign taxes withheld

      (789,549 )          

Total investment income

               $9,201,643   

Expenses

      

Management fee

      $1,887,366      

Distribution and/or service fees

      439,640      

Shareholder servicing costs

      23,448      

Administrative services fee

      70,337      

Trustees’ compensation

      22,423      

Custodian fee

      70,410      

Shareholder communications

      10,598      

Auditing fees

      25,575      

Legal fees

      3,766      

Miscellaneous

      19,135            

Total expenses

               $2,572,698   

Fees paid indirectly

      (1 )          

Net expenses

               $2,572,697   

Net investment income

               $6,628,946   

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions

      $3,558,897      

Foreign currency transactions

      31,529            

Net realized gain (loss) on investments and foreign currency transactions

               $3,590,426   

Change in unrealized appreciation (depreciation)

      

Investments

      $16,861,324      

Translation of assets and liabilities in foreign currencies

      (18,988 )          

Net unrealized gain (loss) on investments and foreign currency translation

               $16,842,336   

Net realized and unrealized gain (loss) on investments and foreign currency

               $20,432,762   

Change in net assets from operations

               $27,061,708   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		  
  
) 		     
 		 Year ended
12/31/10		   
  

Change in net assets

      

From operations

                  

Net investment income

      $6,628,946         $4,828,987   

Net realized gain (loss) on investments and foreign currency transactions

      3,590,426         (782,240 ) 

Net unrealized gain (loss) on investments and foreign currency translation

      16,842,336         28,239,889   

Change in net assets from operations

      $27,061,708         $32,286,636   

Distributions declared to shareholders

                  

From net investment income

      $—         $(4,425,164 ) 

Change in net assets from fund share transactions

      $14,268,840         $95,712,274   

Total change in net assets

      $41,330,548         $123,573,746   

Net assets

                  

At beginning of period

      393,557,991         269,984,245   

At end of period (including undistributed net investment income of $11,351,992 and
$4,723,046, respectively)

      $434,888,539         $393,557,991   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $15.59         $14.51           $12.03           $18.68           $20.02           $17.39   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.27         $0.26           $0.25           $0.44           $0.33           $0.39   

Net realized and unrealized gain (loss) on
investments and foreign currency

        0.79         1.05           2.64           (5.94 )         1.13           4.54   

Total from investment operations

        $1.06         $1.31           $2.89           $(5.50 )         $1.46           $4.93   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.23 )         $(0.41 )         $(0.16 )         $(0.33 )         $(0.24 ) 

From net realized gain on investments

        —         —           —           (0.99 )         (2.47 )         (2.06 ) 

Total distributions declared to shareholders

        $—         $(0.23 )         $(0.41 )         $(1.15 )         $(2.80 )         $(2.30 ) 

Net asset value, end of period

        $16.65         $15.59           $14.51           $12.03           $18.68           $20.02   

Total return (%) (k)(s)

        6.80 (n)       9.11           25.37           (31.41 )         7.35           29.23   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses (f)

        1.02 (a)       1.06           1.09           1.05           1.05           1.11   

Net investment income

        3.32 (a)(l)       1.79           2.00           2.82           1.67           2.09   

Portfolio turnover

        10         28           49           44           44           55   

Net assets at end of period (000 omitted)

        $67,795         $68,356           $63,978           $57,968           $117,100           $134,008   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $15.43         $14.38           $11.91           $18.53           $19.92           $17.32   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.25         $0.20           $0.23           $0.39           $0.16           $0.34   

Net realized and unrealized gain (loss) on
investments and foreign currency

        0.79         1.05           2.62           (5.87 )         1.24           4.53   

Total from investment operations

        $1.04         $1.25           $2.85           $(5.48 )         $1.40           $4.87   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.20 )         $(0.38 )         $(0.15 )         $(0.32 )         $(0.21 ) 

From net realized gain on investments

        —         —           —           (0.99 )         (2.47 )         (2.06 ) 

Total distributions declared to shareholders

        $—         $(0.20 )         $(0.38 )         $(1.14 )         $(2.79 )         $(2.27 ) 

Net asset value, end of period

        $16.47         $15.43           $14.38           $11.91           $18.53           $19.92   

Total return (%) (k)(s)

        6.74 (n)       8.78           25.11           (31.58 )         7.04           28.95   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses (f)

        1.27 (a)       1.31           1.34           1.30           1.30           1.36   

Net investment income

        3.13 (a)(l)       1.43           1.83           2.52           0.87           1.84   

Portfolio turnover

        10         28           49           44           44           55   

Net assets at end of period (000 omitted)

        $367,094         $325,202           $206,006           $179,067           $224,339           $14,973   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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.

 

(l) Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by companies in which the fund invests and the actual annual net investment income ratio may differ.

 

(n) Not annualized.

 

(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

See Notes to Financial Statements

 

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MFS International Value Portfolio

 

NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS International Value Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests 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, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as provided by a third-party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as provided by a third-party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

 

12

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Notes to Financial Statements (unaudited) – continued

 

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities:            

United Kingdom

      $111,941,382         $—         $—         $111,941,382   

Japan

      6,573,388         101,520,827         —         108,094,215   

Switzerland

      52,109,314         —         —         52,109,314   

Germany

      36,747,657         —         —         36,747,657   

France

      32,628,540         —         —         32,628,540   

Netherlands

      25,817,251         —         —         25,817,251   

Taiwan

      5,187,098         4,994,510         —         10,181,608   

Sweden

      6,838,959         —         —         6,838,959   

Spain

      4,952,109         —         —         4,952,109   

Other Countries

      16,174,596         12,408,589         0         28,583,185   
Purchased Currency Options      —         192,777         —         192,777   
Mutual Funds      18,579,082         —         —         18,579,082   
Total Investments      $317,549,376         $119,116,703         $0         $436,666,079   

For further information regarding security characteristics, see the Portfolio of Investments. At June 30, 2011, the fund held one level 3 securities valued at $0, which was also held and valued at $0 at December 31, 2010.

Of the level 2 investments presented above, equity investments amounting to $110,773,805 would have been considered level 1 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.

Derivatives – The fund uses derivatives for different purposes, including to earn income and enhance returns, to increase or decrease exposure to a particular market, to manage or adjust the risk profile of the fund, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.

The derivative instruments used by the fund were purchased options. The fund’s period end derivatives, as presented in the Portfolio of Investments, generally are indicative of the volume of its derivative activity during the period.

The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2011 as reported in the Statement of Assets and Liabilities:

 

          Fair Value (a)  
Risk    Derivative Contracts    Asset Derivatives  
Foreign Exchange    Purchased Currency Options      $192,777   

 

(a) The value of purchased options outstanding is included in total investments, at value, within the fund’s Statement of Assets and Liabilities.

 

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MFS International Value Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk    Investments
(Purchased Options)
Foreign Exchange    $(200,196)

There is no realized gain (loss) from derivative transactions during the period.

Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swaps and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.

Purchased Options – The fund purchased call and put options for a premium. Purchased call and put options entitle the holder to buy and sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing call options may be used to hedge against an anticipated increase in the dollar cost of securities or currency to be acquired or to increase the fund’s exposure to an underlying instrument. Purchasing put options may hedge against a decline in the value of portfolio securities or currency.

The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased call and put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased call option, the premium paid is added to the cost of the security or financial instrument. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on the investments.

The risk in purchasing an option is that the fund pays a premium whether or not the option is exercised. The fund’s maximum risk of loss due to counterparty credit risk is limited to the market value of the option. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund 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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities

 

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MFS International Value Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $4,425,164   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $414,570,233   
Gross appreciation      50,167,774   
Gross depreciation      (28,071,928 ) 
Net unrealized appreciation (depreciation)      $22,095,846   
As of 12/31/10   
Undistributed ordinary income      4,741,489   
Capital loss carryforwards      (26,759,038 ) 
Other temporary differences      2,755   
Net unrealized appreciation (depreciation)      5,234,522   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

 

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MFS International Value Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $(7,444,841 ) 
12/31/17      (18,221,256 ) 
12/31/18      (1,092,941 ) 
Total      $(26,759,038 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $1,040,282   
Service Class      —         3,384,882   
Total      $—         $4,425,164   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $1 billion of average daily net assets      0.90%   
Next $1 billion of average daily net assets      0.80%   
Average daily net assets in excess of $2 billion      0.70%   

The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2011, the fee was $23,433, which equated to 0.0112% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2011, these costs amounted to $15.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0335% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO

 

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MFS International Value Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $3,319 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $59,606,909 and $38,723,312, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      136,278         $2,184,514         818,696         $11,858,777   

Service Class

      3,897,519         62,178,379         9,375,648         133,038,501   
     4,033,797         $64,362,893         10,194,344         $144,897,278   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         71,448         $1,040,282   

Service Class

      —         —         234,410         3,384,882   
     —         $—         305,858         $4,425,164   
Shares reacquired            

Initial Class

      (450,068 )       $(7,253,452 )       (914,793 )       $(13,007,882 ) 

Service Class

      (2,674,956 )       (42,840,601 )       (2,868,953 )       (40,602,286 ) 
     (3,125,024 )       $(50,094,053 )       (3,783,746 )       $(53,610,168 ) 
Net change            

Initial Class

      (313,790 )       $(5,068,938 )       (24,649 )       $(108,823 ) 

Service Class

      1,222,563         19,337,778         6,741,105         95,821,097   
     908,773         $14,268,840         6,716,456         $95,712,274   

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $1,635 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      18,785,164         54,742,669         (58,517,636 )       15,010,197   
Underlying Affiliated Funds    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $15,734         $15,010,197   

 

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MFS International Value Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

20

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LOGO

Table of Contents

LOGO

 

MFS® Blended Research® Growth Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

BRG-SEM

Table of Contents

MFS® BLENDED RESEARCH® GROWTH PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      6   
Statement of operations      7   
Statements of changes in net assets      8   
Financial highlights      9   
Notes to financial statements      11   
Board review of investment advisory agreement      15   
Proxy voting policies and information      15   
Quarterly portfolio disclosure      15   
Further information      15   
MFS® privacy notice      16   

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ

NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Blended Research Growth Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS Blended Research Growth Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure

LOGO

 

Top ten holdings  
Exxon Mobil Corp.     6.4%   
Apple, Inc.     3.7%   
Google, Inc., “A”     2.6%   
Oracle Corp.     2.5%   
Philip Morris International, Inc.     2.5%   
International Business Machines Corp.     2.4%   
McDonald’s Corp.     2.4%   
Abbott Laboratories     2.1%   
Intel Corp.     1.9%   
Visa, Inc., “A”     1.6%   
Equity sectors   
Technology      27.2%   
Health Care      10.5%   
Energy      9.8%   
Industrial Goods & Services      8.8%   
Retailing      8.0%   
Consumer Staples      7.1%   
Leisure      6.5%   
Basic Materials      6.2%   
Financial Services      5.7%   
Utilities & Communications      3.4%   
Special Products & Services      3.1%   
Transportation      1.6%   
Autos & Housing      0.9%   
 

 

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      0.60%         $1,000.00         $1,078.92         $3.09   
  Hypothetical (h)      0.60%         $1,000.00         $1,021.82         $3.01   
Service Class   Actual      0.85%         $1,000.00         $1,077.88         $4.38   
  Hypothetical (h)      0.85%         $1,000.00         $1,020.58         $4.26   

 

(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.

 

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PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 98.8%     
Aerospace – 3.8%     
Honeywell International, Inc.      449      $ 26,756   
Lockheed Martin Corp.      645        52,226   
Northrop Grumman Corp.      787        54,578   
Textron, Inc.      2,201        51,966   
United Technologies Corp.      204        18,056   
    

 

 

  
     $ 203,582   
    

 

 

  
Apparel Manufacturers – 0.7%     
Deckers Outdoor Corp. (a)      231      $ 20,360   
Phillips-Van Heusen Corp.      301        19,706   
    

 

 

  
     $ 40,066   
    

 

 

  
Automotive – 0.9%     
TRW Automotive Holdings Corp. (a)      797      $ 47,047   
    

 

 

  
Biotechnology – 1.7%     
Amgen, Inc. (a)      931      $ 54,324   
Gilead Sciences, Inc. (a)      874        36,192   
    

 

 

  
     $ 90,516   
    

 

 

  
Broadcasting – 1.5%     
CBS Corp., “B”      1,552      $ 44,216   
Viacom, Inc., “B”      729        37,179   
    

 

 

  
     $ 81,395   
    

 

 

  
Brokerage & Asset Managers – 1.1%     
Blackrock, Inc.      295      $ 56,584   
    

 

 

  
Business Services – 2.0%     
Accenture PLC, “A”      1,100      $ 66,462   
Cognizant Technology Solutions Corp., “A” (a)      523        38,357   
    

 

 

  
     $ 104,819   
    

 

 

  
Cable TV – 0.7%     
DIRECTV, “A” (a)      783      $ 39,792   
    

 

 

  
Chemicals – 3.4%     
3M Co.      613      $ 58,143   
E.I. du Pont de Nemours & Co.      1,226        66,265   
PPG Industries, Inc.      625        56,744   
    

 

 

  
     $ 181,152   
    

 

 

  
Computer Software – 8.3%     
Autodesk, Inc. (a)      1,384      $ 53,422   
Intuit, Inc. (a)      1,187        61,558   
Microsoft Corp.      2,070        53,820   
Nuance Communications, Inc. (a)      1,644        35,297   
Oracle Corp.      4,119        135,556   
TIBCO Software, Inc. (a)      1,581        45,881   
VeriSign, Inc.      1,775        59,391   
    

 

 

  
     $ 444,925   
    

 

 

  
Computer Software – Systems – 6.3%     
Apple, Inc. (a)      596      $ 200,059   
Hewlett-Packard Co.      272        9,901   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Computer Software – Systems – continued   
International Business Machines Corp.      745      $ 127,805   
    

 

 

  
     $ 337,765   
    

 

 

  
Consumer Products – 1.0%     
Newell Rubbermaid, Inc.      3,363      $ 53,068   
    

 

 

  
Consumer Services – 1.1%     
H&R Block, Inc.      2,401      $ 38,512   
Priceline.com, Inc. (a)      42        21,501   
    

 

 

  
     $ 60,013   
    

 

 

  
Electrical Equipment – 0.6%     
Danaher Corp.      578      $ 30,628   
    

 

 

  
Electronics – 4.3%     
First Solar, Inc. (a)      349      $ 46,162   
Intel Corp.      4,554        100,917   
Linear Technology Corp.      1,143        37,742   
Microchip Technology, Inc.      1,215        46,061   
    

 

 

  
     $ 230,882   
    

 

 

  
Energy – Integrated – 7.6%     
Chevron Corp.      632      $ 64,995   
Exxon Mobil Corp.      4,186        340,657   
    

 

 

  
     $ 405,652   
    

 

 

  
Engineering – Construction – 1.0%     
Fluor Corp.      818      $ 52,892   
    

 

 

  
Food & Beverages – 3.6%     
Coca-Cola Co.      399      $ 26,849   
Dr Pepper Snapple Group, Inc.      1,376        57,696   
General Mills, Inc.      1,680        62,530   
PepsiCo, Inc.      670        47,188   
    

 

 

  
     $ 194,263   
    

 

 

  
Food & Drug Stores – 1.9%     
CVS Caremark Corp.      1,332      $ 50,057   
Whole Foods Market, Inc.      833        52,854   
    

 

 

  
     $ 102,911   
    

 

 

  
Gaming & Lodging – 0.6%     
Wynn Resorts Ltd.      241      $ 34,593   
    

 

 

  
General Merchandise – 2.7%     
Dollar General Corp. (a)      1,680      $ 56,935   
Macy’s, Inc.      2,348        68,656   
Target Corp.      444        20,828   
    

 

 

  
     $ 146,419   
    

 

 

  
Health Maintenance Organizations – 1.8%   
Aetna, Inc.      1,201      $ 52,952   
UnitedHealth Group, Inc.      819        42,244   
    

 

 

  
     $ 95,196   
    

 

 

  
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Insurance – 1.6%     
Aflac, Inc.      782      $ 36,504   
Prudential Financial, Inc.      814        51,762   
    

 

 

  
     $ 88,266   
    

 

 

  
Internet – 2.6%     
Google, Inc., “A” (a)      278      $ 140,774   
    

 

 

  
Machinery & Tools – 2.6%     
AGCO Corp. (a)      577      $ 28,481   
Cummins, Inc.      347        35,911   
Kennametal, Inc.      781        32,966   
Pitney Bowes, Inc.      1,719        39,520   
    

 

 

  
     $ 136,878   
    

 

 

  
Major Banks – 0.5%     
KeyCorp      3,142      $ 26,173   
    

 

 

  
Medical & Health Technology & Services – 1.2%   
McKesson Corp.      742      $ 62,068   
    

 

 

  
Medical Equipment – 2.3%     
Medtronic, Inc.      1,334      $ 51,399   
St. Jude Medical, Inc.      414        19,740   
Thermo Fisher Scientific, Inc. (a)      842        54,216   
    

 

 

  
     $ 125,355   
    

 

 

  
Metals & Mining – 1.7%     
Cliffs Natural Resources, Inc.      683      $ 63,143   
Nucor Corp.      748        30,833   
    

 

 

  
     $ 93,976   
    

 

 

  
Natural Gas – Pipeline – 1.5%     
El Paso Corp.      1,085      $ 21,917   
Williams Cos., Inc.      1,898        57,413   
    

 

 

  
     $ 79,330   
    

 

 

  
Network & Telecom – 5.7%     
Acme Packet, Inc. (a)      695      $ 48,740   
Cisco Systems, Inc.      2,399        37,448   
F5 Networks, Inc. (a)      560        61,740   
Juniper Networks, Inc. (a)      1,000        31,500   
Polycom, Inc. (a)      936        60,185   
Qualcomm, Inc.      141        8,007   
Riverbed Technology, Inc. (a)      1,442        57,089   
    

 

 

  
     $ 304,709   
    

 

 

  
Oil Services – 2.2%     
Halliburton Co.      960      $ 48,960   
Schlumberger Ltd.      308        26,611   
Weatherford International Ltd. (a)      2,169        40,669   
    

 

 

  
     $ 116,240   
    

 

 

  
Other Banks & Diversified Financials – 2.2%   
Citigroup, Inc.      657      $ 27,357   
Visa, Inc., “A”      1,045        88,052   
    

 

 

  
     $ 115,409   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Pharmaceuticals – 3.5%     
Abbott Laboratories      2,093      $ 110,134   
Johnson & Johnson      1,131        75,234   
    

 

 

  
     $ 185,368   
    

 

 

  
Pollution Control – 0.8%     
Republic Services, Inc.      1,331      $ 41,061   
    

 

 

  
Printing & Publishing – 1.3%     
Moody’s Corp.      1,887      $ 72,366   
    

 

 

  
Real Estate – 0.3%     
Public Storage, Inc., REIT      134      $ 15,277   
    

 

 

  
Restaurants – 2.4%     
McDonald’s Corp.      1,499      $ 126,396   
    

 

 

  
Specialty Chemicals – 1.1%     
Rockwood Holdings, Inc. (a)      1,042      $ 57,612   
    

 

 

  
Specialty Stores – 2.7%     
Abercrombie & Fitch Co., “A”      830      $ 55,544   
Netflix, Inc. (a)      123        32,311   
Tractor Supply Co.      870        58,186   
    

 

 

  
     $ 146,041   
    

 

 

  
Telecommunications – Wireless – 0.8%     
MetroPCS Communications, Inc. (a)      2,366      $ 40,719   
    

 

 

  
Telephone Services – 0.5%     
American Tower Corp., “A” (a)      472      $ 24,700   
    

 

 

  
Tobacco – 2.5%     
Philip Morris International, Inc.      2,014      $ 134,475   
    

 

 

  
Trucking – 1.6%     
United Parcel Service, Inc., “B”      1,202      $ 87,662   
    

 

 

  
Utilities – Electric Power – 0.6%     
AES Corp. (a)      2,479      $ 31,582   
    

 

 

  
Total Common Stocks
(Identified Cost, $4,544,575)		      $ 5,286,597   
    

 

 

  
MONEY MARKET FUNDS (v) – 1.6%   
MFS Institutional Money Market Portfolio,
0.1%, at Cost and Net Asset Value		      84,337      $ 84,337   
    

 

 

  
Total Investments
(Identified Cost, $4,628,912)		      $ 5,370,934   
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – (0.4)%		        (19,886 ) 
    

 

 

  
Net Assets – 100.0%      $ 5,351,048   
    

 

 

  

 

(a) Non-income producing security.

 

(v) Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

PLC   Public Limited Company

 

REIT   Real Estate Investment Trust

See Notes to Financial Statements

 

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $4,544,575)

      $5,286,597      

Underlying affiliated funds, at cost and value

      84,337            

Total investments, at value (identified cost, $4,628,912)

      $5,370,934            

Receivable for dividends

      3,715      

Receivable from investment adviser

      7,862      

Other assets

      154            

Total assets

               $5,382,665   

Liabilities

                  

Payable to affiliates

      

Shareholder servicing costs

      $3      

Distribution and/or service fees

      36      

Payable for Trustees’ compensation

      79      

Accrued expenses and other liabilities

      31,499            

Total liabilities

               $31,617   

Net assets

               $5,351,048   

Net assets consist of

                  

Paid-in capital

      $5,122,397      

Unrealized appreciation (depreciation) on investments

      742,022      

Accumulated net realized gain (loss) on investments

      (538,165 )    

Undistributed net investment income

      24,794            

Net assets

               $5,351,048   

Shares of beneficial interest outstanding

               515,423   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $2,687,326         258,734         $10.39   

Service Class

      2,663,722         256,689         10.38   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11

      

Net investment income

                  

Income

      

Dividends

      $43,421      

Dividends from underlying affiliated funds

      47            

Total investment income

               $43,468   

Expenses

      

Management fee

      $15,514      

Distribution and/or service fees

      3,219      

Shareholder servicing costs

      290      

Administrative services fee

      8,679      

Trustees’ compensation

      282      

Custodian fee

      3,308      

Shareholder communications

      2,223      

Auditing fees

      22,545      

Legal fees

      3,766      

Miscellaneous

      4,275            

Total expenses

               $64,101   

Fees paid indirectly

      (1 )    

Reduction of expenses by investment adviser

      (45,339 )          

Net expenses

               $18,761   

Net investment income

               $24,707   

Realized and unrealized gain (loss) on investments

                  

Realized gain (loss) on investment transactions (identified cost basis)

               $322,734   

Change in unrealized appreciation (depreciation) on investments

               $40,309   

Net realized and unrealized gain (loss) on investments

               $363,043   

Change in net assets from operations

               $387,750   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		  
 
) 		     
 		 Year ended
12/31/10		  
  

Change in net assets

      

From operations

                  

Net investment income

      $24,707         $50,689   

Net realized gain (loss) on investments

      322,734         259,981   

Net unrealized gain (loss) on investments

      40,309         452,163   

Change in net assets from operations

      $387,750         $762,833   

Distributions declared to shareholders

                  

From net investment income

      $—         $(50,602 ) 

Change in net assets from fund share transactions

      $—         $50,602   

Total change in net assets

      $387,750         $762,833   

Net assets

                  

At beginning of period

      4,963,298         4,200,465   

At end of period (including undistributed net investment income of $24,794 and
$87, respectively)

      $5,351,048         $4,963,298   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years (or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009      2008      2007 (c)  
       (unaudited)                                

Net asset value, beginning of period

        $9.63         $8.23           $6.01         $10.11         $10.00   
Income (loss) from investment operations                                                 

Net investment income (d)

        $0.05         $0.11           $0.09         $0.07         $0.00 (w) 

Net realized and unrealized gain (loss) on investments

        0.71         1.40           2.22         (4.10 )       0.11   

Total from investment operations

        $0.76         $1.51           $2.31         $(4.03 )       $0.11   
Less distributions declared to shareholders                                                 

From net investment income

        $—         $(0.11 )         $(0.09 )       $(0.07 )       $(0.00 )(w) 

From tax return of capital

        —         —           (0.00 )(w)       (0.00 )(w)       (0.00 )(w) 

Total distributions declared to shareholders

        $—         $(0.11 )         $(0.09 )       $(0.07 )       $(0.00 )(w) 

Net asset value, end of period

        $10.39         $9.63           $8.23         $6.01         $10.11   

Total return (%) (k)(r)(s)

        7.89 (n)       18.35           38.42         (39.84 )       1.13 (n) 
Ratios (%) (to average net assets)
and Supplemental data:		                                                 

Expenses before expense reductions (f)

        2.35 (a)       2.52           2.85         2.87         10.74 (a) 

Expenses after expense reductions (f)

        0.60 (a)       0.60           0.60         0.60         0.60 (a) 

Net investment income

        1.08 (a)       1.28           1.30         0.83         0.81 (a) 

Portfolio turnover

        34         83           74         50         0   

Net assets at end of period (000 omitted)

        $2,687         $2,491           $2,106         $1,521         $2,528   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009      2008      2007 (c)  
       (unaudited)                                

Net asset value, beginning of period

        $9.63         $8.24           $6.02         $10.11         $10.00   
Income (loss) from investment operations                                                 

Net investment income (d)

        $0.04         $0.09           $0.07         $0.05         $0.00 (w) 

Net realized and unrealized gain (loss) on investments

        0.71         1.39           2.22         (4.09 )       0.11   

Total from investment operations

        $0.75         $1.48           $2.29         $(4.04 )       $0.11   
Less distributions declared to shareholders                                                 

From net investment income

        $—         $(0.09 )         $(0.07 )       $(0.05 )       $(0.00 )(w) 

From tax return of capital

        —         —           (0.00 )(w)       (0.00 )(w)       (0.00 )(w) 

Total distributions declared to shareholders

        $—         $(0.09 )         $(0.07 )       $(0.05 )       $(0.00 )(w) 

Net asset value, end of period

        $10.38         $9.63           $8.24         $6.02         $10.11   

Total return (%) (k)(r)(s)

        7.79 (n)       17.94           38.07         (39.96 )       1.13 (n) 
Ratios (%) (to average net assets)
and Supplemental data:		                                                 

Expenses before expense reductions (f)

        2.60 (a)       2.77           3.10         3.12         10.99 (a) 

Expenses after expense reductions (f)

        0.85 (a)       0.85           0.85         0.85         0.85 (a) 

Net investment income

        0.83 (a)       1.03           1.05         0.58         0.56 (a) 

Portfolio turnover

        34         83           74         50         0   

Net assets at end of period (000 omitted)

        $2,664         $2,472           $2,095         $1,517         $2,528   

 

(a) Annualized.

 

(c) For the period from the commencement of the fund’s investment operations, December 18, 2007, through the stated period end.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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 fund may receive proceeds from litigation settlements, without which performance would be lower.

 

(w) Per share amount was less than $0.01.

See Notes to Financial Statements

 

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MFS Blended Research Growth Portfolio

 

NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Blended Research Growth Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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. Except as otherwise described in Note 3, the fund is sold to separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may

 

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MFS Blended Research Growth Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities      $5,286,597         $—         $—         $5,286,597   
Mutual Funds      84,337         —         —         84,337   
Total Investments      $5,370,934         $—         $—         $5,370,934   

For further information regarding security characteristics, see the Portfolio of Investments.

Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.

Investment Transactions and Income – Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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.

During the year ended December 31, 2010, there were no significant adjustments due to differences between book and tax accounting.

The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $50,602   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $4,628,912   
Gross appreciation      901,054   
Gross depreciation      (159,032 ) 
Net unrealized appreciation (depreciation)      $742,022   
As of 12/31/10   
Undistributed ordinary income      87   
Capital loss carryforwards      (860,899 ) 
Net unrealized appreciation (depreciation)      701,713   

 

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MFS Blended Research Growth Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $(17,746 ) 
12/31/17      (843,153 ) 
Total      $(860,899 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $28,122   
Service Class      —         22,480   
Total      $—         $50,602   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.60% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses, such that total annual operating expenses do not exceed 0.60% of average daily net assets for the Initial Class shares and 0.85% of average daily net assets for the Service Class shares. This written agreement will continue until April 30, 2013. For the six months ended June 30, 2011, this reduction amounted to $45,339 and is reflected as a reduction of total expenses in the Statements of Operations.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2011, the fee was $289, which equated to 0.0112% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2011, these costs amounted to $1.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.3356% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

 

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MFS Blended Research Growth Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $42 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

At June 30, 2011, MFS was the sole shareholder of both classes.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $1,793,601 and $1,779,675, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         2,917         $28,122   

Service Class

      —         —         2,332         22,480   
     —         $—         5,249         $50,602   

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $24 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		    Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio    73,664      130,604         (119,931 )       84,337   
Underlying Affiliated Funds    Realized
Gain (Loss)		    Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio    $—      $—         $47         $84,337   

 

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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II’” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

17

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LOGO

Table of Contents

LOGO

 

MFS® Blended Research® Value Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

BRV-SEM

Table of Contents

MFS® BLENDED RESEARCH® VALUE PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      6   
Statement of operations      7   
Statements of changes in net assets      8   
Financial highlights      9   
Notes to financial statements      11   
Board review of investment advisory agreement      15   
Proxy voting policies and information      15   
Quarterly portfolio disclosure      15   
Further information      15   
MFS® privacy notice      16   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ

NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Blended Research Value Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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PORTFOLIO COMPOSITION

 

Portfolio structure

LOGO

 

Top ten holdings  
Chevron Corp.     4.1%   
JPMorgan Chase & Co.     3.5%   
AT&T, Inc.     3.4%   
Citigroup, Inc.     2.7%   
Pfizer, Inc.     2.4%   
Johnson & Johnson     2.3%   
Bank of America Corp.     2.3%   
Procter & Gamble Co.     2.0%   
General Electric Co.     1.8%   
CVS Caremark Corp.     1.7%   
Equity sectors  
Financial Services     26.9%   
Utilities & Communications     12.9%   
Health Care     12.5%   
Energy     10.2%   
Consumer Staples     6.7%   
Technology     5.9%   
Industrial Goods & Services     5.7%   
Leisure     5.3%   
Retailing     5.3%   
Basic Materials     3.3%   
Autos & Housing     2.3%   
Transportation     2.2%   
 

 

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS Blended Research Value Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      0.60%         $1,000.00         $1,074.07         $3.09   
  Hypothetical (h)      0.60%         $1,000.00         $1,021.82         $3.01   
Service Class   Actual      0.85%         $1,000.00         $1,074.07         $4.37   
  Hypothetical (h)      0.85%         $1,000.00         $1,020.58         $4.26   

 

(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.

 

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MFS Blended Research Value Portfolio

 

PORTFOLIO OF INVESTMENTS 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 99.2%     
Aerospace – 2.4%     
Northrop Grumman Corp.      910      $ 63,102   
Textron, Inc.      2,290        54,067   
    

 

 

  
     $ 117,169   
    

 

 

  
Airlines – 0.7%     
United Continental Holdings, Inc. (a)      1,480      $ 33,492   
    

 

 

  
Automotive – 1.0%     
Johnson Controls, Inc.      1,160      $ 48,326   
    

 

 

  
Biotechnology – 1.7%     
Amgen, Inc. (a)      1,400      $ 81,690   
    

 

 

  
Broadcasting – 1.5%     
CBS Corp., “B”      1,450      $ 41,311   
Viacom, Inc., “B”      410        20,910   
Walt Disney Co.      300        11,712   
    

 

 

  
     $ 73,933   
    

 

 

  
Brokerage & Asset Managers – 1.1%     
NASDAQ OMX Group, Inc. (a)      2,050      $ 51,865   
    

 

 

  
Cable TV – 1.7%     
Comcast Corp., “A”      1,110      $ 28,127   
Virgin Media, Inc.      1,790        53,575   
    

 

 

  
     $ 81,702   
    

 

 

  
Chemicals – 0.2%     
E.I. du Pont de Nemours & Co.      200      $ 10,810   
    

 

 

  
Computer Software – 0.3%     
Oracle Corp.      510      $ 16,784   
    

 

 

  
Computer Software – Systems – 0.5%   
Apple, Inc. (a)      80      $ 26,854   
    

 

 

  
Construction – 1.3%     
Owens Corning (a)      1,690      $ 63,122   
    

 

 

  
Consumer Products – 2.4%     
Newell Rubbermaid, Inc.      1,280      $ 20,198   
Procter & Gamble Co.      1,580        100,441   
    

 

 

  
     $ 120,639   
    

 

 

  
Electrical Equipment – 2.3%     
General Electric Co.      4,850      $ 91,471   
WESCO International, Inc. (a)      390        21,095   
    

 

 

  
     $ 112,566   
    

 

 

  
Electronics – 3.7%     
Advanced Micro Devices, Inc. (a)      2,870      $ 20,061   
Intel Corp.      1,460        32,354   
Linear Technology Corp.      800        26,416   
Microchip Technology, Inc.      1,310        49,662   
SanDisk Corp. (a)      1,370        56,855   
    

 

 

  
     $ 185,348   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Energy – Independent – 1.6%     
Apache Corp.      650      $ 80,204   
    

 

 

  
Energy – Integrated – 7.9%     
Chevron Corp.      1,960      $ 201,566   
ConocoPhillips      590        44,362   
Exxon Mobil Corp.      1,040        84,635   
Marathon Oil Corp.      1,120        59,002   
    

 

 

  
     $ 389,565   
    

 

 

  
Food & Beverages – 3.0%     
Bunge Ltd.      320      $ 22,064   
Dr Pepper Snapple Group, Inc.      940        39,414   
General Mills, Inc.      1,140        42,431   
Smithfield Foods, Inc. (a)      2,050        44,834   
    

 

 

  
     $ 148,743   
    

 

 

  
Food & Drug Stores – 2.2%     
CVS Caremark Corp.      2,270      $ 85,307   
Kroger Co.      940        23,312   
    

 

 

  
     $ 108,619   
    

 

 

  
Forest & Paper Products – 0.8%     
Domtar Corp.      420      $ 39,782   
    

 

 

  
Gaming & Lodging – 0.3%     
Royal Caribbean Cruises Ltd. (a)      450      $ 16,938   
    

 

 

  
General Merchandise – 1.5%     
Macy’s, Inc.      2,520      $ 73,685   
    

 

 

  
Health Maintenance Organizations – 2.5%   
Aetna, Inc.      1,890      $ 83,330   
Humana, Inc.      490        39,465   
    

 

 

  
     $ 122,795   
    

 

 

  
Insurance – 7.7%     
ACE Ltd.      390      $ 25,670   
Aflac, Inc.      1,600        74,688   
Allied World Assurance Co.      960        55,277   
Berkshire Hathaway, Inc., “B” (a)      610        47,208   
Chubb Corp.      350        21,914   
MetLife, Inc.      330        14,477   
Prudential Financial, Inc.      1,340        85,211   
Travelers Cos., Inc.      990        57,796   
    

 

 

  
     $ 382,241   
    

 

 

  
Leisure & Toys – 0.7%     
Activision Blizzard, Inc.      3,150      $ 36,792   
    

 

 

  
Machinery & Tools – 0.4%     
Navistar International Corp. (a)      370      $ 20,890   
    

 

 

  
Major Banks – 9.9%     
Bank of America Corp.      10,342      $ 113,348   
Bank of New York Mellon Corp.      1,100        28,182   
Goldman Sachs Group, Inc.      310        41,258   
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Major Banks – continued     
JPMorgan Chase & Co.      4,290      $ 175,633   
PNC Financial Services Group, Inc.      1,380        82,262   
Wells Fargo & Co.      1,790        50,227   
    

 

 

  
     $ 490,910   
    

 

 

  
Medical & Health Technology & Services – 1.2%     
McKesson Corp.      730      $ 61,065   
    

 

 

  
Medical Equipment – 0.7%     
Thermo Fisher Scientific, Inc. (a)      540      $ 34,771   
    

 

 

  
Metals & Mining – 1.3%     
Cliffs Natural Resources, Inc.      670      $ 61,942   
    

 

 

  
Natural Gas – Distribution – 1.2%     
Sempra Energy      1,090      $ 57,639   
    

 

 

  
Natural Gas – Pipeline – 1.7%     
El Paso Corp.      1,080      $ 21,816   
Williams Cos., Inc.      2,040        61,710   
    

 

 

  
     $ 83,526   
    

 

 

  
Network & Telecom – 1.4%     
Cisco Systems, Inc.      2,730      $ 42,615   
Garmin Ltd.      830        27,415   
    

 

 

  
     $ 70,030   
    

 

 

  
Oil Services – 0.7%     
National Oilwell Varco, Inc.      420      $ 32,848   
    

 

 

  
Other Banks & Diversified Financials – 5.5%     
Capital One Financial Corp.      1,320      $ 68,204   
Citigroup, Inc.      3,218        133,998   
Discover Financial Services      2,630        70,353   
    

 

 

  
     $ 272,555   
    

 

 

  
Pharmaceuticals – 6.4%     
Abbott Laboratories      1,050      $ 55,251   
Johnson & Johnson      1,740        115,745   
Merck & Co., Inc.      850        29,997   
Pfizer, Inc.      5,700        117,420   
    

 

 

  
     $ 318,413   
    

 

 

  
Pollution Control – 0.6%     
Republic Services, Inc.      1,022      $ 31,529   
    

 

 

  
Printing & Publishing – 1.1%     
Moody’s Corp.      1,440      $ 55,224   
    

 

 

  
Railroad & Shipping – 1.5%     
CSX Corp.      2,830      $ 74,203   
    

 

 

  
Real Estate – 2.7%     
Annaly Mortgage Management, Inc., REIT      2,600      $ 46,904   
Equity Residential, REIT      640        38,400   
Mack-Cali Realty Corp., REIT      1,450        47,763   
    

 

 

  
     $ 133,067   
    

 

 

  
Specialty Chemicals – 1.0%     
Cytec Industries, Inc.      900      $ 51,471   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Specialty Stores – 1.6%     
Abercrombie & Fitch Co., “A”      590      $ 39,483   
Best Buy Co., Inc.      560        17,590   
IAC/InterActiveCorp (a)      520        19,848   
    

 

 

  
     $ 76,921   
    

 

 

  
Telecommunications – Wireless – 0.5%   
Sprint Nextel Corp. (a)      4,530      $ 24,417   
    

 

 

  
Telephone Services – 4.1%     
AT&T, Inc.      5,360      $ 168,358   
CenturyLink, Inc.      387        15,646   
Verizon Communications, Inc.      570        21,221   
    

 

 

  
     $ 205,225   
    

 

 

  
Tobacco – 1.3%     
Reynolds American, Inc.      1,700      $ 62,985   
    

 

 

  
Utilities – Electric Power – 5.4%     
AES Corp. (a)      5,280      $ 67,267   
Alliant Energy Corp.      530        21,550   
American Electric Power Co., Inc.      750        28,260   
Edison International      520        20,150   
Integrys Energy Group, Inc.      820        42,509   
NextEra Energy, Inc.      280        16,089   
PPL Corp.      720        20,038   
Wisconsin Energy Corp.      1,580        49,533   
    

 

 

  
     $ 265,396   
    

 

 

  
Total Common Stocks
(Identified Cost, $4,765,180)		      $ 4,908,691   
    

 

 

  
MONEY MARKET FUNDS (v) – 1.5%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      76,305      $ 76,305   
    

 

 

  
Total Investments
(Identified Cost, $4,841,485)		      $ 4,984,996   
    

 

 

  

OTHER ASSETS, LESS

LIABILITIES – (0.7)%

  

  

     (36,926 ) 
    

 

 

  
Net Assets – 100.0%      $ 4,948,070   
    

 

 

  

 

(a) Non-income producing security.

 

(v) Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

REIT   Real Estate Investment Trust

See Notes to Financial Statements

 

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $4,765,180)

      $4,908,691      

Underlying affiliated funds, at cost and value

      76,305            

Total investments, at value (identified cost, $4,841,485)

      $4,984,996            

Receivables for

      

Investments sold

      626,629      

Dividends

      8,778      

Receivable from investment adviser

      7,938      

Other assets

      147            

Total assets

               $5,628,488   

Liabilities

                  

Payable for investments purchased

      $648,341      

Payable to affiliates

      

Shareholder servicing costs

      3      

Distribution and/or service fees

      33      

Payable for Trustees’ compensation

      74      

Accrued expenses and other liabilities

      31,967            

Total liabilities

               $680,418   

Net assets

               $4,948,070   

Net assets consist of

                  

Paid-in capital

      $5,228,305      

Unrealized appreciation (depreciation) on investments

      143,511      

Accumulated net realized gain (loss) on investments

      (458,278 )    

Undistributed net investment income

      34,532            

Net assets

               $4,948,070   

Shares of beneficial interest outstanding

               533,201   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $2,484,952         267,648         $9.28   

Service Class

      2,463,118         265,553         9.28   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment income                  

Income

      

Dividends

      $51,976      

Dividends from underlying affiliated funds

      45            

Total investment income

               $52,021   

Expenses

      

Management fee

      $14,464      

Distribution and/or service fees

      3,001      

Shareholder servicing costs

      270      

Administrative services fee

      8,679      

Trustees’ compensation

      262      

Custodian fee

      3,329      

Shareholder communications

      2,364      

Auditing fees

      22,545      

Legal fees

      3,766      

Miscellaneous

      4,637            

Total expenses

               $63,317   

Reduction of expenses by investment adviser

      (45,828 )          

Net expenses

               $17,489   

Net investment income

               $34,532   

Realized and unrealized gain (loss) on investments

                  
Realized gain (loss) on investment transactions (identified cost basis)               $280,611   

Change in unrealized appreciation (depreciation) on investments

               $24,987   

Net realized and unrealized gain (loss) on investments

               $305,598   

Change in net assets from operations

               $340,130   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		   
  
) 		     
 		 Year ended
12/31/10		   
  

Change in net assets

      

From operations

                  

Net investment income

      $34,532         $70,637   

Net realized gain (loss) on investments

      280,611         214,305   

Net unrealized gain (loss) on investments

      24,987         339,872   

Change in net assets from operations

      $340,130         $624,814   

Distributions declared to shareholders

                  

From net investment income

      $—         $(72,000 ) 

Change in net assets from fund share transactions

      $—         $72,000   

Total change in net assets

      $340,130         $624,814   

Net assets

                  

At beginning of period

      4,607,940         3,983,126   

At end of period (including undistributed net investment income of $34,532 and
$0, respectively)

      $4,948,070         $4,607,940   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years (or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class     

Six months

ended

6/30/11

      Years ended 12/31  
          2010        2009        2008        2007 (c)  
       (unaudited)                                    

Net asset value, beginning of period

        $8.64         $7.59           $6.40           $10.07           $10.00   
Income (loss) from investment operations                                                     

Net investment income (d)

        $0.07         $0.14           $0.14           $0.18           $0.01   

Net realized and unrealized gain (loss) on investments

        0.57         1.06           1.20           (3.66 )         0.07   

Total from investment operations

        $0.64         $1.20           $1.34           $(3.48 )         $0.08   
Less distributions declared to shareholders                                                     

From net investment income

        $—         $(0.15 )         $(0.14 )         $(0.17 )         $(0.01 ) 

From net realized gain on investments

        —         —           —           —           (0.00 )(w) 

From tax return of capital

        —         —           (0.01 )         (0.02 )         (0.00 )(w) 

Total distributions declared to shareholders

        $—         $(0.15 )         $(0.15 )         $(0.19 )         $(0.01 ) 

Net asset value, end of period

        $9.28         $8.64           $7.59           $6.40           $10.07   

Total return (%) (k)(r)(s)

        7.41 (n)       15.77           20.90           (34.44 )         0.80 (n) 

Ratios (%) (to average net assets)

and Supplemental data:

                                                     

Expenses before expense reductions (f)

        2.50 (a)       2.67           2.96           2.79           10.80 (a) 

Expenses after expense reductions (f)

        0.60 (a)       0.60           0.60           0.60           0.60 (a) 

Net investment income

        1.56 (a)       1.82           2.17           2.10           2.22 (a) 

Portfolio turnover

        38         65           50           49           0   

Net assets at end of period (000 omitted)

        $2,485         $2,313           $1,997           $1,651           $2,519   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

 

Service Class     

Six months

ended

6/30/11

      Years ended 12/31  
          2010        2009      2008        2007 (c)  
       (unaudited)                                  

Net asset value, beginning of period

        $8.64         $7.59           $6.40         $10.07           $10.00   
Income (loss) from investment operations                                                   

Net investment income (d)

        $0.06         $0.12           $0.13         $0.16           $0.01   

Net realized and unrealized gain (loss) on investments

        0.58         1.06           1.19         (3.66 )         0.07   

Total from investment operations

        $0.64         $1.18           $1.32         $(3.50 )         $0.08   
Less distributions declared to shareholders                                                   

From net investment income

        $—         $(0.13 )         $(0.13 )       $(0.16 )         $(0.01 ) 

From net realized gain on investments

        —         —           —         —           (0.00 )(w) 

From tax return of capital

        —         —           (0.00 )(w)       (0.01 )         (0.00 )(w) 

Total distributions declared to shareholders

        $—         $(0.13 )         $(0.13 )       $(0.17 )         $(0.01 ) 

Net asset value, end of period

        $9.28         $8.64           $7.59         $6.40           $10.07   

Total return (%) (k)(r)(s)

        7.41 (n)       15.51           20.64         (34.66 )         0.80 (n) 
Ratios (%) (to average net assets)
and Supplemental data:		                                                   

Expenses before expense reductions (f)

        2.75 (a)       2.92           3.21         3.04           11.05 (a) 

Expenses after expense reductions (f)

        0.85 (a)       0.85           0.85         0.85           0.85 (a) 

Net investment income

        1.31 (a)       1.57           1.95         1.85           1.97 (a) 

Portfolio turnover

        38         65           50         49           0   

Net assets at end of period (000 omitted)

        $2,463         $2,295           $1,986         $1,647           $2,519   

 

(a) Annualized.

 

(c) For the period from the commencement of the fund’s investment operations, December 18, 2007, through the stated period end.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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 fund may receive proceeds from litigation settlements, without which performance would be lower.

 

(w) Per share amount was less than $0.01.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Blended Research Value Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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. Except as otherwise described in Note 3, the fund is sold to separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active

 

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Notes to Financial Statements (unaudited) – continued

 

markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities      $4,908,691         $—         $—         $4,908,691   
Mutual Funds      76,305         —         —         76,305   
Total Investments      $4,984,996         $—         $—         $4,984,996   

For further information regarding security characteristics, see the Portfolio of Investments.

Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.

Investment Transactions and Income – Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. For the six months ended June 30, 2011, custody fees were not reduced.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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.

During the year ended December 31, 2010, there were no significant adjustments due to differences between book and tax accounting.

The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains) (a)      $72,000   

 

  (a) Included in the fund’s distribution from ordinary income is $1,363 in excess of investment company taxable income, which in accordance with applicable U.S. tax law, is taxable to shareholders as ordinary income distributions.  

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $4,844,744   
Gross appreciation      455,178   
Gross depreciation      (314,926 ) 
Net unrealized appreciation (depreciation)      $140,252   
As of 12/31/10   
Capital loss carryforwards      (736,580 ) 
Net unrealized appreciation (depreciation)      116,215   

 

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MFS Blended Research Value Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $(177,391 ) 
12/31/17      (559,189 ) 
Total      $(736,580 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $38,696   
Service Class      —         33,304   
Total      $—         $72,000   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.60% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses, such that total annual operating expenses do not exceed 0.60% of average daily net assets for the Initial Class shares and 0.85% of average daily net assets for the Service Class shares. This written agreement will continue until April 30, 2013. For the six months ended June 30, 2011, this reduction amounted to $45,828 and is reflected as a reduction of total expenses in the Statements of Operations.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2011, the fee was $269, which equated to 0.0112% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2011, these costs amounted to $1.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.3598% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO

 

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Notes to Financial Statements (unaudited) – continued

 

are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $39 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

At June 30, 2011, MFS was the sole shareholder of both classes.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $1,890,632 and $1,859,823, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         4,479         $38,696   

Service Class

      —         —         3,855         33,304   
     —         $—         8,334         $72,000   

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $19 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      51,719         96,600         (72,014 )       76,305   
Underlying Affiliated Funds    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $45         $76,305   

 

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MFS Blended Research Value Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

17

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LOGO

Table of Contents

LOGO

 

MFS® Global Growth Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

WGO-SEM

Table of Contents

MFS® GLOBAL GROWTH PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      7   
Statement of operations      8   
Statements of changes in net assets      9   
Financial highlights      10   
Notes to financial statements      12   
Board review of investment advisory agreement      17   
Proxy voting policies and information      17   
Quarterly portfolio disclosure      17   
Further information      17   
MFS® privacy notice      18   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ

NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Global Growth Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS Global Growth Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure

LOGO

 

Top ten holdings  
Groupe Danone     2.2%   
Danaher Corp.     2.2%   
Oracle Corp.     2.1%   
BHP Billiton PLC     2.0%   
LVMH Moet Hennessy Louis Vuitton S.A.     2.0%   
International Business Machines Corp.     1.8%   
Taiwan Semiconductor Manufacturing Co. Ltd., ADR     1.8%   
Pernod Ricard S.A.     1.7%   
Apple, Inc.     1.7%   
Reckitt Benckiser Group PLC     1.5%   

 

Currency exposure weightings (t)  
United States     47.7%   
Euro     19.5%   
United Kingdom     11.7%   
Switzerland     8.7%   
Brazil     3.2%   
Taiwan     1.8%   
Japan     1.6%   
Israel     1.2%   
South Korea     0.9%   
Other Countries     3.7%   
Equity sectors  
Technology     15.4%   
Financial Services     14.1%   
Consumer Staples     13.3%   
Health Care     11.4%   
Retailing     9.9%   
Industrial Goods & Services     9.8%   
Basic Materials     8.7%   
Special Products & Services     8.0%   
Energy     4.9%   
Transportation     1.2%   
Leisure     1.1%   
Autos & Housing     0.8%   
Utilities & Communications     0.6%   
Issuer country weightings (e)  
United States     44.2%   
France     11.8%   
United Kingdom     11.7%   
Switzerland     8.6%   
Brazil     4.8%   
Germany     4.5%   
Netherlands     2.6%   
Israel     2.0%   
Taiwan     1.8%   
Other Countries     8.0%   
 

 

(e) Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s total net assets.
(t) Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s total net assets.

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS Global Growth Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      1.18%         $1,000.00         $1,046.13         $5.99   
  Hypothetical (h)      1.18%         $1,000.00         $1,018.94         $5.91   
Service Class   Actual      1.43%         $1,000.00         $1,045.12         $7.25   
  Hypothetical (h)      1.43%         $1,000.00         $1,017.70         $7.15   

 

(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.

 

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PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 99.2%     
Aerospace – 1.4%     
United Technologies Corp.      10,970      $ 970,958   
          
Alcoholic Beverages – 3.9%     
Diageo PLC      50,339      $ 1,028,477   
Heineken N.V.      8,808        529,693   
Pernod Ricard S.A.      12,521        1,234,153   
          
     $ 2,792,323   
          
Apparel Manufacturers – 4.7%     
Compagnie Financiere Richemont S.A.      8,990      $ 588,641   
Li & Fung Ltd.      269,600        542,226   
LVMH Moet Hennessy Louis Vuitton S.A.      7,804        1,404,436   
NIKE, Inc., “B”      9,100        818,818   
          
     $ 3,354,121   
          
Automotive – 0.8%     
Johnson Controls, Inc.      13,950      $ 581,157   
          
Broadcasting – 1.1%     
Publicis Groupe S.A. (l)      13,992      $ 780,169   
          
Brokerage & Asset Managers – 4.0%     
BM&F Bovespa S.A.      97,800      $ 647,342   
Charles Schwab Corp.      22,950        377,528   
CME Group, Inc.      2,010        586,096   
Deutsche Boerse AG      5,512        418,845   
Franklin Resources, Inc.      6,560        861,262   
          
     $ 2,891,073   
          
Business Services – 8.0%     
Accenture PLC, “A”      16,880      $ 1,019,890   
Cognizant Technology Solutions Corp., “A” (a)      4,250        311,695   
Compass Group PLC      111,380        1,074,344   
Dun & Bradstreet Corp.      9,230        697,234   
Hays PLC      187,523        309,994   
Intertek Group PLC      14,025        444,111   
LPS Brasil – Consultoria de Imoveis S.A.      12,100        294,621   
Michael Page International      41,173        353,531   
MSCI, Inc., “A” (a)      21,100        795,048   
Verisk Analytics, Inc., “A” (a)      11,750        406,785   
          
     $ 5,707,253   
          
Chemicals – 0.6%     
Monsanto Co.      5,730      $ 415,654   
          
Computer Software – 4.0%     
Check Point Software Technologies Ltd. (a)      9,660      $ 549,171   
Dassault Systems S.A.      9,489        807,877   
Oracle Corp.      45,390        1,493,785   
          
     $ 2,850,833   
          
Computer Software – Systems – 4.6%     
Apple, Inc. (a)      3,640      $ 1,221,839   
EMC Corp. (a)      28,570        787,104   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Computer Software – Systems – continued     
International Business Machines Corp.      7,600      $ 1,303,780   
          
     $ 3,312,723   
          
Consumer Products – 4.6%     
Church & Dwight Co., Inc.      8,770      $ 355,536   
Colgate-Palmolive Co.      11,680        1,020,949   
Procter & Gamble Co.      12,620        802,253   
Reckitt Benckiser Group PLC      20,058        1,107,408   
          
     $ 3,286,146   
          
Electrical Equipment – 7.1%     
Amphenol Corp., “A”      10,290      $ 555,557   
Danaher Corp.      29,260        1,550,487   
Legrand S.A.      24,376        1,026,707   
Schneider Electric S.A.      5,156        861,347   
Sensata Technologies Holding B.V. (a)      14,910        561,362   
W.W. Grainger, Inc.      3,340        513,191   
          
     $ 5,068,651   
          
Electronics – 4.5%     
ASML Holding N.V.      14,140      $ 522,614   
Microchip Technology, Inc.      20,020        758,958   
Samsung Electronics Co. Ltd.      867        673,866   
Taiwan Semiconductor Manufacturing Co.
Ltd., ADR		      102,588        1,293,635   
          
     $ 3,249,073   
          
Energy – Integrated – 2.4%     
Chevron Corp.      5,560      $ 571,790   
Hess Corp.      7,080        529,301   
Suncor Energy, Inc.      15,612        611,886   
          
     $ 1,712,977   
          
Food & Beverages – 4.8%     
Groupe Danone      20,842      $ 1,555,026   
Mead Johnson Nutrition Co., “A”      5,530        373,552   
Nestle S.A.      11,522        716,057   
PepsiCo, Inc.      11,760        828,257   
          
     $ 3,472,892   
          
Food & Drug Stores – 1.3%     
Tesco PLC      146,976      $ 948,275   
          
General Merchandise – 2.2%     
Kohl’s Corp.      8,420      $ 421,084   
Lojas Renner S.A.      15,800        602,377   
Target Corp.      11,940        560,105   
          
     $ 1,583,566   
          
Internet – 1.7%     
Google, Inc., “A” (a)      1,920      $ 972,250   
Yahoo Japan Corp.      746        256,816   
          
     $ 1,229,066   
          
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Machinery & Tools – 1.3%     
Schindler Holding AG      7,595      $ 923,234   
    

 

 

  
Major Banks – 4.9%     
Bank of New York Mellon Corp.      13,050      $ 334,341   
Credit Suisse Group AG      16,869        656,100   
HSBC Holdings PLC      70,788        702,572   
Julius Baer Group Ltd.      20,596        850,787   
Standard Chartered PLC      37,163        976,982   
    

 

 

  
     $ 3,520,782   
    

 

 

  
Medical & Health Technology & Services – 2.2%     
Diagnosticos da America S.A.      38,900      $ 523,436   
Fresenius Medical Care AG & Co. KGaA      5,690        425,357   
Patterson Cos., Inc.      18,770        617,345   
    

 

 

  
     $ 1,566,138   
    

 

 

  
Medical Equipment – 5.1%     
Becton, Dickinson & Co.      6,480      $ 558,382   
DENTSPLY International, Inc.      14,020        533,882   
Essilor International S.A.      5,135        416,484   
Sonova Holding AG      7,580        707,737   
Synthes, Inc. (n)      3,192        561,519   
Thermo Fisher Scientific, Inc. (a)      8,350        537,657   
Waters Corp. (a)      3,910        374,343   
    

 

 

  
     $ 3,690,004   
    

 

 

  
Metals & Mining – 2.0%     
BHP Billiton PLC      36,972      $ 1,454,974   
    

 

 

  
Network & Telecom – 0.6%     
Cisco Systems, Inc.      27,010      $ 421,626   
    

 

 

  
Oil Services – 2.5%     
National Oilwell Varco, Inc.      10,960      $ 857,182   
Schlumberger Ltd.      11,240        971,136   
    

 

 

  
     $ 1,828,318   
    

 

 

  
Other Banks & Diversified Financials – 4.8%     
Akbank T.A.S.      67,160      $ 310,351   
Banco Santander Brasil S.A., ADR      93,180        1,091,138   
Credicorp Ltd.      4,100        353,010   
HDFC Bank Ltd.      7,763        436,848   
MasterCard, Inc., “A”      1,680        506,251   
Visa, Inc., “A”      9,150        770,979   
    

 

 

  
     $ 3,468,577   
    

 

 

  
Pharmaceuticals – 4.1%     
Allergan, Inc.      5,320      $ 442,890   
Bayer AG      10,765        865,466   
Johnson & Johnson      7,260        482,935   
Roche Holding AG      2,012        336,709   
Teva Pharmaceutical Industries Ltd., ADR      17,570        847,225   
    

 

 

  
     $ 2,975,225   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Railroad & Shipping – 1.2%     
Kuehne & Nagel, Inc. AG      5,650      $ 857,496   
    

 

 

  
Real Estate – 0.4%     
Brasil Brokers Participacoes      52,600      $ 257,835   
    

 

 

  
Specialty Chemicals – 6.1%     
Akzo Nobel N.V.      13,170      $ 830,783   
L’Air Liquide S.A.      2,653        380,262   
Linde AG      5,823        1,020,906   
Praxair, Inc.      6,400        693,696   
Shin-Etsu Chemical Co. Ltd.      16,700        895,775   
Symrise AG      16,488        525,543   
    

 

 

  
     $ 4,346,965   
    

 

 

  
Specialty Stores – 1.7%     
Hennes & Mauritz AB, “B”      10,420      $ 359,293   
Industria de Diseno Textil S.A.      9,684        882,478   
    

 

 

  
     $ 1,241,771   
    

 

 

  
Telecommunications – Wireless – 0.6%     
MTN Group Ltd.      18,585      $ 395,513   
    

 

 

  
Total Common Stocks
(Identified Cost, $63,564,978)		      $ 71,155,368   
    

 

 

  
    Strike
Price		     First
Exercise		              
       
RIGHTS – 0.0%        
Business Services – 0.0%       
LPS Brasil Consultoria de Imoveis S.A.
(1 share for 1 right) (Identified Cost, $0) (a)		     BRL 39.43        8/05/11        146      $ 0   
       

 

 

  
COLLATERAL FOR SECURITIES LOANED – 0.8%   
Navigator Securities Lending Prime Portfolio, 0.23%, at Cost and Net Asset Value (j)      600,583      $ 600,583   
    

 

 

  
MONEY MARKET FUNDS (v) – 1.0%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      686,921      $ 686,921   
    

 

 

  
Total Investments
(Identified Cost, $64,852,482)		      $ 72,442,872   
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – (1.0)%		        (738,629 ) 
    

 

 

  
Net Assets – 100.0%      $ 71,704,243   
    

 

 

  
 

 

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Portfolio of Investments (unaudited) – continued

 

 

(a)   Non-income producing security.

 

(j)   The rate quoted is the annualized seven-day yield of the portfolio at period end.

 

(l)   A portion of this security is on loan.

 

(n)   Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $561,519, representing 0.8% of net assets.

 

(v)   Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

ADR   American Depository Receipt

 

PLC   Public Limited Company

Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:

 

BRL   Brazilian Real

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $64,165,561)

      $71,755,951      

Underlying affiliated funds, at cost and value

      686,921            

Total investments, at value, including $570,241 of securities on loan (identified cost, $64,852,482)

      $72,442,872            

Foreign currency, at value (identified cost, $22,980)

      23,018      

Receivables for

      

Fund shares sold

      10,016      

Interest and dividends

      175,962      

Other assets

      1,314            

Total assets

               $72,653,182   

Liabilities

                  

Payable for fund shares reacquired

      $289,917      

Collateral for securities loaned, at value

      600,583      

Payable to affiliates

      

Investment adviser

      3,629      

Shareholder servicing costs

      41      

Distribution and/or service fees

      54      

Payable for Trustees’ compensation

      1,262      

Accrued expenses and other liabilities

      53,453            

Total liabilities

               $948,939   

Net assets

               $71,704,243   

Net assets consist of

                  

Paid-in capital

      $73,272,281      

Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies

      7,591,201      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      (10,131,649 )    

Undistributed net investment income

      972,410            

Net assets

               $71,704,243   

Shares of beneficial interest outstanding

               4,216,117   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $67,719,372         3,980,410         $17.01   

Service Class

      3,984,871         235,707         16.91   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11

      
Net investment income                  

Income

      

Dividends

      $1,017,190      

Interest

      12,632      

Dividends from underlying affiliated funds

      598      

Foreign taxes withheld

      (76,108 )          

Total investment income

               $954,312   

Expenses

      

Management fee

      $328,382      

Distribution and/or service fees

      5,053      

Shareholder servicing costs

      4,080      

Administrative services fee

      12,602      

Trustees’ compensation

      4,282      

Custodian fee

      30,443      

Shareholder communications

      5,247      

Auditing fees

      32,334      

Legal fees

      3,766      

Miscellaneous

      7,844            

Total expenses

               $434,033   

Net investment income

               $520,279   

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions

      $2,554,252      

Foreign currency transactions

      (38,121 )          

Net realized gain (loss) on investments and foreign currency transactions

               $2,516,131   

Change in unrealized appreciation (depreciation)

      

Investments

      $289,558      

Translation of assets and liabilities in foreign currencies

      (2,912 )          

Net unrealized gain (loss) on investments and foreign currency translation

               $286,646   

Net realized and unrealized gain (loss) on investments and foreign currency

               $2,802,777   

Change in net assets from operations

               $3,323,056   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		  
 
) 		     
 		 Year ended
12/31/10		  
  

Change in net assets

      

From operations

                  

Net investment income

      $520,279         $474,497   

Net realized gain (loss) on investments and foreign currency transactions

      2,516,131         2,811,532   

Net unrealized gain (loss) on investments and foreign currency translation

      286,646         4,579,723   

Change in net assets from operations

      $3,323,056         $7,865,752   

Distributions declared to shareholders

                  

From net investment income

      $—         $(565,546 ) 

Change in net assets from fund share transactions

      $(7,262,162 )       $(11,830,037 ) 

Total change in net assets

      $(3,939,106 )       $(4,529,831 ) 

Net assets

                  

At beginning of period

      75,643,349         80,173,180   

At end of period (including undistributed net investment income of $972,410 and
$452,131, respectively)

      $71,704,243         $75,643,349   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $16.26         $14.65           $10.62           $17.54           $15.74           $13.48   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.12         $0.10           $0.10           $0.13           $0.14           $0.20   

Net realized and unrealized gain (loss) on investments and foreign currency

        0.63         1.62           4.07           (6.90 )         1.94           2.14   

Total from investment operations

        $0.75         $1.72           $4.17           $(6.77 )         $2.08           $2.34   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.11 )         $(0.14 )         $(0.15 )         $(0.28 )         $(0.08 ) 

Net asset value, end of period

        $17.01         $16.26           $14.65           $10.62           $17.54           $15.74   

Total return (%) (k)(s)

        4.61 (n)       11.80           39.81           (38.93 )         13.27           17.37   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses (f)

        1.18 (a)       1.19           1.34           1.25           1.10           1.14   

Net investment income

        1.44 (a)(l)       0.66           0.85           0.90           0.83           1.39   

Portfolio turnover

        25         61           76           81           76           92   

Net assets at end of period (000 omitted)

        $67,719         $71,546           $75,171           $62,289           $131,870           $148,793   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $16.18         $14.58           $10.55           $17.42           $15.63           $13.39   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.10         $0.06           $0.07           $0.10           $0.09           $0.17   

Net realized and unrealized gain (loss) on investments
and foreign currency

        0.63         1.62           4.05           (6.86 )         1.94           2.12   

Total from investment operations

        $0.73         $1.68           $4.12           $(6.76 )         $2.03           $2.29   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.08 )         $(0.09 )         $(0.11 )         $(0.24 )         $(0.05 ) 

Net asset value, end of period

        $16.91         $16.18           $14.58           $10.55           $17.42           $15.63   

Total return (%) (k)(s)

        4.51 (n)       11.53           39.43           (39.07 )         13.04           17.09   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses (f)

        1.43 (a)       1.44           1.59           1.49           1.35           1.39   

Net investment income

        1.20 (a)(l)       0.42           0.58           0.67           0.56           1.16   

Portfolio turnover

        25         61           76           81           76           92   

Net assets at end of period (000 omitted)

        $3,985         $4,098           $5,002           $4,670           $8,716           $8,723   

 

(a) Annualized

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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.

 

(l) Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by companies in which the fund invests and the actual annual net investment income ratio may differ.

 

(n) Not annualized.

 

(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Global Growth Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests 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 provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

 

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Notes to Financial Statements (unaudited) – continued

 

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities:            

United States

      $31,125,905         $—         $—         $31,125,905   

France

      8,466,462         —         —         8,466,462   

United Kingdom

      8,400,669         —         —         8,400,669   

Switzerland

      6,198,280         —         —         6,198,280   

Brazil

      3,416,748         —         —         3,416,748   

Germany

      3,256,118         —         —         3,256,118   

Netherlands

      1,883,091         —         —         1,883,091   

Israel

      1,396,396         —         —         1,396,396   

Taiwan

      1,293,635         —         —         1,293,635   

Other Countries

      3,349,380         2,368,684         —         5,718,064   
Mutual Funds      1,287,504         —         —         1,287,504   
Total Investments      $70,074,188         $2,368,684         $—         $72,442,872   

For further information regarding security characteristics, see the Portfolio of Investments.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund 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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. 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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

 

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Notes to Financial Statements (unaudited) – continued

 

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. For the six months ended June 30, 2011, custody fees were not reduced.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 expiration of capital loss carryforwards and wash sale loss deferrals

The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $565,546   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $64,908,125   
Gross appreciation      10,400,753   
Gross depreciation      (2,866,006 ) 
Net unrealized appreciation (depreciation)      $7,534,747   
As of 12/31/10   
Undistributed ordinary income      452,567   
Capital loss carryforwards      (12,592,138 ) 
Other temporary differences      3,287   
Net unrealized appreciation (depreciation)      7,245,190   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $(7,268,811 ) 
12/31/17      (5,323,327 ) 
Total      $(12,592,138 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $541,002   
Service Class      —         24,544   
Total      $—         $565,546   

 

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MFS Global Growth Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund.

The management fee is computed daily and paid monthly at the following annual rates:

 

First $1 billion of average daily net assets      0.90%   
Next $1 billion of average daily net assets      0.75%   
Average daily net assets in excess of $2 billion      0.65%   

The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses, such that total annual operating expenses do not exceed 1.40% of average daily net assets for the Initial Class shares and 1.65% of average daily net assets for the Service Class shares. This written agreement will continue until April 30, 2013. For the six months ended June 30, 2011, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2011, the fee was $4,074, which equated to 0.0112% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2011, these costs amounted to $6.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0345% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $612 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $18,382,771 and $25,074,749, respectively.

 

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MFS Global Growth Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      7,796         $129,605         47,368         $708,923   

Service Class

      4,833         79,193         16,148         235,445   
     12,629         $208,798         63,516         $944,368   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         35,899         $541,002   

Service Class

      —         —         1,634         24,544   
     —         $—         37,533         $565,546   
Shares reacquired            

Initial Class

      (427,424 )       $(7,098,405 )       (813,422 )       $(11,782,957 ) 

Service Class

      (22,405 )       (372,555 )       (107,508 )       (1,556,994 ) 
     (449,829 )       $(7,470,960 )       (920,930 )       $(13,339,951 ) 
Net change            

Initial Class

      (419,628 )       $(6,968,800 )       (730,155 )       $(10,533,032 ) 

Service Class

      (17,572 )       (293,362 )       (89,726 )       (1,297,005 ) 
     (437,200 )       $(7,262,162 )       (819,881 )       $(11,830,037 ) 

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $301 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      683,229         9,335,091         (9,331,399 )       686,921   
Underlying Affiliated Funds    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $598         $686,921   

 

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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

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LOGO

Table of Contents

LOGO

 

MFS® Research International Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

RSS-SEM

Table of Contents

MFS® RESEARCH INTERNATIONAL PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      7   
Statement of operations      8   
Statements of changes in net assets      9   
Financial highlights      10   
Notes to financial statements      12   
Board review of investment advisory agreement      17   
Proxy voting policies and information      17   
Quarterly portfolio disclosure      17   
Further information      17   
MFS® privacy notice      18   

 

 

 

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Research International Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS Research International Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure

LOGO

 

Top ten holdings  
Nestle S.A.     2.7%   
Royal Dutch Shell PLC, “A”     2.5%   
Rio Tinto Ltd.     2.1%   
Roche Holding AG     2.1%   
BNP Paribas     2.1%   
Siemens AG     2.1%   
HSBC Holdings PLC     1.9%   
Linde AG     1.7%   
Groupe Danone     1.6%   
Vodafone Group PLC     1.6%   

 

Currency exposure weightings (t)  
Euro     30.8%   
Japan     19.1%   
United Kingdom     17.0%   
Switzerland     9.7%   
Hong Kong     4.9%   
United States     3.6%   
Australia     3.1%   
India     2.4%   
Sweden     1.9%   
Other Countries     7.5%   
Global equity sectors  
Capital Goods     25.3%   
Financial Services     23.5%   
Energy     12.6%   
Health Care     8.6%   
Consumer Staples     8.1%   
Technology     7.7%   
Consumer Cyclicals     7.6%   

Telecommunications/Cable Television

     5.6%   
Issuer country weightings (e)  
Japan     19.1%   
United Kingdom     17.0%   
France     10.0%   
Switzerland     9.7%   
Germany     9.1%   
Netherlands     6.0%   
Australia     3.1%   
Hong Kong     2.6%   
India     2.4%   
Other Countries     21.0%   
 

 

(e) Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s total net assets.
(t) Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s total net assets.

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		     

Ending

Account Value
6/30/11

      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      1.10%         $1,000.00         $1,065.01         $5.63   
  Hypothetical (h)      1.10%         $1,000.00         $1,019.34         $5.51   
Service Class   Actual      1.35%         $1,000.00         $1,064.35         $6.91   
  Hypothetical (h)      1.35%         $1,000.00         $1,018.10         $6.76   

 

(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.

 

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PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 99.0%   
Aerospace – 0.6%   
Rolls Royce Holdings PLC      92,945      $ 962,160   
          
Alcoholic Beverages – 1.5%   
Heineken N.V.      42,686      $ 2,567,038   
          
Apparel Manufacturers – 1.5%   
Li & Fung Ltd.      298,000      $ 599,345   
LVMH Moet Hennessy Louis Vuitton S.A.      10,463        1,882,959   
          
     $ 2,482,304   
          
Automotive – 3.6%   
Bayerische Motoren Werke AG      23,190      $ 2,314,009   
DENSO Corp.      41,300        1,533,414   
GKN PLC      135,668        504,722   
Honda Motor Co. Ltd.      44,900        1,730,607   
          
     $ 6,082,752   
          
Broadcasting – 1.6%   
Nippon Television Network Corp.      7,420      $ 1,055,867   
Publicis Groupe S.A. (l)      29,664        1,654,013   
          
     $ 2,709,880   
          
Brokerage & Asset Managers – 1.3%   
BM&F Bovespa S.A.      16,700      $ 110,538   
Deutsche Boerse AG      19,054        1,447,872   
Nomura Holdings, Inc.      132,800        657,044   
          
     $ 2,215,454   
          
Business Services – 2.0%   
Cognizant Technology Solutions Corp., “A” (a)      11,900      $ 872,746   
Compass Group PLC      35,250        340,013   
Mitsubishi Corp.      56,600        1,418,110   
Nomura Research, Inc.      34,900        763,884   
          
     $ 3,394,753   
          
Chemicals – 0.8%   
Monsanto Co.      7,400      $ 536,796   
Nufarm Ltd. (a)      163,075        788,483   
          
     $ 1,325,279   
          
Computer Software – 0.8%   
Dassault Systems S.A. (l)      15,026      $ 1,279,288   
          
Computer Software – Systems – 2.3%   
Acer, Inc.      695,935      $ 1,219,608   
Canon, Inc.      21,700        1,034,804   
Konica Minolta Holdings, Inc.      196,000        1,635,373   
          
     $ 3,889,785   
          
Conglomerates – 0.6%   
Hutchison Whampoa Ltd.      87,000      $ 943,253   
          
Consumer Products – 1.4%   
Kimberly-Clark de Mexico S.A. de C.V., “A”      103,560      $ 681,408   
Reckitt Benckiser Group PLC      29,616        1,635,109   
          
     $ 2,316,517   
          
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Electrical Equipment – 3.8%   
Legrand S.A.      13,494      $ 568,362   
Schneider Electric S.A.      13,967        2,333,289   
Siemens AG      25,182        3,458,223   
          
     $ 6,359,874   
          
Electronics – 1.5%   
Samsung Electronics Co. Ltd.      1,402      $ 1,089,689   
Taiwan Semiconductor Manufacturing Co. Ltd.      590,804        1,495,370   
          
     $ 2,585,059   
          
Energy – Independent – 2.5%   
Bankers Petroleum Ltd. (a)      71,966      $ 513,377   
Cairn Energy PLC (a)      72,258        481,046   
INPEX Corp.      326        2,406,770   
Reliance Industries Ltd.      40,264        811,751   
          
     $ 4,212,944   
          
Energy – Integrated – 5.0%   
BG Group PLC      65,193      $ 1,479,490   
BP PLC      359,135        2,643,631   
Royal Dutch Shell PLC, “A”      118,376        4,213,927   
          
     $ 8,337,048   
          
Engineering – Construction – 2.1%   
JGC Corp.      70,000      $ 1,917,055   
Keppel Corp. Ltd.      110,600        1,000,739   
Outotec Oyj      11,834        672,714   
          
     $ 3,590,508   
          
Food & Beverages – 4.4%   
Groupe Danone      37,148      $ 2,771,620   
Nestle S.A.      73,900        4,592,655   
          
     $ 7,364,275   
          
Food & Drug Stores – 2.0%   
Lawson, Inc.      31,600      $ 1,659,636   
Tesco PLC      274,020        1,767,950   
          
     $ 3,427,586   
          
Gaming & Lodging – 0.9%   
MGM China Holdings Ltd. (a)      76,800      $ 141,329   
Sands China Ltd. (a)      505,200        1,376,507   
          
     $ 1,517,836   
          
Insurance – 4.4%   
AIA Group Ltd. (a)      127,000      $ 442,009   
Amlin PLC      43,265        281,989   
China Pacific Insurance Co. Ltd.      138,400        576,104   
Hiscox Ltd.      100,498        675,662   
ING Groep N.V. (a)      209,915        2,584,121   
SNS REAAL Groep N.V. (a)      121,893        544,254   
Swiss Re Ltd.      41,146        2,310,440   
          
     $ 7,414,579   
          
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Machinery & Tools – 2.7%   
BEML Ltd.      16,542      $ 214,701   
Glory Ltd.      53,300        1,199,742   
Joy Global, Inc.      6,450        614,298   
MAN SE      6,094        812,670   
Schindler Holding AG      11,549        1,403,875   
Sinotruk Hong Kong Ltd.      496,500        348,014   
          
     $ 4,593,300   
          
Major Banks – 11.7%   
Barclays PLC      356,019      $ 1,465,337   
BNP Paribas      44,936        3,468,676   
Credit Suisse Group AG      47,475        1,846,485   
Erste Group Bank AG (l)      29,667        1,555,231   
HSBC Holdings PLC      319,608        3,172,115   
Julius Baer Group Ltd.      25,685        1,061,005   
KBC Group N.V. (l)      24,915        979,136   
Mitsubishi UFJ Financial Group, Inc.      154,400        751,661   
Standard Chartered PLC      73,237        1,925,335   
Sumitomo Mitsui Financial Group, Inc.      53,800        1,655,746   
Westpac Banking Corp.      76,530        1,835,814   
          
     $ 19,716,541   
          
Medical & Healt6h Technology & Services – 2.3%   
Diagnosticos da America S.A.      54,900      $ 738,731   
Miraca Holdings, Inc.      43,500        1,764,810   
Rhoen-Klinikum AG      59,918        1,445,851   
          
     $ 3,949,392   
          
Medical Equipment – 0.8%   
Sonova Holding AG      6,126      $ 571,979   
Synthes, Inc. (n)      4,759        837,176   
          
     $ 1,409,155   
          
Metals & Mining – 4.6%   
Iluka Resources Ltd.      78,992      $ 1,433,021   
Rio Tinto Ltd.      50,130        3,612,885   
Steel Authority of India Ltd.      112,562        346,782   
Sumitomo Metal Industries Ltd.      189,000        425,093   
Teck Resources Ltd., “B”      36,335        1,846,795   
          
     $ 7,664,576   
          
Natural Gas – Distribution – 0.8%   
Tokyo Gas Co. Ltd.      293,000      $ 1,325,431   
          
Network & Telecom – 1.1%   
Ericsson, Inc., “B”      126,191      $ 1,819,487   
          
Oil Services – 0.9%   
AMEC PLC      38,000      $ 663,551   
Technip      7,230        775,125   
          
     $ 1,438,676   
          
Other Banks & Diversified Financials – 5.3%   
Aeon Credit Service Co. Ltd.      72,600      $ 990,184   
Banco Santander Brasil S.A., ADR      93,760        1,097,930   
China Construction Bank      1,270,880        1,057,783   
HDFC Bank Ltd., ADR      5,540        977,201   
ICICI Bank Ltd.      68,870        1,688,068   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Other Banks & Diversified Financials – continued   
Komercni Banka A.S.      4,414      $ 1,076,454   
Sberbank of Russia      366,360        1,348,205   
United Overseas Bank Ltd.      41,000        658,724   
          
     $ 8,894,549   
          
Pharmaceuticals – 5.5%   
Bayer AG      23,021      $ 1,850,803   
Roche Holding AG      21,571        3,609,919   
Sanofi-Aventis      25,911        2,083,148   
Santen, Inc.      40,700        1,654,476   
          
     $ 9,198,346   
          
Precious Metals & Minerals – 0.7%   
Newcrest Mining Ltd.      27,953      $ 1,134,628   
          
Railroad & Shipping – 0.5%   
East Japan Railway Co.      14,900      $ 856,215   
          
Real Estate – 0.8%   
GSW Immobilien AG (a)      13,865      $ 475,515   
Hang Lung Properties Ltd.      225,000        931,945   
          
     $ 1,407,460   
          
Specialty Chemicals – 4.2%   
Akzo Nobel N.V.      43,076      $ 2,717,299   
Chugoku Marine Paints Ltd.      58,000        453,164   
Linde AG      16,084        2,819,897   
Nippon Paint Co. Ltd.      63,000        504,838   
Symrise AG      19,738        629,135   
          
     $ 7,124,333   
          
Specialty Stores – 1.6%   
Hennes & Mauritz AB, “B”      40,530      $ 1,397,520   
Industria de Diseno Textil S.A.      13,604        1,239,697   
          
     $ 2,637,217   
          
Telecommunications – Wireless – 2.8%   
KDDI Corp.      230      $ 1,654,873   
Tim Participacoes S.A., ADR      6,670        328,231   
Vodafone Group PLC      1,041,471        2,763,006   
          
     $ 4,746,110   
          
Telephone Services – 2.8%   
China Unicom Ltd.      900,000      $ 1,822,462   
Royal KPN N.V.      111,854        1,626,917   
Telecom Italia S.p.A.      340,728        474,095   
Telecom Italia S.p.A.      748,029        870,515   
          
     $ 4,793,989   
          
Tobacco – 0.8%   
Japan Tobacco, Inc.      335      $ 1,292,842   
          
Trucking – 1.1%   
Yamato Holdings Co. Ltd.      116,800      $ 1,834,561   
          
Utilities – Electric Power – 3.4%   
CEZ AS      24,374      $ 1,254,230   
Energias de Portugal S.A.      510,469        1,812,888   
Fortum Corp.      49,257        1,426,458   
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Utilities – Electric Power – continued   
Red Electrica de Espana      9,856      $ 594,933   
Tractebel Energia S.A.      32,840        578,669   
    

 

 

  
     $ 5,667,178   
    

 

 

  
Total Common Stocks
(Identified Cost, $158,270,482)		      $ 166,482,158   
    

 

 

  
MONEY MARKET FUNDS (v) – 0.0%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      64      $ 64   
    

 

 

  
COLLATERAL FOR SECURITIES LOANED – 2.4%   
Navigator Securities Lending Prime Portfolio, 0.23%, at Cost and Net Asset Value (j)      3,973,793      $ 3,973,793   
    

 

 

  
Total Investments
(Identified Cost, $162,244,339)		      $ 170,456,015   
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – (1.4)%		        (2,389,574 ) 
    

 

 

  
Net Assets – 100.0%      $ 168,066,441   
    

 

 

  
(a)   Non-income producing security.

 

(j)   The rate quoted is the annualized seven-day yield of the portfolio at period end.

 

(l)   A portion of this security is on loan.

 

(n)   Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $837,176, representing 0.5% of net assets.

 

(v)   Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

ADR   American Depository Receipt

 

PLC   Public Limited Company

See Notes to Financial Statements

 

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $162,244,275)

      $170,455,951      

Underlying affiliated funds, at cost and value

      64            

Total investments, at value, including $3,867,337 of securities on loan (identified cost, $162,244,339)

      $170,456,015            

Foreign currency, at value (identified cost, $190,651)

      191,702      

Receivables for

      

Investments sold

      4,877,941      

Fund shares sold

      53,961      

Interest and dividends

      722,565      

Other assets

      3,965            

Total assets

               $176,306,149   

Liabilities

                  

Payable to custodian

      $180,598      

Payables for

      

Investments purchased

      3,894,510      

Fund shares reacquired

      99,286      

Collateral for securities loaned, at value

      3,973,793      

Payable to affiliates

      

Investment adviser

      3,483      

Shareholder servicing costs

      95      

Distribution and/or service fees

      1,564      

Payable for Trustees’ compensation

      2,883      

Accrued expenses and other liabilities

      83,496            

Total liabilities

               $8,239,708   

Net assets

               $168,066,441   

Net assets consist of

                  

Paid-in capital

      $173,510,011      

Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies

      8,218,085      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      (18,866,241 )    

Undistributed net investment income

      5,204,586            

Net assets

               $168,066,441   

Shares of beneficial interest outstanding

               11,631,695   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $51,537,028         3,534,241         $14.58   

Service Class

      116,529,413         8,097,454         14.39   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11

      

Net investment income

                  

Income

      

Dividends

      $3,722,467      

Interest

      88,279      

Dividends from underlying affiliated funds

      645      

Foreign taxes withheld

      (386,446 )          

Total investment income

               $3,424,945   

Expenses

      

Management fee

      $770,723      

Distribution and/or service fees

      149,954      

Shareholder servicing costs

      9,571      

Administrative services fee

      29,043      

Trustees’ compensation

      9,839      

Custodian fee

      73,145      

Shareholder communications

      12,925      

Auditing fees

      26,632      

Legal fees

      3,766      

Miscellaneous

      16,071            

Total expenses

               $1,101,669   

Fees paid indirectly

      (5 )    

Reduction of expenses by investment adviser

      (7,890 )          

Net expenses

               $1,093,774   

Net investment income

               $2,331,171   

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions (net of $9,176 country tax)

      $10,300,633      

Foreign currency transactions

      22,884            

Net realized gain (loss) on investments and foreign currency transactions

               $10,323,517   

Change in unrealized appreciation (depreciation)

      

Investments

      $(1,883,622 )    

Translation of assets and liabilities in foreign currencies

      (20,175 )          

Net unrealized gain (loss) on investments and foreign currency translation

               $(1,903,797 ) 

Net realized and unrealized gain (loss) on investments and foreign currency

               $8,419,720   

Change in net assets from operations

               $10,750,891   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		   
  
) 		     
 		 Year ended
12/31/10		   
  

Change in net assets

      
From operations                  

Net investment income

      $2,331,171         $3,244,393   

Net realized gain (loss) on investments and foreign currency transactions

      10,323,517         18,866,023   

Net unrealized gain (loss) on investments and foreign currency translation

      (1,903,797 )       2,233,951   

Change in net assets from operations

      $10,750,891         $24,344,367   
Distributions declared to shareholders                  

From net investment income

      $—         $(2,780,628 ) 

Change in net assets from fund share transactions

      $(16,402,323 )       $(67,615,217 ) 

Total change in net assets

      $(5,651,432 )       $(46,051,478 ) 
Net assets                  

At beginning of period

      173,717,873         219,769,351   

At end of period (including undistributed net investment income of $5,204,586 and
$2,873,415, respectively)

      $168,066,441         $173,717,873   

See Notes to Financial Statements

 

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MFS Research International Portfolio

 

FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class     

Six months
ended

6/30/11

      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $13.69         $12.54           $9.94           $19.92           $19.94           $16.74   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.20         $0.20           $0.17           $0.37           $0.30           $0.22   

Net realized and unrealized gain (loss) on investments and foreign currency

        0.69         1.12           2.77           (7.71 )         2.21           4.30   

Total from investment operations

        $0.89         $1.32           $2.94           $(7.34 )         $2.51           $4.52   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.17 )         $(0.34 )         $(0.29 )         $(0.23 )         $(0.21 ) 

From net realized gain on investments

        —         —           —           (2.35 )         (2.30 )         (1.11 ) 

Total distributions declared to shareholders

        $—         $(0.17 )         $(0.34 )         $(2.64 )         $(2.53 )         $(1.32 ) 

Net asset value, end of period

        $14.58         $13.69           $12.54           $9.94           $19.92           $19.94   

Total return (%) (k)(r)(s)

        6.50 (n)       10.63           30.94           (42.49 )         13.15           27.47   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        1.11 (a)       1.12           1.18           1.17           1.06           1.13   

Expenses after expense reductions (f)

        1.10 (a)       1.10           1.10           1.11           1.06           1.13   

Net investment income

        2.90 (a)(l)       1.66           1.62           2.43           1.51           1.23   

Portfolio turnover

        25         60           75           82           68           80   

Net assets at end of period (000 omitted)

        $51,537         $52,239           $93,714           $45,835           $108,167           $119,534   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class     

Six months
ended

6/30/11

      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $13.52         $12.39           $9.82           $19.70           $19.77           $16.61   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.18         $0.16           $0.17           $0.32           $0.23           $0.16   

Net realized and unrealized gain (loss) on investments and foreign currency

        0.69         1.11           2.70           (7.61 )         2.20           4.29   

Total from investment operations

        $0.87         $1.27           $2.87           $(7.29 )         $2.43           $4.45   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.14 )         $(0.30 )         $(0.24 )         $(0.20 )         $(0.18 ) 

From net realized gain on investments

        —         —           —           (2.35 )         (2.30 )         (1.11 ) 

Total distributions declared to shareholders

        $—         $(0.14 )         $(0.30 )         $(2.59 )         $(2.50 )         $(1.29 ) 

Net asset value, end of period

        $14.39         $13.52           $12.39           $9.82           $19.70           $19.77   

Total return (%) (k)(r)(s)

        6.43 (n)       10.34           30.50           (42.60 )         12.81           27.25   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        1.36 (a)       1.37           1.43           1.42           1.31           1.38   

Expenses after expense reductions (f)

        1.35 (a)       1.35           1.35           1.36           1.31           1.38   

Net investment income

        2.64 (a)(l)       1.31           1.64           2.17           1.19           0.89   

Portfolio turnover

        25         60           75           82           68           80   

Net assets at end of period (000 omitted)

        $116,529         $121,479           $126,055           $113,966           $202,567           $155,969   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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.

 

(l) Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by companies in which the fund invests and the actual annual net investment income ratio may differ.

 

(n) Not annualized.

 

(r) Certain expenses have been reduced without which performance would have been lower.

 

(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Research International Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests 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 provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

 

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Notes to Financial Statements (unaudited) – continued

 

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities:            

Japan

      $1,443,349         $30,732,854         $—         $32,176,203   

United Kingdom

      28,587,928         —         —         28,587,928   

France

      16,816,479         —         —         16,816,479   

Switzerland

      16,233,535         —         —         16,233,535   

Germany

      15,253,975         —         —         15,253,975   

Netherlands

      10,039,628         —         —         10,039,628   

Australia

      —         5,191,946         —         5,191,946   

Hong Kong

      141,329         4,293,059         —         4,434,388   

India

      1,191,902         2,846,600         —         4,038,502   

Other Countries

      24,441,081         9,268,493         —         33,709,574   
Mutual Funds      3,973,857         —         —         3,973,857   
Total Investments      $118,123,063         $52,332,952         $—         $170,456,015   

For further information regarding security characteristics, see the Portfolio of Investments.

Of the level 2 investments presented above, equity investments amounting to $41,496,648 would have been considered level 1 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund 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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. 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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.

 

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Notes to Financial Statements (unaudited) – continued

 

Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $2,780,628   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $163,389,300   
Gross appreciation      16,535,611   
Gross depreciation      (9,468,896 ) 
Net unrealized appreciation (depreciation)      $7,066,715   
As of 12/31/10   
Undistributed ordinary income      2,877,865   
Capital loss carryforwards      (28,044,797 ) 
Other temporary differences      22,134   
Net unrealized appreciation (depreciation)      8,950,337   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $(16,000,345 ) 
12/31/17      (12,044,452 ) 
Total      $(28,044,797 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per

 

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Notes to Financial Statements (unaudited) – continued

 

share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $1,407,840   
Service Class      —         1,372,788   
Total      $—         $2,780,628   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $1 billion of average daily net assets      0.90%   
Next $1 billion of average daily net assets      0.80%   
Average daily net assets in excess of $2 billion      0.70%   

The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses, such that total annual operating expenses do not exceed 1.10% of average daily net assets for the Initial Class shares and 1.35% of average daily net assets for the Service Class shares. This written agreement will continue until April 30, 2013. For the six months ended June 30, 2011, this reduction amounted to $7,890 and is reflected as a reduction of total expenses in the Statement of Operations.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2011, the fee was $9,564, which equated to 0.0112% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2011, these costs amounted to $7.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0339% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and

 

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Notes to Financial Statements (unaudited) – continued

 

supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $1,392 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $43,522,956 and $58,602,755, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      75,388         $1,072,281         2,749,140         $32,862,902   

Service Class

      130,747         1,839,227         941,744         10,940,634   
     206,135         $2,911,508         3,690,884         $43,803,536   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         113,261         $1,407,840   

Service Class

      —         —         111,518         1,372,788   
     —         $—         224,779         $2,780,628   
Shares reacquired            

Initial Class

      (358,095 )       $(5,059,944 )       (6,520,132 )       $(86,865,256 ) 

Service Class

      (1,016,295 )       (14,253,887 )       (2,242,265 )       (27,334,125 ) 
     (1,374,390 )       $(19,313,831 )       (8,762,397 )       $(114,199,381 ) 
Net change            

Initial Class

      (282,707 )       $(3,987,663 )       (3,657,731 )       $(52,594,514 ) 

Service Class

      (885,548 )       (12,414,660 )       (1,189,003 )       (15,020,703 ) 
     (1,168,255 )       $(16,402,323 )       (4,846,734 )       $(67,615,217 ) 

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $670 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      101         19,958,794         (19,958,831 )       64   
Underlying Affiliated Funds    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $645         $64   

 

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MFS Research International Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

19

Table of Contents

LOGO

Table of Contents

LOGO

 

MFS® Emerging Markets

Equity Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

FCE-SEM

Table of Contents

MFS® EMERGING MARKETS EQUITY PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      7   
Statement of operations      8   
Statements of changes in net assets      9   
Financial highlights      10   
Notes to financial statements      12   
Board review of investment advisory agreement      17   
Proxy voting policies and information      17   
Quarterly portfolio disclosure      17   
Further information      17   
MFS® privacy notice      18   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Emerging Markets Equity Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS Emerging Markets Equity Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure

LOGO

 

Top ten holdings  
Samsung Electronics Co. Ltd.     3.7%   
Taiwan Semiconductor Manufacturing Co. Ltd.     2.3%   
Vale S.A., ADR     2.2%   
Sberbank of Russia     2.0%   
Petroleo Brasileiro S.A., ADR     2.0%   
OAO Gazprom, ADR     2.0%   
Mando Corp.     1.9%   
MTN Group Ltd.     1.8%   
China Construction Bank     1.7%   
Komercni Banka A.S.     1.6%   
Equity sectors  
Financial Services     25.4%   
Technology     12.2%   
Utilities & Communications     10.3%   
Energy     10.0%   
Basic Materials     9.3%   
Retailing     8.6%   
Special Products & Services     5.6%   
Consumer Staples     5.3%   
Autos & Housing     4.7%   
Leisure     2.9%   
Health Care     2.3%   
Industrial Goods & Services     1.8%   
Transportation     0.9%   

 

Issuer country weightings   
Brazil      17.4%   
China      11.6%   
South Korea      10.3%   
Taiwan      8.7%   
India      8.6%   
South Africa      6.8%   
Russia      6.4%   
Mexico      5.9%   
Hong Kong      5.3%   
Other Countries      19.0%   
 

 

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS Emerging Markets Equity Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      1.36%         $1,000.00         $1,001.12         $6.75   
  Hypothetical (h)      1.36%         $1,000.00         $1,018.05         $6.80   
Service Class   Actual      1.61%         $1,000.00         $1,000.00         $7.98   
  Hypothetical (h)      1.61%         $1,000.00         $1,016.81         $8.05   

 

(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.

 

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MFS Emerging Markets Equity Portfolio

 

PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 99.3%     
Airlines – 0.9%     
Copa Holdings S.A., “A”      7,097      $ 473,654   
Grupo Aeroportuario del Sureste S.A. de C.V., ADR      13,710        808,067   
          
     $ 1,281,721   
          
Alcoholic Beverages – 0.8%   
Companhia de Bebidas das Americas, ADR      32,845      $ 1,107,862   
          
Apparel Manufacturers – 3.1%   
Arezzo Industria e Comercio S.A.      42,710      $ 597,965   
Cia.Hering S.A.      27,800        639,490   
Li & Fung Ltd.      616,000        1,238,915   
Stella International Holdings      635,000        1,609,186   
Top Glove Corp.      211,000        366,865   
          
     $ 4,452,421   
          
Automotive – 2.5%   
Geely Automobile Holdings Ltd.      2,140,000      $ 838,332   
Mando Corp.      13,229        2,755,830   
          
     $ 3,594,162   
          
Broadcasting – 0.3%   
Grupo Televisa S.A., ADR      18,106      $ 445,408   
          
Brokerage & Asset Managers – 1.5%   
BM&F Bovespa S.A.      157,100      $ 1,039,851   
Bolsa Mexicana de Valores S.A. de C.V.      246,400        494,757   
CETIP S.A. – Balcao Organizado de Ativos e Derivativos      42,000        649,922   
          
     $ 2,184,530   
          
Business Services – 3.1%   
Cielo S.A.      29,096      $ 727,097   
Infosys Technologies Ltd., ADR      35,779        2,333,864   
LPS Brasil – Consultoria de Imoveis S.A.      25,300        616,025   
Multiplus S.A.      19,240        335,327   
Redecard S.A.      34,700        522,951   
          
     $ 4,535,264   
          
Cable TV – 2.0%   
Dish TV India Ltd.      405,427      $ 798,491   
Naspers Ltd.      36,087        2,038,426   
          
     $ 2,836,917   
          
Computer Software – 0.3%   
Totvs S.A.      21,900      $ 404,139   
          
Computer Software – Systems – 2.6%   
Acer, Inc.      520,947      $ 912,946   
Hon Hai Precision Industry Co. Ltd.      612,960        2,114,349   
NICE Systems Ltd., ADR (a)      19,240        699,566   
          
     $ 3,726,861   
          
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Conglomerates – 1.6%   
Alfa S.A de C.V., “A”      17,520      $ 260,290   
First Pacific Co. Ltd.      2,236,800        1,997,733   
          
     $ 2,258,023   
          
Construction – 2.2%   
Anhui Conch Cement Co. Ltd.      237,000      $ 1,116,608   
Corporacion GEO S.A.B. de C.V., “B” (a)      178,970        411,944   
Corporacion Moctezuma S.A. de C.V.      189,200        481,544   
Duratex S.A.      69,086        584,773   
Urbi Desarrollos Urbanos S.A. de C.V.      238,479        523,255   
          
     $ 3,118,124   
          
Consumer Products – 2.3%   
Dabur India Ltd.      687,394      $ 1,752,987   
Hengan International Group Co. Ltd.      110,500        996,342   
Kimberly-Clark de Mexico S.A. de C.V., “A”      90,870        597,910   
          
     $ 3,347,239   
          
Consumer Services – 0.9%   
Anhanguera Educacional Participacoes S.A.      39,200      $ 834,411   
Kroton Educacional S.A., IEU      34,996        454,086   
          
     $ 1,288,497   
          
Electronics – 8.1%   
Samsung Electronics Co. Ltd.      6,882      $ 5,348,960   
Seoul Semiconductor Co. Ltd.      17,425        477,835   
Siliconware Precision Industries Co. Ltd.      1,685,000        2,176,990   
Taiwan Semiconductor Manufacturing Co. Ltd.      1,288,258        3,260,679   
Taiwan Semiconductor Manufacturing Co. Ltd., ADR      29,871        376,673   
          
     $ 11,641,137   
          
Energy – Independent – 5.1%   
Bankers Petroleum Ltd. (a)      103,695      $ 739,719   
China Shenhua Energy Co. Ltd.      263,000        1,262,815   
CNOOC Ltd.      536,000        1,259,218   
INPEX Corp.      166        1,225,533   
Oil & Natural Gas Corp. Ltd.      107,690        661,946   
Reliance Industries Ltd.      72,150        1,454,595   
Turkiye Petrol Rafinerileri AS      29,241        717,062   
          
     $ 7,320,888   
          
Energy – Integrated – 4.6%   
LUKOIL, ADR      13,643      $ 869,741   
OAO Gazprom, ADR      193,614        2,822,892   
Petroleo Brasileiro S.A., ADR      86,522        2,929,635   
          
     $ 6,622,268   
          
Food & Beverages – 1.4%   
Embotelladoras Arca S.A. de C.V.      46,440      $ 329,405   
M. Dias Branco S.A. Industria e Comercio de Alimentos      31,400        834,973   
Tiger Brands Ltd.      27,818        812,514   
          
     $ 1,976,892   
          
 

 

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MFS Emerging Markets Equity Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Food & Drug Stores – 1.0%   
CP ALL Public Co. Ltd      403,000      $ 580,399   
Dairy Farm International Holdings Ltd.      73,800        605,160   
Shoprite Group PLC      20,216        304,355   
          
     $ 1,489,914   
          
Forest & Paper Products – 0.1%   
Suzano Papel E Celulose S.A., IPS      28,475      $ 205,993   
          
Gaming & Lodging – 0.6%     
Sands China Ltd.      321,200      $ 875,167   
          
General Merchandise – 2.1%   
Bim Birlesik Magazalar A.S.      9,375      $ 304,702   
E-Mart Co. Ltd.      5,842        1,337,863   
Lojas Renner S.A.      18,600        709,128   
Shinsegae Co. Ltd.      2,063        656,009   
          
     $ 3,007,702   
          
Insurance – 2.2%   
Brazil Insurance Participacoes e Administracao S.A.      1,000      $ 1,249,479   
China Pacific Insurance Co. Ltd.      456,600        1,900,642   
          
     $ 3,150,121   
          
Machinery & Tools – 1.8%   
BEML Ltd.      18,346      $ 238,115   
Glory Ltd.      22,200        499,705   
Sinotruk Hong Kong Ltd.      1,257,500        881,425   
TK Corp. (a)      44,570        979,537   
          
     $ 2,598,782   
          
Major Banks – 4.0%   
Bank of China Ltd.      4,641,000      $ 2,270,710   
Erste Group Bank AG (l)      21,079        1,105,023   
Standard Chartered PLC      65,043        1,678,378   
Standard Chartered PLC      26,788        704,232   
          
     $ 5,758,343   
          
Medical & Health Technology & Services – 1.3%   
Diagnosticos da America S.A.      89,000      $ 1,197,578   
Fleury S.A.      48,700        709,288   
          
     $ 1,906,866   
          
Metals & Mining – 6.7%   
Companhia Siderurgica Nacional S.A., ADR      20,960      $ 261,162   
Grupo Mexico S.A.B. de C.V., “B”      176,142        583,555   
Maanshan Iron & Steel Co. Ltd.      894,000        415,238   
Magnitogorsk Iron & Steel Works, GDR      56,700        645,246   
Mining & Metallurgical Co. Norilsk Nickel, ADR      49,950        1,308,690   
MOIL Ltd.      80,967        605,588   
POSCO      1,655        719,262   
Steel Authority of India Ltd.      392,100        1,207,984   
Ternium S.A., ADR      15,520        458,306   
Usinas Siderurgicas de Minas Gerais S.A., IPS      30,550        268,180   
Vale S.A., ADR      98,878        3,159,152   
          
     $ 9,632,363   
          
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Network & Telecom – 1.2%   
HTC Corp.      28,813      $ 984,265   
Vtech Holdings Ltd.      64,300        762,008   
          
     $ 1,746,273   
          
Oil Services – 0.3%   
Tenaris S.A., ADR      9,889      $ 452,224   
          
Other Banks & Diversified Financials – 16.7%   
Banco Santander Chile, ADR      3,480      $ 326,459   
Banco Santander S.A., IEU      76,800        900,548   
Bancolombia S.A., ADR      5,401        360,409   
Bangkok Bank Public Co. Ltd.      208,100        1,073,518   
Bank Negara Indonesia PT      2,475,000        1,121,000   
Bumiputra-Commerce Holdings Berhad      428,100        1,267,907   
China Construction Bank      2,962,670        2,465,899   
Chinatrust Financial Holding Co. Ltd.      1,359,000        1,186,542   
Commercial International Bank, GDR      152,200        770,132   
Compartamos S.A.B. de C.V.      289,990        524,327   
Credicorp Ltd.      7,000        602,700   
CSU Cardsystem S.A.      176,105        519,068   
Hana Financial Group, Inc.      43,310        1,524,438   
Housing Development Finance Corp. Ltd.      136,484        2,164,453   
ICICI Bank Ltd.      47,119        1,154,930   
Itau Unibanco Multiplo S.A., ADR      27,802        654,737   
Komercni Banka A.S.      9,571        2,334,105   
Sberbank of Russia      798,910        2,939,989   
Turkiye Garanti Bankasi A.S.      495,528        2,247,126   
          
     $ 24,138,287   
          
Pharmaceuticals – 1.0%   
Genomma Lab Internacional S.A., “B”      234,500      $ 597,641   
Teva Pharmaceutical Industries Ltd., ADR      16,420        791,772   
          
     $ 1,389,413   
          
Precious Metals & Minerals – 0.5%   
Gold Fields Ltd.      51,824      $ 760,215   
          
Real Estate – 1.0%   
Brasil Brokers Participacoes      168,700      $ 826,934   
Hang Lung Properties Ltd.      142,000        588,161   
          
     $ 1,415,095   
          
Specialty Chemicals – 2.0%   
Chugoku Marine Paints Ltd.      116,000      $ 906,329   
Formosa Plastics Corp.      411,000        1,489,577   
Mexichem S.A.B de C.V.      124,100        500,173   
          
     $ 2,896,079   
          
Specialty Stores – 2.4%   
Lewis Group Ltd.      99,793      $ 1,247,671   
PT Mitra Adiperkasa Tbk      346,500        160,613   
Truworths International Ltd.      188,883        2,047,271   
          
     $ 3,455,555   
          
Telecommunications – Wireless – 4.6%   
America Movil S.A.B. de C.V., “L”, ADR      35,567      $ 1,916,350   
China Mobile Ltd.      102,500        953,763   
Mobile TeleSystems OJSC, ADR      36,482        693,888   
 

 

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MFS Emerging Markets Equity Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer     Shares/Par     Value ($)  
       
COMMON STOCKS – continued   
Telecommunications – Wireless – continued   
MTN Group Ltd.        124,044      $ 2,639,820   
Tim Participacoes S.A., ADR        9,500        467,495   
       

 

 

  
    $ 6,671,316   
       

 

 

  
Telephone Services – 3.5%   
China Unicom Ltd.        270,000      $ 546,739   
China Unicom Ltd., ADR        89,370        1,811,530   
Empresa Nacional de Telecomunicaciones S.A.         19,362        393,123   
PT XL Axiata Tbk        3,189,500        2,287,380   
       

 

 

  
    $ 5,038,772   
       

 

 

  
Tobacco – 0.8%   
KT&G Corp.        17,663      $ 1,098,509   
       

 

 

  
Utilities – Electric Power – 2.2%   
Aguas Andinas S.A.        884,408      $ 478,966   
CPFL Energia S.A.        20,000        285,778   
Eletropaulo Metropolitana S.A., IPS        34,220        742,440   
Enersis S.A., ADR        22,232        513,559   
Manila Water Co., Inc.        1,455,000        625,850   
Tractebel Energia S.A.        32,580        574,088   
       

 

 

  
        $ 3,220,681   
       

 

 

  
Total Common Stocks
(Identified Cost, $120,607,565)		         $ 143,050,023   
       

 

 

  
    Strike
Price		     First
Exercise		              
RIGHT – 0.0%   
Business Services – 0.0%   
LPS Brasil Consultoria de Imoveis S.A.       
(1 share for 1 right)
(Identified Cost, $0) (a)		     BRL 39.43        6/30/11        305      $ 0   
       

 

 

  
MONEY MARKET FUNDS (v) – 0.6%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value         913,070      $ 913,070   
       

 

 

  
Issuer   Shares/Par     Value ($)  
   
COLLATERAL FOR SECURITIES LOANED – 0.6%   

Navigator Securities Lending Prime Portfolio, 0.23%, at Cost and Net Asset Value (j)

     796,500      $ 796,500   
   

 

 

  
Total Investments
(Identified Cost, $122,317,135)		     $ 144,759,593   
   

 

 

  
OTHER ASSETS, LESS
LIABILITIES – (0.5)%		       (693,886 ) 
   

 

 

  
Net Assets – 100.0%     $ 144,065,707   
   

 

 

  

 

(a) Non-income producing security.

 

(j) The rate quoted is the annualized seven-day yield of the portfolio at period end.

 

(l) A portion of this security is on loan.

 

(v) Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

ADR   American Depository Receipt

 

GDR   Global Depository Receipt

 

IEU   International Equity Unit

 

IPS   International Preference Stock

 

PLC   Public Limited Company

Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:

 

BRL   Brazilian Real

See Notes to Financial Statements

 

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $121,404,065)

      $143,846,523      

Underlying affiliated funds, at cost and value

      913,070            

Total investments, at value, including $787,347 of securities on loan (identified cost, $122,317,135)

      $144,759,593            

Foreign currency, at value (identified cost, $93,876)

      94,144      

Receivables for

      

Fund shares sold

      15,763      

Interest and dividends

      506,782      

Other assets

      2,142            

Total assets

               $145,378,424   

Liabilities

                  

Payable to custodian

      $4,153      

Payables for

      

Investments purchased

      228,257      

Fund shares reacquired

      72,727      

Collateral for securities loaned, at value

      796,500      

Payable to affiliates

      

Investment adviser

      8,393      

Shareholder servicing costs

      81      

Distribution and/or service fees

      541      

Payable for Trustees’ compensation

      2,144      

Deferred country tax expense payable

      78,428      

Accrued expenses and other liabilities

      121,493            

Total liabilities

               $1,312,717   

Net assets

               $144,065,707   

Net assets consist of

                  

Paid-in capital

      $107,670,323      

Unrealized appreciation (depreciation) on investments and translation of assets
and liabilities in foreign currencies (net of $78,428 deferred country tax)

      22,366,469      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      12,172,776      

Undistributed net investment income

      1,856,139            

Net assets

               $144,065,707   

Shares of beneficial interest outstanding

               8,080,539   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $103,902,813         5,803,586         $17.90   

Service Class

      40,162,894         2,276,953         17.64   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11

      

Net investment income

                  

Income

      

Dividends

      $2,395,031      

Interest

      1,255      

Dividends from underlying affiliated funds

      1,284      

Foreign taxes withheld

      (191,842 )          

Total investment income

               $2,205,728   

Expenses

      

Management fee

      $729,614      

Distribution and/or service fees

      48,126      

Shareholder servicing costs

      7,773      

Administrative services fee

      23,591      

Trustees’ compensation

      7,751      

Custodian fee

      118,102      

Shareholder communications

      6,360      

Auditing fees

      31,617      

Legal fees

      3,766      

Miscellaneous

      16,709            

Total expenses

               $993,409   

Fees paid indirectly

      (20 )          

Net expenses

               $993,389   

Net investment income

               $1,212,339   

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions (net of $16,927 country tax)

      $6,794,853      

Foreign currency transactions

      (91,706 )          

Net realized gain (loss) on investments and foreign currency transactions

               $6,703,147   

Change in unrealized appreciation (depreciation)

      

Investments (net of $63,004 decrease in deferred country tax)

      $(7,710,865 )    

Translation of assets and liabilities in foreign currencies

      1,622            

Net unrealized gain (loss) on investments and foreign currency translation

               $(7,709,243 ) 

Net realized and unrealized gain (loss) on investments and foreign currency

               $(1,006,096 ) 

Change in net assets from operations

               $206,243   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		   
  
) 		     
 		 Year ended
12/31/10		   
  

Change in net assets

      
From operations                  

Net investment income

      $1,212,339         $877,095   

Net realized gain (loss) on investments and foreign currency transactions

      6,703,147         11,148,151   

Net unrealized gain (loss) on investments and foreign currency translation

      (7,709,243 )       13,172,678   

Change in net assets from operations

      $206,243         $25,197,924   
Distributions declared to shareholders                  

From net investment income

      $—         $(710,049 ) 

Change in net assets from fund share transactions

      $7,397,516         $15,585,410   

Total change in net assets

      $7,603,759         $40,073,285   
Net assets                  

At beginning of period

      136,461,948         96,388,663   

At end of period (including undistributed net investment income of $1,856,139 and
$643,800, respectively)

      $144,065,707         $136,461,948   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $17.88         $14.54           $8.88           $26.15           $24.52           $21.84   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.16         $0.13           $0.14           $0.33           $0.30           $0.47   

Net realized and unrealized gain (loss) on investments
and foreign currency

        (0.14 )       3.31           5.80           (11.19 )         7.13           5.92   

Total from investment operations

        $0.02         $3.44           $5.94           $(10.86 )         $7.43           $6.39   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.10 )         $(0.28 )         $(0.27 )         $(0.55 )         $(0.25 ) 

From net realized gain on investments

        —         —           —           (6.14 )         (5.25 )         (3.46 ) 

Total distributions declared to shareholders

        $—         $(0.10 )         $(0.28 )         $(6.41 )         $(5.80 )         $(3.71 ) 

Net asset value, end of period

        $17.90         $17.88           $14.54           $8.88           $26.15           $24.52   

Total return (%) (k)(s)

        0.11 (n)       23.82           68.58           (55.11 )         35.71           30.16   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        1.36 (a)       1.55           1.71           1.85           1.55           1.53   

Expenses after expense reductions (f)

        1.36 (a)       1.40           1.40           1.61           N/A           N/A   

Net investment income

        1.81 (a)(l)       0.86           1.24           1.94           1.22           2.08   

Portfolio turnover

        19         39           66           93           96           110   

Net assets at end of period (000 omitted)

        $103,903         $99,316           $71,026           $33,411           $94,193           $89,419   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $17.64         $14.36           $8.76           $25.88           $24.33           $21.71   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.14         $0.09           $0.11           $0.29           $0.23           $0.41   

Net realized and unrealized gain (loss) on investments
and foreign currency

        (0.14 )       3.28           5.73           (11.06 )         7.07           5.89   

Total from investment operations

        $0.00 (w)       $3.37           $5.84           $(10.77 )         $7.30           $6.30   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.09 )         $(0.24 )         $(0.21 )         $(0.50 )         $(0.22 ) 

From net realized gain on investments

        —         —           —           (6.14 )         (5.25 )         (3.46 ) 

Total distributions declared to shareholders

        $—         $(0.09 )         $(0.24 )         $(6.35 )         $(5.75 )         $(3.68 ) 

Net asset value, end of period

        $17.64         $17.64           $14.36           $8.76           $25.88           $24.33   

Total return (%) (k)(s)

        0.00 (n)       23.54           68.13           (55.23 )         35.38           29.90   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        1.61 (a)       1.80           1.95           2.10           1.81           1.78   

Expenses after expense reductions (f)

        1.61 (a)       1.65           1.65           1.86           N/A           N/A   

Net investment income

        1.58 (a)(l)       0.62           0.93           1.70           0.96           1.84   

Portfolio turnover

        19         39           66           93           96           110   

Net assets at end of period (000 omitted)

        $40,163         $37,146           $25,363           $9,342           $23,614           $19,176   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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.

 

(l) Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by companies in which the fund invests and the actual annual net investment income ratio may differ.

 

(n) Not annualized.

 

(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

 

(w) Per share amount was less than $0.01.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Emerging Markets Equity Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests 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 provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

 

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Notes to Financial Statements (unaudited) – continued

 

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities:            

Brazil

      $25,009,555         $—         $—         $25,009,555   

China

      1,811,530         14,907,732         —         16,719,262   

South Korea

      3,811,643         11,086,600         —         14,898,243   

Taiwan

      376,673         12,125,349         —         12,502,022   

India

      4,930,555         7,442,401         —         12,372,956   

South Africa

      9,850,271         —         —         9,850,271   

Russia

      9,280,446         —         —         9,280,446   

Mexico

      7,993,081         481,545         —         8,474,626   

Hong Kong

      4,212,079         3,464,250         —         7,676,329   

Other Countries

      21,571,769         4,694,544         —         26,266,313   
Mutual Funds      1,709,570         —         —         1,709,570   
Total Investments      $90,557,172         $54,202,421         $—         $144,759,593   

For further information regarding security characteristics, see the Portfolio of Investments.

Of the level 2 investments presented above, equity investments amounting to $43,826,686 would have been considered level 1 investments at the beginning of the period. Of the level 1 investments presented above, equity investments amounting to $1,817,771 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund 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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. 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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s

 

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Notes to Financial Statements (unaudited) – continued

 

maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $710,049   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $122,473,835   
Gross appreciation      26,955,231   
Gross depreciation      (4,669,473 ) 
Net unrealized appreciation (depreciation)      $22,285,758   
As of 12/31/10   
Undistributed ordinary income      809,278   
Undistributed long-term capital gain      5,478,139   
Other temporary differences      (157,903 ) 
Net unrealized appreciation (depreciation)      30,059,627   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

 

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MFS Emerging Markets Equity Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $542,071   
Service Class      —         167,978   
Total      $—         $710,049   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $500 million of average daily net assets      1.05%   
Average daily net assets in excess of $500 million      1.00%   

The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 1.05% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 1.40% of average daily net assets for the Initial Class shares and 1.65% of average daily net assets for the Service Class shares. This written agreement will continue until April 30, 2013. For the six months ended June 30, 2011, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2011, the fee was $7,765, which equated to 0.0112% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2011, these costs amounted to $8.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0339% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and

 

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MFS Emerging Markets Equity Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $1,113 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $34,230,303 and $26,194,412, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      647,596         $11,416,872         1,292,090         $19,587,990   

Service Class

      551,954         9,471,644         1,105,275         16,898,112   
     1,199,550         $20,888,516         2,397,365         $36,486,102   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         35,546         $542,071   

Service Class

      —         —         11,147         167,978   
     —         $—         46,693         $710,049   
Shares reacquired            

Initial Class

      (399,361 )       $(7,038,471 )       (657,613 )       $(9,982,626 ) 

Service Class

      (381,243 )       (6,452,529 )       (776,271 )       (11,628,115 ) 
     (780,604 )       $(13,491,000 )       (1,433,884 )       $(21,610,741 ) 
Net change            

Initial Class

      248,235         $4,378,401         670,023         $10,147,435   

Service Class

      170,711         3,019,115         340,151         5,437,975   
     418,946         $7,397,516         1,010,174         $15,585,410   

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $560 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      717,813         21,320,780         (21,125,523 )       913,070   
Underlying Affiliated Funds    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $1,284         $913,070   

 

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MFS Emerging Markets Equity Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

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LOGO

Table of Contents

LOGO

 

MFS® Global Tactical

Allocation Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

WTS-SEM

Table of Contents

MFS® GLOBAL TACTICAL ALLOCATION PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      15   
Statement of operations      16   
Statements of changes in net assets      17   
Financial highlights      18   
Notes to financial statements      20   
Board review of investment advisory agreement      28   
Proxy voting policies and information      28   
Quarterly portfolio disclosure      28   
Further information      28   
MFS® privacy notice      29   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Global Tactical Allocation Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS Global Tactical Allocation Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure

 

            Active Security
Selection (a)		     Market
Overlay (b)		      Net
Exposure (c)		  

Equities

    U.S. Large Cap      14.9%        3.2%         18.1%   
   Europe ex-U.K.      7.7%        10.2%         17.9%   
   United Kingdom      5.1%        3.7%         8.8%   
   Japan      4.4%        (0.6)%         3.8%   
   U.S. Small/Mid Cap      0.6%        0.0%         0.6%   
   Emerging Markets      1.0%        (2.2)%         (1.2)%   
   North America ex-U.S.      0.3%        (4.4)%         (4.1)%   
   Asia/Pacific ex-Japan      0.1%        (6.1)%         (6.0)%   
    

Total

      34.1%        3.8%         37.9%   
Fixed Income    U.S.      24.4%        7.6%         32.0%   
   Europe ex-U.K.      14.1%        (1.3)%         12.8%   
   Japan      8.7%        (1.1)%         7.6%   
   United Kingdom      4.0%        (0.5)%         3.5%   
   Emerging Markets      3.5%        0.0%         3.5%   
   Asia/Pacific ex-Japan      0.9%        0.3%         1.2%   
   North America ex-U.S.      2.6%        (9.7)%         (7.1)%   
    

Total

      58.2%        (4.7)%         53.5%   
Cash    Cash and Equivalents (d)      6.8%        0.9%         7.7%   
   Derivative Offsets (e)      0.0%  (o)      0.9%         0.9%   
  

Total

      6.8%        1.8%         8.6%   
   Total Exposure summary      99.1%        0.9%         100.0%   

Strategic Allocation Targets & Net Exposure Ranges

  

Asset Class     Target  (w)      Ranges  (z) 

Equities

     35%        0 to 70%   

Fixed Income, Cash and Cash and Equivalents

     65%        30 to 100%   
Top ten holdings (c)  
U.S. Treasury Note 10 yr Future SEP 2011     7.7%   
DAX Index Future SEP 2011     4.1%   

U.S. Treasury Note 3.5% MAY 2020

     3.9%   

FTSE 100 Index Future SEP 2011

     3.7%   
FTSE/MIB Index Future SEP 2011     3.6%   

S&P 500 E-Mini Index Future SEP 2011

     3.5%   

Japan Govt Bond 1.7% MAR 2017

     2.8%   

S&P/TSE 60 Index Future SEP 2011

     (4.4)%   

Australian SPI 200 Index SEP 2011

     (4.6)%   
Govt of Canada Bond 10 yr Future SEP 2011     (9.7)%   
 

 

(a) For purposes of this presentation, components include the market value of securities, less any securities sold short. The bond component will include any accrued interest amounts. This also reflects the equivalent exposure of certain derivative positions. These amounts may be negative from time to time.
(b) Represents the fund’s tactical exposure to markets and currencies through use of derivative positions. Percentages reflect the equivalent exposure of those derivative positions.
(c) For purposes of this presentation, the components include the market value of securities, less any securities sold short, and reflect the impact of the equivalent exposure of derivative positions. These amounts may be negative from time to time. The bond component will include any accrued interest amounts.
(d) Cash and Equivalents includes cash, other assets (excluding interest receivables) less liabilities, short term securities, and the unrealized gain or loss in connection with forward currency exchange contracts.
(e) Derivative Offsets represent the offsetting of the leverage produced by the fund’s derivative positions.
(o) Less than 0.1%
(w) The strategic asset class allocations have been selected for investment over longer time periods. The actual strategic asset class weightings can deviate due to market movements and cash flows.
(z) The fund’s net exposures to the asset classes referenced will normally fall within theses ranges after taking into account the tactical overlay.

 

   Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. The market value of derivatives may be different.

Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio.

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS Global Tactical Allocation Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      0.81%         $1,000.00         $1,047.18         $4.11   
  Hypothetical (h)      0.81%         $1,000.00         $1,020.78         $4.06   
Service Class   Actual      1.06%         $1,000.00         $1,046.20         $5.38   
  Hypothetical (h)      1.06%         $1,000.00         $1,019.54         $5.31   

 

(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.

 

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MFS Global Tactical Allocation Portfolio

 

PORTFOLIO OF INVESTMENTS 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 34.1%     
Aerospace – 1.8%     
Cobham PLC      451,016      $ 1,531,685   
Honeywell International, Inc.      40,240        2,397,902   
Lockheed Martin Corp. (s)      61,920        5,013,662   
Northrop Grumman Corp.      20,160        1,398,096   
United Technologies Corp.      39,700        3,513,847   
    

 

 

  
     $ 13,855,192   
    

 

 

  
Alcoholic Beverages – 0.7%     
Heineken N.V.      92,614      $ 5,569,594   
    

 

 

  
Automotive – 0.1%     
USS Co. Ltd.      12,150      $ 942,472   
    

 

 

  
Broadcasting – 1.0%     
Fuji Television Network, Inc.      780      $ 1,156,711   
Nippon Television Network Corp.      8,410        1,196,745   
Omnicom Group, Inc.      41,730        2,009,717   
Viacom, Inc., “B”      22,070        1,125,570   
Walt Disney Co.      53,390        2,084,346   
    

 

 

  
     $ 7,573,089   
    

 

 

  
Brokerage & Asset Managers – 0.2%     
Blackrock, Inc.      1,211      $ 232,282   
Daiwa Securities Group, Inc.      365,000        1,608,006   
    

 

 

  
     $ 1,840,288   
    

 

 

  
Business Services – 1.4%     
Accenture PLC, “A”      54,240      $ 3,277,181   
Amadeus IT Holding S.A. (a)      91,798        1,904,959   
Bunzl PLC      123,458        1,545,523   
Compass Group PLC      212,530        2,050,012   
Dun & Bradstreet Corp.      16,330        1,233,568   
Nomura Research, Inc.      60,900        1,332,967   
    

 

 

  
     $ 11,344,210   
    

 

 

  
Chemicals – 0.7%     
3M Co.      20,460      $ 1,940,631   
Givaudan S.A.      1,800        1,904,371   
PPG Industries, Inc.      20,910        1,898,419   
    

 

 

  
     $ 5,743,421   
    

 

 

  
Computer Software – 0.4%     
Oracle Corp.      97,180      $ 3,198,194   
    

 

 

  
Computer Software – Systems – 0.9%   
Acer, Inc.      810,089      $ 1,419,660   
International Business Machines Corp.      23,630        4,053,727   
Konica Minolta Holdings, Inc.      179,500        1,497,701   
    

 

 

  
     $ 6,971,088   
    

 

 

  
Construction – 0.6%     
Geberit AG      6,294      $ 1,491,246   
Sherwin-Williams Co.      15,210        1,275,660   
Stanley Black & Decker, Inc.      22,090        1,591,585   
    

 

 

  
     $ 4,358,491   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Consumer Products – 1.0%     
Henkel KGaA, IPS      37,409      $ 2,596,883   
Kao Corp.      114,500        3,009,153   
KOSE Corp.      29,300        759,933   
Reckitt Benckiser Group PLC      31,186        1,721,789   
    

 

 

  
     $ 8,087,758   
    

 

 

  
Electrical Equipment – 0.6%     
Danaher Corp.      26,200      $ 1,388,338   
Legrand S.A.      52,481        2,210,479   
Spectris PLC      35,873        916,585   
    

 

 

  
     $ 4,515,402   
    

 

 

  
Electronics – 0.9%     
Halma PLC      161,999      $ 1,077,182   
Intel Corp.      64,020        1,418,683   
Samsung Electronics Co. Ltd.      3,031        2,355,812   
Taiwan Semiconductor Manufacturing Co. Ltd., ADR      203,568        2,566,992   
    

 

 

  
     $ 7,418,669   
    

 

 

  
Energy – Independent – 0.9%     
Apache Corp.      18,380      $ 2,267,908   
EOG Resources, Inc.      11,080        1,158,414   
INPEX Corp.      245        1,808,769   
Occidental Petroleum Corp.      15,240        1,585,570   
    

 

 

  
     $ 6,820,661   
    

 

 

  
Energy – Integrated – 1.9%     
BP PLC      567,627      $ 4,178,363   
Chevron Corp.      32,240        3,315,562   
Exxon Mobil Corp.      41,100        3,344,718   
Royal Dutch Shell PLC, “A”      121,699        4,332,218   
    

 

 

  
     $ 15,170,861   
    

 

 

  
Food & Beverages – 1.9%     
General Mills, Inc.      54,270      $ 2,019,929   
Groupe Danone      54,474        4,064,316   
J.M. Smucker Co.      15,958        1,219,830   
Kellogg Co.      17,100        945,972   
Nestle S.A.      84,800        5,270,057   
PepsiCo, Inc.      26,280        1,850,900   
    

 

 

  
     $ 15,371,004   
    

 

 

  
Food & Drug Stores – 0.5%     
Lawson, Inc.      33,200      $ 1,743,669   
Tesco PLC      341,562        2,203,725   
    

 

 

  
     $ 3,947,394   
    

 

 

  
General Merchandise – 0.3%     
Target Corp.      46,840      $ 2,197,264   
    

 

 

  
Insurance – 2.4%     
Aon Corp.      33,880      $ 1,738,044   
Hiscox Ltd.      168,278        1,131,356   
 

 

4

Table of Contents

MFS Global Tactical Allocation Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Insurance – continued     
ING Groep N.V. (a)      183,888      $ 2,263,720   
Jardine Lloyd Thompson Group PLC      96,194        1,051,373   
MetLife, Inc.      85,740        3,761,414   
Muenchener Ruckvers AG      9,381        1,434,526   
Prudential Financial, Inc.      30,610        1,946,490   
Swiss Re Ltd.      36,968        2,075,836   
Travelers Cos., Inc.      34,630        2,021,699   
Zurich Financial Services Ltd.      7,283        1,841,648   
          
     $ 19,266,106   
          
Leisure & Toys – 0.1%     
Hasbro, Inc.      25,960      $ 1,140,423   
          
Machinery & Tools – 0.4%     
Glory Ltd.      30,300      $ 682,030   
Neopost S.A.      16,914        1,453,029   
Schindler Holding AG      8,003        972,830   
          
     $ 3,107,889   
          
Major Banks – 2.6%     
Bank of America Corp.      158,580      $ 1,738,037   
Bank of New York Mellon Corp.      123,661        3,168,195   
Goldman Sachs Group, Inc.      18,390        2,447,525   
HSBC Holdings PLC      317,699        3,153,168   
JPMorgan Chase & Co.      99,730        4,082,946   
State Street Corp.      37,340        1,683,661   
Sumitomo Mitsui Financial Group, Inc.      28,200        867,882   
Toronto-Dominion Bank      12,447        1,055,436   
Wells Fargo & Co.      77,340        2,170,160   
          
     $ 20,367,010   
          
Medical & Health Technology & Services – 0.5%     
Kobayashi Pharmaceutical Co. Ltd.      25,900      $ 1,304,397   
Miraca Holdings, Inc.      41,300        1,675,555   
Quest Diagnostics, Inc.      19,620        1,159,542   
          
     $ 4,139,494   
          
Medical Equipment – 1.0%     
Becton, Dickinson & Co.      23,670      $ 2,039,644   
Medtronic, Inc.      59,620        2,297,159   
Smith & Nephew PLC      103,003        1,099,343   
St. Jude Medical, Inc.      23,750        1,132,400   
Synthes, Inc. (n)      8,933        1,571,443   
          
     $ 8,139,989   
          
Network & Telecom – 0.5%     
Cisco Systems, Inc.      52,410      $ 818,120   
Ericsson, Inc., “B”      166,974        2,407,517   
Nokia Oyj      160,904        1,043,007   
          
     $ 4,268,644   
          
Oil Services – 0.2%     
Transocean, Inc.      18,900      $ 1,220,184   
          
Other Banks & Diversified Financials – 0.6%   
DnB NOR A.S.A.      146,631      $ 2,043,808   
Hachijuni Bank Ltd.      100,000        562,148   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Other Banks & Diversified Financials – continued   
MasterCard, Inc., “A”      5,280      $ 1,591,075   
Sapporo Hokuyo Holdings, Inc.      124,700        520,455   
          
     $ 4,717,486   
          
Pharmaceuticals – 3.7%     
Abbott Laboratories      68,840      $ 3,622,361   
Bayer AG      29,848        2,399,669   
GlaxoSmithKline PLC      244,138        5,227,006   
Johnson & Johnson (s)      82,690        5,500,539   
Pfizer, Inc.      180,550        3,719,330   
Roche Holding AG      20,961        3,507,836   
Sanofi-Aventis      49,162        3,952,443   
Santen, Inc.      29,200        1,186,995   
          
     $ 29,116,179   
          
Railroad & Shipping – 0.2%     
Canadian National Railway Co.      19,190      $ 1,533,281   
          
Real Estate – 0.3%     
Deutsche Wohnen AG      85,059      $ 1,480,179   
GSW Immobilien AG (a)      22,765        780,749   
          
     $ 2,260,928   
          
Restaurants – 0.2%     
McDonald’s Corp.      14,670      $ 1,236,974   
          
Specialty Chemicals – 0.2%     
Shin-Etsu Chemical Co. Ltd.      34,100      $ 1,829,098   
          
Specialty Stores – 0.1%     
Esprit Holdings Ltd.      176,300      $ 549,184   
          
Telecommunications – Wireless – 1.5%   
KDDI Corp.      802      $ 5,770,471   
Vodafone Group PLC      2,234,626        5,928,427   
          
     $ 11,698,898   
          
Telephone Services – 1.3%     
AT&T, Inc.      137,260      $ 4,311,337   
China Unicom Ltd.      576,000        1,166,376   
Royal KPN N.V.      217,888        3,169,181   
TDC A/S (a)      128,631        1,173,920   
Telecom Italia S.p.A.      596,334        693,981   
          
     $ 10,514,795   
          
Tobacco – 1.6%     
British American Tobacco PLC      70,996      $ 3,111,841   
Japan Tobacco, Inc.      652        2,516,217   
Philip Morris International, Inc. (s)      78,316        5,229,159   
Reynolds American, Inc.      47,320        1,753,206   
          
     $ 12,610,423   
          
Trucking – 0.6%     
Deutsche Post AG      74,860      $ 1,438,396   
Yamato Holdings Co. Ltd.      200,300        3,146,083   
          
     $ 4,584,479   
          
 

 

5

Table of Contents

MFS Global Tactical Allocation Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Utilities – Electric Power – 0.3%     
PG&E Corp.      52,200      $ 2,193,966   
          
Total Common Stocks
(Identified Cost, $251,876,410)		      $ 269,420,482   
          
BONDS – 57.5%     
Aerospace – 0.2%     
Bombardier, Inc., 7.75%, 2020 (n)    $ 1,170,000      $ 1,316,250   
          
Asset-Backed & Securitized – 1.3%   
Bayview Commercial Asset Trust, FRN, 1.699%, 2023 (z)    CAD  170,000      $ 153,819   
Citigroup/Deutsche Bank Commercial Mortgage Trust, 5.322%, 2049    $ 1,479,018        1,569,301   
Commercial Mortgage Asset Trust, FRN, 0.991%, 2032 (i)(z)      2,196,914        22,255   
Commercial Mortgage Pass-Through Certificates, “A3”, 5.293%, 2049      532,759        549,450   
Commercial Mortgage Pass-Through Certificates, “A4”, 5.306%, 2046      532,759        570,506   
Commercial Mortgage Pass-Through Certificates, FRN, 0.377%, 2017 (n)      360,000        347,673   
First Union National Bank Commercial Mortgage Trust, FRN, 1.636%, 2043 (i)(z)      314,571        11   
G-Force LLC, CDO, “A2”,
4.83%, 2036 (z)		      581,364        575,551   
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 6.004%, 2049      1,230,759        1,307,099   
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 6.186%, 2051      1,808,573        1,924,054   
Merrill Lynch Mortgage Trust, FRN,
5.826%, 2050		      310,000        338,151   
Merrill Lynch Mortgage Trust, FRN,
“A3”, 6.019%, 2050		      2,000,000        2,141,044   
Wachovia Bank Commercial Mortgage Trust, “A3”, FRN, 6.096%, 2051      620,000        659,108   
          
     $ 10,158,022   
          
Automotive – 0.2%     
Ford Motor Credit Co. LLC, 7.8%, 2012    $ 1,300,000      $ 1,359,515   
          
Building – 0.3%     
Mohawk Industries, Inc., 6.875%, 2016    $ 1,145,000      $ 1,245,188   
Owens Corning, Inc., 6.5%, 2016      1,080,000        1,175,129   
          
     $ 2,420,317   
          
Cable TV – 0.5%     
Comcast Corp., 5.15%, 2020    $ 1,170,000      $ 1,259,728   
Cox Communications, Inc.,
9.375%, 2019 (n)		      860,000        1,143,022   
DIRECTV Holdings LLC, 5.2%, 2020      820,000        867,632   
Time Warner Cable, Inc., 5%, 2020      1,020,000        1,059,723   
          
     $ 4,330,105   
          
Issuer    Shares/Par     Value ($)  
    
BONDS – continued   
Chemicals – 0.5%     
Ashland, Inc., 9.125%, 2017    $ 1,310,000      $ 1,473,750   
Dow Chemical Co., 8.55%, 2019      930,000        1,199,183   
Nalco Co., 8.25%, 2017      870,000        950,475   
          
     $ 3,623,408   
          
Consumer Products – 0.1%     
Whirlpool Corp., 8%, 2012    $ 970,000      $ 1,024,882   
          
Containers – 0.1%     
Crown Americas LLC, 7.625%, 2017    $ 870,000      $ 931,988   
          
Emerging Market Quasi-Sovereign – 1.6%   
Banco do Brasil (Cayman Branch),
6%, 2020 (n)		    $ 910,000      $ 978,250   
Banco do Brasil S.A., 5.875%, 2022 (z)      2,445,000        2,418,105   
Banco do Nordeste do Brasil (BNB),
3.625%, 2015 (n)		      269,000        264,293   
BNDES Participacoes S.A.,
6.5%, 2019 (n)		      200,000        225,500   
CNPC (HK) Overseas Capital Ltd.,
4.5%, 2021 (z)		      419,000        408,211   
Corporacion Nacional del Cobre de Chile, 3.75%, 2020 (n)      224,000        212,816   
Empresa Nacional del Petroleo,
6.25%, 2019		      369,000        399,427   
OJSC Russian Agricultural Bank, FRN,
6%, 2021 (z)		      902,000        905,972   
Pemex Project Funding Master Trust,
5.75%, 2018		      503,000        551,543   
Petrobras International Finance Co.,
7.875%, 2019		      1,008,000        1,220,601   
Petrobras International Finance Co.,
5.375%, 2021		      2,361,000        2,424,296   
Petroleos Mexicanos, 6%, 2020      600,000        658,500   
Petroleos Mexicanos, 5.5%, 2021      100,000        104,850   
Ras Laffan Liquefied Natural Gas Co. Ltd., 6.75%, 2019 (n)      1,200,000        1,392,000   
SCF Capital Ltd., 5.375%, 2017 (n)      758,000        758,985   
          
     $ 12,923,349   
          
Emerging Market Sovereign – 1.1%     
Federative Republic of Brazil,
5.625%, 2041		    $ 1,005,000      $ 1,032,638   
Republic of Hungary, 6.375%, 2021      602,000        635,110   
Republic of Indonesia, 4.875%, 2021 (z)      200,000        204,750   
Republic of Peru, 7.35%, 2025      900,000        1,099,350   
Republic of Philippines, 5.5%, 2026      1,000,000        1,026,250   
Republic of Poland, 5.125%, 2021      43,000        44,451   
Republic of South Africa, 8%, 2018    ZAR  24,720,000        3,586,370   
Republic of South Africa, 5.5%, 2020    $ 400,000        437,000   
Republic of South Africa, 6.25%, 2041      483,000        518,018   
          
     $ 8,583,937   
          
Energy – Independent – 0.1%     
Anadarko Petroleum Corp., 6.2%, 2040    $ 435,000      $ 440,871   
          
 

 

6

Table of Contents

MFS Global Tactical Allocation Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
BONDS – continued   
Energy – Integrated – 0.2%     
Hess Corp., 8.125%, 2019    $ 980,000      $ 1,239,990   
    

 

 

  
Financial Institutions – 0.4%     
General Electric Capital Corp., 4.625%, 2021    $ 900,000      $ 905,297   
International Lease Finance Corp., 5.75%, 2016      974,000        959,114   
SLM Corp., 6.25%, 2016      930,000        964,875   
    

 

 

  
     $ 2,829,286   
    

 

 

  
Food & Beverages – 0.6%     
Anheuser-Busch InBev S.A., 5.375%, 2020    $ 1,310,000      $ 1,443,093   
Kraft Foods, Inc., 6.125%, 2018      470,000        540,704   
Kraft Foods, Inc., 6.5%, 2040      578,000        642,027   
Miller Brewing Co., 5.5%, 2013 (n)      900,000        974,857   
Tyson Foods, Inc., 6.85%, 2016      1,213,000        1,340,365   
    

 

 

  
     $ 4,941,046   
    

 

 

  
Food & Drug Stores – 0.1%     
CVS Caremark Corp., 5.75%, 2017    $ 910,000      $ 1,022,090   
    

 

 

  
Forest & Paper Products – 0.0%   
Georgia-Pacific Corp., 5.4%, 2020 (n)    $ 46,000      $ 46,880   
Votorantim Participacoes S.A., 6.75%, 2021 (n)      300,000        318,000   
    

 

 

  
     $ 364,880   
    

 

 

  
Insurance – 0.4%     
ING Groep N.V., 5.775% to 2015, FRN to 2049    $ 1,210,000      $ 1,113,200   
Unum Group, 7.125%, 2016      800,000        918,268   
UnumProvident Corp., 6.85%, 2015 (n)      696,000        779,090   
    

 

 

  
     $ 2,810,558   
    

 

 

  
Insurance – Property & Casualty – 0.8%     
AXIS Capital Holdings Ltd.,
5.75%, 2014		    $ 320,000      $ 345,778   
Chubb Corp., 6.375% to 2017, FRN to 2067      1,010,000        1,045,350   
CNA Financial Corp., 5.875%, 2020      2,000,000        2,079,472   
QBE Capital Funding III Ltd., FRN, 7.25%, 2041 (n)      1,089,000        1,092,674   
ZFS Finance USA Trust II, 6.45% to 2016, FRN to 2065 (n)      2,000,000        2,030,000   
    

 

 

  
     $ 6,593,274   
    

 

 

  
International Market Quasi-Sovereign – 0.3%     
Canada Housing Trust,
4.6%, 2011 (n)		    CAD  803,000      $ 838,294   
Eksportfinans A.S.A., 1.875%, 2013    $ 1,795,000        1,829,344   
    

 

 

  
     $ 2,667,638   
    

 

 

  
International Market Sovereign – 26.4%     
Republic of Italy,
3.75%, 2021		    EUR  4,340,000      $ 5,827,416   
Commonwealth of Australia,
5.75%, 2021		    AUD  4,187,000        4,672,286   
Issuer    Shares/Par     Value ($)  
    
BONDS – continued   
International Market Sovereign – continued     
Federal Republic of Germany, 3.75%, 2013    EUR  3,515,000      $ 5,311,667   
Federal Republic of Germany, 3.75%, 2015    EUR  6,651,000        10,221,713   
Federal Republic of Germany, 4.25%, 2018    EUR  1,800,000        2,871,192   
Federal Republic of Germany, 6.25%, 2030    EUR  2,623,000        5,118,316   
Government of Canada, 4.5%, 2015    CAD  1,398,000        1,579,655   
Government of Canada,
4.25%, 2018		    CAD  13,427,000        15,275,832   
Government of Japan, 1.3%, 2014    JPY  1,499,000,000        19,248,478   
Government of Japan, 1.7%, 2017    JPY  1,694,000,000        22,427,335   
Government of Japan, 1.1%, 2020    JPY  637,000,000        7,990,791   
Government of Japan, 2.1%, 2024    JPY  883,000,000        11,795,412   
Government of Japan, 2.2%, 2027    JPY  281,950,000        3,743,430   
Government of Japan, 2.4%, 2037    JPY  173,000,000        2,318,662   
Kingdom of Belgium, 5.5%, 2017    EUR  3,735,000        5,953,986   
Kingdom of Spain, 4.6%, 2019    EUR  8,129,000        11,324,669   
Kingdom of Sweden, 5%, 2020    SEK  15,005,000        2,774,283   
Republic of Austria, 4.65%, 2018    EUR  2,325,000        3,687,180   
Republic of Finland, 3.875%, 2017    EUR  3,683,000        5,644,051   
Republic of France, 6%, 2025    EUR  2,479,000        4,467,768   
Republic of France, 4.75%, 2035    EUR  2,781,000        4,386,952   
Republic of Iceland,
4.875%, 2016 (z)		    $ 1,518,000        1,505,747   
Republic of Italy, 4.75%, 2013    EUR  6,421,000        9,578,648   
Republic of Italy, 5.25%, 2017    EUR 8,501,000        12,994,652   
United Kingdom Treasury, 8%, 2015    GBP  4,445,000        8,985,710   
United Kingdom Treasury, 5%, 2018    GBP  3,321,000        6,086,215   
United Kingdom Treasury, 8%, 2021    GBP  3,248,000        7,269,727   
United Kingdom Treasury,
4.25%, 2027		    GBP  2,149,000        3,491,911   
United Kingdom Treasury,
4.25%, 2036		    GBP  1,726,000        2,758,732   
    

 

 

  
     $ 209,312,416   
    

 

 

  
Machinery & Tools – 0.2%     
Case New Holland, Inc.,
7.875%, 2017 (n)		    $ 1,240,000      $ 1,364,000   
    

 

 

  
Major Banks – 3.1%     
ABN Amro Bank N.V., FRN,
2.042%, 2014 (n)		    $ 1,400,000      $ 1,429,064   
Bank of America Corp.,
7.625%, 2019		      1,725,000        1,998,226   
BB&T Corp., 3.95%, 2016      1,820,000        1,904,641   
BNP Paribas, 7.195% to 2037,
FRN to 2049 (n)		      1,500,000        1,447,500   
Credit Suisse (USA), Inc., 6%, 2018      1,885,000        2,034,034   
HSBC USA, Inc., 4.875%, 2020      1,870,000        1,841,079   
ING Bank N.V., FRN,
1.651%, 2014 (z)		      1,900,000        1,905,987   
Intesa Sanpaolo S.p.A., FRN,
2.657%, 2014 (n)		      2,230,000        2,224,541   
 

 

7

Table of Contents

MFS Global Tactical Allocation Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Major Banks – continued     
JPMorgan Chase & Co., 4.25%, 2020    $ 1,760,000      $ 1,721,870   
Macquarie Group Ltd., 6.25%, 2021 (n)      980,000        979,424   
Morgan Stanley, 7.3%, 2019      1,772,000        2,009,494   
PNC Financial Services Group, Inc.,
5.125%, 2020		      1,670,000        1,788,067   
Royal Bank of Scotland PLC, 6.125%, 2021      1,710,000        1,752,945   
Sumitomo Mitsui Banking, 3.1%, 2016 (n)      880,000        891,623   
UniCredito Luxembourg Finance S.A.,
6%, 2017 (n)		      1,020,000        980,204   
          
     $ 24,908,699   
          
Metals & Mining – 0.7%     
ArcelorMittal, 9.85%, 2019    $ 767,000      $ 972,350   
ArcelorMittal, 5.25%, 2020      250,000        247,183   
ArcelorMittal, 5.5%, 2021      970,000        971,514   
Gold Fields Ltd., 4.875%, 2020 (n)      1,447,000        1,369,642   
Southern Copper Corp., 6.75%, 2040      407,000        395,933   
Teck Resources Ltd., 10.75%, 2019      827,000        1,045,121   
Vale Overseas Ltd., 5.625%, 2019      149,000        159,022   
Vale Overseas Ltd., 4.625%, 2020      410,000        407,761   
          
     $ 5,568,526   
          
Mortgage-Backed – 6.1%     
Fannie Mae, 4.768%, 2012    $ 175,218      $ 180,106   
Fannie Mae, 5.37%, 2013      139,059        144,432   
Fannie Mae, 4.562%, 2014 - 2015      747,198        800,712   
Fannie Mae, 4.609%, 2014      121,432        130,367   
Fannie Mae, 4.777%, 2014      431,653        459,203   
Fannie Mae, 4.78%, 2015      92,619        100,454   
Fannie Mae, 4.815%, 2015      241,617        261,989   
Fannie Mae, 4.856%, 2015      73,680        79,722   
Fannie Mae, 4.997%, 2015      291,273        318,390   
Fannie Mae, 5.465%, 2015      146,284        161,613   
Fannie Mae, 5.5%, 2015 - 2037      1,544,293        1,674,761   
Fannie Mae, 5.09%, 2016      99,000        108,003   
Fannie Mae, 5.272%, 2016      557,202        613,907   
Fannie Mae, 5.424%, 2016      98,421        108,707   
Fannie Mae, 5.724%, 2016      693,402        769,628   
Fannie Mae, 3.309%, 2017      1,691,231        1,719,833   
Fannie Mae, 4.989%, 2017      39,582        42,862   
Fannie Mae, 5.05%, 2017      490,724        535,496   
Fannie Mae, 3.84%, 2018      498,418        517,042   
Fannie Mae, 5.34%, 2018      611,528        679,180   
Fannie Mae, 4.57%, 2019      243,133        258,522   
Fannie Mae, 6.16%, 2019      68,999        77,411   
Fannie Mae, 4.5%, 2023 - 2040      2,781,016        2,911,824   
Fannie Mae, 5%, 2024 - 2040      8,232,340        8,788,139   
Fannie Mae, 4%, 2025 - 2040      4,263,255        4,297,387   
Fannie Mae, 6%, 2037 - 2038      2,171,241        2,387,698   
Freddie Mac, 4.186%, 2019      650,000        677,245   
Freddie Mac, 5.085%, 2019      30,000        32,057   
Freddie Mac, 2.757%, 2020      336,067        338,466   
Freddie Mac, 3.32%, 2020      1,872,454        1,926,463   
Freddie Mac, 5%, 2022 - 2036      1,289,477        1,375,686   
Freddie Mac, 4%, 2025      1,229,636        1,282,542   
Freddie Mac, 5.5%, 2034 - 2037      526,481        572,513   
Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Mortgage-Backed – continued     
Freddie Mac, 4.5%, 2040    $ 9,272,099      $ 9,592,183   
Freddie Mac, FRN, 3.882%, 2017      847,000        885,523   
Ginnie Mae, 5%, 2040      683,501        741,741   
Ginnie Mae, 4.5%, 2041      2,346,679        2,474,891   
          
     $ 48,026,698   
          
Oil Services – 0.1%     
Transocean, Inc., 6.5%, 2020    $ 840,000      $ 939,321   
          
Oils – 0.2%     
LUKOIL International Finance B.V.,
6.125%, 2020 (n)		    $ 1,367,000      $ 1,409,719   
          
Other Banks & Diversified Financials – 0.4%   
Banco Santander U.S. Debt S.A.U.,
3.781%, 2015 (n)		    $ 1,300,000      $ 1,253,533   
Citigroup, Inc., 6.125%, 2018      1,775,000        1,954,683   
          
     $ 3,208,216   
          
Real Estate – 0.2%     
Simon Property Group, Inc., REIT,
5.65%, 2020		    $ 1,330,000      $ 1,436,931   
          
Retailers – 0.2%     
Home Depot, Inc., 5.95%, 2041    $ 869,000      $ 894,919   
Limited Brands, Inc., 7%, 2020      870,000        915,675   
          
     $ 1,810,594   
          
Specialty Stores – 0.1%     
Best Buy Co., Inc., 6.75%, 2013    $ 490,000      $ 535,305   
          
Telecommunications – Wireless – 0.3%   
Crown Castle Towers LLC, 6.113%, 2040 (n)    $ 2,030,000      $ 2,214,972   
          
Tobacco – 0.4%     
Altria Group, Inc., 9.7%, 2018    $ 1,455,000      $ 1,912,046   
Lorillard Tobacco Co., 6.875%, 2020      940,000        1,019,834   
          
     $ 2,931,880   
          
U.S. Government Agencies and Equivalents – 0.3%     
Aid-Egypt, 4.45%, 2015    $ 649,000      $ 720,942   
FDIC Structured Sale Guarantee Note,
0%, 2012 (n)		      131,000        129,036   
Small Business Administration,
5.09%, 2025		      41,329        44,488   
Small Business Administration,
5.21%, 2026		      1,399,104        1,509,361   
Small Business Administration,
5.31%, 2027		      321,288        350,482   
          
     $ 2,754,309   
          
U.S. Treasury Obligations – 9.5%     
U.S. Treasury Bonds, 6.875%, 2025    $ 2,978,000      $ 4,003,549   
U.S. Treasury Bonds, 5.25%, 2029      1,502,000        1,733,167   
U.S. Treasury Bonds, 4.5%, 2039      1,077,000        1,101,233   
U.S. Treasury Notes, 1.375%, 2013      4,724,000        4,801,521   
U.S. Treasury Notes, 4.125%, 2015 (f)      641,000        711,259   
U.S. Treasury Notes, 4.75%, 2017 (f)      11,810,000        13,583,342   
U.S. Treasury Notes, 3.5%, 2020 (f)      29,207,000        30,491,524   
 

 

8

Table of Contents

MFS Global Tactical Allocation Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer        
Shares/Par		     Value ($)  
    
BONDS – continued     
U.S. Treasury Obligations – continued     
U.S. Treasury Notes, TIPS, 1.25%, 2020 (f)    $ 17,571,980      $ 18,587,851   
    

 

 

  
     $ 75,013,446   
    

 

 

  
Utilities – Electric Power – 0.5%     
Enel Finance International S.A.,
6%, 2039 (n)		    $ 894,000      $ 807,810   
Progress Energy, Inc., 7.05%, 2019      1,350,000        1,619,415   
TECO Energy, Inc., 6.572%, 2017      1,361,000        1,587,127   
    

 

 

  
     $ 4,014,352   
    

 

 

  
Total Bonds
(Identified Cost, $443,740,632)		      $ 455,030,790   
    

 

 

  
Issuer/Expiration Date/Strike Price    Number of
Contracts		     Value ($)  
PUT OPTIONS PURCHASED – 0.0%   
FTSE MIB Index – September 2011 @ $17,500      50      $ 40,604   
SPDR S&P 500 ETF Trust – September 2011 @ $115      2,000        134,000   
    

 

 

  
Total Put Options Purchased
(Identified Cost, $539,874)		      $ 174,604   
    

 

 

  
Issuer    Shares/Par        
MONEY MARKET FUNDS (v) – 6.6%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      52,324,037      $ 52,324,037   
    

 

 

  
Total Investments
(Identified Cost, $748,480,953)		      $ 776,949,913   
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – 1.8%		        14,274,953   
    

 

 

  
Net Assets – 100.0%      $ 791,224,866   
    

 

 

  
 
(a)   Non-income producing security.

 

(f)   All or a portion of the security has been segregated as collateral for open futures contracts.

 

(i)   Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security.

 

(n)   Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $30,791,095, representing 3.9% of net assets.

 

(s)   Security or a portion of the security was pledged to cover collateral requirements for securities sold short. At June 30, 2011, the value of securities pledged amounted to $349,421. At June 30, 2011, the fund had no short sales outstanding.

 

(v)   Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

 

(z)   Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities:

 

Restricted Securities    Acquisition
Date		    Cost      Value  
Banco do Brasil S.A., 5.875%, 2022    5/19/11      $2,413,309         $2,418,105   
Bayview Commercial Asset Trust, FRN, 1.699%, 2023    5/25/06      170,247         153,819   
CNPC (HK) Overseas Capital Ltd., 4.5%, 2021    4/20/11      409,567         408,211   
Commercial Mortgage Asset Trust, FRN, 0.991%, 2032    8/25/03      31,716         22,255   
First Union National Bank Commercial Mortgage Trust, FRN, 1.636%, 2043    12/11/03      2,482         11   
G-Force LLC, CDO, “A2”, 4.83%, 2036    1/20/11      564,144         575,551   
ING Bank N.V., FRN, 1.651%, 2014    6/01/11      1,900,000         1,905,987   
OJSC Russian Agricultural Bank, FRN, 6%, 2021    5/26/11      902,000         905,972   
Republic of Iceland, 4.875%, 2016    6/09/11      1,510,224         1,505,747   
Republic of Indonesia, 4.875%, 2021    4/27/11      196,550         204,750   
Total Restricted Securities            $8,100,408   
% of Net Assets            1.0%   

 

9

Table of Contents

MFS Global Tactical Allocation Portfolio

 

Portfolio of Investments (unaudited) – continued

 

The following abbreviations are used in this report and are defined:

 

ADR   American Depository Receipt

 

CDO   Collateralized Debt Obligation

 

FRN   Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.

 

IPS   International Preference Stock

 

PLC   Public Limited Company

 

REIT   Real Estate Investment Trust

 

TIPS   Treasury Inflation Protected Security

Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:

 

AUD   Australian Dollar

 

BRL   Brazilian Real

 

CAD   Canadian Dollar

 

CHF   Swiss Franc

 

CNY   Chinese Yuan Renminbi

 

CZK   Czech Koruna

 

DKK   Danish Krone

 

EUR   Euro

 

GBP   British Pound

 

HKD   Hong Kong Dollar

 

HUF   Hungarian Forint

 

IDR   Indonesian Rupiah

 

JPY   Japanese Yen

 

KRW   Korean Won

 

MXN   Mexican Peso

 

MYR   Malaysian Ringgit

 

NOK   Norwegian Krone

 

NZD   New Zealand Dollar

 

PHP   Philippine Peso

 

PLN   Polish Zloty

 

SEK   Swedish Krona

 

SGD   Singapore Dollar

 

THB   Thailand Baht

 

TRY   Turkish Lira

 

TWD   Taiwan Dollar

 

ZAR   South African Rand

Derivative Contracts at 6/30/11

Forward Foreign Currency Exchange Contracts at 6/30/11

 

Type   Currency     Counterparty   Contracts to
Deliver/Receive		   Settlement Date
Range		   In Exchange For     Contracts
at Value		     Net Unrealized
Appreciation
(Depreciation)		  
Asset Derivatives              
  BUY     AUD      Barclays Bank PLC   165,000   7/12/11   $ 176,688      $ 176,814      $ 126   
  BUY     AUD      Deutsche Bank AG   431,000   7/12/11     456,135        461,859        5,724   
  BUY     AUD      JPMorgan Chase Bank N.A.   273,000   7/12/11     288,918        292,546        3,628   
  BUY     AUD      Westpac Banking Corp   1,264,826   7/12/11     1,318,429        1,355,386        36,957   
  SELL     AUD      Goldman Sachs International   266,459   8/09/11     288,881        284,528        4,353   
  SELL     AUD      JPMorgan Chase Bank N.A.   1,354,297   8/09/11     1,467,652        1,446,135        21,517   
  BUY     CAD      Barclays Bank PLC   336,000   7/12/11     343,627        348,324        4,697   
  BUY     CAD      Brown Brothers Harriman   355,000   7/12/11     363,315        368,020        4,705   
  BUY     CAD      Citibank N.A.   291,000   7/12/11     300,386        301,673        1,287   
  BUY     CAD      Goldman Sachs International   440,000   7/12/11     454,616        456,139        1,523   
  SELL     CAD      Goldman Sachs International   45,320,060   8/09/11     47,750,313        46,949,441        800,872   

 

10

Table of Contents

MFS Global Tactical Allocation Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Type   Currency     Counterparty   Contracts to
Deliver/Receive		   Settlement Date
Range		   In Exchange For     Contracts
at Value		     Net Unrealized
Appreciation
(Depreciation)		  
Asset Derivatives - continued          
  BUY     CHF      Barclays Bank PLC   341,000   7/12/11   $ 384,897      $ 405,606      $ 20,709   
  BUY     CHF      Credit Suisse Group   2,917,000   7/12/11     3,187,753        3,469,661        281,908   
  BUY     CNY      HSBC Bank   2,440,000   11/16/11     378,471        378,827        356   
  BUY     CZK      Barclays Bank PLC   1,298,000   7/12/11     76,092        77,394        1,302   
  BUY     CZK      Citibank N.A.   2,324,000   7/12/11     135,631        138,569        2,938   
  BUY     CZK      UBS AG   7,610,000   7/12/11     443,391        453,747        10,356   
  BUY     DKK      Credit Suisse Group   8,988,922   7/12/11     1,732,856        1,747,369        14,513   
  BUY     DKK      Goldman Sachs International   448,000   7/12/11     86,449        87,088        639   
  SELL     DKK      Goldman Sachs International   7,723,757   8/09/11     1,529,017        1,500,424        28,593   
  SELL     DKK      JPMorgan Chase Bank N.A.   421,471   8/09/11     83,607        81,875        1,732   
  BUY     EUR      Barclays Bank PLC   2,820,000   7/12/11     4,025,500        4,088,626        63,126   
  BUY     EUR      Brown Brothers Harriman   2,822,000   7/12/11     4,046,745        4,091,525        44,780   
  BUY     EUR      Citibank N.A.   1,795,000   7/12/11     2,571,475        2,602,512        31,037   
  BUY     EUR      Credit Suisse Group   2,167,000   7/12/11     3,097,193        3,141,862        44,669   
  BUY     EUR      Deutsche Bank AG   15,996,249   7/12/11     22,835,472        23,192,437        356,965   
  BUY     EUR      Goldman Sachs International   1,206,000   7/12/11     1,717,658        1,748,540        30,882   
  BUY     EUR      JPMorgan Chase Bank N.A.   1,534,000   7/12/11     2,204,107        2,224,096        19,989   
  BUY     EUR      Merrill Lynch International Bank   1,841,000   7/12/11     2,634,839        2,669,205        34,366   
  BUY     EUR      UBS AG   13,513,416   7/12/11-9/15/11     19,435,075        19,560,813        125,738   
  SELL     EUR      Citibank N.A.   2,234,000   7/12/11     3,277,888        3,239,003        38,885   
  SELL     EUR      Goldman Sachs International   58,291,168   8/09/11     85,719,278        84,448,501        1,270,777   
  SELL     EUR      UBS AG   1,322,174   7/12/11     1,954,319        1,916,977        37,342   
  BUY     GBP      JPMorgan Chase Bank N.A.   161,000   7/12/11     257,251        258,375        1,124   
  SELL     GBP      Barclays Bank PLC   2,991,784   7/12/11     4,860,034        4,801,255        58,779   
  SELL     GBP      Deutsche Bank AG   1,270,577   7/12/11     2,055,682        2,039,039        16,643   
  SELL     GBP      Goldman Sachs International   10,892,545   8/09/11     17,858,000        17,474,497        383,503   
  SELL     GBP      UBS AG   2,274,216   7/12/11     3,675,679        3,649,692        25,987   
  BUY     HUF      Barclays Bank PLC   115,482,000   7/12/11     616,857        629,603        12,746   
  BUY     HUF      HSBC Bank   184,266,000   7/12/11     987,016        1,004,610        17,594   
  BUY     IDR      HSBC Bank   9,098,244,000   7/26/11     1,051,699        1,057,616        5,917   
  BUY     JPY      Barclays Bank PLC   203,070,000   7/12/11     2,481,963        2,522,537        40,574   
  BUY     JPY      Brown Brothers Harriman   385,713,000   7/12/11     4,730,135        4,791,330        61,195   
  BUY     JPY      Citibank N.A.   326,894,000   7/12/11     3,996,500        4,060,680        64,180   
  BUY     JPY      Deutsche Bank AG   166,206,000   7/12/11     2,020,469        2,064,612        44,143   
  BUY     JPY      Goldman Sachs International   31,737,000   7/12/11     389,338        394,237        4,899   
  BUY     JPY      HSBC Bank   221,058,000   7/12/11     2,669,040        2,745,984        76,944   
  BUY     JPY      JPMorgan Chase Bank N.A.   49,952,000   7/12/11     613,664        620,505        6,841   
  BUY     JPY      Merrill Lynch International Bank   1,770,711,645   7/12/11     20,868,483        21,995,795        1,127,312   
  BUY     JPY      UBS AG   91,990,000   7/12/11     1,112,454        1,142,700        30,246   
  SELL     JPY      Brown Brothers Harriman   471,756,028   7/12/11     5,879,019        5,860,157        18,862   
  SELL     JPY      JPMorgan Chase Bank N.A.   818,517,862   8/09/11     10,238,000        10,169,045        68,955   
  BUY     KRW      Barclays Bank PLC   573,980,000   7/25/11     530,899        536,946        6,047   
  BUY     KRW      JPMorgan Chase Bank N.A.   4,824,770,000   7/25/11     4,428,426        4,513,465        85,039   
  BUY     MXN      Citibank N.A.   35,554,000   7/05/11-7/12/11     2,994,319        3,036,010        41,691   
  BUY     MXN      HSBC Bank   2,175,000   7/12/11     182,788        185,649        2,861   
  BUY     MXN      JPMorgan Chase Bank N.A.   1,952,000   7/12/11     165,476        166,615        1,139   
  BUY     MYR      Barclays Bank PLC   906,000   7/21/11     298,763        299,688        925   
  BUY     MYR      JPMorgan Chase Bank N.A.   2,412,000   7/21/11     796,434        797,846        1,412   
  BUY     NOK      Citibank N.A.   891,000   7/12/11     163,357        165,078        1,721   
  BUY     NOK      Deutsche Bank AG   19,398,000   7/12/11     3,527,615        3,593,913        66,298   
  BUY     NOK      Goldman Sachs International   871,000   7/12/11     158,302        161,372        3,070   
  BUY     NOK      JPMorgan Chase Bank N.A.   3,827,915   8/09/11     700,000        707,981        7,981   
  BUY     NZD      Barclays Bank PLC   458,000   7/12/11     356,035        379,273        23,238   
  BUY     NZD      Citibank N.A.   117,000   7/12/11     95,434        96,888        1,454   

 

11

Table of Contents

MFS Global Tactical Allocation Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Type   Currency     Counterparty   Contracts to
Deliver/Receive		   Settlement Date
Range		   In Exchange For     Contracts
at Value		     Net Unrealized
Appreciation
(Depreciation)		  
Asset Derivatives - continued          
  BUY     NZD      Goldman Sachs International   149,000   7/12/11   $ 118,212      $ 123,388      $ 5,176   
  BUY     NZD      JPMorgan Chase Bank N.A.   55,333,178   8/09/11     43,293,235        45,735,601        2,442,366   
  BUY     PHP      Deutsche Bank AG   11,781,000   7/05/11     271,827        271,858        31   
  BUY     PHP      JPMorgan Chase Bank N.A.   125,651,000   7/05/11     2,893,518        2,899,527        6,009   
  BUY     PLN      Barclays Bank PLC   8,088,000   7/05/11-10/03/11     2,912,043        2,935,667        23,624   
  BUY     SEK      Deutsche Bank AG   9,217,000   7/12/11     1,455,392        1,456,599        1,207   
  BUY     SEK      JPMorgan Chase Bank N.A.   843,000   7/12/11     132,652        133,223        571   
  SELL     SEK      Citibank N.A.   965,000   7/12/11     152,806        152,503        303   
  BUY     SGD      Barclays Bank PLC   529,000   7/12/11     428,243        430,678        2,435   
  BUY     SGD      Citibank N.A.   184,000   7/12/11     149,523        149,801        278   
  BUY     SGD      Credit Suisse Group   159,000   7/12/11     128,862        129,448        586   
  BUY     SGD      Deutsche Bank AG   1,525,500   7/12/11     1,209,749        1,241,965        32,216   
  BUY     SGD      Goldman Sachs International   207,000   7/12/11     166,035        168,526        2,491   
  BUY     SGD      HSBC Bank   1,525,500   7/12/11     1,210,004        1,241,965        31,961   
  BUY     SGD      JPMorgan Chase Bank N.A.   248,000   7/12/11     196,712        201,907        5,195   
  SELL     THB      HSBC Bank   3,200,000   7/25/11     104,849        104,051        798   
  SELL     THB      JPMorgan Chase Bank N.A.   39,285,000   7/05/11     1,287,189        1,279,101        8,088   
  BUY     TWD      Barclays Bank PLC   52,506,650   8/29/11     1,821,566        1,829,102        7,536   
  BUY     ZAR      Goldman Sachs International   1,018,000   9/12/11     147,140        149,057        1,917   
                   
                $ 8,229,099   
                     
Liability Derivatives              
  BUY     AUD      Barclays Bank PLC   1,015,000   7/12/11   $ 1,102,749      $ 1,087,673      $ (15,076 ) 
  BUY     AUD      JPMorgan Chase Bank N.A.   774,404   8/09/11     829,000        826,919        (2,081 ) 
  SELL     AUD      Barclays Bank PLC   1,008,593   7/12/11     1,066,000        1,080,807        (14,807 ) 
  SELL     AUD      Citibank N.A.   1,050,490   7/12/11     1,102,907        1,125,704        (22,797 ) 
  SELL     AUD      JPMorgan Chase Bank N.A.   2,984,181   8/09/11     3,141,000        3,186,546        (45,546 ) 
  BUY     CAD      Barclays Bank PLC   1,267,000   7/12/11     1,330,140        1,313,472        (16,668 ) 
  BUY     CAD      Brown Brothers Harriman   532,000   7/12/11     552,325        551,513        (812 ) 
  BUY     CAD      Deutsche Bank AG   316,000   7/12/11     329,272        327,590        (1,682 ) 
  BUY     CAD      HSBC Bank   797,000   7/12/11     831,560        826,233        (5,327 ) 
  SELL     CAD      Barclays Bank PLC   845,000   7/12/11     861,691        875,993        (14,302 ) 
  SELL     CAD      Citibank N.A.   2,232,219   7/12/11     2,283,353        2,314,094        (30,741 ) 
  SELL     CAD      Goldman Sachs International   15,299,067   7/12/11-8/09/11     15,768,063        15,851,642        (83,579 ) 
  SELL     CAD      UBS AG   1,191,000   7/12/11     1,231,644        1,234,684        (3,040 ) 
  BUY     CHF      Barclays Bank PLC   128,000   7/12/11     152,587        152,251        (336 ) 
  SELL     CHF      Goldman Sachs International   14,658,412   8/09/11     16,963,895        17,438,476        (474,581 ) 
  SELL     CHF      JPMorgan Chase Bank N.A.   22,846,724   8/09/11     26,425,840        27,179,755        (753,915 ) 
  BUY     CNY      Barclays Bank PLC   1,581,000   10/25/11     245,383        245,195        (188 ) 
  BUY     CNY      Deutsche Bank AG   23,285,000   10/21/11-11/16/11     3,633,079        3,611,874        (21,205 ) 
  BUY     DKK      Brown Brothers Harriman   489,000   7/12/11     97,320        95,058        (2,262 ) 
  BUY     DKK      Credit Suisse Group   764,000   7/12/11     148,605        148,515        (90 ) 
  BUY     EUR      Barclays Bank PLC   359,000   7/12/11     523,345        520,502        (2,843 ) 
  BUY     EUR      Brown Brothers Harriman   2,397,000   7/12/11     3,519,333        3,475,332        (44,001 ) 
  BUY     EUR      Citibank N.A.   323,000   7/12/11     477,766        468,307        (9,459 ) 
  BUY     EUR      Credit Suisse Group   737,000   7/12/11     1,072,409        1,068,552        (3,857 ) 
  BUY     EUR      Goldman Sachs International   2,100,000   7/12/11     3,070,416        3,044,721        (25,695 ) 
  BUY     EUR      HSBC Bank   651,000   7/12/11     960,824        943,864        (16,960 ) 
  BUY     EUR      UBS AG   301,000   7/12/11     437,498        436,410        (1,088 ) 
  SELL     EUR      Barclays Bank PLC   2,803,719   7/12/11     4,008,546        4,065,020        (56,474 ) 
  SELL     EUR      Citibank N.A.   7,222,934   7/12/11     10,348,794        10,472,296        (123,502 ) 
  SELL     EUR      Credit Suisse Group   718,846   7/12/11     1,015,652        1,042,231        (26,579 ) 
  SELL     EUR      Goldman Sachs International   5,099,722   7/12/11-8/09/11     7,341,877        7,388,264        (46,387 ) 

 

12

Table of Contents

MFS Global Tactical Allocation Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Type   Currency     Counterparty   Contracts to
Deliver/Receive		   Settlement Date
Range		   In Exchange For     Contracts at
Value		     Net Unrealized
Appreciation
(Depreciation)		  
Liability Derivatives - continued          
  SELL     EUR      Morgan Stanley Capital Services, Inc.   172,000   7/12/11   $ 247,661      $ 249,377      $ (1,716 ) 
  SELL     EUR      UBS AG   6,159,148   7/12/11     8,830,212        8,929,947        (99,735 ) 
  BUY     GBP      Barclays Bank PLC   1,784,359   7/12/11     2,909,700        2,863,562        (46,138 ) 
  BUY     GBP      Brown Brothers Harriman   705,000   7/12/11     1,150,409        1,131,393        (19,016 ) 
  BUY     GBP      Credit Suisse Group   84,000   7/12/11     136,317        134,804        (1,513 ) 
  BUY     GBP      Deutsche Bank AG   772,359   7/12/11     1,260,128        1,239,491        (20,637 ) 
  BUY     GBP      Goldman Sachs International   19,668,707   7/12/11-8/09/11     32,407,400        31,553,931        (853,469 ) 
  BUY     GBP      JPMorgan Chase Bank N.A.   7,220,119   7/12/11-8/09/11     12,030,641        11,583,236        (447,405 ) 
  BUY     GBP      Royal Bank of Scotland Group PLC   95,000   7/12/11     155,513        152,457        (3,056 ) 
  BUY     HUF      Barclays Bank PLC   128,134,000   7/12/11     699,730        698,581        (1,149 ) 
  SELL     HUF      Barclays Bank PLC   166,107,000   7/12/11     856,389        905,609        (49,220 ) 
  SELL     HUF      Citibank N.A.   166,449,000   7/12/11     858,187        907,473        (49,286 ) 
  BUY     IDR      Barclays Bank PLC   1,212,787,000   7/26/11     141,334        140,979        (355 ) 
  BUY     IDR      JPMorgan Chase Bank N.A.   749,023,000   7/26/11     87,503        87,070        (433 ) 
  BUY     IDR      Merrill Lynch International Bank   9,143,082,000   9/06/11     1,066,497        1,055,783        (10,714 ) 
  BUY     JPY      Barclays Bank PLC   29,836,000   7/12/11     372,391        370,624        (1,767 ) 
  BUY     JPY      Brown Brothers Harriman   46,780,000   7/12/11     583,879        581,101        (2,778 ) 
  BUY     JPY      Citibank N.A.   59,341,000   7/12/11     740,622        737,134        (3,488 ) 
  BUY     JPY      Deutsche Bank AG   35,832,000   7/12/11     446,530        445,106        (1,424 ) 
  BUY     JPY      Goldman Sachs International   142,114,000   7/12/11     1,772,683        1,765,342        (7,341 ) 
  BUY     JPY      JPMorgan Chase Bank N.A.   22,045,000   7/12/11     275,342        273,843        (1,499 ) 
  BUY     JPY      UBS AG   45,025,000   7/12/11     560,846        559,301        (1,545 ) 
  SELL     JPY      Barclays Bank PLC   386,845,118   7/12/11     4,684,682        4,805,394        (120,712 ) 
  SELL     JPY      Citibank N.A.   42,523,000   7/12/11     525,800        528,221        (2,421 ) 
  SELL     JPY      Credit Suisse Group   106,983,136   7/12/11     1,319,776        1,328,946        (9,170 ) 
  SELL     JPY      Goldman Sachs International   26,230,000   7/12/11     325,330        325,829        (499 ) 
  SELL     JPY      JPMorgan Chase Bank N.A.   8,828,692,720   8/09/11     109,020,230        109,685,295        (665,065 ) 
  SELL     JPY      UBS AG   302,897,646   7/12/11     3,571,895        3,762,597        (190,702 ) 
  SELL     KRW      JPMorgan Chase Bank N.A.   3,979,570,400   7/25/11     3,652,758        3,722,799        (70,041 ) 
  BUY     MXN      Barclays Bank PLC   1,280,000   7/12/11     109,493        109,256        (237 ) 
  SELL     MXN      Citibank N.A.   24,240,000   7/05/11     2,058,613        2,070,290        (11,677 ) 
  BUY     MYR      Barclays Bank PLC   414,000   7/21/11     137,154        136,944        (210 ) 
  BUY     MYR      Credit Suisse Group   467,860   8/05/11     157,000        154,585        (2,415 ) 
  BUY     MYR      JPMorgan Chase Bank N.A.   4,774,489   7/21/11-8/08/11     1,583,807        1,579,191        (4,616 ) 
  BUY     MYR      Morgan Stanley Capital Services, Inc.   271,408   8/08/11     91,000        89,656        (1,344 ) 
  BUY     NOK      Citibank N.A.   687,000   7/12/11     130,423        127,282        (3,141 ) 
  BUY     NOK      Goldman Sachs International   683,000   7/12/11     126,854        126,541        (313 ) 
  BUY     NOK      JPMorgan Chase Bank N.A.   124,832,629   8/09/11     23,616,043        23,088,058        (527,985 ) 
  SELL     NOK      Deutsche Bank AG   5,516,000   7/12/11     997,198        1,021,962        (24,764 ) 
  SELL     NZD      Barclays Bank PLC   81,000   7/12/11     65,836        67,077        (1,241 ) 
  SELL     NZD      JPMorgan Chase Bank N.A.   15,446,690   8/09/11     12,406,009        12,767,451        (361,442 ) 
  SELL     PLN      Barclays Bank PLC   4,044,000   7/05/11     1,463,626        1,474,405        (10,779 ) 
  BUY     SEK      Citibank N.A.   6,959,000   7/12/11     1,146,379        1,099,758        (46,621 ) 
  BUY     SEK      Credit Suisse Group   2,428,012   7/12/11     389,048        383,708        (5,340 ) 
  BUY     SEK      JPMorgan Chase Bank N.A.   140,858,018   8/09/11     23,156,420        22,224,385        (932,035 ) 
  BUY     SEK      UBS AG   2,683,000   7/12/11     439,634        424,005        (15,629 ) 
  SELL     SEK      Citibank N.A.   4,810,942   7/12/11     750,154        760,293        (10,139 ) 
  SELL     SEK      Deutsche Bank AG   15,547,000   7/12/11     2,409,640        2,456,954        (47,314 ) 
  BUY     SGD      Barclays Bank PLC   774,500   8/05/11     631,781        630,557        (1,224 ) 
  BUY     SGD      JPMorgan Chase Bank N.A.   774,500   8/05/11     631,788        630,556        (1,232 ) 
  BUY     THB      HSBC Bank   33,307,000   7/25/11     1,112,778        1,083,018        (29,760 ) 
  BUY     THB      JPMorgan Chase Bank N.A.   39,285,000   7/05/11     1,300,166        1,279,102        (21,064 ) 
  SELL     ZAR      Citibank N.A.   8,435,693   9/12/11     1,234,243        1,235,159        (916 ) 
  SELL     ZAR      Deutsche Bank AG   8,435,693   9/12/11     1,233,896        1,235,158        (1,262 ) 
                   
                $ (6,610,874 ) 
                     

 

13

Table of Contents

MFS Global Tactical Allocation Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Futures Contracts Outstanding at 6/30/11

 

Description    Currency      Contracts      Value    Expiration
Date		    Unrealized
Appreciation
(Depreciation)		  
Asset Derivatives               
Equity Futures               
Bovespa Index (Short)      BRL         119       $4,815,739    August - 2011      $24,802   
CAC 40 Index (Long)      EUR         290       16,735,525    July - 2011      640,398   
DAX Index (Long)      EUR         121       32,424,313    September - 2011      920,782   
FTSE 100 Index (Long)      GBP         306       28,988,062    September - 2011      669,629   
FTSE MIB Index (Long)      EUR         195       28,579,078    September - 2011      59,875   
IBEX 35 Index (Long)      EUR         99       14,748,414    July - 2011      499,029   
KOSPI Index (Long)      KRW         122       15,942,043    September - 2011      55,212   
MSCI Taiwan Index (Long)      USD         238       7,099,753    July - 2011      189,240   
S&P 500 E-Mini Index (Long)      USD         425       27,954,375    September - 2011      1,097,342   
TURKDEK ISE 30 Index (Long)      TRY         1,186       5,690,681    August - 2011      104,197   
              

 

 

  
                 $4,260,506   
Interest Rate Futures               
German Euro Bund (Short)      EUR         56       $10,190,028    September - 2011      $7,040   
U.S. Treasury Note 10 yr (Long)      USD         495       60,552,422    September - 2011      239,158   
UK Long Gilt Bond (Short)      GBP         21       4,049,532    September - 2011      14,178   
              

 

 

  
                 260,376   
              

 

 

  
                 $4,520,882   
              

 

 

  
Liability Derivatives               
Equity Futures               
AEX Index (Short)      EUR         60       $5,912,260    July - 2011      $(60,307 ) 
Australian SPI 200 Index (Short)      AUD         292       36,118,748    September - 2011      (714,470 ) 
FTSE JSE Top 40 Index (Short)      ZAR         23       970,641    September - 2011      (17,144 ) 
Hang Seng China ENT Index (Short)      HKD         37       3,028,085    July - 2011      (99,638 ) 
Hand Seng Index (Short)      HKD         45       6,532,805    July - 2011      (207,094 ) 
Mex Bolsa Index (Short)      MXN         590       18,584,609    September - 2011      (785,061 ) 
NIKKEI 225 Index (Short)      JPY         37       4,534,075    September - 2011      (225,843 ) 
OMX 30 Index (Short)      SEK         311       5,482,277    July - 2011      (70,563 ) 
S&P TSE 60 Index (Short)      CAD         221       34,931,038    September - 2011      (714,471 ) 
SGX CNX Nifty Index (Short)      USD         1656       18,762,210    July - 2011      (645,700 ) 
SGX MSCI Singapore Index (Short)      SGD         104       6,103,407    July - 2011      (146,460 ) 
              

 

 

  
                 (3,686,751 ) 
Interest Rate Futures               
Australian Treasury Bond 10 yr (Long)      AUD         24       $2,730,038    September - 2011      $(9,390 ) 
Govt Of Canada Bond 10 yr (Short)      CAD         596       76,621,950    September - 2011      (64,559 ) 
Japan Govt Bond 10 yr (Short)      JPY         5       8,759,704    September - 2011      (16,862 ) 
              

 

 

  
                 (90,811 ) 
              

 

 

  
                 $(3,777,562 ) 
              

 

 

  

At June 30, 2011, the fund had sufficient cash and/or other liquid securities to cover any commitments under these derivative contracts.

See Notes to Financial Statements

 

14

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MFS Global Tactical Allocation Portfolio

 

FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $696,156,916)

      $724,625,876      

Underlying affiliated funds, at cost and value

      52,324,037            

Total investments, at value (identified cost, $748,480,953)

      $776,949,913            

Restricted cash

      1,839,151      

Foreign currency, at value (identified cost, $102,654)

      103,237      

Receivables for

      

Forward foreign currency exchange contracts

      8,229,099      

Daily variation margin on open futures contracts

      592,842      

Investments sold

      5,044,594      

Fund shares sold

      2,052,484      

Interest and dividends

      5,812,349      

Other assets

      6,200            

Total assets

               $800,629,869   

Liabilities

                  

Payables for

      

Forward foreign currency exchange contracts

      $6,610,874      

Investments purchased

      2,578,661      

Fund shares reacquired

      63,038      

Payable to affiliates

      

Investment adviser

      31,540      

Shareholder servicing costs

      451      

Distribution and/or service fees

      9,583      

Payable for Trustees’ compensation

      7,307      

Accrued expenses and other liabilities

      103,549            

Total liabilities

               $9,405,003   

Net assets

               $791,224,866   

Net assets consist of

                  

Paid-in capital

      $751,671,682      

Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies

      30,894,520      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      1,027,324      

Undistributed net investment income

      7,631,340            

Net assets

               $791,224,866   

Shares of beneficial interest outstanding

               53,705,564   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $84,869,310         5,706,924         $14.87   

Service Class

      706,355,556         47,998,640         14.72   

See Notes to Financial Statements

 

15

Table of Contents

MFS Global Tactical Allocation Portfolio

 

FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment income                  

Income

      

Interest

      $6,511,990      

Dividends

      4,148,175      

Dividends from underlying affiliated funds

      40,226      

Foreign taxes withheld

      (270,925 )          

Total investment income

               $10,429,466   

Expenses

      

Management fee

      $2,230,085      

Distribution and/or service fees

      677,670      

Shareholder servicing costs

      35,110      

Administrative services fee

      104,126      

Trustees’ compensation

      27,469      

Custodian fee

      84,490      

Shareholder communications

      7,163      

Auditing fees

      28,752      

Legal fees

      3,766      

Miscellaneous

      24,665            

Total expenses

               $3,223,296   

Fees paid indirectly

      (48 )          

Net expenses

               $3,223,248   

Net investment income

               $7,206,218   

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions

      $380,407      

Futures contracts

      2,630,061      

Foreign currency transactions

      (4,367,459 )          

Net realized gain (loss) on investments and foreign currency transactions

               $(1,356,991 ) 

Change in unrealized appreciation (depreciation)

      

Investments

      $19,699,533      

Futures contracts

      2,243,186      

Translation of assets and liabilities in foreign currencies

      (833,389 )          

Net unrealized gain (loss) on investments and foreign currency translation

               $21,109,330   

Net realized and unrealized gain (loss) on investments and foreign currency

               $19,752,339   

Change in net assets from operations

               $26,958,557   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		   
  
) 		     
 		 Year ended
12/31/10		   
  

Change in net assets

      

From operations

                  

Net investment income

      $7,206,218         $4,046,543   

Net realized gain (loss) on investments and foreign currency transactions

      (1,356,991 )       1,426,246   

Net unrealized gain (loss) on investments and foreign currency translation

      21,109,330         13,269,644   

Change in net assets from operations

      $26,958,557         $18,742,433   

Distributions declared to shareholders

                  

From net investment income

      $—         $(1,262,023 ) 

Change in net assets from fund share transactions

      $276,811,882         $365,866,407   

Total change in net assets

      $303,770,439         $383,346,817   

Net assets

                  

At beginning of period

      487,454,427         104,107,610   

At end of period (including undistributed net investment income of $7,631,340 and
$425,122, respectively)

      $791,224,866         $487,454,427   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $14.20         $13.56           $12.89           $17.59           $18.11           $16.66   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.18         $0.24           $0.27           $0.37           $0.40           $0.41   

Net realized and unrealized gain (loss) on investments and foreign currency

        0.49         0.51           1.44           (2.68 )         1.13           2.38   

Total from investment operations

        $0.67         $0.75           $1.71           $(2.31 )         $1.53           $2.79   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.11 )         $(1.04 )         $(0.86 )         $(0.40 )         $(0.16 ) 

From net realized gain on investments

        —         —           —           (1.53 )         (1.65 )         (1.18 ) 

Total distributions declared to shareholders

        $—         $(0.11 )         $(1.04 )         $(2.39 )         $(2.05 )         $(1.34 ) 

Net asset value, end of period

        $14.87         $14.20           $13.56           $12.89           $17.59           $18.11   

Total return (%) (k)(s)

        4.72 (n)       5.53           15.16           (15.42 )         8.87           17.20   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        0.81 (a)       0.93           1.06           0.98           0.95           0.93   

Expenses after expense reductions (f)

        0.81 (a)       0.90           0.90           0.90           0.93           N/A   

Net investment income

        2.46 (a)(l)       1.76           2.17           2.48           2.24           2.41   

Portfolio turnover

        20         73           66           75           78           76   

Net assets at end of period (000 omitted)

        $84,869         $87,137           $92,880           $93,254           $145,113           $161,209   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $14.07         $13.46           $12.79           $17.46           $17.99           $16.56   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.16         $0.20           $0.24           $0.34           $0.35           $0.37   

Net realized and unrealized gain (loss) on investments
and foreign currency

        0.49         0.51           1.42           (2.66 )         1.13           2.36   

Total from investment operations

        $0.65         $0.71           $1.66           $(2.32 )         $1.48           $2.73   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.10 )         $(0.99 )         $(0.82 )         $(0.36 )         $(0.12 ) 

From net realized gain on investments

        —         —           —           (1.53 )         (1.65 )         (1.18 ) 

Total distributions declared to shareholders

        $—         $(0.10 )         $(0.99 )         $(2.35 )         $(2.01 )         $(1.30 ) 

Net asset value, end of period

        $14.72         $14.07           $13.46           $12.79           $17.46           $17.99   

Total return (%) (k)(s)

        4.62 (n)       5.31           14.78           (15.59 )         8.62           16.91   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        1.06 (a)       1.18           1.31           1.23           1.20           1.18   

Expenses after expense reductions (f)

        1.06 (a)       1.15           1.15           1.15           1.18           N/A   

Net investment income

        2.27 (a)(l)       1.48           1.92           2.25           1.99           2.15   

Portfolio turnover

        20         73           66           75           78           76   

Net assets at end of period (000 omitted)

        $706,356         $400,318           $11,228           $12,451           $20,109           $18,637   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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.

 

(l) Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by companies in which the fund invests and the actual annual net investment income ratio may differ.

 

(n) Not annualized.

 

(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Global Tactical Allocation Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund does invest in derivatives as part of its principal investment strategy. Derivatives can be highly volatile and involve risks in addition to the risks of the underlying indicators on which the derivative is based. The fund invests 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, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as provided by a third-party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as provided by a third-party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price as provided by a third-party pricing service on the market on which they are primarily traded. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation as provided by a third-party pricing service on the market on which such futures contracts are primarily traded. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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

 

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Notes to Financial Statements (unaudited) – continued

 

determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as futures and forward foreign currency exchange contracts. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities:            

United States

      $122,815,065         $—         $—         $122,815,065   

United Kingdom

      40,259,596         —         —         40,259,596   

Japan

      1,280,388         33,837,070         —         35,117,458   

Switzerland

      18,635,266         —         —         18,635,266   

France

      11,680,266         —         —         11,680,266   

Netherlands

      11,002,495         —         —         11,002,495   

Germany

      10,130,403         —         —         10,130,403   

Taiwan

      2,566,992         1,419,660         —         3,986,652   

Canada

      2,588,717         —         —         2,588,717   

Other Countries

      9,307,796         4,071,372         —         13,379,168   
U.S. Treasury Bonds & U.S. Government Agency & Equivalents      —         77,767,755         —         77,767,755   
Non-U.S. Sovereign Debt      —         232,581,368         —         232,581,368   
Corporate Bonds      —         56,061,085         —         56,061,085   
Residential Mortgage-Backed Securities      —         48,026,698         —         48,026,698   
Commercial Mortgage-Backed Securities      —         9,582,470         —         9,582,470   
Asset-Backed Securities (including CDOs)      —         575,551         —         575,551   
Foreign Bonds      —         30,435,863         —         30,435,863   
Mutual Funds      52,324,037         —         —         52,324,037   
Total Investments      $282,591,021         $494,358,892         $—         $776,949,913   
Other Financial Instruments                            
Futures      $743,320         $—         $—         $743,320   
Forward Foreign Currency Exchange Contracts      —         1,618,225         —         1,618,225   

For further information regarding security characteristics, see the Portfolio of Investments.

Inflation-Adjusted Debt Securities – The fund invests in inflation-adjusted debt securities issued by the U.S. Treasury. The fund may also invest in inflation-adjusted debt securities issued by U.S. Government agencies and instrumentalities other than the U.S. Treasury and by other entities such as U.S. and foreign corporations and foreign governments. The principal value of these debt securities is adjusted through income according to changes in the Consumer Price Index or another general price or wage index. These debt securities typically pay a fixed rate of interest, but this fixed rate is applied to the inflation-adjusted principal amount. The principal paid at maturity of the debt security is typically equal to the inflation-adjusted principal amount, or the security’s original par value, whichever is greater. Other types of inflation-adjusted securities may use other methods to adjust for other measures of inflation.

 

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Notes to Financial Statements (unaudited) – continued

 

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.

Derivatives – The fund uses derivatives in an attempt to adjust exposure to asset classes, markets, and currencies based on the adviser’s assessment of the relative attractiveness of such asset classes, markets, and currencies. Derivatives are used to increase or decrease the fund’s exposure to asset classes, markets or currencies resulting from the fund’s individual security selections, and to expose the fund to asset classes, markets, or currencies in which the fund’s individual security selection has resulted in little or no exposure. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase or decrease market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.

The derivative instruments used by the fund were purchased options, futures contracts, and forward foreign currency exchange contracts. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract Tables, generally are indicative of the volume of its derivative activity during the period.

The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2011 as reported in the Statement of Assets and Liabilities:

 

          Fair Value (a)  
Risk    Derivative Contracts    Asset Derivatives      Liability Derivatives  
Interest Rate    Interest Rate Futures      $260,376         $(90,811 ) 
Foreign Exchange    Forward Foreign Currency Exchange      8,229,099         (6,610,874 ) 
Equity    Equity Futures      4,260,506         (3,686,751 ) 
Equity    Purchased Equity Options      174,604         —   
Total         $12,924,585         $(10,388,436 ) 

 

(a) The value of purchased options outstanding is included in total investments, at value, within the fund’s Statement of Assets and Liabilities. The value of futures contracts outstanding includes cumulative appreciation (depreciation) as reported in the fund’s Portfolio of Investments. Only the current day variation margin for futures contracts is separately reported within the fund’s Statement of Assets and Liabilities.

The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk    Futures Contracts     

Foreign Currency

Transactions

     

Investment

Transactions

(Purchased

Options)

  
Interest Rate      $276,576         $—         $—   
Foreign Exchange      —         (4,699,397 )       —   
Equity      2,353,485         —         (380,353 ) 
Total      $2,630,061         $(4,699,397 )       $(380,353 ) 

The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk    Futures Contracts      Translation of
Assets and
Liabilities in
Foreign Currencies		     

Investments

(Purchased

Options)

  
Interest Rate      $1,186,029         $—         $—   
Foreign Exchange      —         (879,166 )       —   
Equity      1,057,157         —         (352,625 ) 
Total      $2,243,186         $(879,166 )       $(352,625 ) 

 

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Notes to Financial Statements (unaudited) – continued

 

Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swaps and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.

Purchased Options – The fund purchased put options for a premium. Purchased put options entitle the holder to sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing put options may hedge against a decline in the value of portfolio securities or currency.

The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.

The risk in purchasing an option is that the fund pays a premium whether or not the option is exercised. The fund’s maximum risk of loss due to counterparty credit risk is limited to the market value of the option. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

Futures Contracts – The fund entered into futures contracts which may be used to hedge against or obtain broad market, interest rate or currency exposure. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a certain percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures is realized.

The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.

Forward Foreign Currency Exchange Contracts – The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s

 

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Notes to Financial Statements (unaudited) – continued

 

currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.

Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on foreign currency transactions.

Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, an industry accepted settlement system. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

Short Sales – The fund may enter into short sales whereby it sells a security it does not own in anticipation of a decline in the value of that security. The fund 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 fund replaces the borrowed security. Losses from short sales can exceed the proceeds of the security sold; and they can also exceed the potential loss from an ordinary buy and sell transaction. The amount of any premium, dividends, or interest the fund may be required to pay in connection with a short sale will be recognized as a fund expense. The fund 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. At June 30, 2011, the fund has yet to enter into such transactions.

Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund 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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. 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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted upward or downward to the rate of inflation. Interest is accrued based on the principal value, which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation-indexed bond is generally recorded as an increase or decrease in interest income, respectively, even though the adjusted principal is not received until maturity. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

 

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Notes to Financial Statements (unaudited) – continued

 

The fund entered into “TBA” (to be announced) purchase commitments to purchase securities for a fixed unit price at a future date. Although the unit price has been established, the principal value has not been finalized. However, the principal amount of the commitments will not fluctuate more than 0.01%. The fund holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the fund may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to settlement date, which is in addition to the risk of decline in the value of the fund’s other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 amortization and accretion of debt securities, wash sale loss deferrals, straddle loss deferrals, and derivative transactions.

The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $1,262,023   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $751,242,084   
Gross appreciation      33,581,930   
Gross depreciation      (7,874,101 ) 
Net unrealized appreciation (depreciation)      $25,707,829   
As of 12/31/10   
Undistributed ordinary income      10,915,280   
Undistributed long-term capital gain      165,604   
Other temporary differences      (5,533,864 ) 
Net unrealized appreciation (depreciation)      7,047,607   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment income  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $701,290   
Service Class      —         560,733   
Total      $—         $1,262,023   

 

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Notes to Financial Statements (unaudited) – continued

 

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $300 million of average daily net assets      0.75%   
Average daily net assets in excess of $300 million      0.675%   

The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.71% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses, such that total annual operating expenses do not exceed 0.90% of average daily net assets for the Initial Class shares and 1.15% of average daily net assets for the Service Class shares. This written agreement will continue until April 30, 2013. For the six months ended June 30, 2011, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2011, the fee was $35,106, which equated to 0.0112% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2011, these costs amounted to $4.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0332% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $4,391 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

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Notes to Financial Statements (unaudited) – continued

 

 

(4)   Portfolio Securities

Purchases and sales of investments, other than purchased option transactions, and short-term obligations, were as follows:

 

     Purchases      Sales  
U.S. Government securities      $104,877,329         $47,835,988   
Investments (non-U.S. Government securities)      $288,876,570         $69,096,592   

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      51,658         $757,639         160,971         $2,205,593   

Service Class

      19,668,298         284,727,357         27,670,459         376,359,508   
     19,719,956         $285,484,996         27,831,430         $378,565,101   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         51,377         $701,290   

Service Class

      —         —         41,383         560,733   
     —         $—         92,760         $1,262,023   
Shares reacquired            

Initial Class

      (479,566 )       $(7,000,973 )       (927,827 )       $(12,618,417 ) 

Service Class

      (115,513 )       (1,672,141 )       (99,957 )       (1,342,300 ) 
     (595,079 )       $(8,673,114 )       (1,027,784 )       $(13,960,717 ) 
Net change            

Initial Class

      (427,908 )       $(6,243,334 )       (715,479 )       $(9,711,534 ) 

Service Class

      19,552,785         283,055,216         27,611,885         375,577,941   
     19,124,877         $276,811,882         26,896,406         $365,866,407   

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $2,217 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds   

Beginning

Shares/Par

Amount

   

Acquisitions

Shares/Par

Amount

     

Dispositions

Shares/Par

Amount

     

Ending

Shares/Par

Amount

  
MFS Institutional Money Market Portfolio    51,691,815      178,127,429         (177,495,207 )       52,324,037   
Underlying Affiliated Funds   

Realized

Gain (Loss)

   

Capital Gain

Distributions

     

Dividend

Income

     

Ending

Value

  
MFS Institutional Money Market Portfolio    $—      $—         $40,226         $52,324,037   

 

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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under ‘‘Variable Insurance Portfolios — VIT II’’ in the ‘‘Products and Performance’’ section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

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LOGO

Table of Contents

LOGO

 

MFS® New Discovery Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

NWD-SEM

Table of Contents

MFS® NEW DISCOVERY PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      7   
Statement of operations      8   
Statements of changes in net assets      9   
Financial highlights      10   
Notes to financial statements      12   
Board review of investment advisory agreement      17   
Proxy voting policies and information      17   
Quarterly portfolio disclosure      17   
Further information      17   
MFS® privacy notice      18   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS New Discovery Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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PORTFOLIO COMPOSITION

 

Portfolio structure

LOGO

 

Top ten holdings  
QuinStreet, Inc.     1.9%   
LinkedIn Corp., “A”     1.8%   
P.F. Chang’s China Bistro, Inc.     1.8%   
Polypore International, Inc.     1.7%   
F5 Networks, Inc.     1.6%   
WebMD Health Corp.     1.6%   
Brookdale Senior Living, Inc.     1.6%   
Green Mountain Coffee Roasters, Inc.     1.5%   
Cabot Oil & Gas Corp.     1.5%   
SuccessFactors, Inc.     1.4%   
Equity sectors  
Technology     33.9%   
Health Care     12.4%   
Industrial Goods & Services     7.9%   
Energy     7.3%   
Special Products & Services     6.5%   
Financial Services     6.0%   
Retailing     5.8%   
Autos & Housing     5.4%   
Leisure     4.9%   
Transportation     4.9%   
Basic Materials     3.1%   
Consumer Staples     2.0%   
 

 

From time to time “Cash & Other Net Assets” may be negative due to timing of cash receipts and/or equivalent exposure from any derivative holdings.

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      0.95%         $1,000.00         $1,105.74         $4.96   
  Hypothetical (h)      0.95%         $1,000.00         $1,020.08         $4.76   
Service Class   Actual      1.20%         $1,000.00         $1,104.25         $6.26   
  Hypothetical (h)      1.20%         $1,000.00         $1,018.84         $6.01   

 

(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.

 

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MFS New Discovery Portfolio

 

PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 100.1%   
Aerospace – 0.4%   
HEICO Corp.      13,740      $ 752,128   
          
Airlines – 2.6%     
Allegiant Travel Co. (a)      32,160      $ 1,591,920   
Spirit Airlines, Inc. (a)      174,390        2,090,936   
United Continental Holdings, Inc. (a)      61,830        1,399,213   
          
     $ 5,082,069   
          
Apparel Manufacturers – 1.1%   
Arezzo Industria e Comercio S.A. (a)      117,070      $ 1,639,048   
Phillips-Van Heusen Corp.      6,800        445,196   
          
     $ 2,084,244   
          
Biotechnology – 0.9%   
Alimera Sciences, Inc. (a)      20,260      $ 165,119   
Anacor Pharmaceuticals, Inc. (a)      94,860        612,796   
Pacific Biosciences of California, Inc. (a)      38,270        447,759   
SEQUENOM, Inc. (a)      77,090        582,030   
          
     $ 1,807,704   
          
Broadcasting – 1.9%   
QuinStreet, Inc. (a)      291,290      $ 3,780,944   
          
Business Services – 4.8%   
Calix, Inc. (a)      68,010      $ 1,415,968   
Concur Technologies, Inc. (a)      29,880        1,496,092   
Constant Contact, Inc. (a)      43,560        1,105,553   
FleetCor Technologies, Inc. (a)      79,670        2,361,419   
Jones Lang LaSalle, Inc.      15,410        1,453,163   
LPS Brasil – Consultoria de Imoveis S.A.      22,400        545,414   
Ultimate Software Group, Inc. (a)      18,600        1,012,398   
          
     $ 9,390,007   
          
Computer Software – 6.1%   
Ariba, Inc. (a)      45,260      $ 1,560,112   
Check Point Software Technologies Ltd. (a)      26,340        1,497,429   
CommVault Systems, Inc. (a)      24,720        1,098,804   
Nuance Communications, Inc. (a)      63,155        1,355,938   
Red Hat, Inc. (a)      37,370        1,715,283   
SolarWinds, Inc. (a)      71,970        1,881,296   
SuccessFactors, Inc. (a)      96,140        2,826,516   
          
     $ 11,935,378   
          
Computer Software – Systems – 10.0%   
Active Network, Inc. (a)      91,470      $ 1,609,872   
BroadSoft, Inc. (a)      31,260        1,191,944   
Cornerstone OnDemand, Inc. (a)      55,220        974,633   
DemandTec, Inc. (a)      90,700        825,370   
Fusion-io, Inc. (a)      42,316        1,273,288   
IntraLinks Holdings, Inc. (a)      89,700        1,550,016   
MICROS Systems, Inc. (a)      19,880        988,235   
National Instruments Corp.      73,185        2,172,863   
PROS Holdings, Inc. (a)      120,110        2,100,724   
Qlik Technologies, Inc. (a)      64,960        2,212,538   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Computer Software – Systems – continued   
SciQuest, Inc. (a)      102,180      $ 1,746,256   
ServiceSource International, Inc. (a)      58,020        1,289,204   
Velti PLC (a)      59,580        1,007,498   
Verifone Systems, Inc. (a)      11,510        510,469   
          
     $ 19,452,910   
          
Construction – 4.6%   
Beacon Roofing Supply, Inc. (a)      102,570      $ 2,340,647   
Eagle Materials, Inc.      77,140        2,149,892   
NVR, Inc. (a)      3,190        2,314,281   
Owens Corning (a)      56,900        2,125,215   
          
     $ 8,930,035   
          
Consumer Products – 0.5%   
L’Occitane International S.A.      355,500      $ 950,229   
          
Consumer Services – 1.7%   
Anhanguera Educacional Participacoes S.A.      39,100      $ 832,283   
HomeAway, Inc. (a)      64,190        2,484,153   
          
     $ 3,316,436   
          
Electrical Equipment – 1.5%   
Acuity Brands, Inc.      25,020      $ 1,395,616   
MSC Industrial Direct Co., Inc., “A”      7,140        473,453   
Sensata Technologies Holding B.V. (a)      27,010        1,016,927   
          
     $ 2,885,996   
          
Electronics – 7.8%   
Aeroflex Holding Corp. (a)      70,080      $ 1,271,952   
DynaVox, Inc., “A” (a)      121,650        924,540   
Entegris, Inc. (a)      98,950        1,001,374   
Fabrinet (a)      101,620        2,467,334   
Hittite Microwave Corp. (a)      37,380        2,314,196   
Inphi Corp. (a)      56,900        990,060   
Monolithic Power Systems, Inc. (a)      101,400        1,563,588   
Semtech Corp. (a)      55,900        1,528,306   
Stratasys, Inc. (a)      31,300        1,054,810   
Veeco Instruments, Inc. (a)(l)      41,620        2,014,824   
          
     $ 15,130,984   
          
Energy – Independent – 6.1%   
Brigham Exploration Co. (a)      72,880      $ 2,181,298   
Cabot Oil & Gas Corp.      43,630        2,893,105   
Energy XXI (Bermuda) Ltd. (a)      56,592        1,879,986   
Oasis Petroleum LLC (a)      73,720        2,188,010   
Petrohawk Energy Corp. (a)      112,600        2,777,842   
          
     $ 11,920,241   
          
Food & Beverages – 1.5%   
Green Mountain Coffee Roasters, Inc. (a)      33,260      $ 2,968,788   
          
Forest & Paper Products – 0.7%   
Universal Forest Products, Inc.      60,820      $ 1,457,247   
          
 

 

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MFS New Discovery Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Furniture & Appliances – 0.8%   
SodaStream International Ltd. (a)      26,450      $ 1,608,425   
    

 

 

  
Gaming & Lodging – 0.7%   
Morgans Hotel Group Co. (a)      186,710      $ 1,342,445   
    

 

 

  
General Merchandise – 0.6%   
Lojas Renner S.A.      29,900      $ 1,139,942   
    

 

 

  
Health Maintenance Organizations – 0.2%   
OdontoPrev S.A.      28,100      $ 468,138   
    

 

 

  
Insurance – 1.3%   
Brazil Insurance Participacoes e Administracao S.A.      2,000      $ 2,498,959   
    

 

 

  
Internet – 6.4%   
Demand Media, Inc. (a)      53,050      $ 718,828   
LinkedIn Corp., “A” (a)(l)      38,730        3,489,186   
LogMeIn, Inc. (a)      23,320        899,452   
OpenTable, Inc. (a)      32,650        2,713,868   
Shutterfly, Inc. (a)      8,830        507,019   
TechTarget, Inc. (a)      136,700        1,034,819   
WebMD Health Corp. (a)      66,880        3,048,390   
    

 

 

  
     $ 12,411,562   
    

 

 

  
Machinery & Tools – 6.0%   
Douglas Dynamics, Inc.      40,700      $ 642,653   
Finning International, Inc.      63,230        1,875,036   
Herman Miller, Inc.      71,490        1,945,958   
Joy Global, Inc.      10,870        1,035,259   
Polypore International, Inc. (a)      47,490        3,221,722   
Thermon Group Holdings, Inc. (a)      96,920        1,163,040   
United Rentals, Inc. (a)      48,440        1,230,376   
WABCO Holdings, Inc. (a)      7,120        491,707   
    

 

 

  
     $ 11,605,751   
    

 

 

  
Medical & Health Technology & Services – 5.1%   
Allscripts Healthcare Solutions, Inc. (a)      68,350      $ 1,327,357   
Brookdale Senior Living, Inc. (a)      125,700        3,048,225   
Cerner Corp. (a)      31,880        1,948,187   
Health Management Associates, Inc., “A” (a)      140,670        1,516,423   
IPC The Hospitalist Co., Inc. (a)      15,320        710,082   
LifePoint Hospitals, Inc. (a)      33,650        1,315,042   
    

 

 

  
     $ 9,865,316   
    

 

 

  
Medical Equipment – 6.2%   
DexCom, Inc. (a)      71,290      $ 1,032,992   
Heartware International, Inc. (a)      13,510        1,000,821   
IMRIS, Inc. (a)      62,510        426,943   
Masimo Corp.      82,570        2,450,678   
NxStage Medical, Inc. (a)      111,460        2,320,597   
Thoratec Corp. (a)      61,130        2,006,287   
Uroplasty, Inc. (a)      135,600        1,017,000   
Volcano Corp. (a)      54,170        1,749,149   
    

 

 

  
     $ 12,004,467   
    

 

 

  
Metals & Mining – 0.8%   
Globe Specialty Metals, Inc.      22,500      $ 504,450   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Metals & Mining – continued   
Molycorp, Inc. (a)      18,430      $ 1,125,336   
    

 

 

  
     $ 1,629,786   
    

 

 

  
Network & Telecom – 3.6%   
Acme Packet, Inc. (a)      7,600      $ 532,988   
Ciena Corp. (a)      39,710        729,870   
F5 Networks, Inc. (a)      28,050        3,092,513   
Finisar Corp. (a)      62,940        1,134,808   
Polycom, Inc. (a)      24,320        1,563,776   
    

 

 

  
     $ 7,053,955   
    

 

 

  
Oil Services – 1.2%   
Dresser-Rand Group, Inc. (a)      44,680      $ 2,401,550   
    

 

 

  
Other Banks & Diversified Financials – 4.6%   
Air Lease Corp. (a)      51,600      $ 1,253,364   
BankUnited, Inc.      48,560        1,288,782   
First Interstate BancSystem, Inc.      96,270        1,419,020   
First Republic Bank (a)      14,570        470,320   
Metro Bancorp, Inc. (a)      90,380        1,032,140   
PacWest Bancorp      65,150        1,340,136   
Wintrust Financial Corp.      38,000        1,222,840   
Zipcar, Inc. (a)      49,150        1,003,152   
    

 

 

  
     $ 9,029,754   
    

 

 

  
Precious Metals & Minerals – 0.9%   
Stillwater Mining Co. (a)      75,460      $ 1,660,875   
    

 

 

  
Real Estate – 0.1%     
Chesapeake Lodging Trust, REIT      16,930      $ 288,826   
    

 

 

  
Restaurants – 2.3%     
Arcos Dorados Holdings, Inc.      48,990      $ 1,033,199   
P.F. Chang’s China Bistro, Inc.      86,090        3,464,262   
    

 

 

  
     $ 4,497,461   
    

 

 

  
Specialty Chemicals – 0.7%   
KiOR, Inc. “A” (a)      29,380      $ 445,107   
Rockwood Holdings, Inc. (a)      18,110        1,001,302   
    

 

 

  
     $ 1,446,409   
    

 

 

  
Specialty Stores – 4.1%   
Citi Trends, Inc. (a)      135,880      $ 2,049,070   
Ethan Allen Interiors, Inc.      64,030        1,363,199   
Monro Muffler Brake, Inc.      53,250        1,985,693   
Urban Outfitters, Inc. (a)      92,310        2,598,515   
    

 

 

  
     $ 7,996,477   
    

 

 

  
Trucking – 2.3%   
Atlas Air Worldwide Holdings, Inc. (a)      28,880      $ 1,718,649   
Landstar System, Inc.      21,220        986,306   
Swift Transportation Co. (a)      126,650        1,716,108   
    

 

 

  
     $ 4,421,063   
    

 

 

  
Total Common Stocks
(Identified Cost, $181,538,264)		      $ 195,216,501   
    

 

 

  
 

 

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MFS New Discovery Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer   Strike
Price		     First
Exercise		     Shares/Par     Value ($)  
       
WARRANTS – 0.0%   
Alcoholic Beverages – 0.0%   
Castle Brands, Inc.
(1 share for 1 warrant) (Identified Cost, $70,840) (a)(z)		     $  6.57        5/08/07        50,440      $ 0   
       

 

 

  
RIGHTS – 0.0%   
Business Services – 0.0%   

LPS Brasil Consultoria de Imoveis S.A.

(1 share for 1 right)

(Identified Cost, $0) (a)

     BRL 39.43        6/30/11        270      $ 0   
       

 

 

  
Issuer    Shares/Par     Value ($)  
MONEY MARKET FUNDS (v) – 0.5%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      1,051,895      $ 1,051,895   
    

 

 

  
COLLATERAL FOR SECURITIES LOANED – 2.1%   
Navigator Securities Lending Prime Portfolio, 0.23%, at Cost and Net Asset Value (j)      3,995,748      $ 3,995,748   
    

 

 

  
Total Investments
(Identified Cost, $186,656,747)		      $ 200,264,144   
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – (2.7)%		        (5,233,766 ) 
    

 

 

  
Net Assets – 100.0%      $ 195,030,378   
    

 

 

  
 
(a) Non-income producing security.

 

(j) The rate quoted is the annualized seven-day yield of the portfolio at period end.

 

(l) A portion of this security is on loan.

 

(v) Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

 

(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities:

 

Restricted Securities   

Acquisition

Date

    Cost      Value  
Castle Brands, Inc. (Warrant)    4/18/07      $70,840         $0   
% of Net Assets            0.0%   

The following abbreviations are used in this report and are defined:

 

PLC   Public Limited Company

 

REIT   Real Estate Investment Trust

Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:

 

BRL   Brazilian Real

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $185,604,852)

      $199,212,249      

Underlying affiliated funds, at cost and value

      1,051,895            

Total investments, at value, including $4,017,817 of securities on loan (identified cost, $186,656,747)

      $200,264,144            

Cash

      55,449      

Receivables for

      

Investments sold

      3,656,481      

Fund shares sold

      101,913      

Interest and dividends

      49,641      

Receivable from investment adviser

      4,374      

Other assets

      3,118            

Total assets

               $204,135,120   

Liabilities

                  

Payable to custodian

      $458,994      

Payables for

      

Investments purchased

      4,379,945      

Fund shares reacquired

      185,378      

Collateral for securities loaned, at value

      3,995,748      

Payable to affiliates

      

Distribution and/or service fees

      1,416      

Payable for Trustees’ compensation

      3,170      

Accrued expenses and other liabilities

      80,091            

Total liabilities

               $9,104,742   

Net assets

               $195,030,378   

Net assets consist of

                  

Paid-in capital

      $143,675,171      

Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies

      13,607,783      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      38,459,576      

Accumulated net investment loss

      (712,152 )          

Net assets

               $195,030,378   

Shares of beneficial interest outstanding

               9,615,462   

 

     Net assets      Shares
outstanding		     

Net asset value

per share

  

Initial Class

      $90,705,582         4,404,217         $20.60   

Service Class

      104,324,796         5,211,245         20.02   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment loss                  

Income

      

Dividends

      $360,826      

Interest

      9,097      

Dividends from underlying affiliated funds

      688      

Foreign taxes withheld

      (9,812 )          

Total investment income

               $360,799   

Expenses

      

Management fee

      $889,132      

Distribution and/or service fees

      133,433      

Administrative services fee

      33,473      

Trustees’ compensation

      11,075      

Custodian fee

      44,214      

Shareholder communications

      15,460      

Auditing fees

      29,186      

Legal fees

      3,766      

Miscellaneous

      12,218            

Total expenses

               $1,171,957   

Fees paid indirectly

      (8 )    

Reduction of expenses by investment adviser

      (98,998 )          

Net expenses

               $1,072,951   

Net investment loss

               $(712,152 ) 

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions (net of $217 country tax)

      $24,278,462      

Foreign currency transactions

      (102,334 )          

Net realized gain (loss) on investments and foreign currency transactions

               $24,176,128   

Change in unrealized appreciation (depreciation)

      

Investments

      $(3,667,941 )    

Translation of assets and liabilities in foreign currencies

      427            

Net unrealized gain (loss) on investments and foreign currency translation

               $(3,667,514 ) 

Net realized and unrealized gain (loss) on investments and foreign currency

               $20,508,614   

Change in net assets from operations

               $19,796,462   

See Notes to Financial Statements

 

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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.

 

    
 

 

 Six months ended
6/30/11

(unaudited

  
  

) 

     
 		 Year ended
12/31/10		  
  

Change in net assets

      

From operations

                  

Net investment loss

      $(712,152 )       $(1,169,929 ) 

Net realized gain (loss) on investments and foreign currency transactions

      24,176,128         60,222,620   

Net unrealized gain (loss) on investments and foreign currency translation

      (3,667,514 )       62,154   

Change in net assets from operations

      $19,796,462         $59,114,845   

Change in net assets from fund share transactions

      $(19,786,304 )       $(58,230,686 ) 

Total change in net assets

      $10,158         $884,159   

Net assets

                  

At beginning of period

      195,020,220         194,136,061   

At end of period (including accumulated net investment loss of $712,152 and
$0, respectively)

      $195,030,378         $195,020,220   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class     

Six months
ended

6/30/11

      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $18.63         $13.64           $8.37           $16.24           $16.24           $14.35   
Income (loss) from investment operations                                                                

Net investment loss (d)

        $(0.06 )       $(0.07 )         $(0.05 )         $(0.04 )         $(0.08 )         $(0.09 ) 

Net realized and unrealized gain (loss) on
investments and foreign currency

        2.03         5.06           5.32           (5.42 )         0.52           1.98   

Total from investment operations

        $1.97         $4.99           $5.27           $(5.46 )         $0.44           $1.89   
Less distributions declared to shareholders                                                                

From net realized gain on investments

        $—         $—           $—           $(2.41 )         $(0.44 )         $—   

Net asset value, end of period

        $20.60         $18.63           $13.64           $8.37           $16.24           $16.24   

Total return (%) (k)(r)(s)

        10.57 (n)       36.58           62.96           (39.57 )         2.56           13.17   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        1.05 (a)       1.09           1.05           1.02           1.00           1.00   

Expenses after expense reductions (f)

        0.95 (a)       0.95           0.95           0.95           0.95           0.98   

Net investment loss

        (0.58 )(a)       (0.48 )         (0.49 )         (0.28 )         (0.45 )         (0.60 ) 

Portfolio turnover

        102         192           153           127           95           107   

Net assets at end of period (000 omitted)

        $90,706         $87,806           $78,620           $59,861           $130,029           $163,825   

See Notes to Financial Statements

 

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MFS New Discovery Portfolio

 

Financial Highlights – continued

 

Service Class     

Six months
ended

6/30/11

      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $18.13         $13.31           $8.18           $15.97           $16.02           $14.19   
Income (loss) from investment operations                                                                

Net investment loss (d)

        $(0.08 )       $(0.11 )         $(0.07 )         $(0.07 )         $(0.12 )         $(0.13 ) 

Net realized and unrealized gain (loss) on
investments and foreign currency

        1.97         4.93           5.20           (5.31 )         0.51           1.96   

Total from investment operations

        $1.89         $4.82           $5.13           $(5.38 )         $0.39           $1.83   
Less distributions declared to shareholders                                                                

From net realized gain on investments

        $—         $—           $—           $(2.41 )         $(0.44 )         $—   

Net asset value, end of period

        $20.02         $18.13           $13.31           $8.18           $15.97           $16.02   

Total return (%) (k)(r)(s)

        10.42 (n)       36.21           62.71           (39.76 )         2.28           12.90   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        1.30 (a)       1.34           1.30           1.27           1.25           1.26   

Expenses after expense reductions (f)

        1.20 (a)       1.20           1.20           1.20           1.20           1.23   

Net investment loss

        (0.84 )(a)       (0.73 )         (0.74 )         (0.54 )         (0.70 )         (0.84 ) 

Portfolio turnover

        102         192           153           127           95           107   

Net assets at end of period (000 omitted)

        $104,325         $107,214           $115,516           $104,937           $186,516           $181,468   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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 fund may receive proceeds from litigation settlements, without which performance would be lower.

See Notes to Financial Statements

 

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MFS New Discovery Portfolio

 

NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS New Discovery Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted

 

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MFS New Discovery Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities      $195,216,501         $—         $—         $195,216,501   
Mutual Funds      5,047,643         —         —         5,047,643   
Total Investments      $200,264,144         $—         $—         $200,264,144   

For further information regarding security characteristics, see the Portfolio of Investments.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund 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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. 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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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

 

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MFS New Discovery Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

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 fund declared no distributions for the current period or for the year ended December 31, 2010.

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $186,883,978   
Gross appreciation      22,681,322   
Gross depreciation      (9,301,156 ) 
Net unrealized appreciation (depreciation)      $13,380,166   
As of 12/31/10   
Undistributed ordinary income      10,183,223   
Undistributed long-term capital gain      4,327,456   
Other temporary differences      (41 ) 
Net unrealized appreciation (depreciation)      17,048,107   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. 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 fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $1 billion of average daily net assets      0.90%   
Average daily net assets in excess of $1 billion      0.80%   

The investment adviser has agreed in writing to reduce its management fee to 0.75% of average daily net assets in excess of $2.5 billion. This written agreement will continue until modified or rescinded by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2013. For the six months ended June 30, 2011, the fund’s average daily net assets did not exceed $2.5 billion and therefore, the management fee was not reduced. The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.95% of average daily net assets for the Initial Class shares and 1.20% of average daily net assets for the Service Class shares. This written agreement will continue until April 30, 2013. For the six months ended June 30, 2011, this reduction amounted to $98,998 and is reflected as a reduction of total expenses in the Statement of Operations.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

 

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MFS New Discovery Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2011, the fund did not pay MFSC a fee for this service.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0339% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $1,620 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $205,007,208 and $224,652,838, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      157,195         $3,106,645         158,454         $2,403,888   

Service Class

      76,605         1,460,691         114,963         1,741,456   
     233,800         $4,567,336         273,417         $4,145,344   
Shares reacquired            

Initial Class

      (465,227 )       $(9,310,020 )       (1,208,840 )       $(18,597,077 ) 

Service Class

      (777,406 )       (15,043,620 )       (2,880,973 )       (43,778,953 ) 
     (1,242,633 )       $(24,353,640 )       (4,089,813 )       $(62,376,030 ) 
Net change            

Initial Class

      (308,032 )       $(6,203,375 )       (1,050,386 )       $(16,193,189 ) 

Service Class

      (700,801 )       (13,582,929 )       (2,766,010 )       (42,037,497 ) 
     (1,008,833 )       $(19,786,304 )       (3,816,396 )       $(58,230,686 ) 

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with

 

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MFS New Discovery Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $807 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      334,228         41,185,131         (40,467,464 )       1,051,895   
Underlying Affiliated Funds    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $688         $1,051,895   

 

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MFS New Discovery Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

17

Table of Contents

rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

18

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

19

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LOGO

Table of Contents

LOGO

 

MFS® Growth Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

EGS-SEM

Table of Contents

MFS® GROWTH PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      7   
Statement of operations      8   
Statements of changes in net assets      9   
Financial highlights      10   
Notes to financial statements      11   
Board review of investment advisory agreement      16   
Proxy voting policies and information      16   
Quarterly portfolio disclosure      16   
Further information      16   
MFS® privacy notice      17   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Growth Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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Table of Contents

MFS Growth Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure

LOGO

 

Top ten holdings  
Apple, Inc.     5.1%   
Danaher Corp.     3.2%   
EMC Corp.     3.0%   
Oracle Corp.     2.9%   
Google, Inc., “A”     2.4%   
Qualcomm, Inc.     2.1%   
American Tower Corp., “A”     2.0%   
Precision Castparts Corp.     1.8%   
Thermo Fisher Scientific, Inc.     1.8%   
Viacom, Inc., “B”     1.7%   
Equity sectors  
Technology     24.7%   
Health Care     11.5%   
Energy     9.3%   
Industrial Goods & Services     9.1%   
Retailing     8.4%   
Leisure     8.2%   
Consumer Staples     6.5%   
Special Products & Services     5.0%   
Financial Services     4.8%   
Basic Materials     4.2%   
Autos & Housing     2.3%   
Transportation     2.1%   
Utilities & Communications     2.0%   
 

 

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS Growth Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      0.87%         $1,000.00         $1,045.88         $4.41   
  Hypothetical (h)      0.87%         $1,000.00         $1,020.48         $4.36   
Service Class   Actual      1.12%         $1,000.00         $1,044.43         $5.68   
  Hypothetical (h)      1.12%         $1,000.00         $1,019.24         $5.61   

 

(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.

 

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MFS Growth Portfolio

 

PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 98.1%     
Aerospace – 3.9%     
Goodrich Corp.      12,380      $ 1,182,287   
Honeywell International, Inc.      39,250        2,338,908   
Precision Castparts Corp.      18,525        3,050,141   
    

 

 

  
     $ 6,571,336   
    

 

 

  
Alcoholic Beverages – 1.0%     
Diageo PLC      81,901      $ 1,673,321   
    

 

 

  
Apparel Manufacturers – 1.0%     
LVMH Moet Hennessy Louis Vuitton S.A.      3,915      $ 704,557   
NIKE, Inc., “B”      6,020        541,680   
Phillips-Van Heusen Corp.      5,450        356,812   
    

 

 

  
     $ 1,603,049   
    

 

 

  
Automotive – 1.1%     
Johnson Controls, Inc.      42,810      $ 1,783,465   
    

 

 

  
Biotechnology – 1.4%     
Alexion Pharmaceuticals, Inc. (a)      25,080      $ 1,179,512   
Celgene Corp. (a)      19,080        1,150,906   
    

 

 

  
     $ 2,330,418   
    

 

 

  
Broadcasting – 4.0%     
Discovery Communications, Inc., “A” (a)      17,000      $ 696,320   
Interpublic Group of Cos., Inc.      92,380        1,154,750   
Viacom, Inc., “B”      55,950        2,853,450   
Walt Disney Co.      52,800        2,061,312   
    

 

 

  
     $ 6,765,832   
    

 

 

  
Brokerage & Asset Managers – 1.8%     
Affiliated Managers Group, Inc. (a)      21,510      $ 2,182,190   
Blackrock, Inc.      4,664        894,602   
    

 

 

  
     $ 3,076,792   
    

 

 

  
Business Services – 4.1%     
Accenture PLC, “A”      28,960      $ 1,749,763   
Cognizant Technology Solutions Corp., “A” (a)      23,530        1,725,690   
FleetCor Technologies, Inc. (a)      13,700        406,068   
Jones Lang LaSalle, Inc.      12,760        1,203,268   
MSCI, Inc., “A” (a)      11,550        435,204   
Verisk Analytics, Inc., “A” (a)      38,680        1,339,102   
    

 

 

  
     $ 6,859,095   
    

 

 

  
Cable TV – 1.3%     
Comcast Corp., “Special A”      55,670      $ 1,348,884   
DIRECTV, “A” (a)      16,510        839,038   
    

 

 

  
     $ 2,187,922   
    

 

 

  
Chemicals – 2.5%     
Celanese Corp.      25,910      $ 1,381,262   
Ecolab, Inc.      18,480        1,041,902   
Monsanto Co.      23,310        1,690,907   
    

 

 

  
     $ 4,114,071   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Computer Software – 7.6%     
Autodesk, Inc. (a)      42,080      $ 1,624,288   
Check Point Software Technologies Ltd. (a)      41,910        2,382,584   
Intuit, Inc. (a)      24,100        1,249,826   
Oracle Corp.      146,220        4,812,100   
Red Hat, Inc. (a)      21,980        1,008,882   
Salesforce.com, Inc. (a)      3,400        506,532   
VeriSign, Inc.      34,558        1,156,311   
    

 

 

  
     $ 12,740,523   
    

 

 

  
Computer Software – Systems – 9.7%     
Apple, Inc. (a)      25,187      $ 8,454,520   
EMC Corp. (a)      180,270        4,966,439   
International Business Machines Corp.      13,940        2,391,407   
Verifone Systems, Inc. (a)      8,500        376,975   
    

 

 

  
     $ 16,189,341   
    

 

 

  
Construction – 1.2%     
Owens Corning (a)      27,250      $ 1,017,788   
Stanley Black & Decker, Inc.      13,250        954,663   
    

 

 

  
     $ 1,972,451   
    

 

 

  
Consumer Products – 1.3%     
Avon Products, Inc.      23,390      $ 654,920   
Colgate-Palmolive Co.      16,580        1,449,258   
    

 

 

  
     $ 2,104,178   
    

 

 

  
Consumer Services – 0.9%     
Priceline.com, Inc. (a)      1,952      $ 999,287   
Sotheby’s      12,630        549,405   
    

 

 

  
     $ 1,548,692   
    

 

 

  
Electrical Equipment – 3.2%     
Danaher Corp.      99,760      $ 5,286,282   
    

 

 

  
Electronics – 2.6%     
Advanced Micro Devices, Inc. (a)      77,989      $ 545,143   
Agilent Technologies, Inc. (a)      19,630        1,003,289   
ASML Holding N.V.      27,137        1,002,984   
Broadcom Corp., “A”      30,120        1,013,237   
First Solar, Inc. (a)(l)      3,790        501,303   
JDS Uniphase Corp. (a)      12,700        211,582   
    

 

 

  
     $ 4,277,538   
    

 

 

  
Energy – Independent – 4.2%     
Apache Corp.      6,107      $ 753,543   
EOG Resources, Inc.      14,390        1,504,475   
Newfield Exploration Co. (a)      9,980        678,840   
Noble Energy, Inc.      14,210        1,273,642   
Occidental Petroleum Corp.      26,610        2,768,504   
    

 

 

  
     $ 6,979,004   
    

 

 

  
Energy – Integrated – 0.2%     
EQT Corp.      7,910      $ 415,433   
    

 

 

  
 

 

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MFS Growth Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Engineering – Construction – 1.1%     
Fluor Corp.      29,480      $ 1,906,177   
    

 

 

  
Food & Beverages – 3.2%     
Coca-Cola Co.      27,260      $ 1,834,325   
Green Mountain Coffee Roasters, Inc. (a)      9,160        817,622   
Groupe Danone      11,983        894,054   
Mead Johnson Nutrition Co., “A”      25,720        1,737,386   
    

 

 

  
     $ 5,283,387   
    

 

 

  
Gaming & Lodging – 0.9%     
Carnival Corp.      13,570      $ 510,639   
Las Vegas Sands Corp. (a)      8,260        348,655   
Wynn Resorts Ltd.      4,240        608,610   
    

 

 

  
     $ 1,467,904   
    

 

 

  
General Merchandise – 3.4%     
Costco Wholesale Corp.      19,110      $ 1,552,496   
Dollar General Corp. (a)      19,590        663,905   
Kohl’s Corp.      24,620        1,231,246   
Target Corp.      47,950        2,249,335   
    

 

 

  
     $ 5,696,982   
    

 

 

  
Health Maintenance Organizations – 0.7%     
WellPoint, Inc.      15,660      $ 1,233,538   
    

 

 

  
Internet – 2.7%     
Google, Inc., “A” (a)      7,818      $ 3,958,879   
LinkedIn Corp., “A” (a)(l)      6,530        588,288   
    

 

 

  
     $ 4,547,167   
    

 

 

  
Machinery & Tools – 0.6%     
Joy Global, Inc.      4,590      $ 437,152   
Polypore International, Inc. (a)      7,620        516,941   
    

 

 

  
     $ 954,093   
    

 

 

  
Major Banks – 1.0%     
Goldman Sachs Group, Inc.      6,200      $ 825,158   
JPMorgan Chase & Co.      19,950        816,753   
    

 

 

  
     $ 1,641,911   
    

 

 

  
Medical & Health Technology & Services – 3.3%     
AmerisourceBergen Corp.      37,070      $ 1,534,698   
Cerner Corp. (a)      15,460        944,761   
Express Scripts, Inc. (a)      28,530        1,540,049   
IDEXX Laboratories, Inc. (a)      6,640        514,998   
Stericycle, Inc. (a)      10,680        951,802   
    

 

 

  
     $ 5,486,308   
    

 

 

  
Medical Equipment – 3.8%     
Becton, Dickinson & Co.      14,026      $ 1,208,620   
Cooper Cos., Inc.      5,390        427,104   
Covidien PLC      30,610        1,629,370   
Thermo Fisher Scientific, Inc. (a)      47,320        3,046,935   
    

 

 

  
     $ 6,312,029   
    

 

 

  
Metals & Mining – 0.2%     
Teck Resources Ltd., “B”      6,890      $ 349,599   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Network & Telecom – 2.1%     
Qualcomm, Inc.      60,792      $ 3,452,378   
    

 

 

  
Oil Services – 4.9%     
Cameron International Corp. (a)      41,950      $ 2,109,666   
Dresser-Rand Group, Inc. (a)      17,140        921,275   
FMC Technologies, Inc. (a)      9,390        420,578   
Halliburton Co.      26,640        1,358,640   
National Oilwell Varco, Inc.      13,910        1,087,901   
Schlumberger Ltd.      27,470        2,373,408   
    

 

 

  
     $ 8,271,468   
    

 

 

  
Other Banks & Diversified Financials – 2.0%     
MasterCard, Inc., “A”      6,800      $ 2,049,112   
Visa, Inc., “A”      16,255        1,369,646   
    

 

 

  
     $ 3,418,758   
    

 

 

  
Pharmaceuticals – 2.3%     
Abbott Laboratories      28,840      $ 1,517,561   
Allergan, Inc.      11,860        987,345   
Teva Pharmaceutical Industries Ltd., ADR      27,510        1,326,532   
    

 

 

  
     $ 3,831,438   
    

 

 

  
Pollution Control – 0.3%     
Republic Services, Inc.      17,120      $ 528,152   
    

 

 

  
Printing & Publishing – 0.6%     
Moody’s Corp.      25,550      $ 979,843   
    

 

 

  
Railroad & Shipping – 1.3%     
CSX Corp.      38,320      $ 1,004,750   
Kansas City Southern Co. (a)      19,940        1,183,040   
    

 

 

  
     $ 2,187,790   
    

 

 

  
Restaurants – 1.4%     
McDonald’s Corp.      14,728      $ 1,241,865   
Starbucks Corp.      27,660        1,092,293   
    

 

 

  
     $ 2,334,158   
    

 

 

  
Specialty Chemicals – 1.5%     
Airgas, Inc.      12,090      $ 846,784   
Praxair, Inc.      14,565        1,578,700   
    

 

 

  
     $ 2,425,484   
    

 

 

  
Specialty Stores – 4.0%     
Abercrombie & Fitch Co., “A”      11,160      $ 746,827   
Amazon.com, Inc. (a)      12,160        2,486,598   
Industria de Diseno Textil S.A.      5,875        535,374   
PetSmart, Inc.      12,940        587,088   
Ross Stores, Inc.      12,520        1,003,102   
Tiffany & Co.      12,820        1,006,626   
Urban Outfitters, Inc. (a)      13,010        366,232   
    

 

 

  
     $ 6,731,847   
    

 

 

  
Telephone Services – 2.0%     
American Tower Corp., “A” (a)      63,355      $ 3,315,367   
    

 

 

  
Tobacco – 1.0%     
Philip Morris International, Inc.      24,280      $ 1,621,176   
    

 

 

  
 

 

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MFS Growth Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Trucking – 0.8%     
Expeditors International of Washington, Inc.      27,700      $ 1,417,963   
    

 

 

  
Total Common Stocks
(Identified Cost, $135,475,544)		      $ 163,873,660   
    

 

 

  
MONEY MARKET FUNDS (v) – 2.1%     
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      3,606,724      $ 3,606,724   
    

 

 

  
COLLATERAL FOR SECURITIES LOANED – 0.5%     
Navigator Securities Lending Prime Portfolio, 0.23%, at Cost and Net Asset Value (j)      795,536      $ 795,536   
    

 

 

  
Total Investments
(Identified Cost, $139,877,804)		      $ 168,275,920   
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – (0.7)%		        (1,169,915 ) 
    

 

 

  
Net Assets – 100.0%      $ 167,106,005   
    

 

 

  
(a)   Non-income producing security.

 

(j)   The rate quoted is the annualized seven-day yield of the portfolio at period end.

 

(l)   A portion of this security is on loan.

 

(v)   Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

ADR   American Depository Receipt

 

PLC   Public Limited Company

See Notes to Financial Statements

 

 

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MFS Growth Portfolio

 

FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $136,271,080)

      $164,669,196      

Underlying affiliated funds, at cost and value

      3,606,724            

Total investments, at value, including $797,212 of securities on loan (identified cost, $139,877,804)

      $168,275,920            

Receivables for

      

Investments sold

      2,044,106      

Fund shares sold

      34,160      

Interest and dividends

      112,238      

Other assets

      2,740            

Total assets

               $170,469,164   

Liabilities

                  

Payables for

      

Investments purchased

      $2,475,111      

Fund shares reacquired

      35,739      

Collateral for securities loaned, at value

      795,536      

Payable to affiliates

      

Investment adviser

      7,061      

Distribution and/or service fees

      175      

Payable for Trustees’ compensation

      2,804      

Accrued expenses and other liabilities

      46,733            

Total liabilities

               $3,363,159   

Net assets

               $167,106,005   

Net assets consist of

                  

Paid-in capital

      $154,036,498      

Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies

      28,399,661      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      (15,618,470 )    

Undistributed net investment income

      288,316            

Net assets

               $167,106,005   

Shares of beneficial interest outstanding

               7,199,450   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $154,184,083         6,632,760         $23.25   

Service Class

      12,921,922         566,690         22.80   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment income                  

Income

      

Dividends

      $797,694      

Interest

      4,413      

Dividends from underlying affiliated funds

      2,487      

Foreign taxes withheld

      (8,269 )          

Total investment income

               $796,325   

Expenses

      

Management fee

      $636,936      

Distribution and/or service fees

      17,287      

Administrative services fee

      28,830      

Trustees’ compensation

      9,690      

Custodian fee

      16,315      

Shareholder communications

      11,003      

Auditing fees

      23,367      

Legal fees

      3,766      

Miscellaneous

      9,315            

Total expenses

               $756,509   

Fees paid indirectly

      (1 )          

Net expenses

               $756,508   

Net investment income

               $39,817   
Realized and unrealized gain (loss) on investments and foreign currency transactions                  

Realized gain (loss) (identified cost basis)

      

Investment transactions

      $11,569,065      

Foreign currency transactions

      (5,126 )          

Net realized gain (loss) on investments and foreign currency transactions

               $11,563,939   

Change in unrealized appreciation (depreciation)

      

Investments

      $(3,936,617 )    

Translation of assets and liabilities in foreign currencies

      709            

Net unrealized gain (loss) on investments and foreign currency translation

               $(3,935,908 ) 

Net realized and unrealized gain (loss) on investments and foreign currency

               $7,628,031   

Change in net assets from operations

               $7,667,848   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		   
 
) 		     
 		 Year ended
12/31/10		   
  

Change in net assets

      

From operations

                  

Net investment income

      $39,817         $318,084   

Net realized gain (loss) on investments and foreign currency transactions

      11,563,939         14,124,784   

Net unrealized gain (loss) on investments and foreign currency translation

      (3,935,908 )       9,293,071   

Change in net assets from operations

      $7,667,848         $23,735,939   

Distributions declared to shareholders

                  

From net investment income

      $—         $(127,589 ) 

Change in net assets from fund share transactions

      $(11,416,456 )       $(22,395,996 ) 

Total change in net assets

      $(3,748,608 )       $1,212,354   

Net assets

                  

At beginning of period

      170,854,613         169,642,259   

At end of period (including undistributed net investment income of $288,316 and
$248,499, respectively)

      $167,106,005         $170,854,613   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class     

Six months
ended

6/30/11

      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $22.23         $19.21           $13.99           $22.37           $18.45           $17.08   
Income (loss) from investment operations                                                                

Net investment income (loss) (d)

        $0.01         $0.04           $0.02           $0.04           $0.04           $(0.02 ) 

Net realized and unrealized gain (loss) on
investments and foreign currency

        1.01         3.00           5.24           (8.37 )         3.88           1.39   

Total from investment operations

        $1.02         $3.04           $5.26           $(8.33 )         $3.92           $1.37   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.02 )         $(0.04 )         $(0.05 )         $—           $—   

Net asset value, end of period

        $23.25         $22.23           $19.21           $13.99           $22.37           $18.45   

Total return (%) (k)(s)

        4.59 (n)       15.81           37.74           (37.33 )         21.25           8.02   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses (f)

        0.87 (a)       0.88           0.89           0.88           0.84           0.83   

Net investment income (loss)

        0.07 (a)       0.22           0.11           0.21           0.19           (0.14 ) 

Portfolio turnover

        37         99           95           120           76           123   

Net assets at end of period (000 omitted)

        $154,184         $156,785           $155,357           $131,692           $264,089           $291,965   
Service Class     

Six months
ended

6/30/11

      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $21.83         $18.90           $13.75           $22.01           $18.19           $16.89   
Income (loss) from investment operations                                                                

Net investment loss (d)

        $(0.02 )       $(0.01 )         $(0.02 )         $(0.01 )         $(0.01 )         $(0.07 ) 

Net realized and unrealized gain (loss) on
investments and foreign currency

        0.99         2.94           5.17           (8.25 )         3.83           1.37   

Total from investment operations

        $0.97         $2.93           $5.15           $(8.26 )         $3.82           $1.30   

Net asset value, end of period

        $22.80         $21.83           $18.90           $13.75           $22.01           $18.19   

Total return (%) (k)(s)

        4.44 (n)       15.50           37.45           (37.53 )         21.00           7.70   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses (f)

        1.12 (a)       1.13           1.14           1.13           1.09           1.08   

Net investment loss

        (0.19 )(a)       (0.03 )         (0.14 )         (0.04 )         (0.06 )         (0.38 ) 

Portfolio turnover

        37         99           95           120           76           123   

Net assets at end of period (000 omitted)

        $12,922         $14,069           $14,286           $13,256           $23,773           $21,538   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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.

 

(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. Excluding the effect of the proceeds received from a non-recurring litigation settlement against Tyco International Ltd., the Initial Class and Service Class total returns for the year ended December 31, 2010 would have each been lower by approximately 0.61%.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Growth Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted

 

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Notes to Financial Statements (unaudited) – continued

 

prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities      $163,873,660         $—         $—         $163,873,600   
Mutual Funds      4,402,260         —         —         4,402,260   
Total Investments      $168,275,290         $—         $—         $168,275,920   

For further information regarding security characteristics, see the Portfolio of Investments.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund 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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. 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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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

 

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Notes to Financial Statements (unaudited) – continued

 

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 expiration of capital loss carryforwards, wash sale loss deferrals, and straddle loss deferrals.

The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $127,589   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $140,332,197   
Gross appreciation      29,419,037   
Gross depreciation      (1,475,314 ) 
Net unrealized appreciation (depreciation)      $27,943,723   
As of 12/31/10   
Undistributed ordinary income      248,499   
Capital loss carryforwards      (26,667,637 ) 
Other temporary differences      (59,543 ) 
Net unrealized appreciation (depreciation)      31,880,340   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $(16,338,857 ) 
12/31/17      (10,328,780 ) 
Total      $(26,667,637 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $127,589   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $300 million of average daily net assets      0.75%   
Average daily net assets in excess of $300 million      0.675%   

The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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

 

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Notes to Financial Statements (unaudited) – continued

 

incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2011, the fund did not pay MFSC a fee for this service.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0339% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $1,403 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $63,345,976 and $77,020,166, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      51,287         $1,161,992         77,719         $1,522,967   

Service Class

      18,814         417,276         54,474         1,085,267   
     70,101         $1,579,268         132,193         $2,608,234   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         6,113         $127,589   
Shares reacquired            

Initial Class

      (471,675 )       $(10,811,127 )       (1,118,255 )       $(21,944,381 ) 

Service Class

      (96,552 )       (2,184,597 )       (165,950 )       (3,187,438 ) 
     (568,227 )       $(12,995,724 )       (1,284,205 )       $(25,131,819 ) 
Net change            

Initial Class

      (420,388 )       $(9,649,135 )       (1,034,423 )       $(20,293,825 ) 

Service Class

      (77,738 )       (1,767,321 )       (111,476 )       (2,102,171 ) 
     (498,126 )       $(11,416,456 )       (1,145,899 )       $(22,395,996 ) 

 

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Notes to Financial Statements (unaudited) – continued

 

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $698 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      1,141,242         23,716,060         (21,250,578 )       3,606,724   
Underlying Affiliated Funds    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $2,487         $3,606,724   

 

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MFS Growth Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

18

Table of Contents

LOGO

Table of Contents

LOGO

 

MFS® Mid Cap Growth Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

MCS-SEM

Table of Contents

MFS® MID CAP GROWTH PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      7   
Statement of operations      8   
Statements of changes in net assets      9   
Financial highlights      10   
Notes to financial statements      12   
Board review of investment advisory agreement      17   
Proxy voting policies and information      17   
Quarterly portfolio disclosure      17   
Further information      17   
MFS® privacy notice      18   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Mid Cap Growth Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS Mid Cap Growth Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure

LOGO

 

Top ten holdings  
AMETEK, Inc.     1.8%   
Dresser-Rand Group, Inc.     1.6%   
American Tower Corp., “A”     1.6%   
Check Point Software Technologies Ltd.     1.6%   
Affiliated Managers Group, Inc.     1.5%   
Newfield Exploration Co.     1.4%   
Mead Johnson Nutrition Co., “A”     1.3%   
Celanese Corp.     1.3%   
Alexion Pharmaceuticals, Inc.     1.3%   
Ross Stores, Inc.     1.3%   
Equity sectors   
Technology      19.7%   
Health Care      13.2%   
Industrial Goods & Services      12.9%   
Retailing      8.5%   
Energy      7.8%   
Special Products & Services      7.6%   
Leisure      6.0%   
Financial Services      5.8%   
Basic Materials      4.9%   
Autos & Housing      3.9%   
Consumer Staples      3.4%   
Transportation      3.1%   
Utilities & Communications      2.3%   
 

 

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS Mid Cap Growth Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      1.04%         $1,000.00         $1,056.57         $5.30   
  Hypothetical (h)      1.04%         $1,000.00         $1,019.64         $5.21   
Service Class   Actual      1.29%         $1,000.00         $1,056.03         $6.58   
  Hypothetical (h)      1.29%         $1,000.00         $1,018.40         $6.46   

 

(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.

 

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MFS Mid Cap Growth Portfolio

 

PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 99.1%     
Aerospace – 2.2%     
BE Aerospace, Inc. (a)      7,960      $ 324,848   
Goodrich Corp.      4,660        445,030   
Moog, Inc., “A” (a)      2,290        99,661   
    

 

 

  
     $ 869,539   
    

 

 

  
Alcoholic Beverages – 0.2%     
Tsingtao Brewery Co. Ltd., “H”      16,000      $ 92,832   
    

 

 

  
Apparel Manufacturers – 0.9%     
Li & Fung Ltd.      38,000      $ 76,427   
Phillips-Van Heusen Corp.      4,170        273,010   
    

 

 

  
     $ 349,437   
    

 

 

  
Automotive – 0.6%     
BorgWarner Transmission Systems, Inc. (a)      3,230      $ 260,952   
    

 

 

  
Biotechnology – 2.5%     
Alexion Pharmaceuticals, Inc. (a)      11,150      $ 524,385   
Dendreon Corp. (a)      6,380        251,627   
Gen-Probe, Inc. (a)      3,080        212,982   
    

 

 

  
     $ 988,994   
    

 

 

  
Broadcasting – 1.6%     
Discovery Communications, Inc., “A” (a)      7,990      $ 327,270   
Interpublic Group of Cos., Inc.      24,720        309,000   
    

 

 

  
     $ 636,270   
    

 

 

  
Brokerage & Asset Managers – 3.0%     
Affiliated Managers Group, Inc. (a)      5,830      $ 591,454   
Evercore Partners, Inc.      3,030        100,960   
GFI Group, Inc.      16,790        77,066   
IntercontinentalExchange, Inc. (a)      2,210        275,609   
Lazard Ltd.      4,380        162,498   
    

 

 

  
     $ 1,207,587   
    

 

 

  
Business Services – 5.9%     
Cognizant Technology Solutions Corp., “A” (a)      6,290      $ 461,309   
Concur Technologies, Inc. (a)      6,720        336,470   
FleetCor Technologies, Inc. (a)      5,740        170,134   
Gartner, Inc. (a)      8,670        349,314   
Jones Lang LaSalle, Inc.      3,830        361,169   
MSCI, Inc., “A” (a)      6,640        250,195   
Verisk Analytics, Inc., “A” (a)      13,230        458,023   
    

 

 

  
     $ 2,386,614   
    

 

 

  
Chemicals – 1.9%     
Celanese Corp.      9,880      $ 526,703   
Ecolab, Inc.      4,020        226,648   
    

 

 

  
     $ 753,351   
    

 

 

  
Computer Software – 8.3%     
Ariba, Inc. (a)      3,510      $ 120,990   
Autodesk, Inc. (a)      10,520        406,072   
Autonomy Corp. PLC (a)      12,825        351,360   
Check Point Software Technologies Ltd. (a)      11,130        632,741   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Computer Software – continued     
Informatica Corp. (a)      1,220      $ 71,285   
Intuit, Inc. (a)      5,650        293,009   
Parametric Technology Corp. (a)      20,490        469,836   
Red Hat, Inc. (a)      8,840        405,756   
SuccessFactors, Inc. (a)      6,800        199,920   
Symantec Corp. (a)      6,140        121,081   
VeriSign, Inc.      8,340        279,056   
    

 

 

  
     $ 3,351,106   
    

 

 

  
Computer Software – Systems – 3.0%     
MICROS Systems, Inc. (a)      8,650      $ 429,992   
NICE Systems Ltd., ADR (a)      7,810        283,972   
Qlik Technologies, Inc. (a)      8,120        276,567   
Verifone Systems, Inc. (a)      5,070        224,855   
    

 

 

  
     $ 1,215,386   
    

 

 

  
Construction – 3.3%     
Beacon Roofing Supply, Inc. (a)      6,730      $ 153,579   
NVR, Inc. (a)      290        210,389   
Owens Corning (a)      8,700        324,945   
Sherwin-Williams Co.      3,010        252,449   
Stanley Black & Decker, Inc.      5,287        380,928   
    

 

 

  
     $ 1,322,290   
    

 

 

  
Consumer Products – 0.6%     
Avon Products, Inc.      9,060      $ 253,680   
    

 

 

  
Consumer Services – 1.7%     
Anhanguera Educacional Participacoes S.A.      9,900      $ 210,731   
HomeAway, Inc. (a)      840        32,508   
Priceline.com, Inc. (a)      470        240,607   
Sotheby’s      4,960        215,760   
    

 

 

  
     $ 699,606   
    

 

 

  
Containers – 1.0%     
Ball Corp.      10,750      $ 413,445   
    

 

 

  
Electrical Equipment – 3.6%     
AMETEK, Inc.      15,695      $ 704,706   
Danaher Corp.      5,190        275,018   
Mettler-Toledo International, Inc. (a)      1,620        273,245   
MSC Industrial Direct Co., Inc., “A”      2,930        194,288   
    

 

 

  
     $ 1,447,257   
    

 

 

  
Electronics – 3.6%     
Advanced Micro Devices, Inc. (a)      22,735      $ 158,918   
ARM Holdings PLC      20,541        193,848   
First Solar, Inc. (a)(l)      800        105,816   
Hittite Microwave Corp. (a)      3,970        245,783   
JDS Uniphase Corp. (a)      6,040        100,626   
Linear Technology Corp.      7,380        243,688   
Microchip Technology, Inc.      7,400        280,534   
NetLogic Microsystems, Inc. (a)      2,960        119,643   
    

 

 

  
     $ 1,448,856   
    

 

 

  
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Energy – Independent – 3.0%     
Concho Resources, Inc. (a)      4,030      $ 370,156   
Newfield Exploration Co. (a)      8,230        559,805   
Whiting Petroleum Corp. (a)      4,660        265,201   
          
     $ 1,195,162   
          
Energy – Integrated – 0.9%     
EQT Corp.      2,670      $ 140,228   
QEP Resources, Inc.      5,100        213,333   
          
     $ 353,561   
          
Engineering – Construction – 1.0%     
Fluor Corp.      6,160      $ 398,306   
          
Food & Beverages – 2.6%     
Green Mountain Coffee Roasters, Inc. (a)      4,810      $ 429,341   
Mead Johnson Nutrition Co., “A”      7,900        533,645   
Want Want China Holdings Ltd.      91,000        88,515   
          
     $ 1,051,501   
          
Food & Drug Stores – 0.5%     
Whole Foods Market, Inc.      3,070      $ 194,792   
          
Gaming & Lodging – 1.3%     
Pinnacle Entertainment, Inc. (a)      12,220      $ 182,078   
Royal Caribbean Cruises Ltd. (a)      9,270        348,923   
          
     $ 531,001   
          
General Merchandise – 0.7%     
Dollar General Corp. (a)      7,750      $ 262,648   
          
Insurance – 0.6%     
Allied World Assurance Co.      2,290      $ 131,858   
Willis Group Holdings PLC      3,030        124,563   
          
     $ 256,421   
          
Internet – 1.8%     
LinkedIn Corp., “A” (a)(l)      3,120      $ 281,081   
OpenTable, Inc. (a)      1,640        136,317   
Shutterfly, Inc. (a)      5,090        292,268   
          
     $ 709,666   
          
Leisure & Toys – 0.7%     
Hasbro, Inc.      6,450      $ 283,349   
          
Machinery & Tools – 5.3%     
Finning International, Inc.      9,930      $ 294,466   
Flowserve Corp.      3,700        406,593   
Joy Global, Inc.      1,990        189,528   
Kennametal, Inc.      4,100        173,061   
Polypore International, Inc. (a)      5,470        371,085   
Regal Beloit Corp.      2,040        136,211   
United Rentals, Inc. (a)      4,990        126,746   
WABCO Holdings, Inc. (a)      5,970        412,288   
          
     $ 2,109,978   
          
Medical & Health Technology & Services – 6.4%     
AmerisourceBergen Corp.      6,760      $ 279,864   
Cerner Corp. (a)      6,660        406,993   
DaVita, Inc. (a)      5,300        459,033   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Medical & Health Technology & Services – continued     
Diagnosticos da America S.A.      18,400      $ 247,589   
Health Management Associates, Inc., “A” (a)      12,570        135,505   
IDEXX Laboratories, Inc. (a)      4,150        321,874   
LifePoint Hospitals, Inc. (a)      3,320        129,746   
Patterson Cos., Inc.      9,020        296,668   
Stericycle, Inc. (a)      3,170        282,510   
          
     $ 2,559,782   
          
Medical Equipment – 3.5%     
Cooper Cos., Inc.      4,420      $ 350,241   
Edwards Lifesciences Corp. (a)      3,020        263,284   
NxStage Medical, Inc. (a)      3,840        79,949   
Pall Corp.      5,830        327,821   
Sonova Holding AG      804        75,069   
Thermo Fisher Scientific, Inc. (a)      4,620        297,482   
          
     $ 1,393,846   
          
Metals & Mining – 0.4%     
Teck Resources Ltd., “B”      3,320      $ 168,457   
          
Network & Telecom – 3.0%     
Acme Packet, Inc. (a)      2,490      $ 174,624   
Ciena Corp. (a)      9,760        179,389   
F5 Networks, Inc. (a)      1,120        123,480   
Finisar Corp. (a)      5,580        100,607   
Fortinet, Inc. (a)      6,220        169,744   
Polycom, Inc. (a)      5,580        358,794   
Trimble Navigation Ltd. (a)      2,810        111,388   
          
     $ 1,218,026   
          
Oil Services – 3.9%     
Cameron International Corp. (a)      9,970      $ 501,391   
Dresser-Rand Group, Inc. (a)      12,140        652,525   
FMC Technologies, Inc. (a)      4,530        202,899   
Lufkin Industries, Inc.      2,440        209,962   
          
     $ 1,566,777   
          
Other Banks & Diversified Financials – 2.2%   
BankUnited, Inc.      3,870      $ 102,710   
MasterCard, Inc., “A”      1,580        476,117   
Wintrust Financial Corp.      3,350        107,803   
Zions Bancorporation      8,520        204,565   
          
     $ 891,195   
          
Pharmaceuticals – 0.8%     
Genomma Lab Internacional S.A., “B” (a)      92,700      $ 236,253   
Hospira, Inc. (a)      1,780        100,855   
          
     $ 337,108   
          
Pollution Control – 0.8%     
Waste Connections, Inc.      10,610      $ 336,655   
          
Printing & Publishing – 1.6%     
Lamar Advertising Co., “A” (a)      6,440      $ 176,263   
Moody’s Corp.      11,990        459,817   
          
     $ 636,080   
          
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Railroad & Shipping – 0.9%     
Kansas City Southern Co. (a)      5,780      $ 342,927   
    

 

 

  
Restaurants – 0.8%     
P.F. Chang’s China Bistro, Inc.      7,510      $ 302,202   
    

 

 

  
Specialty Chemicals – 1.6%     
Airgas, Inc.      6,390      $ 447,556   
Rockwood Holdings, Inc. (a)      3,880        214,525   
    

 

 

  
     $ 662,081   
    

 

 

  
Specialty Stores – 6.4%     
Abercrombie & Fitch Co., “A”      6,760      $ 452,379   
Dick’s Sporting Goods, Inc. (a)      12,320        473,704   
PetSmart, Inc.      4,350        197,360   
Ross Stores, Inc.      6,450        516,774   
Tiffany & Co.      5,420        425,578   
Tractor Supply Co.      3,500        234,080   
Urban Outfitters, Inc. (a)      9,190        258,699   
    

 

 

  
     $ 2,558,574   
    

 

 

  
Telecommunications – Wireless – 0.3%   
NII Holdings, Inc. (a)      2,450      $ 103,831   
    

 

 

  
Telephone Services – 1.6%     
American Tower Corp., “A” (a)      12,230      $ 639,996   
    

 

 

  
Trucking – 2.2%     
Atlas Air Worldwide Holdings, Inc. (a)      1,730      $ 102,952   
Expeditors International of Washington, Inc.      7,020        359,354   
Landstar System, Inc.      9,190        427,151   
    

 

 

  
     $ 889,457   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Utilities – Electric Power – 0.4%     
CMS Energy Corp.      9,060      $ 178,380   
    

 

 

  

Total Common Stocks

(Identified Cost, $31,595,014)

      $ 39,828,961   
    

 

 

  
MONEY MARKET FUNDS (v) – 2.2%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      890,896      $ 890,896   
    

 

 

  
COLLATERAL FOR SECURITIES LOANED – 0.5%     
Navigator Securities Lending Prime Portfolio, 0.23%, at Cost and Net Asset Value (j)      204,361      $ 204,361   
    

 

 

  
Total Investments
(Identified Cost, $32,690,271)		      $ 40,924,218   
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – (1.8)%		        (735,045 ) 
    

 

 

  
Net Assets – 100.0%      $ 40,189,173   
    

 

 

  

 

(a) Non-income producing security.

 

(j) The rate quoted is the annualized seven-day yield of the portfolio at period end.

 

(l) A portion of this security is on loan.

 

(v) Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

ADR   American Depository Receipt

 

PLC   Public Limited Company

See Notes to Financial Statements

 

 

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MFS Mid Cap Growth Portfolio

 

FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $31,799,375)

      $40,033,322      

Underlying affiliated funds, at cost and value

      890,896            

Total investments, at value, including $205,135 of securities on loan (identified cost, $32,690,271)

      $40,924,218            

Foreign currency, at value (identified cost, $1,150)

      1,147      

Receivables for

      

Investments sold

      461,022      

Fund shares sold

      12,517      

Dividends

      11,791      

Other assets

      772            

Total assets

               $41,411,467   

Liabilities

                  

Payables for

      

Investments purchased

      $905,052      

Fund shares reacquired

      72,877      

Collateral for securities loaned, at value

      204,361      

Payable to affiliates

      

Investment adviser

      1,730      

Distribution and/or service fees

      195      

Payable for Trustees’ compensation

      657      

Accrued expenses and other liabilities

      37,422            

Total liabilities

               $1,222,294   

Net assets

               $40,189,173   

Net assets consist of

                  

Paid-in capital

      $48,608,154      

Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies

      8,233,963      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      (16,547,046 )    

Accumulated net investment loss

      (105,898 )          

Net assets

               $40,189,173   

Shares of beneficial interest outstanding

               6,375,850   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $25,799,371         4,060,518         $6.35   

Service Class

      14,389,802         2,315,332         6.22   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net Investment loss                  

Income

      

Dividends

      $124,638      

Dividends from underlying affiliated funds

      692      

Foreign taxes withheld

      (840 )          

Total investment income

               $124,490   

Expenses

      

Management fee

      $152,926      

Distribution and/or service fees

      18,577      

Administrative services fee

      8,679      

Trustees’ compensation

      2,300      

Custodian fee

      11,532      

Shareholder communications

      4,734      

Auditing fees

      22,174      

Legal fees

      3,766      

Miscellaneous

      5,700            

Total expenses

               $230,388   

Net investment loss

               $(105,898 ) 

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions

      $3,907,234      

Foreign currency transactions

      (1,695 )          

Net realized gain (loss) on investments and foreign currency transactions

               $3,905,539   

Change in unrealized appreciation (depreciation)

      

Investments

      $(1,577,989 )    

Translation of assets and liabilities in foreign currencies

      (41 )          

Net unrealized gain (loss) on investments and foreign currency translation

               $(1,578,030 ) 

Net realized and unrealized gain (loss) on investments and foreign currency

               $2,327,509   

Change in net assets from operations

               $2,221,611   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		   
  
) 		     
 		 Year ended
12/31/10		   
  

Change in net assets

      

From operations

                  

Net investment loss

      $(105,898 )       $(80,138 ) 

Net realized gain (loss) on investments and foreign currency transactions

      3,905,539         6,134,245   

Net unrealized gain (loss) on investments and foreign currency translation

      (1,578,030 )       3,418,930   

Change in net assets from operations

      $2,221,611         $9,473,037   

Change in net assets from fund share transactions

      $(2,479,738 )       $(5,270,471 ) 

Total change in net assets

      $(258,127 )       $4,202,566   

Net assets

                  

At beginning of period

      40,447,300         36,244,734   

At end of period (including accumulated net investment loss of $105,898 and
$0, respectively)

      $40,189,173         $40,447,300   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009      2008        2007      2006  
       (unaudited)                                         

Net asset value, beginning of period

        $6.01         $4.65           $3.27         $6.72           $6.12         $5.98   
Income (loss) from investment operations                                                            

Net investment income (loss) (d)

        $(0.01 )       $(0.01 )         $(0.01 )       $0.01           $(0.01 )       $0.01   

Net realized and unrealized gain (loss) on investments and foreign currency

        0.35         1.37           1.39         (3.46 )         0.61         0.13   

Total from investment operations

        $0.34         $1.36           $1.38         $(3.45 )         $0.60         $0.14   
Less distributions declared to shareholders                                                            

From net investment income

        $—         $—           $(0.00 )(w)       $—           $(0.00 )(w)       $—   

From tax return of capital

        —         —           (0.00 )(w)       —           —         —   

Total distribution declared to shareholders

        $—         $—           $(0.00 )(w)       $—           $(0.00 )(w)       $—   

Net asset value, end of period

        $6.35         $6.01           $4.65         $3.27           $6.72         $6.12   

Total return (%) (k)(r)(s)

        5.66 (n)       29.25           42.31         (51.34 )         9.84         2.34   
Ratios (%) (to average net assets)
and Supplemental data:		                                                            

Expenses before expense reductions (f)

        1.04 (a)       1.07           1.05         0.97           0.88         0.93   

Expenses after expense reductions (f)

        N/A         N/A           N/A         N/A           0.88         0.91   

Net investment income (loss)

        (0.43 )(a)       (0.11 )         (0.23 )       0.13           (0.12 )       0.11   

Portfolio turnover

        36         83           100         100           80         139   

Net assets at end of period (000 omitted)

        $25,799         $24,944           $20,300         $15,803           $44,944         $53,504   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $5.89         $4.57           $3.22           $6.63           $6.05           $5.92   
Income (loss) from investment operations                                                                

Net investment loss (d)

        $(0.02 )       $(0.02 )         $(0.02 )         $(0.01 )         $(0.02 )         $(0.01 ) 

Net realized and unrealized gain (loss) on investments
and foreign currency

        0.35         1.34           1.37           (3.40 )         0.60           0.14   

Total from investment operations

        $0.33         $1.32           $1.35           $(3.41 )         $0.58           $0.13   

Net asset value, end of period

        $6.22         $5.89           $4.57           $3.22           $6.63           $6.05   

Total return (%) (k)(r)(s)

        5.60 (n)       28.88           41.93           (51.43 )         9.59           2.20   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        1.29 (a)       1.32           1.30           1.22           1.13           1.18   

Expenses after expense reductions (f)

        N/A         N/A           N/A           N/A           1.13           1.16   

Net investment loss

        (0.68 )(a)       (0.38 )         (0.48 )         (0.12 )         (0.37 )         (0.11 ) 

Portfolio turnover

        36         83           100           100           80           139   

Net assets at end of period (000 omitted)

        $14,390         $15,504           $15,944           $14,310           $32,919           $36,645   

 

(a)   Annualized.

 

(d)   Per share data is based on average shares outstanding.

 

(f)   Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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 fund may receive proceeds from litigation settlements, without which performance would be lower.

 

(w)   Per share amount was less than $0.01.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Mid Cap Growth Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety

 

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Notes to Financial Statements (unaudited) – continued

 

requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities:            

United States

      $36,876,701         $—         $—         $36,876,701   

Israel

      916,713         —         —         916,713   

United Kingdom

      545,208         —         —         545,208   

Canada

      462,923         —         —         462,923   

Brazil

      458,320         —         —         458,320   

Mexico

      236,253         —         —         236,253   

China

      —         181,347         —         181,347   

Hong Kong

      —         76,427         —         76,427   

Switzerland

      75,069         —         —         75,069   
Mutual Funds      1,095,257         —         —         1,095,257   
Total Investments      $40,666,444         $257,774         $—         $40,924,218   

For further information regarding security characteristics, see the Portfolio of Investments.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund 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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. 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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.

Investment Transactions and Income – Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

 

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Notes to Financial Statements (unaudited) – continued

 

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. For the six months ended June 30, 2011, custody fees were not reduced.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 net operating losses and expiration of capital loss carryforwards.

The fund declared no distributions for the current period or for the year ended December 31, 2010.

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $32,700,409   
Gross appreciation      8,732,388   
Gross depreciation      (508,579 ) 
Net unrealized appreciation (depreciation)      $8,223,809   
As of 12/31/10   
Capital loss carryforwards      (20,442,476 ) 
Other temporary differences      86   
Net unrealized appreciation (depreciation)      9,801,798   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $(16,008,756 ) 
12/31/17      (4,433,720 ) 
Total      $(20,442,476 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. 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 fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $1 billion of average daily net assets      0.75%   
Average daily net assets in excess of $1 billion      0.70%   

The investment adviser has agreed in writing to reduce its management fee to 0.65% of average daily net assets in excess of $2.5 billion. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2013. For the six months ended June 30, 2011, the fund’s average daily net assets did not exceed $2.5 billion and therefore, the management fee was not reduced.

The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.

 

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Notes to Financial Statements (unaudited) – continued

 

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2011, the fund did not pay MFSC a fee for this service.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0425% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $335 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $14,564,466 and $17,170,253, respectively.

 

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Notes to Financial Statements (unaudited) – continued

 

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      295,342         $1,832,006         512,955         $2,729,233   

Service Class

      77,300         464,315         249,849         1,320,751   
     372,642         $2,296,321         762,804         $4,049,984   
Shares reacquired            

Initial Class

      (382,331 )       $(2,378,323 )       (730,608 )       $(3,656,906 ) 

Service Class

      (394,069 )       (2,397,736 )       (1,109,679 )       (5,663,549 ) 
     (776,400 )       $(4,776,059 )       (1,840,287 )       $(9,320,455 ) 
Net change            

Initial Class

      (86,989 )       $(546,317 )       (217,653 )       $(927,673 ) 

Service Class

      (316,769 )       (1,933,421 )       (859,830 )       (4,342,798 ) 
     (403,758 )       $(2,479,738 )       (1,077,483 )       $(5,270,471 ) 

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $168 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      475,366         7,054,936         (6,639,406 )       890,896   
Underlying Affiliated Funds    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $692         $890,896   

 

16

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MFS Mid Cap Growth Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

17

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

18

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

19

Table of Contents

LOGO

Table of Contents

LOGO

 

MFS® Utilities Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

UTS-SEM

Table of Contents

MFS® UTILITIES PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      7   
Statement of operations      8   
Statements of changes in net assets      9   
Financial highlights      10   
Notes to financial statements      12   
Board review of investment advisory agreement      19   
Proxy voting policies and information      19   
Quarterly portfolio disclosure      19   
Further information      19   
MFS® privacy notice      20   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Utilities Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

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

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MFS Utilities Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure (i)

LOGO

 

Top ten holdings (i)  
El Paso Corp.     3.3%   
Comcast Corp.     3.0%   
Williams Cos., Inc.     2.9%   
CMS Energy Corp.     2.8%   
Vigin Media, Inc.     2.8%   
Nextera Energy Inc.     2.6%   
Public Service Enterprise Group, Inc.     2.5%   
AES Corp.     2.4%   
QEP Resources Inc.     2.3%   
EQT Corp.     2.2%   
Top five industries (i)  
Utilities-Electric Power     49.4%   
Telephone Services     10.8%   
Cable TV     9.4%   
Telecommunications-Wireless     8.8%   
Natural Gas-Pipeline     8.4%   
Issuer country weightings (i)  
United States     62.3%   
Brazil     9.0%   
United Kingdom     4.9%   
Portugal     3.1%   
Spain     2.9%   
Israel     2.8%   
Czech Republic     2.1%   
Chile     2.1%   
Russia     1.5%   
Other Countries     9.3%   
 

 

 

(i) For purposes of this presentation, the components include the market value of securities, and reflect the impact of the equivalent exposure of derivative positions, if applicable. These amounts may be negative from time to time. The bond component will include any accrued interest amounts. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio.

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

2

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MFS Utilities Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      0.86%         $1,000.00         $1,110.91         $4.50   
  Hypothetical (h)      0.86%         $1,000.00         $1,020.53         $4.31   
Service Class   Actual      1.11%         $1,000.00         $1,109.24         $5.81   
  Hypothetical (h)      1.11%         $1,000.00         $1,019.29         $5.56   

 

(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

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MFS Utilities Portfolio

 

PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 95.2%     
Broadcasting – 0.4%     
Viacom, Inc., “B”      27,400      $ 1,397,404   
    

 

 

  
Cable TV – 8.8%     
Comcast Corp., “Special A”      408,360      $ 9,894,563   
DIRECTV, “A” (a)      20,270        1,030,121   
Telenet Group Holding N.V.      97,123        4,621,055   
Time Warner Cable, Inc.      58,759        4,585,552   
Virgin Media, Inc.      312,760        9,360,907   
    

 

 

  
     $ 29,492,198   
    

 

 

  
Energy – Independent – 2.4%     
Arch Coal, Inc.      53,480      $ 1,425,777   
EOG Resources, Inc.      9,720        1,016,226   
Occidental Petroleum Corp.      19,850        2,065,194   
Williams Partners LP      61,440        3,328,819   
    

 

 

  
     $ 7,836,016   
    

 

 

  
Energy – Integrated – 4.5%     
EQT Corp.      139,820      $ 7,343,346   
QEP Resources, Inc.      187,640        7,848,981   
    

 

 

  
     $ 15,192,327   
    

 

 

  
Natural Gas – Distribution – 4.3%     
AGL Resources, Inc.      49,970      $ 2,034,279   
Centrica PLC      223,052        1,157,374   
NiSource, Inc.      100,120        2,027,430   
Questar Corp.      92,040        1,630,028   
Sempra Energy      44,040        2,328,835   
Spectra Energy Corp.      141,780        3,886,190   
UGI Corp.      41,690        1,329,494   
    

 

 

  
     $ 14,393,630   
    

 

 

  
Natural Gas – Pipeline – 8.4%     
El Paso Corp.      550,776      $ 11,125,675   
Enagas S.A.      190,418        4,614,209   
Kinder Morgan, Inc.      86,500        2,485,145   
Williams Cos., Inc.      326,757        9,884,399   
    

 

 

  
     $ 28,109,428   
    

 

 

  
Special Products & Services – 0.4%   
Hutchison Port Holdings Trust, IEU (a)      1,646,000      $ 1,390,870   
    

 

 

  
Telecommunications – Wireless – 8.4%   
America Movil S.A.B. de C.V., “L”, ADR      34,720      $ 1,870,714   
Cellcom Israel Ltd.      188,622        5,228,602   
Millicom International Cellular S.A.      3,170        330,772   
Mobile TeleSystems OJSC, ADR      179,860        3,420,937   
MTN Group Ltd.      112,803        2,400,596   
NII Holdings, Inc. (a)      128,230        5,434,387   
Partner Communication Co. Ltd., ADR      104,360        1,557,051   
SBA Communications Corp. (a)      49,480        1,889,641   
Tim Participacoes S.A., ADR      67,200        3,306,912   
Vodafone Group PLC      1,063,007        2,820,140   
    

 

 

  
     $ 28,259,752   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Telephone Services – 10.8%   
American Tower Corp., “A” (a)      81,390      $ 4,259,139   
AT&T, Inc.      10,610        333,260   
Bezeq – The Israel Telecommunication Corp. Ltd.      984,320        2,491,111   
CenturyLink, Inc.      86,995        3,517,208   
Crown Castle International Corp. (a)      39,640        1,616,916   
Deutsche Telekom AG      173,940        2,727,965   
Frontier Communications Corp.      104,560        843,799   
Kabel Deutschland Holding AG (a)      13,849        851,524   
Portugal Telecom, SGPS, S.A.      213,595        2,117,725   
PT XL Axiata Tbk      2,915,500        2,090,878   
Royal KPN N.V.      206,624        3,005,346   
TDC A/S (a)      378,282        3,452,299   
Telecom Italia S.p.A.      1,663,532        1,935,927   
Telecomunicacoes de Sao Paulo S.A., ADR      234,976        6,978,787   
    

 

 

  
     $ 36,221,884   
    

 

 

  
Utilities – Electric Power – 46.8%   
AES Corp. (a)      627,030      $ 7,988,362   
AES Tiete S.A., IPS      177,254        2,871,227   
Aguas Andinas S.A.      4,725,275        2,559,039   
Alliant Energy Corp.      28,350        1,152,711   
American Electric Power Co., Inc.      172,300        6,492,264   
American Water Works Co., Inc.      66,680        1,963,726   
Calpine Corp. (a)      278,550        4,493,012   
CenterPoint Energy, Inc.      257,460        4,981,851   
CEZ AS      137,008        7,050,119   
China Hydroelectric Corp., ADR (a)      85,650        349,452   
CMS Energy Corp.      476,580        9,383,860   
Companhia de Saneamento de Minas Gerais – Copasa MG      144,900        2,906,078   
Companhia Paranaense de Energia, ADR      62,100        1,686,636   
Companhia Paranaense de Energia, IPS      53,800        1,430,622   
Constellation Energy Group, Inc.      132,150        5,016,414   
E-CL S.A.      576,040        1,619,593   
E.ON AG      42,898        1,218,354   
Edison International      155,820        6,038,025   
EDP Renovaveis S.A. (a)      360,551        2,378,458   
Eletropaulo Metropolitana S.A., IPS      136,440        2,960,214   
ENEL OGK-5 OAO (a)      3,818,093        305,447   
Energias de Portugal S.A.      1,661,396        5,900,309   
Enersis S.A., ADR      119,040        2,749,824   
EVN AG      23,744        411,811   
Federal Grid Co. of Unified Energy System JSC      49,210,370        546,235   
Fortum Corp.      154,163        4,464,482   
GenOn Energy, Inc. (a)      178,270        688,122   
Hawaiian Electric Industries, Inc.      1,040        25,022   
International Power PLC      762,817        3,938,521   
Light S.A.      211,900        3,986,406   
National Grid PLC      475,903        4,678,281   
NextEra Energy, Inc.      149,100        8,567,286   
Northeast Utilities      75,920        2,670,106   
 

 

4

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MFS Utilities Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Utilities – Electric Power – continued   
NRG Energy, Inc. (a)      153,066      $ 3,762,362   
NV Energy, Inc.      111,550        1,712,293   
OGE Energy Corp.      79,820        4,016,542   
OGK-4 OAO (a)      3,491,411        293,279   
PG&E Corp.      139,930        5,881,258   
PPL Corp.      132,950        3,699,999   
Public Service Enterprise Group, Inc.      251,530        8,209,939   
Red Electrica de Espana      86,965        5,249,423   
Scottish & Southern Energy PLC      164,788        3,684,160   
TGK International GmbH      918,131,794        468,247   
Tractebel Energia S.A.      234,500        4,132,092   
Wisconsin Energy Corp.      21,370        669,950   
Xcel Energy, Inc.      63,180        1,535,274   
    

 

 

  
     $ 156,786,687   
    

 

 

  

Total Common Stocks

(Identified Cost, $285,257,057)

  

  

   $ 319,080,196   
    

 

 

  
BONDS – 0.3%     
Asset-Backed & Securitized – 0.0%   
Falcon Franchise Loan LLC, FRN,
3.305%, 2023 (i)(z)		    $ 391,876      $ 23,513   
    

 

 

  
Utilities – Electric Power – 0.3%   
GenOn Energy, Inc., 9.875%, 2020    $ 925,000      $ 966,625   
    

 

 

  

Total Bonds

(Identified Cost, $946,192)

      $ 990,138   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
CONVERTIBLE PREFERRED STOCKS – 2.3%   
Utilities – Electric Power – 2.3%     
Great Plains Energy, Inc., 12%      24,350      $ 1,588,594   
NextEra Energy, Inc., 7%      39,160        2,026,530   
PPL Corp., 8.75%      30,880        1,695,621   
PPL Corp., 9.5%      44,200        2,470,780   
    

 

 

  
Total Convertible Preferred Stocks
(Identified Cost, $7,341,809)		       $ 7,781,525   
    

 

 

  
CONVERTIBLE BONDS – 1.0%   
Cable TV – 0.6%     
Virgin Media, Inc., 6.5%, 2016    $ 1,187,000      $ 2,123,246   
    

 

 

  
Telecommunications – Wireless – 0.4%   
SBA Communications Corp., 4%, 2014    $ 825,000      $ 1,157,063   
    

 

 

  

Total Convertible Bonds

(Identified Cost, $2,445,752)

      $ 3,280,309   
    

 

 

  
MONEY MARKET FUNDS (v) – 0.0%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      192      $ 192   
    

 

 

  

Total Investments

(Identified Cost, $295,991,002)

  

  

   $ 331,132,360   
    

 

 

  

OTHER ASSETS, LESS

LIABILITIES – 1.2%

        3,962,882   
    

 

 

  
Net Assets – 100.0%      $ 335,095,242   
    

 

 

  
 
(a) Non-income producing security.

 

(i) Interest only security for which the series receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security.

 

(v) Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

 

(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities:

 

Restricted Securities    Acquisition
Date		    Cost      Value  
Falcon Franchise Loan LLC, FRN, 3.305%, 2023    1/18/02      $17,189         $23,513   
% of Net Assets            0.0%   

The following abbreviations are used in this report and are defined:

 

ADR   American Depository Receipt

 

FRN   Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.

 

IEU   International Equity Unit

 

IPS   International Preference Stock

 

PLC   Public Limited Company

Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:

 

BRL   Brazilian Real

 

EUR   Euro

 

GBP   British Pound

 

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Portfolio of Investments (unaudited) – continued

 

Derivative Contracts at 6/30/11

Forward Foreign Currency Exchange Contracts at 6/30/11

 

     Type    Currency    Counterparty    Contracts to
Deliver/Receive		    Settlement Date
Range		    In Exchange For      Contracts
at Value		      Net Unrealized
Appreciation
(Depreciation)		  
Asset Derivatives                  
  BUY    EUR    Citibank N.A.    54,033    7/12/11    $ 77,330       $ 78,340       $ 1,010   
  BUY    EUR    Credit Suisse Group    939,198    7/12/11      1,349,763         1,361,712         11,949   
  BUY    EUR    Deutsche Bank AG    158,782    7/12/11      227,932         230,214         2,282   
  BUY    EUR    HSBC Bank    292,755    7/12/11      417,444         424,457         7,013   
  BUY    EUR    Merrill Lynch International    288,205    7/12/11      410,036         417,858         7,822   
  BUY    EUR    Morgan Stanley    30,878    7/12/11      44,639         44,769         130   
  SELL    EUR    Citibank N.A.    69,009    7/12/11      100,345         100,053         292   
  SELL    EUR    Credit Suisse Group    470,056    7/12/11      687,735         681,519         6,216   
  SELL    EUR    HSBC Bank    107,786    7/12/11      158,153         156,275         1,878   
  SELL    GBP    Barclays Bank PLC    5,019,701    7/12/11      8,181,289         8,055,682         125,607   
  SELL    GBP    Credit Suisse Group    182,521    7/12/11      298,622         292,912         5,710   
  SELL    GBP    Deutsche Bank AG    4,986,501    7/12/11      8,128,840         8,002,403         126,437   
  SELL    GBP    HSBC Bank    312,553    7/12/11      505,089         501,589         3,500   
  SELL    GBP    JPMorgan Chase Bank N.A.    40,583    7/12/11      65,306         65,128         178   
  SELL    GBP    Merrill Lynch International    122,232    7/12/11      200,036         196,159         3,877   
  SELL    GBP    UBS AG    66,654    7/12/11      109,398         106,967         2,431   
                      

 

 

  
                       $ 306,332   
                      

 

 

  
Liability Derivatives                  
  SELL    BRL    Barclays Bank PLC    892,000    8/02/11    $ 555,971       $ 567,794       $ (11,823 ) 
  SELL    BRL    Credit Suisse Group    3,641,404    8/02/11-11/04/11      2,259,165         2,295,266         (36,101 ) 
  SELL    BRL    Deutsche Bank AG    5,773,000    9/02/11-11/04/11      3,572,177         3,630,949         (58,772 ) 
  SELL    BRL    Goldman Sachs International    814,000    8/02/11      508,591         518,144         (9,553 ) 
  SELL    BRL    HSBC Bank    5,088,122    8/02/11-11/07/11      3,102,597         3,208,806         (106,209 ) 
  SELL    BRL    JPMorgan Chase Bank N.A.    11,072,156    8/02/11-11/04/11      6,832,349         7,017,929         (185,580 ) 
  SELL    BRL    Morgan Stanley    2,631,000    8/02/11      1,639,101         1,674,738         (35,637 ) 
  SELL    BRL    UBS AG    2,805,000    8/02/11      1,758,661         1,785,496         (26,835 ) 
  BUY    EUR    Citibank N.A.    96,354    7/12/11      139,877         139,700         (177 ) 
  BUY    EUR    Credit Suisse Group    504,673    7/12/11      737,631         731,709         (5,922 ) 
  BUY    EUR    Merrill Lynch International    83,773    7/12/11      122,149         121,460         (689 ) 
  SELL    EUR    Barclays Bank PLC    30,380    7/12/11      43,072         44,047         (975 ) 
  SELL    EUR    Credit Suisse Group    1,058,516    7/12/11      1,519,256         1,534,707         (15,451 ) 
  SELL    EUR    Deutsche Bank AG    2,564,746    7/12/11      3,659,695         3,718,541         (58,846 ) 
  SELL    EUR    Goldman Sachs International    61,479    7/12/11      88,125         89,137         (1,012 ) 
  SELL    EUR    Merrill Lynch International    143,184    7/12/11      203,842         207,597         (3,755 ) 
  SELL    EUR    UBS AG    15,515,424    7/12/11-9/15/11      22,346,947         22,454,971         (108,024 ) 
  BUY    GBP    Barclays Bank PLC    192,171    7/12/11      308,869         308,399         (470 ) 
  BUY    GBP    Credit Suisse Group    101,554    7/12/11      165,785         162,976         (2,809 ) 
  BUY    GBP    HSBC Bank    219,413    7/12/11      356,327         352,117         (4,210 ) 
  SELL    GBP    Barclays Bank PLC    28,857    7/12/11      46,072         46,310         (238 ) 
                      

 

 

  
                       $ (673,088 ) 
                      

 

 

  

At June 30, 2011, the fund had sufficient cash and/or securities to cover any commitments under these derivative contracts.

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $295,990,810)

      $331,132,168      

Underlying affiliated funds, at cost and value

      192            

Total investments, at value (identified cost, $295,991,002)

      $331,132,360            
Receivables for      

Forward foreign currency exchange contracts

      306,332      

Investments sold

      5,387,724      

Fund shares sold

      566,020      

Interest and dividends

      1,613,301      

Other assets

      4,977            

Total assets

               $339,010,714   

Liabilities

                  

Payable to custodian

      $585,128      

Payables for

      

Forward foreign currency exchange contracts

      673,088      

Investments purchased

      1,932,573      

Fund shares reacquired

      633,152      

Payable to affiliates

      

Investment adviser

      14,060      

Distribution and/or service fees

      1,841      
Payable for Trustees’ compensation      5,144      

Accrued expenses and other liabilities

      70,486            

Total liabilities

               $3,915,472   

Net assets

               $335,095,242   

Net assets consist of

                  
Paid-in capital      $299,714,933      
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies      34,766,808      
Accumulated net realized gain (loss) on investments and foreign currency transactions      (17,219,032 )    

Undistributed net investment income

      17,832,533            

Net assets

               $335,095,242   

Shares of beneficial interest outstanding

               14,008,492   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $199,126,474         8,284,833         $24.04   

Service Class

      135,968,768         5,723,659         23.76   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment income                  

Income

      

Dividends

      $9,351,531      

Interest

      107,939      

Dividends from underlying affiliated funds

      2,179      

Foreign taxes withheld

      (638,893 )          

Total investment income

               $8,822,756   

Expenses

      

Management fee

      $1,213,110      

Distribution and/or service fees

      163,333      

Administrative services fee

      54,885      

Trustees’ compensation

      17,948      

Custodian fee

      56,608      

Shareholder communications

      11,992      

Auditing fees

      23,017      

Legal fees

      3,766      

Miscellaneous

      17,061            

Total expenses

               $1,561,720   

Fees paid indirectly

      (84 )          

Net expenses

               $1,561,636   

Net investment income

               $7,261,120   

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions

      $17,221,882      

Foreign currency transactions

      (2,697,478 )          

Net realized gain (loss) on investments and foreign currency transactions

               $14,524,404   

Change in unrealized appreciation (depreciation)

      

Investments

      $12,641,403      

Translation of assets and liabilities in foreign currencies

      (429,888 )          

Net unrealized gain (loss) on investments and foreign currency translation

               $12,211,515   

Net realized and unrealized gain (loss) on investments and foreign currency

               $26,735,919   

Change in net assets from operations

               $33,997,039   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		  
 
) 		     
 		 Year ended
12/31/10		  
  

Change in net assets

      
From operations                  

Net investment income

      $7,261,120         $10,151,534   

Net realized gain (loss) on investments and foreign currency transactions

      14,524,404         14,839,074   

Net unrealized gain (loss) on investments and foreign currency translation

      12,211,515         13,978,246   

Change in net assets from operations

      $33,997,039         $38,968,854   
Distributions declared to shareholders                  

From net investment income

      $—         $(9,661,054 ) 

Change in net assets from fund share transactions

      $(15,583,534 )       $(27,695,612 ) 

Total change in net assets

      $18,413,505         $1,612,188   
Net assets                  

At beginning of period

      316,681,737         315,069,549   

At end of period (including undistributed net investment income of $17,832,533 and
$10,571,413, respectively)

      $335,095,242         $316,681,737   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class     

Six months
ended

6/30/11

      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $21.64         $19.61           $15.56           $29.51           $23.25           $18.11   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.52         $0.67           $0.69           $0.62           $0.58           $0.48   

Net realized and unrealized gain (loss) on
investments and foreign currency

        1.88         1.98           4.21           (9.78 )         6.02           5.25   

Total from investment operations

        $2.40         $2.65           $4.90           $(9.16 )         $6.60           $5.73   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.62 )         $(0.85 )         $(0.47 )         $(0.34 )         $(0.59 ) 

From net realized gain on investments

        —         —           —           (4.32 )         —           —   

Total distributions declared to shareholders

        $—         $(0.62 )         $(0.85 )         $(4.79 )         $(0.34 )         $(0.59 ) 

Net asset value, end of period

        $24.04         $21.64           $19.61           $15.56           $29.51           $23.25   

Total return (%) (k)(s)

        11.09 (n)       13.90           33.63           (37.16 )         28.53           32.35   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses (f)

        0.86 (a)       0.88           0.88           0.86           0.84           0.84   

Net investment income

        4.57 (a)(l)       3.43           4.14           2.73           2.18           2.41   

Portfolio turnover

        26         55           70           63           90           93   

Net assets at end of period (000 omitted)

        $199,126         $191,566           $199,634           $178,805           $381,498           $377,354   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class     

Six months
ended

6/30/11

      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $21.42         $19.43           $15.41           $29.28           $23.09           $18.01   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.48         $0.62           $0.63           $0.57           $0.52           $0.42   

Net realized and unrealized gain (loss) on
investments and foreign currency

        1.86         1.96           4.18           (9.71 )         5.97           5.22   

Total from investment operations

        $2.34         $2.58           $4.81           $(9.14 )         $6.49           $5.64   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.59 )         $(0.79 )         $(0.41 )         $(0.30 )         $(0.56 ) 

From net realized gain on investments

        —         —           —           (4.32 )         —           —   

Total distributions declared to shareholders

        $—         $(0.59 )         $(0.79 )         $(4.73 )         $(0.30 )         $(0.56 ) 

Net asset value, end of period

        $23.76         $21.42           $19.43           $15.41           $29.28           $23.09   

Total return (%) (k)(s)

        10.92 (n)       13.60           33.27           (37.31 )         28.24           31.96   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses (f)

        1.11 (a)       1.13           1.13           1.12           1.08           1.09   

Net investment income

        4.25 (a)(l)       3.20           3.81           2.57           1.93           2.12   

Portfolio turnover

        26         55           70           63           90           93   

Net assets at end of period (000 omitted)

        $135,969         $125,116           $115,435           $83,248           $126,288           $78,660   

 

(a) Annualized.

 

(d) Per share data are based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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.

 

(l) Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by companies in which the fund invests and the actual annual net investment income ratio may differ.

 

(n) Not annualized.

 

(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. Excluding the effect of the proceeds received from a non-recurring litigation settlement against Enron Corp., the Initial Class and Service Class total returns for the year ended December 31, 2008 would have been lower by approximately 1.01%.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Utilities Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests primarily in securities of issuers in the utility industry. Issuers in a single industry can react similarly to market, economic, political and regulatory conditions and developments. The fund invests 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 provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the

 

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Notes to Financial Statements (unaudited) – continued

 

source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as forward foreign currency exchange contracts. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities:            

United States

      $200,652,617         $—         $—         $200,652,617   

Brazil

      30,258,974         —         —         30,258,974   

United Kingdom

      16,278,476         —         —         16,278,476   

Portugal

      10,396,492         —         —         10,396,492   

Spain

      9,863,632         —         —         9,863,632   

Israel

      6,785,653         2,491,111         —         9,276,764   

Czech Republic

      7,050,119         —         —         7,050,119   

Chile

      6,928,456         —         —         6,928,456   

Russia

      5,034,145         —         —         5,034,145   

Other Countries

      31,122,046         —         —         31,122,046   
Corporate Bonds      —         4,246,934         —         4,246,934   
Commercial Mortgage-Backed Securities      —         23,513         —         23,513   
Mutual Funds      192         —         —         192   
Total Investments      $324,370,803         $6,761,558         $—         $331,132,360   
Other Financial Instruments                            
Forward Foreign Currency Exchange Contracts      $—         $(366,756 )       $—         $(366,756 ) 

For further information regarding security characteristics, see the Portfolio of Investments.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.

Derivatives – The fund uses derivatives for different purposes, including to earn income and enhance returns, to increase or decrease exposure to a particular market, to manage or adjust the risk profile of the fund, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.

The derivative instruments used by the fund were forward foreign currency exchange contracts. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract Tables, generally are indicative of the volume of its derivative activity during the period.

 

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Notes to Financial Statements (unaudited) – continued

 

The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2011 as reported in the Statement of Assets and Liabilities:

 

          Fair Value  
Risk    Derivative Contracts    Asset Derivatives      Liability Derivatives  
Foreign Exchange    Forward Foreign Currency Exchange      $306,332         $(673,088 ) 

The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk    Foreign Currency
Transactions		  
Foreign Exchange      $(2,544,880 ) 

The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk    Translation of
Assets and
Liabilities in
Foreign Currencies		  
Foreign Exchange      $(421,007 ) 

Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swaps and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.

Forward Foreign Currency Exchange Contracts – The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.

Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on foreign currency transactions.

Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to

 

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Notes to Financial Statements (unaudited) – continued

 

counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, an industry accepted settlement system. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund 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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. 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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $9,661,054   

 

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Notes to Financial Statements (unaudited) – continued

 

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $298,973,970   
Gross appreciation      47,096,760   
Gross depreciation      (14,938,370 ) 
Net unrealized appreciation (depreciation)      $32,158,390   
As of 12/31/10   
Undistributed ordinary income      10,625,664   
Capital loss carryforwards      (28,779,399 ) 
Other temporary differences      1,087   
Net unrealized appreciation (depreciation)      19,535,918   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $ (6,272,236 ) 
12/31/17      (22,507,163 ) 
Total      $(28,779,399 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $6,050,884   
Service Class      —         3,610,170   
Total      $—         $9,661,054   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund.

The management fee is computed daily and paid monthly at the following annual rates:

 

First $300 million of average daily net assets      0.75%   
Average daily net assets in excess of $300 million      0.675%   

The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.74% of the fund’s average daily net assets.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of

 

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Notes to Financial Statements (unaudited) – continued

 

the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2011, the fund did not pay MFSC a fee for this service.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0336% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $2,630 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $86,358,949 and $95,671,205, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      98,834         $2,278,024         200,012         $3,995,167   

Service Class

      457,417         10,413,616         790,180         15,356,100   
     556,251         $12,691,640         990,192         $19,351,267   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         312,062         $6,050,884   

Service Class

      —         —         187,736         3,610,170   
     —         $—         499,798         $9,661,054   
Shares reacquired            

Initial Class

      (666,501 )       $(15,328,524 )       (1,838,990 )       $(35,813,242 ) 

Service Class

      (573,838 )       (12,946,650 )       (1,078,027 )       (20,894,691 ) 
     (1,240,339 )       $(28,275,174 )       (2,917,017 )       $(56,707,933 ) 
Net change            

Initial Class

      (567,667 )       $(13,050,500 )       (1,326,916 )       $(25,767,191 ) 

Service Class

      (116,421 )       (2,533,034 )       (100,111 )       (1,928,421 ) 
     (684,088 )       $(15,583,534 )       (1,427,027 )       $(27,695,612 ) 

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused

 

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Notes to Financial Statements (unaudited) – continued

 

portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $1,302 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      759,461         31,871,913         (32,631,182 )       192   
Underlying Affiliated Funds    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $2,179         $192   

 

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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

21

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LOGO

Table of Contents

LOGO

 

MFS® Value Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

EIS-SEM

Table of Contents

MFS® VALUE PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      6   
Statement of operations      7   
Statements of changes in net assets      8   
Financial highlights      9   
Notes to financial statements      11   
Board review of investment advisory agreement      16   
Proxy voting policies and information      16   
Quarterly portfolio disclosure      16   
Further information      16   
MFS® privacy notice      17   

 

 

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Value Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS Value Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure

LOGO

 

Top ten holdings  
Lockheed Martin Corp.     3.6%   
Philip Morris International, Inc.     3.4%   
AT&T, Inc.     2.9%   
Goldman Sachs Group, Inc.     2.9%   
JPMorgan Chase & Co.     2.7%   
Johnson & Johnson     2.7%   
Pfizer, Inc.     2.5%   
MetLife, Inc.     2.4%   
International Business Machines Corp.     2.4%   
Chevron Corp.     2.3%   
Equity sectors  
Financial Services     21.7%   
Health Care     12.7%   
Consumer Staples     11.8%   
Industrial Goods & Services     11.3%   
Energy     8.8%   
Technology     6.5%   
Utilities & Communications     6.5%   
Leisure     5.3%   
Basic Materials     3.6%   
Special Products & Services     3.3%   
Autos & Housing     3.2%   
Retailing     3.0%   
Transportation     0.6%   
 

 

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS Value Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		     

Ending

Account Value
6/30/11

     

Expenses Paid
During Period (p)

1/01/11-6/30/11

  
Initial Class   Actual      0.83%         $1,000.00         $1,056.79         $4.23   
  Hypothetical (h)      0.83%         $1,000.00         $1,020.68         $4.16   
Service Class   Actual      1.08%         $1,000.00         $1,055.11         $5.50   
  Hypothetical (h)      1.08%         $1,000.00         $1,019.44         $5.41   

 

(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.

 

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PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 98.1%   
Aerospace – 8.9%   
Honeywell International, Inc.      139,470      $ 8,311,017   
Huntington Ingalls Industries, Inc. (a)      16,438        567,111   
Lockheed Martin Corp.      235,047        19,031,756   
Northrop Grumman Corp.      98,720        6,846,232   
United Technologies Corp.      137,425        12,163,487   
    

 

 

  
     $ 46,919,603   
    

 

 

  
Alcoholic Beverages – 1.5%   
Diageo PLC      387,393      $ 7,914,836   
    

 

 

  
Automotive – 1.1%   
General Motors Co. (a)      43,970      $ 1,334,929   
Johnson Controls, Inc.      107,115        4,462,411   
    

 

 

  
     $ 5,797,340   
    

 

 

  
Broadcasting – 3.4%   
Omnicom Group, Inc.      117,838      $ 5,675,078   
Viacom, Inc., “B”      99,650        5,082,150   
Walt Disney Co.      189,762        7,408,309   
    

 

 

  
     $ 18,165,537   
    

 

 

  
Brokerage & Asset Managers – 0.5%   
Blackrock, Inc.      13,791      $ 2,645,252   
    

 

 

  
Business Services – 3.3%   
Accenture PLC, “A”      187,907      $ 11,353,341   
Dun & Bradstreet Corp.      37,087        2,801,552   
Western Union Co.      157,465        3,154,024   
    

 

 

  
     $ 17,308,917   
    

 

 

  
Cable TV – 0.4%   
Comcast Corp., “Special A”      89,060      $ 2,157,924   
    

 

 

  
Chemicals – 2.5%   
3M Co.      72,378      $ 6,865,053   
PPG Industries, Inc.      72,677        6,598,345   
    

 

 

  
     $ 13,463,398   
    

 

 

  
Computer Software – 2.0%   
Oracle Corp.      321,973      $ 10,596,131   
    

 

 

  
Computer Software – Systems – 2.9%   
Hewlett-Packard Co.      76,850      $ 2,797,340   
International Business Machines Corp.      72,595        12,453,672   
    

 

 

  
     $ 15,251,012   
    

 

 

  
Construction – 2.1%   
Pulte Homes, Inc. (a)      133,138      $ 1,019,837   
Sherwin-Williams Co.      58,542        4,909,918   
Stanley Black & Decker, Inc.      72,276        5,207,486   
    

 

 

  
     $ 11,137,241   
    

 

 

  
Consumer Products – 0.7%   
Avon Products, Inc.      41,390      $ 1,158,920   
Procter & Gamble Co.      39,528        2,512,795   
    

 

 

  
     $ 3,671,715   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Electrical Equipment – 1.5%   
Danaher Corp.      104,230      $ 5,523,148   
Tyco International Ltd.      49,280        2,435,910   
    

 

 

  
     $ 7,959,058   
    

 

 

  
Electronics – 1.0%   
Intel Corp.      242,262      $ 5,368,526   
    

 

 

  
Energy – Independent – 3.5%   
Apache Corp.      63,475      $ 7,832,180   
EOG Resources, Inc.      38,932        4,070,341   
Occidental Petroleum Corp.      65,187        6,782,055   
    

 

 

  
     $ 18,684,576   
    

 

 

  
Energy – Integrated – 4.7%   
Chevron Corp.      118,743      $ 12,211,530   
Exxon Mobil Corp.      112,317        9,140,358   
Hess Corp.      45,845        3,427,372   
    

 

 

  
     $ 24,779,260   
    

 

 

  
Engineering – Construction – 0.2%   
Fluor Corp.      15,410      $ 996,411   
    

 

 

  
Food & Beverages – 5.0%   
General Mills, Inc.      203,890      $ 7,588,786   
J.M. Smucker Co.      29,947        2,289,149   
Kellogg Co.      74,210        4,105,297   
Nestle S.A.      111,016        6,899,299   
PepsiCo, Inc.      81,423        5,734,622   
    

 

 

  
     $ 26,617,153   
    

 

 

  
Food & Drug Stores – 0.6%   
CVS Caremark Corp.      88,993      $ 3,344,357   
    

 

 

  
General Merchandise – 1.6%   
Kohl’s Corp.      35,600      $ 1,780,356   
Target Corp.      142,170        6,669,195   
    

 

 

  
     $ 8,449,551   
    

 

 

  
Insurance – 7.6%   
ACE Ltd.      64,410      $ 4,239,466   
Aon Corp.      108,350        5,558,355   
Chubb Corp.      57,965        3,629,189   
MetLife, Inc.      288,258        12,645,878   
Prudential Financial, Inc.      126,387        8,036,949   
Travelers Cos., Inc.      107,095        6,252,206   
    

 

 

  
     $ 40,362,043   
    

 

 

  
Leisure & Toys – 0.7%   
Hasbro, Inc.      78,343      $ 3,441,608   
    

 

 

  
Machinery & Tools – 0.7%   
Eaton Corp.      69,090      $ 3,554,681   
    

 

 

  
Major Banks – 12.6%   
Bank of America Corp.      642,540      $ 7,042,238   
Bank of New York Mellon Corp.      401,995        10,299,112   
Goldman Sachs Group, Inc.      114,502        15,239,071   
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Major Banks – continued   
JPMorgan Chase & Co.      353,412      $ 14,468,687   
PNC Financial Services Group, Inc.      68,395        4,077,026   
State Street Corp.      113,115        5,100,355   
SunTrust Banks, Inc.      34,750        896,550   
Wells Fargo & Co.      345,442        9,693,103   
          
     $ 66,816,142   
          
Medical & Health Technology & Services – 0.6%   
Quest Diagnostics, Inc.      50,220      $ 2,968,002   
          
Medical Equipment – 3.6%   
Becton, Dickinson & Co.      61,352      $ 5,286,702   
Medtronic, Inc.      182,610        7,035,963   
St. Jude Medical, Inc.      82,600        3,938,368   
Thermo Fisher Scientific, Inc. (a)      43,125        2,776,819   
          
     $ 19,037,852   
          
Network & Telecom – 0.6%   
Cisco Systems, Inc.      196,920      $ 3,073,921   
          
Oil Services – 0.6%   
Transocean, Inc.      51,490      $ 3,324,194   
          
Other Banks & Diversified Financials – 1.0%   
MasterCard, Inc., “A”      17,940      $ 5,406,040   
          
Pharmaceuticals – 8.5%   
Abbott Laboratories      198,752      $ 10,458,330   
GlaxoSmithKline PLC      103,465        2,215,190   
Johnson & Johnson      215,337        14,324,217   
Merck & Co., Inc.      56,132        1,980,898   
Pfizer, Inc.      639,888        13,181,693   
Roche Holding AG      16,207        2,712,251   
          
     $ 44,872,579   
          
Railroad & Shipping – 0.6%   
Canadian National Railway Co.      37,130      $ 2,966,687   
          
Restaurants – 0.8%   
McDonald’s Corp.      47,070      $ 3,968,942   
          
Specialty Chemicals – 1.1%   
Air Products & Chemicals, Inc.      60,237      $ 5,757,452   
          
Specialty Stores – 0.8%   
Advance Auto Parts, Inc.      47,620      $ 2,785,294   
Staples, Inc.      98,550        1,557,090   
          
     $ 4,342,384   
          
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued   
Telecommunications – Wireless – 1.3%   
Vodafone Group PLC      2,547,968      $ 6,759,718   
          
Telephone Services – 2.9%   
AT&T, Inc.      492,172      $ 15,459,123   
          
Tobacco – 4.6%   
Altria Group, Inc.      129,332      $ 3,415,658   
Philip Morris International, Inc.      265,825        17,749,135   
Reynolds American, Inc.      80,410        2,979,191   
          
     $ 24,143,984   
          
Utilities – Electric Power – 2.1%   
Dominion Resources, Inc.      26,990      $ 1,302,807   
PG&E Corp.      120,328        5,057,386   
PPL Corp.      62,382        1,736,091   
Public Service Enterprise Group, Inc.      90,873        2,966,095   
          
     $ 11,062,379   
          
Total Common Stocks
(Identified Cost, $464,637,282)		      $ 518,545,529   
          
CONVERTIBLE PREFERRED STOCKS – 0.2%   
Utilities – Electric Power – 0.2%   
PPL Corp., 9.5% (Identified Cost, $867,000)      17,340      $ 969,306   
          
MONEY MARKET FUNDS (v) – 1.4%     
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      7,623,515      $ 7,623,515   
          
Total Investments
(Identified Cost, $473,127,797)		      $ 527,138,350   
          
OTHER ASSETS, LESS
LIABILITIES – 0.3%		        1,393,198   
          
Net Assets – 100.0%      $ 528,531,548   
          

 

(a) Non-income producing security.

 

(v) Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

PLC   Public Limited Company

See Notes to Financial Statements

 

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $465,504,282)

      $519,514,835      

Underlying affiliated funds, at cost and value

      7,623,515            

Total investments, at value (identified cost, $473,127,797)

      $527,138,350            

Cash

      10,736      

Receivables for

      

Investments sold

      1,699,326      

Fund shares sold

      925,673      

Interest and dividends

      987,583      

Other assets

      8,727            

Total assets

               $530,770,395   

Liabilities

                  

Payables for

      

Investments purchased

      $1,511,403      

Fund shares reacquired

      616,147      

Payable to affiliates

      

Investment adviser

      22,313      

Distribution and/or service fees

      3,125      

Payable for Trustees’ compensation

      8,539      

Accrued expenses and other liabilities

      77,320            

Total liabilities

               $2,238,847   

Net assets

               $528,531,548   

Net assets consist of

                  

Paid-in capital

      $417,530,349      

Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies

      54,009,918      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      45,172,078      

Undistributed net investment income

      11,819,203            

Net assets

               $528,531,548   

Shares of beneficial interest outstanding

               36,121,475   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $297,851,562         20,265,741         $14.70   

Service Class

      230,679,986         15,855,734         14.55   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment income                  

Income

      

Dividends

      $6,471,090      

Interest

      2,372      

Dividends from underlying affiliated funds

      3,327      

Foreign taxes withheld

      (57,099 )          

Total investment income

               $6,419,690   

Expenses

      

Management fee

      $2,005,428      

Distribution and/or service fees

      291,701      

Administrative services fee

      89,900      

Trustees’ compensation

      30,142      

Custodian fee

      29,632      

Shareholder communications

      12,719      

Auditing fees

      21,926      

Legal fees

      3,766      

Miscellaneous

      21,512            

Total expenses

               $2,506,726   

Net investment income

               $3,912,964   

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions

      $16,562,304      

Foreign currency transactions

      19,789            

Net realized gain (loss) on investments and foreign currency transactions

               $16,582,093   

Change in unrealized appreciation (depreciation)

      

Investments

      $8,755,512      

Translation of assets and liabilities in foreign currencies

      (5,213 )          

Net unrealized gain (loss) on investments and foreign currency translation

               $8,750,299   

Net realized and unrealized gain (loss) on investments and foreign currency

               $25,332,392   

Change in net assets from operations

               $29,245,356   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		  
 
) 		     
 		 Year ended
12/31/10		  
  

Change in net assets

      

From operations

                  

Net investment income

      $3,912,964         $7,897,225   

Net realized gain (loss) on investments and foreign currency transactions

      16,582,093         46,359,089   

Net unrealized gain (loss) on investments and foreign currency translation

      8,750,299         4,702,652   

Change in net assets from operations

      $29,245,356         $58,958,966   

Distributions declared to shareholders

                  

From net investment income

      $—         $(6,932,160 ) 

Change in net assets from fund share transactions

      $(31,938,123 )       $(17,191,538 ) 

Total change in net assets

      $(2,692,767 )       $34,835,268   

Net assets

                  

At beginning of period

      531,224,315         496,389,047   

At end of period (including undistributed net investment income of $11,819,203 and
$7,906,239, respectively)

      $528,531,548         $531,224,315   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class    Six months
ended
6/30/11		      Years ended 12/31  
        2010        2009        2008        2007        2006  
     (unaudited)                                             

Net asset value, beginning of period

      $13.91         $12.64           $10.70           $18.78           $18.70           $16.30   
Income (loss) from investment operations                                                              

Net investment income (d)

      $0.11         $0.20           $0.22           $0.25           $0.27           $0.28   

Net realized and unrealized gain (loss) on
investments and foreign currency

      0.68         1.25           1.92           (5.50 )         1.22           3.04   

Total from investment operations

      $0.79         $1.45           $2.14           $(5.25 )         $1.49           $3.32   
Less distributions declared to shareholders                                                              

From net investment income

      $—         $(0.18 )         $(0.20 )         $(0.30 )         $(0.30 )         $(0.27 ) 

From net realized gain on investments

      —         —           —           (2.53 )         (1.11 )         (0.65 ) 

Total distributions declared to shareholders

      $—         $(0.18 )         $(0.20 )         $(2.83 )         $(1.41 )         $(0.92 ) 

Net asset value, end of period

      $14.70         $13.91           $12.64           $10.70           $18.78           $18.70   

Total return (%) (k)(s)

      5.68 (n)       11.51           20.49           (32.64 )         7.92           20.96   
Ratios (%) (to average net assets)
and Supplemental data:		                                                              

Expenses (f)

      0.83 (a)       0.84           0.85           0.84           0.83           0.86   

Net investment income

      1.57 (a)       1.59           1.98           1.75           1.40           1.62   

Portfolio turnover

      9         34           27           44           25           26   

Net assets at end of period (000 omitted)

      $297,852         $298,799           $268,001           $146,011           $267,967           $323,094   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $13.79         $12.54           $10.61           $18.66           $18.59           $16.21   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.09         $0.17           $0.19           $0.22           $0.22           $0.23   

Net realized and unrealized gain (loss) on investments and foreign currency

        0.67         1.23           1.91           (5.48 )         1.22           3.02   

Total from investment operations

        $0.76         $1.40           $2.10           $(5.26 )         $1.44           $3.25   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.15 )         $(0.17 )         $(0.26 )         $(0.26 )         $(0.22 ) 

From net realized gain on investments

        —         —           —           (2.53 )         (1.11 )         (0.65 ) 

Total distributions declared to shareholders

        $—         $(0.15 )         $(0.17 )         $(2.79 )         $(1.37 )         $(0.87 ) 

Net asset value, end of period

        $14.55         $13.79           $12.54           $10.61           $18.66           $18.59   

Total return (%) (k)(s)

        5.51 (n)       11.22           20.30           (32.87 )         7.67           20.66   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses (f)

        1.08 (a)       1.09           1.10           1.09           1.08           1.11   

Net investment income

        1.32 (a)       1.33           1.73           1.62           1.16           1.37   

Portfolio turnover

        9         34           27           44           25           26   

Net assets at end of period (000 omitted)

        $230,680         $232,425           $228,388           $165,519           $141,584           $141,334   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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.

 

(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

See Notes to Financial Statements

 

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MFS Value Portfolio

 

NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Value Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active

 

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Notes to Financial Statements (unaudited) – continued

 

markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities      $519,514,835         $—         $—         $519,514,835   
Mutual Funds      7,623,515         —         —         7,623,515   
Total Investments      $527,138,350         $—         $—         $527,138,350   

For further information regarding security characteristics, see the Portfolio of Investments.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund 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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. 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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. For the six months ended June 30, 2011, custody fees were not reduced.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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.

 

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Notes to Financial Statements (unaudited) – continued

 

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 declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $6,932,160   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $474,019,908   
Gross appreciation      72,309,678   
Gross depreciation      (19,191,236 ) 
Net unrealized appreciation (depreciation)      $53,118,442   
As of 12/31/10   
Undistributed ordinary income      9,457,518   
Undistributed long-term capital gain      33,776,193   
Capital loss carryforwards      (5,844,924 ) 
Other temporary differences      4,578   
Net unrealized appreciation (depreciation)      44,362,478   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/15      $(5,469,246 ) 
12/31/16      (375,678 ) 
Total      $(5,844,924 ) 

The availability of a portion of the capital loss carryforwards, which were acquired on June 26, 2009 in connection with the MFS Strategic Value Portfolio Merger and on December 4, 2009 in connection with the MFS Mid Cap Value Portfolio merger, may be limited in a given year.

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $4,231,627   
Service Class      —         2,700,533   
Total      $—         $6,932,160   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $1 billion of average daily net assets      0.75%   
Average daily net assets in excess of $1 billion      0.65%   

The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.

 

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MFS Value Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses, such that total annual operating expenses do not exceed 0.90% of average daily net assets for the Initial Class shares and 1.15% of average daily net assets for the Service Class shares. This written agreement will continue until April 30, 2013. For the six months ended June 30, 2011, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2011, the fund did not pay MFSC a fee for this service.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0336% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $4,358 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $46,595,820 and $78,142,547, respectively.

 

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MFS Value Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      944,132         $13,760,348         7,430,622         $93,805,921   

Service Class

      375,675         5,417,770         1,125,101         13,970,482   
     1,319,807         $19,178,118         8,555,723         $107,776,403   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         314,619         $4,231,627   

Service Class

      —         —         202,287         2,700,533   
     —         $—         516,906         $6,932,160   
Shares reacquired            

Initial Class

      (2,152,037 )       $(31,345,257 )       (7,467,590 )       $(97,638,535 ) 

Service Class

      (1,373,155 )       (19,770,984 )       (2,685,686 )       (34,261,566 ) 
     (3,525,192 )       $(51,116,241 )       (10,153,276 )       $(131,900,101 ) 
Net change            

Initial Class

      (1,207,905 )       $(17,584,909 )       277,651         $399,013   

Service Class

      (997,480 )       (14,353,214 )       (1,358,298 )       (17,590,551 ) 
     (2,205,385 )       $(31,938,123 )       (1,080,647 )       $(17,191,538 ) 

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $2,146 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      4,137,996         46,979,725         (43,494,206 )       7,623,515   
Underlying Affiliated Funds    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $3,327         $7,623,515   

 

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MFS Value Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

•  Social Security number and account balances

•  Account transactions and transaction history

•  Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

18

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LOGO

Table of Contents

LOGO

 

MFS® Core Equity Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

RGS-SEM

Table of Contents

MFS® CORE EQUITY PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      8   
Statement of operations      9   
Statements of changes in net assets      10   
Financial highlights      11   
Notes to financial statements      13   
Board review of investment advisory agreement      21   
Proxy voting policies and information      21   
Quarterly portfolio disclosure      21   
Further information      21   
MFS® privacy notice      22   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Core Equity Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS Core Equity Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure (i)

LOGO

 

Top ten holdings (i)  
Apple, Inc.     3.4%   
Exxon Mobil Corp.     3.0%   
Abbott Laboratories     1.9%   
Fluor Corp.     1.7%   
Chevron Corp.     1.7%   
Danaher Corp.     1.7%   
JPMorgan Chase & Co.     1.7%   
International Business Machines Corp.     1.5%   
Oracle Corp.     1.5%   
EMC Corp.     1.4%   
Equity sectors (i)  
Financial Services     15.9%   
Technology     15.3%   
Health Care     12.0%   
Energy     11.4%   
Industrial Goods & Services     8.3%   
Consumer Staples     7.4%   
Utilities & Communications     6.3%   
Retailing     6.2%   
Leisure     5.9%   
Basic Materials     4.8%   
Transportation     2.2%   
Special Products & Services     2.1%   
Autos & Housing     1.4%   
 

 

(i) For purposes of this presentation, the components include the market value of securities, less any securities sold short, and reflect the impact of the equivalent exposure of derivative positions, if applicable. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value.

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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        

Annualized

Expense Ratio

     

Beginning

Account Value

1/01/11

     

Ending

Account Value

6/30/11

     

Expenses Paid

During Period (p)

1/01/11-6/30/11

  
Initial Class   Actual      0.86%         $1,000.00         $1,052.71         $4.38   
  Hypothetical (h)      0.86%         $1,000.00         $1,020.53         $4.31   
Service Class   Actual      1.11%         $1,000.00         $1,050.96         $5.64   
  Hypothetical (h)      1.11%         $1,000.00         $1,019.29         $5.56   

 

(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.

Expenses Impacting Table

Changes to the fund’s fee arrangements occurred during the six month period. Had these fee changes been in effect throughout the entire six month period, the annualized expense ratios would have been 0.88% and 1.13% for the Initial Class and the Service Class, respectively; the actual expenses paid during the period would have been approximately $4.48 and $5.75 for the Initial Class and the Service Class, respectively; and the hypothetical expenses paid during the period would have been approximately $4.41 and $5.66 for the Initial Class and the Service Class, respectively. For further information about the fund’s fee arrangements and changes to those fee arrangements, please see Note 3 in the Notes to Financial Statements.

 

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PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – 98.5%   
Aerospace – 2.9%     
Boeing Co.      5,230      $ 386,654   
Goodrich Corp.      5,410        516,655   
Honeywell International, Inc.      17,490        1,042,229   
Precision Castparts Corp.      4,230        696,470   
Textron, Inc.      16,430        387,912   
United Technologies Corp.      15,210        1,346,237   
    

 

 

  
     $ 4,376,157   
    

 

 

  
Apparel Manufacturers – 0.6%     
NIKE, Inc., “B”      7,090      $ 637,958   
Phillips-Van Heusen Corp.      4,090        267,772   
    

 

 

  
     $ 905,730   
    

 

 

  
Automotive – 0.8%     
General Motors Co. (a)      29,400      $ 892,584   
Magna International, Inc.      5,910        319,376   
    

 

 

  
     $ 1,211,960   
    

 

 

  
Biotechnology – 1.8%     
Amgen, Inc. (a)      27,930      $ 1,629,715   
Anacor Pharmaceuticals, Inc. (a)      32,290        208,593   
Gilead Sciences, Inc. (a)      20,910        865,883   
    

 

 

  
     $ 2,704,191   
    

 

 

  
Broadcasting – 1.8%     
Viacom, Inc., “B”      21,820      $ 1,112,820   
Walt Disney Co.      39,550        1,544,032   
    

 

 

  
     $ 2,656,852   
    

 

 

  
Brokerage & Asset Managers – 1.3%     
Affiliated Managers Group, Inc. (a)      2,830      $ 287,104   
Blackrock, Inc.      923        177,041   
Charles Schwab Corp.      18,320        301,364   
CME Group, Inc.      1,240        361,572   
Cowen Group, Inc. “A” (a)      20,548        77,260   
Franklin Resources, Inc.      3,770        494,963   
GFI Group, Inc.      46,970        215,592   
    

 

 

  
     $ 1,914,896   
    

 

 

  
Business Services – 1.6%     
Accenture PLC, “A”      9,890      $ 597,554   
FleetCor Technologies, Inc. (a)      25,620        759,377   
Jones Lang LaSalle, Inc.      3,640        343,252   
Paychex, Inc.      23,860        732,979   
    

 

 

  
     $ 2,433,162   
    

 

 

  
Cable TV – 1.2%     
Comcast Corp., “Special A”      41,020      $ 993,915   
DIRECTV, “A” (a)      16,800        853,776   
    

 

 

  
     $ 1,847,691   
    

 

 

  
Chemicals – 2.0%     
Celanese Corp.      33,780      $ 1,800,812   
Ecolab, Inc.      7,820        440,892   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Chemicals – continued     
Monsanto Co.      10,890      $ 789,961   
    

 

 

  
     $ 3,031,665   
    

 

 

  
Computer Software – 4.2%     
Autodesk, Inc. (a)      26,020      $ 1,004,372   
Check Point Software Technologies Ltd. (a)      15,990        909,032   
Nuance Communications, Inc. (a)      10,440        224,147   
Oracle Corp.      66,370        2,184,237   
Red Hat, Inc. (a)      20,040        919,836   
Symantec Corp. (a)      24,110        475,449   
VeriSign, Inc.      18,260        610,980   
    

 

 

  
     $ 6,328,053   
    

 

 

  
Computer Software – Systems – 6.7%     
Apple, Inc. (a)(s)      14,930      $ 5,011,553   
EMC Corp. (a)      77,210        2,127,135   
International Business Machines Corp.      13,310        2,283,331   
NICE Systems Ltd., ADR (a)      14,230        517,403   
    

 

 

  
     $ 9,939,422   
    

 

 

  
Construction – 0.5%     
Lennox International, Inc.      7,570      $ 326,040   
Owens Corning (a)      12,920        482,562   
    

 

 

  
     $ 808,602   
    

 

 

  
Consumer Products – 1.3%     
Avon Products, Inc.      54,440      $ 1,524,320   
Newell Rubbermaid, Inc.      26,280        414,698   
    

 

 

  
     $ 1,939,018   
    

 

 

  
Consumer Services – 0.5%     
DeVry, Inc.      4,440      $ 262,537   
Priceline.com, Inc. (a)      850        435,140   
    

 

 

  
     $ 697,677   
    

 

 

  
Electrical Equipment – 2.2%     
Danaher Corp.      46,700      $ 2,474,633   
Sensata Technologies Holding B.V. (a)      21,670        815,875   
    

 

 

  
     $ 3,290,508   
    

 

 

  
Electronics – 2.4%     
Advanced Micro Devices, Inc. (a)      156,625      $ 1,094,809   
First Solar, Inc. (a)(l)      7,120        941,762   
Hittite Microwave Corp. (a)      2,570        159,109   
Linear Technology Corp.      9,380        309,728   
Microchip Technology, Inc.      24,860        942,443   
Oclaro, Inc. (a)      11,200        75,264   
    

 

 

  
     $ 3,523,115   
    

 

 

  
Energy – Independent – 3.3%     
Apache Corp.      7,870      $ 971,079   
Arch Coal, Inc.      7,700        205,282   
Canadian Natural Resources Ltd.      5,220        218,824   
CONSOL Energy, Inc.      3,160        153,197   
 

 

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MFS Core Equity Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Energy – Independent – continued     
EOG Resources, Inc.      8,360      $ 874,038   
Newfield Exploration Co. (a)      6,800        462,536   
Occidental Petroleum Corp.      16,440        1,710,418   
Peabody Energy Corp.      3,480        205,007   
Walter Energy, Inc.      1,560        180,648   
          
     $ 4,981,029   
          
Energy – Integrated – 5.6%     
Chevron Corp.      24,340      $ 2,503,126   
EQT Corp.      5,690        298,839   
Exxon Mobil Corp. (s)      55,466        4,513,823   
Marathon Oil Corp.      11,970        630,580   
QEP Resources, Inc.      10,550        441,307   
          
     $ 8,387,675   
          
Engineering – Construction – 1.7%     
Fluor Corp.      39,670      $ 2,565,062   
          
Food & Beverages – 3.4%     
Bunge Ltd.      4,290      $ 295,796   
Coca-Cola Co.      14,030        944,079   
General Mills, Inc.      36,590        1,361,880   
Mead Johnson Nutrition Co., “A”      11,580        782,229   
PepsiCo, Inc. (s)      24,317        1,712,646   
          
     $ 5,096,630   
          
Food & Drug Stores – 0.9%     
CVS Caremark Corp.      25,440      $ 956,035   
Whole Foods Market, Inc.      6,410        406,715   
          
     $ 1,362,750   
          
Gaming & Lodging – 0.9%     
Carnival Corp.      11,970      $ 450,431   
Las Vegas Sands Corp. (a)      11,310        477,395   
Marriott International, Inc., “A”      12,390        439,721   
          
     $ 1,367,547   
          
General Merchandise – 2.3%     
Kohl’s Corp.      25,060      $ 1,253,251   
Target Corp.      44,880        2,105,321   
          
     $ 3,358,572   
          
Health Maintenance Organizations – 1.1%     
Aetna, Inc.      7,510      $ 331,116   
WellPoint, Inc.      15,740        1,239,840   
          
     $ 1,570,956   
          
Insurance – 4.0%     
ACE Ltd.      30,700      $ 2,020,674   
Aflac, Inc.      2,790        130,237   
Allied World Assurance Co.      3,820        219,956   
Aon Corp.      23,300        1,195,290   
Chubb Corp.      10,170        636,744   
MetLife, Inc.      19,290        846,252   
Prudential Financial, Inc.      8,340        530,341   
Willis Group Holdings PLC      9,030        371,223   
          
     $ 5,950,717   
          
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Internet – 1.0%     
Google, Inc., “A” (a)      2,930      $ 1,483,693   
          
Leisure & Toys – 0.1%     
Mattel, Inc.      5,780      $ 158,892   
          
Machinery & Tools – 1.1%     
Finning International, Inc.      17,880      $ 530,217   
Regal Beloit Corp.      5,840        389,937   
Thermon Group Holdings, Inc. (a)      18,800        225,600   
WABCO Holdings, Inc. (a)      6,090        420,575   
          
     $ 1,566,329   
          
Major Banks – 4.8%     
Bank of America Corp.      117,470      $ 1,287,471   
Bank of New York Mellon Corp.      20,235        518,421   
Comerica, Inc.      8,700        300,759   
Goldman Sachs Group, Inc.      10,390        1,382,805   
JPMorgan Chase & Co. (s)      60,180        2,463,769   
KeyCorp      64,450        536,869   
SunTrust Banks, Inc.      25,600        660,480   
          
     $ 7,150,574   
          
Medical & Health Technology & Services – 1.5%     
AmerisourceBergen Corp.      12,160      $ 503,424   
Cross Country Healthcare, Inc. (a)      87,870        667,812   
Henry Schein, Inc. (a)      3,240        231,952   
Medco Health Solutions, Inc. (a)      11,370        642,632   
Quest Diagnostics, Inc.      3,980        235,218   
          
     $ 2,281,038   
          
Medical Equipment – 2.8%     
Becton, Dickinson & Co.      6,880      $ 592,850   
Covidien PLC      9,600        511,008   
Medtronic, Inc.      23,950        922,793   
NxStage Medical, Inc. (a)      10,674        222,233   
NxStage Medical, Inc. (a)      38,606        803,777   
St. Jude Medical, Inc.      8,970        427,690   
Thermo Fisher Scientific, Inc. (a)      10,710        689,617   
          
     $ 4,169,968   
          
Metals & Mining – 1.0%     
Cliffs Natural Resources, Inc.      7,930      $ 733,128   
Teck Resources Ltd., “B”      14,636        743,902   
          
     $ 1,477,030   
          
Natural Gas – Distribution – 0.4%     
AGL Resources, Inc.      13,500      $ 549,585   
          
Natural Gas – Pipeline – 0.4%     
Kinder Morgan, Inc.      21,710      $ 623,728   
          
Network & Telecom – 0.9%     
Cisco Systems, Inc.      18,210      $ 284,258   
F5 Networks, Inc. (a)      6,480        714,420   
Finisar Corp. (a)      22,330        402,610   
          
     $ 1,401,288   
          
Oil Services – 2.5%     
Cameron International Corp. (a)      20,150      $ 1,013,343   
 

 

5

Table of Contents

MFS Core Equity Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Oil Services – continued     
Dresser-Rand Group, Inc. (a)      5,620      $ 302,075   
Halliburton Co.      24,120        1,230,120   
Schlumberger Ltd.      13,620        1,176,768   
    

 

 

  
     $ 3,722,306   
    

 

 

  
Other Banks & Diversified Financials – 3.2%     
American Express Co.      5,690      $ 294,173   
Citigroup, Inc.      27,673        1,152,304   
Discover Financial Services      8,080        216,140   
EuroDekania Ltd. (a)(z)      100,530        258,320   
TCF Financial Corp.      45,980        634,524   
Visa, Inc., “A”      13,680        1,152,677   
Wintrust Financial Corp.      10,790        347,222   
Zions Bancorporation      30,110        722,941   
    

 

 

  
     $ 4,778,301   
    

 

 

  
Pharmaceuticals – 4.8%     
Abbott Laboratories      53,070      $ 2,792,543   
Hospira, Inc. (a)      10,040        568,866   
Johnson & Johnson      22,190        1,476,079   
Pfizer, Inc.      70,452        1,451,311   
Teva Pharmaceutical Industries Ltd., ADR      18,380        886,284   
    

 

 

  
     $ 7,175,083   
    

 

 

  
Pollution Control – 0.5%     
Republic Services, Inc.      21,640      $ 667,594   
    

 

 

  
Precious Metals & Minerals – 0.2%     
Goldcorp, Inc.      5,240      $ 252,935   
    

 

 

  
Printing & Publishing – 0.6%     
Moody’s Corp.      21,720      $ 832,962   
    

 

 

  
Railroad & Shipping – 1.2%     
CSX Corp.      33,950      $ 890,169   
Kansas City Southern Co. (a)      14,200        842,486   
    

 

 

  
     $ 1,732,655   
    

 

 

  
Real Estate – 2.6%     
Annaly Mortgage Management, Inc., REIT      40,580      $ 732,063   
Cogdell Spencer, Inc., REIT      50,850        304,591   
Entertainment Properties Trust, REIT      32,610        1,522,887   
Kilroy Realty Corp., REIT      16,580        654,744   
Mack-Cali Realty Corp., REIT      18,700        615,978   
    

 

 

  
     $ 3,830,263   
    

 

 

  
Restaurants – 1.3%     
McDonald’s Corp.      22,710      $ 1,914,907   
    

 

 

  
Specialty Chemicals – 1.6%     
Airgas, Inc.      20,760      $ 1,454,030   
Valspar Corp.      9,490        342,209   
W. R. Grace & Co. (a)      12,400        565,812   
    

 

 

  
     $ 2,362,051   
    

 

 

  
Specialty Stores – 2.4%     
Abercrombie & Fitch Co., “A”      6,310      $ 422,265   
Amazon.com, Inc. (a)      5,930        1,212,626   
Dick’s Sporting Goods, Inc. (a)      7,200        276,840   
Issuer    Shares/Par     Value ($)  
    
COMMON STOCKS – continued     
Specialty Stores – continued     
PetSmart, Inc.      10,470      $ 475,024   
Tiffany & Co.      9,710        762,429   
Urban Outfitters, Inc. (a)      13,550        381,433   
    

 

 

  
     $ 3,530,617   
    

 

 

  
Telecommunications – Wireless – 0.3%     
SBA Communications Corp. (a)      10,800      $ 412,452   
    

 

 

  
Telephone Services – 2.5%     
American Tower Corp., “A” (a)      14,770      $ 772,914   
AT&T, Inc.      53,650        1,685,146   
CenturyLink, Inc.      11,108        449,096   
Verizon Communications, Inc.      21,490        800,073   
    

 

 

  
     $ 3,707,229   
    

 

 

  
Tobacco – 2.7%     
Altria Group, Inc.      64,030      $ 1,691,032   
Philip Morris International, Inc.      24,460        1,633,194   
Reynolds American, Inc.      18,710        693,205   
    

 

 

  
     $ 4,017,431   
    

 

 

  
Trucking – 1.0%     
Atlas Air Worldwide Holdings, Inc. (a)      6,310      $ 375,508   
Expeditors International of Washington, Inc.      13,480        690,041   
Swift Transportation Co. (a)      32,280        437,394   
    

 

 

  
     $ 1,502,943   
    

 

 

  
Utilities – Electric Power – 2.1%     
American Electric Power Co., Inc.      19,200      $ 723,456   
Calpine Corp. (a)      16,220        261,629   
CMS Energy Corp.      29,680        584,399   
PG&E Corp.      11,400        479,142   
Public Service Enterprise Group, Inc.      18,130        591,763   
Wisconsin Energy Corp.      16,940        531,069   
    

 

 

  
     $ 3,171,458   
    

 

 

  
Total Common Stocks
(Identified Cost, $130,922,533)		       $ 146,722,949   
    

 

 

  
CONVERTIBLE PREFERRED STOCKS – 0.6%   
Utilities – Electric Power – 0.6%     
PPL Corp., 9.5%      8,010      $ 447,759   
PPL Corp., 8.75%      7,350        403,589   
    

 

 

  
Total Convertible Preferred Stocks
(Identified Cost, $780,978)		       $ 851,348   
    

 

 

  
Issuer/Expiration Date/ Strike Price    Number
of Contracts		        
CALL OPTIONS PURCHASED – 0.0%     
Construction – 0.0%     
Lennar Corp., “A” – August 2011 @ $20      96      $ 2,304   
    

 

 

  
Network & Telecom – 0.0%     
Finisar Corp. – July 2011 @ $26      108      $ 540   
    

 

 

  
Total Call Options Purchased
(Premiums Paid, $10,020)		       $ 2,844   
    

 

 

  
 

 

6

Table of Contents

MFS Core Equity Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
MONEY MARKET FUNDS (v) – 0.9%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      1,336,757      $ 1,336,757   
    

 

 

  
COLLATERAL FOR SECURITIES LOANED – 0.4%   
Navigator Securities Lending Prime Portfolio, 0.23%, at Cost and Net Asset Value (j)      687,303      $ 687,303   
    

 

 

  
Total Investments
(Identified Cost, $133,737,591)		      $ 149,601,201   
    

 

 

  
Issuer/Expiration Date/ Strike Price    Number
of Contracts		     Value ($)  
    
PUT OPTIONS WRITTEN – 0.0%   
Construction – 0.0%     
Lennar Corp., “A” – August 2011 @ $16      (96 )    $ (2,112 ) 
    

 

 

  
Network & Telecom – 0.0%     
Finisar Corp. – July 2011 @ $18      (108 )    $ (7,560 ) 
    

 

 

  
Total Put Options Written
(Premiums Received, $11,244)		      $ (9,672 ) 
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – (0.4)%		         (621,001 ) 
    

 

 

  
Net Assets – 100.0%      $ 148,980,200   
    

 

 

  
 
(a)   Non-income producing security.

 

(j)   The rate quoted is the annualized seven-day yield of the portfolio at period end.

 

(l)   A portion of this security is on loan.

 

(s)   Security or a portion of the security was pledged to cover collateral requirements for written options. At June 30, 2011, the value of securities pledged amounted to $638,129.

 

(v)   Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

 

(z)   Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities:

 

Restricted Securities    Acquisition
Date		    Cost      Value  
EuroDekania Ltd.    3/08/07-6/25/07      $1,412,164         $258,320   
% of Net Assets            0.2%   

The following abbreviations are used in this report and are defined:

 

ADR   American Depository Receipt

 

PLC   Public Limited Company

 

REIT   Real Estate Investment Trust

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $132,400,834)

      $148,264,444      

Underlying affiliated funds, at cost and value

      1,336,757            

Total investments, at value, including $687,407 of securities on loan (identified cost, $133,737,591)

      $149,601,201            

Deposits with brokers for securities sold short

      4,698      

Receivables for

      

Investments sold

      590,890      

Fund shares sold

      34,249      

Interest and dividends

      208,511      

Other assets

      2,380            

Total assets

               $150,441,929   

Liabilities

                  

Payables for

      

Investments purchased

      $585,285      

Fund shares reacquired

      127,702      

Written options outstanding, at value (premiums received, $11,244)

      9,672      

Collateral for securities loaned, at value

      687,303      

Payable to affiliates

      

Investment adviser

      6,309      

Distribution and/or service fees

      534      

Payable for Trustees’ compensation

      2,403      

Accrued expenses and other liabilities

      42,521            

Total liabilities

               $1,461,729   

Net assets

               $148,980,200   

Net assets consist of

                  

Paid-in capital

      $162,156,903      

Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies

      15,865,236      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      (30,936,786 )    

Undistributed net investment income

      1,894,847            

Net assets

               $148,980,200   

Shares of beneficial interest outstanding

               9,968,772   

 

     Net assets      Shares
outstanding		      Net asset value
per share		  

Initial Class

      $109,516,690         7,311,327         $14.98   

Service Class

      39,463,510         2,657,445         14.85   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      

Net investment income

                  

Income

      

Dividends

      $1,308,389      

Interest

      6,966      

Dividends from underlying affiliated funds

      499      

Foreign taxes withheld

      (4,679 )          

Total investment income

               $1,311,175   

Expenses

      

Management fee

      $563,284      

Distribution and/or service fees

      48,114      

Administrative services fee

      25,518      

Trustees’ compensation

      8,385      

Custodian fee

      13,628      

Shareholder communications

      8,152      

Auditing fees

      22,906      

Legal fees

      3,766      

Dividend and interest expense on securities sold short

      5,195      

Miscellaneous

      8,784            

Total expenses

               $707,732   

Fees paid indirectly

      (4 )    

Reduction of expenses by investment adviser

      (9,966 )          

Net expenses

               $697,762   

Net investment income

               $613,413   

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions

      $6,192,671      

Foreign currency transactions

      (90 )          

Net realized gain (loss) on investments and foreign currency transactions

               $6,192,581   

Change in unrealized appreciation (depreciation)

      

Investments

      $417,577      

Written options

      1,572      

Securities sold short

      381,854      

Translation of assets and liabilities in foreign currencies

      17            

Net unrealized gain (loss) on investments and foreign currency translation

               $801,020   

Net realized and unrealized gain (loss) on investments and foreign currency

               $6,993,601   

Change in net assets from operations

               $7,607,014   

See Notes to Financial Statements

 

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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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		   
  
) 		     
 		 Year ended
12/31/10		   
  

Change in net assets

      

From operations

                  

Net investment income

      $613,413         $1,282,859   

Net realized gain (loss) on investments and foreign currency transactions

      6,192,581         11,131,795   

Net unrealized gain (loss) on investments and foreign currency translation

      801,020         10,012,685   

Change in net assets from operations

      $7,607,014         $22,427,339   
Distributions declared to shareholders                  

From net investment income

      $—         $(1,519,015 ) 

Change in net assets from fund share transactions

      $(6,566,781 )       $(15,874,134 ) 

Total change in net assets

      $1,040,233         $5,034,190   
Net assets                  

At beginning of period

      147,939,967         142,905,777   

At end of period (including undistributed net investment income of $1,894,847 and
$1,281,435, respectively)

      $148,980,200         $147,939,967   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $14.23         $12.27           $9.43           $16.52           $17.13           $15.15   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.06         $0.12           $0.13           $0.16           $0.11           $0.08   

Net realized and unrealized gain (loss) on
investments and foreign currency

        0.69         1.98           2.89           (6.11 )         1.41           1.99   

Total from investment operations

        $0.75         $2.10           $3.02           $(5.95 )         $1.52           $2.07   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.14 )         $(0.18 )         $(0.09 )         $(0.09 )         $(0.09 ) 

From net realized gain on investments

        —         —           —           (1.05 )         (2.04 )         —   

Total distributions declared to shareholders

        $—         $(0.14 )         $(0.18 )         $(1.14 )         $(2.13 )         $(0.09 ) 

Net asset value, end of period

        $14.98         $14.23           $12.27           $9.43           $16.52           $17.13   

Total return (%) (k)(r)(s)

        5.27 (n)       17.22           32.74           (38.63 )         8.71           13.74   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        0.88 (a)       0.90           0.89           0.88           0.86           0.91   

Expenses after expense reductions (f)

        0.86 (a)       0.86           0.85           0.85           N/A           0.91   

Net investment income

        0.88 (a)       0.98           1.28           1.22           0.65           0.53   

Portfolio turnover

        29         69           91           109           156           122   

Net assets at end of period (000 omitted)

        $109,517         $112,121           $109,322           $97,648           $212,063           $80,024   
Supplemental Ratios (%):                                                                

Ratio of expenses to average net assets after
expense reductions excluding short sale dividend
and interest expense (f)

        0.86 (a)       0.85           0.85           N/A           N/A           N/A   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $14.13         $12.19           $9.36           $16.42           $17.05           $15.09   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.05         $0.09           $0.10           $0.13           $0.07           $0.04   

Net realized and unrealized gain (loss) on
investments and foreign currency

        0.67         1.97           2.88           (6.08 )         1.39           1.98   

Total from investment operations

        $0.72         $2.06           $2.98           $(5.95 )         $1.46           $2.02   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.12 )         $(0.15 )         $(0.06 )         $(0.05 )         $(0.06 ) 

From net realized gain on investments

        —         —           —           (1.05 )         (2.04 )         —   

Total distributions declared to shareholders

        $—         $(0.12 )         $(0.15 )         $(1.11 )         $(2.09 )         $(0.06 ) 

Net asset value, end of period

        $14.85         $14.13           $12.19           $9.36           $16.42           $17.05   

Total return (%) (k)(r)(s)

        5.10 (n)       16.95           32.44           (38.79 )         8.40           13.44   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        1.13 (a)       1.15           1.14           1.13           1.11           1.16   

Expenses after expense reductions (f)

        1.11 (a)       1.11           1.10           1.10           N/A           1.16   

Net investment income

        0.64 (a)       0.73           1.02           1.00           0.41           0.29   

Portfolio turnover

        29         69           91           109           156           122   

Net assets at end of period (000 omitted)

        $39,464         $35,819           $33,583           $21,684           $34,932           $12,675   
Supplemental Ratios (%):                                                                

Ratio of expenses to average net assets after
expense reductions excluding short sale dividend
and interest expense (f)

        1.11 (a)       1.10           1.10           N/A           N/A           N/A   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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.

 

(r) Certain expenses have been reduced without which performance would have been lower.

 

(n) Not annualized.

 

(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. Excluding the effect of the proceeds received from a non-recurring litigation settlement against Enron Corp., the total return for the year ended December 31, 2008 would be lower by approximately 1.32%.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Core Equity Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as provided by a third-party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as provided by a third-party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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 fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

 

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Notes to Financial Statements (unaudited) – continued

 

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as written options. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities:            

United States

      $142,718,075         $222,773         $—         $142,940,848   

Israel

      2,312,719         —         —         2,312,719   

Canada

      2,065,254         —         —         2,065,254   

United Kingdom

      —         —         258,320         258,320   
Mutual Funds      2,024,060         —         —         2,024,060   
Total Investments      $149,120,108         $222,773         $258,320         $149,601,201   
Other Financial Instruments                            
Written Options      $(9,672 )       —         —         $(9,672 ) 

For further information regarding security characteristics, see the Portfolio of Investments.

The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period. The table presents the activity of level 3 securities held at the beginning and the end of the period.

 

     Equity Securities  
Balance as of 12/31/10      $154,875   

Change in unrealized appreciation

      103,445   
Balance as of 6/30/11      $258,320   

The net change in unrealized appreciation (depreciation) from investments still held as level 3 at June 30, 2011 is $103,445.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.

Derivatives – The fund uses derivatives for different purposes, including to earn income and enhance returns, to increase or decrease exposure to a particular market, to manage or adjust the risk profile of the fund, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.

The derivative instruments used by the fund were written options & purchased options. The fund’s period end derivatives, as presented in the Portfolio of Investments, generally are indicative of the volume of its derivative activity during the period.

 

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Notes to Financial Statements (unaudited) – continued

 

The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2011 as reported in the Statement of Assets and Liabilities:

 

          Fair Value (a)  
Risk    Derivative Contracts    Asset Derivatives      Liability Derivatives  
Equity    Purchased Equity Options      $2,844         $—   
Equity    Written Equity Options      —         (9,672 ) 
Total         $2,844         $(9,672 ) 

 

(a) The value of purchased options outstanding is included in total investments, at value, within the fund’s Statement of Assets and Liabilities.

The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk   

Investment

Transactions

(Purchased

Options)

  
Equity      $(23,162 ) 

The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk   

Investments

(Purchased

Options)

     

Written

Options

  
Equity      $(7,176 )       $1,572   

Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swaps and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.

Written Options – In exchange for a premium, the fund wrote put options and used the premium to purchase call options on securities that it anticipated the price would increase. At the time the option was written, the fund believed the premium received exceeded the potential loss that could result from adverse price changes in the options’ underlying securities. In a written option, the fund as the option writer grants the buyer the right to purchase from, or sell to, the fund a specified number of shares or units of a particular security, currency or index at a specified price within a specified period of time.

The premium received is initially recorded as a liability on the Statement of Assets and Liabilities. The option is subsequently marked-to-market daily with the difference between the premium received and the market value of the written option being recorded as unrealized appreciation or depreciation. When a written option expires, the fund realizes a gain equal to the amount of the premium received. The difference between the premium received and the amount paid on effecting a closing

 

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Notes to Financial Statements (unaudited) – continued

 

transaction is considered a realized gain or loss. When a written put option is exercised, the premium reduces the cost basis of the security purchased by the fund.

At the initiation of the written option contract, for exchange traded options, the fund is required to deposit securities or cash as collateral with the custodian for the benefit of the broker. For over-the-counter options, the fund may post collateral subject to the terms of an ISDA Master Agreement as generally described above if the market value of the options contract moves against it. The fund, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities underlying the written option. Losses from writing options can exceed the premium received and can exceed the potential loss from an ordinary buy and sell transaction. Although the fund’s market risk may be significant, the maximum counterparty credit risk to the fund is equal to the market value of any collateral posted to the broker. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above.

Written Option Transactions

 

    

Number of

contracts

     

Premiums

received

  
Outstanding, beginning of period      —         $—   
Options written      204         11,244   
Options closed      —         —   
Options exercised      —         —   
Options expired      —         —   
Outstanding, end of period      204         $11,244   

Purchased Options – The fund purchased call and put options for a premium. Purchased call and put options entitle the holder to buy and sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing call options may be used to hedge against an anticipated increase in the dollar cost of securities or currency to be acquired or to increase the fund’s exposure to an underlying instrument. Purchasing put options may hedge against a decline in the value of portfolio securities or currency.

The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased call and put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased call option, the premium paid is added to the cost of the security or financial instrument. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.

The risk in purchasing an option is that the fund pays a premium whether or not the option is exercised. The fund’s maximum risk of loss due to counterparty credit risk is limited to the market value of the option. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

Short Sales – The fund entered into short sales whereby it sells a security it does not own in anticipation of a decline in the value of that security. The fund 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 fund replaces the borrowed security. Losses from short sales can exceed the proceeds of the security sold; and they can also exceed the potential loss from an ordinary buy and sell transaction. The amount of any premium, dividends, or interest the fund may be required to pay in connection with a short sale will be recognized as a fund expense. During the six months ended June 30, 2011, this expense amounted to $5,195. The fund 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. At June 30, 2011, the fund had no short sales outstanding.

Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash

 

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Notes to Financial Statements (unaudited) – continued

 

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 fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. 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 fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $1,519,015   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $133,997,684   
Gross appreciation      21,300,790   
Gross depreciation      (5,697,273 ) 
Net unrealized appreciation (depreciation)      $15,603,517   
As of 12/31/10   
Undistributed ordinary income      1,281,435   
Capital loss carryforwards      (36,964,571 ) 
Other temporary differences      (381,817 ) 
Net unrealized appreciation (depreciation)      15,281,237   

 

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MFS Core Equity Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $(20,593,645 ) 
12/31/17      (16,370,926 ) 
Total      $(36,964,571 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $1,210,524   
Service Class      —         308,491   
Total      $—         $1,519,015   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $1 billion of average daily net assets      0.75%   
Average daily net assets in excess of $1 billion      0.65%   

The investment adviser has agreed in writing to reduce its management fee to 0.60% of average daily net assets in excess of $2.5 billion. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2013. For the six months ended June 30, 2011, the fund’s average daily net assets did not exceed $2.5 billion and therefore, the management fee was not reduced. The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.

The investment adviser had agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses, such that total annual operating expenses did not exceed 0.85% of average daily net assets for the Initial Class shares and 1.10% of average daily net assets for the Service Class shares. This written agreement terminated on April 30, 2011. For the period January 1, 2011 through April 30, 2011, this reduction amounted to $9,966 and is reflected as a reduction of total expenses in the Statement of Operations.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2011, the fund did not pay MFSC a fee for this service.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to

 

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MFS Core Equity Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.034% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $1,227 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $43,704,420 and $50,631,981, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      36,075         $534,056         120,904         $1,459,987   

Service Class

      299,360         4,403,269         344,200         4,323,006   
     335,435         $4,937,325         465,104         $5,782,993   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         91,292         $1,210,524   

Service Class

      —         —         23,406         308,491   
     —         $—         114,698         $1,519,015   
Shares reacquired            

Initial Class

      (601,334 )       $(8,904,714 )       (1,244,574 )       $(15,747,976 ) 

Service Class

      (176,877 )       (2,599,392 )       (587,843 )       (7,428,166 ) 
     (778,211 )       $(11,504,106 )       (1,832,417 )       $(23,176,142 ) 
Net change            

Initial Class

      (565,259 )       $(8,370,658 )       (1,032,378 )       $(13,077,465 ) 

Service Class

      122,483         1,803,878         (220,237 )       (2,796,669 ) 
     (442,776 )       $(6,566,781 )       (1,252,615 )       $(15,874,134 ) 

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee

 

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MFS Core Equity Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

and interest expense were $607 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds   

Beginning

Shares/Par

Amount

     

Acquisitions

Shares/Par

Amount

     

Dispositions

Shares/Par

Amount

     

Ending

Shares/Par

Amount

  
MFS Institutional Money Market Portfolio      60         14,001,016         (12,664,319 )       1,336,757   
Underlying Affiliated Funds   

Realized

Gain (Loss)

     

Capital Gain

Distributions

     

Dividend

Income

     

Ending

Value

  
MFS Institutional Money Market Portfolio      $—         $—         $499         $1,336,757   

 

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MFS Core Equity Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

22

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

23

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LOGO

Table of Contents

LOGO

 

MFS® Strategic Income Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

SIS-SEM

Table of Contents

MFS® STRATEGIC INCOME PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      14   
Statement of operations      15   
Statements of changes in net assets      16   
Financial highlights      17   
Notes to financial statements      19   
Board review of investment advisory agreement      27   
Proxy voting policies and information      27   
Quarterly portfolio disclosure      27   
Further information      27   
MFS® privacy notice      28   

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Strategic Income Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS Strategic Income Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure (i)

LOGO

 

Fixed income sectors (i)  
High Grade Corporates     38.6%   
High Yield Corporates     30.3%   
Non-U.S. Government Bonds     15.2%   
Emerging Markets Bonds     6.0%   
Commercial Mortgage-Backed Securities     2.5%   
U.S. Government Agencies     1.4%   
Collateralized Debt Obligations     0.9%   
Mortgage-Backed Securities     0.6%   
Asset-Backed Securities     0.5%   
Floating Rate Loans     0.2%   
U.S. Treasury Securities     (0.3)%   
Composition including fixed income credit quality (a)(i)  
AAA     8.2%   
AA     11.9%   
A     14.7%   
BBB     26.4%   
BB     13.7%   
B     13.4%   
CCC     5.0%   
CC     0.3%   
C     0.1%   
D     0.1%   
Federal Agencies     2.0%   
Not Rated     0.1%   
Non-Fixed Income     0.7%   
Cash & Other     3.4%   

 

Portfolio facts (i)  
Average Duration (d)     4.8   
Average Effective Maturity (m)     7.4 yrs.   

 

Issuer country weightings (i)(x)  
United States     64.8%   
Japan     4.5%   
France     3.4%   
Canada     3.1%   
United Kingdom     3.1%   
Italy     2.5%   
Germany     2.4%   
Netherlands     2.1%   
Brazil     1.5%   
Other Countries     12.6%   
 

 

(a)   For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). All ratings are subject to change. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities, including fixed income futures, which have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives) and commodities. Cash & Other includes cash, other assets less liabilities, offsets to derivative positions, and short-term securities. The fund may not hold all of these instruments. The fund itself has not been rated.
(d)   Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move.
(i)   For purposes of this presentation, the components include the market value of securities, and reflect the impact of the equivalent exposure of derivative positions, if applicable. These amounts may be negative from time to time. The bond component will include any accrued interest amounts. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio.
(m)   In determining an instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity.
(x)   Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s total net assets.

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		      Ending
Account Value
6/30/11		      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      0.90%         $1,000.00         $1,036.47         $4.54   
  Hypothetical (h)      0.90%         $1,000.00         $1,020.33         $4.51   
Service Class   Actual      1.15%         $1,000.00         $1,035.68         $5.80   
  Hypothetical (h)      1.15%         $1,000.00         $1,019.09         $5.76   

 

(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.

 

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PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

Issuer    Shares/Par     Value ($)  
    
BONDS – 94.0%   
Aerospace – 0.7%     
BE Aerospace, Inc., 8.5%, 2018    $ 45,000      $ 49,077   
Bombardier, Inc., 7.5%, 2018 (n)      85,000        95,200   
Bombardier, Inc., 7.75%, 2020 (n)      25,000        28,125   
CPI International Acquisition, Inc., 8%, 2018 (n)      55,000        51,975   
Hawker Beechcraft Acquisition Co. LLC, 8.5%, 2015      65,000        50,863   
Huntington Ingalls Industries, Inc., 7.125%, 2021 (n)      85,000        87,975   
    

 

 

  
     $ 363,215   
    

 

 

  
Airlines – 0.3%   
Continental Airlines, Inc., FRN, 0.602%, 2013    $ 151,785      $ 143,437   
    

 

 

  
Apparel Manufacturers – 0.2%   
Hanesbrands, Inc., 8%, 2016    $ 50,000      $ 53,375   
Phillips-Van Heusen Corp., 7.375%, 2020      55,000        58,850   
    

 

 

  
     $ 112,225   
    

 

 

  
Asset-Backed & Securitized – 3.9%   
Anthracite Ltd., CDO, 6%, 2037 (z)    $ 200,000      $ 150,000   
ARCap REIT, Inc., CDO, “H”, FRN, 6.058%, 2045 (d)(z)      147,857        5,544   
Bayview Financial Revolving Mortgage Loan Trust, FRN, 1.785%, 2040 (z)      180,426        100,914   
Capital Trust Realty Ltd., CDO, 5.16%, 2035 (z)      160,000        160,880   
Chase Commercial Mortgage Securities Corp., 6.6%, 2029 (z)      79,012        82,005   
Crest Ltd., “A1” CDO, FRN, 0.726%, 2018 (z)      138,023        126,981   
Crest Ltd., CDO, 7%, 2040 (a)      289,402        14,470   
Deutsche Mortgage & Asset Receiving Corp., FRN, 7.5%, 2031      116,486        116,686   
Falcon Franchise Loan LLC, FRN, 3.305%, 2023 (i)(z)      320,712        19,243   
Falcon Franchise Loan LLC, FRN, 3.948%, 2025 (i)(z)      412,009        55,951   
First Union-Lehman Brothers Bank of America, FRN, 0.561%, 2035 (i)      1,976,946        33,213   
First Union-Lehman Brothers Commercial Mortgage Trust, 7%, 2029 (n)      75,471        77,712   
GMAC LLC, FRN, 6.02%, 2033 (z)      162,714        168,698   
Hertz Global Holdings, Inc., 4.26%, 2014 (n)      150,000        156,741   
Morgan Stanley Capital I, Inc., FRN, 1.385%, 2039 (i)(z)      1,496,203        41,146   
Prudential Securities Secured Financing Corp., FRN, 7.325%, 2013 (z)      411,000        412,724   
Salomon Brothers Mortgage Securities, Inc., FRN, 7.285%, 2032 (z)      210,129        224,118   
    

 

 

  
     $ 1,947,026   
    

 

 

  
Automotive – 1.7%   
Accuride Corp., 9.5%, 2018    $ 80,000      $ 85,600   
Allison Transmission, Inc., 7.125%, 2019 (n)      75,000        72,938   
Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Automotive – continued   
Ford Motor Credit Co. LLC, 12%, 2015    $ 230,000      $ 285,227   
General Motors Financial Co., Inc., 6.75%, 2018 (z)      70,000        70,175   
Harley-Davidson Financial Services, 3.875%, 2016 (n)      190,000        193,239   
RCI Banque S.A., 4.6%, 2016 (n)      140,000        143,013   
    

 

 

  
     $ 850,192   
    

 

 

  
Banks & Diversified Financials (Covered Bonds) – 0.5%   
Bank of Nova Scotia, 1.45%, 2013 (n)    $ 240,000      $ 242,755   
    

 

 

  
Basic Industry – 0.1%   
Trimas Corp., 9.75%, 2017    $ 55,000      $ 60,225   
    

 

 

  
Broadcasting – 2.7%   
Allbritton Communications Co., 8%, 2018    $ 45,000      $ 45,788   
CBS Corp., 5.75%, 2020      40,000        43,353   
Citadel Broadcasting Corp., 7.75%, 2018 (n)      5,000        5,313   
Clear Channel Communications, Inc., 9%, 2021 (z)      20,000        19,150   
EH Holding Corp., 7.625%, 2021 (z)      10,000        10,200   
Gray Television, Inc., 10.5%, 2015      15,000        15,600   
Intelsat Bermuda Ltd., 11.25%, 2017      60,000        64,425   
Intelsat Jackson Holdings Ltd., 9.5%, 2016      180,000        188,775   
Lamar Media Corp., “C”, 6.625%, 2015      55,000        55,619   
LBI Media, Inc., 8.5%, 2017 (z)      55,000        43,175   
Liberty Media Corp., 8.5%, 2029      45,000        43,425   
Local TV Finance LLC, 9.25%, 2015 (p)(z)      76,186        76,281   
NBC Universal, Inc., 5.95%, 2041 (n)      161,000        163,720   
Newport Television LLC, 13%, 2017 (n)(p)      23,351        23,178   
News America, Inc., 6.4%, 2035      220,000        230,069   
News America, Inc., 6.9%, 2039      47,000        51,757   
Salem Communications Corp., 9.625%, 2016      7,000        7,376   
Sinclair Broadcast Group, Inc., 9.25%, 2017 (n)      25,000        27,438   
Sinclair Broadcast Group, Inc., 8.375%, 2018      5,000        5,250   
SIRIUS XM Radio, Inc., 13%, 2013 (n)      30,000        35,175   
SIRIUS XM Radio, Inc., 8.75%, 2015 (n)      30,000        33,075   
SIRIUS XM Radio, Inc., 7.625%, 2018 (n)      75,000        78,375   
Univision Communications, Inc., 6.875%, 2019 (n)      70,000        69,300   
Univision Communications, Inc., 7.875%, 2020 (n)      20,000        20,500   
    

 

 

  
     $ 1,356,317   
    

 

 

  
Brokerage & Asset Managers – 0.8%   
E*TRADE Financial Corp., 7.875%, 2015    $ 40,000      $ 40,200   
E*TRADE Financial Corp., 12.5%, 2017      25,000        29,250   
TD AMERITRADE Holding Corp., 5.6%, 2019      310,000        332,326   
    

 

 

  
     $ 401,776   
    

 

 

  
Building – 1.4%   
Associated Materials LLC, 9.125%, 2017 (z)    $ 15,000      $ 14,963   
Building Materials Holding Corp., 6.875%, 2018 (n)      20,000        20,400   
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Building – continued   
Building Materials Holding Corp., 7%, 2020 (n)    $ 20,000      $ 20,950   
Building Materials Holding Corp., 6.75%, 2021 (n)      20,000        20,100   
CRH PLC, 8.125%, 2018      120,000        142,311   
Lafarge S.A., 6.15%, 2011      330,000        330,446   
Nortek, Inc., 10%, 2018 (n)      10,000        10,000   
Nortek, Inc., 8.5%, 2021 (n)      80,000        74,000   
Owens Corning, 9%, 2019      65,000        77,636   
    

 

 

  
     $ 710,806   
    

 

 

  
Business Services – 0.5%   
First Data Corp., 12.625%, 2021 (n)    $ 25,000      $ 26,750   
Interactive Data Corp., 10.25%, 2018 (n)      50,000        54,375   
Iron Mountain, Inc., 6.625%, 2016      60,000        60,000   
SunGard Data Systems, Inc., 10.25%, 2015      91,000        94,185   
SunGard Data Systems, Inc., 7.375%, 2018      20,000        20,000   
SunGard Data Systems, Inc., 7.625%, 2020      10,000        10,100   
    

 

 

  
     $ 265,410   
    

 

 

  
Cable TV – 2.7%   
AMC Networks, Inc., 7.75%, 2021 (z)    $ 9,000      $ 9,405   
Bresnan Broadband Holdings LLC, 8%, 2018 (n)      10,000        10,313   
Cablevision Systems Corp., 8.625%, 2017      35,000        37,931   
CCH II LLC, 13.5%, 2016      55,000        64,763   
CCO Holdings LLC, 7.875%, 2018      85,000        89,569   
CCO Holdings LLC, 8.125%, 2020      30,000        32,400   
Cequel Communications Holdings, 8.625%, 2017 (n)      15,000        15,600   
Charter Communications Operating LLC, 10.875%, 2014 (n)      35,000        38,500   
CSC Holdings LLC, 8.5%, 2014      80,000        88,600   
CSC Holdings LLC, 8.5%, 2015      25,000        27,000   
DIRECTV Holdings LLC, 5.875%, 2019      70,000        77,635   
Insight Communications Co., Inc., 9.375%, 2018 (n)      40,000        43,900   
Mediacom LLC, 9.125%, 2019      45,000        47,475   
Myriad International Holdings B.V., 6.375%, 2017 (n)      128,000        138,240   
TCI Communications, Inc., 9.8%, 2012      245,000        257,642   
Time Warner Cable, Inc., 8.25%, 2019      190,000        236,968   
Videotron LTEE, 6.875%, 2014      21,000        21,236   
Virgin Media Finance PLC, 9.125%, 2016      100,000        105,250   
    

 

 

  
     $ 1,342,427   
    

 

 

  
Chemicals – 2.1%   
Celanese U.S. Holdings LLC, 6.625%, 2018    $ 85,000      $ 89,675   
Dow Chemical Co., 8.55%, 2019      260,000        335,255   
Hexion U.S. Finance Corp/Hexion Nova Scotia Finance, 8.875%, 2018      70,000        72,800   
Hexion U.S. Finance Corp/Hexion Nova Scotia Finance, 9%, 2020      10,000        10,250   
Huntsman International LLC, 8.625%, 2021      80,000        87,000   
Lyondell Chemical Co., 11%, 2018      143,356        160,559   
Momentive Performance Materials, Inc., 12.5%, 2014      65,000        70,688   
Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Chemicals – continued   
Momentive Performance Materials, Inc., 11.5%, 2016    $ 66,000      $ 70,290   
Polypore International, Inc., 7.5%, 2017      50,000        52,875   
Sociedad Quimica y Minera de Chile S.A., 5.5%, 2020 (n)      100,000        103,098   
    

 

 

  
     $ 1,052,490   
    

 

 

  
Computer Software – 0.3%   
Oracle Corp., 5.375%, 2040 (n)    $ 103,000      $ 104,152   
Syniverse Holdings, Inc., 9.125%, 2019 (n)      35,000        36,400   
    

 

 

  
     $ 140,552   
    

 

 

  
Computer Software – Systems – 0.2%   
DuPont Fabros Technology, Inc., REIT, 8.5%, 2017    $ 45,000      $ 49,163   
Eagle Parent, Inc., 8.625%, 2019 (z)      25,000        24,094   
    

 

 

  
     $ 73,257   
    

 

 

  
Conglomerates – 0.4%   
Amsted Industries, Inc., 8.125%, 2018 (n)    $ 50,000      $ 52,500   
Griffon Corp., 7.125%, 2018 (n)      50,000        50,188   
Pinafore LLC, 9%, 2018 (n)      85,000        91,588   
    

 

 

  
     $ 194,276   
    

 

 

  
Consumer Products – 0.5%   
ACCO Brands Corp., 10.625%, 2015    $ 5,000      $ 5,581   
Easton-Bell Sports, Inc., 9.75%, 2016      45,000        49,613   
Elizabeth Arden, Inc., 7.375%, 2021      35,000        36,444   
Libbey Glass, Inc., 10%, 2015      41,000        44,485   
Visant Corp., 10%, 2017      40,000        41,400   
Whirlpool Corp., 8%, 2012      91,000        96,149   
    

 

 

  
     $ 273,672   
    

 

 

  
Consumer Services – 0.9%   
Realogy Corp., 10.5%, 2014    $ 15,000      $ 14,850   
Realogy Corp., 11.5%, 2017      45,000        45,675   
Service Corp. International, 7%, 2017      135,000        145,463   
Service Corp. International, 7%, 2019      10,000        10,525   
Western Union Co., 5.4%, 2011      230,000        234,146   
    

 

 

  
     $ 450,659   
    

 

 

  
Containers – 0.7%   
Graham Packaging Co. LP/GPC Capital Corp., 9.875%, 2014    $ 35,000      $ 35,919   
Graham Packaging Co. LP/GPC Capital Corp., 8.25%, 2018      15,000        16,688   
Greif, Inc., 6.75%, 2017      125,000        130,000   
Owens-Illinois, Inc., 7.375%, 2016      35,000        38,063   
Packaging Dynamics Corp., 8.75%, 2016 (z)      20,000        20,300   
Reynolds Group, 8.25%, 2021 (n)      130,000        121,550   
    

 

 

  
     $ 362,520   
    

 

 

  
Defense Electronics – 0.7%   
BAE Systems Holdings, Inc., 5.2%, 2015 (n)    $ 212,000      $ 230,169   
BAE Systems Holdings, Inc., 6.375%, 2019 (n)      60,000        68,187   
ManTech International Corp., 7.25%, 2018      60,000        62,700   
    

 

 

  
     $ 361,056   
    

 

 

  
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Electronics – 0.3%   
Freescale Semiconductor, Inc., 10.125%, 2018 (n)    $ 22,000      $ 24,420   
Freescale Semiconductor, Inc., 9.25%, 2018 (n)      35,000        37,713   
Jabil Circuit, Inc., 7.75%, 2016      50,000        55,375   
Sensata Technologies B.V., 6.5%, 2019 (z)      45,000        44,888   
    

 

 

  
     $ 162,396   
    

 

 

  
Emerging Market Quasi-Sovereign – 2.3%   
Banco do Brasil S.A., 5.875%, 2022 (z)    $ 277,000      $ 273,953   
IIRSA Norte Finance Ltd., 8.75%, 2024      127,077        143,152   
Petrobras International Finance Co., 7.875%, 2019      117,000        141,677   
Petrobras International Finance Co., 6.75%, 2041      73,000        77,899   
Petroleos Mexicanos, 5.5%, 2021      106,000        111,141   
Petroleos Mexicanos, 6.5%, 2041 (z)      10,000        10,146   
Ras Laffan Liquefied Natural Gas Co. Ltd., 5.832%, 2016 (n)      210,125        229,036   
VEB Finance Ltd., 6.902%, 2020 (n)      132,000        140,791   
    

 

 

  
     $ 1,127,795   
    

 

 

  
Emerging Market Sovereign – 1.0%   
Republic of Argentina, FRN, 0.467%, 2012    $ 75,725      $ 73,850   
Republic of Hungary, 6.375%, 2021      172,000        181,460   
Republic of Philippines, 6.375%, 2034      100,000        109,250   
Republic of Poland, 5.125%, 2021      10,000        10,338   
Republic of South Africa, 5.5%, 2020      113,000        123,453   
United Mexican States, 5.95%, 2019      6,000        6,885   
United Mexican States, 5.75%, 2110      10,000        9,325   
    

 

 

  
     $ 514,561   
    

 

 

  
Energy – Independent – 3.0%   
Anadarko Petroleum Corp., 5.95%, 2016    $ 160,000      $ 180,094   
ATP Oil & Gas Corp., 11.875%, 2015      30,000        30,450   
Bill Barrett Corp., 9.875%, 2016      45,000        50,400   
Carrizo Oil & Gas, Inc., 8.625%, 2018      45,000        46,350   
Chaparral Energy, Inc., 8.875%, 2017      60,000        62,100   
Concho Resources, Inc., 8.625%, 2017      35,000        38,150   
Concho Resources, Inc., 6.5%, 2022      60,000        60,150   
Connacher Oil & Gas Ltd., 8.5%, 2019 (z)      25,000        23,750   
Continental Resources, Inc., 8.25%, 2019      45,000        49,163   
Denbury Resources, Inc., 8.25%, 2020      50,000        54,500   
Energy XXI Gulf Coast, Inc., 9.25%, 2017 (n)      50,000        53,250   
Harvest Operations Corp., 6.875%, 2017 (n)      80,000        82,600   
LINN Energy LLC, 6.5%, 2019 (z)      15,000        14,850   
LINN Energy LLC, 8.625%, 2020      20,000        21,700   
LINN Energy LLC, 7.75%, 2021 (n)      37,000        38,480   
Newfield Exploration Co., 6.625%, 2014      60,000        60,900   
Newfield Exploration Co., 6.625%, 2016      25,000        25,813   
Newfield Exploration Co., 6.875%, 2020      20,000        21,250   
OPTI Canada, Inc., 9.75%, 2013 (n)      40,000        39,700   
OPTI Canada, Inc., 8.25%, 2014 (d)      95,000        39,425   
Petrohawk Energy Corp., 7.25%, 2018      20,000        20,525   
Pioneer Natural Resources Co., 6.875%, 2018      55,000        59,383   
Pioneer Natural Resources Co., 7.5%, 2020      110,000        123,949   
QEP Resources, Inc., 6.875%, 2021      95,000        100,225   
Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Energy – Independent – continued   
Quicksilver Resources, Inc., 9.125%, 2019    $ 45,000      $ 49,050   
Range Resources Corp., 8%, 2019      35,000        37,975   
SandRidge Energy, Inc., 8%, 2018 (n)      80,000        81,600   
Talisman Energy, Inc., 7.75%, 2019      20,000        24,374   
Whiting Petroleum Corp., 6.5%, 2018      30,000        31,200   
    

 

 

  
     $ 1,521,356   
    

 

 

  
Energy – Integrated – 1.2%   
BP Capital Markets PLC, 4.5%, 2020    $ 46,000      $ 46,911   
BP Capital Markets PLC, 4.742%, 2021      130,000        134,108   
Cenovus Energy, Inc., 4.5%, 2014      60,000        65,118   
Hess Corp., 8.125%, 2019      60,000        75,918   
Pacific Rubiales Energy Corp., 8.75%, 2016 (n)      100,000        112,750   
Petro-Canada Financial Partnership, 5%, 2014      170,000        186,539   
    

 

 

  
     $ 621,344   
    

 

 

  
Engineering – Construction – 0.1%   
B-Corp. Merger Sub, Inc., 8.25%, 2019 (z)    $ 40,000      $ 39,600   
    

 

 

  
Entertainment – 0.4%   
AMC Entertainment, Inc., 8.75%, 2019    $ 90,000      $ 94,950   
AMC Entertainment, Inc., 9.75%, 2020 (n)      25,000        25,563   
Cinemark USA, Inc., 8.625%, 2019      75,000        82,125   
    

 

 

  
     $ 202,638   
    

 

 

  
Financial Institutions – 2.7%   
CIT Group, Inc., 5.25%, 2014 (n)    $ 70,000      $ 69,650   
CIT Group, Inc., 7%, 2016      85,000        84,681   
CIT Group, Inc., 7%, 2017      235,000        234,413   
CIT Group, Inc., 6.625%, 2018 (n)      53,000        55,253   
General Electric Capital Corp., 6%, 2019      50,000        55,363   
General Electric Capital Corp., 5.5%, 2020 (f)      110,000        117,799   
General Electric Capital Corp., 6.375% to 2017, FRN to 2067      75,000        76,875   
International Lease Finance Corp., 8.75%, 2017      70,000        76,563   
International Lease Finance Corp., 7.125%, 2018 (n)      69,000        73,830   
International Lease Finance Corp., 8.25%, 2020      10,000        10,800   
Nationstar Mortgage LLC, 10.875%, 2015 (n)      85,000        88,400   
ORIX Corp., 5.48%, 2011      200,000        203,057   
SLM Corp., 8.45%, 2018      25,000        27,440   
SLM Corp., 8%, 2020      95,000        102,011   
Springleaf Finance Corp., 6.9%, 2017      100,000        91,750   
    

 

 

  
     $ 1,367,885   
    

 

 

  
Food & Beverages – 1.8%   
Anheuser-Busch InBev S.A., 7.75%, 2019    $ 220,000      $ 276,770   
ARAMARK Corp., 8.5%, 2015      50,000        51,938   
B&G Foods, Inc., 7.625%, 2018      80,000        84,200   
Kraft Foods, Inc., 6.125%, 2018      170,000        194,957   
Pinnacle Foods Finance LLC, 9.25%, 2015      65,000        67,438   
Pinnacle Foods Finance LLC, 10.625%, 2017      20,000        21,325   
Pinnacle Foods Finance LLC, 8.25%, 2017      15,000        15,563   
TreeHouse Foods, Inc., 7.75%, 2018      45,000        47,813   
Tyson Foods, Inc., 6.85%, 2016      120,000        132,600   
    

 

 

  
     $ 892,604   
    

 

 

  
 

 

6

Table of Contents

MFS Strategic Income Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Food & Drug Stores – 0.4%   
CVS Caremark Corp., 5.75%, 2041    $ 180,000      $ 176,982   
    

 

 

  
Forest & Paper Products – 0.8%   
Boise, Inc., 8%, 2020    $ 45,000      $ 47,250   
Cascades, Inc., 7.75%, 2017      35,000        36,488   
Georgia-Pacific Corp., 8%, 2024      40,000        47,502   
Georgia-Pacific Corp., 7.25%, 2028      15,000        16,667   
Graphic Packaging Holding Co., 7.875%, 2018      30,000        31,800   
Inversiones CMPC S.A., 4.75%, 2018 (n)      136,000        135,869   
Votorantim Participacoes S.A., 6.75%, 2021 (n)      100,000        106,000   
    

 

 

  
     $ 421,576   
    

 

 

  
Gaming & Lodging – 2.1%   
American Casinos, Inc., 7.5%, 2021 (n)    $ 35,000      $ 36,094   
Boyd Gaming Corp., 7.125%, 2016      35,000        32,288   
Firekeepers Development Authority, 13.875%, 2015 (n)      65,000        75,075   
Fontainebleau Las Vegas Holdings LLC, 10.25%, 2015 (d)(n)      95,000        48   
GWR Operating Partnership LLP, 10.875%, 2017      25,000        27,063   
Harrah’s Operating Co., Inc., 11.25%, 2017      55,000        60,706   
Harrah’s Operating Co., Inc., 10%, 2018      4,000        3,450   
Harrah’s Operating Co., Inc., 10%, 2018      42,000        37,905   
Host Hotels & Resorts, Inc., 6.75%, 2016      45,000        46,463   
Host Hotels & Resorts, Inc., 9%, 2017      50,000        56,250   
Marriott International, Inc., 5.625%, 2013      120,000        127,985   
MGM Mirage, 10.375%, 2014      5,000        5,675   
MGM Mirage, 11.125%, 2017      20,000        22,850   
MGM Resorts International, 11.375%, 2018      35,000        39,288   
MGM Resorts International, 9%, 2020      45,000        49,275   
Penn National Gaming, Inc., 8.75%, 2019      50,000        54,375   
Seven Seas Cruises S. de R.L., 9.125%, 2019 (z)      15,000        15,450   
Station Casinos, Inc., 6.5%, 2014 (d)      150,000        15   
Station Casinos, Inc., 6.875%, 2016 (d)      140,000        14   
Wyndham Worldwide Corp., 6%, 2016      90,000        95,578   
Wyndham Worldwide Corp., 5.75%, 2018      140,000        144,563   
Wyndham Worldwide Corp., 7.375%, 2020      50,000        55,444   
Wynn Las Vegas LLC, 7.75%, 2020      50,000        54,313   
    

 

 

  
     $ 1,040,167   
    

 

 

  
Industrial – 0.4%   
Altra Holdings, Inc., 8.125%, 2016    $ 35,000      $ 37,800   
Mueller Water Products, Inc., 7.375%, 2017      14,000        13,160   
Mueller Water Products, Inc., 8.75%, 2020      42,000        45,465   
Steelcase, Inc., 6.5%, 2011      117,000        117,653   
    

 

 

  
     $ 214,078   
    

 

 

  
Insurance – 3.0%   
Aflac, Inc., 6.45%, 2040    $ 120,000      $ 119,070   
Allianz AG, 5.5% to 2014, FRN to 2049    EUR 248,000        356,940   
ING Groep N.V., 5.775% to 2015,
FRN to 2049		    $ 290,000        266,800   
Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Insurance – continued   
Metropolitan Life Global Funding, 2.875%, 2012 (n)    $ 160,000      $ 163,513   
Metropolitan Life Global Funding, 5.125%, 2014 (n)      80,000        87,405   
Principal Financial Group, Inc., 8.875%, 2019      130,000        165,363   
Prudential Financial, Inc., 6.2%, 2015      130,000        145,540   
Unum Group, 7.125%, 2016      160,000        183,654   
    

 

 

  
     $ 1,488,285   
    

 

 

  
Insurance – Property & Casualty – 2.5%   
Aon Corp., 3.5%, 2015    $ 140,000      $ 143,899   
AXIS Capital Holdings Ltd., 5.75%, 2014      205,000        221,514   
AXIS Capital Holdings Ltd., 5.875%, 2020      50,000        51,275   
CNA Financial Corp., 5.875%, 2020      160,000        166,358   
Liberty Mutual Group, Inc., 10.75% to 2038, FRN to 2088 (n)      80,000        106,200   
PartnerRe Ltd., 5.5%, 2020      107,000        108,059   
QBE Capital Funding III Ltd., FRN, 7.25%, 2041 (n)      200,000        200,675   
Travelers Cos., Inc., 3.9%, 2020      220,000        212,667   
USI Holdings Corp., 9.75%, 2015 (z)      40,000        40,100   
    

 

 

  
     $ 1,250,747   
    

 

 

  
International Market Quasi-Sovereign – 2.8%   
Bank of Ireland, 2.75%, 2012 (n)    $ 130,000      $ 121,886   
Canada Housing Trust, 4.6%, 2011 (n)    CAD 120,000        125,274   
EDF Energies Nouvelles S.A., 6.5%, 2019 (n)    $ 230,000        268,835   
ING Bank N.V., 3.9%, 2014 (n)      190,000        203,286   
Irish Life & Permanent PLC, 3.6%, 2013 (e)(n)      400,000        336,284   
Swedbank AB, 2.8%, 2012 (n)      100,000        101,444   
Vestjysk Bank A/S, FRN, 0.795%, 2013 (n)      130,000        130,884   
Westpac Banking Corp., 3.45%, 2014 (n)      100,000        106,400   
    

 

 

  
     $ 1,394,293   
    

 

 

  
International Market Sovereign – 11.8%   
Federal Republic of Germany, 3.75%, 2015    EUR 258,000      $ 396,512   
Federal Republic of Germany, 4.25%, 2018    EUR 105,000        167,486   
Federal Republic of Germany, 6.25%, 2030    EUR 129,000        251,720   
Government of Canada, 4.5%, 2015    CAD 86,000        97,175   
Government of Canada, 4.25%, 2018    CAD 45,000        51,196   
Government of Canada, 5.75%, 2033    CAD 17,000        23,539   
Government of Japan, 1.3%, 2014    JPY 41,700,000        535,465   
Government of Japan, 1.7%, 2017    JPY 59,450,000        787,075   
Government of Japan, 2.2%, 2027    JPY 19,100,000        253,589   
Government of Japan, 2.4%, 2037    JPY 20,100,000        269,394   
Kingdom of Belgium, 5.5%, 2017    EUR 113,000        180,134   
Kingdom of Spain, 4.6%, 2019    EUR 162,000        225,685   
Kingdom of the Netherlands, 3.75%, 2014    EUR 286,000        436,061   
Kingdom of the Netherlands, 5.5%, 2028    EUR 36,000        63,356   
Republic of Austria, 4.65%, 2018    EUR 139,000        220,438   
 

 

7

Table of Contents

MFS Strategic Income Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
International Market Sovereign – continued   
Republic of France, 6%, 2025    EUR 111,000      $ 200,049   
Republic of France, 4.75%, 2035    EUR 149,000        235,043   
Republic of Ireland, 4.5%, 2020    EUR 50,000        45,498   
Republic of Italy, 4.75%, 2013    EUR 284,000        423,662   
Republic of Italy, 5.25%, 2017    EUR 379,000        579,340   
United Kingdom Treasury, 8%, 2015    GBP 136,000        274,928   
United Kingdom Treasury, 8%, 2021    GBP 51,000        114,149   
United Kingdom Treasury, 4.25%, 2036    GBP 72,000        115,080   
    

 

 

  
     $ 5,946,574   
    

 

 

  
Local Authorities – 0.7%   
Louisiana Gas & Fuels Tax Rev.
(Build America Bonds), FRN, 3%, 2043		    $ 160,000      $ 162,312   
Province of Ontario, 5.45%, 2016      145,000        166,150   
    

 

 

  
     $ 328,462   
    

 

 

  
Machinery & Tools – 0.8%   
Atlas Copco AB, 5.6%, 2017 (n)    $ 214,000      $ 238,075   
Case Corp., 7.25%, 2016      25,000        27,219   
Case New Holland, Inc., 7.875%, 2017 (n)      100,000        110,000   
Rental Service Corp., 9.5%, 2014      28,000        28,700   
RSC Equipment Rental, Inc., 8.25%, 2021      20,000        19,900   
    

 

 

  
     $ 423,894   
    

 

 

  
Major Banks – 5.4%   
BAC Capital Trust XIV, 5.63% to 2012,
FRN to 2049		    $ 460,000      $ 342,125   
Bank of America Corp., 7.375%, 2014      65,000        73,073   
Bank of America Corp., 8% to 2018,
FRN to 2049		      135,000        140,982   
Barclays Bank PLC, 5.125%, 2020      130,000        131,942   
BNP Paribas, 5.186% to 2015,
FRN to 2049 (n)		      108,000        99,414   
BNP Paribas, 7.195% to 2037,
FRN to 2049 (n)		      100,000        96,500   
Commonwealth Bank of Australia, 5%, 2019 (n)      140,000        145,685   
Credit Suisse New York, 5.5%, 2014      130,000        142,785   
Goldman Sachs Group, Inc., 6%, 2014      90,000        98,727   
Intesa Sanpaolo S.p.A., FRN, 2.657%, 2014 (n)      100,000        99,755   
JPMorgan Chase & Co., 4.625%, 2021      140,000        138,867   
JPMorgan Chase Capital XXII, 6.45%, 2087      110,000        110,833   
JPMorgan Chase Capital XXVII, 7%, 2039      30,000        29,963   
Macquarie Group Ltd., 6%, 2020 (n)      171,000        171,471   
Merrill Lynch & Co., Inc., 6.4%, 2017      90,000        98,242   
Morgan Stanley, 6%, 2014      100,000        108,912   
Morgan Stanley, 7.3%, 2019      100,000        113,403   
Morgan Stanley, 5.625%, 2019      100,000        102,615   
Royal Bank of Scotland Group PLC, 7.648% to 2031, FRN to 2049      80,000        72,000   
Standard Chartered PLC, 3.85%, 2015 (n)      150,000        155,279   
UFJ Finance Aruba AEC, 6.75%, 2013      159,000        174,709   
Wells Fargo & Co., 7.98% to 2018,
FRN to 2049		      78,000        84,240   
    

 

 

  
     $ 2,731,522   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Medical & Health Technology & Services – 3.1%   
Biomet, Inc., 10%, 2017    $ 5,000      $ 5,450   
Biomet, Inc., 10.375%, 2017 (p)      25,000        27,563   
Biomet, Inc., 11.625%, 2017      85,000        94,138   
Cardinal Health, Inc., 5.8%, 2016      201,000        227,556   
CDRT Merger Sub, Inc., 8.125%, 2019 (z)      15,000        15,000   
Davita, Inc., 6.375%, 2018      65,000        65,813   
Davita, Inc., 6.625%, 2020      20,000        20,350   
Fresenius Medical Care AG & Co. KGaA, 9%, 2015 (n)      35,000        39,594   
HCA, Inc., 9.25%, 2016      85,000        90,206   
HCA, Inc., 8.5%, 2019      130,000        143,650   
HealthSouth Corp., 8.125%, 2020      110,000        118,113   
Hospira, Inc., 6.05%, 2017      100,000        113,500   
McKesson Corp., 5.7%, 2017      90,000        102,014   
Owens & Minor, Inc., 6.35%, 2016      170,000        178,464   
United Surgical Partners International, Inc., 8.875%, 2017      15,000        15,675   
United Surgical Partners International, Inc., 9.25%, 2017 (p)      25,000        26,125   
Universal Health Services, Inc., 7%, 2018      20,000        20,600   
Universal Hospital Services, Inc., 8.5%, 2015 (p)      85,000        87,550   
Universal Hospital Services, Inc., FRN, 3.777%, 2015      20,000        19,200   
Vanguard Health Systems, Inc., 8%, 2018      85,000        87,763   
VWR Funding, Inc., 10.25%, 2015 (p)      69,500        72,628   
    

 

 

  
     $ 1,570,952   
    

 

 

  
Metals & Mining – 1.8%   
ArcelorMittal, 5.5%, 2021    $ 310,000      $ 310,484   
Arch Coal, Inc., 7%, 2019 (z)      55,000        54,863   
Arch Western Finance LLC, 6.75%, 2013      26,000        26,033   
Cloud Peak Energy, Inc., 8.25%, 2017      55,000        58,850   
Cloud Peak Energy, Inc., 8.5%, 2019      70,000        75,688   
Consol Energy, Inc., 8%, 2017      35,000        38,150   
Consol Energy, Inc., 8.25%, 2020      20,000        21,800   
Novelis, Inc., 8.375%, 2017      25,000        26,688   
Novelis, Inc., 8.75%, 2020      10,000        10,800   
Southern Copper Corp., 6.75%, 2040      104,000        101,172   
Vale Overseas Ltd., 4.625%, 2020      100,000        99,454   
Vale Overseas Ltd., 6.875%, 2039      51,000        55,426   
    

 

 

  
     $ 879,408   
    

 

 

  
Mortgage-Backed – 0.6%   
Fannie Mae, 6.5%, 2032    $ 111,158      $ 126,502   
Freddie Mac, 4.224%, 2020      146,497        152,411   
    

 

 

  
     $ 278,913   
    

 

 

  
Natural Gas – Distribution – 0.2%   
AmeriGas Partners LP, 7.125%, 2016    $ 85,000      $ 87,550   
    

 

 

  
Natural Gas – Pipeline – 1.8%   
Crosstex Energy, Inc., 8.875%, 2018    $ 75,000      $ 79,875   
El Paso Corp., 7%, 2017      75,000        84,853   
El Paso Corp., 7.75%, 2032      55,000        63,980   
Energy Transfer Equity LP, 7.5%, 2020      85,000        90,100   
 

 

8

Table of Contents

MFS Strategic Income Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer   Shares/Par     Value ($)  
   
BONDS – continued    
Natural Gas – Pipeline – continued   
Enterprise Products Partners LP, 8.375% to 2016, FRN to 2066   $ 33,000      $ 35,723   
Enterprise Products Partners LP, 7.034% to 2018, FRN to 2068     20,000        21,025   
Kinder Morgan Energy Partners LP, 5.85%, 2012     143,000        150,681   
Kinder Morgan Energy Partners LP, 6.375%, 2041     190,000        194,493   
Spectra Energy Capital LLC, 8%, 2019     164,000        200,615   
   

 

 

  
    $ 921,345   
   

 

 

  
Network & Telecom – 2.2%   
AT&T, Inc., 5.5%, 2018   $ 150,000      $ 167,299   
CenturyLink, Inc., 7.6%, 2039     20,000        19,238   
Cincinnati Bell, Inc., 8.25%, 2017     15,000        15,075   
Cincinnati Bell, Inc., 8.75%, 2018     40,000        38,000   
Citizens Communications Co., 9%, 2031     20,000        20,500   
France Telecom, 4.375%, 2014     120,000        129,954   
Frontier Communications Corp., 8.125%, 2018     60,000        65,175   
Qwest Communications International, Inc., 8%, 2015     20,000        21,750   
Qwest Communications International, Inc., 7.125%, 2018 (n)     50,000        53,688   
Qwest Corp., 7.5%, 2014     140,000        156,975   
Telefonica S.A., 5.877%, 2019     150,000        157,514   
Verizon Communications, Inc., 8.75%, 2018     140,000        182,155   
Windstream Corp., 8.125%, 2018     10,000        10,600   
Windstream Corp., 7.75%, 2020     70,000        73,325   
Windstream Corp., 7.75%, 2021     15,000        15,675   
   

 

 

  
    $ 1,126,923   
   

 

 

  
Oil Services – 0.3%   
McJunkin Red Man Holding Corp., 9.5%, 2016 (n)   $ 75,000      $ 76,313   
Pioneer Drilling Co., 9.875%, 2018     65,000        69,550   
Unit Corp., 6.625%, 2021     5,000        5,000   
   

 

 

  
    $ 150,863   
   

 

 

  
Other Banks & Diversified Financials – 2.9%   
Banco Santander U.S. Debt S.A.U., 2.991%, 2013 (n)   $ 100,000      $ 99,773   
Bosphorus Financial Services Ltd., FRN, 2.06%, 2012 (z)     37,500        37,203   
Citigroup, Inc., 6.375%, 2014     120,000        132,687   
Citigroup, Inc., 6.01%, 2015     100,000        110,044   
Citigroup, Inc., 8.5%, 2019     88,000        109,090   
Groupe BPCE S.A., 12.5% to 2019,
FRN to 2049 (n)		     157,000        179,665   
Lloyds TSB Bank PLC, 5.8%, 2020 (n)     200,000        200,290   
Santander Holdings USA, Inc., 4.625%, 2016     20,000        20,099   
Santander UK PLC, 8.963% to 2030,
FRN to 2049		     103,000        113,815   
Svenska Handelsbanken AB, 4.875%, 2014 (n)     180,000        194,429   
UBS Preferred Funding Trust V, 6.243% to 2016,
FRN to 2049		     270,000        264,600   
   

 

 

  
    $ 1,461,695   
   

 

 

  
Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Pharmaceuticals – 1.0%   
Celgene Corp., 3.95%, 2020    $ 160,000      $ 154,450   
Roche Holdings, Inc., 6%, 2019 (n)      200,000        230,432   
Teva Pharmaceutical Finance LLC, 5.55%, 2016      87,000        97,921   
    

 

 

  
     $ 482,803   
    

 

 

  
Pollution Control – 0.3%   
Republic Services, Inc., 5.25%, 2021    $ 130,000      $ 137,354   
    

 

 

  
Printing & Publishing – 0.2%   
American Media, Inc., 13.5%, 2018 (z)    $ 6,759      $ 7,283   
McClatchy Co., 11.5%, 2017      30,000        31,875   
Nielsen Finance LLC, 11.5%, 2016      26,000        30,420   
Nielsen Finance LLC, 7.75%, 2018 (n)      20,000        21,000   
    

 

 

  
     $ 90,578   
    

 

 

  
Railroad & Shipping – 0.4%   
Kansas City Southern Railway, 8%, 2015    $ 70,000      $ 75,075   
Kansas City Southern Railway, 6.125%, 2021 (z)      20,000        20,000   
Panama Canal Railway Co., 7%, 2026 (n)      92,600        85,118   
    

 

 

  
     $ 180,193   
    

 

 

  
Real Estate – 1.4%   
CNL Lifestyle Properties, Inc., REIT, 7.25%, 2019 (n)    $ 25,000      $ 22,625   
Entertainment Properties Trust, REIT, 7.75%, 2020      45,000        50,738   
HCP, Inc., REIT, 5.375%, 2021      141,000        145,431   
Kennedy Wilson, Inc., 8.75%, 2019 (n)      30,000        30,188   
Kimco Realty Corp., REIT, 6.875%, 2019      36,000        41,830   
MPT Operating Partnership, 6.875%, 2021 (n)      30,000        29,475   
Simon Property Group, Inc., REIT, 6.1%, 2016      230,000        264,165   
WEA Finance LLC, REIT, 6.75%, 2019 (n)      110,000        124,739   
    

 

 

  
     $ 709,191   
    

 

 

  
Retailers – 2.3%   
AutoZone, Inc., 6.5%, 2014    $ 230,000      $ 257,670   
Burlington Coat Factory Warehouse Corp., 10%, 2019 (n)      35,000        34,650   
Limited Brands, Inc., 5.25%, 2014      59,000        61,655   
Limited Brands, Inc., 6.9%, 2017      40,000        42,850   
Limited Brands, Inc., 6.95%, 2033      20,000        18,400   
Macy’s, Inc., 8.125%, 2015      200,000        237,250   
Neiman Marcus Group, Inc., 10.375%, 2015      55,000        57,750   
QVC, Inc., 7.375%, 2020 (n)      35,000        36,838   
Sally Beauty Holdings, Inc., 10.5%, 2016      110,000        117,425   
Staples, Inc., 9.75%, 2014      140,000        166,669   
Toys “R” Us Property Co. II LLC, 8.5%, 2017      30,000        31,350   
Toys “R” Us, Inc., 10.75%, 2017      50,000        55,625   
Yankee Holdings Corp., 10.25%, 2016 (n)(p)      15,000        15,038   
    

 

 

  
     $ 1,133,170   
    

 

 

  
Specialty Stores – 0.1%   
Michaels Stores, Inc., 11.375%, 2016    $ 35,000      $ 37,275   
Michaels Stores, Inc., 7.75%, 2018 (n)      35,000        35,088   
    

 

 

  
     $ 72,363   
    

 

 

  
 

 

9

Table of Contents

MFS Strategic Income Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Supermarkets – 0.3%   
Delhaize Group, 5.875%, 2014    $ 150,000      $ 164,548   
    

 

 

  
Supranational – 0.6%   
Central American Bank, 4.875%, 2012 (n)    $ 305,000      $ 309,607   
    

 

 

  
Telecommunications – Wireless – 2.3%   
American Tower Corp., 4.625%, 2015    $ 80,000      $ 84,220   
Clearwire Corp., 12%, 2015 (n)      85,000        91,056   
Cricket Communications, Inc., 7.75%, 2020      25,000        24,500   
Crown Castle International Corp., 9%, 2015      35,000        37,975   
Crown Castle International Corp., 7.125%, 2019      130,000        136,825   
Crown Castle Towers LLC, 6.113%, 2020 (n)      157,000        171,306   
MetroPCS Wireless, Inc., 7.875%, 2018      45,000        47,644   
Nextel Communications, Inc., 7.375%, 2015      45,000        45,000   
NII Holdings, Inc., 10%, 2016      50,000        58,000   
NII Holdings, Inc., 8.875%, 2019      30,000        33,113   
NII Holdings, Inc., 7.625%, 2021      15,000        15,675   
Rogers Cable, Inc., 5.5%, 2014      164,000        180,598   
Sprint Capital Corp., 6.875%, 2028      25,000        23,688   
Sprint Nextel Corp., 8.375%, 2017      55,000        60,431   
Wind Acquisition Finance S.A., 11.75%, 2017 (n)      115,000        130,238   
    

 

 

  
     $ 1,140,269   
    

 

 

  
Telephone Services – 0.0%   
Cogent Communications Group, Inc., 8.375%, 2018 (n)    $ 15,000      $ 15,413   
    

 

 

  
Tobacco – 1.4%   
Altria Group, Inc., 9.25%, 2019    $ 210,000      $ 273,829   
Lorillard Tobacco Co., 8.125%, 2019      63,000        73,379   
Lorillard Tobacco Co., 6.875%, 2020      70,000        75,945   
Reynolds American, Inc., 6.75%, 2017      240,000        277,098   
    

 

 

  
     $ 700,251   
    

 

 

  
Transportation – 0.0%   
Navios South American Logistics, Inc., 9.25%, 2019 (n)    $ 20,000      $ 20,150   
    

 

 

  
Transportation – Services – 1.0%   
ACL I Corp., 10.625%, 2016 (p)(z)    $ 40,000      $ 35,618   
American Petroleum Tankers LLC, 10.25%, 2015      23,000        24,035   
Commercial Barge Line Co., 12.5%, 2017      60,000        67,350   
Erac USA Finance Co., 6.375%, 2017 (n)      180,000        207,008   
Hertz Corp., 8.875%, 2014      11,000        11,275   
Hertz Corp., 7.5%, 2018 (n)      35,000        36,050   
Hertz Corp., 7.375%, 2021 (n)      30,000        30,525   
Navios Maritime Acquisition Corp., 8.625%, 2017      20,000        19,700   
Navios Maritime Acquisition Corp., 8.625%, 2017 (z)      25,000        24,625   
Navios Maritime Holdings, Inc., 8.875%, 2017      25,000        25,750   
Swift Services Holdings, Inc., 10%, 2018      35,000        37,013   
    

 

 

  
     $ 518,949   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
U.S. Government Agencies and Equivalents – 1.4%   
National Credit Union Administration Guaranteed Note, 2.9%, 2020    $ 50,000      $ 49,907   
Small Business Administration, 4.34%, 2024      197,980        208,785   
Small Business Administration, 4.77%, 2024      163,122        173,827   
Small Business Administration, 4.625%, 2025      123,761        131,554   
Small Business Administration, 5.11%, 2025      114,113        122,917   
    

 

 

  
     $ 686,990   
    

 

 

  
Utilities – Electric Power – 3.6%   
AES Corp., 8%, 2017    $ 85,000      $ 90,100   
Allegheny Energy, Inc., 5.75%, 2019 (n)      150,000        156,934   
Calpine Corp., 8%, 2016 (n)      55,000        59,400   
Calpine Corp., 7.875%, 2020 (n)      65,000        67,925   
CMS Energy Corp., 4.25%, 2015      140,000        143,997   
Covanta Holding Corp., 7.25%, 2020      35,000        36,608   
Duke Energy Corp., 3.35%, 2015      220,000        228,484   
Dynegy Holdings, Inc., 7.5%, 2015      20,000        16,300   
Dynegy Holdings, Inc., 7.75%, 2019      75,000        54,563   
Edison Mission Energy, 7%, 2017      85,000        68,850   
EDP Finance B.V., 6%, 2018 (n)      200,000        185,051   
Energy Future Holdings Corp., 10%, 2020      65,000        68,995   
Energy Future Holdings Corp., 10%, 2020      135,000        143,972   
Exelon Generation Co. LLC, 5.2%, 2019      70,000        73,052   
FirstEnergy Corp., 6.45%, 2011      9,000        9,168   
GenOn Energy, Inc., 9.875%, 2020      80,000        83,600   
NRG Energy, Inc., 7.375%, 2017      45,000        47,138   
NRG Energy, Inc., 8.25%, 2020      55,000        56,100   
PPL WEM Holdings PLC, 3.9%, 2016 (n)      160,000        164,189   
Texas Competitive Electric Holdings Co. LLC, 11.5%, 2020 (n)      30,000        29,475   
    

 

 

  
     $ 1,783,901   
    

 

 

  
Total Bonds
(Identified Cost, $45,337,998)		       $ 47,194,431   
    

 

 

  
PREFERRED STOCKS – 0.3%     
Other Banks & Diversified Financials – 0.3%   
Ally Financial, Inc., 7% (n)      30      $ 28,194   
Ally Financial, Inc., “A”, 8.5%      3,307        82,774   
GMAC Capital Trust I, 8.125% (a)      1,575        40,320   
    

 

 

  
Total Preferred Stocks
(Identified Cost, $154,476)		       $ 151,288   
    

 

 

  
CONVERTIBLE PREFERRED STOCKS – 0.2%   
Automotive – 0.1%   
General Motors Co., 4.75%      1,200      $ 58,488   
    

 

 

  
Insurance – 0.1%     
MetLife, Inc., 5%      640      $ 52,755   
    

 

 

  
Total Convertible Preferred Stocks
(Identified Cost, $112,924)		       $ 111,243   
    

 

 

  
FLOATING RATE LOANS (g)(r) – 0.2%   
Broadcasting – 0.1%   
Gray Television, Inc., Term Loan B, 3.7%, 2014    $ 22,362      $ 21,926   
 

 

10

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MFS Strategic Income Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
FLOATING RATE LOANS (g)(r) – continued   
New Young Broadcasting Holding Co., Inc., Term Loan, 8%, 2015    $ 20,853      $ 20,944   
    

 

 

  
     $ 42,870   
    

 

 

  
Building – 0.0%   
Goodman Global Holdings, Inc., 2nd Lien Term Loan, 9%, 2017    $ 2,458      $ 2,521   
    

 

 

  
Financial Institutions – 0.0%   
Springleaf Finance Corp., Term Loan, 5.5%, 2017    $ 22,538      $ 22,064   
    

 

 

  
Gaming & Lodging – 0.1%   
MGM Mirage, Term Loan, 7%, 2014    $ 33,978      $ 33,176   
    

 

 

  
Total Floating Rate Loans
(Identified Cost, $89,816)		       $ 100,631   
    

 

 

  
COMMON STOCKS – 0.1%     
Automotive – 0.0%     
Accuride Corp. (a)      1,188      $ 15,004   
    

 

 

  
Broadcasting – 0.0%     
New Young Broadcasting Holding Co., Inc. (a)      9      $ 24,300   
    

 

 

  
Issuer               Shares/Par     Value ($)  
       
COMMON STOCKS – continued   
Printing & Publishing – 0.1%   
American Media Operations, Inc. (a)        1,733      $ 27,329   
       

 

 

  
Total Common Stocks
(Identified Cost, $58,327)		       $ 66,633   
       

 

 

  
    Strike
Price		     First
Exercise		              
WARRANTS – 0.1%   
Broadcasting – 0.1%   
New Young Broadcasting Holding Co., Inc.
(1 share for 1 warrant) (a)
(Identified Cost, $28,491)		   $ 0.01        7/14/10        14      $ 37,800   
       

 

 

  
MONEY MARKET FUNDS (v) – 1.9%   
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value         968,491      $ 968,491   
       

 

 

  
Total Investments
(Identified Cost, $46,750,523)		       $ 48,630,517   
       

 

 

  
OTHER ASSETS, LESS
LIABILITIES – 3.2%		         1,601,322   
       

 

 

  
Net Assets – 100.0%      $ 50,231,839   
       

 

 

  
 
(a)   Non-income producing security.

 

(d)   Non-income producing security – in default.

 

(e)   Guaranteed by Minister for Finance of Ireland.

 

(f)   All or a portion of the security has been segregated as collateral for open futures contracts.

 

(g)   The rate shown represents a weighted average coupon rate on settled positions at period end, unless otherwise indicated.

 

(i)   Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security.

 

(n)   Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $10,722,558, representing 21.4% of net assets.

 

(p)   Payment-in-kind security.

 

(r)   Remaining maturities of floating rate loans may be less than stated maturities shown as a result of contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. These loans may be subject to restrictions on resale. Floating rate loans generally have rates of interest which are determined periodically by reference to a base lending rate plus a premium.

 

(v)   Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

 

(z)   Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities:

 

Restricted Securities   

Acquisition

Date

    Cost      Value  
ACL I Corp., 10.625%, 2016    2/10/11      $39,341         $35,618   
AMC Networks, Inc., 7.75%, 2021    6/22/11      9,000         9,405   
American Media, Inc., 13.5%, 2018    12/22/10      6,863         7,283   
Anthracite Ltd., CDO, 6%, 2037    5/14/02      183,084         150,000   
ARCap REIT, Inc., CDO, “H”, FRN, 6.058%, 2045    9/21/04      5,544         5,544   
Arch Coal, Inc., 7%, 2019    6/08/11-6/10/11      55,249         54,863   
Associated Materials LLC, 9.125%, 2017    6/09/11      14,664         14,963   
B-Corp. Merger Sub, Inc., 8.25%, 2019    5/17/11-6/06/11      40,174         39,600   
Banco do Brasil S.A., 5.875%, 2022    5/19/11      273,410         273,953   

 

11

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MFS Strategic Income Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Restricted Securities - continued   

Acquisition

Date

    Cost      Value  
Bayview Financial Revolving Mortgage Loan Trust, FRN, 1.785%, 2040    3/01/06      $180,426         $100,914   
Bosphorus Financial Services Ltd., FRN, 2.06%, 2012    3/08/05      37,500         37,203   
CDRT Merger Sub, Inc., 8.125%, 2019    5/13/11      15,000         15,000   
Capital Trust Realty Ltd., CDO, 5.16%, 2035    9/16/10      160,195         160,880   
Chase Commercial Mortgage Securities Corp., 6.6%, 2029    6/07/00      68,854         82,005   
Clear Channel Communications, Inc., 9%, 2021    6/08/11      19,178         19,150   
Connacher Oil & Gas Ltd., 8.5%, 2019    5/20/11      25,000         23,750   
Crest Ltd., “A1” CDO, FRN, 0.726%, 2018    1/21/10      106,239         126,981   
EH Holding Corp., 7.625%, 2021    5/17/11      10,000         10,200   
Eagle Parent, Inc., 8.625%, 2019    5/11/11-5/24/11      25,285         24,094   
Falcon Franchise Loan LLC, FRN, 3.305%, 2023    1/18/02      11,540         19,243   
Falcon Franchise Loan LLC, FRN, 3.948%, 2025    1/29/03      35,048         55,951   
GMAC LLC, FRN, 6.02%, 2033    11/17/00      157,697         168,698   
General Motors Financial Co., Inc., 6.75%, 2018    5/26/11-6/06/11      70,546         70,175   
Kansas City Southern Railway, 6.125%, 2021    5/06/11-5/09/11      20,211         20,000   
LBI Media, Inc., 8.5%, 2017    7/18/07      54,360         43,175   
LINN Energy LLC, 6.5%, 2019    5/10/11      14,886         14,850   
Local TV Finance LLC, 9.25%, 2015    11/28/07-2/16/11      74,951         76,281   
Morgan Stanley Capital I, Inc., FRN, 1.385%, 2039    7/20/04      38,649         41,146   
Navios Maritime Acquisition Corp., 8.625%, 2017    5/12/11      25,556         24,625   
Packaging Dynamics Corp., 8.75%, 2016    1/25/11-2/01/11      20,332         20,300   
Petroleos Mexicanos, 6.5%, 2041    5/25/11      9,928         10,146   
Prudential Securities Secured Financing Corp., FRN, 7.325%, 2013    12/06/04      421,548         412,724   
Salomon Brothers Mortgage Securities, Inc., FRN, 7.285%, 2032    1/07/05      215,646         224,118   
Sensata Technologies B.V., 6.5%, 2019    5/06/11-5/18/11      45,470         44,888   
Seven Seas Cruises S. de R.L., 9.125%, 2019    5/13/11      15,000         15,450   
USI Holdings Corp., 9.75%, 2015    5/07/07-6/08/07      40,438         40,100   
Total Restricted Securities            $2,493,276   
% of Net Assets            5.0%   

The following abbreviations are used in this report and are defined:

 

CDO   Collateralized Debt Obligation

 

FRN   Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.

 

PLC   Public Limited Company

 

REIT   Real Estate Investment Trust

Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:

 

CAD   Canadian Dollar

 

CNY   Chinese Yuan Renminbi

 

EUR   Euro

 

GBP   British Pound

 

IDR   Indonesian Rupiah

 

JPY   Japanese Yen

 

SEK   Swedish Krona

 

12

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MFS Strategic Income Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Derivative Contracts at 6/30/11

Forward Foreign Currency Exchange Contracts at 6/30/11

 

     Type    Currency      Counterparty    Contracts to
Deliver/Receive		    Settlement Date
Range		    In Exchange For      Contracts
at Value		      Net Unrealized
Appreciation
(Depreciation)		  
Asset Derivatives                     
BUY      CAD       Barclays Bank PLC    9,960    7/12/11    $ 10,130       $ 10,326       $ 196   
BUY      EUR       Citibank N.A.    9,875    7/12/11      14,155         14,318         163   
BUY      EUR       Credit Suisse Group    224,604    7/12/11      322,453         325,646         3,193   
SELL      EUR       HSBC Bank    6,952    7/12/11      10,096         10,080         16   
BUY      GBP       Credit Suisse Group    23,468    7/12/11      37,580         37,662         82   
SELL      GBP       Barclays Bank PLC    166,915    7/12/11      271,973         267,868         4,105   
SELL      GBP       Deutsche Bank AG    166,915    7/12/11      272,074         267,867         4,207   
BUY      IDR       JPMorgan Chase Bank N.A.    727,447,000    7/26/11      84,391         84,561         170   
BUY      JPY       Barclays Bank PLC    34,158,361    7/12/11      422,352         424,315         1,963   
                    

 

 

  
                       $ 14,095   
                      

 

 

  
Liability Derivatives                     
SELL      CAD       Goldman Sachs International    298,655    7/12/11    $ 308,805       $ 309,609       $ (804 ) 
BUY      CNY       Deutsche Bank AG    1,766,000    11/16/11      274,928         274,184         (744 ) 
SELL      EUR       Barclays Bank PLC    11,000    7/12/11      15,827         15,949         (122 ) 
SELL      EUR       Deutsche Bank AG    28,591    7/12/11      40,567         41,453         (886 ) 
SELL      EUR       Goldman Sachs International    9,875    7/12/11      14,196         14,317         (121 ) 
SELL      EUR       JPMorgan Chase Bank N.A.    11,627    7/12/11      16,591         16,858         (267 ) 
SELL      EUR       UBS AG    1,217,785    9/15/11      1,754,560         1,762,395         (7,835 ) 
SELL      GBP       Deutsche Bank AG    7,000    7/12/11      11,213         11,234         (21 ) 
SELL      JPY       Credit Suisse Group    41,451,817    7/12/11      494,523         514,915         (20,392 ) 
BUY      SEK       Credit Suisse Group    63,821    7/12/11      10,194         10,086         (108 ) 
                    

 

 

  
                       $ (31,300 ) 
                      

 

 

  

Futures Contracts Outstanding at 6/30/11

 

Description    Currency      Contracts      Value   

Expiration

Date

      Unrealized
Appreciation
(Depreciation)		  
Asset Derivatives               
Interest Rate Futures               
U.S. Treasury Bond 30 yr (Short)      USD         1       $123,031      September - 2011         $1,411   
              

 

 

  

Swap Agreements at 6/30/11

 

Expiration              Notional
Amount		        Counterparty    Cash Flows to
Receive		   

Cash Flows

to Pay

    Fair
Value		  
Asset Derivatives                    
Credit Default Swaps         
9/20/14        USD         250,000 (a )       Goldman Sachs International    1.00% (fixed rate)    (1)      $5,496   
                     

 

 

  

 

(1)   Fund, as protection seller, to pay notional amount upon a defined credit event by Cargill, Inc., 7.375%, 10/01/25, an A2 rated bond. The fund entered into the contract to gain issuer exposure.

 

(a)   Net unamortized premiums received by the fund amounted to $372.

The credit ratings presented here are an indicator of the current payment/performance risk of the related swap, the reference obligation for which may be either a single security or, in the case of a credit default index, a basket of securities issued by corporate or sovereign issuers. Ratings are assigned to each reference security, including each individual security within a reference basket of securities, utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). The ratings for a credit default index are calculated by MFS as a weighted average of the external credit ratings of the individual securities that compose the index’s reference basket of securities.

At June 30, 2011, the fund had sufficient cash and/or other liquid securities to cover any commitments under these contracts.

See Notes to Financial Statements

 

13

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MFS Strategic Income Portfolio

 

FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  

Investments –

      

Non-affiliated issuers, at value (identified cost, $45,782,032)

      $47,662,026      

Underlying affiliated funds, at cost and value

      968,491            

Total investments, at value (identified cost, $46,750,523)

      $48,630,517            

Cash

      1,817      

Receivables for

      

Forward foreign currency exchange contracts

      14,095      

Daily variation margin on open futures contracts

      531      

Investments sold

      1,049,257      

Fund shares sold

      39,018      

Interest

      760,850      

Swaps, at value (net unamortized premiums received, $372)

      5,496      

Receivable from investment adviser

      2,140      

Other assets

      1,049            

Total assets

               $50,504,770   

Liabilities

                  

Payables for

      

Forward foreign currency exchange contracts

      $31,300      

Investments purchased

      199,612      

Fund shares reacquired

      1,405      

Payable to affiliates

      

Distribution and/or service fees

      149      

Payable for Trustees’ compensation

      850      

Accrued expenses and other liabilities

      39,615            

Total liabilities

               $272,931   

Net assets

               $50,231,839   

Net assets consist of

                  

Paid-in capital

      $48,477,844      

Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies

      1,873,107      

Accumulated net realized gain (loss) on investments and foreign currency transactions

      (3,780,510 )    

Undistributed net investment income

      3,661,398            

Net assets

               $50,231,839   

Shares of beneficial interest outstanding

               4,916,062   

 

     Net assets     

Shares

outstanding

      Net asset value
per share		  

Initial Class

      $39,360,818         3,845,867         $10.23   

Service Class

      10,871,021         1,070,195         10.16   

See Notes to Financial Statements

 

14

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MFS Strategic Income Portfolio

 

FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment income                  

Income

      

Interest

      $1,480,479      

Dividends

      2,966      

Dividends from underlying affiliated funds

      816            

Total investment income

               $1,484,261   

Expenses

      

Management fee

      $190,104      

Distribution and/or service fees

      13,570      

Administrative services fee

      8,871      

Trustees’ compensation

      2,938      

Custodian fee

      13,143      

Shareholder communications

      4,883      

Auditing fees

      30,825      

Legal fees

      3,715      

Miscellaneous

      6,300            

Total expenses

               $274,349   

Fees paid indirectly

      (13 )    

Reduction of expenses by investment adviser

      (32,352 )          

Net expenses

               $241,984   

Net investment income

               $1,242,277   

Realized and unrealized gain (loss) on investments and foreign currency transactions

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions

      $626,455      

Futures contracts

      6,160      

Swap transactions

      1,320      

Foreign currency transactions

      (168,831 )          

Net realized gain (loss) on investments and foreign currency transactions

               $465,104   

Change in unrealized appreciation (depreciation)

      

Investments

      $142,184      

Futures contracts

      (8,938 )    

Swap transactions

      368      

Translation of assets and liabilities in foreign currencies

      4,051            

Net unrealized gain (loss) on investments and foreign currency translation

               $137,665   

Net realized and unrealized gain (loss) on investments and foreign currency

               $602,769   

Change in net assets from operations

               $1,845,046   

See Notes to Financial Statements

 

15

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MFS Strategic Income Portfolio

 

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.

 

    
 
 		 Six months ended
6/30/11
(unaudited		   
  
) 		     
 		 Year ended
12/31/10		   
  

Change in net assets

      

From operations

                  

Net investment income

      $1,242,277         $2,672,926   

Net realized gain (loss) on investments and foreign currency transactions

      465,104         960,422   

Net unrealized gain (loss) on investments and foreign currency translation

      137,665         1,521,110   

Change in net assets from operations

      $1,845,046         $5,154,458   

Distributions declared to shareholders

                  

From net investment income

      $—         $(2,808,031 ) 

Change in net assets from fund share transactions

      $(3,481,809 )       $(2,342,922 ) 

Total change in net assets

      $(1,636,763 )       $3,505   

Net assets

                  

At beginning of period

      51,868,602         51,865,097   

At end of period (including undistributed net investment income of $3,661,398 and
$2,419,121, respectively)

      $50,231,839         $51,868,602   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $9.87         $9.46           $8.36           $10.40           $10.61           $10.71   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.25         $0.49           $0.55           $0.58           $0.60           $0.57   

Net realized and unrealized gain (loss) on investments
and foreign currency

        0.11         0.45           1.54           (1.82 )         (0.23 )         0.11   

Total from investment operations

        $0.36         $0.94           $2.09           $(1.24 )         $0.37           $0.68   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.53 )         $(0.99 )         $(0.80 )         $(0.58 )         $(0.66 ) 

From net realized gain on investments

        —         —           —           —           —           (0.12 ) 

Total distributions declared to shareholders

        $—         $(0.53 )         $(0.99 )         $(0.80 )         $(0.58 )         $(0.78 ) 

Net asset value, end of period

        $10.23         $9.87           $9.46           $8.36           $10.40           $10.61   

Total return (%) (k)(r)(s)

        3.65 (n)       10.27           27.52           (12.94 )         3.49           6.71   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        1.03 (a)       1.06           1.03           1.02           0.95           0.97   

Expenses after expense reductions (f)

        0.90 (a)       0.90           0.90           0.90           0.90           0.95   

Net investment income

        4.95 (a)       5.11           6.23           6.07           5.70           5.44   

Portfolio turnover

        19         48           63           38           49           64   

Net assets at end of period (000 omitted)

        $39,361         $40,927           $40,221           $31,159           $49,582           $54,423   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $9.81         $9.40           $8.30           $10.33           $10.54           $10.64   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.23         $0.47           $0.52           $0.55           $0.57           $0.54   

Net realized and unrealized gain (loss) on investments
and foreign currency

        0.12         0.45           1.54           (1.80 )         (0.23 )         0.11   

Total from investment operations

        $0.35         $0.92           $2.06           $(1.25 )         $0.34           $0.65   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.51 )         $(0.96 )         $(0.78 )         $(0.55 )         $(0.63 ) 

From net realized gain on investments

        —         —           —           —           —           (0.12 ) 

Total distributions declared to shareholders

        $—         $(0.51 )         $(0.96 )         $(0.78 )         $(0.55 )         $(0.75 ) 

Net asset value, end of period

        $10.16         $9.81           $9.40           $8.30           $10.33           $10.54   

Total return (%) (k)(r)(s)

        3.57 (n)       10.05           27.24           (13.21 )         3.24           6.45   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses before expense reductions (f)

        1.28 (a)       1.31           1.28           1.26           1.20           1.22   

Expenses after expense reductions (f)

        1.15 (a)       1.15           1.15           1.15           1.15           1.19   

Net investment income

        4.70 (a)       4.87           6.02           5.82           5.45           5.19   

Portfolio turnover

        19         48           63           38           49           64   

Net assets at end of period (000 omitted)

        $10,871         $10,942           $11,644           $11,192           $19,232           $21,949   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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 fund may receive proceeds from litigation settlements, without which performance would be lower.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Strategic Income Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in high-yield securities rated below investment grade. Investments in high-yield securities involve greater degrees of credit and market risk than investments in higher-rated securities and tend to be more sensitive to economic conditions. The fund invests 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 – Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price as provided by a third-party pricing service on the market on which they are primarily traded. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation as provided by a third-party pricing service on the market on which such futures contracts are primarily traded. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swaps are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

 

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Notes to Financial Statements (unaudited) – continued

 

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as futures, forward foreign currency exchange contracts, and swap contracts. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities      $249,341         $90,294         $27,329         $366,964   
U.S. Treasury Bonds & U.S. Government Agency & Equivalents      —         686,990         —         686,990   
Non-U.S. Sovereign Debt      —         9,152,039         —         9,152,039   
Corporate Bonds      —         26,864,902         —         26,864,902   
Residential Mortgage-Backed Securities      —         278,913         —         278,913   
Commercial Mortgage-Backed Securities      —         1,231,496         —         1,231,496   
Asset-Backed Securities (including CDOs)      —         715,530         —         715,530   
Foreign Bonds      —         8,264,561         —         8,264,561   
Floating Rate Loans      —         100,631         —         100,631   
Mutual Funds      968,491         —         —         968,491   
Total Investments      $1,217,832         $47,385,356         $27,329         $48,630,517   
Other Financial Instruments                            
Futures      $1,411         $—         $—         $1,411   
Swaps      —         5,496         —         5,496   
Forward Foreign Currency Exchange Contracts      —         (17,205 )       —         (17,205 ) 

For further information regarding security characteristics, see the Portfolio of Investments.

The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period. The table presents the activity of level 3 securities held at the beginning and the end of the period.

 

    

Equity

Securities

     

Corporate

Bonds

      Total  
Balance as of 12/31/10      $—         $6,867         $6,867   

Change in unrealized appreciation (depreciation)

      —         416         416   

Transfers into level 3

      27,329         —         27,329   

Transfers out of level 3

      —         (7,283 )       (7,283 ) 
Balance as of 6/30/11      $27,329         $—         $27,329   

The net change in unrealized appreciation (depreciation) from investments still held as level 3 at June 30, 2011 is $0.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.

Derivatives – The fund uses derivatives for different purposes, including to earn income and enhance returns, to increase or decrease exposure to a particular market, to manage or adjust the risk profile of the fund, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.

The derivative instruments used by the fund were futures contracts, forward foreign currency exchange contracts, and swap agreements. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract Tables, generally are indicative of the volume of its derivative activity during the period.

 

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Notes to Financial Statements (unaudited) – continued

 

The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2011 as reported in the Statement of Assets and Liabilities:

 

          Fair Value (a)  
Risk    Derivative Contracts    Asset Derivatives      Liability Derivatives  
Interest Rate    Interest Rate Futures      $1,411         $—   
Foreign Exchange    Forward Foreign Currency Exchange      14,095         (31,300 ) 
Credit    Credit Default Swaps      5,496         —   
Total         $21,002         $(31,300 ) 

 

(a) The value of futures contracts outstanding includes cumulative appreciation (depreciation) as reported in the fund’s Portfolio of Investments. Only the current day variation margin for futures contracts is separately reported within the fund’s Statement of Assets and Liabilities.

The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk    Futures Contracts      Swap Transactions      Foreign Currency
Transactions		  
Interest Rate      $6,160         $—         $—   
Foreign Exchange      —         —         (176,299 ) 
Credit      —         1,320         —   
Total      $6,160         $1,320         $(176,299 ) 

The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk    Futures Contracts      Swap Transactions     

Translation of
Assets and
Liabilities in

Foreign Currencies

  
Interest Rate      $(8,938 )       $—         $—   
Foreign Exchange      —         —         1,930   
Credit      —         368         —   
Total      $(8,938 )       $368         $1,930   

Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swaps and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.

Futures Contracts – The fund entered into futures contracts which may be used to hedge against or obtain broad market, interest rate or currency exposure. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

 

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Notes to Financial Statements (unaudited) – continued

 

Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a certain percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures is realized.

The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.

Forward Foreign Currency Exchange Contracts – The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.

Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on foreign currency transactions.

Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, an industry accepted settlement system. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

Swap Agreements – The fund entered into swap agreements. A swap is generally an exchange of cash payments, at specified intervals or upon the occurrence of specified events, between the fund and a counterparty. The net cash payments exchanged are recorded as a realized gain or loss on swap transactions in the Statement of Operations. The value of the swap, which is adjusted daily and includes any related interest accruals to be paid or received by the fund, is recorded on the Statement of Assets and Liabilities. The daily change in value, including any related interest accruals to be paid or received, is recorded as unrealized appreciation or depreciation on swap transactions in the Statement of Operations. Amounts paid or received at the inception of the swap are reflected as premiums paid or received on the Statement of Assets and Liabilities and are amortized using the effective interest method over the term of the agreement. A liquidation payment received or made upon early termination is recorded as a realized gain or loss on swap transactions in the Statement of Operations.

Risks related to swap agreements include the possible lack of a liquid market, unfavorable market and interest rate movements of the underlying instrument and the failure of the counterparty to perform under the terms of the agreements. To address counterparty risk, swap transactions are limited to only highly-rated counterparties. The risk is further mitigated by having an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

The fund entered into credit default swaps in order to manage its exposure to the market or certain sectors of the market, to reduce its credit risk exposure to defaults of corporate and sovereign issuers or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. In a credit default swap, the protection buyer can make an upfront payment and will make a stream of payments based on a fixed percentage applied to the contract notional amount to the protection seller in exchange for the right to receive a specified return upon the occurrence of a defined credit event on the reference obligation (which may be either a single security or a basket of securities issued by corporate or sovereign issuers) and, with respect to the rare cases where physical settlement applies, the delivery by the buyer to the seller of a defined deliverable obligation. Although contract-specific, credit events generally consist of a combination of the following: bankruptcy, failure to pay, restructuring, obligation acceleration, obligation default, or repudiation/moratorium, each as defined in the 2003 ISDA Credit Derivatives Definitions as amended by the relevant contract. Restructuring is generally not applicable when the reference

 

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Notes to Financial Statements (unaudited) – continued

 

obligation is issued by a North American corporation and obligation acceleration, obligation default, or repudiation/moratorium are generally only applicable when the reference obligation is issued by a sovereign entity or an entity in an emerging country. Upon determination of the final price for the deliverable obligation (or upon delivery of the deliverable obligation in the case of physical settlement), the difference between the value of the deliverable obligation and the swap’s notional amount is recorded as realized gain or loss on swap transactions in the Statement of Operations.

Credit default swaps are considered to have credit-risk-related contingent features since they trigger payment by the protection seller to the protection buyer upon the occurrence of a defined credit event. As discussed earlier in this note, any collateral requirements for these swaps are based generally on the market value of the swap netted against collateral requirements for other types of over-the-counter derivatives traded under each counterparty’s ISDA Master Agreement. The maximum amount of future, undiscounted payments that the fund, as protection seller, could be required to make is equal to the swap’s notional amount. The protection seller’s payment obligation would be offset to the extent of the value of the contract’s deliverable obligation. At June 30, 2011, the fund did not hold any credit default swaps at an unrealized loss where it is the protection seller.

The fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. This risk is mitigated by having an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

Loans and Other Direct Debt Instruments – The fund invests in loans and loan participations or other receivables. These investments may include standby financing commitments, including revolving credit facilities, which obligate the fund to supply additional cash to the borrower on demand. Loan participations involve a risk of insolvency of the lending bank or other financial intermediary.

Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. The fund earns certain fees in connection with its floating rate loan purchasing activities. These fees are in addition to interest payments earned and may include amendment fees, commitment fees, facility fees, consent fees, and prepayment fees. Commitment fees are recorded on an accrual basis as income in the accompanying financial statements. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund 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 ex-interest date in an amount equal to the value of the security on such date. Debt obligations may be placed on non-accrual status or set to accrue at a rate of interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by the write-off of the related interest receivables when deemed uncollectible.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements.

 

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MFS Strategic Income Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

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 amortization and accretion of debt securities and straddle loss deferrals.

The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $2,808,031   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $47,070,657   
Gross appreciation      2,939,189   
Gross depreciation      (1,379,329 ) 
Net unrealized appreciation (depreciation)      $1,559,860   
As of 12/31/10   
Undistributed ordinary income      2,836,348   
Capital loss carryforwards      (3,806,830 ) 
Other temporary differences      (464,981 ) 
Net unrealized appreciation (depreciation)      1,344,412   

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/15      $(8,256 ) 
12/31/16      (2,156,556 ) 
12/31/17      (1,642,018 ) 
Total      $(3,806,830 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $2,214,015   
Service Class      —         594,016   
Total      $—         $2,808,031   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:

 

First $1 billion of average daily net assets      0.75%   
Average daily net assets in excess of $1 billion      0.65%   

The investment adviser has agreed in writing to reduce its management fee to 0.70% for the first $1 billion of average daily net assets. This written agreement will continue until modified or rescinded by the fund’s shareholders. This management fee reduction amounted to $12,674, which is shown as a reduction of total expenses in the Statement of Operations. The

 

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MFS Strategic Income Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.70% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.90% of average daily net assets for the Initial Class shares and 1.15% of average daily net assets for the Service Class shares. This written agreement will continue until April 30, 2013. For the six months ended June 30, 2011, this reduction amounted to $19,678 and is reflected as a reduction of total expenses in the Statement of Operations.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2011, the fund did not pay MFSC a fee for this service.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0350% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $418 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $9,160,793 and $13,052,890, respectively.

 

 

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MFS Strategic Income Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      168,992         $1,713,365         355,970         $3,411,617   

Service Class

      97,804         988,430         162,760         1,564,769   
     266,796         $2,701,795         518,730         $4,976,386   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         237,301         $2,214,015   

Service Class

      —         —         63,941         594,016   
     —         $—         301,242         $2,808,031   
Shares reacquired            

Initial Class

      (469,556 )       $(4,740,402 )       (698,800 )       $(6,759,659 ) 

Service Class

      (143,135 )       (1,443,202 )       (349,494 )       (3,367,680 ) 
     (612,691 )       $(6,183,604 )       (1,048,294 )       $(10,127,339 ) 
Net change            

Initial Class

      (300,564 )       $(3,027,037 )       (105,529 )       $(1,134,027 ) 

Service Class

      (45,331 )       (454,772 )       (122,793 )       (1,208,895 ) 
     (345,895 )       $(3,481,809 )       (228,322 )       $(2,342,922 ) 

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $206 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds   

Beginning

Shares/Par

Amount

     

Acquisitions

Shares/Par

Amount

     

Dispositions

Shares/Par

Amount

     

Ending

Shares/Par

Amount

  
MFS Institutional Money Market Portfolio      55         8,062,912         (7,094,476 )       968,491   
Underlying Affiliated Funds   

Realized

Gain (Loss)

     

Capital Gain

Distributions

     

Dividend

Income

     

Ending

Value

  
MFS Institutional Money Market Portfolio      $—         $—         $816         $968,491   

 

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MFS Strategic Income Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

29

Table of Contents

LOGO

Table of Contents

LOGO

 

MFS® Bond Portfolio

MFS® Variable Insurance Trust II

 

LOGO

 

 

SEMIANNUAL REPORT

June 30, 2011

 

BDS-SEM

Table of Contents

MFS® BOND PORTFOLIO

 

CONTENTS   
Letter from the CEO      1   
Portfolio composition      2   
Expense table      3   
Portfolio of investments      4   
Statement of assets and liabilities      10   
Statement of operations      11   
Statements of changes in net assets      12   
Financial highlights      13   
Notes to financial statements      15   
Board review of investment advisory agreement      22   
Proxy voting policies and information      22   
Quarterly portfolio disclosure      22   
Further information      22   
MFS® privacy notice      23   

 

 

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 Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

Table of Contents

MFS Bond Portfolio

 

LETTER FROM THE CEO

 

LOGO

 

Dear Contract Owners:

After about a year of almost uninterrupted macroeconomic and financial market improvement following the global credit crisis, investors grew more cautious in the middle of 2010 as fears grew that some European countries would default on their debt and as economic data showed a weakening

trend in the global economy. As a result asset prices fell significantly.

Last September the U.S. Federal Reserve Board’s promises to make lending conditions easier helped assuage market fears and drive asset prices off their recent lows. A combination of solid earnings and improving economic data gave an additional boost to investor sentiment.

In the following months, the renewed positive market mood, coupled with indications of better global macroeconomic activity, pushed many asset valuations to post-crisis highs. At the same time, global sovereign

bond yields initially rose as investors became concerned about inflationary pressures, driven by higher prices for oil as well as other commodities. However, by the end of the second quarter of 2011, a weakening macroeconomic backdrop and renewed concerns over debt problems in some eurozone countries pushed equities lower.

For the remainder of 2011, we are cautiously optimistic that economic growth will continue to improve and that the global economies will recover from the shocks of the past few years. We expect the pace of recovery worldwide to be uneven and volatile and acknowledge the elevated uncertainty created by events in Japan, Europe, the Middle East, as well as that created by the U.S. debate over raising the debt ceiling and the downgrade by Standard & Poor’s of the U.S. long-term credit rating.

As always, we continue to be mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to remind investors of the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with their advisors to research and identify appropriate investment opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

August 16, 2011

 

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

 

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MFS Bond Portfolio

 

PORTFOLIO COMPOSITION

 

Portfolio structure (i)

LOGO

 

Fixed income sectors (i)  
High Grade Corporates     59.3%   
High Yield Corporates     27.5%   
Emerging Markets Bonds     6.2%   
Commercial Mortgage-Backed Securities     4.0%   
Collateralized Debt Obligations     1.4%   
Floating Rate Loans     0.1%   
Asset-Backed Securities     0.1%   
Mortgage-Backed Securities (o)     0.0%   
Composition including fixed income credit quality (a)(i)  
AAA     2.0%   
AA     3.9%   
A     16.8%   
BBB     46.1%   
BB     25.8%   
B     3.5%   
CCC     0.2%   
C (o)     0.0%   
D     0.3%   
Federal Agencies (o)     0.0%   
Not Rated (o)     0.0%   
Cash & Other     1.4%   
Portfolio facts (i)  
Average Duration (d)     5.2   
Average Effective Maturity (m)     7.7 yrs.   
 

 

(a)   For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). All ratings are subject to change. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities, including fixed income futures, which have not been rated by any rating agency. Cash & Other includes cash, other assets less liabilities, offsets to derivative positions, and short-term securities. The fund may not hold all of these instruments. The fund itself has not been rated.
(d)   Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move.
(i)   For purposes of this presentation, the components include the market value of securities, and reflect the impact of the equivalent exposure of derivative positions, if applicable. These amounts may be negative from time to time. The bond component will include any accrued interest amounts. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio.
(m)   In determining an instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity.
(o)   Less than 0.1%.

Percentages are based on net assets as of 6/30/11.

The portfolio is actively managed and current holdings may be different.

 

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MFS Bond Portfolio

 

EXPENSE TABLE

 

Fund Expenses Borne by the Contract Holders During the Period,

January 1, 2011 through June 30, 2011

As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund 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, 2011 through June 30, 2011.

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 $1,000 = 8.6), 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 fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s 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 fund 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 fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund 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 fund) 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 fund 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         Annualized
Expense Ratio		      Beginning
Account Value
1/01/11		     

Ending

Account Value
6/30/11

      Expenses Paid
During Period (p)
1/01/11-6/30/11		  
Initial Class   Actual      0.70%         $1,000.00         $1,039.16         $3.54   
  Hypothetical (h)      0.70%         $1,000.00         $1,021.32         $3.51   
Service Class   Actual      0.95%         $1,000.00         $1,036.84         $4.80   
  Hypothetical (h)      0.95%         $1,000.00         $1,020.08         $4.76   

 

(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.

 

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MFS Bond Portfolio

 

PORTFOLIO OF INVESTMENTS – 6/30/11 (unaudited)

 

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

 

Issuer    Shares/Par     Value ($)  
    
BONDS – 96.7%     
Aerospace – 1.8%     
BE Aerospace, Inc., 8.5%, 2018    $ 2,258,000      $ 2,464,043   
Bombardier, Inc., 7.75%, 2020 (n)      1,925,000        2,165,625   
    

 

 

  
     $ 4,629,668   
    

 

 

  
Airlines – 0.6%     
Continental Airlines, Inc., 7.25%, 2021    $ 356,969      $ 384,634   
Continental Airlines, Inc., FRN, 0.602%, 2013      1,233,255        1,165,426   
    

 

 

  
     $ 1,550,060   
    

 

 

  
Asset-Backed & Securitized – 5.4%     
Anthracite Ltd., “A”, CDO, FRN,
0.545%, 2019 (z)		    $ 464,669      $ 404,262   
ARCap REIT, Inc., CDO, “G”, FRN,
6.099%, 2045 (d)(z)		      350,000        35,875   
Bayview Financial Revolving Mortgage Loan Trust, FRN, 1.785%, 2040 (z)      339,200        189,719   
Capital Trust Realty Ltd., CDO,
5.16%, 2035 (z)		      1,530,404        1,538,821   
Citigroup/Deutsche Bank Commercial Mortgage Trust, 5.322%, 2049      514,266        545,658   
Commercial Mortgage Acceptance Corp., FRN, 2.046%, 2030 (i)      1,049,285        47,615   
Commercial Mortgage Pass-Through Certificates, “A4”, 5.306%, 2046      397,355        425,508   
Credit Suisse Mortgage Capital Certificate, 5.311%, 2039      454,000        486,245   
Crest Ltd., “A2”, CDO, 4.669%, 2018 (z)      390,299        365,906   
Falcon Franchise Loan LLC, FRN,
3.948%, 2025 (i)(z)		      1,379,817        187,379   
First Union-Lehman Brothers Commercial Mortgage Trust, 7%, 2029 (n)      305,405        314,476   
G-Force LLC, CDO, “A2”, 4.83%, 2036 (z)      696,313        689,350   
GMAC LLC, FRN, 6.02%, 2033 (z)      371,919        385,596   
GMAC LLC, FRN, 7.95%, 2034 (n)      825,000        717,750   
Greenwich Capital Commercial Funding Corp., FRN, 6.077%, 2038      350,000        359,621   
JPMorgan Chase Commercial Mortgage Securities Corp., 5.42%, 2049      1,020,006        1,093,650   
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.572%, 2042 (n)      765,072        261,550   
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 6.004%, 2049      1,195,039        1,288,848   
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 6.186%, 2051      2,617,888        2,785,046   
KKR Financial CLO Ltd., “C”, FRN,
1.71%, 2021 (n)		      505,395        422,005   
Lehman Brothers Commercial Conduit Mortgage Trust, FRN, 1.072%, 2030 (i)      1,387,609        28,030   
Morgan Stanley Capital I, Inc., FRN,
1.185%, 2030 (i)(z)		      2,922,414        73,645   
Prudential Securities Secured Financing Corp., FRN, 7.325%, 2013 (z)      567,000        569,379   
Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Asset-Backed & Securitized – continued     
Spirit Master Funding LLC, 5.05%, 2023 (z)    $ 352,123      $ 312,777   
    

 

 

  
     $ 13,528,711   
    

 

 

  
Automotive – 3.0%     
Ford Motor Credit Co. LLC, 8%, 2014    $ 1,415,000      $ 1,552,316   
Ford Motor Credit Co. LLC, 5%, 2018      1,000,000        996,581   
Harley-Davidson Financial Services,
3.875%, 2016 (n)		      1,061,000        1,079,086   
Lear Corp., 8.125%, 2020      1,797,000        1,936,268   
RCI Banque S.A., 4.6%, 2016 (n)      802,000        819,261   
TRW Automotive, Inc., 7.25%, 2017 (n)      1,093,000        1,213,230   
    

 

 

  
     $ 7,596,742   
    

 

 

  
Biotechnology – 0.2%     
Life Technologies Corp., 6%, 2020    $ 360,000      $ 390,588   
    

 

 

  
Broadcasting – 2.1%     
CBS Corp., 8.875%, 2019    $ 760,000      $ 968,818   
CBS Corp., 5.75%, 2020      440,000        476,888   
News America, Inc., 8.5%, 2025      770,000        974,109   
SIRIUS XM Radio, Inc., 13%, 2013 (n)      2,005,000        2,350,861   
WPP Finance, 8%, 2014      366,000        429,332   
    

 

 

  
     $ 5,200,008   
    

 

 

  
Brokerage & Asset Managers – 0.4%     
TD Ameritrade Holding Co., 4.15%, 2014    $ 855,000      $ 905,319   
    

 

 

  
Building – 1.9%     
Mohawk Industries, Inc., 6.875%, 2016    $ 2,340,000      $ 2,544,750   
Owens Corning, Inc., 6.5%, 2016      1,978,000        2,152,226   
    

 

 

  
     $ 4,696,976   
    

 

 

  
Cable TV – 3.6%     
Cablevision Systems Corp., 8%, 2020    $ 1,105,000      $ 1,185,113   
CCH II LLC, 13.5%, 2016      1,500,000        1,766,250   
Cox Communications, Inc., 6.25%, 2018 (n)      261,000        298,934   
DIRECTV Holdings LLC, 7.625%, 2016      570,000        621,300   
DIRECTV Holdings LLC, 5.875%, 2019      490,000        543,444   
Myriad International Holdings B.V.,
6.375%, 2017 (n)		      586,000        632,880   
TCI Communications, Inc., 9.8%, 2012      439,000        461,653   
Time Warner Cable, Inc., 8.25%, 2019      850,000        1,060,121   
Time Warner Cable, Inc., 5%, 2020      354,000        367,786   
Time Warner Entertainment Co. LP,
8.375%, 2033		      266,000        339,977   
Virgin Media Finance PLC, 9.5%, 2016      1,600,000        1,808,000   
    

 

 

  
     $ 9,085,458   
    

 

 

  
Chemicals – 3.9%     
Ashland, Inc., 9.125%, 2017    $ 1,432,000      $ 1,611,000   
Dow Chemical Co., 8.55%, 2019      1,936,000        2,496,364   
Lyondell Chemical Co., 11%, 2018      3,115,000        3,488,800   
Nalco Co., 8.25%, 2017      2,033,000        2,221,053   
    

 

 

  
     $ 9,817,217   
    

 

 

  
 

 

4

Table of Contents

MFS Bond Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Conglomerates – 0.2%     
Kennametal, Inc., 7.2%, 2012    $ 526,000      $ 554,762   
    

 

 

  
Consumer Products – 1.8%     
Hasbro, Inc., 6.35%, 2040    $ 1,544,000      $ 1,596,033   
Newell Rubbermaid, Inc., 5.5%, 2013      1,202,000        1,286,596   
Whirlpool Corp., 8%, 2012      1,634,000        1,726,450   
    

 

 

  
     $ 4,609,079   
    

 

 

  
Consumer Services – 1.0%     
Service Corp. International, 7.375%, 2014    $ 820,000      $ 891,750   
Service Corp. International, 7%, 2019      450,000        473,625   
Western Union Co., 5.4%, 2011      1,133,000        1,153,426   
    

 

 

  
     $ 2,518,801   
    

 

 

  
Containers – 1.5%     
Crown Americas LLC, 7.625%, 2017    $ 2,356,000      $ 2,523,865   
Greif, Inc., 6.75%, 2017      1,136,000        1,181,440   
    

 

 

  
     $ 3,705,305   
    

 

 

  
Defense Electronics – 0.6%     
BAE Systems Holdings, Inc.,
6.375%, 2019 (n)		    $ 1,358,000      $ 1,543,288   
    

 

 

  
Electronics – 0.2%     
Tyco Electronics Group S.A., 6.55%, 2017    $ 360,000      $ 424,169   
    

 

 

  
Emerging Market Quasi-Sovereign – 1.7%     
Development Bank of Kazakhstan,
5.5%, 2015 (n)		    $ 709,000      $ 730,270   
Gaz Capital S.A., 8.125%, 2014 (n)      409,000        465,238   
Majapahit Holding B.V., 7.75%, 2020 (n)      589,000        689,130   
Petrobras International Finance Co., 3.875%, 2016      1,179,000        1,200,597   
Petroleos Mexicanos, 6.5%, 2041 (z)      70,000        71,025   
VEB Finance Ltd., 6.902%, 2020 (n)      653,000        696,490   
VTB Capital S.A., 6.551%, 2020 (n)      403,000        409,045   
    

 

 

  
     $ 4,261,795   
    

 

 

  
Emerging Market Sovereign – 0.3%     
Republic of Hungary, 6.375%, 2021    $ 630,000      $ 664,650   
    

 

 

  
Energy – Independent – 5.6%     
Anadarko Petroleum Corp., 6.375%, 2017    $ 1,337,000      $ 1,532,649   
Anadarko Petroleum Corp., 6.45%, 2036      804,000        838,931   
Anadarko Petroleum Corp., 6.2%, 2040      750,000        760,122   
Chesapeake Energy Corp., 6.875%, 2020      1,700,000        1,795,625   
Newfield Exploration Co., 6.625%, 2016      1,715,000        1,770,738   
Nexen, Inc., 7.5%, 2039      1,400,000        1,565,978   
Pioneer Natural Resources Co., 6.65%, 2017      1,100,000        1,198,094   
Pioneer Natural Resources Co., 7.5%, 2020      1,518,000        1,710,493   
Southwestern Energy Co., 7.5%, 2018      1,851,000        2,105,510   
Talisman Energy, Inc., 7.75%, 2019      590,000        719,022   
    

 

 

  
     $ 13,997,162   
    

 

 

  
Energy – Integrated – 0.5%     
BP Capital Markets PLC, 4.5%, 2020    $ 747,000      $ 761,786   
Hess Corp., 8.125%, 2019      440,000        556,730   
    

 

 

  
     $ 1,318,516   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Entertainment – 0.3%     
Viacom, Inc., 3.5%, 2017    $ 800,000      $ 813,846   
    

 

 

  
Financial Institutions – 3.3%     
CIT Group, Inc., 6.625%, 2018 (n)    $ 1,900,000      $ 1,980,750   
General Electric Capital Corp., 3.75%, 2014      413,000        437,164   
General Electric Capital Corp., 5.5%, 2020      1,470,000        1,574,220   
International Lease Finance Corp., 8.75%, 2017      90,000        98,438   
International Lease Finance Corp.,
7.125%, 2018 (n)		      570,000        609,900   
International Lease Finance Corp., 6.25%, 2019      1,147,000        1,120,696   
SLM Corp., 6.25%, 2016      1,370,000        1,421,375   
SLM Corp., 8%, 2020      1,090,000        1,170,446   
    

 

 

  
     $ 8,412,989   
    

 

 

  
Food & Beverages – 3.5%     
Anheuser-Busch InBev S.A., 7.75%, 2019    $ 610,000      $ 767,407   
Kraft Foods, Inc., 6.125%, 2018      920,000        1,055,060   
Miller Brewing Co., 5.5%, 2013 (n)      1,724,000        1,867,392   
Pernod Ricard S.A., 5.75%, 2021 (n)      898,000        937,563   
Tyson Foods, Inc., 6.85%, 2016      2,229,000        2,463,045   
Wm. Wrigley Jr. Co., 3.05%, 2013 (n)      1,797,000        1,836,897   
    

 

 

  
     $ 8,927,364   
    

 

 

  
Food & Drug Stores – 0.4%     
CVS Caremark Corp., 3.25%, 2015    $ 296,000      $ 307,203   
CVS Caremark Corp., 5.75%, 2017      664,000        745,789   
    

 

 

  
     $ 1,052,992   
    

 

 

  
Forest & Paper Products – 1.2%     
Fibria Overseas Finance, 6.75%, 2021 (n)    $ 625,000      $ 654,688   
Georgia-Pacific Corp., 7.125%, 2017 (n)      1,000,000        1,054,255   
Georgia-Pacific Corp., 5.4%, 2020 (n)      980,000        998,749   
Inversiones CMPC S.A., 4.75%, 2018 (n)      394,000        393,620   
    

 

 

  
     $ 3,101,312   
    

 

 

  
Gaming & Lodging – 1.7%     
Host Hotels & Resorts, Inc., 6.75%, 2016    $ 1,600,000      $ 1,652,000   
Wyndham Worldwide Corp., 6%, 2016      2,530,000        2,686,807   
    

 

 

  
     $ 4,338,807   
    

 

 

  
Insurance – 2.9%     
Aflac, Inc., 6.45%, 2040    $ 952,000      $ 944,624   
American International Group, Inc., 6.4%, 2020      1,200,000        1,291,662   
ING Groep N.V., 5.775% to 2015, FRN to 2049      1,392,000        1,280,640   
Metropolitan Life Global Funding,
5.125%, 2013 (n)		      600,000        638,417   
Metropolitan Life Global Funding,
5.125%, 2014 (n)		      370,000        404,247   
Prudential Financial, Inc., 4.75%, 2015      631,000        678,877   
Unum Group, 7.125%, 2016      500,000        573,917   
UnumProvident Corp., 6.85%, 2015 (n)      1,340,000        1,499,972   
    

 

 

  
     $ 7,312,356   
    

 

 

  
 

 

5

Table of Contents

MFS Bond Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Insurance – Health – 0.3%     
Humana, Inc., 7.2%, 2018    $ 754,000      $ 875,269   
    

 

 

  
Insurance – Property & Casualty – 1.8%     
AXIS Capital Holdings Ltd., 5.75%, 2014    $ 855,000      $ 923,875   
AXIS Capital Holdings Ltd., 5.875%, 2020      190,000        194,843   
Chubb Corp., 6.375% to 2017, FRN to 2067      279,000        288,765   
CNA Financial Corp., 5.875%, 2020      1,570,000        1,632,386   
XL Group PLC, 6.5% to 2017, FRN to 2049      663,000        608,301   
ZFS Finance USA Trust V, 6.5% to 2017, FRN to 2067 (n)      896,000        891,520   
    

 

 

  
     $ 4,539,690   
    

 

 

  
Machinery & Tools – 0.9%     
Case New Holland, Inc., 7.875%, 2017 (n)    $ 1,989,000      $ 2,187,900   
    

 

 

  
Major Banks – 8.7%     
Bank of America Corp., 5.65%, 2018    $ 580,000      $ 611,512   
Bank of America Corp., 7.625%, 2019      500,000        579,196   
Bank of America Corp., 5.625%, 2020      185,000        191,015   
BB&T Corp., 3.95%, 2016      500,000        523,253   
BNP Paribas, 7.195% to 2037, FRN to 2049 (n)      700,000        675,500   
Commonwealth Bank of Australia,
5%, 2019 (n)		      400,000        416,244   
Credit Suisse (USA), Inc., 6%, 2018      180,000        194,231   
Goldman Sachs Group, Inc., 5.625%, 2017      1,123,000        1,188,850   
Goldman Sachs Group, Inc., 7.5%, 2019      1,927,000        2,242,147   
HSBC USA, Inc., 4.875%, 2020      1,540,000        1,516,182   
JPMorgan Chase & Co., 4.25%, 2020      893,000        873,653   
JPMorgan Chase & Co., 4.625%, 2021      1,200,000        1,190,291   
JPMorgan Chase Capital XXII, 6.45%, 2087      758,000        763,743   
JPMorgan Chase Capital XXVII, 7%, 2039      199,000        198,753   
Macquarie Group Ltd., 6%, 2020 (n)      1,000,000        1,002,756   
Macquarie Group Ltd., 6.25%, 2021 (n)      580,000        579,659   
Merrill Lynch & Co., Inc., 6.15%, 2013      500,000        536,867   
Merrill Lynch & Co., Inc., 6.05%, 2016      349,000        365,888   
Morgan Stanley, 5.75%, 2016      906,000        962,288   
Morgan Stanley, 6.625%, 2018      701,000        772,217   
Morgan Stanley, 7.3%, 2019      1,240,000        1,406,192   
PNC Funding Corp., 5.625%, 2017      1,095,000        1,205,713   
Santander UK PLC, 3.875%, 2014 (n)      413,000        420,579   
UFJ Finance Aruba AEC, 6.75%, 2013      1,028,000        1,129,567   
UniCredito Luxembourg Finance S.A.,
6%, 2017 (n)		      510,000        490,102   
Wachovia Corp., 6.605%, 2025      1,270,000        1,406,094   
Wells Fargo & Co., 7.98% to 2018, FRN to 2049      348,000        375,840   
    

 

 

  
     $ 21,818,332   
    

 

 

  
Medical & Health Technology & Services – 1.3%     
Fresenius Medical Care AG & Co. KGaA,
9%, 2015 (n)		    $ 1,187,000      $ 1,342,794   
Hospira, Inc., 6.05%, 2017      906,000        1,028,308   
McKesson Corp., 5.7%, 2017      770,000        872,789   
McKesson Corp., 7.5%, 2019      120,000        147,407   
    

 

 

  
     $ 3,391,298   
    

 

 

  
Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Metals & Mining – 5.2%     
ArcelorMittal, 6.5%, 2014    $ 945,000      $ 1,047,935   
ArcelorMittal, 9.85%, 2019      1,917,000        2,430,240   
Gold Fields Ltd., 4.875%, 2020 (n)      927,000        877,442   
Peabody Energy Corp., 7.375%, 2016      2,670,000        3,017,100   
Southern Copper Corp., 6.75%, 2040      2,050,000        1,994,258   
Teck Resources Ltd., 10.75%, 2019      940,000        1,187,925   
Vale Overseas Ltd., 5.625%, 2019      764,000        815,386   
Vale Overseas Ltd., 6.875%, 2039      1,110,000        1,206,326   
Vedanta Resources PLC, 6.75%, 2016 (z)      451,000        449,286   
    

 

 

  
     $ 13,025,898   
    

 

 

  
Mortgage-Backed – 0.0%     
Fannie Mae, 7.5%, 2030 - 2031    $ 67,678      $ 79,459   
    

 

 

  
     $ 79,459   
    

 

 

  
Natural Gas – Pipeline – 3.9%     
El Paso Pipeline Partners LP, 6.5%, 2020    $ 940,000      $ 1,052,282   
Energy Transfer Partners LP, 8.5%, 2014      1,252,000        1,456,647   
Energy Transfer Partners LP, 9.7%, 2019      480,000        613,400   
Enterprise Products Operating LP, 5.65%, 2013      354,000        379,712   
Enterprise Products Partners LP, 6.3%, 2017      540,000        619,371   
Enterprise Products Partners LP, 8.375% to 2016, FRN to 2066      506,000        547,745   
Enterprise Products Partners LP, 7.034% to 2018, FRN to 2068      267,000        280,684   
Kinder Morgan Energy Partners, 6.85%, 2020      370,000        427,807   
Kinder Morgan Energy Partners LP,
5.125%, 2014		      410,000        450,032   
Kinder Morgan Energy Partners LP, 7.4%, 2031      581,000        661,814   
Plains All American Pipeline, LP, 3.95%, 2015      1,290,000        1,353,096   
Rockies Express Pipeline, 5.625%, 2020 (n)      697,000        712,227   
Spectra Energy Capital LLC, 8%, 2019      942,000        1,152,314   
    

 

 

  
     $ 9,707,131   
    

 

 

  
Network & Telecom – 2.3%     
AT&T, Inc., 5.35%, 2040    $ 600,000      $ 568,720   
CenturyLink, Inc., 7.6%, 2039      580,000        557,890   
Telefonica Emisiones S.A.U., 5.134%, 2020      1,200,000        1,189,522   
Telefonica Emisiones S.A.U., 5.462%, 2021      760,000        771,535   
Verizon Communications, Inc., 1.95%, 2014      2,500,000        2,540,691   
Verizon New York, Inc., 6.875%, 2012      51,000        53,271   
    

 

 

  
     $ 5,681,629   
    

 

 

  
Oil Services – 0.5%     
Transocean, Inc., 6%, 2018    $ 490,000      $ 542,519   
Transocean, Inc., 6.5%, 2020      610,000        682,126   
    

 

 

  
     $ 1,224,645   
    

 

 

  
Oils – 0.5%     
LUKOIL International Finance B.V.,
6.125%, 2020 (n)		    $ 1,199,000      $ 1,236,469   
    

 

 

  
 

 

6

Table of Contents

MFS Bond Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Other Banks & Diversified Financials – 4.6%     
American Express Centurion Bank, 5.5%, 2013    $ 590,000      $ 631,180   
American Express Co., 8.125%, 2019      320,000        405,692   
Banco Bradesco S.A., 6.75%, 2019 (n)      786,000        844,950   
Banco Santander U.S. Debt S.A.U.,
3.781%, 2015 (n)		      1,500,000        1,446,384   
Capital One Financial Corp., 8.8%, 2019      1,000,000        1,227,241   
Capital One Financial Corp., 10.25%, 2039      510,000        540,600   
Citigroup, Inc., 6.125%, 2018      635,000        699,281   
Citigroup, Inc., 5.375%, 2020      500,000        521,782   
Citigroup, Inc., 8.125%, 2039      500,000        625,684   
Discover Bank, 7%, 2020      1,426,000        1,583,845   
HSBC Holdings PLC, 5.1%, 2021      1,230,000        1,260,484   
Nordea Bank AB, 5.424% to 2015, FRN to 2049 (n)      412,000        391,400   
Santander Holdings USA, Inc., 4.625%, 2016      290,000        291,440   
Turkiye Garanti Bankasi A.S.,
6.25%, 2021 (z)		      668,000        647,960   
UBS Preferred Funding Trust V,
6.243% to 2016, FRN to 2049		      547,000        536,060   
    

 

 

  
     $ 11,653,983   
    

 

 

  
Pharmaceuticals – 1.2%     
Celgene Corp., 2.45%, 2015    $ 606,000      $ 602,382   
Mylan Laboratories, Inc., 7.625%, 2017 (n)      2,277,000        2,481,930   
    

 

 

  
     $ 3,084,312   
    

 

 

  
Pollution Control – 1.0%     
Allied Waste North America, Inc., 6.875%, 2017    $ 1,110,000      $ 1,202,963   
Republic Services, Inc., 5.25%, 2021      1,160,000        1,225,624   
    

 

 

  
     $ 2,428,587   
    

 

 

  
Printing & Publishing – 0.1%     
Pearson PLC, 5.5%, 2013 (n)    $ 260,000      $ 278,266   
    

 

 

  
Railroad & Shipping – 0.5%     
CSX Corp., 7.375%, 2019    $ 365,000      $ 444,914   
Kansas City Southern, 8%, 2018      757,000        821,345   
    

 

 

  
     $ 1,266,259   
    

 

 

  
Real Estate – 2.4%     
HCP, Inc., REIT, 5.375%, 2021    $ 1,369,000      $ 1,412,024   
HRPT Properties Trust, REIT, 6.25%, 2016      1,027,000        1,124,492   
Simon Property Group, Inc., REIT, 5.75%, 2015      440,000        493,908   
Simon Property Group, Inc., REIT, 10.35%, 2019      1,026,000        1,420,200   
WEA Finance LLC, REIT, 6.75%, 2019 (n)      1,447,000        1,640,888   
    

 

 

  
     $ 6,091,512   
    

 

 

  
Retailers – 1.7%     
Gap, Inc., 5.95%, 2021    $ 1,149,000      $ 1,103,855   
Home Depot, Inc., 5.95%, 2041      822,000        846,517   
Limited Brands, Inc., 7%, 2020      1,941,000        2,042,903   
Issuer    Shares/Par     Value ($)  
    
BONDS – continued     
Retailers – continued     
Staples, Inc., 9.75%, 2014    $ 335,000      $ 398,814   
    

 

 

  
     $ 4,392,089   
    

 

 

  
Specialty Stores – 0.4%     
Advance Auto Parts, Inc., 5.75%, 2020    $ 965,000      $ 1,021,110   
    

 

 

  
Telecommunications – Wireless – 2.3%     
American Tower Corp., 4.625%, 2015    $ 1,770,000      $ 1,863,371   
American Tower Corp., 4.5%, 2018      1,150,000        1,149,465   
Crown Castle International Corp.,
7.75%, 2017 (n)		      960,000        1,039,200   
Crown Castle Towers LLC, 6.113%, 2020 (n)      955,000        1,042,019   
Rogers Cable, Inc., 5.5%, 2014      364,000        400,839   
Vodafone Group PLC, 5.625%, 2017      201,000        225,231   
    

 

 

  
     $ 5,720,125   
    

 

 

  
Telephone Services – 0.2%     
Embarq Corp., 7.082%, 2016    $ 540,000      $ 600,275   
    

 

 

  
Tobacco – 2.5%     
BAT International Finance PLC,
9.5%, 2018 (n)		    $ 1,048,000      $ 1,402,041   
Lorillard Tobacco Co., 8.125%, 2019      2,257,000        2,628,845   
Reynolds American, Inc., 7.25%, 2012      881,000        930,596   
Reynolds American, Inc., 6.75%, 2017      1,100,000        1,270,035   
    

 

 

  
     $ 6,231,517   
    

 

 

  
Transportation – Services – 1.0%     
Erac USA Finance Co., 6.375%, 2017 (n)    $ 200,000      $ 230,009   
Erac USA Finance Co., 7%, 2037 (n)      1,979,000        2,177,547   
    

 

 

  
     $ 2,407,556   
    

 

 

  
Utilities – Electric Power – 3.8%     
Allegheny Energy Supply Co. LLC,
8.25%, 2012 (n)		    $ 610,000      $ 643,082   
CenterPoint Energy, Inc., 5.95%, 2017      800,000        895,502   
CMS Energy Corp., 2.75%, 2014      780,000        780,710   
DPL, Inc., 6.875%, 2011      614,000        619,652   
EDP Finance B.V., 6%, 2018 (n)      1,863,000        1,723,752   
Enersis S.A., 7.375%, 2014      686,000        763,854   
NRG Energy, Inc., 7.625%, 2019 (z)      1,261,000        1,254,695   
Oncor Electric Delivery Co., 6.8%, 2018      561,000        655,633   
PPL WEM Holdings PLC, 5.375%, 2021 (n)      1,057,000        1,094,995   
PSEG Power LLC, 5.32%, 2016      288,000        317,456   
System Energy Resources, Inc.,
5.129%, 2014 (z)		      254,274        260,992   
Waterford 3 Funding Corp., 8.09%, 2017      559,371        563,253   
    

 

 

  
     $ 9,573,576   
    

 

 

  
Total Bonds
(Identified Cost, $232,802,793)		      $ 243,474,827   
    

 

 

  
FLOATING RATE LOANS (g)(r) – 0.1%     
Automotive – 0.1%     
Ford Motor Co., Term Loan B-1, 2.94%, 2013
(Identified Cost, $275,991)		    $ 291,211      $ 290,828   
    

 

 

  
 

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
MONEY MARKET FUNDS (v) – 1.9%     
MFS Institutional Money Market Portfolio, 0.1%, at Cost and Net Asset Value      4,779,066      $ 4,779,066   
    

 

 

  
Total Investments
(Identified Cost, $237,857,850)		      $ 248,544,721   
    

 

 

  
OTHER ASSETS, LESS
LIABILITIES – 1.3%		        3,279,933   
    

 

 

  
Net Assets – 100.0%      $ 251,824,654   
    

 

 

  
 
(d)   Non-income producing security – in default.

 

(g)   The rate shown represents a weighted average coupon rate on settled positions at period end, unless otherwise indicated.

 

(i)   Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security.

 

(n)   Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $54,955,226, representing 21.8% of net assets.

 

(r)   Remaining maturities of floating rate loans may be less than stated maturities shown as a result of contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. These loans may be subject to restrictions on resale. Floating rate loans generally have rates of interest which are determined periodically by reference to a base lending rate plus a premium.

 

(v)   Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end.

 

(z)   Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities:

 

Restricted Securities    Acquisition
Date		    Cost      Value  
ARCap REIT, Inc., CDO, “G”, FRN, 6.099%, 2045    9/21/04      $330,606         $35,875   
Anthracite Ltd., “A”, CDO, FRN, 0.545%, 2019    1/15/10      338,385         404,262   
Bayview Financial Revolving Mortgage Loan Trust, FRN, 1.785%, 2040    3/01/06      339,200         189,719   
Capital Trust Realty Ltd., CDO, 5.16%, 2035    9/14/10-9/16/10      1,531,898         1,538,821   
Crest Ltd., “A2”, CDO, 4.669%, 2018    3/02/10      321,751         365,906   
Falcon Franchise Loan LLC, FRN, 3.948%, 2025    1/29/03      120,476         187,379   
G-Force LLC, CDO, “A2”, 4.83%, 2036    1/20/11      675,687         689,350   
GMAC LLC, FRN, 6.02%, 2033    3/20/02      242,708         385,596   
Morgan Stanley Capital I, Inc., FRN, 1.185%, 2030    4/04/02      103,799         73,645   
NRG Energy, Inc., 7.625%, 2019    6/21/11-6/22/11      1,240,261         1,254,695   
Petroleos Mexicanos, 6.5%, 2041    5/25/11      69,498         71,025   
Prudential Securities Secured Financing Corp., FRN, 7.325%, 2013    12/06/04      581,550         569,379   
Spirit Master Funding LLC, 5.05%, 2023    10/04/05      348,866         312,777   
System Energy Resources, Inc., 5.129%, 2014    4/16/04-9/08/04      254,359         260,992   
Turkiye Garanti Bankasi A.S., 6.25%, 2021    4/14/11      661,982         647,960   
Vedanta Resources PLC, 6.75%, 2016    5/26/11      451,000         449,286   
Total Restricted Securities            $7,436,667   
% of Net Assets            3%   

The following abbreviations are used in this report and are defined:

 

CDO   Collateralized Debt Obligation

 

CLO   Collateralized Loan Obligation

 

FRN   Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.

 

PLC   Public Limited Company

 

REIT   Real Estate Investment Trust

 

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MFS Bond Portfolio

 

Portfolio of Investments (unaudited) – continued

 

Derivative Contracts at 6/30/11

Swap Agreements at 6/30/11

 

Expiration     

Notional
Amount

        Counterparty    Cash Flows to
Receive		    Cash Flows
to Pay		    Fair Value  
Liability Derivatives         
Credit Default Swaps         
12/20/12        USD         910,000         Merrill Lynch International    1.0% (fixed rate)    (1)      $(140,607 ) 
                     

 

 

  

 

(1)   Fund, as protection seller, to pay notional amount upon a defined credit event by MBIA, Inc., 7%, 12/15/25, a Ba3 rated bond. The fund entered into the contract to gain issuer exposure.

 

     The credit ratings presented here are an indicator of the current payment/performance risk of the related swap, the reference obligation for which may be either a single security or, in the case of a credit default index, a basket of securities issued by corporate or sovereign issuers. Ratings are assigned to each reference security, including each individual security within a reference basket of securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy. If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). The ratings for a credit default index are calculated by MFS as a weighted average of the external credit ratings of the individual securities that compose the index’s reference basket of securities.

At June 30, 2011, the fund had sufficient cash and/or other liquid securities to cover any commitments under these derivative contracts.

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF ASSETS AND LIABILITIES (unaudited)

 

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

At 6/30/11

      

Assets

                  
Investments –      
Non-affiliated issuers, at value (identified cost, $233,078,784)      $243,765,655      

Underlying affiliated funds, at cost and value

      4,779,066            

Total investments, at value (identified cost, $237,857,850)

      $248,544,721            
Restricted cash      290,000      
Receivables for      

Fund shares sold

      281,055      

Interest

      3,749,263      

Other assets

      3,855            

Total assets

               $252,868,894   

Liabilities

                  
Payables for      

Investments purchased

      $610,929      

Fund shares reacquired

      217,496      

Swaps, at value

      140,607      
Payable to affiliates      

Investment adviser

      8,696      

Distribution and/or service fees

      2,195      
Payable for Trustees’ compensation      3,853      

Accrued expenses and other liabilities

      60,464            

Total liabilities

               $1,044,240   

Net assets

               $251,824,654   

Net assets consist of

                  
Paid-in capital      $226,207,571      
Unrealized appreciation (depreciation) on investments      10,546,264      
Accumulated net realized gain (loss) on investments      (3,399,140 )    

Undistributed net investment income

      18,469,959            

Net assets

               $251,824,654   

Shares of beneficial interest outstanding

               21,222,854   

 

     Net assets      Shares
outstanding		     

Net asset value

per share

  

Initial Class

      $91,141,784         7,633,720         $11.94   

Service Class

      160,682,870         13,589,134         11.82   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  STATEMENT OF OPERATIONS (unaudited)

 

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Six months ended 6/30/11      
Net investment income                  
Income      

Interest

      $6,999,059      

Dividends from underlying affiliated funds

      4,109            

Total investment income

               $7,003,168   

Expenses

      

Management fee

      $739,249      

Distribution and/or service fees

      192,213      

Administrative services fee

      41,555      

Trustees’ compensation

      13,797      

Custodian fee

      18,058      

Shareholder communications

      8,349      

Auditing fees

      29,383      

Legal fees

      3,769      

Miscellaneous

      11,333            

Total expenses

               $1,057,706   

Fees paid indirectly

      (50 )          

Net expenses

               $1,057,656   

Net investment income

               $5,945,512   

Realized and unrealized gain (loss) on investments

                  

Realized gain (loss) (identified cost basis)

      

Investment transactions

      $3,167,162      

Swap transactions

      4,600            

Net realized gain (loss) on investments

               $3,171,762   

Change in unrealized appreciation (depreciation)

      

Investments

      $(111,620 )    

Swap transactions

      194,728            

Net unrealized gain (loss) on investments

               $83,108   

Net realized and unrealized gain (loss) on investments

               $3,254,870   

Change in net assets from operations

               $9,200,382   

See Notes to Financial Statements

 

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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.

 

    

 

 

 Six months ended

6/30/11

(unaudited

   

  

) 

     

 

 Year ended

12/31/10

   

  

Change in net assets

      

From operations

                  

Net investment income

      $5,945,512         $11,047,353   

Net realized gain (loss) on investments

      3,171,762         5,204,534   

Net unrealized gain (loss) on investments

      83,108         5,670,043   

Change in net assets from operations

      $9,200,382         $21,921,930   

Distributions declared to shareholders

                  

From net investment income

      $—         $(9,040,106 ) 

Change in net assets from fund share transactions

      $62,735         $41,142,255   

Total change in net assets

      $9,263,117         $54,024,079   

Net assets

                  

At beginning of period

      242,561,537         188,537,458   

At end of period (including undistributed net investment
income of $18,469,959 and $12,524,447, respectively)

      $251,824,654         $242,561,537   

See Notes to Financial Statements

 

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FINANCIAL STATEMENTS  |  FINANCIAL HIGHLIGHTS

 

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Initial Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $11.49         $10.84           $9.11           $10.89           $11.19           $11.40   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.29         $0.58           $0.59           $0.57           $0.60           $0.59   

Net realized and unrealized gain (loss) on investments

        0.16         0.57           1.81           (1.64 )         (0.21 )         (0.04 ) 

Total from investment operations

        $0.45         $1.15           $2.40           $(1.07 )         $0.39           $0.55   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.50 )         $(0.67 )         $(0.71 )         $(0.69 )         $(0.69 ) 

From net realized gain on investments

        —         —           —           —           —           (0.07 ) 

Total distributions declared to shareholders

        $—         $(0.50 )         $(0.67 )         $(0.71 )         $(0.69 )         $(0.76 ) 

Net asset value, end of period

        $11.94         $11.49           $10.84           $9.11           $10.89           $11.19   

Total return (%) (k)(s)

        3.92 (n)       10.86           27.96           (10.53 )         3.53           5.20   

Ratios (%) (to average net assets)

and Supplemental data:

                                                                

Expenses (f)

        0.70 (a)       0.72           0.74           0.74           0.71           0.71   

Net investment income

        4.98 (a)       5.17           5.93           5.64           5.50           5.32   

Portfolio turnover

        31         58           71           46           42           47   

Net assets at end of period (000 omitted)

        $91,142         $95,584           $92,244           $70,504           $105,554           $120,991   

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Service Class      Six months
ended
6/30/11		      Years ended 12/31  
          2010        2009        2008        2007        2006  
       (unaudited)                                             

Net asset value, beginning of period

        $11.40         $10.76           $9.04           $10.81           $11.11           $11.33   
Income (loss) from investment operations                                                                

Net investment income (d)

        $0.27         $0.55           $0.56           $0.54           $0.57           $0.56   

Net realized and unrealized gain (loss) on investments

        0.15         0.57           1.80           (1.63 )         (0.21 )         (0.05 ) 

Total from investment operations

        $0.42         $1.12           $2.36           $(1.09 )         $0.36           $0.51   
Less distributions declared to shareholders                                                                

From net investment income

        $—         $(0.48 )         $(0.64 )         $(0.68 )         $(0.66 )         $(0.66 ) 

From net realized gain on investments

        —         —           —           —           —           (0.07 ) 

Total distributions declared to shareholders

        $—         $(0.48 )         $(0.64 )         $(0.68 )         $(0.66 )         $(0.73 ) 

Net asset value, end of period

        $11.82         $11.40           $10.76           $9.04           $10.81           $11.11   

Total return (%) (k)(s)

        3.68 (n)       10.67           27.66           (10.77 )         3.28           4.87   
Ratios (%) (to average net assets)
and Supplemental data:		                                                                

Expenses (f)

        0.95 (a)       0.97           0.99           0.99           0.96           0.96   

Net investment income

        4.73 (a)       4.90           5.64           5.39           5.25           5.07   

Portfolio turnover

        31         58           71           46           42           47   

Net assets at end of period (000 omitted)

        $160,683         $146,977           $96,293           $52,038           $77,588           $76,471   

 

(a) Annualized.

 

(d) Per share data is based on average shares outstanding.

 

(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.

 

(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.

 

(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

See Notes to Financial Statements

 

14

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MFS Bond Portfolio

 

NOTES TO FINANCIAL STATEMENTS (unaudited)

 

(1)   Business and Organization

MFS Bond Portfolio (the fund) is a series of MFS Variable Insurance Trust II (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, and qualified retirement and pension plans.

 

(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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in high-yield securities rated below investment grade. Investments in high-yield securities involve greater degrees of credit and market risk than investments in higher-rated securities and tend to be more sensitive to economic conditions. The fund invests 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 – Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Swaps are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s 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 fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 fund’s 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. The adviser generally relies on third-party 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 fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative

 

15

Table of Contents

MFS Bond Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

instruments not reflected in total investments, such swap contracts. The following is a summary of the levels used as of June 30, 2011 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Non-U.S. Sovereign Debt      $—         $3,355,672         $—         $3,355,672   
Corporate Bonds      —         181,919,829         —         181,919,829   
Residential Mortgage-Backed Securities      —         79,459         —         79,459   
Commercial Mortgage-Backed Securities      —         9,882,773         —         9,882,773   
Asset-Backed Securities (including CDOs)      —         3,645,938         —         3,645,938   
Foreign Bonds      —         44,591,156         —         44,591,156   
Floating Rate Loans      —         290,828         —         290,828   
Mutual Funds      4,779,066         —         —         4,779,066   
Total Investments      $4,779,066         $243,765,655         $—         $248,544,721   
Other Financial Instruments                            
Swaps      $—         $(140,607 )       $—         $(140,607 ) 

For further information regarding security characteristics, see the Portfolio of Investments.

Derivatives – The fund uses derivatives for different purposes, including to earn income and enhance returns, to increase or decrease exposure to a particular market, to manage or adjust the risk profile of the fund, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.

The derivative instruments used by the fund were swap agreements. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract Tables, generally are indicative of the volume of its derivative activity during the period.

The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2011 as reported in the Statement of Assets and Liabilities:

 

          Fair Value  
Risk    Derivative Contracts    Liability Derivatives  
Credit    Credit Default Swaps      $(140,607 ) 

The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk    Swap Transactions  
Credit      $4,600   

The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2011 as reported in the Statement of Operations:

 

Risk    Swap Transactions  
Credit      $194,728   

Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures and exchange-traded options) while collateral terms are contract

 

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Notes to Financial Statements (unaudited) – continued

 

specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swaps and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.

Swap Agreements – The fund entered into swap agreements. A swap is generally an exchange of cash payments, at specified intervals or upon the occurrence of specified events, between the fund and a counterparty. The net cash payments exchanged are recorded as a realized gain or loss on swap transactions in the Statement of Operations. The value of the swap, which is adjusted daily and includes any related interest accruals to be paid or received by the fund, is recorded on the Statement of Assets and Liabilities. The daily change in value, including any related interest accruals to be paid or received, is recorded as unrealized appreciation or depreciation on swap transactions in the Statement of Operations. Amounts paid or received at the inception of the swap are reflected as premiums paid or received on the Statement of Assets and Liabilities and are amortized using the effective interest method over the term of the agreement. A liquidation payment received or made upon early termination is recorded as a realized gain or loss on swap transactions in the Statement of Operations.

Risks related to swap agreements include the possible lack of a liquid market, unfavorable market and interest rate movements of the underlying instrument and the failure of the counterparty to perform under the terms of the agreements. To address counterparty risk, swap transactions are limited to only highly-rated counterparties. The risk is further mitigated by having an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

The fund entered into credit default swaps in order to manage its exposure to the market or certain sectors of the market, to reduce its credit risk exposure to defaults of corporate and sovereign issuers or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. In a credit default swap, the protection buyer can make an upfront payment and will make a stream of payments based on a fixed percentage applied to the contract notional amount to the protection seller in exchange for the right to receive a specified return upon the occurrence of a defined credit event on the reference obligation (which may be either a single security or a basket of securities issued by corporate or sovereign issuers) and, with respect to the rare cases where physical settlement applies, the delivery by the buyer to the seller of a defined deliverable obligation. Although contract-specific, credit events generally consist of a combination of the following: bankruptcy, failure to pay, restructuring, obligation acceleration, obligation default, or repudiation/moratorium, each as defined in the 2003 ISDA Credit Derivatives Definitions as amended by the relevant contract. Restructuring is generally not applicable when the reference obligation is issued by a North American corporation and obligation acceleration, obligation default, or repudiation/moratorium are generally only applicable when the reference obligation is issued by a sovereign entity or an entity in an emerging country. Upon determination of the final price for the deliverable obligation (or upon delivery of the deliverable obligation in the case of physical settlement), the difference between the value of the deliverable obligation and the swap’s notional amount is recorded as realized gain or loss on swap transactions in the Statement of Operations.

Credit default swaps are considered to have credit-risk-related contingent features since they trigger payment by the protection seller to the protection buyer upon the occurrence of a defined credit event. The aggregate fair value of credit default swaps in a net liability position as of June 30, 2011 is disclosed in the footnotes to the Portfolio of Investments. As discussed earlier in this note, collateral requirements for these swaps are based generally on the market value of the swap netted against collateral requirements for other types of over-the-counter derivatives traded under each counterparty’s ISDA Master Agreement. The maximum amount of future, undiscounted payments that the fund, as protection seller, could be required to make is equal to the swap’s notional amount. The protection seller’s payment obligation would be offset to the extent of the value of the contract’s deliverable obligation. If a defined credit event had occurred as of June 30, 2011, the swaps’ credit-risk-related contingent features would have been triggered and, for those swaps in a net liability position for which the fund is the protection seller, the fund in order to settle these swaps would have been required to either (1) pay the swap’s notional value of $910,000 less the value of the contracts’ related deliverable obligations as decided through an ISDA auction or (2) pay the notional value of the swaps in return for physical receipt of the deliverable obligations.

The fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. This risk is mitigated by having an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

 

 

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Notes to Financial Statements (unaudited) – continued

 

Loans and Other Direct Debt Instruments – The fund invests in loans and loan participations or other receivables. These investments may include standby financing commitments, including revolving credit facilities, which obligate the fund to supply additional cash to the borrower on demand. Loan participations involve a risk of insolvency of the lending bank or other financial intermediary.

Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. The fund earns certain fees in connection with its floating rate loan purchasing activities. These fees are in addition to interest payments earned and may include amendment fees, commitment fees, facility fees, consent fees, and prepayment fees. Commitment fees are recorded on an accrual basis as income in the accompanying financial statements. 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. Debt obligations may be placed on non-accrual status or set to accrue at a rate of interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by the write-off of the related interest receivables when deemed uncollectible.

The fund 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 fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2011, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund 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 amortization and accretion of debt securities and derivative transactions.

The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

     12/31/10  
Ordinary income (including any short-term capital gains)      $9,040,106   

 

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MFS Bond Portfolio

 

Notes to Financial Statements (unaudited) – continued

 

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 6/30/11   
Cost of investments      $239,182,130   
Gross appreciation      12,119,364   
Gross depreciation      (2,756,773 ) 
Net unrealized appreciation (depreciation)      $9,362,591   
As of 12/31/10   
Undistributed ordinary income      12,188,809   
Capital loss carryforwards      (5,468,203 ) 
Net unrealized appreciation (depreciation)      9,696,095   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of December 31, 2010, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

12/31/16      $(5,020,083 ) 
12/31/17      (448,120 ) 
Total      $(5,468,203 ) 

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:

 

     From net investment
income		  
     Six months ended
6/30/11		      Year ended
12/31/10		  
Initial Class      $—         $4,170,932   
Service Class      —         4,869,174   
Total      $—         $9,040,106   

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.60% of the fund’s average daily net assets.

The investment adviser has agreed in writing to reduce its management fee to 0.50% of average daily net assets in excess of $1 billion. This written agreement will continue until modified or rescinded by the fund’s shareholders. For the six months ended June 30, 2011, the fund’s average daily net assets did not exceed $1 billion and therefore, the management fee was not reduced. The management fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.60% of the fund’s average daily net assets.

Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The fund’s distribution plan provides that the fund will pay MFD distribution and/or service 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 fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, 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 and/or service fees to financial intermediaries.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2011, the fund did not pay MFSC a fee for this service.

 

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Notes to Financial Statements (unaudited) – continued

 

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2011 was equivalent to an annual effective rate of 0.0337% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to Trustees in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. The fund does not pay compensation directly to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers of the fund are officers or directors of MFS, MFD, and MFSC.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2011, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $1,981 and are included in miscellaneous expense on the Statement of Operations.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than purchased option transactions, and short-term obligations, were as follows:

 

     Purchases      Sales  
U.S. Government securities      $—         $1,518   
Investments (non-U.S. Government securities)      $86,787,703         $74,732,643   

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

     Six months ended 6/30/11      Year ended 12/31/10  
     Shares      Amount      Shares      Amount  
Shares sold            

Initial Class

      224,959         $2,669,279         789,328         $8,770,173   

Service Class

      1,589,061         18,534,945         4,489,214         49,686,140   
     1,814,020         $21,204,224         5,278,542         $58,456,313   
Shares issued to shareholders in reinvestment of distributions            

Initial Class

      —         $—         383,710         $4,170,932   

Service Class

      —         —         451,267         4,869,174   
     —         $—         834,977         $9,040,106   
Shares reacquired            

Initial Class

      (908,109 )       $(10,690,118 )       (1,364,016 )       $(15,376,313 ) 

Service Class

      (896,960 )       (10,451,371 )       (988,611 )       (10,977,851 ) 
     (1,805,069 )       $(21,141,489 )       (2,352,627 )       $(26,354,164 ) 
Net change            

Initial Class

      (683,150 )       $(8,020,839 )       (190,978 )       $(2,435,208 ) 

Service Class

      692,101         8,083,574         3,951,870         43,577,463   
     8,951         $62,735         3,760,892         $41,142,255   

 

(6)   Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. 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 higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused

 

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Notes to Financial Statements (unaudited) – continued

 

portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2011, the fund’s commitment fee and interest expense were $986 and $0, respectively, and are included in miscellaneous expense on the Statement of Operations.

 

(7)   Transactions in Underlying Affiliated Funds – Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Underlying Affiliated Funds   

Beginning

Shares/Par

Amount

     

Acquisitions

Shares/Par

Amount

     

Dispositions

Shares/Par

Amount

     

Ending

Shares/Par

Amount

  
MFS Institutional Money Market Portfolio      9,282,745         56,532,355         (61,036,034 )       4,779,066   
Underlying Affiliated Funds   

Realized

Gain (Loss)

     

Capital Gain

Distributions

     

Dividend

Income

     

Ending

Value

  
MFS Institutional Money Market Portfolio      $—         $—         $4,109         $4,779,066   

 

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MFS Bond Portfolio

 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

 

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2011 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund 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 http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund 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 fund’s 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. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.

 

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rev. 3/11

 

FACTS   WHAT DOES MFS DO WITH YOUR
PERSONAL INFORMATION?		   LOGO

 

Why?   Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

 

What?  

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

• Social Security number and account balances

• Account transactions and transaction history

• Checking account information and wire transfer instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

 

How?   All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing.

 

Reasons we can share your personal information   Does MFS share?   Can you limit this
sharing?

For our everyday business purposes –

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

   Yes   No

For our marketing purposes –

to offer our products and services to you

   No   We don’t share
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

   No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

   No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

Questions?   Call 800-225-2606 or go to mfs.com.

 

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Page 2  

 

Who we are
Who is providing this notice?   MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc.

 

What we do
How does MFS protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
How does MFS
collect my personal information?		  

We collect your personal information, for example, when you

 

• open an account or provide account information

• direct us to buy securities or direct us to sell your securities

• make a wire transfer

 

We also collect your personal information from others, such as credit bureaus, affiliates and other companies.

Why can’t I limit all sharing?  

Federal law gives you the right to limit only

 

• sharing for affiliates’ everyday business purposes – information about your creditworthiness

• affiliates from using your information to market to you

• sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

Definitions
Affiliates  

Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.

Nonaffiliates  

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

• MFS does not share with nonaffiliates so they can market to you.

Joint Marketing  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

• MFS doesn’t jointly market.

 

 

Other important information
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

24

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LOGO

Table of Contents
ITEM 2. CODE OF ETHICS.

During the period covered by this report, the Registrant has not amended any provision in its Code of Ethics (the “Code”) that relates to an element of the Code’s definitions enumerated in paragraph (b) of Item 2 of this Form N-CSR. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

Not applicable for semi-annual reports.

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Not applicable for semi-annual reports.

 

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable to the Registrant.

 

ITEM 6. INVESTMENTS

A schedule of investments for each series of the Registrant is included as part of the report to shareholders of such series under Item 1 of this Form N-CSR.

 

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable to the Registrant.

 

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable to the Registrant.

 

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

Not applicable to the Registrant.

 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Table of Contents

There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.

 

ITEM 11. CONTROLS AND PROCEDURES.

 

(a) Based upon their evaluation of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this report on Form N-CSR, the registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

(b) There were no changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by the report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

ITEM 12. EXHIBITS.

 

(a) File the exhibits listed below as part of this form. Letter or number the exhibits in the sequence indicated.

 

  (1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit.

 

  (2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto.

 

(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: Attached hereto.

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Notice

A copy of the Amended and Restated Declaration of Trust, as amended, of the Registrant is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant) MFS VARIABLE INSURANCE TRUST II

 

By (Signature and Title)*    MARIA F. DIORIODWYER
  Maria F. DiOrioDwyer, President

Date: August 16, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By (Signature and Title)*    MARIA F. DIORIODWYER
 

Maria F. DiOrioDwyer, President

(Principal Executive Officer)

Date: August 16, 2011

 

By (Signature and Title)*    JOHN M. CORCORAN
 

John M. Corcoran, Treasurer

(Principal Financial Officer

and Accounting Officer)

Date: August 16, 2011

 

* Print name and title of each signing officer under his or her signature.