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)
111 Huntington Avenue, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip code)
Christopher R. Bohane
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, Massachusetts 02199
(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, 2021
| ITEM 1. | REPORTS TO STOCKHOLDERS. |
| Item 1(a): | |
Semiannual Report
June 30, 2021
MFS® Blended Research®
Core Equity Portfolio
Core Equity Portfolio
MFS® Variable Insurance Trust II
CGS-SEM
MFS Blended Research Core
Equity Portfolio
Portfolio Composition
GICS equity sectors (g)
| Information Technology | 27.6% |
| Health Care | 13.6% |
| Consumer Discretionary | 11.8% |
| Communication Services | 11.2% |
| Financials | 10.5% |
| Industrials | 8.1% |
| Consumer Staples | 6.5% |
| Real Estate | 3.3% |
| Energy | 2.4% |
| Materials | 2.3% |
| Utilities | 2.0% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
Cash & Cash Equivalents includes any cash, investments in
money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of June 30, 2021.
The portfolio is actively managed and current holdings may be
different.
2
MFS Blended Research Core
Equity Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.43% | $1,000.00 | $1,173.88 | $2.32 |
| Hypothetical (h) | 0.43% | $1,000.00 | $1,022.66 | $2.16 | |
| Service Class | Actual | 0.68% | $1,000.00 | $1,172.37 | $3.66 |
| Hypothetical (h) | 0.68% | $1,000.00 | $1,021.42 | $3.41 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3
MFS Blended Research Core
Equity Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS Blended Research Core
Equity Portfolio
Portfolio of Investments (unaudited) – continued
| (a) | Non-income producing security. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $1,523,710 and $518,410,021, respectively. | |||
| (l) | A portion of this security is on loan. See Note 2 for additional information. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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
6
MFS Blended Research Core
Equity 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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value, including $215,374 of securities on loan (identified cost, $315,779,464) | $518,410,021 |
| Investments in affiliated issuers, at value (identified cost, $1,523,710) | 1,523,710 |
| Cash | 7,574 |
| Receivables for | |
| Investments sold | 2,587,069 |
| Interest and dividends | 476,121 |
| Other assets | 2,088 |
| Total assets | $523,006,583 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $864,061 |
| Payable to affiliates | |
| Investment adviser | 11,064 |
| Administrative services fee | 432 |
| Shareholder servicing costs | 93 |
| Distribution and/or service fees | 2,957 |
| Accrued expenses and other liabilities | 62,723 |
| Total liabilities | $941,330 |
| Net assets | $522,065,253 |
| Net assets consist of | |
| Paid-in capital | $242,681,027 |
| Total distributable earnings (loss) | 279,384,226 |
| Net assets | $522,065,253 |
| Shares of beneficial interest outstanding | 7,802,558 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $305,833,864 | 4,548,428 | $67.24 |
| Service Class | 216,231,389 | 3,254,130 | 66.45 |
See Notes to Financial Statements
7
MFS Blended Research Core
Equity 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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $3,822,262 |
| Other | 6,490 |
| Income on securities loaned | 812 |
| Dividends from affiliated issuers | 699 |
| Foreign taxes withheld | (254) |
| Total investment income | $3,830,009 |
| Expenses | |
| Management fee | $990,825 |
| Distribution and/or service fees | 254,132 |
| Shareholder servicing costs | 8,795 |
| Administrative services fee | 37,205 |
| Independent Trustees' compensation | 4,241 |
| Custodian fee | 9,224 |
| Shareholder communications | 10,401 |
| Audit and tax fees | 27,895 |
| Legal fees | 1,634 |
| Miscellaneous | 12,603 |
| Total expenses | $1,356,955 |
| Reduction of expenses by investment adviser | (29,680) |
| Net expenses | $1,327,275 |
| Net investment income (loss) | $2,502,734 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $34,547,076 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $42,457,523 |
| Net realized and unrealized gain (loss) | $77,004,599 |
| Change in net assets from operations | $79,507,333 |
See Notes to Financial Statements
8
MFS Blended Research Core
Equity 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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $2,502,734 | $5,213,358 |
| Net realized gain (loss) | 34,547,076 | 34,962,421 |
| Net unrealized gain (loss) | 42,457,523 | 22,756,111 |
| Change in net assets from operations | $79,507,333 | $62,931,890 |
| Total distributions to shareholders | $— | $(29,241,138) |
| Change in net assets from fund share transactions | $(29,781,537) | $(33,385,390) |
| Total change in net assets | $49,725,796 | $305,362 |
| Net assets | ||
| At beginning of period | 472,339,457 | 472,034,095 |
| At end of period | $522,065,253 | $472,339,457 |
See Notes to Financial Statements
9
MFS Blended Research Core
Equity 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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $57.28 | $53.06 | $45.29 | $54.23 | $46.62 | $48.56 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.34 | $0.67 | $0.80 | $0.74 | $0.68 | $0.74(c) |
| Net realized and unrealized gain (loss) | 9.62 | 7.21 | 11.74 | (4.12) | 8.80 | 3.24 |
| Total from investment operations | $9.96 | $7.88 | $12.54 | $(3.38) | $9.48 | $3.98 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.88) | $(0.79) | $(0.77) | $(0.78) | $(0.72) |
| From net realized gain | — | (2.78) | (3.98) | (4.79) | (1.09) | (5.20) |
| Total distributions declared to shareholders | $— | $(3.66) | $(4.77) | $(5.56) | $(1.87) | $(5.92) |
| Net asset value, end of period (x) | $67.24 | $57.28 | $53.06 | $45.29 | $54.23 | $46.62 |
| Total return (%) (k)(r)(s)(x) | 17.39(n) | 15.34 | 29.17 | (7.74) | 20.76 | 8.45(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.44(a) | 0.45 | 0.45 | 0.45 | 0.46 | 0.49(c) |
| Expenses after expense reductions (f) | 0.43(a) | 0.44 | 0.44 | 0.44 | 0.45 | 0.44(c) |
| Net investment income (loss) | 1.11(a) | 1.30 | 1.58 | 1.39 | 1.35 | 1.56(c) |
| Portfolio turnover | 24(n) | 56 | 46 | 54 | 51 | 49 |
| Net assets at end of period (000 omitted) | $305,834 | $280,679 | $285,654 | $256,439 | $320,384 | $306,368 |
See Notes to Financial Statements
10
MFS Blended Research Core
Equity Portfolio
Financial Highlights - continued
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $56.68 | $52.54 | $44.87 | $53.79 | $46.26 | $48.26 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.26 | $0.54 | $0.67 | $0.61 | $0.55 | $0.61(c) |
| Net realized and unrealized gain (loss) | 9.51 | 7.12 | 11.64 | (4.11) | 8.73 | 3.22 |
| Total from investment operations | $9.77 | $7.66 | $12.31 | $(3.50) | $9.28 | $3.83 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.74) | $(0.66) | $(0.63) | $(0.66) | $(0.63) |
| From net realized gain | — | (2.78) | (3.98) | (4.79) | (1.09) | (5.20) |
| Total distributions declared to shareholders | $— | $(3.52) | $(4.64) | $(5.42) | $(1.75) | $(5.83) |
| Net asset value, end of period (x) | $66.45 | $56.68 | $52.54 | $44.87 | $53.79 | $46.26 |
| Total return (%) (k)(r)(s)(x) | 17.24(n) | 15.06 | 28.87 | (7.99) | 20.47 | 8.17(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.69(a) | 0.70 | 0.70 | 0.70 | 0.71 | 0.74(c) |
| Expenses after expense reductions (f) | 0.68(a) | 0.69 | 0.69 | 0.69 | 0.70 | 0.69(c) |
| Net investment income (loss) | 0.86(a) | 1.05 | 1.33 | 1.14 | 1.10 | 1.30(c) |
| Portfolio turnover | 24(n) | 56 | 46 | 54 | 51 | 49 |
| Net assets at end of period (000 omitted) | $216,231 | $191,661 | $186,380 | $157,522 | $182,103 | $169,622 |
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
11
MFS Blended Research Core
Equity Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Blended Research Core Equity Portfolio (the fund) is a
diversified 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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing
service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are
generally valued at 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. In determining values, 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 halt 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
12
MFS Blended Research Core
Equity Portfolio
Notes to Financial Statements (unaudited) - continued
traded. Events that
occur 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 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, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $518,410,021 | $— | $— | $518,410,021 |
| Mutual Funds | 1,523,710 | — | — | 1,523,710 |
| Total | $519,933,731 | $— | $— | $519,933,731 |
For further information
regarding security characteristics, see the Portfolio of Investments.
Security Loans —
Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans
can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. 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. On loans collateralized by cash, the cash collateral is invested in a money market fund.
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. The lending agent provides the fund with indemnification against
Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the
loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the
extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as
equity securities in the fund’s Portfolio of Investments, with a fair value of $215,374. The fair value of the fund’s investment securities on loan is presented gross in the Statement of Assets and Liabilities. These loans were
collateralized by U.S. Treasury Obligations of $217,595 held by the lending agent. The collateral on securities loaned exceeded the value of securities on loan at period end. 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 separately reported in 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.
13
MFS Blended Research Core
Equity Portfolio
Notes to Financial Statements (unaudited) - continued
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 payments received in additional securities are recorded on the ex-dividend 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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
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:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $6,680,112 |
| Long-term capital gains | 22,561,026 |
| Total distributions | $29,241,138 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
| As of 6/30/21 | |
| Cost of investments | $318,206,849 |
| Gross appreciation | 203,684,503 |
| Gross depreciation | (1,957,621) |
| Net unrealized appreciation (depreciation) | $201,726,882 |
| As of 12/31/20 | |
| Undistributed ordinary income | 8,022,598 |
| Undistributed long-term capital gain | 32,193,902 |
| Net unrealized appreciation (depreciation) | 159,660,393 |
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 in the Statements of Changes in Net Assets are presented by class as follows:
14
MFS Blended Research Core
Equity Portfolio
Notes to Financial Statements (unaudited) - continued
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $17,686,199 | |
| Service Class | — | 11,554,939 | |
| Total | $— | $29,241,138 |
(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 based on the fund's average daily net assets:
| Up to $1 billion | 0.40% |
| In excess of $1 billion and up to $2.5 billion | 0.375% |
| In excess of $2.5 billion | 0.35% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $29,680, which
is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.39% 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, 2021, the fee was $8,413, which equated to 0.0034% annually of
the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $382.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate of 0.0150% of the fund's average daily
net assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation
directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD,
and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale
transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by
the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the six months ended June 30, 2021, the fund engaged in sale transactions pursuant to this policy, which amounted to $9,435. The sales transactions resulted in net
realized gains (losses) of $2,295.
15
MFS Blended Research Core
Equity Portfolio
Notes to Financial Statements (unaudited) - continued
The
adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the
six months ended June 30, 2021, this reimbursement amounted to $6,425, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, aggregated $120,253,380 and $148,573,197, 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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 28,476 | $1,762,958 | 63,891 | $3,132,327 | |
| Service Class | 126,735 | 7,994,487 | 183,279 | 8,493,425 | |
| 155,211 | $9,757,445 | 247,170 | $11,625,752 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 326,069 | $17,421,868 | |
| Service Class | — | — | 218,389 | 11,554,939 | |
| — | $— | 544,458 | $28,976,807 | ||
| Shares reacquired | |||||
| Initial Class | (380,118) | $(23,687,919) | (873,552) | $(45,226,511) | |
| Service Class | (254,253) | (15,851,063) | (567,361) | (28,761,438) | |
| (634,371) | $(39,538,982) | (1,440,913) | $(73,987,949) | ||
| Net change | |||||
| Initial Class | (351,642) | $(21,924,961) | (483,592) | $(24,672,316) | |
| Service Class | (127,518) | (7,856,576) | (165,693) | (8,713,074) | |
| (479,160) | $(29,781,537) | (649,285) | $(33,385,390) | ||
(6) Line of
Credit
The fund and certain other funds managed by
MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $847 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
16
MFS Blended Research Core
Equity Portfolio
Notes to Financial Statements (unaudited) - continued
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $2,205,534 | $29,152,469 | $29,834,293 | $— | $— | $1,523,710 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $699 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
17
MFS Blended Research Core
Equity Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
18
MFS Blended Research Core
Equity Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
19
Semiannual Report
June 30, 2021
MFS® Corporate Bond Portfolio
MFS® Variable Insurance Trust II
BDS-SEM
MFS Corporate Bond
Portfolio
Portfolio Composition
| (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. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 ratings agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. 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 and fixed income derivatives that have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (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 value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. 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 value. The bond component will include any accrued interest amounts. |
| (m) | In determining each 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%. |
Where the fund holds
convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash,
investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and
liabilities.
Other includes equivalent
exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of June 30,
2021.
The portfolio is actively managed and
current holdings may be different.
2
MFS Corporate Bond
Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.63% | $1,000.00 | $986.63 | $3.10 |
| Hypothetical (h) | 0.63% | $1,000.00 | $1,021.67 | $3.16 | |
| Service Class | Actual | 0.88% | $1,000.00 | $984.85 | $4.33 |
| Hypothetical (h) | 0.88% | $1,000.00 | $1,020.43 | $4.41 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3
MFS Corporate Bond
Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS Corporate Bond
Portfolio
Portfolio of
Investments (unaudited) – continued
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $3,810,272 and $212,032,906, respectively. | |||
| (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 $56,874,171, representing 26.1% of net assets. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
9
MFS Corporate Bond
Portfolio
Portfolio of
Investments (unaudited) – continued
| The following abbreviations are used in this report and are defined: | |
| CMT | Constant Maturity Treasury |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| LIBOR | London Interbank Offered Rate |
| NPFG | National Public Finance Guarantee Corp. |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| Derivative Contracts at 6/30/21 | ||||||
| Futures Contracts | ||||||
| Description | Long/
Short |
Currency | Contracts | Notional
Amount |
Expiration
Date |
Value/Unrealized
Appreciation (Depreciation) |
| Asset Derivatives | ||||||
| Interest Rate Futures | ||||||
| U.S. Treasury Ultra Bond | Long | USD | 42 | $8,092,875 | September – 2021 | $312,218 |
| Liability Derivatives | ||||||
| Interest Rate Futures | ||||||
| U.S. Treasury Note 10 yr | Short | USD | 131 | $17,357,500 | September – 2021 | $(67,008) |
| U.S. Treasury Note 2 yr | Long | USD | 53 | 11,676,977 | September – 2021 | (20,743) |
| U.S. Treasury Ultra Note 10 yr | Short | USD | 86 | 12,659,469 | September – 2021 | (170,723) |
| $(258,474) | ||||||
At June 30, 2021, the fund had
liquid securities with an aggregate value of $241,424 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
10
MFS Corporate Bond
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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $198,673,799) | $212,032,906 |
| Investments in affiliated issuers, at value (identified cost, $3,810,272) | 3,810,272 |
| Receivables for | |
| Investments sold | 2,994,423 |
| Fund shares sold | 4,035 |
| Interest | 1,926,668 |
| Receivable from investment adviser | 2,454 |
| Other assets | 1,008 |
| Total assets | $220,771,766 |
| Liabilities | |
| Payables for | |
| Net daily variation margin on open futures contracts | $23,850 |
| Investments purchased | 2,942,326 |
| Fund shares reacquired | 62,574 |
| Payable to affiliates | |
| Administrative services fee | 215 |
| Shareholder servicing costs | 44 |
| Distribution and/or service fees | 2,232 |
| Accrued expenses and other liabilities | 72,100 |
| Total liabilities | $3,103,341 |
| Net assets | $217,668,425 |
| Net assets consist of | |
| Paid-in capital | $187,078,184 |
| Total distributable earnings (loss) | 30,590,241 |
| Net assets | $217,668,425 |
| Shares of beneficial interest outstanding | 17,553,371 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $54,464,741 | 4,342,025 | $12.54 |
| Service Class | 163,203,684 | 13,211,346 | 12.35 |
See Notes to Financial Statements
11
MFS Corporate Bond
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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Interest | $3,534,808 |
| Dividends from affiliated issuers | 1,712 |
| Other | 39 |
| Total investment income | $3,536,559 |
| Expenses | |
| Management fee | $652,136 |
| Distribution and/or service fees | 203,076 |
| Shareholder servicing costs | 4,322 |
| Administrative services fee | 19,403 |
| Independent Trustees' compensation | 2,574 |
| Custodian fee | 7,336 |
| Shareholder communications | 6,731 |
| Audit and tax fees | 38,670 |
| Legal fees | 811 |
| Miscellaneous | 15,878 |
| Total expenses | $950,937 |
| Reduction of expenses by investment adviser | (62,663) |
| Net expenses | $888,274 |
| Net investment income (loss) | $2,648,285 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $5,103,885 |
| Futures contracts | (424,312) |
| Net realized gain (loss) | $4,679,573 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(10,620,352) |
| Futures contracts | 107,808 |
| Net unrealized gain (loss) | $(10,512,544) |
| Net realized and unrealized gain (loss) | $(5,832,971) |
| Change in net assets from operations | $(3,184,686) |
See Notes to Financial Statements
12
MFS Corporate Bond
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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $2,648,285 | $5,813,824 |
| Net realized gain (loss) | 4,679,573 | 4,504,182 |
| Net unrealized gain (loss) | (10,512,544) | 9,420,324 |
| Change in net assets from operations | $(3,184,686) | $19,738,330 |
| Total distributions to shareholders | $— | $(7,693,047) |
| Change in net assets from fund share transactions | $(7,519,384) | $(3,220,009) |
| Total change in net assets | $(10,704,070) | $8,825,274 |
| Net assets | ||
| At beginning of period | 228,372,495 | 219,547,221 |
| At end of period | $217,668,425 | $228,372,495 |
See Notes to Financial Statements
13
MFS Corporate Bond
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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $12.71 | $11.94 | $10.81 | $11.64 | $11.36 | $11.16 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.16 | $0.36 | $0.39 | $0.38 | $0.39 | $0.41(c) |
| Net realized and unrealized gain (loss) | (0.33) | 0.89 | 1.19 | (0.72) | 0.33 | 0.31 |
| Total from investment operations | $(0.17) | $1.25 | $1.58 | $(0.34) | $0.72 | $0.72 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.44) | $(0.45) | $(0.44) | $(0.44) | $(0.50) |
| From net realized gain | — | (0.04) | — | (0.05) | — | (0.02) |
| Total distributions declared to shareholders | $— | $(0.48) | $(0.45) | $(0.49) | $(0.44) | $(0.52) |
| Net asset value, end of period (x) | $12.54 | $12.71 | $11.94 | $10.81 | $11.64 | $11.36 |
| Total return (%) (k)(r)(s)(x) | (1.34)(n) | 10.57 | 14.65 | (3.00) | 6.39 | 6.28(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.69(a) | 0.70 | 0.69 | 0.68 | 0.68 | 0.65(c) |
| Expenses after expense reductions (f) | 0.63(a) | 0.63 | 0.63 | 0.63 | 0.63 | 0.60(c) |
| Net investment income (loss) | 2.62(a) | 2.90 | 3.33 | 3.44 | 3.37 | 3.52(c) |
| Portfolio turnover | 30(n) | 41 | 34 | 32 | 36 | 31 |
| Net assets at end of period (000 omitted) | $54,465 | $59,133 | $57,714 | $56,506 | $65,445 | $66,858 |
See Notes to Financial Statements
14
MFS Corporate Bond
Portfolio
Financial Highlights - continued
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $12.54 | $11.78 | $10.66 | $11.49 | $11.22 | $11.03 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.14 | $0.32 | $0.35 | $0.35 | $0.36 | $0.37(c) |
| Net realized and unrealized gain (loss) | (0.33) | 0.89 | 1.19 | (0.72) | 0.32 | 0.30 |
| Total from investment operations | $(0.19) | $1.21 | $1.54 | $(0.37) | $0.68 | $0.67 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.41) | $(0.42) | $(0.41) | $(0.41) | $(0.46) |
| From net realized gain | — | (0.04) | — | (0.05) | — | (0.02) |
| Total distributions declared to shareholders | $— | $(0.45) | $(0.42) | $(0.46) | $(0.41) | $(0.48) |
| Net asset value, end of period (x) | $12.35 | $12.54 | $11.78 | $10.66 | $11.49 | $11.22 |
| Total return (%) (k)(r)(s)(x) | (1.52)(n) | 10.34 | 14.46 | (3.31) | 6.11 | 5.98(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.94(a) | 0.95 | 0.94 | 0.93 | 0.93 | 0.90(c) |
| Expenses after expense reductions (f) | 0.88(a) | 0.88 | 0.88 | 0.88 | 0.88 | 0.85(c) |
| Net investment income (loss) | 2.37(a) | 2.65 | 3.08 | 3.18 | 3.12 | 3.27(c) |
| Portfolio turnover | 30(n) | 41 | 34 | 32 | 36 | 31 |
| Net assets at end of period (000 omitted) | $163,204 | $169,239 | $161,833 | $154,370 | $194,337 | $188,440 |
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
15
MFS Corporate Bond
Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Corporate Bond Portfolio (the fund) is a diversified
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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Debt instruments and floating rate loans, 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 may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their
primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as 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. In determining values, 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
16
MFS Corporate Bond
Portfolio
Notes to Financial Statements (unaudited) - continued
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 halt 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 instruments, such as futures contracts. The following is a summary of the levels used as of June 30, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $2,511,472 | $— | $2,511,472 |
| Non - U.S. Sovereign Debt | — | 2,518,015 | — | 2,518,015 |
| Municipal Bonds | — | 3,109,813 | — | 3,109,813 |
| U.S. Corporate Bonds | — | 155,039,773 | — | 155,039,773 |
| Residential Mortgage-Backed Securities | — | 76,807 | — | 76,807 |
| Commercial Mortgage-Backed Securities | — | 803,151 | — | 803,151 |
| Asset-Backed Securities (including CDOs) | — | 89,249 | — | 89,249 |
| Foreign Bonds | — | 47,884,626 | — | 47,884,626 |
| Mutual Funds | 3,810,272 | — | — | 3,810,272 |
| Total | $3,810,272 | $212,032,906 | $— | $215,843,178 |
| Other Financial Instruments | ||||
| Futures Contracts – Assets | $312,218 | $— | $— | $312,218 |
| Futures Contracts – Liabilities | (258,474) | — | — | (258,474) |
For further information
regarding security characteristics, see the Portfolio of Investments.
Derivatives — The
fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, 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 during the
period were futures contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or
novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. 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, 2021 as reported in the Statement of Assets and Liabilities:
17
MFS Corporate Bond
Portfolio
Notes to Financial Statements (unaudited) - continued
| Fair Value (a) | |||
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Interest Rate Futures | $312,218 | $(258,474) |
(a) Values presented in this table
for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is separately reported within the 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, 2021 as reported in the Statement of Operations:
| Risk | Futures
Contracts |
| Interest Rate | $(424,312) |
The following table presents, by
major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the six months ended June 30, 2021 as reported in the Statement of Operations:
| Risk | Futures
Contracts |
| Interest Rate | $107,808 |
Derivative counterparty credit
risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering
into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the
other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement 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.
Collateral and margin requirements differ by type of
derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the
fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form
of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are
netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or
margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as
collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in
“Miscellaneous” expense in the Statement of Operations.
Futures Contracts —
The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. 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 specified 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 contracts
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 contracts 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.
18
MFS Corporate Bond
Portfolio
Notes to Financial Statements (unaudited) - continued
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. Interest payments
received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date. All premium and discount is amortized or accreted for financial statement
purposes in accordance with U.S. generally accepted accounting principles.
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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
Book/tax differences primarily relate to amortization and
accretion of debt securities.
The tax character of
distributions declared to shareholders for the last fiscal year is as follows:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $7,393,039 |
| Long-term capital gains | 300,008 |
| Total distributions | $7,693,047 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
| As of 6/30/21 | |
| Cost of investments | $202,680,391 |
| Gross appreciation | 14,104,275 |
| Gross depreciation | (941,488) |
| Net unrealized appreciation (depreciation) | $13,162,787 |
| As of 12/31/20 | |
| Undistributed ordinary income | 5,900,606 |
| Undistributed long-term capital gain | 4,198,267 |
| Net unrealized appreciation (depreciation) | 23,676,054 |
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 in the Statements of Changes in Net Assets are presented by class as follows:
19
MFS Corporate Bond
Portfolio
Notes to Financial Statements (unaudited) - continued
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $2,184,264 | |
| Service Class | — | 5,508,783 | |
| Total | $— | $7,693,047 |
(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 based on the fund's average daily net assets:
| Up to $1 billion | 0.60% |
| In excess of $1 billion | 0.50% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $12,984, which
is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.59% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.63% of
average daily net assets for the Initial Class shares and 0.88% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at
least until April 30, 2023. For the six months ended June 30, 2021, this reduction amounted to $49,679, which is included in the 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, 2021, the fee was $4,162, which equated to 0.0038% annually of
the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $160.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate of 0.0179% of the fund's average daily
net assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation
directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD,
and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
20
MFS Corporate Bond
Portfolio
Notes to Financial Statements (unaudited) - continued
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, aggregated $62,969,744 and $67,372,733, 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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 131,503 | $1,621,890 | 512,275 | $6,356,882 | |
| Service Class | 1,015,512 | 12,177,158 | 2,413,646 | 29,610,213 | |
| 1,147,015 | $13,799,048 | 2,925,921 | $35,967,095 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 177,294 | $2,184,264 | |
| Service Class | — | — | 453,025 | 5,508,783 | |
| — | $— | 630,319 | $7,693,047 | ||
| Shares reacquired | |||||
| Initial Class | (440,478) | $(5,444,114) | (873,200) | $(10,710,012) | |
| Service Class | (1,303,832) | (15,874,318) | (3,109,400) | (36,170,139) | |
| (1,744,310) | $(21,318,432) | (3,982,600) | $(46,880,151) | ||
| Net change | |||||
| Initial Class | (308,975) | $(3,822,224) | (183,631) | $(2,168,866) | |
| Service Class | (288,320) | (3,697,160) | (242,729) | (1,051,143) | |
| (597,295) | $(7,519,384) | (426,360) | $(3,220,009) | ||
(6) Line of
Credit
The fund and certain other funds managed by
MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $401 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $4,930,371 | $49,999,955 | $51,120,054 | $— | $— | $3,810,272 |
21
MFS Corporate Bond
Portfolio
Notes to Financial Statements (unaudited) - continued
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $1,712 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
22
MFS Corporate Bond
Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
23
MFS Corporate Bond
Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
24
Semiannual Report
June 30, 2021
MFS® Core Equity Portfolio
MFS® Variable Insurance Trust II
RGS-SEM
MFS Core Equity
Portfolio
Portfolio Composition
| (k) | The sectors set forth above and the associated portfolio composition are based on MFS’ own custom sector classification methodology. |
| (s) | Includes securities sold short. |
Cash & Cash
Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and
other assets and liabilities.
Percentages are
based on net assets as of June 30, 2021.
The
portfolio is actively managed and current holdings may be different.
2
MFS Core Equity
Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.84% | $1,000.00 | $1,147.78 | $4.47 |
| Hypothetical (h) | 0.84% | $1,000.00 | $1,020.63 | $4.21 | |
| Service Class | Actual | 1.09% | $1,000.00 | $1,146.91 | $5.80 |
| Hypothetical (h) | 1.09% | $1,000.00 | $1,019.39 | $5.46 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
Notes to Expense Table
Changes to the fund's fee arrangements will occur during
the fund's current fiscal year. Had these fee changes been in effect during the six month period, the annualized expense ratios, the actual expenses paid during the period, and the hypothetical expenses paid during the period would have been
approximately 0.83%, $4.42, and $4.16 for Initial Class and 1.08%, $5.75, and $5.41 for 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.
Expense ratios include
0.02% of investment related expenses from short sales (See Note 2 of the Notes to Financial Statements) that are outside of the expense limitation arrangement (See Note 3 of the Notes to Financial Statements).
3
MFS Core Equity Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS Core Equity Portfolio
Portfolio of
Investments (unaudited) – continued
| (a) | Non-income producing security. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $2,219,319 and $267,478,302, respectively. | |||
| (s) | Security or a portion of the security was pledged to cover collateral requirements for securities sold short. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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 Depositary Receipt |
| REIT | Real Estate Investment Trust |
| SPAC | Special Purpose Acquisition Company |
At June 30, 2021, the fund had cash collateral of
$31,450 and other liquid securities with an aggregate value of $3,999,405 to cover any collateral or margin obligations for securities sold short. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised
of cash collateral.
See Notes to Financial
Statements
7
MFS Core Equity
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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $157,450,811) | $267,478,302 |
| Investments in affiliated issuers, at value (identified cost, $2,219,319) | 2,219,319 |
| Cash | 2,333 |
| Deposits with brokers for | |
| Securities sold short | 31,450 |
| Receivables for | |
| Investments sold | 290,519 |
| Fund shares sold | 307,642 |
| Dividends | 166,739 |
| Other assets | 1,184 |
| Total assets | $270,497,488 |
| Liabilities | |
| Payables for | |
| Securities sold short, at value (proceeds received, $1,340,382) | $1,600,861 |
| Investments purchased | 671,449 |
| Fund shares reacquired | 392,050 |
| Payable to affiliates | |
| Investment adviser | 10,820 |
| Administrative services fee | 251 |
| Shareholder servicing costs | 107 |
| Distribution and/or service fees | 956 |
| Accrued expenses and other liabilities | 68,182 |
| Total liabilities | $2,744,676 |
| Net assets | $267,752,812 |
| Net assets consist of | |
| Paid-in capital | $125,877,897 |
| Total distributable earnings (loss) | 141,874,915 |
| Net assets | $267,752,812 |
| Shares of beneficial interest outstanding | 8,398,810 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $197,965,613 | 6,185,905 | $32.00 |
| Service Class | 69,787,199 | 2,212,905 | 31.54 |
See Notes to Financial Statements
8
MFS Core Equity
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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $1,427,408 |
| Other | 8,296 |
| Dividends from affiliated issuers | 5,436 |
| Income on securities loaned | 20 |
| Foreign taxes withheld | (1,797) |
| Total investment income | $1,439,363 |
| Expenses | |
| Management fee | $928,444 |
| Distribution and/or service fees | 75,760 |
| Shareholder servicing costs | 9,660 |
| Administrative services fee | 21,326 |
| Independent Trustees' compensation | 2,673 |
| Custodian fee | 5,128 |
| Shareholder communications | 13,559 |
| Audit and tax fees | 29,292 |
| Legal fees | 1,339 |
| Dividend and interest expense on securities sold short | 27,444 |
| Interest expense and fees | 434 |
| Miscellaneous | 15,101 |
| Total expenses | $1,130,160 |
| Reduction of expenses by investment adviser | (14,820) |
| Net expenses | $1,115,340 |
| Net investment income (loss) | $324,023 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $11,685,721 |
| Securities sold short | (325,119) |
| Foreign currency | 45 |
| Net realized gain (loss) | $11,360,647 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $22,608,176 |
| Securities sold short | (24,231) |
| Translation of assets and liabilities in foreign currencies | (19) |
| Net unrealized gain (loss) | $22,583,926 |
| Net realized and unrealized gain (loss) | $33,944,573 |
| Change in net assets from operations | $34,268,596 |
See Notes to Financial Statements
9
MFS Core Equity
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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $324,023 | $1,048,577 |
| Net realized gain (loss) | 11,360,647 | 19,666,571 |
| Net unrealized gain (loss) | 22,583,926 | 16,236,950 |
| Change in net assets from operations | $34,268,596 | $36,952,098 |
| Total distributions to shareholders | $— | $(11,731,291) |
| Change in net assets from fund share transactions | $1,095,192 | $(7,064,004) |
| Total change in net assets | $35,363,788 | $18,156,803 |
| Net assets | ||
| At beginning of period | 232,389,024 | 214,232,221 |
| At end of period | $267,752,812 | $232,389,024 |
See Notes to Financial Statements
10
MFS Core Equity
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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $27.88 | $24.81 | $21.68 | $25.21 | $21.67 | $21.28 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.05 | $0.14 | $0.18 | $0.20 | $0.17 | $0.21(c) |
| Net realized and unrealized gain (loss) | 4.07 | 4.38 | 6.59 | (0.78) | 5.04 | 2.16 |
| Total from investment operations | $4.12 | $4.52 | $6.77 | $(0.58) | $5.21 | $2.37 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.18) | $(0.21) | $(0.18) | $(0.23) | $(0.17) |
| From net realized gain | — | (1.27) | (3.43) | (2.77) | (1.44) | (1.81) |
| Total distributions declared to shareholders | $— | $(1.45) | $(3.64) | $(2.95) | $(1.67) | $(1.98) |
| Net asset value, end of period (x) | $32.00 | $27.88 | $24.81 | $21.68 | $25.21 | $21.67 |
| Total return (%) (k)(r)(s)(x) | 14.78(n) | 18.71 | 33.19 | (3.83) | 24.82 | 11.38(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.85(a) | 0.87 | 0.88 | 0.87 | 0.87 | 0.84(c) |
| Expenses after expense reductions (f) | 0.84(a) | 0.86 | 0.87 | 0.86 | 0.86 | 0.82(c) |
| Net investment income (loss) | 0.32(a) | 0.56 | 0.75 | 0.79 | 0.72 | 1.00(c) |
| Portfolio turnover | 19(n) | 46 | 37 | 40 | 39 | 60 |
| Net assets at end of period (000 omitted) | $197,966 | $177,571 | $167,488 | $144,991 | $171,038 | $156,040 |
| Supplemental Ratios (%): | ||||||
| Ratios of expenses to average net assets after expense reductions excluding short sale expenses and interest expense and fees (f) | 0.82(a) | 0.83 | 0.83 | 0.83 | 0.84 | 0.80(c) |
See Notes to Financial Statements
11
MFS Core Equity
Portfolio
Financial Highlights - continued
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $27.50 | $24.50 | $21.44 | $24.96 | $21.47 | $21.10 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.01 | $0.08 | $0.12 | $0.14 | $0.11 | $0.16(c) |
| Net realized and unrealized gain (loss) | 4.03 | 4.31 | 6.51 | (0.78) | 4.99 | 2.13 |
| Total from investment operations | $4.04 | $4.39 | $6.63 | $(0.64) | $5.10 | $2.29 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.12) | $(0.14) | $(0.11) | $(0.17) | $(0.11) |
| From net realized gain | — | (1.27) | (3.43) | (2.77) | (1.44) | (1.81) |
| Total distributions declared to shareholders | $— | $(1.39) | $(3.57) | $(2.88) | $(1.61) | $(1.92) |
| Net asset value, end of period (x) | $31.54 | $27.50 | $24.50 | $21.44 | $24.96 | $21.47 |
| Total return (%) (k)(r)(s)(x) | 14.69(n) | 18.39 | 32.87 | (4.07) | 24.50 | 11.07(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.10(a) | 1.12 | 1.13 | 1.12 | 1.12 | 1.09(c) |
| Expenses after expense reductions (f) | 1.09(a) | 1.11 | 1.12 | 1.11 | 1.11 | 1.07(c) |
| Net investment income (loss) | 0.08(a) | 0.32 | 0.50 | 0.54 | 0.47 | 0.75(c) |
| Portfolio turnover | 19(n) | 46 | 37 | 40 | 39 | 60 |
| Net assets at end of period (000 omitted) | $69,787 | $54,818 | $46,744 | $41,195 | $46,453 | $42,883 |
| Supplemental Ratios (%): | ||||||
| Ratios of expenses to average net assets after expense reductions excluding short sale expenses and interest expense and fees (f) | 1.07(a) | 1.08 | 1.08 | 1.08 | 1.09 | 1.06(c) |
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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 Household International, Inc., the total return for the year ended December 31, 2017 would have been lower by approximately 0.78%. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
12
MFS Core Equity
Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Core Equity Portfolio (the fund) is a diversified
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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Equity securities, including restricted equity securities and equity securities sold short, are generally valued at the last sale or official closing price on their primary market or exchange as
provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing
service. Equity securities sold short, for which there were no sales reported that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are
generally valued at 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. In determining values, 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
13
MFS Core Equity
Portfolio
Notes to Financial Statements (unaudited) - continued
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 halt 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 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 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, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $267,478,302 | $— | $— | $267,478,302 |
| Mutual Funds | 2,219,319 | — | — | 2,219,319 |
| Total | $269,697,621 | $— | $— | $269,697,621 |
| Securities Sold Short | $(1,600,861) | $— | $— | $(1,600,861) |
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.
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, 2021, this expense amounted to $27,444. 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 —
Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans
can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. 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. On loans collateralized by cash, the cash collateral is invested in a money market fund.
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. The lending agent provides the fund with indemnification against
Borrower default. In the event of Borrower default, the
14
MFS Core Equity
Portfolio
Notes to Financial Statements (unaudited) - continued
lending agent will,
for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to
the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value
resulting from collateral reinvestment for which the fund bears the risk of loss. 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 separately reported in 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. At June 30, 2021, there were no securities on loan or collateral outstanding.
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 payments received in additional securities are recorded on the ex-dividend 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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
Book/tax differences primarily relate to wash sale loss
deferrals and partnership adjustments.
The tax
character of distributions declared to shareholders for the last fiscal year is as follows:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $3,863,247 |
| Long-term capital gains | 7,868,044 |
| Total distributions | $11,731,291 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
15
MFS Core Equity
Portfolio
Notes to Financial Statements (unaudited) - continued
| As of 6/30/21 | |
| Cost of investments | $160,190,593 |
| Gross appreciation | 110,894,263 |
| Gross depreciation | (1,387,235) |
| Net unrealized appreciation (depreciation) | $109,507,028 |
| As of 12/31/20 | |
| Undistributed ordinary income | 2,101,522 |
| Undistributed long-term capital gain | 18,669,766 |
| Other temporary differences | 172,427 |
| Net unrealized appreciation (depreciation) | 86,662,604 |
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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $9,114,275 | |
| Service Class | — | 2,617,016 | |
| Total | $— | $11,731,291 |
(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 based on the fund's average daily net assets:
| Up to $1 billion | 0.75% |
| In excess of $1 billion and up to $2.5 billion | 0.65% |
| In excess of $2.5 billion | 0.60% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $14,820, which
is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.74% 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, excluding 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 0.84% of average daily net assets for the Initial Class shares and 1.09% of average daily net assets for the Service Class shares. This written
agreement will terminate on July 31, 2021. For the six months ended June 30, 2021, 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.
Effective August 1, 2021, the
investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding 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 0.81% of average daily net assets for the Initial Class shares and 1.06% of average daily net
assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2023.
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.
16
MFS Core Equity
Portfolio
Notes to Financial Statements (unaudited) - continued
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, 2021, the fee was $9,292, which
equated to 0.0075% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to
$368.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate
of 0.0172% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to
Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and
MFSC.
Other
— The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale
transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by
the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the six months ended June 30, 2021, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $34,096 and $52,779, respectively. The
sales transactions resulted in net realized gains (losses) of $12,438.
The adviser has voluntarily undertaken to reimburse the
fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the six months ended June 30, 2021, this reimbursement
amounted to $8,102, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short sales and short-term obligations, aggregated $47,884,839 and $47,445,390, 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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 394,454 | $11,888,071 | 328,117 | $8,057,874 | |
| Service Class | 459,070 | 13,688,409 | 404,275 | 9,377,983 | |
| 853,524 | $25,576,480 | 732,392 | $17,435,857 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 354,090 | $9,114,275 | |
| Service Class | — | — | 102,951 | 2,617,016 | |
| — | $— | 457,041 | $11,731,291 | ||
17
MFS Core Equity
Portfolio
Notes to Financial Statements (unaudited) - continued
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares reacquired | |||||
| Initial Class | (578,420) | $(17,460,148) | (1,063,282) | $(26,098,196) | |
| Service Class | (239,207) | (7,021,140) | (422,060) | (10,132,956) | |
| (817,627) | $(24,481,288) | (1,485,342) | $(36,231,152) | ||
| Net change | |||||
| Initial Class | (183,966) | $(5,572,077) | (381,075) | $(8,926,047) | |
| Service Class | 219,863 | 6,667,269 | 85,166 | 1,862,043 | |
| 35,897 | $1,095,192 | (295,909) | $(7,064,004) | ||
(6) Line of
Credit
The fund and certain other funds managed by
MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $432 and $0, respectively, and are included in “Interest expense and fees” in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $1,489,118 | $30,541,316 | $29,811,115 | $— | $— | $2,219,319 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $5,436 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
18
MFS Core Equity
Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
19
MFS Core Equity
Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
20
Semiannual Report
June 30, 2021
MFS® Emerging Markets
Equity Portfolio
Equity Portfolio
MFS® Variable Insurance Trust II
FCE-SEM
MFS Emerging Markets Equity
Portfolio
Portfolio Composition
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of the portfolio’s net assets. For purposes of this presentation, United States (included in Other Countries) includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash,
investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and
liabilities.
Percentages are based on net
assets as of June 30, 2021.
The portfolio is
actively managed and current holdings may be different.
2
MFS Emerging Markets
Equity Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 1.23% | $1,000.00 | $1,048.61 | $6.25 |
| Hypothetical (h) | 1.23% | $1,000.00 | $1,018.70 | $6.16 | |
| Service Class | Actual | 1.48% | $1,000.00 | $1,047.06 | $7.51 |
| Hypothetical (h) | 1.48% | $1,000.00 | $1,017.46 | $7.40 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3
MFS Emerging Markets Equity
Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS Emerging Markets
Equity Portfolio
Portfolio of Investments (unaudited) – continued
| (a) | Non-income producing security. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $553,741 and $47,774,249, respectively. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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 Depositary Receipt |
See Notes
to Financial Statements
5
MFS Emerging Markets Equity
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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $30,404,943) | $47,774,249 |
| Investments in affiliated issuers, at value (identified cost, $553,741) | 553,741 |
| Cash | 29,590 |
| Foreign currency, at value (identified cost, $9) | 8 |
| Receivables for | |
| Investments sold | 82,559 |
| Fund shares sold | 3,196 |
| Dividends | 119,130 |
| Receivable from investment adviser | 10,442 |
| Other assets | 437 |
| Total assets | $48,573,352 |
| Liabilities | |
| Payables for | |
| Investments purchased | $37,637 |
| Fund shares reacquired | 47,953 |
| Payable to affiliates | |
| Administrative services fee | 96 |
| Shareholder servicing costs | 43 |
| Distribution and/or service fees | 357 |
| Deferred country tax expense payable | 109,909 |
| Accrued expenses and other liabilities | 96,160 |
| Total liabilities | $292,155 |
| Net assets | $48,281,197 |
| Net assets consist of | |
| Paid-in capital | $28,450,595 |
| Total distributable earnings (loss) | 19,830,602 |
| Net assets | $48,281,197 |
| Shares of beneficial interest outstanding | 2,690,429 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $22,320,264 | 1,231,877 | $18.12 |
| Service Class | 25,960,933 | 1,458,552 | 17.80 |
See Notes to Financial Statements
6
MFS Emerging Markets
Equity 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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $648,429 |
| Other | 5,827 |
| Dividends from affiliated issuers | 222 |
| Foreign taxes withheld | (81,495) |
| Total investment income | $572,983 |
| Expenses | |
| Management fee | $246,034 |
| Distribution and/or service fees | 32,365 |
| Shareholder servicing costs | 4,022 |
| Administrative services fee | 8,679 |
| Independent Trustees' compensation | 1,511 |
| Custodian fee | 47,287 |
| Shareholder communications | 5,049 |
| Audit and tax fees | 40,011 |
| Legal fees | 192 |
| Miscellaneous | 11,697 |
| Total expenses | $396,847 |
| Reduction of expenses by investment adviser | (75,987) |
| Net expenses | $320,860 |
| Net investment income (loss) | $252,123 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $4,054 country tax) | $2,899,588 |
| Foreign currency | (4,060) |
| Net realized gain (loss) | $2,895,528 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $5,489 increase in deferred country tax) | $(936,575) |
| Translation of assets and liabilities in foreign currencies | (473) |
| Net unrealized gain (loss) | $(937,048) |
| Net realized and unrealized gain (loss) | $1,958,480 |
| Change in net assets from operations | $2,210,603 |
See Notes to Financial Statements
7
MFS Emerging Markets Equity
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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $252,123 | $339,255 |
| Net realized gain (loss) | 2,895,528 | 489,572 |
| Net unrealized gain (loss) | (937,048) | 3,857,039 |
| Change in net assets from operations | $2,210,603 | $4,685,866 |
| Total distributions to shareholders | $— | $(3,615,028) |
| Change in net assets from fund share transactions | $92,272 | $(1,773,884) |
| Total change in net assets | $2,302,875 | $(703,046) |
| Net assets | ||
| At beginning of period | 45,978,322 | 46,681,368 |
| At end of period | $48,281,197 | $45,978,322 |
See Notes to Financial Statements
8
MFS Emerging Markets
Equity 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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $17.28 | $17.04 | $14.75 | $17.19 | $12.59 | $11.59 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.11 | $0.14 | $0.28 | $0.11 | $0.06 | $0.15(c) |
| Net realized and unrealized gain (loss) | 0.73 | 1.47 | 2.63 | (2.49) | 4.71 | 0.93 |
| Total from investment operations | $0.84 | $1.61 | $2.91 | $(2.38) | $4.77 | $1.08 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.50) | $(0.11) | $(0.06) | $(0.17) | $(0.08) |
| From net realized gain | — | (0.87) | (0.51) | — | — | — |
| Total distributions declared to shareholders | $— | $(1.37) | $(0.62) | $(0.06) | $(0.17) | $(0.08) |
| Net asset value, end of period (x) | $18.12 | $17.28 | $17.04 | $14.75 | $17.19 | $12.59 |
| Total return (%) (k)(r)(s)(x) | 4.86(n) | 10.63 | 20.45 | (13.89) | 37.98 | 9.28(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.55(a) | 1.73 | 1.55 | 1.50 | 1.53 | 1.34(c) |
| Expenses after expense reductions (f) | 1.23(a) | 1.23 | 1.29 | 1.37 | 1.40 | 1.13(c) |
| Net investment income (loss) | 1.22(a) | 0.94 | 1.76 | 0.65 | 0.41 | 1.29(c) |
| Portfolio turnover | 19(n) | 48 | 21 | 31 | 27 | 47 |
| Net assets at end of period (000 omitted) | $22,320 | $20,335 | $21,065 | $20,887 | $28,026 | $22,605 |
See Notes to Financial Statements
9
MFS Emerging Markets Equity
Portfolio
Financial Highlights - continued
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $16.99 | $16.78 | $14.53 | $16.94 | $12.41 | $11.42 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.08 | $0.11 | $0.24 | $0.07 | $0.02 | $0.12(c) |
| Net realized and unrealized gain (loss) | 0.73 | 1.43 | 2.58 | (2.46) | 4.64 | 0.91 |
| Total from investment operations | $0.81 | $1.54 | $2.82 | $(2.39) | $4.66 | $1.03 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.46) | $(0.06) | $(0.02) | $(0.13) | $(0.04) |
| From net realized gain | — | (0.87) | (0.51) | — | — | — |
| Total distributions declared to shareholders | $— | $(1.33) | $(0.57) | $(0.02) | $(0.13) | $(0.04) |
| Net asset value, end of period (x) | $17.80 | $16.99 | $16.78 | $14.53 | $16.94 | $12.41 |
| Total return (%) (k)(r)(s)(x) | 4.77(n) | 10.33 | 20.11 | (14.13) | 37.66 | 9.04(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.80(a) | 1.98 | 1.80 | 1.75 | 1.78 | 1.58(c) |
| Expenses after expense reductions (f) | 1.48(a) | 1.48 | 1.54 | 1.62 | 1.65 | 1.37(c) |
| Net investment income (loss) | 0.96(a) | 0.71 | 1.52 | 0.40 | 0.16 | 1.02(c) |
| Portfolio turnover | 19(n) | 48 | 21 | 31 | 27 | 47 |
| Net assets at end of period (000 omitted) | $25,961 | $25,643 | $25,616 | $23,973 | $29,665 | $24,307 |
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
10
MFS Emerging Markets
Equity Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Emerging Markets Equity Portfolio (the fund) is a
diversified 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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and
greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, accounting, and auditing systems, and
greater political, social, and economic instability than developed markets.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing
service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are
generally valued at 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. In determining values, 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.
11
MFS Emerging Markets Equity
Portfolio
Notes to Financial Statements (unaudited) - continued
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 halt 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 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 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, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | ||||
| China | $13,700,151 | $— | $— | $13,700,151 |
| South Korea | 6,417,191 | — | — | 6,417,191 |
| India | 5,035,652 | — | — | 5,035,652 |
| Taiwan | 4,905,957 | — | — | 4,905,957 |
| Russia | 1,271,250 | 2,557,914 | — | 3,829,164 |
| Brazil | 3,058,485 | — | — | 3,058,485 |
| Hong Kong | 2,740,569 | — | — | 2,740,569 |
| Netherlands | 1,754,429 | — | — | 1,754,429 |
| Mexico | 1,268,272 | — | — | 1,268,272 |
| Other Countries | 4,464,530 | 599,849 | — | 5,064,379 |
| Mutual Funds | 553,741 | — | — | 553,741 |
| Total | $45,170,227 | $3,157,763 | $— | $48,327,990 |
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.
12
MFS Emerging Markets
Equity Portfolio
Notes to Financial Statements (unaudited) - continued
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 payments received in additional securities are recorded on the ex-dividend 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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
Book/tax differences primarily relate to wash sale loss
deferrals and foreign taxes.
The tax character of
distributions declared to shareholders for the last fiscal year is as follows:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $1,860,481 |
| Long-term capital gains | 1,754,547 |
| Total distributions | $3,615,028 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
| As of 6/30/21 | |
| Cost of investments | $32,347,599 |
| Gross appreciation | 17,166,575 |
| Gross depreciation | (1,186,184) |
| Net unrealized appreciation (depreciation) | $15,980,391 |
| As of 12/31/20 | |
| Undistributed ordinary income | 171,727 |
| Capital loss carryforwards | (9,363) |
| Other temporary differences | (20,326) |
| Net unrealized appreciation (depreciation) | 17,477,961 |
The aggregate cost above
includes prior fiscal year end tax adjustments, if applicable.
As of December 31, 2020, the fund had capital loss
carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
13
MFS Emerging Markets Equity
Portfolio
Notes to Financial Statements (unaudited) - continued
| Long-Term | $(9,363) |
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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $1,583,859 | |
| Service Class | — | 2,031,169 | |
| Total | $— | $3,615,028 |
(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 based on the fund's average daily net assets:
| Up to $500 million | 1.05% |
| In excess of $500 million | 1.00% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $2,799, which is
included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 1.04% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 1.23% of
average daily net assets for the Initial Class shares and 1.48% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at
least until April 30, 2023. For the six months ended June 30, 2021, this reduction amounted to $73,188, which is included in the 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, 2021, the fee was $3,845, which equated to 0.0164% annually of
the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $177.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate of 0.0370% of the fund's average daily
net assets.
14
MFS Emerging Markets
Equity Portfolio
Notes to Financial Statements (unaudited) - continued
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to
Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and
MFSC.
Other
— The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
The adviser has voluntarily undertaken to reimburse the
fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the six months ended June 30, 2021, this reimbursement
amounted to $5,812, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, aggregated $9,100,683 and $8,732,038, 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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 173,081 | $3,132,388 | 79,334 | $1,140,804 | |
| Service Class | 81,120 | 1,447,058 | 264,438 | 3,399,163 | |
| 254,201 | $4,579,446 | 343,772 | $4,539,967 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 105,240 | $1,583,859 | |
| Service Class | — | — | 137,148 | 2,031,169 | |
| — | $— | 242,388 | $3,615,028 | ||
| Shares reacquired | |||||
| Initial Class | (118,169) | $(2,150,885) | (243,942) | $(3,723,611) | |
| Service Class | (131,504) | (2,336,289) | (419,024) | (6,205,268) | |
| (249,673) | $(4,487,174) | (662,966) | $(9,928,879) | ||
| Net change | |||||
| Initial Class | 54,912 | $981,503 | (59,368) | $(998,948) | |
| Service Class | (50,384) | (889,231) | (17,438) | (774,936) | |
| 4,528 | $92,272 | (76,806) | $(1,773,884) | ||
The fund is one of several
mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Growth Allocation Portfolio was the owner of record of
approximately 7% of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate
in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. In addition, the fund and other funds managed by MFS have established
15
MFS Emerging Markets Equity
Portfolio
Notes to Financial Statements (unaudited) - continued
unsecured
uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30,
2021, the fund’s commitment fee and interest expense were $82 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $506,370 | $7,265,713 | $7,218,342 | $— | $— | $553,741 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $222 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
16
MFS Emerging Markets
Equity Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
17
MFS Emerging Markets Equity
Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
18
Semiannual Report
June 30, 2021
MFS® Global
Governments Portfolio
Governments Portfolio
MFS® Variable Insurance Trust II
WGS-SEM
MFS Global Governments
Portfolio
Portfolio Composition
| (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. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 ratings agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. 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 and fixed income derivatives that have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (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. |
2
MFS Global Governments
Portfolio
Portfolio Composition - continued
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. 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 value. The bond component will include any accrued interest amounts. |
| (m) | In determining each 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%. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in
money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of June 30, 2021.
The portfolio is actively managed and current holdings may be
different.
3
MFS Global Governments
Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.76% | $1,000.00 | $950.39 | $3.68 |
| Hypothetical (h) | 0.76% | $1,000.00 | $1,021.03 | $3.81 | |
| Service Class | Actual | 1.01% | $1,000.00 | $949.39 | $4.88 |
| Hypothetical (h) | 1.01% | $1,000.00 | $1,019.79 | $5.06 |
| (h) | 5% fund return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
4
MFS Global Governments
Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
5
MFS Global Governments
Portfolio
Portfolio of
Investments (unaudited) – continued
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. |
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $2,941,480 and $123,032,830, respectively. |
| (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 $8,067,170, representing 6.4% of net assets. |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| The following abbreviations are used in this report and are defined: | |
| AGM | Assured Guaranty Municipal |
| BAM | Build America Mutual |
| CLO | Collateralized Loan Obligation |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| LIBOR | London Interbank Offered Rate |
| 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 |
7
MFS Global Governments
Portfolio
Portfolio of
Investments (unaudited) – continued
| CAD | Canadian Dollar |
| CLP | Chilean Peso |
| CNH | Chinese Yuan Renminbi (Offshore) |
| CNY | China Yuan Renminbi |
| CZK | Czech Koruna |
| DKK | Danish Krone |
| EUR | Euro |
| GBP | British Pound |
| HUF | Hungarian Forint |
| JPY | Japanese Yen |
| KRW | South Korean Won |
| MXN | Mexican Peso |
| NOK | Norwegian Krone |
| NZD | New Zealand Dollar |
| PLN | Polish Zloty |
| SEK | Swedish Krona |
| THB | Thai Baht |
| UYU | Uruguayan Peso |
| ZAR | South African Rand |
| Derivative Contracts at 6/30/21 | ||||||
| Forward Foreign Currency Exchange Contracts | ||||||
| Currency
Purchased |
Currency
Sold |
Counterparty | Settlement Date | Unrealized
Appreciation (Depreciation) | ||
| Asset Derivatives | ||||||
| BRL | 1,590,000 | USD | 316,603 | Citibank N.A. | 8/03/2021 | $ 1,988 |
| BRL | 1,604,000 | USD | 317,762 | Goldman Sachs International | 8/03/2021 | 3,634 |
| CAD | 1,591,000 | USD | 1,273,972 | Brown Brothers Harriman | 7/16/2021 | 9,493 |
| CAD | 802,000 | USD | 642,697 | JPMorgan Chase Bank N.A. | 7/16/2021 | 4,280 |
| CNY | 1,567,000 | USD | 239,610 | Barclays Bank PLC | 9/10/2021 | 1,766 |
| GBP | 2,917,461 | USD | 4,025,683 | Merrill Lynch International | 7/16/2021 | 10,214 |
| GBP | 1,092,902 | USD | 1,509,322 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | 2,553 |
| KRW | 717,084,000 | USD | 634,116 | JPMorgan Chase Bank N.A. | 8/17/2021 | 2,500 |
| MXN | 1,267,000 | USD | 62,906 | HSBC Bank | 7/16/2021 | 544 |
| NOK | 5,412,000 | USD | 624,887 | Deutsche Bank AG | 7/16/2021 | 3,718 |
| USD | 2,095,354 | AUD | 2,694,924 | Deutsche Bank AG | 7/16/2021 | 74,147 |
| USD | 221,371 | AUD | 286,077 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | 6,812 |
| USD | 1,371,029 | AUD | 1,765,240 | State Street Bank Corp. | 7/16/2021 | 47,089 |
| USD | 528,623 | CAD | 650,576 | Deutsche Bank AG | 7/16/2021 | 3,800 |
| USD | 1,874,076 | CAD | 2,270,449 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | 42,497 |
| USD | 634,440 | EUR | 521,000 | Barclays Bank PLC | 7/16/2021 | 16,483 |
| USD | 824,918 | EUR | 676,811 | Barclays Bank PLC | 8/12/2021 | 21,717 |
| USD | 79,578 | EUR | 65,000 | BNP Paribas S.A. | 7/16/2021 | 2,481 |
| USD | 637,383 | EUR | 522,000 | Brown Brothers Harriman | 7/16/2021 | 18,239 |
| USD | 636,583 | EUR | 530,117 | Citibank N.A. | 7/16/2021 | 7,812 |
| USD | 7,556,865 | EUR | 6,252,699 | Deutsche Bank AG | 7/16/2021 | 140,542 |
| USD | 9,386,360 | EUR | 7,864,398 | JPMorgan Chase Bank N.A. | 7/16/2021 | 58,405 |
| USD | 2,390,229 | EUR | 1,966,310 | Merrill Lynch International | 7/16/2021 | 57,990 |
| USD | 5,187,428 | EUR | 4,338,837 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | 41,137 |
| USD | 366,890 | EUR | 302,000 | State Street Bank Corp. | 7/16/2021 | 8,688 |
| USD | 865,896 | GBP | 613,315 | Deutsche Bank AG | 7/16/2021 | 17,462 |
| USD | 1,919,990 | GBP | 1,386,836 | JPMorgan Chase Bank N.A. | 7/16/2021 | 1,497 |
| USD | 636,090 | GBP | 459,000 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | 1,128 |
| USD | 649,012 | GBP | 458,000 | State Street Bank Corp. | 7/16/2021 | 15,434 |
| USD | 114,115 | JPY | 12,462,000 | Brown Brothers Harriman | 7/16/2021 | 1,928 |
| USD | 1,320,740 | JPY | 144,857,458 | Citibank N.A. | 7/16/2021 | 16,689 |
| USD | 273,548 | JPY | 29,859,669 | JPMorgan Chase Bank N.A. | 7/16/2021 | 4,743 |
8
MFS Global Governments
Portfolio
Portfolio of
Investments (unaudited) – continued
| Forward Foreign Currency Exchange Contracts - continued | ||||||
| Currency
Purchased |
Currency
Sold |
Counterparty | Settlement Date | Unrealized
Appreciation (Depreciation) | ||
| Asset Derivatives - continued | ||||||
| USD | 1,329,104 | JPY | 145,847,778 | State Street Bank Corp. | 7/16/2021 | $ 16,137 |
| USD | 942,523 | NOK | 7,860,000 | Brown Brothers Harriman | 7/16/2021 | 29,582 |
| USD | 643,462 | NOK | 5,355,000 | Citibank N.A. | 7/16/2021 | 21,478 |
| USD | 1,381,412 | NZD | 1,935,507 | Deutsche Bank AG | 7/16/2021 | 28,521 |
| USD | 954,176 | NZD | 1,338,000 | State Street Bank Corp. | 7/16/2021 | 18,934 |
| USD | 1,584,708 | SEK | 13,458,000 | Brown Brothers Harriman | 7/16/2021 | 11,954 |
| USD | 1,085,881 | SEK | 9,162,719 | JPMorgan Chase Bank N.A. | 7/16/2021 | 15,090 |
| USD | 628,882 | SEK | 5,309,000 | Merrill Lynch International | 7/16/2021 | 8,452 |
| USD | 626,998 | SEK | 5,230,819 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | 15,704 |
| USD | 626,282 | SEK | 5,202,808 | State Street Bank Corp. | 7/16/2021 | 18,262 |
| USD | 617,033 | THB | 19,381,000 | JPMorgan Chase Bank N.A. | 7/21/2021 | 12,353 |
| USD | 133,266 | ZAR | 1,846,168 | State Street Bank Corp. | 7/16/2021 | 4,208 |
| $ 848,085 | ||||||
| Liability Derivatives | ||||||
| AUD | 818,000 | USD | 629,736 | Goldman Sachs International | 7/16/2021 | $ (16,231) |
| AUD | 1,260,000 | USD | 981,004 | JPMorgan Chase Bank N.A. | 7/16/2021 | (35,998) |
| AUD | 2,005,860 | USD | 1,549,534 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | (45,128) |
| AUD | 364,783 | USD | 283,698 | State Street Bank Corp. | 7/16/2021 | (10,109) |
| CAD | 351,000 | USD | 291,755 | Brown Brothers Harriman | 7/16/2021 | (8,602) |
| CAD | 3,804,868 | USD | 3,130,070 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | (60,671) |
| CLP | 221,841,000 | USD | 310,055 | Citibank N.A. | 8/13/2021 | (8,297) |
| CNH | 2,045,000 | USD | 317,644 | NatWest Markets PLC | 7/16/2021 | (1,712) |
| CZK | 13,549,000 | USD | 632,206 | Brown Brothers Harriman | 7/16/2021 | (2,259) |
| DKK | 2,939,237 | USD | 474,406 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | (5,599) |
| EUR | 1,090,000 | USD | 1,316,823 | Brown Brothers Harriman | 7/16/2021 | (23,975) |
| EUR | 708,225 | USD | 850,115 | Citibank N.A. | 7/16/2021 | (10,089) |
| EUR | 2,990,510 | USD | 3,635,279 | Deutsche Bank AG | 7/16/2021 | (88,236) |
| EUR | 885,430 | USD | 1,071,991 | HSBC Bank | 7/16/2021 | (21,784) |
| EUR | 84,000 | USD | 101,175 | JPMorgan Chase Bank N.A. | 7/16/2021 | (1,542) |
| EUR | 1,293,099 | USD | 1,567,976 | State Street Bank Corp. | 7/16/2021 | (34,232) |
| GBP | 759,741 | USD | 1,070,245 | Brown Brothers Harriman | 7/16/2021 | (19,250) |
| GBP | 451,000 | USD | 638,280 | Citibank N.A. | 7/16/2021 | (14,385) |
| GBP | 473,000 | USD | 667,609 | Goldman Sachs International | 7/16/2021 | (13,280) |
| GBP | 402,000 | USD | 562,020 | NatWest Markets PLC | 7/16/2021 | (5,910) |
| GBP | 429,000 | USD | 609,545 | State Street Bank Corp. | 7/16/2021 | (16,084) |
| HUF | 186,646,000 | USD | 636,453 | State Street Bank Corp. | 7/16/2021 | (6,730) |
| JPY | 772,729,081 | USD | 7,118,488 | Citibank N.A. | 7/16/2021 | (162,144) |
| JPY | 170,298,178 | USD | 1,568,624 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | (35,547) |
| MXN | 6,279,000 | USD | 316,009 | State Street Bank Corp. | 7/16/2021 | (1,564) |
| NOK | 12,677,161 | USD | 1,518,189 | Brown Brothers Harriman | 7/16/2021 | (45,735) |
| NOK | 5,406,000 | USD | 634,751 | Citibank N.A. | 7/16/2021 | (6,843) |
| NZD | 448,000 | USD | 320,105 | Brown Brothers Harriman | 7/16/2021 | (6,960) |
| NZD | 878,000 | USD | 640,299 | Citibank N.A. | 7/16/2021 | (26,591) |
| NZD | 965,875 | USD | 694,434 | Deutsche Bank AG | 7/16/2021 | (19,301) |
| NZD | 966,929 | USD | 703,687 | State Street Bank Corp. | 7/16/2021 | (27,818) |
| PLN | 2,398,000 | USD | 634,629 | Brown Brothers Harriman | 7/16/2021 | (5,679) |
| SEK | 2,633,000 | USD | 318,150 | Brown Brothers Harriman | 7/16/2021 | (10,447) |
| SEK | 2,542,000 | USD | 306,838 | JPMorgan Chase Bank N.A. | 7/16/2021 | (9,770) |
| SEK | 5,356,000 | USD | 643,421 | State Street Bank Corp. | 7/16/2021 | (17,498) |
| USD | 278,130 | BRL | 1,395,378 | Banco Santander S.A | 8/03/2021 | (1,464) |
| USD | 655,912 | BRL | 3,447,605 | JPMorgan Chase Bank N.A. | 8/03/2021 | (34,890) |
| USD | 2,265,278 | CAD | 2,834,281 | Merrill Lynch International | 7/16/2021 | (21,146) |
9
MFS Global Governments
Portfolio
Portfolio of
Investments (unaudited) – continued
| Forward Foreign Currency Exchange Contracts - continued | ||||||
| Currency
Purchased |
Currency
Sold |
Counterparty | Settlement Date | Unrealized
Appreciation (Depreciation) | ||
| Liability Derivatives - continued | ||||||
| USD | 656,258 | CAD | 823,000 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | $ (7,659) |
| USD | 815,842 | CNY | 5,325,000 | Barclays Bank PLC | 9/10/2021 | (4,405) |
| USD | 1,379,411 | CNY | 9,105,000 | JPMorgan Chase Bank N.A. | 9/10/2021 | (23,096) |
| USD | 2,253 | GBP | 1,635 | JPMorgan Chase Bank N.A. | 7/16/2021 | (8) |
| USD | 39,497 | GBP | 28,655 | State Street Bank Corp. | 7/16/2021 | (143) |
| USD | 62,561 | MXN | 1,265,866 | Goldman Sachs International | 7/16/2021 | (832) |
| USD | 196,736 | ZAR | 2,865,681 | JPMorgan Chase Bank N.A. | 7/16/2021 | (3,594) |
| $(923,237) | ||||||
| Futures Contracts | ||||||
| Description | Long/
Short |
Currency | Contracts | Notional
Amount |
Expiration
Date |
Value/Unrealized
Appreciation (Depreciation) |
| Liability Derivatives | ||||||
| Interest Rate Futures | ||||||
| Canadian Treasury Bond 10 yr | Short | CAD | 25 | $2,934,818 | September - 2021 | $(30,334) |
At June 30, 2021, the fund had cash
collateral of $70,000 and other liquid securities with an aggregate value of $57,663 to cover any collateral or margin obligations for certain derivative contracts. Restricted cash and/or deposits with brokers in the Statement of Assets and
Liabilities are comprised of cash collateral.
See Notes to
Financial Statements
10
MFS Global Governments
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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $119,607,163) | $123,032,830 |
| Investments in affiliated issuers, at value (identified cost, $2,941,480) | 2,941,480 |
| Restricted cash for | |
| Forward foreign currency exchange contracts | 70,000 |
| Receivables for | |
| Forward foreign currency exchange contracts | 848,085 |
| Fund shares sold | 17,767 |
| Interest | 652,614 |
| Receivable from investment adviser | 7,586 |
| Other assets | 738 |
| Total assets | $127,571,100 |
| Liabilities | |
| Payables for | |
| Forward foreign currency exchange contracts | $923,237 |
| Net daily variation margin on open futures contracts | 6,032 |
| Fund shares reacquired | 4,211 |
| Payable to affiliates | |
| Administrative services fee | 150 |
| Shareholder servicing costs | 10 |
| Distribution and/or service fees | 11 |
| Accrued expenses and other liabilities | 62,108 |
| Total liabilities | $995,759 |
| Net assets | $126,575,341 |
| Net assets consist of | |
| Paid-in capital | $121,493,634 |
| Total distributable earnings (loss) | 5,081,707 |
| Net assets | $126,575,341 |
| Shares of beneficial interest outstanding | 11,395,457 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $125,782,636 | 11,322,568 | $11.11 |
| Service Class | 792,705 | 72,889 | 10.88 |
See Notes to Financial Statements
11
MFS Global Governments
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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Interest | $751,199 |
| Dividends from affiliated issuers | 1,567 |
| Other | 29 |
| Foreign taxes withheld | (2,761) |
| Total investment income | $750,034 |
| Expenses | |
| Management fee | $475,731 |
| Distribution and/or service fees | 982 |
| Shareholder servicing costs | 1,031 |
| Administrative services fee | 13,617 |
| Independent Trustees' compensation | 2,004 |
| Custodian fee | 11,613 |
| Shareholder communications | 2,934 |
| Audit and tax fees | 37,462 |
| Legal fees | 511 |
| Miscellaneous | 16,391 |
| Total expenses | $562,276 |
| Reduction of expenses by investment adviser | (78,525) |
| Net expenses | $483,751 |
| Net investment income (loss) | $266,283 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $514 country tax) | $1,921,673 |
| Futures contracts | 24,025 |
| Forward foreign currency exchange contracts | (514,467) |
| Foreign currency | 17,932 |
| Net realized gain (loss) | $1,449,163 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(8,362,265) |
| Futures contracts | (22,039) |
| Forward foreign currency exchange contracts | 105,155 |
| Translation of assets and liabilities in foreign currencies | (34,473) |
| Net unrealized gain (loss) | $(8,313,622) |
| Net realized and unrealized gain (loss) | $(6,864,459) |
| Change in net assets from operations | $(6,598,176) |
See Notes to Financial Statements
12
MFS Global Governments
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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $266,283 | $565,320 |
| Net realized gain (loss) | 1,449,163 | 4,900,087 |
| Net unrealized gain (loss) | (8,313,622) | 6,923,550 |
| Change in net assets from operations | $(6,598,176) | $12,388,957 |
| Total distributions to shareholders | $— | $(1,660,302) |
| Change in net assets from fund share transactions | $2,931,693 | $(10,857,191) |
| Total change in net assets | $(3,666,483) | $(128,536) |
| Net assets | ||
| At beginning of period | 130,241,824 | 130,370,360 |
| At end of period | $126,575,341 | $130,241,824 |
See Notes to Financial Statements
13
MFS Global Governments
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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $11.69 | $10.71 | $10.34 | $10.56 | $9.87 | $9.84 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.02 | $0.05 | $0.11 | $0.11 | $0.08 | $0.07(c) |
| Net realized and unrealized gain (loss) | (0.60) | 1.08 | 0.53 | (0.23) | 0.61 | (0.04)(g) |
| Total from investment operations | $(0.58) | $1.13 | $0.64 | $(0.12) | $0.69 | $0.03 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.15) | $(0.27) | $(0.10) | $— | $— |
| Net asset value, end of period (x) | $11.11 | $11.69 | $10.71 | $10.34 | $10.56 | $9.87 |
| Total return (%) (k)(r)(s)(x) | (4.96)(n) | 10.60 | 6.08 | (1.11) | 6.99 | 0.30(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.89(a) | 0.90 | 0.88 | 0.87 | 0.86 | 0.83(c) |
| Expenses after expense reductions (f) | 0.76(a) | 0.83 | 0.87 | 0.86 | 0.85 | 0.82(c) |
| Net investment income (loss) | 0.42(a) | 0.46 | 1.01 | 1.05 | 0.77 | 0.66(c) |
| Portfolio turnover | 76(n) | 98 | 107 | 79 | 67 | 75 |
| Net assets at end of period (000 omitted) | $125,783 | $129,401 | $129,565 | $135,008 | $159,652 | $162,211 |
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $11.46 | $10.50 | $10.14 | $10.34 | $9.69 | $9.69 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.01 | $0.02 | $0.08 | $0.08 | $0.05 | $0.04(c) |
| Net realized and unrealized gain (loss) | (0.59) | 1.06 | 0.51 | (0.22) | 0.60 | (0.04)(g) |
| Total from investment operations | $(0.58) | $1.08 | $0.59 | $(0.14) | $0.65 | $0.00(w) |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.12) | $(0.23) | $(0.06) | $— | $— |
| Net asset value, end of period (x) | $10.88 | $11.46 | $10.50 | $10.14 | $10.34 | $9.69 |
| Total return (%) (k)(r)(s)(x) | (5.06)(n) | 10.35 | 5.79 | (1.32) | 6.71 | 0.00(c)(w) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.14(a) | 1.15 | 1.13 | 1.12 | 1.11 | 1.08(c) |
| Expenses after expense reductions (f) | 1.01(a) | 1.08 | 1.12 | 1.11 | 1.10 | 1.07(c) |
| Net investment income (loss) | 0.17(a) | 0.20 | 0.76 | 0.80 | 0.52 | 0.41(c) |
| Portfolio turnover | 76(n) | 98 | 107 | 79 | 67 | 75 |
| Net assets at end of period (000 omitted) | $793 | $841 | $806 | $826 | $1,034 | $1,572 |
See Notes to Financial Statements
14
MFS Global Governments
Portfolio
Financial Highlights - continued
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (g) | The per share amount varies from the net realized and unrealized gain/loss for the period because of the timing of sales of fund shares and the per share amount of realized and unrealized gains and losses at such time. |
| (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 and total return or ratio was less than 0.01%, as applicable. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
15
MFS Global Governments
Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Global Governments Portfolio (the fund) is a
non-diversified 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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Debt instruments and floating rate loans, 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 may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their
primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a
third-party pricing service. 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. In determining values, 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
16
MFS Global Governments
Portfolio
Notes to Financial Statements (unaudited) - continued
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 halt 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
instruments, such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of June 30, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $35,114,883 | $— | $35,114,883 |
| Non - U.S. Sovereign Debt | — | 83,609,479 | — | 83,609,479 |
| Municipal Bonds | — | 1,796,879 | — | 1,796,879 |
| U.S. Corporate Bonds | — | 331,698 | — | 331,698 |
| Residential Mortgage-Backed Securities | — | 32,648 | — | 32,648 |
| Commercial Mortgage-Backed Securities | — | 774,713 | — | 774,713 |
| Asset-Backed Securities (including CDOs) | — | 123,603 | — | 123,603 |
| Foreign Bonds | — | 1,248,927 | — | 1,248,927 |
| Mutual Funds | 2,941,480 | — | — | 2,941,480 |
| Total | $2,941,480 | $123,032,830 | $— | $125,974,310 |
| Other Financial Instruments | ||||
| Futures Contracts – Liabilities | $(30,334) | $— | $— | $(30,334) |
| Forward Foreign Currency Exchange Contracts – Assets | — | 848,085 | — | 848,085 |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (923,237) | — | (923,237) |
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.
17
MFS Global Governments
Portfolio
Notes to Financial Statements (unaudited) - continued
Derivatives — The
fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, 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 during the
period were futures contracts and forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an
agreement with the derivative counterparty, or novating the position to a third party. 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, 2021 as reported in the Statement of Assets and Liabilities:
| Fair Value (a) | |||
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Interest Rate Futures | $— | $30,334 |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | 848,085 | 923,237 |
| Total | $848,085 | $953,569 | |
(a) Values presented in this table
for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is separately reported within the 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, 2021 as reported in the Statement of Operations:
| Risk | Futures
Contracts |
Forward
Foreign Currency Exchange Contracts |
| Interest Rate | $24,025 | $— |
| Foreign Exchange | — | (514,467) |
| Total | $24,025 | $(514,467) |
The following table presents, by
major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the six months ended June 30, 2021 as reported in the Statement of Operations:
| Risk | Futures
Contracts |
Forward
Foreign Currency Exchange Contracts |
| Interest Rate | $(22,039) | $— |
| Foreign Exchange | — | 105,155 |
| Total | $(22,039) | $105,155 |
Derivative counterparty credit
risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering
into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the
other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement 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.
Collateral and margin requirements differ by type of
derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the
fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and
18
MFS Global Governments
Portfolio
Notes to Financial Statements (unaudited) - continued
collateral, in the
form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements
are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or
margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as
collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in
“Miscellaneous” expense in the Statement of Operations.
Futures Contracts —
The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. 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 specified 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 contracts
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 contracts 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 forward foreign currency exchange contracts.
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, a multicurrency cash settlement system for the centralized settlement of foreign transactions. 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, where applicable, 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.
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. Interest payments
received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date. All premium and discount is amortized or accreted for financial statement
purposes in accordance with U.S. generally accepted accounting principles.
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.
19
MFS Global Governments
Portfolio
Notes to Financial Statements (unaudited) - continued
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has
analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been
accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on
securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
Book/tax differences primarily relate to amortization and
accretion of debt securities, straddle loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders
for the last fiscal year is as follows:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $1,660,302 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
| As of 6/30/21 | |
| Cost of investments | $124,362,251 |
| Gross appreciation | 3,028,389 |
| Gross depreciation | (1,416,330) |
| Net unrealized appreciation (depreciation) | $1,612,059 |
| As of 12/31/20 | |
| Undistributed ordinary income | 2,952,140 |
| Capital loss carryforwards | (1,102,411) |
| Other temporary differences | 31,173 |
| Net unrealized appreciation (depreciation) | 9,798,981 |
As of December 31, 2020, the
fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as
follows:
| Short-Term | $(300,608) |
| Long-Term | (801,803) |
| Total | $(1,102,411) |
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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $1,651,619 | |
| Service Class | — | 8,683 | |
| Total | $— | $1,660,302 |
20
MFS Global Governments
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 based on the fund's average daily net assets:
| Up to $300 million | 0.75% |
| In excess of $300 million and up to $1 billion | 0.675% |
| In excess of $1 billion | 0.625% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $7,576, which is
included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.74% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.76% of
average daily net assets for the Initial Class shares and 1.01% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at
least until April 30, 2023. For the six months ended June 30, 2021, this reduction amounted to $70,949, which is included in the 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, 2021, the fee was $949, which equated to 0.0015% annually of
the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $82.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate of 0.0215% of the fund's average daily
net assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation
directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD,
and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, were as follows:
| Purchases | Sales | |
| U.S. Government securities | $31,294,898 | $35,076,769 |
| Non-U.S. Government securities | 66,679,143 | 57,874,096 |
21
MFS Global Governments
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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 382,466 | $4,391,453 | 1,052,245 | $11,850,341 | |
| Service Class | 4,520 | 49,558 | 7,826 | 87,385 | |
| 386,986 | $4,441,011 | 1,060,071 | $11,937,726 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 145,517 | $1,651,619 | |
| Service Class | — | — | 779 | 8,683 | |
| — | $— | 146,296 | $1,660,302 | ||
| Shares reacquired | |||||
| Initial Class | (127,954) | $(1,453,589) | (2,224,850) | $(24,324,361) | |
| Service Class | (4,998) | (55,729) | (11,946) | (130,858) | |
| (132,952) | $(1,509,318) | (2,236,796) | $(24,455,219) | ||
| Net change | |||||
| Initial Class | 254,512 | $2,937,864 | (1,027,088) | $(10,822,401) | |
| Service Class | (478) | (6,171) | (3,341) | (34,790) | |
| 254,034 | $2,931,693 | (1,030,429) | $(10,857,191) | ||
The fund is one of several
mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Conservative
Allocation Portfolio, and the MFS Growth Allocation Portfolio were the owners of record of approximately 54%, 26%, and 11%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate
in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $230 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $2,150,119 | $45,278,649 | $44,487,288 | $— | $— | $2,941,480 |
22
MFS Global Governments
Portfolio
Notes to Financial Statements (unaudited) - continued
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $1,567 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
23
MFS Global Governments
Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
24
MFS Global Governments
Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
25
Semiannual Report
June 30, 2021
MFS® Global Growth Portfolio
MFS® Variable Insurance Trust II
WGO-SEM
MFS Global Growth
Portfolio
Portfolio Composition
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash,
investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and
liabilities.
Percentages are based on net
assets as of June 30, 2021.
The portfolio is
actively managed and current holdings may be different.
2
MFS Global Growth
Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 1.00% | $1,000.00 | $1,111.43 | $5.24 |
| Hypothetical (h) | 1.00% | $1,000.00 | $1,019.84 | $5.01 | |
| Service Class | Actual | 1.25% | $1,000.00 | $1,109.86 | $6.54 |
| Hypothetical (h) | 1.25% | $1,000.00 | $1,018.60 | $6.26 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3
MFS Global Growth Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS Global Growth
Portfolio
Portfolio of
Investments (unaudited) – continued
| (a) | Non-income producing security. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $408,801 and $60,375,418, respectively. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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 Depositary Receipt |
| REIT | Real Estate Investment Trust |
See Notes
to Financial Statements
5
MFS Global 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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $30,812,093) | $60,375,418 |
| Investments in affiliated issuers, at value (identified cost, $408,801) | 408,801 |
| Foreign currency, at value (identified cost, $4,370) | 4,348 |
| Receivables for | |
| Fund shares sold | 13,131 |
| Interest and dividends | 87,536 |
| Receivable from investment adviser | 5,762 |
| Other assets | 497 |
| Total assets | $60,895,493 |
| Liabilities | |
| Payable to custodian | $857 |
| Payables for | |
| Fund shares reacquired | 31,986 |
| Payable to affiliates | |
| Administrative services fee | 104 |
| Shareholder servicing costs | 20 |
| Distribution and/or service fees | 81 |
| Deferred country tax expense payable | 33,645 |
| Accrued expenses and other liabilities | 55,638 |
| Total liabilities | $122,331 |
| Net assets | $60,773,162 |
| Net assets consist of | |
| Paid-in capital | $21,552,024 |
| Total distributable earnings (loss) | 39,221,138 |
| Net assets | $60,773,162 |
| Shares of beneficial interest outstanding | 1,751,796 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $54,853,352 | 1,580,459 | $34.71 |
| Service Class | 5,919,810 | 171,337 | 34.55 |
See Notes to Financial Statements
6
MFS Global Growth
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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $374,367 |
| Other | 1,589 |
| Dividends from affiliated issuers | 149 |
| Income on securities loaned | 4 |
| Foreign taxes withheld | (25,576) |
| Total investment income | $350,533 |
| Expenses | |
| Management fee | $261,945 |
| Distribution and/or service fees | 5,084 |
| Shareholder servicing costs | 1,754 |
| Administrative services fee | 9,227 |
| Independent Trustees' compensation | 1,543 |
| Custodian fee | 9,454 |
| Shareholder communications | 2,741 |
| Audit and tax fees | 37,875 |
| Legal fees | 227 |
| Miscellaneous | 11,552 |
| Total expenses | $341,402 |
| Reduction of expenses by investment adviser | (45,155) |
| Net expenses | $296,247 |
| Net investment income (loss) | $54,286 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $1,017 country tax) | $2,846,958 |
| Foreign currency | (3,348) |
| Net realized gain (loss) | $2,843,610 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $3,275 decrease in deferred country tax) | $3,300,948 |
| Translation of assets and liabilities in foreign currencies | (1,981) |
| Net unrealized gain (loss) | $3,298,967 |
| Net realized and unrealized gain (loss) | $6,142,577 |
| Change in net assets from operations | $6,196,863 |
See Notes to Financial Statements
7
MFS Global Growth
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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $54,286 | $43,748 |
| Net realized gain (loss) | 2,843,610 | 6,924,262 |
| Net unrealized gain (loss) | 3,298,967 | 2,933,827 |
| Change in net assets from operations | $6,196,863 | $9,901,837 |
| Total distributions to shareholders | $— | $(5,057,056) |
| Change in net assets from fund share transactions | $(1,964,915) | $(1,323,240) |
| Total change in net assets | $4,231,948 | $3,521,541 |
| Net assets | ||
| At beginning of period | 56,541,214 | 53,019,673 |
| At end of period | $60,773,162 | $56,541,214 |
See Notes to Financial Statements
8
MFS Global Growth
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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $31.23 | $28.60 | $23.72 | $26.53 | $21.00 | $20.88 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.03 | $0.03 | $0.14 | $0.15 | $0.13 | $0.25(c) |
| Net realized and unrealized gain (loss) | 3.45 | 5.57 | 8.00 | (1.23) | 6.51 | 1.08 |
| Total from investment operations | $3.48 | $5.60 | $8.14 | $(1.08) | $6.64 | $1.33 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.14) | $(0.16) | $(0.14) | $(0.27) | $(0.13) |
| From net realized gain | — | (2.83) | (3.10) | (1.59) | (0.84) | (1.08) |
| Total distributions declared to shareholders | $— | $(2.97) | $(3.26) | $(1.73) | $(1.11) | $(1.21) |
| Net asset value, end of period (x) | $34.71 | $31.23 | $28.60 | $23.72 | $26.53 | $21.00 |
| Total return (%) (k)(r)(s)(x) | 11.14(n) | 20.76 | 36.01 | (4.83) | 32.14 | 6.07(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.16(a) | 1.21 | 1.21 | 1.17 | 1.17 | 0.72(c) |
| Expenses after expense reductions (f) | 1.00(a) | 1.00 | 1.00 | 1.00 | 1.00 | 0.55(c) |
| Net investment income (loss) | 0.20(a) | 0.10 | 0.53 | 0.56 | 0.55 | 1.18(c) |
| Portfolio turnover | 10(n) | 34 | 22 | 22 | 21 | 25 |
| Net assets at end of period (000 omitted) | $54,853 | $53,591 | $50,911 | $43,919 | $54,886 | $46,182 |
See Notes to Financial Statements
9
MFS Global Growth
Portfolio
Financial Highlights - continued
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $31.13 | $28.52 | $23.65 | $26.44 | $20.94 | $20.82 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $(0.00)(w) | $(0.04) | $0.07 | $0.09 | $0.07 | $0.20(c) |
| Net realized and unrealized gain (loss) | 3.42 | 5.56 | 7.98 | (1.24) | 6.48 | 1.08 |
| Total from investment operations | $3.42 | $5.52 | $8.05 | $(1.15) | $6.55 | $1.28 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.08) | $(0.08) | $(0.05) | $(0.21) | $(0.08) |
| From net realized gain | — | (2.83) | (3.10) | (1.59) | (0.84) | (1.08) |
| Total distributions declared to shareholders | $— | $(2.91) | $(3.18) | $(1.64) | $(1.05) | $(1.16) |
| Net asset value, end of period (x) | $34.55 | $31.13 | $28.52 | $23.65 | $26.44 | $20.94 |
| Total return (%) (k)(r)(s)(x) | 10.99(n) | 20.49 | 35.66 | (5.06) | 31.77 | 5.85(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.41(a) | 1.46 | 1.46 | 1.42 | 1.42 | 0.94(c) |
| Expenses after expense reductions (f) | 1.25(a) | 1.25 | 1.25 | 1.25 | 1.25 | 0.77(c) |
| Net investment income (loss) | (0.02)(a) | (0.16) | 0.26 | 0.34 | 0.31 | 0.94(c) |
| Portfolio turnover | 10(n) | 34 | 22 | 22 | 21 | 25 |
| Net assets at end of period (000 omitted) | $5,920 | $2,950 | $2,109 | $1,754 | $2,530 | $2,355 |
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
10
MFS Global Growth
Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Global Growth Portfolio (the fund) is a diversified
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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and
greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, accounting, and auditing systems, and
greater political, social, and economic instability than developed markets.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing
service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are
generally valued at 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. In determining values, 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.
11
MFS Global Growth
Portfolio
Notes to Financial Statements (unaudited) - continued
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 halt 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 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 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, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $60,375,418 | $— | $— | $60,375,418 |
| Mutual Funds | 408,801 | — | — | 408,801 |
| Total | $60,784,219 | $— | $— | $60,784,219 |
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 —
Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans
can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. 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. On loans collateralized by cash, the cash collateral is invested in a money market fund.
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. The lending agent provides the fund with indemnification against
Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the
loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the
extent that such shortfall is not due to a decline in collateral value resulting from
12
MFS Global Growth
Portfolio
Notes to Financial Statements (unaudited) - continued
collateral
reinvestment for which the fund bears the risk of loss. 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 separately reported in 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. At June 30, 2021, there were no securities on loan or collateral outstanding.
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 payments received in additional securities are recorded on the ex-dividend 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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
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:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $556,052 |
| Long-term capital gains | 4,501,004 |
| Total distributions | $5,057,056 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
13
MFS Global Growth
Portfolio
Notes to Financial Statements (unaudited) - continued
| As of 6/30/21 | |
| Cost of investments | $31,229,460 |
| Gross appreciation | 29,826,030 |
| Gross depreciation | (271,271) |
| Net unrealized appreciation (depreciation) | $29,554,759 |
| As of 12/31/20 | |
| Undistributed ordinary income | 271,425 |
| Undistributed long-term capital gain | 6,747,330 |
| Other temporary differences | 4,532 |
| Net unrealized appreciation (depreciation) | 26,000,988 |
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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $4,835,637 | |
| Service Class | — | 221,419 | |
| Total | $— | $5,057,056 |
(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 based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2 billion | 0.75% |
| In excess of $2 billion | 0.65% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $3,482, which is
included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.89% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, 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 modified by the fund’s Board of Trustees, but such agreement will continue at
least until April 30, 2023. For the six months ended June 30, 2021, this reduction amounted to $41,673, which is included in the 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.
14
MFS Global Growth
Portfolio
Notes to Financial Statements (unaudited) - continued
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, 2021, the fee was $1,662, which equated to 0.0057% annually of
the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $92.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate of 0.0317% of the fund's average daily
net assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation
directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD,
and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale
transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by
the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the six months ended June 30, 2021, the fund engaged in sale transactions pursuant to this policy, which amounted to $7,076. The sales transactions resulted in net
realized gains (losses) of $(145).
The adviser has
voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the six months
ended June 30, 2021, this reimbursement amounted to $1,572, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, aggregated $5,902,058 and $7,732,415, 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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 17,076 | $546,737 | 63,657 | $1,741,046 | |
| Service Class | 82,992 | 2,754,819 | 22,786 | 663,768 | |
| 100,068 | $3,301,556 | 86,443 | $2,404,814 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 172,148 | $4,835,637 | |
| Service Class | — | — | 7,902 | 221,419 | |
| — | $— | 180,050 | $5,057,056 | ||
| Shares reacquired | |||||
| Initial Class | (152,683) | $(5,053,023) | (299,956) | $(8,508,716) | |
| Service Class | (6,443) | (213,448) | (9,827) | (276,394) | |
| (159,126) | $(5,266,471) | (309,783) | $(8,785,110) | ||
15
MFS Global Growth
Portfolio
Notes to Financial Statements (unaudited) - continued
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Net change | |||||
| Initial Class | (135,607) | $(4,506,286) | (64,151) | $(1,932,033) | |
| Service Class | 76,549 | 2,541,371 | 20,861 | 608,793 | |
| (59,058) | $(1,964,915) | (43,290) | $(1,323,240) | ||
(6) Line of
Credit
The fund and certain other funds managed by
MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $104 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $461,131 | $5,840,312 | $5,892,642 | $— | $— | $408,801 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $149 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
16
MFS Global Growth
Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
17
MFS Global Growth
Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
18
Semiannual Report
June 30, 2021
MFS® Global Research Portfolio
MFS® Variable Insurance Trust II
RES-SEM
MFS Global Research
Portfolio
Portfolio Composition
| (k) | The sectors set forth above and the associated portfolio composition are based on MFS’ own custom sector classification methodology. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash,
investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and
liabilities.
Percentages are based on net
assets as of June 30, 2021.
The portfolio is
actively managed and current holdings may be different.
2
MFS Global Research
Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.85% | $1,000.00 | $1,115.85 | $4.46 |
| Hypothetical (h) | 0.85% | $1,000.00 | $1,020.58 | $4.26 | |
| Service Class | Actual | 1.10% | $1,000.00 | $1,114.36 | $5.77 |
| Hypothetical (h) | 1.10% | $1,000.00 | $1,019.34 | $5.51 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3
MFS Global Research
Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS Global Research
Portfolio
Portfolio of
Investments (unaudited) – continued
| (a) | Non-income producing security. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $353,803 and $99,793,590, respectively. | |||
| (l) | A portion of this security is on loan. See Note 2 for additional information. | |||
| (s) | Security or a portion of the security was pledged to cover collateral requirements for certain derivative transactions. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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 Depositary Receipt |
| REIT | Real Estate Investment Trust |
At June
30, 2021, the fund had cash collateral of $2,589 and other liquid securities with an aggregate value of $587,872 to cover any collateral or margin obligations for certain derivative contracts. Restricted cash and/or deposits with brokers in the
Statement of Assets and Liabilities are comprised of cash collateral.
See Notes to Financial Statements
6
MFS Global Research
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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value, including $125,599 of securities on loan (identified cost, $61,563,806) | $99,793,590 |
| Investments in affiliated issuers, at value (identified cost, $353,803) | 353,803 |
| Cash | 1,260 |
| Foreign currency, at value (identified cost, $13,223) | 13,118 |
| Deposits with brokers | 2,589 |
| Receivables for | |
| Interest and dividends | 188,670 |
| Other assets | 648 |
| Total assets | $100,353,678 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $70,075 |
| Payable to affiliates | |
| Investment adviser | 162 |
| Administrative services fee | 132 |
| Shareholder servicing costs | 3 |
| Distribution and/or service fees | 108 |
| Deferred country tax expense payable | 36,136 |
| Accrued expenses and other liabilities | 66,827 |
| Total liabilities | $173,443 |
| Net assets | $100,180,235 |
| Net assets consist of | |
| Paid-in capital | $51,757,813 |
| Total distributable earnings (loss) | 48,422,422 |
| Net assets | $100,180,235 |
| Shares of beneficial interest outstanding | 2,588,577 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $92,325,593 | 2,384,501 | $38.72 |
| Service Class | 7,854,642 | 204,076 | 38.49 |
See Notes to Financial Statements
7
MFS Global Research
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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $830,598 |
| Income on securities loaned | 493 |
| Dividends from affiliated issuers | 146 |
| Other | 29 |
| Foreign taxes withheld | (47,177) |
| Total investment income | $784,089 |
| Expenses | |
| Management fee | $365,588 |
| Distribution and/or service fees | 9,542 |
| Shareholder servicing costs | 1,236 |
| Administrative services fee | 11,735 |
| Independent Trustees' compensation | 1,800 |
| Custodian fee | 14,298 |
| Shareholder communications | 5,413 |
| Audit and tax fees | 30,299 |
| Legal fees | 915 |
| Miscellaneous | 14,127 |
| Total expenses | $454,953 |
| Reduction of expenses by investment adviser | (30,889) |
| Net expenses | $424,064 |
| Net investment income (loss) | $360,025 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $1,962 country tax) | $2,191,456 |
| Foreign currency | (559) |
| Net realized gain (loss) | $2,190,897 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $2,509 decrease in deferred country tax) | $8,193,532 |
| Translation of assets and liabilities in foreign currencies | (3,590) |
| Net unrealized gain (loss) | $8,189,942 |
| Net realized and unrealized gain (loss) | $10,380,839 |
| Change in net assets from operations | $10,740,864 |
See Notes to Financial Statements
8
MFS Global Research
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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $360,025 | $584,760 |
| Net realized gain (loss) | 2,190,897 | 7,007,762 |
| Net unrealized gain (loss) | 8,189,942 | 6,103,129 |
| Change in net assets from operations | $10,740,864 | $13,695,651 |
| Total distributions to shareholders | $— | $(6,967,015) |
| Change in net assets from fund share transactions | $(6,941,025) | $(3,519,648) |
| Total change in net assets | $3,799,839 | $3,208,988 |
| Net assets | ||
| At beginning of period | 96,380,396 | 93,171,408 |
| At end of period | $100,180,235 | $96,380,396 |
See Notes to Financial Statements
9
MFS Global Research
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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $34.70 | $32.19 | $27.00 | $31.74 | $25.69 | $24.63 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.14 | $0.22 | $0.40 | $0.32 | $0.28 | $0.41(c) |
| Net realized and unrealized gain (loss) | 3.88 | 4.87 | 7.88 | (2.82) | 6.24 | 0.93 |
| Total from investment operations | $4.02 | $5.09 | $8.28 | $(2.50) | $6.52 | $1.34 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.42) | $(0.34) | $(0.33) | $(0.47) | $(0.28) |
| From net realized gain | — | (2.16) | (2.75) | (1.91) | — | — |
| Total distributions declared to shareholders | $— | $(2.58) | $(3.09) | $(2.24) | $(0.47) | $(0.28) |
| Net asset value, end of period (x) | $38.72 | $34.70 | $32.19 | $27.00 | $31.74 | $25.69 |
| Total return (%) (k)(r)(s)(x) | 11.59(n) | 16.49 | 31.96 | (8.83) | 25.51 | 5.44(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.91(a) | 0.95 | 0.94 | 0.93 | 0.92 | 0.78(c) |
| Expenses after expense reductions (f) | 0.85(a) | 0.85 | 0.85 | 0.88 | 0.92 | 0.77(c) |
| Net investment income (loss) | 0.76(a) | 0.69 | 1.29 | 1.01 | 0.97 | 1.64(c) |
| Portfolio turnover | 6(n) | 32 | 27 | 22 | 33 | 40 |
| Net assets at end of period (000 omitted) | $92,326 | $88,676 | $87,138 | $77,345 | $98,434 | $91,281 |
See Notes to Financial Statements
10
MFS Global Research
Portfolio
Financial Highlights - continued
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $34.54 | $32.06 | $26.89 | $31.61 | $25.59 | $24.52 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.09 | $0.13 | $0.32 | $0.24 | $0.21 | $0.34(c) |
| Net realized and unrealized gain (loss) | 3.86 | 4.87 | 7.85 | (2.82) | 6.20 | 0.94 |
| Total from investment operations | $3.95 | $5.00 | $8.17 | $(2.58) | $6.41 | $1.28 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.36) | $(0.25) | $(0.23) | $(0.39) | $(0.21) |
| From net realized gain | — | (2.16) | (2.75) | (1.91) | — | — |
| Total distributions declared to shareholders | $— | $(2.52) | $(3.00) | $(2.14) | $(0.39) | $(0.21) |
| Net asset value, end of period (x) | $38.49 | $34.54 | $32.06 | $26.89 | $31.61 | $25.59 |
| Total return (%) (k)(r)(s)(x) | 11.44(n) | 16.24 | 31.62 | (9.06) | 25.17 | 5.21(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.16(a) | 1.21 | 1.19 | 1.18 | 1.17 | 1.03(c) |
| Expenses after expense reductions (f) | 1.10(a) | 1.10 | 1.10 | 1.13 | 1.17 | 1.02(c) |
| Net investment income (loss) | 0.51(a) | 0.40 | 1.06 | 0.76 | 0.73 | 1.39(c) |
| Portfolio turnover | 6(n) | 32 | 27 | 22 | 33 | 40 |
| Net assets at end of period (000 omitted) | $7,855 | $7,705 | $6,034 | $5,519 | $7,312 | $7,415 |
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
11
MFS Global Research
Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Global Research Portfolio (the fund) is a diversified
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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing
service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are
generally valued at 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. In determining values, 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
12
MFS Global Research
Portfolio
Notes to Financial Statements (unaudited) - continued
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 halt 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 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 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, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $99,793,590 | $— | $— | $99,793,590 |
| Mutual Funds | 353,803 | — | — | 353,803 |
| Total | $100,147,393 | $— | $— | $100,147,393 |
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 —
Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans
can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. 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. On loans collateralized by cash, the cash collateral is invested in a money market fund.
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. The lending agent provides the fund with indemnification against
Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the
loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the
extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as
equity securities in the fund’s Portfolio of Investments, with a fair value of $125,599. The fair value of the fund’s investment securities on loan is presented gross in the Statement of Assets and Liabilities. These loans were
collateralized by U.S. Treasury Obligations of $133,030 held by the lending agent. The collateral on securities loaned exceeded the value of securities on loan at period end. A portion of the income generated upon investment of the collateral is
remitted to the Borrowers, and the
13
MFS Global Research
Portfolio
Notes to Financial Statements (unaudited) - continued
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 separately reported in 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 payments received in additional securities are recorded on the ex-dividend 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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
Book/tax differences primarily relate to wash sale loss
deferrals and partnership adjustments.
The tax
character of distributions declared to shareholders for the last fiscal year is as follows:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $1,126,006 |
| Long-term capital gains | 5,841,009 |
| Total distributions | $6,967,015 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
| As of 6/30/21 | |
| Cost of investments | $62,045,077 |
| Gross appreciation | 39,086,094 |
| Gross depreciation | (983,778) |
| Net unrealized appreciation (depreciation) | $38,102,316 |
| As of 12/31/20 | |
| Undistributed ordinary income | 1,327,630 |
| Undistributed long-term capital gain | 6,275,090 |
| Other temporary differences | 206,192 |
| Net unrealized appreciation (depreciation) | 29,872,646 |
The aggregate cost above
includes prior fiscal year end tax adjustments, if applicable.
14
MFS Global Research
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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $6,392,513 | |
| Service Class | — | 574,502 | |
| Total | $— | $6,967,015 |
(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 based on the fund's average daily net assets:
| Up to $300 million | 0.75% |
| In excess of $300 million | 0.675% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $5,825, which is
included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.74% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do 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 will continue until modified by the fund’s Board of Trustees, but such agreement will continue at
least until April 30, 2023. For the six months ended June 30, 2021, this reduction amounted to $25,064, which is included in the 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, 2021, the fee was $1,185, which equated to 0.0024% annually of
the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $51.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate of 0.0241% of the fund's average daily
net assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation
directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD,
and MFSC.
15
MFS Global Research
Portfolio
Notes to Financial Statements (unaudited) - continued
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, aggregated $6,091,823 and $12,486,202, 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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 15,571 | $572,313 | 26,914 | $846,212 | |
| Service Class | 1,258 | 44,834 | 83,361 | 2,590,298 | |
| 16,829 | $617,147 | 110,275 | $3,436,510 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 199,517 | $6,392,513 | |
| Service Class | — | — | 17,998 | 574,502 | |
| — | $— | 217,515 | $6,967,015 | ||
| Shares reacquired | |||||
| Initial Class | (186,593) | $(6,827,631) | (378,252) | $(11,870,001) | |
| Service Class | (20,276) | (730,541) | (66,439) | (2,053,172) | |
| (206,869) | $(7,558,172) | (444,691) | $(13,923,173) | ||
| Net change | |||||
| Initial Class | (171,022) | $(6,255,318) | (151,821) | $(4,631,276) | |
| Service Class | (19,018) | (685,707) | 34,920 | 1,111,628 | |
| (190,040) | $(6,941,025) | (116,901) | $(3,519,648) | ||
(6) Line of
Credit
The fund and certain other funds managed by
MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $174 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
16
MFS Global Research
Portfolio
Notes to Financial Statements (unaudited) - continued
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $365,105 | $6,696,274 | $6,707,576 | $— | $— | $353,803 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $146 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
17
MFS Global Research
Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
18
MFS Global Research
Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
19
Semiannual Report
June 30, 2021
MFS® Global Tactical
Allocation Portfolio
Allocation Portfolio
MFS® Variable Insurance Trust II
WTS-SEM
MFS Global Tactical
Allocation Portfolio
Portfolio Composition
Portfolio structure
| Tactical Overlay (b) | |||||
| Active
Security Selection (a) |
Long | Short | Net
Market Exposure (c) | ||
| Fixed Income | U.S. | 16.9% | 42.4% | (8.6)% | 50.7% |
| Emerging Markets | 12.3% | 0.0% | 0.0% | 12.3% | |
| United Kingdom | 3.1% | 3.1% | 0.0% | 6.2% | |
| Asia/Pacific ex-Japan | 1.4% | 3.6% | 0.0% | 5.0% | |
| North America ex-U.S. | (0.8)% | 4.7% | 0.0% | 3.9% | |
| Europe ex-U.K. | 13.0% | 0.0% | (9.5)% | 3.5% | |
| Supranational | 0.6% | 0.0% | 0.0% | 0.6% | |
| Developed - Middle East/Africa | 0.2% | 0.0% | 0.0% | 0.2% | |
| Japan | 4.0% | 0.0% | (7.9)% | (3.9)% | |
| Total | 50.7% | 53.8% | (26.0)% | 78.5% | |
| Equity | U.S. Large Cap | 15.2% | 0.0% | (2.1)% | 13.1% |
| Europe ex-U.K. | 7.1% | 6.4% | (3.4)% | 10.1% | |
| United Kingdom | 2.1% | 3.4% | 0.0% | 5.5% | |
| Japan | 2.6% | 1.1% | 0.0% | 3.7% | |
| Emerging Markets | 2.7% | 5.7% | (5.6)% | 2.8% | |
| U.S. Small/Mid Cap | 3.3% | 0.0% | (2.7)% | 0.6% | |
| Developed - Middle East/Africa | 0.0% | 0.0% | 0.0% | 0.0% | |
| Asia/Pacific ex-Japan | 0.5% | 2.8% | (3.6)% | (0.3)% | |
| North America ex-U.S. | 1.2% | 0.0% | (2.1)% | (0.9)% | |
| Total | 34.7% | 19.4% | (19.5)% | 34.6% | |
| Real Estate-related | U.S. | 1.4% | 0.0% | 0.0% | 1.4% |
| Non-U.S. | 0.5% | 0.0% | 0.0% | 0.5% | |
| Total | 1.9% | 0.0% | 0.0% | 1.9% | |
| Cash | Cash & Cash Equivalents (d) | 2.4% | |||
| Other (e) | (17.4)% | ||||
| Total | (15.0)% | ||||
| Total Net Exposure Summary | 100.0% | ||||
| (a) | Represents the actively managed portion of the portfolio and for purposes of this presentation, components include the 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. |
2
MFS Global Tactical
Allocation Portfolio
Portfolio Composition - continued
| (b) | Represents the tactical overlay portion of the portfolio which is how the fund manages its exposure to markets and currencies through the use of derivative positions. Percentages reflect the equivalent exposure of those derivative positions. |
| (c) | For purposes of this presentation, the components include the value of securities, less any securities sold short, and reflect the impact of the equivalent exposure of all derivative positions. These amounts may be negative from time to time. The bond component will include any accrued interest amounts. |
| (d) | Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities. |
| (e) | Other includes currency derivatives and/or the offsetting of the leverage produced by the fund’s derivative positions, including payables and/or receivables of the finance leg of interest rate swaps and the unrealized gain or loss in connection with forward currency exchange contracts. |
| (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 these 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 value. The value of derivatives may be different.
Where the fund holds convertible bonds, they are treated as
part of the equity portion of the portfolio.
Percentages
are based on net assets as of June 30, 2021.
The
portfolio is actively managed and current holdings may be different.
3
MFS Global Tactical
Allocation Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.79% | $1,000.00 | $1,027.87 | $3.97 |
| Hypothetical (h) | 0.79% | $1,000.00 | $1,020.88 | $3.96 | |
| Service Class | Actual | 1.04% | $1,000.00 | $1,026.47 | $5.23 |
| Hypothetical (h) | 1.04% | $1,000.00 | $1,019.64 | $5.21 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
Notes to Expense Table
Changes to the fund's fee arrangements will occur during
the fund's current fiscal year. Had these fee changes been in effect during the six month period, the annualized expense ratios, the actual expenses paid during the period, and the hypothetical expenses paid during the period would have been
approximately 0.77%, $3.87, and $3.86 for Initial Class and 1.02%, $5.13, and $5.11 for Service Class, respectively. For further information about the fund’s fee arrangements and changes to those fee arrangements, please see Note 3 in the
Notes to Financial Statements.
4
MFS Global Tactical
Allocation Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
5
MFS Global Tactical
Allocation Portfolio
Portfolio of Investments (unaudited) – continued
| Underlying/Expiration Date/Exercise Price | Put/Call | Counterparty | Notional
Amount |
Par
Amount/ Number of Contracts |
Value ($) |
| Purchased Options – 0.2% | |||||
| Market Index Securities – 0.0% | |||||
| S&P 500 Index – July 2021 @ $3,300 | Put | Goldman Sachs International | $ 9,024,750 | 21 | $ 1,050 |
| Other – 0.2% | |||||
| U.S. Treasury 10 yr - Interest Rate Swap - Fund pays 1.75%, Fund receives FLR (3-month LIBOR) – September 2022 | Put | Merrill Lynch International | $ 39,000,000 | $ 39,000,000 | $ 997,804 |
| Total
Purchased Options (Premiums Paid, $383,615) |
$ 998,854 | ||||
| Collateral for Securities Loaned – 0.0% | |||||
| State Street Navigator Securities Lending Government Money Market Portfolio, 0.02% (j) (Identified Cost, $133,455) | $ 133,455 | ||||
| Other Assets, Less Liabilities – 0.6% | 3,195,124 | ||||
| Net Assets – 100.0% | $555,910,614 | ||||
| (a) | Non-income producing security. |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts and cleared swap agreements. |
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $12,589,073 and $540,126,417, respectively. |
| (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. |
| (j) | The rate quoted is the annualized seven-day yield of the fund at period end. |
| (l) | A portion of this security is on loan. See Note 2 for additional information. |
| (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 $54,625,481, representing 9.8% of net assets. |
| (s) | Security or a portion of the security was pledged to cover collateral requirements for certain derivative transactions. |
17
MFS Global Tactical
Allocation Portfolio
Portfolio of Investments (unaudited) – continued
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| (w) | When-issued security. |
| (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 |
| MF1 CLO Ltd., 2020-FL3, “AS”, FLR, 2.974% (LIBOR - 1mo. + 2.85%), 7/15/2035 | 6/12/2020 | $357,000 | $362,128 |
| % of Net assets | 0.1% |
| The following abbreviations are used in this report and are defined: | |
| ADR | American Depositary Receipt |
| AGM | Assured Guaranty Municipal |
| CLO | Collateralized Loan Obligation |
| CMT | Constant Maturity Treasury |
| EURIBOR | Euro Interbank Offered Rate |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| ICE | Intercontinental Exchange |
| IEU | International Equity Unit |
| LIBOR | London Interbank Offered Rate |
| NPFG | National Public Finance Guarantee Corp. |
| PCL | Public Company Limited |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| SONIA | Sterling Overnight Index Average |
| TBA | To Be Announced |
| UMBS | Uniform Mortgage-Backed 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 |
| CLP | Chilean Peso |
| CNH | Chinese Yuan Renminbi (Offshore) |
| CNY | China Yuan Renminbi |
| COP | Colombian Peso |
| CZK | Czech Koruna |
| DKK | Danish Krone |
| EUR | Euro |
| GBP | British Pound |
| HKD | Hong Kong Dollar |
| HUF | Hungarian Forint |
| IDR | Indonesian Rupiah |
| ILS | Israeli Shekel |
| ISK | Iceland Krona |
| JPY | Japanese Yen |
| KRW | South Korean Won |
| MXN | Mexican Peso |
| NOK | Norwegian Krone |
| NZD | New Zealand Dollar |
| PLN | Polish Zloty |
| RUB | Russian Ruble |
18
MFS Global Tactical
Allocation Portfolio
Portfolio of Investments (unaudited) – continued
| SEK | Swedish Krona |
| SGD | Singapore Dollar |
| THB | Thai Baht |
| TRY | Turkish Lira |
| TWD | Taiwan Dollar |
| UYU | Uruguayan Peso |
| ZAR | South African Rand |
| Derivative Contracts at 6/30/21 | ||||||
| Forward Foreign Currency Exchange Contracts | ||||||
| Currency
Purchased |
Currency
Sold |
Counterparty | Settlement
Date |
Unrealized
Appreciation (Depreciation) | ||
| Asset Derivatives | ||||||
| BRL | 8,850,000 | USD | 1,753,517 | Citibank N.A. | 8/03/2021 | $ 19,772 |
| BRL | 1,759,000 | USD | 350,972 | Goldman Sachs International | 8/03/2021 | 1,482 |
| CAD | 679,000 | USD | 543,026 | HSBC Bank | 7/16/2021 | 4,725 |
| CAD | 11,575,375 | USD | 9,329,345 | JPMorgan Chase Bank N.A. | 9/24/2021 | 8,346 |
| CAD | 2,796,240 | USD | 2,237,476 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | 18,261 |
| CAD | 6,166,375 | USD | 4,935,991 | UBS AG | 7/16/2021 | 38,446 |
| CLP | 143,602,000 | USD | 194,992 | JPMorgan Chase Bank N.A. | 9/21/2021 | 123 |
| CNH | 11,273,000 | USD | 1,730,825 | Goldman Sachs International | 7/16/2021 | 10,741 |
| CNH | 107,659,000 | USD | 16,406,283 | JPMorgan Chase Bank N.A. | 7/16/2021 | 225,952 |
| CZK | 8,355,000 | USD | 382,023 | Citibank N.A. | 7/16/2021 | 6,434 |
| GBP | 375,000 | USD | 517,622 | JPMorgan Chase Bank N.A. | 7/16/2021 | 1,138 |
| GBP | 819,861 | USD | 1,132,596 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | 1,566 |
| IDR | 16,199,936,460 | USD | 1,104,365 | JPMorgan Chase Bank N.A. | 9/22/2021 | 5,585 |
| ILS | 1,799,000 | USD | 548,190 | JPMorgan Chase Bank N.A. | 7/16/2021 | 3,683 |
| KRW | 1,936,632,000 | USD | 1,712,918 | Barclays Bank PLC | 8/17/2021 | 6,396 |
| KRW | 784,835,000 | USD | 693,617 | Citibank N.A. | 8/17/2021 | 3,148 |
| KRW | 717,286,000 | USD | 634,295 | JPMorgan Chase Bank N.A. | 8/17/2021 | 2,501 |
| MXN | 90,023,173 | USD | 4,496,016 | UBS AG | 7/16/2021 | 12,245 |
| NOK | 14,895,000 | USD | 1,719,549 | Goldman Sachs International | 7/16/2021 | 10,509 |
| NOK | 178,350,992 | USD | 20,660,700 | Goldman Sachs International | 9/24/2021 | 59,913 |
| PLN | 2,754,930 | USD | 719,363 | Merrill Lynch International | 7/16/2021 | 3,203 |
| RUB | 43,746,000 | USD | 589,132 | Goldman Sachs International | 7/30/2021 | 6,653 |
| SEK | 169,785,015 | USD | 19,777,274 | Goldman Sachs International | 9/24/2021 | 77,278 |
| USD | 1,574,268 | AUD | 2,039,375 | Deutsche Bank AG | 7/16/2021 | 44,726 |
| USD | 255,854 | AUD | 330,568 | HSBC Bank | 7/16/2021 | 7,927 |
| USD | 21,719,923 | AUD | 28,892,481 | JPMorgan Chase Bank N.A. | 9/24/2021 | 44,491 |
| USD | 5,431,462 | AUD | 7,011,000 | Merrill Lynch International | 7/16/2021 | 173,174 |
| USD | 808,852 | CAD | 1,000,970 | Deutsche Bank AG | 7/16/2021 | 1,366 |
| USD | 14,451,013 | CHF | 13,280,785 | JPMorgan Chase Bank N.A. | 9/24/2021 | 65,678 |
| USD | 305,185 | COP | 1,149,784,960 | JPMorgan Chase Bank N.A. | 9/24/2021 | 162 |
| USD | 364,667 | CZK | 7,843,822 | JPMorgan Chase Bank N.A. | 9/24/2021 | 184 |
| USD | 798,540 | DKK | 4,986,301 | JPMorgan Chase Bank N.A. | 9/24/2021 | 2,159 |
| USD | 1,293,106 | EUR | 1,063,224 | Brown Brothers Harriman | 7/16/2021 | 32,018 |
| USD | 5,541,095 | EUR | 4,619,222 | Citibank N.A. | 7/16/2021 | 62,239 |
| USD | 29,446,567 | EUR | 24,439,398 | Deutsche Bank AG | 7/16/2021 | 459,015 |
| USD | 1,736,207 | EUR | 1,457,000 | Goldman Sachs International | 7/16/2021 | 8,061 |
| USD | 74,570,631 | EUR | 62,600,165 | Goldman Sachs International | 9/24/2021 | 215,406 |
| USD | 1,418,708 | EUR | 1,171,170 | JPMorgan Chase Bank N.A. | 7/16/2021 | 29,583 |
| USD | 7,858,639 | EUR | 6,598,271 | JPMorgan Chase Bank N.A. | 9/24/2021 | 21,345 |
| USD | 660,156 | EUR | 550,000 | Merrill Lynch International | 7/16/2021 | 7,801 |
| USD | 6,772,502 | EUR | 5,581,195 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | 152,651 |
| USD | 1,432,137 | EUR | 1,181,849 | NatWest Markets PLC | 7/16/2021 | 30,346 |
| USD | 8,819,120 | EUR | 7,347,663 | State Street Bank Corp. | 7/16/2021 | 104,062 |
| USD | 1,274,827 | EUR | 1,041,559 | UBS AG | 7/16/2021 | 39,435 |
19
MFS Global Tactical
Allocation Portfolio
Portfolio of Investments (unaudited) – continued
| Forward Foreign Currency Exchange Contracts - continued | ||||||
| Currency
Purchased |
Currency
Sold |
Counterparty | Settlement
Date |
Unrealized
Appreciation (Depreciation) | ||
| Asset Derivatives - continued | ||||||
| USD | 1,451,752 | GBP | 1,025,019 | Citibank N.A. | 7/16/2021 | $ 33,783 |
| USD | 337,390 | GBP | 239,088 | Deutsche Bank AG | 7/16/2021 | 6,645 |
| USD | 12,641,850 | GBP | 9,106,412 | Goldman Sachs International | 9/24/2021 | 42,593 |
| USD | 141,086 | GBP | 99,900 | JPMorgan Chase Bank N.A. | 7/16/2021 | 2,888 |
| USD | 1,865,636 | GBP | 1,314,941 | Merrill Lynch International | 7/16/2021 | 46,600 |
| USD | 182,511 | GBP | 129,749 | UBS AG | 7/16/2021 | 3,021 |
| USD | 2,170,361 | JPY | 236,283,226 | Citibank N.A. | 7/16/2021 | 43,267 |
| USD | 739,338 | JPY | 80,000,000 | Deutsche Bank AG | 7/16/2021 | 19,154 |
| USD | 1,653,676 | JPY | 180,000,000 | Goldman Sachs International | 7/16/2021 | 33,261 |
| USD | 39,338,942 | JPY | 4,327,602,276 | JPMorgan Chase Bank N.A. | 9/24/2021 | 357,230 |
| USD | 3,509,700 | NOK | 29,200,000 | JPMorgan Chase Bank N.A. | 7/16/2021 | 118,114 |
| USD | 2,775,580 | NZD | 3,882,938 | Deutsche Bank AG | 7/16/2021 | 61,463 |
| USD | 917,932 | SEK | 7,775,000 | BNP Paribas S.A. | 7/16/2021 | 9,315 |
| USD | 845,975 | SEK | 7,171,000 | Goldman Sachs International | 7/16/2021 | 7,945 |
| USD | 6,462,520 | SEK | 54,645,942 | JPMorgan Chase Bank N.A. | 7/16/2021 | 76,386 |
| USD | 570,084 | THB | 17,906,350 | JPMorgan Chase Bank N.A. | 7/21/2021 | 11,850 |
| USD | 1,728,976 | THB | 54,225,000 | JPMorgan Chase Bank N.A. | 8/02/2021 | 37,229 |
| USD | 3,518,292 | TWD | 97,228,000 | Barclays Bank PLC | 8/24/2021 | 28,406 |
| USD | 2,060,404 | ZAR | 29,191,000 | JPMorgan Chase Bank N.A. | 7/16/2021 | 19,771 |
| $ 2,988,850 | ||||||
| Liability Derivatives | ||||||
| AUD | 1,619,424 | USD | 1,251,779 | Citibank N.A. | 7/16/2021 | $ (37,202) |
| AUD | 1,938,845 | USD | 1,504,127 | Deutsche Bank AG | 7/16/2021 | (49,982) |
| AUD | 184,729 | USD | 143,320 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | (4,772) |
| AUD | 2,325,351 | USD | 1,797,666 | NatWest Markets PLC | 7/16/2021 | (53,640) |
| AUD | 36,000 | USD | 27,868 | UBS AG | 7/16/2021 | (868) |
| CAD | 2,100,000 | USD | 1,742,198 | Goldman Sachs International | 7/16/2021 | (48,121) |
| CAD | 1,500,777 | USD | 1,244,231 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | (33,549) |
| CHF | 1,782,000 | USD | 1,936,801 | State Street Bank Corp. | 7/16/2021 | (10,107) |
| CLP | 1,230,089,000 | USD | 1,761,296 | Barclays Bank PLC | 8/13/2021 | (88,078) |
| CLP | 1,235,644,000 | USD | 1,691,041 | Barclays Bank PLC | 9/27/2021 | (12,444) |
| COP | 1,321,303,000 | USD | 358,881 | Goldman Sachs International | 9/03/2021 | (7,867) |
| CZK | 18,700,000 | USD | 898,434 | Goldman Sachs International | 7/16/2021 | (28,997) |
| CZK | 37,490,000 | USD | 1,756,442 | JPMorgan Chase Bank N.A. | 7/16/2021 | (13,385) |
| DKK | 4,719,079 | USD | 760,337 | JPMorgan Chase Bank N.A. | 7/16/2021 | (7,646) |
| EUR | 264,000 | USD | 320,507 | Brown Brothers Harriman | 7/16/2021 | (7,377) |
| EUR | 5,295,518 | USD | 6,461,386 | Citibank N.A. | 7/16/2021 | (180,375) |
| EUR | 11,795,795 | USD | 14,238,571 | Deutsche Bank AG | 7/16/2021 | (247,590) |
| EUR | 1,385,000 | USD | 1,686,808 | JPMorgan Chase Bank N.A. | 7/16/2021 | (44,061) |
| EUR | 1,251,731 | USD | 1,515,246 | Merrill Lynch International | 7/16/2021 | (30,568) |
| EUR | 350,000 | USD | 427,069 | NatWest Markets PLC | 7/16/2021 | (11,934) |
| EUR | 4,505,746 | USD | 5,436,007 | UBS AG | 7/16/2021 | (91,745) |
| GBP | 511,289 | USD | 710,329 | Citibank N.A. | 7/16/2021 | (3,033) |
| GBP | 1,200,000 | USD | 1,703,124 | Credit Suisse Group | 7/16/2021 | (43,093) |
| GBP | 1,194,056 | USD | 1,693,609 | Deutsche Bank AG | 7/16/2021 | (41,801) |
| GBP | 2,351,295 | USD | 3,281,268 | Goldman Sachs International | 7/16/2021 | (28,582) |
| GBP | 100,078 | USD | 141,424 | JPMorgan Chase Bank N.A. | 7/16/2021 | (2,980) |
| GBP | 562,082 | USD | 780,662 | NatWest Markets PLC | 7/16/2021 | (3,101) |
| HUF | 351,206,000 | USD | 1,196,243 | Goldman Sachs International | 7/16/2021 | (11,313) |
| JPY | 3,210,273,352 | USD | 29,547,028 | Citibank N.A. | 7/16/2021 | (647,162) |
| JPY | 406,404,257 | USD | 3,705,478 | Deutsche Bank AG | 7/16/2021 | (46,902) |
| JPY | 111,525,672 | USD | 1,015,790 | JPMorgan Chase Bank N.A. | 7/16/2021 | (11,802) |
20
MFS Global Tactical
Allocation Portfolio
Portfolio of Investments (unaudited) – continued
| Forward Foreign Currency Exchange Contracts - continued | ||||||
| Currency
Purchased |
Currency
Sold |
Counterparty | Settlement
Date |
Unrealized
Appreciation (Depreciation) | ||
| Liability Derivatives - continued | ||||||
| JPY | 116,321,499 | USD | 1,069,721 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | $ (22,559) |
| KRW | 1,147,659,000 | USD | 1,026,639 | Barclays Bank PLC | 8/17/2021 | (7,764) |
| KRW | 818,168,000 | USD | 731,984 | Citibank N.A. | 8/17/2021 | (5,627) |
| KRW | 3,020,970,900 | USD | 2,701,879 | JPMorgan Chase Bank N.A. | 7/08/2021 | (19,436) |
| MXN | 17,449,000 | USD | 880,003 | Deutsche Bank AG | 7/16/2021 | (6,176) |
| NOK | 14,846,000 | USD | 1,737,491 | Deutsche Bank AG | 7/16/2021 | (13,125) |
| NOK | 63,831,574 | USD | 7,608,008 | Goldman Sachs International | 7/16/2021 | (193,957) |
| NZD | 4,328,210 | USD | 3,137,069 | Deutsche Bank AG | 7/16/2021 | (111,713) |
| NZD | 267,000 | USD | 190,817 | Goldman Sachs International | 7/16/2021 | (4,188) |
| NZD | 282,729 | USD | 200,956 | State Street Bank Corp. | 7/16/2021 | (3,333) |
| PLN | 1,619,000 | USD | 441,610 | Deutsche Bank AG | 7/16/2021 | (16,976) |
| PLN | 1,581,000 | USD | 431,217 | Goldman Sachs International | 7/16/2021 | (16,550) |
| SEK | 29,694,000 | USD | 3,574,452 | Goldman Sachs International | 7/16/2021 | (104,298) |
| SEK | 29,775,000 | USD | 3,542,286 | JPMorgan Chase Bank N.A. | 7/16/2021 | (62,665) |
| SGD | 972,000 | USD | 724,734 | HSBC Bank | 7/16/2021 | (1,897) |
| TRY | 274,000 | USD | 31,890 | State Street Bank Corp. | 7/16/2021 | (658) |
| USD | 2,679,116 | BRL | 14,081,972 | JPMorgan Chase Bank N.A. | 8/03/2021 | (142,512) |
| USD | 634,864 | CAD | 787,000 | Morgan Stanley Capital Services, Inc. | 7/16/2021 | (12) |
| USD | 1,535,397 | CLP | 1,148,554,000 | Citibank N.A. | 8/13/2021 | (26,914) |
| USD | 5,584,058 | CNH | 36,247,000 | JPMorgan Chase Bank N.A. | 7/16/2021 | (15,739) |
| USD | 20,743,767 | CNY | 135,207,871 | JPMorgan Chase Bank N.A. | 9/24/2021 | (60,805) |
| USD | 1,185,383 | EUR | 1,000,000 | HSBC Bank | 7/16/2021 | (716) |
| USD | 725,583 | EUR | 612,000 | JPMorgan Chase Bank N.A. | 7/16/2021 | (310) |
| USD | 448,013 | GBP | 324,808 | JPMorgan Chase Bank N.A. | 7/16/2021 | (1,313) |
| USD | 792,442 | GBP | 574,877 | UBS AG | 7/16/2021 | (2,819) |
| USD | 1,092,022 | IDR | 16,018,869,000 | JPMorgan Chase Bank N.A. | 9/22/2021 | (5,523) |
| USD | 405,314 | ILS | 1,321,342 | JPMorgan Chase Bank N.A. | 9/24/2021 | (384) |
| USD | 1,741,431 | KRW | 1,965,205,000 | Barclays Bank PLC | 8/17/2021 | (3,249) |
| USD | 3,441,726 | KRW | 3,902,332,070 | JPMorgan Chase Bank N.A. | 9/24/2021 | (22,443) |
| USD | 3,592,291 | MXN | 72,686,365 | Goldman Sachs International | 7/16/2021 | (47,762) |
| USD | 763,359 | MXN | 15,905,487 | Goldman Sachs International | 9/24/2021 | (26,232) |
| USD | 9,041,579 | NZD | 12,974,631 | Goldman Sachs International | 9/24/2021 | (25,329) |
| USD | 625,424 | PLN | 2,384,778 | Goldman Sachs International | 9/24/2021 | (161) |
| USD | 506,079 | RUB | 37,544,093 | JPMorgan Chase Bank N.A. | 9/24/2021 | (784) |
| USD | 1,730,191 | SEK | 14,894,000 | BNP Paribas S.A. | 7/16/2021 | (10,379) |
| USD | 563,818 | SGD | 758,722 | JPMorgan Chase Bank N.A. | 9/24/2021 | (407) |
| USD | 1,913,226 | ZAR | 27,868,350 | JPMorgan Chase Bank N.A. | 7/16/2021 | (34,946) |
| $(2,869,738) | ||||||
| Futures Contracts | ||||||
| Description | Long/
Short |
Currency | Contracts | Notional
Amount |
Expiration
Date |
Value/Unrealized
Appreciation (Depreciation) |
| Asset Derivatives | ||||||
| Equity Futures | ||||||
| AEX 25 Index | Short | EUR | 61 | $10,550,598 | July – 2021 | $39,973 |
| CAC 40 Index | Short | EUR | 9 | 694,197 | July – 2021 | 13,210 |
| DAX Index | Short | EUR | 17 | 7,825,239 | September – 2021 | 78,269 |
| FTSE Taiwan Index | Long | USD | 48 | 2,928,480 | July – 2021 | 26,454 |
| FTSE/JSE Top 40 Index | Short | ZAR | 151 | 6,331,426 | September – 2021 | 131,542 |
| NIFTY Index | Short | USD | 426 | 13,416,444 | July – 2021 | 47,668 |
21
MFS Global Tactical
Allocation Portfolio
Portfolio of Investments (unaudited) – continued
| Description | Long/
Short |
Currency | Contracts | Notional
Amount |
Expiration
Date |
Value/Unrealized
Appreciation (Depreciation) |
| Asset Derivatives - continued | ||||||
| Equity Futures - continued | ||||||
| Russell 2000 Index | Short | USD | 129 | $14,885,310 | September – 2021 | $147,161 |
| S&P/ASX 200 Index | Short | AUD | 145 | 19,636,226 | September – 2021 | 170,795 |
| $655,072 | ||||||
| Interest Rate Futures | ||||||
| Canadian Treasury Bond 10 yr | Long | CAD | 202 | $23,713,327 | September – 2021 | $251,638 |
| Canadian Treasury Bond 5 yr | Short | CAD | 75 | 7,534,487 | September – 2021 | 5,428 |
| Euro-Bobl 5 yr | Long | EUR | 64 | 10,180,376 | September – 2021 | 4,400 |
| Long Gilt 10 yr | Long | GBP | 98 | 17,365,671 | September – 2021 | 143,006 |
| U.S. Treasury Note 5 yr | Short | USD | 194 | 23,945,359 | September – 2021 | 66,340 |
| $470,812 | ||||||
| $1,125,884 | ||||||
| Liability Derivatives | ||||||
| Equity Futures | ||||||
| BIST 30 Index | Long | TRY | 4,772 | $8,222,578 | August – 2021 | $(242,734) |
| FTSE 100 Index | Long | GBP | 195 | 18,829,445 | September – 2021 | (245,871) |
| FTSE MIB Index | Long | EUR | 106 | 15,713,703 | September – 2021 | (366,673) |
| Hang Seng Index | Long | HKD | 83 | 15,302,667 | July – 2021 | (124,271) |
| IBEX 35 Index | Long | EUR | 120 | 12,504,873 | July – 2021 | (528,981) |
| IBOV Index | Long | BRL | 402 | 10,285,116 | August – 2021 | (314,403) |
| KOSPI 200 Index | Short | KRW | 115 | 11,203,603 | September – 2021 | (113,607) |
| Mexbol Index | Long | MXN | 393 | 9,988,438 | September – 2021 | (126,571) |
| MSCI Singapore Index | Short | SGD | 5 | 132,167 | July – 2021 | (93) |
| OMX 30 Index | Long | SEK | 276 | 7,307,884 | July – 2021 | (68,052) |
| S&P 500 E-Mini Index | Short | USD | 55 | 11,793,650 | September – 2021 | (142,851) |
| S&P/TSX 60 Index | Short | CAD | 61 | 11,836,835 | September – 2021 | (79,602) |
| Topix Index | Long | JPY | 35 | 6,121,338 | September – 2021 | (68,396) |
| $(2,422,105) | ||||||
| Interest Rate Futures | ||||||
| Australian Note 10 yr | Long | AUD | 189 | $20,012,209 | September – 2021 | $(10,208) |
| Euro-Bund 10 yr | Short | EUR | 382 | 78,184,830 | September – 2021 | (523,222) |
| Euro-Buxl 30 yr | Short | EUR | 24 | 5,783,805 | September – 2021 | (74,878) |
| Japan Government Bond 10 yr | Short | JPY | 32 | 43,693,055 | September – 2021 | (98,366) |
| U.S. Treasury Bond | Short | USD | 37 | 5,947,750 | September – 2021 | (152,167) |
| U.S. Treasury Note 2 yr | Long | USD | 99 | 21,811,711 | September – 2021 | (38,746) |
| U.S. Treasury Ultra Bond | Long | USD | 6 | 1,156,125 | September – 2021 | (772) |
| U.S. Treasury Ultra Note 10 yr | Short | USD | 12 | 1,766,438 | September – 2021 | (8,513) |
| $(906,872) | ||||||
| $(3,328,977) | ||||||
| Cleared Swap Agreements | ||||||||
| Maturity
Date |
Notional
Amount |
Counterparty | Cash
Flows to Receive/ Frequency |
Cash
Flows to Pay/ Frequency |
Unrealized
Appreciation (Depreciation) |
Net
Unamortized Upfront Payments (Receipts) |
Value | |
| Asset Derivatives | ||||||||
| Interest Rate Swaps | ||||||||
| 6/03/22 | USD | 167,000,000 | centrally cleared | 0.25%/Semi-annually | 0.23% FLR (3-Month Libor)/Quarterly | $130,790 | $— | $130,790 |
22
MFS Global Tactical
Allocation Portfolio
Portfolio of Investments (unaudited) – continued
| Maturity
Date |
Notional
Amount |
Counterparty | Cash
Flows to Receive/ Frequency |
Cash
Flows to Pay/ Frequency |
Unrealized
Appreciation (Depreciation) |
Net
Unamortized Upfront Payments (Receipts) |
Value | |||
| Asset Derivatives - continued | ||||||||||
| Interest Rate Swaps - continued | ||||||||||
| 11/06/24 | USD | 66,200,000 | centrally cleared | 1.58%/Semi-annually | 0.25% FLR (3-Month Libor)/Quarterly | $2,192,817 | $— | $2,192,817 | ||
| $2,323,607 | $— | $2,323,607 | ||||||||
| Liability Derivatives | ||||||||||
| Interest Rate Swaps | ||||||||||
| 11/06/29 | USD | 33,600,000 | centrally cleared | 0.25% FLR (3-Month Libor)/Quarterly | 1.70%/Semi-annually | $(1,090,891) | $— | $(1,090,891) | ||
| 11/06/49 | USD | 13,102,083 | centrally cleared | 0.25% FLR (3-Month Libor)/Quarterly | 1.89%/Semi-annually | (425,178) | — | (425,178) | ||
| $(1,516,069) | $— | $(1,516,069) | ||||||||
At June 30, 2021, the fund had cash
collateral of $2,777,350 and other liquid securities with an aggregate value of $39,978,864 to cover any collateral or margin obligations for certain derivative contracts. Restricted cash and/or deposits with brokers in the Statement of Assets and
Liabilities are comprised of cash collateral.
See Notes to
Financial Statements
23
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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value, including $963,144 of securities on loan (identified cost, $453,919,926) | $540,126,417 |
| Investments in affiliated issuers, at value (identified cost, $12,589,073) | 12,589,073 |
| Cash | 568,766 |
| Foreign currency, at value (identified cost, $22,060) | 21,697 |
| Restricted cash for | |
| Forward foreign currency exchange contracts | 670,000 |
| Deposits with brokers for | |
| Futures contracts | 2,095,016 |
| Cleared options | 12,334 |
| Receivables for | |
| Forward foreign currency exchange contracts | 2,988,850 |
| Investments sold | 5,718,702 |
| Fund shares sold | 71,106 |
| Interest and dividends | 3,375,479 |
| Other assets | 2,103 |
| Total assets | $568,239,543 |
| Liabilities | |
| Payables for | |
| Net daily variation margin on open cleared swap agreements | $103,801 |
| Forward foreign currency exchange contracts | 2,869,738 |
| Net daily variation margin on open futures contracts | 584,490 |
| Investments purchased | 2,545,923 |
| TBA purchase commitments | 4,695,512 |
| Fund shares reacquired | 201,709 |
| When-issued investments purchased | 992,979 |
| Collateral for securities loaned, at value (c) | 133,455 |
| Payable to affiliates | |
| Investment adviser | 21,443 |
| Administrative services fee | 457 |
| Shareholder servicing costs | 53 |
| Distribution and/or service fees | 7,062 |
| Deferred country tax expense payable | 292 |
| Accrued expenses and other liabilities | 172,015 |
| Total liabilities | $12,328,929 |
| Net assets | $555,910,614 |
| Net assets consist of | |
| Paid-in capital | $423,719,511 |
| Total distributable earnings (loss) | 132,191,103 |
| Net assets | $555,910,614 |
| Shares of beneficial interest outstanding | 34,914,558 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $41,398,276 | 2,551,531 | $16.22 |
| Service Class | 514,512,338 | 32,363,027 | 15.90 |
| (c) | Non-cash collateral is not included. |
See Notes to Financial
Statements
24
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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Interest | $3,946,766 |
| Dividends | 3,236,367 |
| Dividends from affiliated issuers | 9,013 |
| Income on securities loaned | 1,036 |
| Other | 76 |
| Foreign taxes withheld | (198,280) |
| Total investment income | $6,994,978 |
| Expenses | |
| Management fee | $2,004,442 |
| Distribution and/or service fees | 648,298 |
| Shareholder servicing costs | 7,350 |
| Administrative services fee | 41,361 |
| Independent Trustees' compensation | 4,796 |
| Custodian fee | 58,484 |
| Shareholder communications | 18,372 |
| Audit and tax fees | 46,164 |
| Legal fees | 2,125 |
| Miscellaneous | 56,591 |
| Total expenses | $2,887,983 |
| Reduction of expenses by investment adviser | (33,499) |
| Net expenses | $2,854,484 |
| Net investment income (loss) | $4,140,494 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $44 country tax) | $19,737,078 |
| Written options | 53,264 |
| Futures contracts | (845,889) |
| Swap agreements | 144,872 |
| Forward foreign currency exchange contracts | 1,652,157 |
| Foreign currency | (416,060) |
| Net realized gain (loss) | $20,325,422 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $292 increase in deferred country tax) | $(11,615,248) |
| Futures contracts | (1,549,676) |
| Swap agreements | 1,558,759 |
| Forward foreign currency exchange contracts | 1,782,098 |
| Translation of assets and liabilities in foreign currencies | 54,397 |
| Net unrealized gain (loss) | $(9,769,670) |
| Net realized and unrealized gain (loss) | $10,555,752 |
| Change in net assets from operations | $14,696,246 |
See Notes to Financial Statements
25
MFS Global Tactical
Allocation 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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $4,140,494 | $6,760,505 |
| Net realized gain (loss) | 20,325,422 | 19,865,576 |
| Net unrealized gain (loss) | (9,769,670) | 4,492,245 |
| Change in net assets from operations | $14,696,246 | $31,118,326 |
| Total distributions to shareholders | $— | $(34,497,547) |
| Change in net assets from fund share transactions | $(33,001,380) | $(21,278,512) |
| Total change in net assets | $(18,305,134) | $(24,657,733) |
| Net assets | ||
| At beginning of period | 574,215,748 | 598,873,481 |
| At end of period | $555,910,614 | $574,215,748 |
See Notes to Financial Statements
26
MFS Global Tactical
Allocation 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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $15.79 | $15.86 | $14.58 | $16.11 | $15.04 | $14.92 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.14 | $0.22 | $0.29 | $0.29 | $0.26 | $0.29(c) |
| Net realized and unrealized gain (loss) | 0.29 | 0.71 | 1.80 | (0.99) | 1.36 | 0.67 |
| Total from investment operations | $0.43 | $0.93 | $2.09 | $(0.70) | $1.62 | $0.96 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.28) | $(0.45) | $(0.13) | $(0.51) | $— |
| From net realized gain | — | (0.72) | (0.36) | (0.70) | (0.04) | (0.84) |
| Total distributions declared to shareholders | $— | $(1.00) | $(0.81) | $(0.83) | $(0.55) | $(0.84) |
| Net asset value, end of period (x) | $16.22 | $15.79 | $15.86 | $14.58 | $16.11 | $15.04 |
| Total return (%) (k)(r)(s)(x) | 2.72(n) | 6.23 | 14.58 | (4.50) | 10.83 | 6.24(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.80(a) | 0.83 | 0.81 | 0.81 | 0.81 | 0.79(c) |
| Expenses after expense reductions (f) | 0.79(a) | 0.82 | 0.80 | 0.80 | 0.80 | 0.78(c) |
| Net investment income (loss) | 1.71(a) | 1.45 | 1.85 | 1.83 | 1.64 | 1.88(c) |
| Portfolio turnover | 70(n) | 120 | 82 | 86 | 35 | 38 |
| Net assets at end of period (000 omitted) | $41,398 | $43,513 | $46,175 | $47,517 | $56,096 | $58,053 |
See Notes to Financial Statements
27
MFS Global Tactical
Allocation Portfolio
Financial Highlights - continued
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $15.49 | $15.57 | $14.32 | $15.84 | $14.79 | $14.72 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.11 | $0.18 | $0.24 | $0.24 | $0.22 | $0.25(c) |
| Net realized and unrealized gain (loss) | 0.30 | 0.70 | 1.77 | (0.98) | 1.34 | 0.66 |
| Total from investment operations | $0.41 | $0.88 | $2.01 | $(0.74) | $1.56 | $0.91 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.24) | $(0.40) | $(0.08) | $(0.47) | $— |
| From net realized gain | — | (0.72) | (0.36) | (0.70) | (0.04) | (0.84) |
| Total distributions declared to shareholders | $— | $(0.96) | $(0.76) | $(0.78) | $(0.51) | $(0.84) |
| Net asset value, end of period (x) | $15.90 | $15.49 | $15.57 | $14.32 | $15.84 | $14.79 |
| Total return (%) (k)(r)(s)(x) | 2.65(n) | 5.99 | 14.30 | (4.80) | 10.58 | 5.98(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.05(a) | 1.08 | 1.06 | 1.06 | 1.06 | 1.04(c) |
| Expenses after expense reductions (f) | 1.04(a) | 1.07 | 1.05 | 1.05 | 1.05 | 1.03(c) |
| Net investment income (loss) | 1.46(a) | 1.19 | 1.60 | 1.58 | 1.39 | 1.63(c) |
| Portfolio turnover | 70(n) | 120 | 82 | 86 | 35 | 38 |
| Net assets at end of period (000 omitted) | $514,512 | $530,703 | $552,698 | $559,478 | $706,456 | $733,775 |
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
28
MFS Global Tactical
Allocation Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Global Tactical Allocation Portfolio (the fund) is a
diversified 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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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 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.
Derivatives can involve leverage. 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in
emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal,
regulatory, accounting, and auditing systems, and greater political, social, and economic instability than developed markets.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing
service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, 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 may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary
exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing
service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. 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
29
MFS Global Tactical
Allocation Portfolio
Notes to Financial Statements (unaudited) - continued
are generally
valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on
their primary exchange as provided by a third-party pricing service. 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. Swap agreements are generally valued using valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. 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. In determining values,
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 halt 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 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 include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative
instruments, such as futures contracts, forward foreign currency exchange contracts, and swap agreements. The following is a summary of the levels used as of June 30, 2021 in valuing the fund's assets or liabilities:
30
MFS Global Tactical
Allocation Portfolio
Notes to Financial Statements (unaudited) - continued
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | ||||
| United States | $104,842,948 | $— | $— | $104,842,948 |
| Japan | 14,711,734 | — | — | 14,711,734 |
| Switzerland | 13,656,358 | — | — | 13,656,358 |
| United Kingdom | 11,904,707 | — | — | 11,904,707 |
| France | 10,024,590 | — | — | 10,024,590 |
| Canada | 6,444,488 | — | — | 6,444,488 |
| Germany | 5,575,795 | — | — | 5,575,795 |
| Taiwan | 4,858,253 | — | — | 4,858,253 |
| Netherlands | 4,435,253 | — | — | 4,435,253 |
| Other Countries | 17,614,701 | 326,663 | — | 17,941,364 |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | — | 10,843,993 | — | 10,843,993 |
| Non - U.S. Sovereign Debt | — | 135,891,314 | — | 135,891,314 |
| Municipal Bonds | — | 3,710,683 | — | 3,710,683 |
| U.S. Corporate Bonds | — | 60,324,970 | — | 60,324,970 |
| Residential Mortgage-Backed Securities | — | 26,911,790 | — | 26,911,790 |
| Commercial Mortgage-Backed Securities | — | 14,024,548 | — | 14,024,548 |
| Asset-Backed Securities (including CDOs) | — | 10,671,010 | — | 10,671,010 |
| Foreign Bonds | — | 83,219,164 | — | 83,219,164 |
| Mutual Funds | 12,722,528 | — | — | 12,722,528 |
| Total | $206,791,355 | $345,924,135 | $— | $552,715,490 |
| Other Financial Instruments | ||||
| Futures Contracts – Assets | $1,125,884 | $— | $— | $1,125,884 |
| Futures Contracts – Liabilities | (3,328,977) | — | — | (3,328,977) |
| Forward Foreign Currency Exchange Contracts – Assets | — | 2,988,850 | — | 2,988,850 |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (2,869,738) | — | (2,869,738) |
| Swap Agreements – Assets | — | 2,323,607 | — | 2,323,607 |
| Swap Agreements – Liabilities | — | (1,516,069) | — | (1,516,069) |
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 in an attempt to adjust exposure to markets, asset classes, and currencies based on the adviser’s assessment of the relative attractiveness of such markets, asset classes, and currencies. Derivatives are used to increase
or decrease the fund’s exposure to markets, asset classes, or currencies resulting from the fund’s individual security selections, and to expose the fund to markets, asset classes, 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 during the
period were written options, purchased options, futures contracts, forward foreign currency exchange contracts, and swap agreements. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting
transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily
fluctuation in the price for that type of future exceeds the daily limit set by the exchange. 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.
31
MFS Global Tactical
Allocation Portfolio
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, 2021 as reported in the Statement of Assets and Liabilities:
| Fair Value (a) | |||
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Interest Rate Futures | $470,812 | $(906,872) |
| Equity | Equity Futures | 655,072 | (2,422,105) |
| Interest Rate | Interest Rate Swaps | 2,323,607 | (1,516,069) |
| Interest Rate | Purchased Interest Rate Options | 997,804 | — |
| Equity | Purchased Equity Options | 1,050 | — |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | 2,988,850 | (2,869,738) |
| Total | $7,437,195 | $(7,714,784) | |
(a) The value of purchased options
outstanding is included in investments in unaffiliated issuers, at value, within the Statement of Assets and Liabilities. Values presented in this table for futures contracts and cleared swap agreements correspond to the values reported in the
Portfolio of Investments. Only the current day net variation margin for futures contracts and cleared swap agreements is separately reported within the 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, 2021 as reported in the Statement of Operations:
| Risk | Futures
Contracts |
Swap
Agreements |
Forward
Foreign Currency Exchange Contracts |
Unaffiliated
Issuers (Purchased Options) |
Written
Options |
| Interest Rate | $3,199,791 | $124,247 | $— | $(174,196) | $— |
| Foreign Exchange | — | — | 1,652,157 | — | — |
| Credit | — | 20,625 | — | — | 53,264 |
| Equity | (4,045,680) | — | — | (176,413) | — |
| Total | $(845,889) | $144,872 | $1,652,157 | $(350,609) | $53,264 |
The following table presents, by
major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the six months ended June 30, 2021 as reported in the Statement of Operations:
| Risk | Futures
Contracts |
Swap
Agreements |
Forward
Foreign Currency Exchange Contracts |
Unaffiliated
Issuers (Purchased Options) |
| Interest Rate | $(108,610) | $1,562,752 | $— | $504,824 |
| Foreign Exchange | — | — | 1,782,098 | — |
| Equity | (1,441,066) | — | — | 72,033 |
| Credit | — | (3,993) | — | — |
| Total | $(1,549,676) | $1,558,759 | $1,782,098 | $576,857 |
Derivative counterparty credit
risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering
into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the
other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement 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.
Collateral and margin requirements differ by type of
derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the
fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form
of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral
32
MFS Global Tactical
Allocation Portfolio
Notes to Financial Statements (unaudited) - continued
requirements are
netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or
margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as
collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in
“Miscellaneous” expense in the Statement of Operations.
The following table presents the fund's derivative assets
and liabilities (by type) on a gross basis as of June 30, 2021:
| Gross Amounts of: | Derivative Assets | Derivative Liabilities |
| Futures Contracts (a) | $— | $(584,490) |
| Cleared Swap Agreements (a) | — | (103,801) |
| Forward Foreign Currency Exchange Contracts | 2,988,850 | (2,869,738) |
| Purchased Options | 998,854 | — |
| Total
Gross Amount of Derivative Assets and Liabilities Presented in the Statement of Assets & Liabilities |
$3,987,704 | $(3,558,029) |
| Less:
Derivatives Assets and Liabilities Not Subject to a Master Netting Agreement or Similar Arrangement |
250,573 | (922,583) |
| Total
Gross Amount of Derivative Assets and Liabilities Subject to a Master Netting Agreement or Similar Arrangement |
$3,737,131 | $(2,635,446) |
(a) The amount presented here
represents the fund's current day net variation margin for futures contracts and for cleared swap agreements. This amount, which is recognized within the Statement of Assets and Liabilities, differs from the fair value of the futures contracts and
for cleared swap agreements which is presented in the tables that follow the Portfolio of Investments.
The following table presents (by counterparty) the fund's
derivative assets net of amounts available for offset under Master Netting Agreements (or similar arrangements) and net of the related collateral held by the fund at June 30, 2021:
| Amounts
Not Offset in the Statement of Assets & Liabilities | |||||
| Gross
Amount of Derivative Assets Subject to a Master Netting Agreement (or Similar Arrangement) by Counterparty |
Financial
Instruments Available for Offset |
Financial
Instruments Collateral Received (b) |
Cash
Collateral Received (b) |
Net
Amount of Derivative Assets by Counterparty | |
| Barclays Bank PLC | $34,801 | $(34,801) | $— | $— | $— |
| Brown Brothers Harriman Co. | 32,018 | (7,377) | — | — | 24,641 |
| Citibank N.A. | 168,642 | (168,642) | — | — | — |
| Deutsche Bank AG | 592,371 | (534,264) | — | — | 58,107 |
| Goldman Sachs International | 473,841 | (473,841) | — | — | — |
| JPMorgan Chase Bank N.A. | 1,034,399 | (447,139) | — | (80,000) | 507,260 |
| Merrill Lynch International | 1,228,582 | (30,569) | — | (1,198,013) | — |
| Morgan Stanley Capital Services, Inc. | 172,477 | (60,892) | — | — | 111,585 |
| Total | $3,737,131 | $(1,757,525) | $— | $(1,278,013) | $701,593 |
The following table presents (by
counterparty) the fund's derivative liabilities net of amounts available for offset under Master Netting Agreements (or similar arrangements) and net of the related collateral pledged by the fund at June 30, 2021:
33
MFS Global Tactical
Allocation Portfolio
Notes to Financial Statements (unaudited) - continued
| Amounts
Not Offset in the Statement of Assets & Liabilities | |||||
| Gross
Amount of Derivative Liabilities Subject to a Master Netting Agreement (or Similar Arrangement) by Counterparty |
Financial
Instruments Available for Offset |
Financial
Instruments Collateral Pledged (b) |
Cash
Collateral Pledged (b) |
Net
Amount of Derivative Liabilities by Counterparty | |
| Barclays Bank PLC | $(111,535) | $34,801 | $— | $— | $(76,734) |
| Brown Brothers Harriman Co. | (7,377) | 7,377 | — | — | — |
| Citibank N.A. | (900,314) | 168,642 | — | 650,000 | (81,672) |
| Deutsche Bank AG | (534,264) | 534,264 | — | — | — |
| Goldman Sachs International | (543,356) | 473,841 | — | 20,000 | (49,515) |
| JPMorgan Chase Bank N.A. | (447,139) | 447,139 | — | — | — |
| Merrill Lynch International | (30,569) | 30,569 | — | — | — |
| Morgan Stanley Capital Services, Inc. | (60,892) | 60,892 | — | — | — |
| Total | $(2,635,446) | $1,757,525 | $— | $670,000 | $(207,921) |
(b) The amount presented here may be
less than the total amount of collateral (received)/pledged as the excess collateral (received)/pledged is not shown for purposes of this presentation.
Written Options — In
exchange for a premium, the fund wrote call options on securities for which it anticipated the price would decline and also wrote put options on securities for which 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
in 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 or directly with the clearing broker, based on the type of option. For uncleared 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 uncleared 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.
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 hedge against an anticipated increase in the dollar cost of securities or currency to be acquired or increase the fund’s exposure to an underlying instrument. Purchasing put
options may hedge against an anticipated decline in the value of portfolio securities or currency or decrease 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 and put options which have expired are treated as
34
MFS Global Tactical
Allocation Portfolio
Notes to Financial Statements (unaudited) - continued
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 purchased. 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.
Whether or not the option is exercised, the fund's maximum
risk of loss from purchasing an option is the amount of premium paid. All option contracts involve credit risk if the counterparty to the option contract fails to perform. For uncleared 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, where applicable, 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.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. 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 specified 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 contracts
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 contracts 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 forward foreign currency exchange contracts.
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, a multicurrency cash settlement system for the centralized settlement of foreign transactions. 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, where applicable, 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.
Swap Agreements —
During the period the fund entered into swap agreements. Swap agreements generally involve a periodic exchange of cash payments on a net basis, at specified intervals or upon the occurrence of specified events, between the fund and a counterparty.
Certain swap agreements may be entered into as a bilateral contract (“uncleared swaps”) while others are required to be centrally cleared (“cleared swaps”). In a cleared swap transaction, the ultimate counterparty to the
transaction is a clearinghouse (the “clearinghouse”). The contract is transferred and accepted by the clearinghouse immediately following execution of the swap contract with an executing broker. Thereafter, throughout the term of the
cleared swap, the fund interfaces indirectly with the clearinghouse through a clearing broker and has counterparty risk to the clearing broker as well.
Both cleared and uncleared swap agreements are marked to
market daily. The value of uncleared swap agreements is reported in the Statement of Assets and Liabilities as “Uncleared swaps, at value” which includes any related interest accruals to be paid or received by the fund. For cleared
swaps, payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the cleared swap, such that only the current day net receivable or payable for variation margin is reported in the
Statement of Assets and Liabilities.
35
MFS Global Tactical
Allocation Portfolio
Notes to Financial Statements (unaudited) - continued
For
both cleared and uncleared swaps, the periodic exchange of net cash payments, at specified intervals or upon the occurrence of specified events as stipulated by the agreement, is recorded as realized gain or loss on swap agreements in the Statement
of Operations. Premiums paid or received at the inception of the agreements are amortized using the effective interest method over the term of the agreement as realized gain or loss on swap agreements in the Statement of Operations. A liquidation
payment received or made upon early termination is recorded as a realized gain or loss on swap agreements in the Statement of Operations. The change in unrealized appreciation or depreciation on swap agreements in the Statement of Operations
reflects the aggregate change over the reporting period in the value of swaps net of any unamortized premiums paid or received.
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. The fund's maximum risk of loss from counterparty credit risk is the
discounted net value of the cash flows to be received from/paid to the counterparty over the contract's remaining life, to the extent that the amount is positive. To address counterparty risk, uncleared swap agreements are limited to only
highly-rated counterparties. Risk is further reduced by having an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, 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's counterparty risk due to cleared swaps is mitigated by the fact that the clearinghouse is the true counterparty to the transaction and the
regulatory requirement safeguards in the event of a clearing broker bankruptcy.
The fund entered into interest rate swap agreements in
order to manage its exposure to interest or foreign exchange rate fluctuations. Interest rate swap agreements involve the periodic exchange of cash flows, between the fund and a counterparty, based on the difference between two interest rates
applied to a notional principal amount. The two interest rates exchanged may either be a fixed rate and a floating rate or two floating rates based on different indices.
The fund entered into credit default swap agreements 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 agreement, the protection buyer can make an upfront payment and will make a stream of payments to the protection seller based on a fixed percentage applied to the agreement notional amount 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 cases where
physical settlement applies, the delivery by the buyer to the seller of a defined deliverable obligation. Although agreement-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 agreement. 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 agreement’s
notional amount is recorded as realized gain or loss on swap agreements in the Statement of Operations.
Security Loans —
Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans
can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. 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. On loans collateralized by cash, the cash collateral is invested in a money market fund.
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. The lending agent provides the fund with indemnification against
Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the
loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the
extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as
equity securities in the fund's Portfolio of Investments, with a fair value of $963,144. The fair value of the fund's investment securities on loan and a related liability of $133,455 for cash collateral received on securities loaned are both
presented gross in the Statement of Assets and Liabilities. Additionally, these loans were collateralized by U.S. Treasury Obligations of $884,569 held by the lending agent. The collateral on securities loaned exceeded the value of securities on
loan at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to
the Borrowers, and the remainder is allocated
36
MFS Global Tactical
Allocation Portfolio
Notes to Financial Statements (unaudited) - continued
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 separately reported in
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. Some securities may be purchased or sold on an extended settlement basis, which means that the receipt or delivery
of the securities by the fund and related payments occur at a future date, usually beyond the customary settlement period. 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. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles.
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.
The fund invests a significant portion of its assets in
asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the
underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued
by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
The fund may purchase or sell mortgage-backed securities on
a “To Be Announced” (TBA) basis. A TBA transaction is subject to extended settlement and typically does not designate the actual security to be delivered, but instead includes an approximate principal amount. The price of the TBA
security and the date that it will be settled are fixed at the time the transaction is negotiated. The value of the security varies with market fluctuations and no interest accrues to the fund until settlement takes place. TBA purchase and sale
commitments are held at carrying amount, which approximates fair value and are categorized as level 2 within the fair value hierarchy and included in TBA purchase commitments in the Statement of Assets and Liabilities. Losses may arise as a result
of changes in the value of the TBA investment prior to settlement date or due to counterparty non-performance. At the time that it enters into a TBA transaction, the fund is required to have sufficient cash and/or liquid securities to cover its
commitments.
The fund may also enter into mortgage
dollar rolls, typically TBA dollar rolls, in which the fund sells TBA mortgage-backed securities to financial institutions and simultaneously agrees to repurchase similar (same issuer, type and coupon) securities at a later date at an agreed-upon
price. During the period between the sale and repurchase, the fund will not be entitled to receive interest and principal payments on the securities sold. The fund accounts for dollar roll transactions as purchases and sales and realizes gains and
losses on these transactions. Dollar roll transactions involve the risk that the market value of the securities that the fund is required to purchase may decline below the agreed upon repurchase price of those securities.
The fund may purchase or sell securities on a when-issued
or delayed delivery basis. In these extended settlement transactions, the receipt or delivery of the securities by the fund and related payments occur at a future date, usually beyond the normal settlement period. The price of such security and the
date that the security will be settled are generally fixed at the time the transaction is negotiated. The value of the security varies with market fluctuations and for debt securities no interest accrues to the fund until settlement takes place.
When the fund sells securities on a when-issued or delayed delivery basis, the fund typically owns or has the right to acquire securities equivalent in kind and amount to the securities sold. Purchase and sale commitments for when-issued or delayed
delivery securities are held at carrying amount, which approximates fair value and are categorized as level 2 within the fair value hierarchy, and included in When-issued investments purchased in the Statement of Assets and Liabilities. Losses may
arise due to changes in the value of the underlying securities prior to settlement date or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic or other
factors. At the time that it enters into a when-issued or delayed delivery transaction, the fund is required to have sufficient cash and/or liquid securities to cover its commitments.
37
MFS Global Tactical
Allocation Portfolio
Notes to Financial Statements (unaudited) - continued
To
mitigate the counterparty credit risk on TBA transactions, mortgage dollar rolls, and other types of forward settling mortgage-backed and asset-backed security transactions, the fund whenever possible enters into a Master Securities Forward
Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded
under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right 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 MSFTA 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.
For mortgage-backed and asset-backed securities traded
under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations.
Cash that has been pledged to cover the fund's collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same
purpose, if any, are noted in the Portfolio of Investments.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
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:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $27,045,497 |
| Long-term capital gains | 7,452,050 |
| Total distributions | $34,497,547 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
| As of 6/30/21 | |
| Cost of investments | $476,092,556 |
| Gross appreciation | 80,660,646 |
| Gross depreciation | (4,037,712) |
| Net unrealized appreciation (depreciation) | $76,622,934 |
| As of 12/31/20 | |
| Undistributed ordinary income | 10,621,861 |
| Undistributed long-term capital gain | 18,479,245 |
| Other temporary differences | 174,564 |
| Net unrealized appreciation (depreciation) | 88,219,187 |
The aggregate cost above
includes prior fiscal year end tax adjustments, if applicable.
38
MFS Global Tactical
Allocation 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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $2,739,813 | |
| Service Class | — | 31,757,734 | |
| Total | $— | $34,497,547 |
(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 based on the fund's average daily net assets:
| Up to $300 million | 0.75% |
| In excess of $300 million and up to $2.5 billion | 0.675% |
| In excess of $2.5 billion | 0.65% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $33,499, which
is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 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, excluding 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 terminate on July 31, 2021. For the six months ended June 30, 2020, 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.
Effective August 1, 2021, the investment adviser has agreed
in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not
exceed 0.76% of average daily net assets for the Initial Class shares and 1.01% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement
will continue at least until April 30, 2023.
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, 2021, the fee was $7,233, which equated to 0.0026% annually of
the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $117.
39
MFS Global Tactical
Allocation Portfolio
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 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, 2021 was equivalent to an annual effective rate of 0.0147% of the fund's average daily
net assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation
directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD,
and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale
transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by
the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the six months ended June 30, 2021, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $13,676,009 and $7,022,712,
respectively. The sales transactions resulted in net realized gains (losses) of $164,938.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than purchased option transactions and short-term obligations, were as follows:
| Purchases | Sales | |
| U.S. Government securities | $76,260,271 | $93,797,571 |
| Non-U.S. Government securities | 298,655,116 | 288,450,357 |
(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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 23,078 | $369,147 | 100,173 | $1,507,014 | |
| Service Class | 397,622 | 6,280,331 | 1,140,931 | 17,184,459 | |
| 420,700 | $6,649,478 | 1,241,104 | $18,691,473 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 183,634 | $2,739,813 | |
| Service Class | — | — | 2,167,763 | 31,757,734 | |
| — | $— | 2,351,397 | $34,497,547 | ||
| Shares reacquired | |||||
| Initial Class | (226,831) | $(3,637,179) | (440,732) | $(6,677,947) | |
| Service Class | (2,287,233) | (36,013,679) | (4,551,744) | (67,789,585) | |
| (2,514,064) | $(39,650,858) | (4,992,476) | $(74,467,532) | ||
| Net change | |||||
| Initial Class | (203,753) | $(3,268,032) | (156,925) | $(2,431,120) | |
| Service Class | (1,889,611) | (29,733,348) | (1,243,050) | (18,847,392) | |
| (2,093,364) | $(33,001,380) | (1,399,975) | $(21,278,512) | ||
40
MFS Global Tactical
Allocation Portfolio
Notes to Financial Statements (unaudited) - continued
(6) Line of Credit
The fund and certain other funds managed by MFS participate
in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $1,003 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $37,119,815 | $289,595,212 | $314,125,954 | $— | $— | $12,589,073 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $9,013 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
41
MFS Global Tactical
Allocation Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
42
MFS Global Tactical
Allocation Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
43
Semiannual Report
June 30, 2021
MFS® Government
Securities Portfolio
Securities Portfolio
MFS® Variable Insurance Trust II
GSS-SEM
MFS Government Securities
Portfolio
Portfolio Composition
| (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. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 ratings agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. 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 and fixed income derivatives that have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (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 value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. 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 value. The bond component will include any accrued interest amounts. |
| (m) | In determining each 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. |
Where the fund holds convertible bonds, they
are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash,
investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and
liabilities.
Other includes equivalent
exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of June 30,
2021.
The portfolio is actively managed and
current holdings may be different.
2
MFS Government Securities
Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.59% | $1,000.00 | $983.67 | $2.90 |
| Hypothetical (h) | 0.59% | $1,000.00 | $1,021.87 | $2.96 | |
| Service Class | Actual | 0.84% | $1,000.00 | $982.80 | $4.13 |
| Hypothetical (h) | 0.84% | $1,000.00 | $1,020.63 | $4.21 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
Notes to Expense Table
Expense ratios include approximately 0.01% of interest expenses
that are outside of the expense limitation arrangement.
(See Note 3 of the Notes to Financial Statements).
3
MFS Government Securities
Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS Government Securities
Portfolio
Portfolio of
Investments (unaudited) – continued
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $113,075,117 and $428,231,349, respectively. | |||
| (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 $13,546,269, representing 3.0% of net assets. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | |||
| (w) | When-issued security. |
| The following abbreviations are used in this report and are defined: | |
| AGM | Assured Guaranty Municipal |
| AID | U.S. Agency for International Development |
| CLO | Collateralized Loan Obligation |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| LIBOR | London Interbank Offered Rate |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| TBA | To Be Announced |
| UMBS | Uniform Mortgage-Backed Security |
| Derivative Contracts at 6/30/21 | ||||||
| Futures Contracts | ||||||
| Description | Long/
Short |
Currency | Contracts | Notional
Amount |
Expiration
Date |
Value/Unrealized
Appreciation (Depreciation) |
| Asset Derivatives | ||||||
| Interest Rate Futures | ||||||
| U.S. Treasury Note 10 yr | Long | USD | 370 | $49,025,000 | September – 2021 | $188,618 |
7
MFS Government Securities
Portfolio
Portfolio of
Investments (unaudited) – continued
| Futures Contracts - continued | ||||||
| Description | Long/
Short |
Currency | Contracts | Notional
Amount |
Expiration
Date |
Value/Unrealized
Appreciation (Depreciation) |
| Asset Derivatives - continued | ||||||
| Interest Rate Futures - continued | ||||||
| U.S. Treasury Note 5 yr | Short | USD | 45 | $5,554,336 | September – 2021 | $15,388 |
| $204,006 | ||||||
| Liability Derivatives | ||||||
| Interest Rate Futures | ||||||
| U.S. Treasury Bond | Short | USD | 89 | $14,306,750 | September – 2021 | $(366,023) |
| U.S. Treasury Note 2 yr | Long | USD | 10 | 2,203,203 | September – 2021 | (3,914) |
| U.S. Treasury Ultra Bond | Short | USD | 9 | 1,734,187 | September – 2021 | (68,239) |
| $(438,176) | ||||||
At June 30, 2021, the fund had
liquid securities with an aggregate value of $328,913 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
8
MFS Government Securities
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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $411,275,175) | $428,231,349 |
| Investments in affiliated issuers, at value (identified cost, $113,075,117) | 113,075,117 |
| Cash | 5,309 |
| Receivables for | |
| Net daily variation margin on open futures contracts | 15,603 |
| TBA sale commitments | 8,137,472 |
| Fund shares sold | 1,466 |
| Interest | 1,589,809 |
| Other assets | 1,772 |
| Total assets | $551,057,897 |
| Liabilities | |
| Payables for | |
| Investments purchased | $6,356,037 |
| TBA purchase commitments | 94,942,141 |
| Fund shares reacquired | 201,097 |
| When-issued investments purchased | 371,561 |
| Payable to affiliates | |
| Investment adviser | 7,603 |
| Administrative services fee | 380 |
| Shareholder servicing costs | 45 |
| Distribution and/or service fees | 2,195 |
| Accrued expenses and other liabilities | 83,799 |
| Total liabilities | $101,964,858 |
| Net assets | $449,093,039 |
| Net assets consist of | |
| Paid-in capital | $445,303,699 |
| Total distributable earnings (loss) | 3,789,340 |
| Net assets | $449,093,039 |
| Shares of beneficial interest outstanding | 35,580,150 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $288,831,008 | 22,826,936 | $12.65 |
| Service Class | 160,262,031 | 12,753,214 | 12.57 |
See Notes to Financial Statements
9
MFS Government Securities
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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Interest | $4,630,655 |
| Dividends from affiliated issuers | 25,581 |
| Other | 68 |
| Total investment income | $4,656,304 |
| Expenses | |
| Management fee | $1,225,074 |
| Distribution and/or service fees | 195,414 |
| Shareholder servicing costs | 4,438 |
| Administrative services fee | 33,987 |
| Independent Trustees' compensation | 4,056 |
| Custodian fee | 12,213 |
| Shareholder communications | 13,967 |
| Audit and tax fees | 32,529 |
| Legal fees | 1,664 |
| Miscellaneous | 34,375 |
| Total expenses | $1,557,717 |
| Reduction of expenses by investment adviser | (57,014) |
| Net expenses | $1,500,703 |
| Net investment income (loss) | $3,155,601 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $1,750,255 |
| Futures contracts | 669,898 |
| Foreign currency | 36,877 |
| Net realized gain (loss) | $2,457,030 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(12,861,645) |
| Futures contracts | (415,744) |
| Forward foreign currency exchange contracts | 311,559 |
| Translation of assets and liabilities in foreign currencies | (347,275) |
| Net unrealized gain (loss) | $(13,313,105) |
| Net realized and unrealized gain (loss) | $(10,856,075) |
| Change in net assets from operations | $(7,700,474) |
See Notes to Financial Statements
10
MFS Government Securities
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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $3,155,601 | $8,911,228 |
| Net realized gain (loss) | 2,457,030 | 3,747,385 |
| Net unrealized gain (loss) | (13,313,105) | 14,592,878 |
| Change in net assets from operations | $(7,700,474) | $27,251,491 |
| Total distributions to shareholders | $— | $(12,348,081) |
| Change in net assets from fund share transactions | $6,184,796 | $(26,909,816) |
| Total change in net assets | $(1,515,678) | $(12,006,406) |
| Net assets | ||
| At beginning of period | 450,608,717 | 462,615,123 |
| At end of period | $449,093,039 | $450,608,717 |
See Notes to Financial Statements
11
MFS Government Securities
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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $12.86 | $12.45 | $12.04 | $12.39 | $12.51 | $12.72 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.09 | $0.27 | $0.31 | $0.30 | $0.31 | $0.31(c) |
| Net realized and unrealized gain (loss) | (0.30) | 0.52 | 0.48 | (0.25) | (0.03) | (0.17) |
| Total from investment operations | $(0.21) | $0.79 | $0.79 | $0.05 | $0.28 | $0.14 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.38) | $(0.38) | $(0.40) | $(0.40) | $(0.35) |
| Net asset value, end of period (x) | $12.65 | $12.86 | $12.45 | $12.04 | $12.39 | $12.51 |
| Total return (%) (k)(r)(s)(x) | (1.63)(n) | 6.38 | 6.53 | 0.47 | 2.22 | 1.04(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.61(a) | 0.61 | 0.60 | 0.60 | 0.60 | 0.57(c) |
| Expenses after expense reductions (f) | 0.59(a) | 0.58 | 0.58 | 0.59 | 0.60 | 0.56(c) |
| Net investment income (loss) | 1.51(a) | 2.11 | 2.53 | 2.45 | 2.45 | 2.40(c) |
| Portfolio turnover | 163(n) | 154 | 47 | 35 | 24 | 48 |
| Net assets at end of period (000 omitted) | $288,831 | $290,413 | $298,414 | $310,387 | $364,445 | $388,457 |
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $12.79 | $12.38 | $11.96 | $12.31 | $12.42 | $12.64 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.08 | $0.24 | $0.28 | $0.26 | $0.27 | $0.28(c) |
| Net realized and unrealized gain (loss) | (0.30) | 0.52 | 0.48 | (0.24) | (0.02) | (0.18) |
| Total from investment operations | $(0.22) | $0.76 | $0.76 | $0.02 | $0.25 | $0.10 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.35) | $(0.34) | $(0.37) | $(0.36) | $(0.32) |
| Net asset value, end of period (x) | $12.57 | $12.79 | $12.38 | $11.96 | $12.31 | $12.42 |
| Total return (%) (k)(r)(s)(x) | (1.72)(n) | 6.12 | 6.35 | 0.17 | 2.03 | 0.68(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.86(a) | 0.86 | 0.85 | 0.85 | 0.85 | 0.82(c) |
| Expenses after expense reductions (f) | 0.84(a) | 0.83 | 0.83 | 0.84 | 0.85 | 0.81(c) |
| Net investment income (loss) | 1.25(a) | 1.86 | 2.27 | 2.20 | 2.20 | 2.15(c) |
| Portfolio turnover | 163(n) | 154 | 47 | 35 | 24 | 48 |
| Net assets at end of period (000 omitted) | $160,262 | $160,196 | $164,201 | $171,938 | $212,050 | $236,831 |
See Notes to Financial Statements
12
MFS Government Securities
Portfolio
Financial Highlights - continued
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
13
MFS Government Securities
Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Government Securities Portfolio (the fund) is a
diversified 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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Debt instruments and floating rate loans, 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 may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their
primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a
third-party pricing service. 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. In determining values, 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
14
MFS Government Securities
Portfolio
Notes to Financial Statements (unaudited) - continued
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 halt 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
instruments, such as futures contracts. The following is a summary of the levels used as of June 30, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $172,092,356 | $— | $172,092,356 |
| Non - U.S. Sovereign Debt | — | 1,498,289 | — | 1,498,289 |
| Municipal Bonds | — | 8,884,109 | — | 8,884,109 |
| U.S. Corporate Bonds | — | 6,482,936 | — | 6,482,936 |
| Residential Mortgage-Backed Securities | — | 210,301,048 | — | 210,301,048 |
| Commercial Mortgage-Backed Securities | — | 20,881,284 | — | 20,881,284 |
| Asset-Backed Securities (including CDOs) | — | 7,511,045 | — | 7,511,045 |
| Foreign Bonds | — | 580,282 | — | 580,282 |
| Mutual Funds | 113,075,117 | — | — | 113,075,117 |
| Total | $113,075,117 | $428,231,349 | $— | $541,306,466 |
| Other Financial Instruments | ||||
| Futures Contracts – Assets | $204,006 | $— | $— | $204,006 |
| Futures Contracts – Liabilities | (438,176) | — | — | (438,176) |
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 principal value of these debt securities is adjusted through income according to changes in the Consumer Price 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.
Derivatives — The
fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, 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 during the
period were futures contracts and forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an
agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily
limit set by the exchange. 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.
15
MFS Government Securities
Portfolio
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, 2021 as reported in the Statement of Assets and Liabilities:
| Fair Value (a) | |||
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Interest Rate Futures | $204,006 | $(438,176) |
(a) Values presented in this table
for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is separately reported within the 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, 2021 as reported in the Statement of Operations:
| Risk | Futures
Contracts |
| Interest Rate | $669,898 |
The following table presents, by
major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the six months ended June 30, 2021 as reported in the Statement of Operations:
| Risk | Futures
Contracts |
Forward
Foreign Currency Exchange Contracts |
| Interest Rate | $(415,744) | $— |
| Foreign Exchange | — | 311,559 |
| Total | $(415,744) | $311,559 |
Derivative counterparty credit
risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering
into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the
other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement 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.
Collateral and margin requirements differ by type of
derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the
fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form
of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are
netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or
margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as
collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in
“Miscellaneous” expense in the Statement of Operations.
Futures Contracts —
The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, or to manage duration. 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 specified 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 contracts is realized.
16
MFS Government Securities
Portfolio
Notes to Financial Statements (unaudited) - continued
The
fund bears the risk of interest 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 contracts 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 forward foreign currency exchange contracts.
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, a multicurrency cash settlement system for the centralized settlement of foreign transactions. 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, where applicable, 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.
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. Some securities may be purchased or sold on an extended settlement basis, which means that the receipt or delivery
of the securities by the fund and related payments occur at a future date, usually beyond the customary settlement period. Interest income is recorded on the accrual basis.
Interest payments received in additional securities are recorded on the
ex-interest date in an amount equal to the value of the security on such date. 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 based on 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.
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.
The fund invests a significant portion of its assets in
asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the
underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued
by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
The fund may purchase or sell mortgage-backed securities on
a “To Be Announced” (TBA) basis. A TBA transaction is subject to extended settlement and typically does not designate the actual security to be delivered, but instead includes an approximate principal amount. The price of the TBA
security and the date that it will be settled are fixed at the time the transaction is negotiated. The value of the security varies with market fluctuations and no interest accrues to the fund until settlement takes place. TBA purchase and sale
commitments are held at carrying amount, which approximates fair value and are categorized as level 2 within the
17
MFS Government Securities
Portfolio
Notes to Financial Statements (unaudited) - continued
fair value
hierarchy and included in TBA purchase and TBA sale commitments in the Statement of Assets and Liabilities. Losses may arise as a result of changes in the value of the TBA investment prior to settlement date or due to counterparty non-performance.
At the time that it enters into a TBA transaction, the fund is required to have sufficient cash and/or liquid securities to cover its commitments.
The fund may also enter into mortgage dollar rolls,
typically TBA dollar rolls, in which the fund sells TBA mortgage-backed securities to financial institutions and simultaneously agrees to repurchase similar (same issuer, type and coupon) securities at a later date at an agreed-upon price. During
the period between the sale and repurchase, the fund will not be entitled to receive interest and principal payments on the securities sold. The fund accounts for dollar roll transactions as purchases and sales and realizes gains and losses on these
transactions. Dollar roll transactions involve the risk that the market value of the securities that the fund is required to purchase may decline below the agreed upon repurchase price of those securities.
To mitigate the counterparty credit risk on TBA
transactions, mortgage dollar rolls, and other types of forward settling mortgage-backed and asset-backed security transactions, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a
bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified
deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right 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 MSFTA 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.
For mortgage-backed and asset-backed securities traded
under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations.
Cash that has been pledged to cover the fund's collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same
purpose, if any, are noted in the Portfolio of Investments.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
Book/tax differences primarily relate to amortization and
accretion of debt securities and wash sale loss deferrals.
The tax character of distributions declared to shareholders
for the last fiscal year is as follows:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $12,348,081 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
18
MFS Government Securities
Portfolio
Notes to Financial Statements (unaudited) - continued
| As of 6/30/21 | |
| Cost of investments | $527,131,917 |
| Gross appreciation | 14,966,232 |
| Gross depreciation | (791,683) |
| Net unrealized appreciation (depreciation) | $14,174,549 |
| As of 12/31/20 | |
| Undistributed ordinary income | 9,419,231 |
| Capital loss carryforwards | (25,119,051) |
| Other temporary differences | 347,275 |
| Net unrealized appreciation (depreciation) | 26,842,359 |
The aggregate cost above
includes prior fiscal year end tax adjustments, if applicable.
As of December 31, 2020, the fund had capital loss
carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(20,788,518) |
| Long-Term | (4,330,533) |
| Total | $(25,119,051) |
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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $8,352,164 | |
| Service Class | — | 3,995,917 | |
| Total | $— | $12,348,081 |
(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 based on the fund's average daily net assets:
| Up to $1 billion | 0.55% |
| In excess of $1 billion | 0.50% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $26,610, which
is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.54% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.58% of
average daily net assets for the Initial Class shares and 0.83% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at
least until undefined. For the six months ended June 30, 2021, this reduction amounted to $30,404, which is included in the 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.
19
MFS Government Securities
Portfolio
Notes to Financial Statements (unaudited) - continued
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, 2021, the fee was $4,209, which
equated to 0.0019% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to
$229.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate
of 0.0153% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to
Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and
MFSC.
Other
— The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, were as follows:
| Purchases | Sales | |
| U.S. Government securities | $683,954,385 | $675,311,213 |
| Non-U.S. Government securities | 14,893,198 | 14,089,602 |
(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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 1,226,325 | $15,654,261 | 2,525,329 | $33,014,801 | |
| Service Class | 1,107,159 | 13,885,672 | 2,337,906 | 30,171,357 | |
| 2,333,484 | $29,539,933 | 4,863,235 | $63,186,158 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 649,974 | $8,352,164 | |
| Service Class | — | — | 312,425 | 3,995,917 | |
| — | $— | 962,399 | $12,348,081 | ||
| Shares reacquired | |||||
| Initial Class | (973,544) | $(12,338,379) | (4,567,529) | $(58,895,260) | |
| Service Class | (876,382) | (11,016,758) | (3,392,174) | (43,548,795) | |
| (1,849,926) | $(23,355,137) | (7,959,703) | $(102,444,055) | ||
20
MFS Government Securities
Portfolio
Notes to Financial Statements (unaudited) - continued
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Net change | |||||
| Initial Class | 252,781 | $3,315,882 | (1,392,226) | $(17,528,295) | |
| Service Class | 230,777 | 2,868,914 | (741,843) | (9,381,521) | |
| 483,558 | $6,184,796 | (2,134,069) | $(26,909,816) | ||
The fund is one of several
mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfoio and the MFS Conservative
Allocation Portfolio were the owners of record of approximately 31% and 9%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate
in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $780 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $36,456,029 | $156,750,680 | $80,131,592 | $— | $— | $113,075,117 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $25,581 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
21
MFS Government Securities
Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
22
MFS Government Securities
Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
23
Semiannual Report
June 30, 2021
MFS® High Yield Portfolio
MFS® Variable Insurance Trust II
HYS-SEM
MFS High Yield
Portfolio
Portfolio Composition
| (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. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 ratings agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives) and/or commodity-linked derivatives. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (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 value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. 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 value. The bond component will include any accrued interest amounts. |
| (m) | In determining each 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%. |
Where the fund holds
convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash,
investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and
liabilities.
Other includes equivalent
exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of June 30,
2021.
The portfolio is actively managed and
current holdings may be different.
2
MFS High Yield
Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.72% | $1,000.00 | $1,024.65 | $3.61 |
| Hypothetical (h) | 0.72% | $1,000.00 | $1,021.22 | $3.61 | |
| Service Class | Actual | 0.97% | $1,000.00 | $1,023.17 | $4.87 |
| Hypothetical (h) | 0.97% | $1,000.00 | $1,019.98 | $4.86 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3
MFS High Yield Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS High Yield Portfolio
Portfolio of
Investments (unaudited) – continued
| (a) | Non-income producing security. |
| (d) | In default. |
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $7,184,930 and $334,072,823, respectively. |
| (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 $265,168,490, representing 76.7% of net assets. |
| (p) | Payment-in-kind (PIK) security for which interest income may be received in additional securities and/or cash. |
| (r) | The remaining maturities of floating rate loans may be less than the 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. The interest rate shown represents the weighted average of the floating interest rates on settled contracts within the loan facility at period end, unless otherwise indicated. The floating interest rates on settled contracts are determined periodically by reference to a base lending rate and a spread. |
| (u) | The security was valued using significant unobservable inputs and is considered level 3 under the fair value hierarchy. For further information about the fund’s level 3 holdings, please see Note 2 in the Notes to Financial Statements. |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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 |
| Paysafe Finance PLC, 4%, 6/15/2029 | 6/10/2021 | $820,000 | $807,700 |
| % of Net assets | 0.2% |
11
MFS High Yield Portfolio
Portfolio of
Investments (unaudited) – continued
| The following abbreviations are used in this report and are defined: | |
| CDO | Collateralized Debt Obligation |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| LIBOR | London Interbank Offered Rate |
| REIT | Real Estate Investment Trust |
See Notes to Financial
Statements
12
MFS High Yield
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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $325,495,691) | $334,072,823 |
| Investments in affiliated issuers, at value (identified cost, $7,184,930) | 7,184,930 |
| Cash | 2,356 |
| Receivables for | |
| Investments sold | 5,407,730 |
| Fund shares sold | 28,859 |
| Interest | 4,746,865 |
| Receivable from investment adviser | 1,337 |
| Other assets | 1,460 |
| Total assets | $351,446,360 |
| Liabilities | |
| Payables for | |
| Investments purchased | $5,412,169 |
| Fund shares reacquired | 371,804 |
| Payable to affiliates | |
| Administrative services fee | 306 |
| Shareholder servicing costs | 74 |
| Distribution and/or service fees | 547 |
| Accrued expenses and other liabilities | 110,772 |
| Total liabilities | $5,895,672 |
| Net assets | $345,550,688 |
| Net assets consist of | |
| Paid-in capital | $356,063,360 |
| Total distributable earnings (loss) | (10,512,672) |
| Net assets | $345,550,688 |
| Shares of beneficial interest outstanding | 59,488,797 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $305,657,577 | 52,536,952 | $5.82 |
| Service Class | 39,893,111 | 6,951,845 | 5.74 |
See Notes to Financial Statements
13
MFS High Yield
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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Interest | $8,493,470 |
| Other | 16,248 |
| Dividends from affiliated issuers | 2,763 |
| Total investment income | $8,512,481 |
| Expenses | |
| Management fee | $1,203,298 |
| Distribution and/or service fees | 49,519 |
| Shareholder servicing costs | 7,271 |
| Administrative services fee | 27,487 |
| Independent Trustees' compensation | 3,412 |
| Custodian fee | 9,834 |
| Shareholder communications | 22,421 |
| Audit and tax fees | 40,892 |
| Legal fees | 1,277 |
| Miscellaneous | 19,027 |
| Total expenses | $1,384,438 |
| Reduction of expenses by investment adviser | (96,325) |
| Net expenses | $1,288,113 |
| Net investment income (loss) | $7,224,368 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $3,880,496 |
| Affiliated issuers | (1,981) |
| Net realized gain (loss) | $3,878,515 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(2,922,775) |
| Affiliated issuers | 1,982 |
| Net unrealized gain (loss) | $(2,920,793) |
| Net realized and unrealized gain (loss) | $957,722 |
| Change in net assets from operations | $8,182,090 |
See Notes to Financial Statements
14
MFS High Yield
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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $7,224,368 | $15,210,983 |
| Net realized gain (loss) | 3,878,515 | (2,471,599) |
| Net unrealized gain (loss) | (2,920,793) | 2,203,310 |
| Change in net assets from operations | $8,182,090 | $14,942,694 |
| Total distributions to shareholders | $— | $(18,798,097) |
| Change in net assets from fund share transactions | $(13,923,667) | $(13,092,189) |
| Total change in net assets | $(5,741,577) | $(16,947,592) |
| Net assets | ||
| At beginning of period | 351,292,265 | 368,239,857 |
| At end of period | $345,550,688 | $351,292,265 |
See Notes to Financial Statements
15
MFS High Yield
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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $5.68 | $5.72 | $5.28 | $5.77 | $5.78 | $5.43 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.12 | $0.25 | $0.27 | $0.28 | $0.28 | $0.32(c) |
| Net realized and unrealized gain (loss) | 0.02 | 0.03(g) | 0.50 | (0.45) | 0.10 | 0.42 |
| Total from investment operations | $0.14 | $0.28 | $0.77 | $(0.17) | $0.38 | $0.74 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.32) | $(0.33) | $(0.32) | $(0.39) | $(0.39) |
| Net asset value, end of period (x) | $5.82 | $5.68 | $5.72 | $5.28 | $5.77 | $5.78 |
| Total return (%) (k)(r)(s)(x) | 2.46(n) | 5.09 | 14.81 | (3.08) | 6.69 | 13.82(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.78(a) | 0.78 | 0.77 | 0.77 | 0.78 | 0.76(c) |
| Expenses after expense reductions (f) | 0.72(a) | 0.72 | 0.72 | 0.72 | 0.72 | 0.70(c) |
| Net investment income (loss) | 4.23(a) | 4.50 | 4.78 | 4.91 | 4.78 | 5.60(c) |
| Portfolio turnover | 37(n) | 54 | 59 | 40 | 49 | 41 |
| Net assets at end of period (000 omitted) | $305,658 | $310,121 | $324,544 | $320,380 | $384,393 | $404,118 |
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $5.61 | $5.65 | $5.22 | $5.70 | $5.72 | $5.37 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.11 | $0.23 | $0.25 | $0.26 | $0.26 | $0.30(c) |
| Net realized and unrealized gain (loss) | 0.02 | 0.03(g) | 0.49 | (0.43) | 0.10 | 0.43 |
| Total from investment operations | $0.13 | $0.26 | $0.74 | $(0.17) | $0.36 | $0.73 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.30) | $(0.31) | $(0.31) | $(0.38) | $(0.38) |
| Net asset value, end of period (x) | $5.74 | $5.61 | $5.65 | $5.22 | $5.70 | $5.72 |
| Total return (%) (k)(r)(s)(x) | 2.32(n) | 4.85 | 14.44 | (3.24) | 6.31 | 13.64(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.03(a) | 1.03 | 1.02 | 1.02 | 1.03 | 1.02(c) |
| Expenses after expense reductions (f) | 0.97(a) | 0.97 | 0.97 | 0.97 | 0.97 | 0.95(c) |
| Net investment income (loss) | 3.98(a) | 4.25 | 4.54 | 4.66 | 4.54 | 5.36(c) |
| Portfolio turnover | 37(n) | 54 | 59 | 40 | 49 | 41 |
| Net assets at end of period (000 omitted) | $39,893 | $41,171 | $43,696 | $44,995 | $58,499 | $69,189 |
See Notes to Financial Statements
16
MFS High Yield
Portfolio
Financial Highlights - continued
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (g) | The per share amount varies from the net realized and unrealized gain/loss for the period because of the timing of sales of fund shares and the per share amount of realized and unrealized gains and losses at such time. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
17
MFS High Yield
Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS High Yield Portfolio (the fund) is a diversified 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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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 below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and
their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing
service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, 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 may be 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. In determining
values, 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.
18
MFS High Yield
Portfolio
Notes to Financial Statements (unaudited) - continued
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 halt 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. The following is a summary of the levels used as of
June 30, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | ||||
| Mexico | $— | $329,672 | $— | $329,672 |
| United States | — | 14 | 315,010 | 315,024 |
| United Kingdom | 55,005 | — | — | 55,005 |
| Municipal Bonds | — | 363,875 | — | 363,875 |
| U.S. Corporate Bonds | — | 291,986,468 | — | 291,986,468 |
| Asset-Backed Securities (including CDOs) | — | 128 | — | 128 |
| Foreign Bonds | — | 39,191,781 | — | 39,191,781 |
| Floating Rate Loans | — | 1,830,870 | — | 1,830,870 |
| Mutual Funds | 7,184,930 | — | — | 7,184,930 |
| Total | $7,239,935 | $333,702,808 | $315,010 | $341,257,753 |
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 table presents the activity of level 3 securities held at the beginning and the end of the period.
| Equity
Securities | |
| Balance as of 12/31/20 | $315,010 |
| Change in unrealized appreciation or depreciation | 0 |
| Balance as of 6/30/21 | $315,010 |
The net change in unrealized
appreciation or depreciation from investments held as level 3 at June 30, 2021 is $0. At June 30, 2021, the fund held one level 3 security.
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
19
MFS High Yield
Portfolio
Notes to Financial Statements (unaudited) - continued
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.
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 contractually obligate the fund
to supply additional cash to the borrower on demand. The fund generally provides this financial support in order to preserve its existing investment or to obtain a more senior secured interest in the assets of the borrower. 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. 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. 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. 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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
Book/tax differences primarily relate to amortization and
accretion of debt securities.
The tax character of
distributions declared to shareholders for the last fiscal year is as follows:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $18,798,097 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
20
MFS High Yield
Portfolio
Notes to Financial Statements (unaudited) - continued
| As of 6/30/21 | |
| Cost of investments | $334,040,992 |
| Gross appreciation | 10,323,377 |
| Gross depreciation | (3,106,616) |
| Net unrealized appreciation (depreciation) | $7,216,761 |
| As of 12/31/20 | |
| Undistributed ordinary income | 16,799,721 |
| Capital loss carryforwards | (45,441,992) |
| Net unrealized appreciation (depreciation) | 9,947,509 |
The aggregate cost above
includes prior fiscal year end tax adjustments, if applicable.
As of December 31, 2020, the fund had capital loss
carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(852,156) |
| Long-Term | (44,589,836) |
| Total | $(45,441,992) |
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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $16,642,508 | |
| Service Class | — | 2,155,589 | |
| Total | $— | $18,798,097 |
(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 based on the fund's average daily net assets:
| Up to $1 billion | 0.70% |
| In excess of $1 billion | 0.65% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $20,540, which
is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.69% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.72% of
average daily net assets for the Initial Class shares and 0.97% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at
least until April 30, 2023. For the six months ended June 30, 2021, this reduction amounted to $75,785, which is included in the 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.
21
MFS High Yield
Portfolio
Notes to Financial Statements (unaudited) - continued
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, 2021, the fee was $6,807, which
equated to 0.0040% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to
$464.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate
of 0.0160% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to
Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and
MFSC.
Other
— The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, aggregated $129,296,270 and $125,040,422, 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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 1,162,920 | $6,633,778 | 3,732,526 | $20,503,790 | |
| Service Class | 295,083 | 1,665,965 | 890,297 | 4,876,990 | |
| 1,458,003 | $8,299,743 | 4,622,823 | $25,380,780 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 3,048,078 | $16,642,508 | |
| Service Class | — | — | 399,183 | 2,155,589 | |
| — | $— | 3,447,261 | $18,798,097 | ||
| Shares reacquired | |||||
| Initial Class | (3,214,025) | $(18,379,172) | (8,904,252) | $(48,212,643) | |
| Service Class | (681,622) | (3,844,238) | (1,679,808) | (9,058,423) | |
| (3,895,647) | $(22,223,410) | (10,584,060) | $(57,271,066) | ||
| Net change | |||||
| Initial Class | (2,051,105) | $(11,745,394) | (2,123,648) | $(11,066,345) | |
| Service Class | (386,539) | (2,178,273) | (390,328) | (2,025,844) | |
| (2,437,644) | $(13,923,667) | (2,513,976) | $(13,092,189) | ||
22
MFS High Yield
Portfolio
Notes to Financial Statements (unaudited) - continued
The
fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the
MFS Conservative Allocation Portfolio, and the MFS Growth Allocation Portfolio were the owners of record of approximately 20%, 6%, and 5%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate
in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $610 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $15,433,544 | $50,664,763 | $58,913,378 | $(1,981) | $1,982 | $7,184,930 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $2,763 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
23
MFS High Yield
Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
24
MFS High Yield
Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
25
Semiannual Report
June 30, 2021
MFS® International
Growth Portfolio
Growth Portfolio
MFS® Variable Insurance Trust II
FCI-SEM
MFS International Growth
Portfolio
Portfolio Composition
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash,
investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and
liabilities.
Percentages are based on net
assets as of June 30, 2021.
The portfolio is
actively managed and current holdings may be different.
2
MFS International Growth
Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.88% | $1,000.00 | $1,075.82 | $4.53 |
| Hypothetical (h) | 0.88% | $1,000.00 | $1,020.43 | $4.41 | |
| Service Class | Actual | 1.13% | $1,000.00 | $1,074.84 | $5.81 |
| Hypothetical (h) | 1.13% | $1,000.00 | $1,019.19 | $5.66 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3
MFS International Growth
Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS International Growth
Portfolio
Portfolio of
Investments (unaudited) – continued
| (a) | Non-income producing security. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $3,205,910 and $197,891,625, respectively. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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 Depositary Receipt |
See Notes
to Financial Statements
5
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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $114,056,474) | $197,891,625 |
| Investments in affiliated issuers, at value (identified cost, $3,205,910) | 3,205,910 |
| Cash | 77,364 |
| Foreign currency, at value (identified cost, $8,158) | 8,117 |
| Receivables for | |
| Fund shares sold | 183,018 |
| Interest and dividends | 1,001,369 |
| Receivable from investment adviser | 15,498 |
| Other assets | 984 |
| Total assets | $202,383,885 |
| Liabilities | |
| Payables for | |
| Investments purchased | $291,627 |
| Fund shares reacquired | 155,750 |
| Payable to affiliates | |
| Administrative services fee | 205 |
| Shareholder servicing costs | 70 |
| Distribution and/or service fees | 1,061 |
| Deferred country tax expense payable | 227,916 |
| Accrued expenses and other liabilities | 63,994 |
| Total liabilities | $740,623 |
| Net assets | $201,643,262 |
| Net assets consist of | |
| Paid-in capital | $101,664,442 |
| Total distributable earnings (loss) | 99,978,820 |
| Net assets | $201,643,262 |
| Shares of beneficial interest outstanding | 11,704,846 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $124,710,544 | 7,202,708 | $17.31 |
| Service Class | 76,932,718 | 4,502,138 | 17.09 |
See Notes to Financial Statements
6
MFS International Growth
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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $2,164,501 |
| Income on securities loaned | 1,713 |
| Dividends from affiliated issuers | 744 |
| Other | 31 |
| Foreign taxes withheld | (270,735) |
| Total investment income | $1,896,254 |
| Expenses | |
| Management fee | $833,911 |
| Distribution and/or service fees | 78,502 |
| Shareholder servicing costs | 6,585 |
| Administrative services fee | 17,359 |
| Independent Trustees' compensation | 2,291 |
| Custodian fee | 28,238 |
| Shareholder communications | 4,081 |
| Audit and tax fees | 31,852 |
| Legal fees | 592 |
| Miscellaneous | 12,339 |
| Total expenses | $1,015,750 |
| Reduction of expenses by investment adviser | (121,507) |
| Net expenses | $894,243 |
| Net investment income (loss) | $1,002,011 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $7,167,408 |
| Foreign currency | (15,820) |
| Net realized gain (loss) | $7,151,588 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $107,170 increase in deferred country tax) | $5,601,008 |
| Translation of assets and liabilities in foreign currencies | (30,435) |
| Net unrealized gain (loss) | $5,570,573 |
| Net realized and unrealized gain (loss) | $12,722,161 |
| Change in net assets from operations | $13,724,172 |
See Notes to Financial Statements
7
MFS International Growth
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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $1,002,011 | $933,931 |
| Net realized gain (loss) | 7,151,588 | 8,441,039 |
| Net unrealized gain (loss) | 5,570,573 | 14,193,358 |
| Change in net assets from operations | $13,724,172 | $23,568,328 |
| Total distributions to shareholders | $— | $(3,926,189) |
| Change in net assets from fund share transactions | $15,776,080 | $5,625,171 |
| Total change in net assets | $29,500,252 | $25,267,310 |
| Net assets | ||
| At beginning of period | 172,143,010 | 146,875,700 |
| At end of period | $201,643,262 | $172,143,010 |
See Notes to Financial Statements
8
MFS International Growth
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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $16.09 | $14.26 | $12.78 | $15.50 | $12.13 | $12.57 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.09 | $0.10 | $0.21 | $0.17 | $0.14 | $0.17(c) |
| Net realized and unrealized gain (loss) | 1.13 | 2.12 | 3.07 | (1.38) | 3.77 | 0.19 |
| Total from investment operations | $1.22 | $2.22 | $3.28 | $(1.21) | $3.91 | $0.36 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.21) | $(0.18) | $(0.16) | $(0.20) | $(0.15) |
| From net realized gain | — | (0.18) | (1.62) | (1.35) | (0.34) | (0.65) |
| Total distributions declared to shareholders | $— | $(0.39) | $(1.80) | $(1.51) | $(0.54) | $(0.80) |
| Net asset value, end of period (x) | $17.31 | $16.09 | $14.26 | $12.78 | $15.50 | $12.13 |
| Total return (%) (k)(r)(s)(x) | 7.58(n) | 15.84 | 27.30 | (9.02) | 32.64 | 2.49(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.01(a) | 1.04 | 1.05 | 1.05 | 1.05 | 0.91(c) |
| Expenses after expense reductions (f) | 0.88(a) | 0.88 | 0.88 | 0.97 | 1.05 | 0.91(c) |
| Net investment income (loss) | 1.14(a) | 0.72 | 1.49 | 1.16 | 0.96 | 1.33(c) |
| Portfolio turnover | 10(n) | 26 | 7 | 18 | 10 | 15 |
| Net assets at end of period (000 omitted) | $124,711 | $120,291 | $112,259 | $105,919 | $130,591 | $126,668 |
See Notes to Financial Statements
9
MFS International Growth
Portfolio
Financial Highlights - continued
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $15.90 | $14.11 | $12.65 | $15.37 | $12.03 | $12.48 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.08 | $0.06 | $0.16 | $0.13 | $0.10 | $0.13(c) |
| Net realized and unrealized gain (loss) | 1.11 | 2.09 | 3.07 | (1.38) | 3.74 | 0.18 |
| Total from investment operations | $1.19 | $2.15 | $3.23 | $(1.25) | $3.84 | $0.31 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.18) | $(0.15) | $(0.12) | $(0.16) | $(0.11) |
| From net realized gain | — | (0.18) | (1.62) | (1.35) | (0.34) | (0.65) |
| Total distributions declared to shareholders | $— | $(0.36) | $(1.77) | $(1.47) | $(0.50) | $(0.76) |
| Net asset value, end of period (x) | $17.09 | $15.90 | $14.11 | $12.65 | $15.37 | $12.03 |
| Total return (%) (k)(r)(s)(x) | 7.48(n) | 15.50 | 27.11 | (9.30) | 32.35 | 2.15(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.26(a) | 1.29 | 1.30 | 1.30 | 1.30 | 1.16(c) |
| Expenses after expense reductions (f) | 1.13(a) | 1.13 | 1.13 | 1.22 | 1.30 | 1.16(c) |
| Net investment income (loss) | 0.97(a) | 0.44 | 1.18 | 0.87 | 0.70 | 1.08(c) |
| Portfolio turnover | 10(n) | 26 | 7 | 18 | 10 | 15 |
| Net assets at end of period (000 omitted) | $76,933 | $51,852 | $34,616 | $27,233 | $29,544 | $25,277 |
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
10
MFS International Growth
Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS International Growth Portfolio (the fund) is a
diversified 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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and
greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, accounting, and auditing systems, and
greater political, social, and economic instability than developed markets.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing
service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are
generally valued at 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. In determining values, 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.
11
MFS International Growth
Portfolio
Notes to Financial Statements (unaudited) - continued
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 halt 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 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 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, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $197,891,625 | $— | $— | $197,891,625 |
| Mutual Funds | 3,205,910 | — | — | 3,205,910 |
| Total | $201,097,535 | $— | $— | $201,097,535 |
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 —
Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans
can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. 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. On loans collateralized by cash, the cash collateral is invested in a money market fund.
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. The lending agent provides the fund with indemnification against
Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the
loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the
extent that such shortfall is not due to a decline in collateral value resulting from
12
MFS International Growth
Portfolio
Notes to Financial Statements (unaudited) - continued
collateral
reinvestment for which the fund bears the risk of loss. 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 separately reported in 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. At June 30, 2021, there were no securities on loan or collateral outstanding.
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 payments received in additional securities are recorded on the ex-dividend 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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
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:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $2,433,126 |
| Long-term capital gains | 1,493,063 |
| Total distributions | $3,926,189 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
13
MFS International Growth
Portfolio
Notes to Financial Statements (unaudited) - continued
| As of 6/30/21 | |
| Cost of investments | $118,531,141 |
| Gross appreciation | 85,931,724 |
| Gross depreciation | (3,365,330) |
| Net unrealized appreciation (depreciation) | $82,566,394 |
| As of 12/31/20 | |
| Undistributed ordinary income | 1,557,099 |
| Undistributed long-term capital gain | 7,782,653 |
| Other temporary differences | 56,680 |
| Net unrealized appreciation (depreciation) | 76,858,216 |
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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $2,927,657 | |
| Service Class | — | 998,532 | |
| Total | $— | $3,926,189 |
(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 based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2 billion | 0.80% |
| In excess of $2 billion | 0.70% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $11,105, which
is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.89% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.88% of
average daily net assets for the Initial Class shares and 1.13% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at
least until April 30, 2023. For the six months ended June 30, 2021, this reduction amounted to $110,402, which is included in the 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.
14
MFS International Growth
Portfolio
Notes to Financial Statements (unaudited) - continued
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, 2021, the fee was $6,177, which equated to 0.0067% annually of
the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $408.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate of 0.0187% of the fund's average daily
net assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation
directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD,
and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale
transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by
the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the six months ended June 30, 2021, the fund engaged in sale transactions pursuant to this policy, which amounted to $20,919. The sales transactions resulted in net
realized gains (losses) of $3,363.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, aggregated $33,957,681 and $18,974,858, 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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 459,526 | $7,600,848 | 824,973 | $11,064,566 | |
| Service Class | 1,519,837 | 25,070,994 | 1,697,426 | 23,498,214 | |
| 1,979,363 | $32,671,842 | 2,522,399 | $34,562,780 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 199,296 | $2,927,657 | |
| Service Class | — | — | 68,722 | 998,532 | |
| — | $— | 268,018 | $3,926,189 | ||
| Shares reacquired | |||||
| Initial Class | (734,506) | $(12,300,948) | (1,416,593) | $(19,892,313) | |
| Service Class | (279,621) | (4,594,814) | (957,919) | (12,971,485) | |
| (1,014,127) | $(16,895,762) | (2,374,512) | $(32,863,798) | ||
| Net change | |||||
| Initial Class | (274,980) | $(4,700,100) | (392,324) | $(5,900,090) | |
| Service Class | 1,240,216 | 20,476,180 | 808,229 | 11,525,261 | |
| 965,236 | $15,776,080 | 415,905 | $5,625,171 | ||
15
MFS International Growth
Portfolio
Notes to Financial Statements (unaudited) - continued
The
fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the
MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 21%, 9%, and 4%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate
in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $321 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $1,012,087 | $23,248,002 | $21,054,179 | $— | $— | $3,205,910 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $744 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
16
MFS International Growth
Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
17
MFS International Growth
Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
18
Semiannual Report
June 30, 2021
MFS® International Intrinsic
Value Portfolio
Value Portfolio
MFS® Variable Insurance Trust II
FCG-SEM
MFS International Intrinsic
Value Portfolio
Portfolio Composition
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (o) | Less than 0.1%. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash,
investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and
liabilities.
Other includes equivalent
exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of June 30,
2021.
The portfolio is actively managed and
current holdings may be different.
2
MFS International
Intrinsic Value Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.89% | $1,000.00 | $1,048.79 | $4.52 |
| Hypothetical (h) | 0.89% | $1,000.00 | $1,020.38 | $4.46 | |
| Service Class | Actual | 1.14% | $1,000.00 | $1,047.58 | $5.79 |
| Hypothetical (h) | 1.14% | $1,000.00 | $1,019.14 | $5.71 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3
MFS International Intrinsic
Value Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS International
Intrinsic Value Portfolio
Portfolio of Investments (unaudited) – continued
| (a) | Non-income producing security. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $37,647,306 and $1,560,884,290, respectively. | |||
| (l) | A portion of this security is on loan. See Note 2 for additional information. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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 Depositary Receipt |
| 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: | |
| CHF | Swiss Franc |
| JPY | Japanese Yen |
5
MFS International Intrinsic
Value Portfolio
Portfolio
of Investments (unaudited) – continued
| Derivative Contracts at 6/30/21 | ||||||
| Forward Foreign Currency Exchange Contracts | ||||||
| Currency
Purchased |
Currency
Sold |
Counterparty | Settlement
Date |
Unrealized
Appreciation (Depreciation) | ||
| Asset Derivatives | ||||||
| USD | 56,761,647 | JPY | 5,998,656,000 | HSBC Bank | 8/19/2021 | $2,744,688 |
See Notes to Financial
Statements
6
MFS International
Intrinsic Value 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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value, including $777,388 of securities on loan (identified cost, $953,498,675) | $1,560,884,290 |
| Investments in affiliated issuers, at value (identified cost, $37,643,583) | 37,647,306 |
| Cash | 919,927 |
| Foreign currency, at value (identified cost, $416,800) | 416,581 |
| Receivables for | |
| Forward foreign currency exchange contracts | 2,744,688 |
| Investments sold | 602,925 |
| Fund shares sold | 820,059 |
| Interest and dividends | 3,886,405 |
| Other assets | 5,395 |
| Total assets | $1,607,927,576 |
| Liabilities | |
| Payables for | |
| Investments purchased | $3,594,788 |
| Fund shares reacquired | 1,771,537 |
| Payable to affiliates | |
| Investment adviser | 75,291 |
| Administrative services fee | 1,214 |
| Shareholder servicing costs | 237 |
| Distribution and/or service fees | 17,486 |
| Accrued expenses and other liabilities | 155,855 |
| Total liabilities | $5,616,408 |
| Net assets | $1,602,311,168 |
| Net assets consist of | |
| Paid-in capital | $912,767,400 |
| Total distributable earnings (loss) | 689,543,768 |
| Net assets | $1,602,311,168 |
| Shares of beneficial interest outstanding | 44,211,957 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $338,614,881 | 9,211,483 | $36.76 |
| Service Class | 1,263,696,287 | 35,000,474 | 36.11 |
See Notes to Financial Statements
7
MFS International Intrinsic
Value 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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $17,045,964 |
| Dividends from affiliated issuers | 10,217 |
| Income on securities loaned | 4,798 |
| Other | 172 |
| Foreign taxes withheld | (1,798,689) |
| Total investment income | $15,262,462 |
| Expenses | |
| Management fee | $6,582,075 |
| Distribution and/or service fees | 1,491,784 |
| Shareholder servicing costs | 22,209 |
| Administrative services fee | 102,888 |
| Independent Trustees' compensation | 10,784 |
| Custodian fee | 81,440 |
| Shareholder communications | 23,896 |
| Audit and tax fees | 29,852 |
| Legal fees | 5,137 |
| Miscellaneous | 19,832 |
| Total expenses | $8,369,897 |
| Reduction of expenses by investment adviser | (91,176) |
| Net expenses | $8,278,721 |
| Net investment income (loss) | $6,983,741 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $33,633,331 |
| Affiliated issuers | 1 |
| Forward foreign currency exchange contracts | 243,222 |
| Foreign currency | 131,741 |
| Net realized gain (loss) | $34,008,295 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $29,452,179 |
| Affiliated issuers | (1) |
| Forward foreign currency exchange contracts | 3,972,368 |
| Translation of assets and liabilities in foreign currencies | (303,171) |
| Net unrealized gain (loss) | $33,121,375 |
| Net realized and unrealized gain (loss) | $67,129,670 |
| Change in net assets from operations | $74,113,411 |
See Notes to Financial Statements
8
MFS International
Intrinsic Value 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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $6,983,741 | $5,201,242 |
| Net realized gain (loss) | 34,008,295 | 42,607,038 |
| Net unrealized gain (loss) | 33,121,375 | 206,247,474 |
| Change in net assets from operations | $74,113,411 | $254,055,754 |
| Total distributions to shareholders | $— | $(38,136,630) |
| Change in net assets from fund share transactions | $22,811,008 | $(66,701,792) |
| Total change in net assets | $96,924,419 | $149,217,332 |
| Net assets | ||
| At beginning of period | 1,505,386,749 | 1,356,169,417 |
| At end of period | $1,602,311,168 | $1,505,386,749 |
See Notes to Financial Statements
9
MFS International Intrinsic
Value 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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $35.05 | $29.94 | $25.02 | $28.25 | $22.57 | $22.46 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.19 | $0.18 | $0.28 | $0.30 | $0.29 | $0.32(c) |
| Net realized and unrealized gain (loss) | 1.52 | 5.87 | 6.06 | (2.91) | 5.80 | 0.64 |
| Total from investment operations | $1.71 | $6.05 | $6.34 | $(2.61) | $6.09 | $0.96 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.31) | $(0.54) | $(0.31) | $(0.39) | $(0.32) |
| From net realized gain | — | (0.63) | (0.88) | (0.31) | (0.02) | (0.53) |
| Total distributions declared to shareholders | $— | $(0.94) | $(1.42) | $(0.62) | $(0.41) | $(0.85) |
| Net asset value, end of period (x) | $36.76 | $35.05 | $29.94 | $25.02 | $28.25 | $22.57 |
| Total return (%) (k)(r)(s)(x) | 4.88(n) | 20.52 | 25.94 | (9.49) | 27.14 | 4.05(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.90(a) | 0.92 | 0.92 | 0.91 | 0.91 | 0.91(c) |
| Expenses after expense reductions (f) | 0.89(a) | 0.90 | 0.90 | 0.90 | 0.90 | 0.89(c) |
| Net investment income (loss) | 1.10(a) | 0.59 | 0.99 | 1.08 | 1.13 | 1.41(c) |
| Portfolio turnover | 6(n) | 10 | 13 | 16 | 10 | 17 |
| Net assets at end of period (000 omitted) | $338,615 | $328,247 | $308,053 | $282,244 | $317,415 | $238,192 |
See Notes to Financial Statements
10
MFS International
Intrinsic Value Portfolio
Financial Highlights - continued
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $34.47 | $29.47 | $24.60 | $27.80 | $22.23 | $22.13 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.15 | $0.10 | $0.20 | $0.27 | $0.23 | $0.26(c) |
| Net realized and unrealized gain (loss) | 1.49 | 5.77 | 5.97 | (2.91) | 5.70 | 0.63 |
| Total from investment operations | $1.64 | $5.87 | $6.17 | $(2.64) | $5.93 | $0.89 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.24) | $(0.42) | $(0.25) | $(0.34) | $(0.26) |
| From net realized gain | — | (0.63) | (0.88) | (0.31) | (0.02) | (0.53) |
| Total distributions declared to shareholders | $— | $(0.87) | $(1.30) | $(0.56) | $(0.36) | $(0.79) |
| Net asset value, end of period (x) | $36.11 | $34.47 | $29.47 | $24.60 | $27.80 | $22.23 |
| Total return (%) (k)(r)(s)(x) | 4.76(n) | 20.21 | 25.65 | (9.72) | 26.82 | 3.84(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.15(a) | 1.17 | 1.17 | 1.15 | 1.16 | 1.16(c) |
| Expenses after expense reductions (f) | 1.14(a) | 1.15 | 1.15 | 1.14 | 1.15 | 1.14(c) |
| Net investment income (loss) | 0.87(a) | 0.34 | 0.72 | 0.97 | 0.89 | 1.17(c) |
| Portfolio turnover | 6(n) | 10 | 13 | 16 | 10 | 17 |
| Net assets at end of period (000 omitted) | $1,263,696 | $1,177,140 | $1,048,117 | $858,278 | $1,728,247 | $1,273,735 |
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
11
MFS International Intrinsic
Value Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS International Intrinsic Value Portfolio (the fund) is a
diversified 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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing
service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be 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. In determining values, 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
12
MFS International
Intrinsic Value Portfolio
Notes to Financial Statements (unaudited) - continued
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 halt 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 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 include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative
instruments, such as forward foreign currency exchange contracts. The following is a summary of the levels used as of June 30, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $1,560,884,290 | $— | $— | $1,560,884,290 |
| Mutual Funds | 37,647,306 | — | — | 37,647,306 |
| Total | $1,598,531,596 | $— | $— | $1,598,531,596 |
| Other Financial Instruments | ||||
| Forward Foreign Currency Exchange Contracts – Assets | $— | $2,744,688 | $— | $2,744,688 |
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 primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, 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 during the
period were forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the
derivative counterparty, or novating the position to a third party. 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.
13
MFS International Intrinsic
Value Portfolio
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, 2021 as reported in the Statement of Assets and Liabilities:
| Fair Value | |||
| Risk | Derivative Contracts | Asset Derivatives | |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | $2,744,688 |
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, 2021 as reported in the Statement of Operations:
| Risk | Forward
Foreign Currency Exchange Contracts |
| Foreign Exchange | $243,222 |
The following table presents, by
major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the six months ended June 30, 2021 as reported in the Statement of Operations:
| Risk | Forward
Foreign Currency Exchange Contracts |
| Foreign Exchange | $3,972,368 |
Derivative counterparty credit
risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering
into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the
other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement 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.
Collateral and margin requirements differ by type of
derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the
fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form
of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are
netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or
margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as
collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in
“Miscellaneous” expense in the Statement of Operations.
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 forward foreign currency exchange contracts.
14
MFS International
Intrinsic Value Portfolio
Notes to Financial Statements (unaudited) - continued
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, a multicurrency cash settlement system for the centralized settlement of foreign transactions. 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, where applicable, 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.
Security Loans —
Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans
can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. 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. On loans collateralized by cash, the cash collateral is invested in a money market fund.
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. The lending agent provides the fund with indemnification against
Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the
loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the
extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as
equity securities in the fund’s Portfolio of Investments, with a fair value of $777,388. The fair value of the fund’s investment securities on loan is presented gross in the Statement of Assets and Liabilities. These loans were
collateralized by U.S. Treasury Obligations of $823,383 held by the lending agent. The collateral on securities loaned exceeded the value of securities on loan at period end. 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 separately reported in 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 payments received in additional securities are recorded on the ex-dividend 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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
15
MFS International Intrinsic
Value Portfolio
Notes to Financial Statements (unaudited) - continued
Book/tax differences primarily relate to wash sale loss
deferrals and derivative transactions.
The tax
character of distributions declared to shareholders for the last fiscal year is as follows:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $12,548,204 |
| Long-term capital gains | 25,588,426 |
| Total distributions | $38,136,630 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
| As of 6/30/21 | |
| Cost of investments | $999,714,455 |
| Gross appreciation | 617,048,786 |
| Gross depreciation | (18,231,645) |
| Net unrealized appreciation (depreciation) | $598,817,141 |
| As of 12/31/20 | |
| Undistributed ordinary income | 3,610,364 |
| Undistributed long-term capital gain | 42,184,350 |
| Other temporary differences | 270,681 |
| Net unrealized appreciation (depreciation) | 569,364,962 |
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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $8,702,058 | |
| Service Class | — | 29,434,572 | |
| Total | $— | $38,136,630 |
(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 based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2 billion | 0.80% |
| In excess of $2 billion | 0.70% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $91,176, which
is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.85% 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, excluding 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 modified by the fund’s Board of Trustees, but such agreement will continue at
least until April 30, 2023. For the six months ended June 30, 2021, 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.
16
MFS International
Intrinsic Value Portfolio
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, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2021, the fee was $21,354, which equated to 0.0028% annually
of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $855.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate of 0.0135% of the fund's average daily
net assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation
directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD,
and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, aggregated $123,258,016 and $85,509,785, 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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 884,257 | $30,974,633 | 1,545,411 | $46,930,881 | |
| Service Class | 2,949,632 | 101,573,912 | 4,685,053 | 136,442,604 | |
| 3,833,889 | $132,548,545 | 6,230,464 | $183,373,485 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 262,777 | $8,408,861 | |
| Service Class | — | — | 934,431 | 29,434,572 | |
| — | $— | 1,197,208 | $37,843,433 | ||
| Shares reacquired | |||||
| Initial Class | (1,037,451) | $(36,518,032) | (2,732,208) | $(81,847,531) | |
| Service Class | (2,099,109) | (73,219,505) | (7,040,629) | (206,071,179) | |
| (3,136,560) | $(109,737,537) | (9,772,837) | $(287,918,710) | ||
17
MFS International Intrinsic
Value Portfolio
Notes to Financial Statements (unaudited) - continued
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Net change | |||||
| Initial Class | (153,194) | $(5,543,399) | (924,020) | $(26,507,789) | |
| Service Class | 850,523 | 28,354,407 | (1,421,145) | (40,194,003) | |
| 697,329 | $22,811,008 | (2,345,165) | $(66,701,792) | ||
The fund is one of several
mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Growth Allocation
Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 3%, 1%, and 1%, respectively, of the value of outstanding voting shares of the fund.
Effective at the close of business on October 16, 2017, the
fund is closed to new investors subject to certain exceptions. Please see the fund’s prospectus for details.
(6) Line of Credit
The fund and certain other funds managed by MFS participate
in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $2,814 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $42,517,675 | $80,037,983 | $84,908,352 | $1 | $(1) | $37,647,306 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $10,217 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
18
MFS International
Intrinsic Value Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
19
MFS International Intrinsic
Value Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
20
Semiannual Report
June 30, 2021
MFS® Massachusetts Investors
Growth Stock Portfolio
Growth Stock Portfolio
MFS® Variable Insurance Trust II
MIS-SEM
MFS Massachusetts Investors
Growth Stock Portfolio
Portfolio Composition
GICS equity sectors (g)
| Information Technology | 34.4% |
| Health Care | 15.7% |
| Communication Services | 12.7% |
| Consumer Discretionary | 11.8% |
| Financials | 8.0% |
| Consumer Staples | 7.0% |
| Industrials | 6.1% |
| Real Estate | 2.0% |
| Materials | 1.4% |
| Utilities | 0.6% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
Cash & Cash Equivalents includes any cash, investments in
money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of June 30, 2021.
The portfolio is actively managed and current holdings may be
different.
2
MFS Massachusetts
Investors Growth Stock Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.77% | $1,000.00 | $1,124.10 | $4.06 |
| Hypothetical (h) | 0.77% | $1,000.00 | $1,020.98 | $3.86 | |
| Service Class | Actual | 1.02% | $1,000.00 | $1,122.82 | $5.37 |
| Hypothetical (h) | 1.02% | $1,000.00 | $1,019.74 | $5.11 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3
MFS Massachusetts Investors
Growth Stock Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS Massachusetts
Investors Growth Stock Portfolio
Portfolio of Investments (unaudited) – continued
| (a) | Non-income producing security. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $3,861,009 and $1,125,163,536, respectively. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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 Depositary Receipt |
| REIT | Real Estate Investment Trust |
See Notes
to Financial Statements
5
MFS Massachusetts Investors
Growth Stock 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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $520,082,950) | $1,125,163,536 |
| Investments in affiliated issuers, at value (identified cost, $3,861,009) | 3,861,009 |
| Receivables for | |
| Fund shares sold | 481,814 |
| Dividends | 568,904 |
| Other assets | 3,870 |
| Total assets | $1,130,079,133 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $1,512,731 |
| Payable to affiliates | |
| Investment adviser | 44,965 |
| Administrative services fee | 866 |
| Shareholder servicing costs | 192 |
| Distribution and/or service fees | 6,192 |
| Accrued expenses and other liabilities | 123,818 |
| Total liabilities | $1,688,764 |
| Net assets | $1,128,390,369 |
| Net assets consist of | |
| Paid-in capital | $314,963,454 |
| Total distributable earnings (loss) | 813,426,915 |
| Net assets | $1,128,390,369 |
| Shares of beneficial interest outstanding | 40,332,419 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $677,640,084 | 24,059,091 | $28.17 |
| Service Class | 450,750,285 | 16,273,328 | 27.70 |
See Notes to Financial Statements
6
MFS Massachusetts
Investors Growth Stock 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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $5,561,369 |
| Other | 15,279 |
| Dividends from affiliated issuers | 1,675 |
| Foreign taxes withheld | (75,930) |
| Total investment income | $5,502,393 |
| Expenses | |
| Management fee | $4,008,468 |
| Distribution and/or service fees | 539,309 |
| Shareholder servicing costs | 18,301 |
| Administrative services fee | 74,625 |
| Independent Trustees' compensation | 8,009 |
| Custodian fee | 27,125 |
| Shareholder communications | 27,759 |
| Audit and tax fees | 29,223 |
| Legal fees | 3,720 |
| Miscellaneous | 16,657 |
| Total expenses | $4,753,196 |
| Reduction of expenses by investment adviser | (64,683) |
| Net expenses | $4,688,513 |
| Net investment income (loss) | $813,880 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $60,778,313 |
| Foreign currency | 10,439 |
| Net realized gain (loss) | $60,788,752 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $65,808,036 |
| Affiliated issuers | (1) |
| Translation of assets and liabilities in foreign currencies | (5,425) |
| Net unrealized gain (loss) | $65,802,610 |
| Net realized and unrealized gain (loss) | $126,591,362 |
| Change in net assets from operations | $127,405,242 |
See Notes to Financial Statements
7
MFS Massachusetts Investors
Growth Stock 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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $813,880 | $1,639,300 |
| Net realized gain (loss) | 60,788,752 | 146,310,591 |
| Net unrealized gain (loss) | 65,802,610 | 52,925,899 |
| Change in net assets from operations | $127,405,242 | $200,875,790 |
| Total distributions to shareholders | $— | $(96,440,810) |
| Change in net assets from fund share transactions | $(68,570,648) | $(40,476,255) |
| Total change in net assets | $58,834,594 | $63,958,725 |
| Net assets | ||
| At beginning of period | 1,069,555,775 | 1,005,597,050 |
| At end of period | $1,128,390,369 | $1,069,555,775 |
See Notes to Financial Statements
8
MFS Massachusetts
Investors Growth Stock 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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $25.06 | $22.58 | $17.60 | $18.60 | $15.38 | $16.38 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.03 | $0.06 | $0.11 | $0.13 | $0.11 | $0.11(c) |
| Net realized and unrealized gain (loss) | 3.08 | 4.80 | 6.71 | 0.16 | 4.16 | 0.95 |
| Total from investment operations | $3.11 | $4.86 | $6.82 | $0.29 | $4.27 | $1.06 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.11) | $(0.13) | $(0.12) | $(0.12) | $(0.10) |
| From net realized gain | — | (2.27) | (1.71) | (1.17) | (0.93) | (1.96) |
| Total distributions declared to shareholders | $— | $(2.38) | $(1.84) | $(1.29) | $(1.05) | $(2.06) |
| Net asset value, end of period (x) | $28.17 | $25.06 | $22.58 | $17.60 | $18.60 | $15.38 |
| Total return (%) (k)(r)(s)(x) | 12.41(n) | 22.53 | 39.95 | 0.81 | 28.42 | 6.08(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.78(a) | 0.79 | 0.79 | 0.80 | 0.81 | 0.78(c) |
| Expenses after expense reductions (f) | 0.77(a) | 0.78 | 0.78 | 0.79 | 0.80 | 0.77(c) |
| Net investment income (loss) | 0.25(a) | 0.27 | 0.51 | 0.65 | 0.66 | 0.70(c) |
| Portfolio turnover | 9(n) | 33 | 22 | 23 | 21 | 24 |
| Net assets at end of period (000 omitted) | $677,640 | $641,267 | $603,369 | $493,783 | $562,471 | $500,924 |
See Notes to Financial Statements
9
MFS Massachusetts Investors
Growth Stock Portfolio
Financial Highlights - continued
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $24.67 | $22.27 | $17.38 | $18.38 | $15.21 | $16.22 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.00(w) | $0.00(w) | $0.05 | $0.08 | $0.07 | $0.07(c) |
| Net realized and unrealized gain (loss) | 3.03 | 4.72 | 6.62 | 0.16 | 4.10 | 0.94 |
| Total from investment operations | $3.03 | $4.72 | $6.67 | $0.24 | $4.17 | $1.01 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.05) | $(0.07) | $(0.07) | $(0.07) | $(0.06) |
| From net realized gain | — | (2.27) | (1.71) | (1.17) | (0.93) | (1.96) |
| Total distributions declared to shareholders | $— | $(2.32) | $(1.78) | $(1.24) | $(1.00) | $(2.02) |
| Net asset value, end of period (x) | $27.70 | $24.67 | $22.27 | $17.38 | $18.38 | $15.21 |
| Total return (%) (k)(r)(s)(x) | 12.28(n) | 22.20 | 39.58 | 0.58 | 28.10 | 5.84(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.03(a) | 1.04 | 1.04 | 1.05 | 1.06 | 1.03(c) |
| Expenses after expense reductions (f) | 1.02(a) | 1.03 | 1.03 | 1.04 | 1.05 | 1.02(c) |
| Net investment income (loss) | 0.00(a) | 0.02 | 0.26 | 0.40 | 0.41 | 0.45(c) |
| Portfolio turnover | 9(n) | 33 | 22 | 23 | 21 | 24 |
| Net assets at end of period (000 omitted) | $450,750 | $428,289 | $402,228 | $319,950 | $369,950 | $328,673 |
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
10
MFS Massachusetts
Investors Growth Stock Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Massachusetts Investors Growth Stock Portfolio (the
fund) is a diversified 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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing
service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are
generally valued at 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. In determining values, 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
11
MFS Massachusetts Investors
Growth Stock Portfolio
Notes to Financial Statements (unaudited) - continued
traded (such as
foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt 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 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 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, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $1,125,163,536 | $— | $— | $1,125,163,536 |
| Mutual Funds | 3,861,009 | — | — | 3,861,009 |
| Total | $1,129,024,545 | $— | $— | $1,129,024,545 |
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.
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 payments received in additional securities are recorded on the ex-dividend 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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any,
12
MFS Massachusetts
Investors Growth Stock Portfolio
Notes to Financial Statements (unaudited) - continued
have been accrued
by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on
securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
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:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $9,714,474 |
| Long-term capital gains | 86,726,336 |
| Total distributions | $96,440,810 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
| As of 6/30/21 | |
| Cost of investments | $524,153,209 |
| Gross appreciation | 606,240,789 |
| Gross depreciation | (1,369,453) |
| Net unrealized appreciation (depreciation) | $604,871,336 |
| As of 12/31/20 | |
| Undistributed ordinary income | 6,111,511 |
| Undistributed long-term capital gain | 142,415,273 |
| Other temporary differences | 11,442 |
| Net unrealized appreciation (depreciation) | 537,483,447 |
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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $58,026,955 | |
| Service Class | — | 38,413,855 | |
| Total | $— | $96,440,810 |
(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 based on the fund's average daily net assets:
| Up to $1 billion | 0.75% |
| In excess of $1 billion | 0.65% |
13
MFS Massachusetts Investors
Growth Stock Portfolio
Notes to Financial Statements (unaudited) - continued
MFS
has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction
amounted to $64,683, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.73% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not
exceed 0.82% of average daily net assets for the Initial Class shares and 1.07% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement
will continue at least until April 30, 2023. For the six months ended June 30, 2021, 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, 2021, the fee was $17,589, which
equated to 0.0033% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to
$712.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate
of 0.0138% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to
Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and
MFSC.
Other
— The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
The adviser has voluntarily undertaken to reimburse the
fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the six months ended June 30, 2021, this reimbursement
amounted to $15,151, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, aggregated $97,215,937 and $159,627,312, 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:
14
MFS Massachusetts
Investors Growth Stock Portfolio
Notes to Financial Statements (unaudited) - continued
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 137,383 | $3,673,721 | 536,906 | $11,499,519 | |
| Service Class | 341,767 | 8,847,461 | 1,322,375 | 28,371,478 | |
| 479,150 | $12,521,182 | 1,859,281 | $39,870,997 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 2,538,362 | $58,026,955 | |
| Service Class | — | — | 1,705,766 | 38,413,855 | |
| — | $— | 4,244,128 | $96,440,810 | ||
| Shares reacquired | |||||
| Initial Class | (1,672,176) | $(44,165,786) | (4,205,948) | $(94,166,872) | |
| Service Class | (1,428,672) | (36,926,044) | (3,730,825) | (82,621,190) | |
| (3,100,848) | $(81,091,830) | (7,936,773) | $(176,788,062) | ||
| Net change | |||||
| Initial Class | (1,534,793) | $(40,492,065) | (1,130,680) | $(24,640,398) | |
| Service Class | (1,086,905) | (28,078,583) | (702,684) | (15,835,857) | |
| (2,621,698) | $(68,570,648) | (1,833,364) | $(40,476,255) | ||
(6) Line of
Credit
The fund and certain other funds managed by
MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $2,015 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $8,618,176 | $78,577,642 | $83,334,808 | $— | $(1) | $3,861,009 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $1,675 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple
15
MFS Massachusetts Investors
Growth Stock Portfolio
Notes to Financial Statements (unaudited) - continued
surges in cases
globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and
liquidity of the fund's investments and the fund's performance.
16
MFS Massachusetts
Investors Growth Stock Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
17
MFS Massachusetts Investors
Growth Stock Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
18
Semiannual Report
June 30, 2021
MFS® Research
International Portfolio
International Portfolio
MFS® Variable Insurance Trust II
RSS-SEM
MFS Research International
Portfolio
Portfolio Composition
| (k) | The sectors set forth above and the associated portfolio composition are based on MFS’ own custom sector classification methodology. |
| (o) | Less than 0.1%. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash,
investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and
liabilities.
Other includes equivalent
exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of June 30,
2021.
The portfolio is actively managed and
current holdings may be different.
2
MFS Research International
Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.95% | $1,000.00 | $1,075.52 | $4.89 |
| Hypothetical (h) | 0.95% | $1,000.00 | $1,020.08 | $4.76 | |
| Service Class | Actual | 1.21% | $1,000.00 | $1,074.30 | $6.22 |
| Hypothetical (h) | 1.21% | $1,000.00 | $1,018.79 | $6.06 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3
MFS Research International
Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS Research International
Portfolio
Portfolio of
Investments (unaudited) – continued
| (a) | Non-income producing security. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $1,745,256 and $511,689,857, respectively. | |||
| (j) | The rate quoted is the annualized seven-day yield of the fund at period end. | |||
| (l) | A portion of this security is on loan. See Note 2 for additional information. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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 Depositary Receipt |
| 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: | |
| CHF | Swiss Franc |
See Notes to Financial
Statements
6
MFS Research International
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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value, including $4,269,526 of securities on loan (identified cost, $387,668,088) | $511,689,857 |
| Investments in affiliated issuers, at value (identified cost, $1,745,256) | 1,745,256 |
| Foreign currency, at value (identified cost, $233,527) | 232,140 |
| Receivables for | |
| Investments sold | 653,664 |
| Fund shares sold | 23,506 |
| Interest and dividends | 1,899,127 |
| Other assets | 2,140 |
| Total assets | $516,245,690 |
| Liabilities | |
| Payables for | |
| Investments purchased | $19,023 |
| Fund shares reacquired | 262,737 |
| Collateral for securities loaned, at value (c) | 385,542 |
| Payable to affiliates | |
| Investment adviser | 25,268 |
| Administrative services fee | 431 |
| Shareholder servicing costs | 101 |
| Distribution and/or service fees | 1,810 |
| Deferred country tax expense payable | 167,608 |
| Accrued expenses and other liabilities | 120,256 |
| Total liabilities | $982,776 |
| Net assets | $515,262,914 |
| Net assets consist of | |
| Paid-in capital | $356,209,763 |
| Total distributable earnings (loss) | 159,053,151 |
| Net assets | $515,262,914 |
| Shares of beneficial interest outstanding | 26,501,767 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $384,302,812 | 19,692,704 | $19.51 |
| Service Class | 130,960,102 | 6,809,063 | 19.23 |
| (c) | Non-cash collateral is not included. |
See Notes to Financial
Statements
7
MFS Research International
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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $6,944,821 |
| Income on securities loaned | 5,577 |
| Dividends from affiliated issuers | 1,047 |
| Foreign taxes withheld | (687,791) |
| Total investment income | $6,263,654 |
| Expenses | |
| Management fee | $2,260,666 |
| Distribution and/or service fees | 155,882 |
| Shareholder servicing costs | 9,838 |
| Administrative services fee | 37,682 |
| Independent Trustees' compensation | 4,164 |
| Custodian fee | 52,592 |
| Shareholder communications | 14,824 |
| Audit and tax fees | 29,842 |
| Legal fees | 1,592 |
| Miscellaneous | 13,931 |
| Total expenses | $2,581,013 |
| Reduction of expenses by investment adviser | (30,105) |
| Net expenses | $2,550,908 |
| Net investment income (loss) | $3,712,746 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $9,917 country tax) | $3,196,084 |
| Foreign currency | 8,075 |
| Net realized gain (loss) | $3,204,159 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $3,694 increase in deferred country tax) | $30,155,206 |
| Translation of assets and liabilities in foreign currencies | (50,032) |
| Net unrealized gain (loss) | $30,105,174 |
| Net realized and unrealized gain (loss) | $33,309,333 |
| Change in net assets from operations | $37,022,079 |
See Notes to Financial Statements
8
MFS Research International
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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $3,712,746 | $4,289,206 |
| Net realized gain (loss) | 3,204,159 | 24,915,531 |
| Net unrealized gain (loss) | 30,105,174 | 24,197,204 |
| Change in net assets from operations | $37,022,079 | $53,401,941 |
| Total distributions to shareholders | $— | $(22,406,392) |
| Change in net assets from fund share transactions | $(11,744,481) | $2,253,946 |
| Total change in net assets | $25,277,598 | $33,249,495 |
| Net assets | ||
| At beginning of period | 489,985,316 | 456,735,821 |
| At end of period | $515,262,914 | $489,985,316 |
See Notes to Financial Statements
9
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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $18.14 | $16.96 | $14.07 | $17.05 | $13.54 | $13.85 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.14 | $0.17 | $0.31 | $0.25 | $0.22 | $0.25(c) |
| Net realized and unrealized gain (loss) | 1.23 | 1.92 | 3.51 | (2.56) | 3.59 | (0.34) |
| Total from investment operations | $1.37 | $2.09 | $3.82 | $(2.31) | $3.81 | $(0.09) |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.34) | $(0.24) | $(0.25) | $(0.30) | $(0.22) |
| From net realized gain | — | (0.57) | (0.69) | (0.42) | — | — |
| Total distributions declared to shareholders | $— | $(0.91) | $(0.93) | $(0.67) | $(0.30) | $(0.22) |
| Net asset value, end of period (x) | $19.51 | $18.14 | $16.96 | $14.07 | $17.05 | $13.54 |
| Total return (%) (k)(r)(s)(x) | 7.55(n) | 12.95 | 28.04 | (14.12) | 28.29 | (0.70)(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.96(a) | 0.98 | 0.99 | 0.98 | 1.00 | 0.95(c) |
| Expenses after expense reductions (f) | 0.95(a) | 0.96 | 0.96 | 0.97 | 0.99 | 0.94(c) |
| Net investment income (loss) | 1.54(a) | 1.06 | 1.99 | 1.51 | 1.44 | 1.87(c) |
| Portfolio turnover | 14(n) | 28 | 24 | 25 | 27 | 41 |
| Net assets at end of period (000 omitted) | $384,303 | $369,243 | $356,291 | $302,386 | $341,613 | $318,753 |
See Notes to Financial Statements
10
MFS Research International
Portfolio
Financial Highlights - continued
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $17.90 | $16.74 | $13.90 | $16.84 | $13.38 | $13.68 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.12 | $0.14 | $0.26 | $0.21 | $0.19 | $0.21(c) |
| Net realized and unrealized gain (loss) | 1.21 | 1.89 | 3.47 | (2.53) | 3.52 | (0.33) |
| Total from investment operations | $1.33 | $2.03 | $3.73 | $(2.32) | $3.71 | $(0.12) |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.30) | $(0.20) | $(0.20) | $(0.25) | $(0.18) |
| From net realized gain | — | (0.57) | (0.69) | (0.42) | — | — |
| Total distributions declared to shareholders | $— | $(0.87) | $(0.89) | $(0.62) | $(0.25) | $(0.18) |
| Net asset value, end of period (x) | $19.23 | $17.90 | $16.74 | $13.90 | $16.84 | $13.38 |
| Total return (%) (k)(r)(s)(x) | 7.43(n) | 12.71 | 27.67 | (14.32) | 27.90 | (0.91)(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.22(a) | 1.23 | 1.24 | 1.23 | 1.25 | 1.20(c) |
| Expenses after expense reductions (f) | 1.21(a) | 1.21 | 1.21 | 1.22 | 1.24 | 1.19(c) |
| Net investment income (loss) | 1.30(a) | 0.87 | 1.65 | 1.27 | 1.26 | 1.58(c) |
| Portfolio turnover | 14(n) | 28 | 24 | 25 | 27 | 41 |
| Net assets at end of period (000 omitted) | $130,960 | $120,742 | $100,445 | $66,789 | $80,634 | $83,138 |
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
11
MFS Research International
Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Research International Portfolio (the fund) is a
diversified 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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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 market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing
service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are
generally valued at 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. In determining values, 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
12
MFS Research International
Portfolio
Notes to Financial Statements (unaudited) - continued
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 halt 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 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 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, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $511,304,315 | $— | $— | $511,304,315 |
| Mutual Funds | 2,130,798 | — | — | 2,130,798 |
| Total | $513,435,113 | $— | $— | $513,435,113 |
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 —
Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans
can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. 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. On loans collateralized by cash, the cash collateral is invested in a money market fund.
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. The lending agent provides the fund with indemnification against
Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the
loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the
extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as
equity securities in the fund's Portfolio of Investments, with a fair value of $4,269,526. The fair value of the fund's investment securities on loan and a related liability of $385,542 for cash collateral received on securities loaned are both
presented gross in the Statement of Assets and Liabilities. Additionally, these loans were collateralized by U.S. Treasury Obligations of $4,137,063 held by the lending agent. The collateral on securities loaned exceeded the value of securities on
loan at period end. The
13
MFS Research International
Portfolio
Notes to Financial Statements (unaudited) - continued
liability for cash
collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. 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 separately reported in 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 payments received in additional securities are recorded on the ex-dividend 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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
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:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $8,553,340 |
| Long-term capital gains | 13,853,052 |
| Total distributions | $22,406,392 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
14
MFS Research International
Portfolio
Notes to Financial Statements (unaudited) - continued
| As of 6/30/21 | |
| Cost of investments | $390,192,187 |
| Gross appreciation | 138,846,879 |
| Gross depreciation | (15,603,953) |
| Net unrealized appreciation (depreciation) | $123,242,926 |
| As of 12/31/20 | |
| Undistributed ordinary income | 6,014,636 |
| Undistributed long-term capital gain | 22,895,404 |
| Other temporary differences | 37,006 |
| Net unrealized appreciation (depreciation) | 93,084,026 |
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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $18,500,918 | |
| Service Class | — | 3,905,474 | |
| Total | $— | $22,406,392 |
(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 based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2 billion | 0.80% |
| In excess of $2 billion | 0.70% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $30,105, which
is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.89% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.96% of
average daily net assets for the Initial Class shares and 1.21% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at
least until April 30, 2023. For the six months ended June 30, 2021, 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.
15
MFS Research International
Portfolio
Notes to Financial Statements (unaudited) - continued
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, 2021, the fee was $9,271, which equated to 0.0037% annually of
the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $567.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate of 0.0150% of the fund's average daily
net assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation
directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD,
and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale
transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by
the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the six months ended June 30, 2021, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $1,143,393 and $6,243, respectively.
The sales transactions resulted in net realized gains (losses) of $(1,699).
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, aggregated $97,594,111 and $71,008,463, 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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 1,087,353 | $20,235,986 | 1,877,609 | $27,251,600 | |
| Service Class | 531,947 | 9,927,907 | 3,047,104 | 51,507,599 | |
| 1,619,300 | $30,163,893 | 4,924,713 | $78,759,199 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 1,129,482 | $18,500,918 | |
| Service Class | — | — | 241,377 | 3,905,474 | |
| — | $— | 1,370,859 | $22,406,392 | ||
| Shares reacquired | |||||
| Initial Class | (1,751,622) | $(33,173,414) | (3,661,504) | $(57,937,592) | |
| Service Class | (468,851) | (8,734,960) | (2,541,987) | (40,974,053) | |
| (2,220,473) | $(41,908,374) | (6,203,491) | $(98,911,645) | ||
| Net change | |||||
| Initial Class | (664,269) | $(12,937,428) | (654,413) | $(12,185,074) | |
| Service Class | 63,096 | 1,192,947 | 746,494 | 14,439,020 | |
| (601,173) | $(11,744,481) | 92,081 | $2,253,946 | ||
16
MFS Research International
Portfolio
Notes to Financial Statements (unaudited) - continued
The
fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the
MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 19%, 6%, and 3%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate
in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $838 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $3,433,184 | $83,617,594 | $85,305,522 | $— | $— | $1,745,256 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $1,047 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
17
MFS Research International
Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
18
MFS Research International
Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
19
Semiannual Report
June 30, 2021
MFS® Income Portfolio
MFS® Variable Insurance Trust II
SIS-SEM
MFS Income Portfolio
Portfolio Composition
| (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. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 ratings agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. 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 and fixed income derivatives that have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives) and/or commodity-linked derivatives. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (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. |
2
MFS Income Portfolio
Portfolio
Composition - continued
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. 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 value. The bond component will include any accrued interest amounts. |
| (m) | In determining each 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%. |
| (v) | For purposes of this presentation, market value of fixed income and/or equity derivatives, if any, is included in Cash & Cash Equivalents. |
Where the fund holds convertible bonds, they are treated as
part of the equity portion of the portfolio.
The fund
invests a portion of its assets in the MFS High Yield Pooled Portfolio. Percentages include the indirect exposure to the underlying holdings, including investments in money market funds and Other, of the MFS High Yield Pooled Portfolio and not the
direct exposure from investing in the MFS High Yield Pooled Portfolio itself.
Cash & Cash Equivalents includes any direct exposure to
cash, direct and indirect exposure to investments in money market funds, cash equivalents, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the
fund’s direct cash position and other assets and liabilities.
Other includes the direct and indirect equivalent exposure from
currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of June 30, 2021.
The portfolio is actively managed and current holdings may be
different.
3
MFS Income Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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.
In addition to the fees and expenses which the fund bears
directly, the fund indirectly bears a pro rata share of the fees and expenses of the MFS High Yield Pooled Portfolio, an underlying MFS Pooled Portfolio in which the fund invests. MFS Pooled Portfolios are mutual funds advised by MFS that do not pay
management fees to MFS but do incur investment and operating costs. If these transactional and indirect costs were included, your costs would have been higher.
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.75% | $1,000.00 | $1,001.90 | $3.72 |
| Hypothetical (h) | 0.75% | $1,000.00 | $1,021.08 | $3.76 | |
| Service Class | Actual | 1.00% | $1,000.00 | $1,000.00 | $4.96 |
| Hypothetical (h) | 1.00% | $1,000.00 | $1,019.84 | $5.01 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
4
MFS Income Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
5
MFS Income Portfolio
Portfolio of
Investments (unaudited) – continued
| (a) | Non-income producing security. | |||
| (d) | In default. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $7,692,544 and $36,550,747, respectively. | |||
| (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 $13,456,941, representing 30.7% of net assets. | |||
| (p) | Payment-in-kind (PIK) security for which interest income may be received in additional securities and/or cash. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| The following abbreviations are used in this report and are defined: | |
| AAC | Ambac Assurance Corp. |
| AGM | Assured Guaranty Municipal |
| CDO | Collateralized Debt Obligation |
| CLO | Collateralized Loan Obligation |
| CMT | Constant Maturity Treasury |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| LIBOR | London Interbank Offered Rate |
| NPFG | National Public Finance Guarantee Corp. |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| 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: | |
| CLP | Chilean Peso |
| EUR | Euro |
| IDR | Indonesian Rupiah |
9
MFS Income Portfolio
Portfolio of
Investments (unaudited) – continued
| INR | Indian Rupee |
| MYR | Malaysian Ringgit |
| UYU | Uruguayan Peso |
| ZAR | South African Rand |
| Derivative Contracts at 6/30/21 | ||||||
| Forward Foreign Currency Exchange Contracts | ||||||
| Currency
Purchased |
Currency
Sold |
Counterparty | Settlement
Date |
Unrealized
Appreciation (Depreciation) | ||
| Asset Derivatives | ||||||
| IDR | 37,483,691 | USD | 2,556 | Barclays Bank PLC | 9/22/2021 | $ 13 |
| USD | 444,592 | EUR | 370,272 | JPMorgan Chase Bank N.A. | 7/16/2021 | 5,412 |
| $ 5,425 | ||||||
| Liability Derivatives | ||||||
| INR | 8,247,000 | USD | 112,280 | JPMorgan Chase Bank N.A. | 7/26/2021 | $(1,604) |
| MYR | 473,000 | USD | 114,570 | Barclays Bank PLC | 9/13/2021 | (972) |
| USD | 109,892 | ZAR | 1,608,571 | HSBC Bank | 7/16/2021 | (2,558) |
| $(5,134) | ||||||
| Futures Contracts | ||||||
| Description | Long/
Short |
Currency | Contracts | Notional
Amount |
Expiration
Date |
Value/Unrealized
Appreciation (Depreciation) |
| Asset Derivatives | ||||||
| Interest Rate Futures | ||||||
| U.S. Treasury Ultra Bond | Long | USD | 15 | $2,890,313 | September – 2021 | $111,506 |
| Liability Derivatives | ||||||
| Interest Rate Futures | ||||||
| U.S. Treasury Note 2 yr | Long | USD | 18 | $3,965,765 | September – 2021 | $(7,045) |
| U.S. Treasury Ultra Note 10 yr | Short | USD | 10 | 1,472,031 | September – 2021 | (19,851) |
| $(26,896) | ||||||
At June 30, 2021, the fund had cash
collateral of $87,680 to cover any collateral or margin obligations for certain derivative contracts. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised of cash collateral.
See Notes to Financial Statements
10
MFS 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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $35,753,058) | $36,550,747 |
| Investments in affiliated issuers, at value (identified cost, $7,877,697) | 7,692,544 |
| Deposits with brokers for | |
| Futures contracts | 87,680 |
| Receivables for | |
| Forward foreign currency exchange contracts | 5,425 |
| Net daily variation margin on open futures contracts | 12,496 |
| Investments sold | 82,273 |
| Fund shares sold | 5,774 |
| Interest | 207,656 |
| Receivable from investment adviser | 3,910 |
| Other assets | 447 |
| Total assets | $44,648,952 |
| Liabilities | |
| Payables for | |
| Forward foreign currency exchange contracts | $5,134 |
| Investments purchased | 282,302 |
| Fund shares reacquired | 438,795 |
| Payable to affiliates | |
| Administrative services fee | 96 |
| Shareholder servicing costs | 56 |
| Distribution and/or service fees | 80 |
| Accrued expenses and other liabilities | 66,558 |
| Total liabilities | $793,021 |
| Net assets | $43,855,931 |
| Net assets consist of | |
| Paid-in capital | $40,185,093 |
| Total distributable earnings (loss) | 3,670,838 |
| Net assets | $43,855,931 |
| Shares of beneficial interest outstanding | 4,170,482 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $38,001,591 | 3,609,219 | $10.53 |
| Service Class | 5,854,340 | 561,263 | 10.43 |
See Notes to Financial Statements
11
MFS 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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Interest | $513,020 |
| Dividends from affiliated issuers | 185,443 |
| Other | 415 |
| Income on securities loaned | 23 |
| Foreign taxes withheld | (117) |
| Total investment income | $698,784 |
| Expenses | |
| Management fee | $110,901 |
| Distribution and/or service fees | 7,179 |
| Shareholder servicing costs | 5,575 |
| Administrative services fee | 8,679 |
| Independent Trustees' compensation | 1,509 |
| Custodian fee | 5,154 |
| Shareholder communications | 5,585 |
| Audit and tax fees | 40,716 |
| Legal fees | 165 |
| Miscellaneous | 17,034 |
| Total expenses | $202,497 |
| Reduction of expenses by investment adviser | (28,206) |
| Net expenses | $174,291 |
| Net investment income (loss) | $524,493 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $420,007 |
| Affiliated issuers | (297,939) |
| Futures contracts | (206,347) |
| Forward foreign currency exchange contracts | (31,266) |
| Foreign currency | 568 |
| Net realized gain (loss) | $(114,977) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(770,157) |
| Affiliated issuers | 291,258 |
| Futures contracts | 80,647 |
| Forward foreign currency exchange contracts | 35,019 |
| Translation of assets and liabilities in foreign currencies | (9,199) |
| Net unrealized gain (loss) | $(372,432) |
| Net realized and unrealized gain (loss) | $(487,409) |
| Change in net assets from operations | $37,084 |
See Notes to Financial Statements
12
MFS 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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $524,493 | $1,246,108 |
| Net realized gain (loss) | (114,977) | 1,844,524 |
| Net unrealized gain (loss) | (372,432) | 832,785 |
| Change in net assets from operations | $37,084 | $3,923,417 |
| Total distributions to shareholders | $— | $(1,603,085) |
| Change in net assets from fund share transactions | $(3,444,573) | $(97,382) |
| Total change in net assets | $(3,407,489) | $2,222,950 |
| Net assets | ||
| At beginning of period | 47,263,420 | 45,040,470 |
| At end of period | $43,855,931 | $47,263,420 |
See Notes to Financial Statements
13
MFS Income 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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $10.51 | $9.98 | $9.26 | $9.84 | $9.71 | $9.25 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.12 | $0.29 | $0.33 | $0.33 | $0.34 | $0.40(c) |
| Net realized and unrealized gain (loss) | (0.10) | 0.63 | 0.74 | (0.52) | 0.26 | 0.37 |
| Total from investment operations | $0.02 | $0.92 | $1.07 | $(0.19) | $0.60 | $0.77 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.39) | $(0.35) | $(0.39) | $(0.47) | $(0.31) |
| Net asset value, end of period (x) | $10.53 | $10.51 | $9.98 | $9.26 | $9.84 | $9.71 |
| Total return (%) (k)(r)(s)(x) | 0.19(n) | 9.35 | 11.60 | (1.99) | 6.24 | 8.24(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f)(h) | 0.88(a) | 0.89 | 1.01 | 1.03 | 1.02 | 0.89(c) |
| Expenses after expense reductions (f)(h) | 0.75(a) | 0.75 | 0.78 | 0.80 | 0.80 | 0.71(c) |
| Net investment income (loss) | 2.40(a) | 2.83 | 3.32 | 3.42 | 3.39 | 4.09(c) |
| Portfolio turnover | 39(n) | 112 | 104 | 59 | 72 | 21 |
| Net assets at end of period (000 omitted) | $38,002 | $41,438 | $38,670 | $38,111 | $42,409 | $44,191 |
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $10.43 | $9.90 | $9.19 | $9.75 | $9.63 | $9.17 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.11 | $0.26 | $0.30 | $0.30 | $0.31 | $0.37(c) |
| Net realized and unrealized gain (loss) | (0.11) | 0.63 | 0.74 | (0.50) | 0.25 | 0.37 |
| Total from investment operations | $0.00(w) | $0.89 | $1.04 | $(0.20) | $0.56 | $0.74 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.36) | $(0.33) | $(0.36) | $(0.44) | $(0.28) |
| Net asset value, end of period (x) | $10.43 | $10.43 | $9.90 | $9.19 | $9.75 | $9.63 |
| Total return (%) (k)(r)(s)(x) | 0.00(n) | 9.11 | 11.29 | (2.11) | 5.88 | 8.00(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f)(h) | 1.13(a) | 1.14 | 1.26 | 1.28 | 1.27 | 1.14(c) |
| Expenses after expense reductions (f)(h) | 1.00(a) | 1.00 | 1.03 | 1.05 | 1.05 | 0.97(c) |
| Net investment income (loss) | 2.15(a) | 2.59 | 3.07 | 3.17 | 3.16 | 3.83(c) |
| Portfolio turnover | 39(n) | 112 | 104 | 59 | 72 | 21 |
| Net assets at end of period (000 omitted) | $5,854 | $5,825 | $6,371 | $6,614 | $7,287 | $8,776 |
See Notes to Financial Statements
14
MFS Income Portfolio
Financial
Highlights - continued
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (h) | In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying affiliated funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund. Because the underlying affiliated funds have varied expense and fee levels and the fund may own different proportions of the underlying affiliated funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
15
MFS Income Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Income Portfolio (the fund) is a diversified 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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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 the MFS High Yield Pooled Portfolio (“High Yield Pooled Portfolio”). MFS does not receive a management fee from the High Yield Pooled Portfolio. The High Yield Pooled Portfolio’s
investment objective is to seek total return with an emphasis on high current income, but also considering capital appreciation. The accounting policies of the High Yield Pooled Portfolio are outlined in its shareholder report, which is available
without charge by calling 1-800-225-2606 and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov. The accounting policies detailed in the Significant Accounting Policies note cover both the fund and the High Yield Pooled
Portfolio. For purposes of this policy disclosure, “fund” refers to both the fund and the High Yield Pooled Portfolio in which the fund invests. The High Yield Pooled Portfolio's shareholder report is not covered by this report. The fund
and the High Yield Pooled Portfolio invest in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their
values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. The fund and the High Yield Pooled
Portfolio invest in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market,
economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— The investments of the fund and the High Yield Pooled Portfolio are valued as described below.
Equity securities, including restricted equity securities,
are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last
quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or
16
MFS Income Portfolio
Notes to
Financial Statements (unaudited) - continued
composite bid as provided by a third-party pricing service. Short-term
instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as
provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put
options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. 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 on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no
trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. 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. In determining values, 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 halt 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 instruments, such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of June 30, 2021 in valuing the fund's assets or liabilities:
17
MFS Income Portfolio
Notes to
Financial Statements (unaudited) - continued
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $8,228,603 | $— | $8,228,603 |
| Non - U.S. Sovereign Debt | — | 2,451,681 | — | 2,451,681 |
| Municipal Bonds | — | 1,316,535 | — | 1,316,535 |
| U.S. Corporate Bonds | — | 7,951,651 | — | 7,951,651 |
| Residential Mortgage-Backed Securities | — | 336,050 | — | 336,050 |
| Commercial Mortgage-Backed Securities | — | 3,645,591 | — | 3,645,591 |
| Asset-Backed Securities (including CDOs) | — | 5,653,618 | — | 5,653,618 |
| Foreign Bonds | — | 6,967,018 | — | 6,967,018 |
| Mutual Funds | 7,692,544 | — | — | 7,692,544 |
| Total | $7,692,544 | $36,550,747 | $— | $44,243,291 |
| Other Financial Instruments | ||||
| Futures Contracts – Assets | $111,506 | $— | $— | $111,506 |
| Futures Contracts – Liabilities | (26,896) | — | — | (26,896) |
| Forward Foreign Currency Exchange Contracts – Assets | — | 5,425 | — | 5,425 |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (5,134) | — | (5,134) |
For further information
regarding security characteristics, see the Portfolio of Investments. Please refer to the High Yield Pooled Portfolio's shareholder report for further information regarding the levels used in valuing its assets or liabilities.
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 primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, 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 during the
period were futures contracts and forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an
agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily
limit set by the exchange. 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, 2021 as reported in the Statement of Assets and Liabilities:
| Fair Value (a) | |||
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Interest Rate Futures | $111,506 | $(26,896) |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | 5,425 | (5,134) |
| Total | $116,931 | $(32,030) | |
(a) Values presented in this table
for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is separately reported within the 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, 2021 as reported in the Statement of Operations:
18
MFS Income Portfolio
Notes to
Financial Statements (unaudited) - continued
| Risk | Futures
Contracts |
Forward
Foreign Currency Exchange Contracts |
| Interest Rate | $(206,347) | $— |
| Foreign Exchange | — | (31,266) |
| Total | $(206,347) | $(31,266) |
The following table presents, by
major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the six months ended June 30, 2021 as reported in the Statement of Operations:
| Risk | Futures
Contracts |
Forward
Foreign Currency Exchange Contracts |
| Interest Rate | $80,647 | $— |
| Foreign Exchange | — | 35,019 |
| Total | $80,647 | $35,019 |
Derivative counterparty credit
risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering
into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the
other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement 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.
Collateral and margin requirements differ by type of
derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the
fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form
of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are
netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or
margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as
collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in
“Miscellaneous” expense in the Statement of Operations.
Futures Contracts —
The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. 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 specified 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 contracts
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 contracts 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.
19
MFS Income Portfolio
Notes to
Financial Statements (unaudited) - continued
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 forward foreign currency exchange contracts.
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, a multicurrency cash settlement system for the centralized settlement of foreign transactions. 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, where applicable, 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.
Security Loans —
Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans
can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. 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. On loans collateralized by cash, the cash collateral is invested in a money market fund.
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. The lending agent provides the fund with indemnification against
Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the
loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the
extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. 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 separately reported in 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. At June 30,
2021, there were no securities on loan or collateral outstanding.
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 contractually obligate the fund
to supply additional cash to the borrower on demand. The fund generally provides this financial support in order to preserve its existing investment or to obtain a more senior secured interest in the assets of the borrower. 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. Interest payments
received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date. All premium and discount is amortized or accreted for financial statement
purposes in accordance with U.S. generally accepted accounting principles. 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.
20
MFS Income Portfolio
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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
Book/tax differences primarily relate to defaulted bonds,
amortization and accretion of debt securities, wash sale loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders
for the last fiscal year is as follows:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $1,603,085 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
| As of 6/30/21 | |
| Cost of investments | $44,015,079 |
| Gross appreciation | 1,276,961 |
| Gross depreciation | (1,048,749) |
| Net unrealized appreciation (depreciation) | $228,212 |
| As of 12/31/20 | |
| Undistributed ordinary income | 2,281,906 |
| Undistributed long-term capital gain | 785,796 |
| Other temporary differences | 9,100 |
| Net unrealized appreciation (depreciation) | 556,952 |
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 in the Statements of Changes in Net Assets are presented by class as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $1,407,184 | |
| Service Class | — | 195,901 | |
| Total | $— | $1,603,085 |
21
MFS Income 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 based on the fund's average daily net assets:
| Up to $1 billion | 0.50% |
| In excess of $1 billion | 0.45% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $2,648, which is
included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.49% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses (such as fees and expenses associated with investments in investment
companies and other similar investment vehicles), such that total annual operating expenses do not exceed 0.75% of average daily net assets for the Initial Class shares and 1.00% of average daily net assets for the Service Class shares. This written
agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2023. For the six months ended June 30, 2021, this reduction amounted to $25,558, which is included in the
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, 2021, the fee was $5,264, which equated to 0.0237% annually of
the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $311.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate of 0.0391% of the fund's average daily
net assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation
directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD,
and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
The fund invests in the High Yield Pooled Portfolio, which
is a mutual fund advised by MFS that does not pay management fees to MFS but does incur investment and operating costs. The fund invests in the High Yield Pooled Portfolio to gain exposure to high income debt instruments, rather than investing in
high income debt instruments directly. Income earned on this investment is included in “Dividends from affiliated issuers” in the Statement of Operations. The High Yield Pooled Portfolio does not pay distribution and/or service fees to
MFD.
22
MFS Income Portfolio
Notes to
Financial Statements (unaudited) - continued
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, were as follows:
| Purchases | Sales | |
| U.S. Government securities | $8,472,962 | $2,518,301 |
| Non-U.S. Government securities | 8,276,598 | 15,002,965 |
(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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 123,847 | $1,287,349 | 593,426 | $6,061,887 | |
| Service Class | 55,121 | 567,306 | 75,762 | 764,983 | |
| 178,968 | $1,854,655 | 669,188 | $6,826,870 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||||
| Initial Class | — | $— | 138,366 | $1,407,184 | |
| Service Class | — | — | 19,396 | 195,901 | |
| — | $— | 157,762 | $1,603,085 | ||
| Shares reacquired | |||||
| Initial Class | (455,847) | $(4,760,031) | (665,666) | $(6,694,271) | |
| Service Class | (52,414) | (539,197) | (180,269) | (1,833,066) | |
| (508,261) | $(5,299,228) | (845,935) | $(8,527,337) | ||
| Net change | |||||
| Initial Class | (332,000) | $(3,472,682) | 66,126 | $774,800 | |
| Service Class | 2,707 | 28,109 | (85,111) | (872,182) | |
| (329,293) | $(3,444,573) | (18,985) | $(97,382) | ||
(6) Line of
Credit
The fund and certain other funds managed by
MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $87 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
23
MFS Income Portfolio
Notes to
Financial Statements (unaudited) - continued
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS High Yield Pooled Portfolio | $6,184,285 | $1,295,879 | $865,220 | $(297,939) | $291,258 | $6,608,263 |
| MFS Institutional Money Market Portfolio | 517,217 | 20,511,108 | 19,944,044 | — | — | 1,084,281 |
| $6,701,502 | $21,806,987 | $20,809,264 | $(297,939) | $291,258 | $7,692,544 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS High Yield Pooled Portfolio | $185,127 | $— |
| MFS Institutional Money Market Portfolio | 316 | — |
| $185,443 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
24
MFS Income Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
25
MFS Income Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
26
Semiannual Report
June 30, 2021
MFS® Technology Portfolio
MFS® Variable Insurance Trust II
TKS-SEM
MFS Technology
Portfolio
Portfolio Composition
Cash & Cash Equivalents includes any cash,
investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and
liabilities.
Percentages are based on net
assets as of June 30, 2021.
The portfolio is
actively managed and current holdings may be different.
2
MFS Technology
Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.87% | $1,000.00 | $1,109.33 | $4.55 |
| Hypothetical (h) | 0.87% | $1,000.00 | $1,020.48 | $4.36 | |
| Service Class | Actual | 1.12% | $1,000.00 | $1,108.06 | $5.85 |
| Hypothetical (h) | 1.12% | $1,000.00 | $1,019.24 | $5.61 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
Notes to Expense Table
Expense ratios include 0.01% of investment related expenses
from short sales (See Note 2 of the Notes to Financial Statements) that are outside of the expense limitation arrangement (See Note 3 of the Notes to Financial Statements).
3
MFS Technology Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
4
MFS Technology Portfolio
Portfolio of
Investments (unaudited) – continued
| (a) | Non-income producing security. | |||
| (h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $1,970,148 and $126,492,504, respectively. | |||
| (s) | Security or a portion of the security was pledged to cover collateral requirements for securities sold short. At June 30, 2021, the fund had no short sales outstanding. | |||
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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 Depositary Receipt |
At June
30, 2021, the fund had cash collateral of $4,584 and other liquid securities with an aggregate value of $602,321 to cover any collateral or margin obligations for securities sold short. Restricted cash and/or deposits with brokers in the Statement
of Assets and Liabilities are comprised of cash collateral.
See Notes to Financial Statements
5
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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $69,826,748) | $126,492,504 |
| Investments in affiliated issuers, at value (identified cost, $1,970,148) | 1,970,148 |
| Deposits with brokers for | |
| Securities sold short | 4,584 |
| Receivables for | |
| Investments sold | 194,586 |
| Fund shares sold | 858,124 |
| Dividends | 5,250 |
| Other assets | 721 |
| Total assets | $129,525,917 |
| Liabilities | |
| Payables for | |
| Investments purchased | $437,775 |
| Fund shares reacquired | 63,109 |
| Payable to affiliates | |
| Investment adviser | 5,209 |
| Administrative services fee | 152 |
| Shareholder servicing costs | 56 |
| Distribution and/or service fees | 1,341 |
| Accrued expenses and other liabilities | 39,773 |
| Total liabilities | $547,415 |
| Net assets | $128,978,502 |
| Net assets consist of | |
| Paid-in capital | $60,693,017 |
| Total distributable earnings (loss) | 68,285,485 |
| Net assets | $128,978,502 |
| Shares of beneficial interest outstanding | 3,927,851 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $30,945,430 | 895,935 | $34.54 |
| Service Class | 98,033,072 | 3,031,916 | 32.33 |
See Notes to Financial Statements
6
MFS Technology
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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $138,830 |
| Other | 2,928 |
| Dividends from affiliated issuers | 644 |
| Foreign taxes withheld | (488) |
| Total investment income | $141,914 |
| Expenses | |
| Management fee | $420,585 |
| Distribution and/or service fees | 103,123 |
| Shareholder servicing costs | 4,995 |
| Administrative services fee | 12,671 |
| Independent Trustees' compensation | 1,860 |
| Custodian fee | 5,593 |
| Shareholder communications | 2,590 |
| Audit and tax fees | 28,238 |
| Legal fees | 358 |
| Dividend and interest expense on securities sold short | 5,269 |
| Interest expense and fees | 205 |
| Miscellaneous | 14,734 |
| Total expenses | $600,221 |
| Reduction of expenses by investment adviser | (6,712) |
| Net expenses | $593,509 |
| Net investment income (loss) | $(451,595) |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $6,113,403 |
| Written options | 68,052 |
| Securities sold short | (595,062) |
| Foreign currency | (630) |
| Net realized gain (loss) | $5,585,763 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $7,095,319 |
| Translation of assets and liabilities in foreign currencies | (2) |
| Net unrealized gain (loss) | $7,095,317 |
| Net realized and unrealized gain (loss) | $12,681,080 |
| Change in net assets from operations | $12,229,485 |
See Notes to Financial Statements
7
MFS Technology
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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $(451,595) | $(580,483) |
| Net realized gain (loss) | 5,585,763 | 7,550,353 |
| Net unrealized gain (loss) | 7,095,317 | 24,235,909 |
| Change in net assets from operations | $12,229,485 | $31,205,779 |
| Change in net assets from fund share transactions | $12,437,535 | $4,958,901 |
| Total change in net assets | $24,667,020 | $36,164,680 |
| Net assets | ||
| At beginning of period | 104,311,482 | 68,146,802 |
| At end of period | $128,978,502 | $104,311,482 |
See Notes to Financial Statements
8
MFS Technology
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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $31.10 | $21.18 | $17.34 | $17.96 | $13.19 | $12.45 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $(0.10) | $(0.14) | $(0.09) | $(0.07) | $(0.05) | $(0.01)(c) |
| Net realized and unrealized gain (loss) | 3.54 | 10.06 | 6.16 | 0.58 | 5.16 | 1.10 |
| Total from investment operations | $3.44 | $9.92 | $6.07 | $0.51 | $5.11 | $1.09 |
| Less distributions declared to shareholders | ||||||
| From net realized gain | $— | $— | $(2.23) | $(1.13) | $(0.34) | $(0.35) |
| Net asset value, end of period (x) | $34.54 | $31.10 | $21.18 | $17.34 | $17.96 | $13.19 |
| Total return (%) (k)(r)(s)(x) | 11.06(n) | 46.84 | 36.16 | 1.73 | 39.00 | 8.69(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.89(a) | 0.94 | 0.97 | 0.94 | 0.88 | 0.85(c) |
| Expenses after expense reductions (f) | 0.87(a) | 0.93 | 0.96 | 0.93 | 0.88 | 0.85(c) |
| Net investment income (loss) | (0.62)(a) | (0.55) | (0.44) | (0.38) | (0.29) | (0.10)(c) |
| Portfolio turnover | 25(n) | 57 | 33 | 39 | 31 | 36 |
| Net assets at end of period (000 omitted) | $30,945 | $28,768 | $19,336 | $17,056 | $27,659 | $15,195 |
| Supplemental Ratios (%): | ||||||
| Ratios of expenses to average net assets after expense reductions excluding short sale expenses and interest expense and fees (f) | 0.86(a) | 0.91 | 0.93 | 0.85 | 0.85 | 0.82(c) |
See Notes to Financial Statements
9
MFS Technology
Portfolio
Financial Highlights - continued
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $29.15 | $19.91 | $16.44 | $17.11 | $12.61 | $11.95 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $(0.13) | $(0.19) | $(0.13) | $(0.12) | $(0.08) | $(0.04)(c) |
| Net realized and unrealized gain (loss) | 3.31 | 9.43 | 5.83 | 0.58 | 4.92 | 1.05 |
| Total from investment operations | $3.18 | $9.24 | $5.70 | $0.46 | $4.84 | $1.01 |
| Less distributions declared to shareholders | ||||||
| From net realized gain | $— | $— | $(2.23) | $(1.13) | $(0.34) | $(0.35) |
| Net asset value, end of period (x) | $32.33 | $29.15 | $19.91 | $16.44 | $17.11 | $12.61 |
| Total return (%) (k)(r)(s)(x) | 10.91(n) | 46.41 | 35.88 | 1.52 | 38.65 | 8.39(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 1.14(a) | 1.19 | 1.22 | 1.16 | 1.14 | 1.10(c) |
| Expenses after expense reductions (f) | 1.12(a) | 1.18 | 1.21 | 1.15 | 1.13 | 1.10(c) |
| Net investment income (loss) | (0.87)(a) | (0.81) | (0.69) | (0.61) | (0.53) | (0.35)(c) |
| Portfolio turnover | 25(n) | 57 | 33 | 39 | 31 | 36 |
| Net assets at end of period (000 omitted) | $98,033 | $75,544 | $48,811 | $39,272 | $203,610 | $126,561 |
| Supplemental Ratios (%): | ||||||
| Ratios of expenses to average net assets after expense reductions excluding short sale expenses and interest expense and fees (f) | 1.11(a) | 1.16 | 1.18 | 1.07 | 1.10 | 1.06(c) |
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
10
MFS Technology
Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS Technology Portfolio (the fund) is a non-diversified
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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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, currency, political, economic, regulatory, geopolitical, environmental, public
health, and other conditions. The value of stocks in the technology sector can be very volatile due to the rapid pace of product change, technological developments, and other factors. 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 market, economic, industrial,
political, regulatory, geopolitical, environmental, public health, and other conditions.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Equity securities, including restricted equity securities and equity securities sold short, are generally valued at the last sale or official closing price on their primary market or exchange as
provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing
service. Equity securities sold short, for which there were no sales reported that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally
valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on
their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. 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
11
MFS Technology
Portfolio
Notes to Financial Statements (unaudited) - continued
bid quotation. In
determining values, 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 halt 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 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 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, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $126,492,504 | $— | $— | $126,492,504 |
| Mutual Funds | 1,970,148 | — | — | 1,970,148 |
| Total | $128,462,652 | $— | $— | $128,462,652 |
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 primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, 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.
12
MFS Technology
Portfolio
Notes to Financial Statements (unaudited) - continued
The
derivative instruments used by the fund during the period were written options. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an
agreement with the derivative counterparty, or novating the position to a third party. At June 30, 2021, the fund did not have any outstanding derivative instruments.
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, 2021 as reported in the Statement of Operations:
| Risk | Written
Options |
| Equity | $68,052 |
There is no change in unrealized
appreciation (depreciation) on derivative transactions at period end.
Derivative counterparty credit risk is managed through
formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master
Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an
event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement 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.
Collateral and
margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of
cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared
options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support
annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered
to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared
derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any
such payments are included in “Miscellaneous” expense in the Statement of Operations.
Written Options — In
exchange for a premium, the fund wrote put options on securities for which 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
in 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 or directly with the clearing broker, based on the type of option. For uncleared 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
13
MFS Technology
Portfolio
Notes to Financial Statements (unaudited) - continued
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 uncleared 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.
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, 2021, this expense amounted to $5,269. 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, 2021, the fund had no short sales
outstanding.
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 payments received in additional securities are recorded on the ex-dividend 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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by
certain foreign countries may be subject to capital gains tax imposed by those countries.
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.
Book/tax differences primarily relate to wash sale loss
deferrals and straddle loss deferrals.
The fund
declared no distributions for the year ended December 31, 2020.
The federal tax cost and the tax basis components of
distributable earnings were as follows:
| As of 6/30/21 | |
| Cost of investments | $72,290,560 |
| Gross appreciation | 56,881,530 |
| Gross depreciation | (709,438) |
| Net unrealized appreciation (depreciation) | $56,172,092 |
| As of 12/31/20 | |
| Undistributed ordinary income | 1,120,445 |
| Undistributed long-term capital gain | 5,858,782 |
| Net unrealized appreciation (depreciation) | 49,076,773 |
14
MFS Technology
Portfolio
Notes to Financial Statements (unaudited) - continued
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 based on the fund's average daily net assets:
| Up to $1 billion | 0.75% |
| In excess of $1 billion | 0.70% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $6,712, which is
included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual effective rate of 0.74% 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, excluding 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 modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2023. For the six months ended June 30, 2021, 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, 2021, the fee was $4,763, which equated to 0.0085% annually of
the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $232.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate of 0.0226% of the fund's average daily
net assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation
directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD,
and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a
management fee to MFS but does incur investment and operating costs.
15
MFS Technology
Portfolio
Notes to Financial Statements (unaudited) - continued
The
fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been
designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the six months ended June 30, 2021, the fund engaged in sale transactions pursuant to this policy, which amounted to
$15,002. The sales transactions resulted in net realized gains (losses) of $5,095.
The adviser has voluntarily undertaken to reimburse the
fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the six months ended June 30, 2021, this reimbursement
amounted to $2,786, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the six months ended June 30, 2021, purchases and sales
of investments, other than short-term obligations, aggregated $39,709,728 and $27,264,175, 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 6/30/21 |
Year
ended 12/31/20 | ||||
| Shares | Amount | Shares | Amount | ||
| Shares sold | |||||
| Initial Class | 81,514 | $2,602,932 | 215,421 | $5,537,761 | |
| Service Class | 883,774 | 26,619,773 | 1,213,821 | 29,404,672 | |
| 965,288 | $29,222,705 | 1,429,242 | $34,942,433 | ||
| Shares reacquired | |||||
| Initial Class | (110,552) | $(3,577,838) | (203,201) | $(5,171,507) | |
| Service Class | (443,356) | (13,207,332) | (1,074,446) | (24,812,025) | |
| (553,908) | $(16,785,170) | (1,277,647) | $(29,983,532) | ||
| Net change | |||||
| Initial Class | (29,038) | $(974,906) | 12,220 | $366,254 | |
| Service Class | 440,418 | 13,412,441 | 139,375 | 4,592,647 | |
| 411,380 | $12,437,535 | 151,595 | $4,958,901 | ||
(6) Line of
Credit
The fund and certain other funds managed by
MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $205 and $0, respectively, and are included in “Interest expense and fees” in the Statement of Operations.
(7) Investments in 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 following were affiliated issuers:
16
MFS Technology
Portfolio
Notes to Financial Statements (unaudited) - continued
| Affiliated Issuers | Beginning
Value |
Purchases | Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
| MFS Institutional Money Market Portfolio | $3,257,002 | $25,181,135 | $26,467,989 | $— | $— | $1,970,148 |
| Affiliated Issuers | Dividend
Income |
Capital
Gain Distributions |
| MFS Institutional Money Market Portfolio | $644 | $— |
(8) Impacts of
COVID-19
The pandemic related to the global spread of
novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance
of individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
17
MFS Technology
Portfolio
Statement Regarding Liquidity Risk Management Program
The fund has adopted and implemented a liquidity
risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program.
The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors'
interests.
MFS provided a written report to the Board
for consideration at its April 2021 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from January 1, 2020 to December 31, 2020 (the “Covered
Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no
liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its
objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
18
MFS Technology
Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by
choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
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 at https://www.mfs.com/announcements or at
mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
19
Semiannual Report
June 30, 2021
MFS® U.S. Government
Money Market Portfolio
Money Market Portfolio
MFS® Variable Insurance Trust II
MKS-SEM
MFS U.S. Government Money
Market Portfolio
Portfolio Composition
| (a) | Ratings are assigned to portfolio 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 scale. All ratings are subject to change. The fund is not rated by these agencies. |
| (o) | Less than 0.1%. |
| (u) | For purposes of this presentation, accrued interest, where applicable, is included. |
From time to time Other Assets Less Liabilities may
be negative due to the timing of cash receipts.
Percentages are based on net assets as of June 30,
2021.
The portfolio is actively managed and
current holdings may be different.
2
MFS U.S. Government Money
Market Portfolio
Expense Table
Fund Expenses Borne by the Contract Holders during the
Period,
January 1, 2021 through June 30, 2021
January 1, 2021 through June 30, 2021
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, 2021 through June 30, 2021.
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 1/01/21 |
Ending
Account Value 6/30/21 |
Expenses
Paid During Period (p) 1/01/21-6/30/21 | |
| Initial Class | Actual | 0.03% | $1,000.00 | $1,000.00 | $0.15 |
| Hypothetical (h) | 0.03% | $1,000.00 | $1,024.65 | $0.15 | |
| Service Class | Actual | 0.03% | $1,000.00 | $1,000.00 | $0.15 |
| Hypothetical (h) | 0.03% | $1,000.00 | $1,024.65 | $0.15 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
Notes to Expense Table
As more fully disclosed in Note 3 in the Notes to Financial
Statements, the expense ratios reported above include additional expense reductions to avoid a negative yield.
3
MFS U.S. Government Money
Market Portfolio
Portfolio of Investments − 6/30/21 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
| (y) | The rate shown represents an annualized yield at time of purchase. |
See Notes to Financial Statements
4
MFS U.S. Government Money
Market 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 6/30/21 Assets | |
| Investments in unaffiliated issuers, at cost and value | $209,231,014 |
| Investments in unaffiliated repurchase agreements, at cost and value | 57,382,000 |
| Cash | 379 |
| Receivables for | |
| Fund shares sold | 652,476 |
| Interest | 80 |
| Receivable from investment adviser and distributor | 21,515 |
| Other assets | 1,164 |
| Total assets | $267,288,628 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $705,978 |
| Payable to affiliates | |
| Administrative services fee | 251 |
| Shareholder servicing costs | 30 |
| Accrued expenses and other liabilities | 55,035 |
| Total liabilities | $761,294 |
| Net assets | $266,527,334 |
| Net assets consist of | |
| Paid-in capital | $266,527,019 |
| Total distributable earnings (loss) | 315 |
| Net assets | $266,527,334 |
| Shares of beneficial interest outstanding | 266,747,065 |
| Net assets | Shares
outstanding |
Net
asset value per share | |
| Initial Class | $155,149,967 | 155,278,327 | $1.00 |
| Service Class | 111,377,367 | 111,468,738 | 1.00 |
See Notes to Financial Statements
5
MFS U.S. Government Money
Market 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 6/30/21 | |
| Net investment income (loss) | |
| Income | |
| Interest | $44,746 |
| Other | 1,398 |
| Total investment income | $46,144 |
| Expenses | |
| Management fee | $531,216 |
| Distribution and/or service fees | 138,761 |
| Shareholder servicing costs | 3,006 |
| Administrative services fee | 22,490 |
| Independent Trustees' compensation | 2,997 |
| Custodian fee | 6,301 |
| Shareholder communications | 9,324 |
| Audit and tax fees | 18,808 |
| Legal fees | 1,057 |
| Miscellaneous | 15,572 |
| Total expenses | $749,532 |
| Reduction of expenses by investment adviser and distributor | (703,388) |
| Net expenses | $46,144 |
| Net investment income (loss) | $0 |
| Change in net assets from operations | $0 |
See Notes to Financial Statements
6
MFS U.S. Government Money
Market 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 | Year ended | |
| 6/30/21
(unaudited) |
12/31/20 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $0 | $569,717 |
| Net realized gain (loss) | 0 | 300 |
| Change in net assets from operations | $0 | $570,017 |
| Total distributions to shareholders | $— | $(569,717) |
| Change in net assets from fund share transactions | $(4,394,628) | $6,689,361 |
| Total change in net assets | $(4,394,628) | $6,689,661 |
| Net assets | ||
| At beginning of period | 270,921,962 | 264,232,301 |
| At end of period | $266,527,334 | $270,921,962 |
See Notes to Financial Statements
7
MFS U.S. Government Money
Market 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 that 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 |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.00 | $0.00(w) | $0.02 | $0.01 | $0.00(w) | $0.00(c)(w) |
| Net realized and unrealized gain (loss) | 0.00 | 0.00(w) | 0.00(w) | — | 0.00(w) | 0.00(w) |
| Total from investment operations | $0.00 | $0.00(w) | $0.02 | $0.01 | $0.00(w) | $0.00(w) |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.00)(w) | $(0.02) | $(0.01) | $(0.00)(w) | $(0.00)(w) |
| Net asset value, end of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Total return (%) (k)(r) | 0.00(n) | 0.22 | 1.63 | 1.26 | 0.30 | 0.01(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.46(a) | 0.52 | 0.56 | 0.56 | 0.56 | 0.53(c) |
| Expenses after expense reductions (f) | 0.03(a) | 0.24 | 0.55 | 0.55 | 0.54 | 0.30(c) |
| Net investment income (loss) | 0.00(a) | 0.20 | 1.63 | 1.25 | 0.29 | 0.01(c) |
| Net assets at end of period (000 omitted) | $155,150 | $155,937 | $149,689 | $160,304 | $168,107 | $179,458 |
| Service Class |
Six months ended |
Year ended | ||||
| 6/30/21
(unaudited) |
12/31/20 | 12/31/19 | 12/31/18 | 12/31/17 | 12/31/16 | |
| Net asset value, beginning of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.00 | $0.00(w) | $0.02 | $0.01 | $0.00(w) | $0.00(c)(w) |
| Net realized and unrealized gain (loss) | 0.00 | 0.00(w) | 0.00(w) | — | 0.00(w) | 0.00(w) |
| Total from investment operations | $0.00 | $0.00(w) | $0.02 | $0.01 | $0.00(w) | $0.00(w) |
| Less distributions declared to shareholders | ||||||
| From net investment income | $— | $(0.00)(w) | $(0.02) | $(0.01) | $(0.00)(w) | $(0.00)(w) |
| Net asset value, end of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Total return (%) (k)(r) | 0.00(n) | 0.22 | 1.63 | 1.26 | 0.29 | 0.01(c) |
| Ratios
(%) (to average net assets) and Supplemental data: |
||||||
| Expenses before expense reductions (f) | 0.71(a) | 0.77 | 0.81 | 0.81 | 0.81 | 0.79(c) |
| Expenses after expense reductions (f) | 0.03(a) | 0.25 | 0.55 | 0.55 | 0.55 | 0.30(c) |
| Net investment income (loss) | 0.00(a) | 0.21 | 1.64 | 1.24 | 0.27 | 0.01(c) |
| Net assets at end of period (000 omitted) | $111,377 | $114,985 | $114,543 | $128,156 | $146,428 | $182,935 |
See Notes to Financial Statements
8
MFS U.S. Government Money
Market Portfolio
Financial Highlights - continued
| (a) | Annualized. |
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (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. |
| (w) | Per share amount was less than $0.01. |
See Notes to
Financial Statements
9
MFS U.S. Government Money
Market Portfolio
Notes to Financial Statements (unaudited)
(1) Business and Organization
MFS U.S. Government Money Market Portfolio (the fund) is a
diversified 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.
The fund is an investment company and accordingly follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(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 increases and decreases in net assets from operations 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.
Certain of the fund's investments, derivatives, debt and
other contracts may be based on reference interest rates such as the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition
away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away
from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact
on the fund's performance. With respect to the fund's accounting for investments, derivatives, debt and other contracts that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by
FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to disregard the GAAP accounting requirements around certain contract modifications resulting from the LIBOR transition such that for
contracts considered in scope, the fund can account for those modified contracts as a continuation of the existing contracts.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Pursuant to procedures approved by the Board of Trustees, investments held by the fund are generally valued at amortized cost, which approximates market value. Amortized cost involves valuing an
instrument at its cost as adjusted for amortization of premium or accretion of discount rather than its current market value. The amortized cost value of an instrument can be different from the market value of an instrument.
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, 2021 in valuing the fund's assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Short-Term Securities | $— | $266,613,014 | $— | $266,613,014 |
For further information
regarding security characteristics, see the Portfolio of Investments.
10
MFS U.S. Government Money
Market Portfolio
Notes to Financial Statements (unaudited) - continued
Repurchase Agreements
— The fund enters into repurchase agreements under the terms of Master Repurchase Agreements with approved counterparties. Each repurchase agreement is recorded at cost. The fund requires that the securities collateral in a repurchase
transaction be transferred to a custodian. The fund monitors, on a daily basis, the value of the collateral to ensure that its value, including accrued interest, is greater than amounts owed to the fund under each such repurchase agreement. Upon an
event of default under a Master Repurchase Agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an
event of default, the Master Repurchase 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. At June 30,
2021, the fund had investments in repurchase agreements with a gross value of $57,382,000 in the Statement of Assets and Liabilities. The value of the related collateral exceeded the value of the repurchase agreements at period end.
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.
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, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax
positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
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.
During the year ended December 31, 2020, 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:
| Year
ended 12/31/20 | |
| Ordinary income (including any short-term capital gains) | $569,717 |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
| As of 6/30/21 | |
| Cost of investments | $266,613,014 |
| As of 12/31/20 | |
| Undistributed ordinary income | 315 |
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 and common expenses are allocated to shareholders based on the value of settled
shares outstanding of each class. The fund's realized and unrealized gain (loss) 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 in the Statements of Changes in Net Assets are presented by class as follows:
11
MFS U.S. Government Money
Market Portfolio
Notes to Financial Statements (unaudited) - continued
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Initial Class | $— | $326,608 | |
| Service Class | — | 243,109 | |
| Total | $— | $569,717 |
(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 based on the fund's average daily net assets:
| Up to $1 billion | 0.40% |
| In excess of $1 billion | 0.35% |
MFS has agreed in writing to
reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. For the six months ended June 30, 2021, this management fee reduction amounted to $15,870, which
is included in the reduction of total expenses in the Statement of Operations. MFS has also agreed to voluntarily waive receipt of the fund’s management fee in order to avoid a negative yield. For the six months ended June 30, 2021, this
voluntary waiver amounted to $511,873 and had the effect of reducing the management fee by 0.39% of average daily net assets on an annualized basis. The management fee incurred for the six months ended June 30, 2021 was equivalent to an annual
effective rate of 0.00% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.45% of
average daily net assets for each of the Initial Class and Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2023. For the six
months ended June 30, 2021, the fund’s actual operating expenses did not exceed the limits described above and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement. MFS has also
agreed to voluntarily reimburse the fund's operating expenses in order to avoid a negative yield. For the six months ended June 30, 2021, this voluntary reimbursement amounted to $36,884 and had the effect of reducing operating expenses by 0.03% of
average daily net assets on an annualized basis.
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. MFD has
agreed in writing to waive the entire 0.25% distribution and/or service fee. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2023. For the six
months ended June 30, 2021, this waiver amounted to $138,761, which is included in the reduction of total expenses in the Statement of Operations. The distribution and/or service fees incurred for the six months ended June 30, 2021 were equivalent
to an annual effective rate of 0.00% of the average daily net assets attributable to Service Class shares.
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, 2021, the fee was $2,846, which equated to 0.0021% annually of
the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2021, these costs amounted to $160.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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, 2021 was equivalent to an annual effective rate of 0.0169% of the fund's average daily
net assets.
12
MFS U.S. Government Money
Market Portfolio
Notes to Financial Statements (unaudited) - continued
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to
Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and
MFSC.
(4) 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. The number of shares sold, reinvested and reacquired corresponds to the net proceeds from the sale of shares, reinvestment of distributions and cost of
shares reacquired, respectively, since shares are sold and reacquired at $1.00 per share. Transactions in fund shares were as follows:
| Six
months ended 6/30/21 |
Year
ended 12/31/20 | ||
| Shares sold | |||
| Initial Class | 27,002,220 | 71,530,784 | |
| Service Class | 16,822,068 | 64,994,305 | |
| 43,824,288 | 136,525,089 | ||
| Shares
issued to shareholders in reinvestment of distributions |
|||
| Initial Class | — | 326,608 | |
| Service Class | — | 243,109 | |
| — | 569,717 | ||
| Shares reacquired | |||
| Initial Class | (27,794,593) | (65,600,762) | |
| Service Class | (20,424,323) | (64,804,683) | |
| (48,218,916) | (130,405,445) | ||
| Net change | |||
| Initial Class | (792,373) | 6,256,630 | |
| Service Class | (3,602,255) | 432,731 | |
| (4,394,628) | 6,689,361 |
(5) Line of
Credit
The fund and certain other funds managed by
MFS participate in a $1.25 billion unsecured committed line of credit of which $1 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2021, the
fund’s commitment fee and interest expense were $567 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(6) Impacts of COVID-19
The pandemic related to the global spread of novel
coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of
individual companies and sectors, and the securities and commodities markets in general. Multiple surges in cases globally, the availability and widespread adoption of vaccines, and the emergence of variant strains of the virus continue to create
uncertainty as to the future and long-term impacts resulting from the pandemic including impacts to the prices and liquidity of the fund's investments and the fund's performance.
13
MFS U.S. Government Money
Market Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy
voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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 by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site
at http://www.sec.gov.
Portfolio Holdings Information
The fund files monthly portfolio information with the SEC
on Form N-MFP. The fund’s Form N-MFP reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can also access the fund’s portfolio holdings as of each month end
and the fund’s Form N-MFP reports at mfs.com/vit2 after choosing “Click here for access to Money Market fund reports”.
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 at https://www.mfs.com/en-us/what-we-do/announcements.html or at mfs.com/vit2 by choosing the fund's name.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an
investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either
directly or on behalf of the fund.
Under the
Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
14
| Item 1(b): | |
Not applicable
| 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(a) 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. |
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 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. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
| ITEM 13. | EXHIBITS. |
| (a) (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. Not applicable. |
| (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 as EX-99.302CERT. |
| (3) | Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable. |
| (4) | Change in the registrant’s independent public accountant. Not applicable. |
| (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 as EX-99.906CERT. |
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.
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)* | /S/ DAVID L. DILORENZO | |
| David L. DiLorenzo, President |
Date: August 13, 2021
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)* | /S/ DAVID L. DILORENZO | |
| David L. DiLorenzo, President (Principal Executive Officer) |
Date: August 13, 2021
| By (Signature and Title)* | /S/ JAMES O. YOST | |
| James O. Yost, Treasurer (Principal Financial Officer and Accounting Officer) |
Date: August 13, 2021
| * | Print name and title of each signing officer under his or her signature. |