UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-3732
MFS VARIABLE INSURANCE TRUST II
(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
(Name and address of agents for service)
Registrant’s telephone number, including area code: (617) 954-5000
Date of fiscal year end: December 31
Date of reporting period: June 30, 2012*
| * | MFS Blended Research Growth Portfolio and MFS Blended Research Value Portfolio each ceased investment operations on June 25, 2012, and each was terminated as a series of the Registrant effective July 3, 2012. |
| ITEM 1. | REPORTS TO STOCKHOLDERS. |
SEMIANNUAL REPORT
June 30, 2012
MFS® INTERNATIONAL GROWTH PORTFOLIO
MFS® Variable Insurance Trust II
FCI-SEM
MFS® INTERNATIONAL GROWTH PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS International Growth Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS International Growth Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| LVMH Moet Hennessy Louis Vuitton S.A. | | | 2.9% | |
| Groupe Danone | | | 2.9% | |
| Japan Tobacco, Inc. | | | 2.6% | |
| Nestle S.A. | | | 2.2% | |
| Diageo PLC | | | 2.2% | |
| Linde AG | | | 2.0% | |
| Compass Group PLC | | | 2.0% | |
| Pernod Ricard S.A. | | | 1.9% | |
| Canadian National Railway Co. | | | 1.7% | |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | | 1.7% | |
| |
| Equity sectors | | | | |
| Consumer Staples | | | 17.5% | |
| Financial Services | | | 11.9% | |
| Technology | | | 11.0% | |
| Retailing | | | 9.9% | |
| Health Care | | | 9.1% | |
| Basic Materials | | | 8.9% | |
| Special Products & Services | | | 7.7% | |
| Industrial Goods & Services | | | 7.1% | |
| Energy | | | 5.7% | |
| Transportation | | | 3.3% | |
| Autos & Housing | | | 3.2% | |
| Utilities & Communications | | | 2.5% | |
| Leisure | | | 1.7% | |
| | | | |
| Issuer country weightings (x) | | | | |
| France | | | 15.3% | |
| United Kingdom | | | 14.4% | |
| Japan | | | 12.4% | |
| Switzerland | | | 8.7% | |
| Germany | | | 8.7% | |
| Brazil | | | 5.2% | |
| Hong Kong | | | 3.7% | |
| Netherlands | | | 3.2% | |
| Canada | | | 2.9% | |
| Other Countries | | | 25.5% | |
| |
| Currency exposure weightings (y) | | | | |
| Euro | | | 30.1% | |
| British Pound Sterling | | | 14.4% | |
| Japanese Yen | | | 12.4% | |
| United States Dollar | | | 10.4% | |
| Swiss Franc | | | 8.7% | |
| Hong Kong Dollar | | | 5.5% | |
| Brazilian Real | | | 4.7% | |
| Australian Dollar | | | 2.5% | |
| Danish Krone | | | 2.1% | |
| Other Currencies | | | 9.2% | |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s total net assets. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s total net assets. |
Percentages are based on net assets as of 6/30/12.
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, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 1.04% | | | | $1,000.00 | | | | $1,064.08 | | | | $5.34 | |
| | Hypothetical (h) | | | 1.04% | | | | $1,000.00 | | | | $1,019.69 | | | | $5.22 | |
| Service Class | | Actual | | | 1.29% | | | | $1,000.00 | | | | $1,062.73 | | | | $6.62 | |
| | Hypothetical (h) | | | 1.29% | | | | $1,000.00 | | | | $1,018.45 | | | | $6.47 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS International Growth Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 99.5% | |
| Aerospace – 0.5% | |
| Rolls-Royce Holdings PLC | | | 98,967 | | | $ | 1,335,155 | |
| | | | | | | | |
| Airlines – 1.1% | |
| Copa Holdings S.A., “A” | | | 34,500 | | | $ | 2,845,560 | |
| | | | | | | | |
| Alcoholic Beverages – 6.6% | |
| Carlsberg A.S., “B” | | | 29,361 | | | $ | 2,313,568 | |
| Diageo PLC | | | 210,756 | | | | 5,419,844 | |
| Heineken N.V. | | | 74,798 | | | | 3,907,055 | |
| Pernod Ricard S.A. | | | 45,470 | | | | 4,864,219 | |
| | | | | | | | |
| | | | | | $ | 16,504,686 | |
| | | | | | | | |
| Apparel Manufacturers – 5.0% | |
| Compagnie Financiere Richemont S.A. | | | 41,534 | | | $ | 2,279,408 | |
| Li & Fung Ltd. | | | 1,503,200 | | | | 2,916,882 | |
| LVMH Moet Hennessy Louis Vuitton S.A. | | | 47,199 | | | | 7,193,990 | |
| | | | | | | | |
| | | | | | $ | 12,390,280 | |
| | | | | | | | |
| Automotive – 2.8% | |
| Bayerische Motoren Werke AG | | | 40,343 | | | $ | 2,923,169 | |
| Guangzhou Automobile Group Co. Ltd., “H” | | | 1,022,000 | | | | 860,112 | |
| Honda Motor Co. Ltd. | | | 89,300 | | | | 3,110,732 | |
| | | | | | | | |
| | | | | | $ | 6,894,013 | |
| | | | | | | | |
| Broadcasting – 1.2% | |
| Publicis Groupe S.A. (l) | | | 63,503 | | | $ | 2,904,091 | |
| | | | | | | | |
| Brokerage & Asset Managers – 1.6% | |
| Aberdeen Asset Management PLC | | | 345,774 | | | $ | 1,408,203 | |
| BM&F Bovespa S.A. | | | 273,400 | | | | 1,395,245 | |
| Credit Suisse Group AG | | | 65,458 | | | | 1,195,838 | |
| | | | | | | | |
| | | | | | $ | 3,999,286 | |
| | | | | | | | |
| Business Services – 7.7% | |
| Accenture PLC, “A” | | | 44,310 | | | $ | 2,662,588 | |
| Amadeus IT Holding S.A. | | | 90,113 | | | | 1,908,332 | |
| Brenntag AG | | | 21,539 | | | | 2,382,816 | |
| Capita Group PLC | | | 202,560 | | | | 2,081,091 | |
| Compass Group PLC | | | 470,100 | | | | 4,930,988 | |
| Experian Group Ltd. | | | 120,224 | | | | 1,698,306 | |
| Intertek Group PLC | | | 45,489 | | | | 1,911,791 | |
| LPS Brasil – Consultoria de Imoveis S.A. | | | 58,800 | | | | 980,732 | |
| Michael Page International PLC | | | 114,943 | | | | 677,408 | |
| | | | | | | | |
| | | | | | $ | 19,234,052 | |
| | | | | | | | |
| Computer Software – 4.4% | |
| Check Point Software Technologies Ltd. (a) | | | 66,400 | | | $ | 3,292,776 | |
| Dassault Systems S.A. | | | 32,252 | | | | 3,029,816 | |
| OBIC Co. Ltd. | | | 8,930 | | | | 1,714,999 | |
| SAP AG | | | 48,309 | | | | 2,852,816 | |
| | | | | | | | |
| | | | | | $ | 10,890,407 | |
| | | | | | | | |
| Computer Software – Systems – 0.9% | |
| NICE Systems Ltd., ADR (a) | | | 61,340 | | | $ | 2,245,044 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Construction – 0.4% | |
| Bellway PLC | | | 85,957 | | | $ | 1,128,638 | |
| | | | | | | | |
| Consumer Products – 3.2% | |
| Reckitt Benckiser Group PLC | | | 76,348 | | | $ | 4,023,615 | |
| Uni-Charm Corp. | | | 69,800 | | | | 3,976,298 | |
| | | | | | | | |
| | | | | | $ | 7,999,913 | |
| | | | | | | | |
| Electrical Equipment – 3.1% | |
| Legrand S.A. (l) | | | 95,059 | | | $ | 3,232,965 | |
| Mettler-Toledo International, Inc. (a) | | | 11,980 | | | | 1,867,083 | |
| Schneider Electric S.A. | | | 49,794 | | | | 2,774,457 | |
| | | | | | | | |
| | | | | | $ | 7,874,505 | |
| | | | | | | | |
| Electronics – 4.2% | |
| ASML Holding N.V. | | | 48,620 | | | $ | 2,500,040 | |
| Infineon Technologies AG | | | 190,235 | | | | 1,289,879 | |
| Samsung Electronics Co. Ltd. | | | 2,479 | | | | 2,628,293 | |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | | 301,150 | | | | 4,204,054 | |
| | | | | | | | |
| | | | | | $ | 10,622,266 | |
| | | | | | | | |
| Energy – Independent – 0.8% | |
| INPEX Corp. | | | 370 | | | $ | 2,074,339 | |
| | | | | | | | |
| Energy – Integrated – 3.6% | |
| BG Group PLC | | | 200,301 | | | $ | 4,099,727 | |
| China Petroleum & Chemical Corp. | | | 2,164,000 | | | | 1,939,873 | |
| OAO Gazprom, ADR | | | 169,620 | | | | 1,605,643 | |
| Suncor Energy, Inc. | | | 48,135 | | | | 1,391,901 | |
| | | | | | | | |
| | | | | | $ | 9,037,144 | |
| | | | | | | | |
| Engineering – Construction – 1.3% | |
| JGC Corp. | | | 109,000 | | | $ | 3,154,816 | |
| | | | | | | | |
| Food & Beverages – 5.1% | |
| Groupe Danone | | | 115,286 | | | $ | 7,151,011 | |
| Nestle S.A. | | | 93,256 | | | | 5,562,853 | |
| | | | | | | | |
| | | | | | $ | 12,713,864 | |
| | | | | | | | |
| Food & Drug Stores – 2.7% | |
| CP All PLC | | | 884,900 | | | $ | 989,104 | |
| Dairy Farm International Holdings Ltd. | | | 187,200 | | | | 1,995,511 | |
| Lawson, Inc. | | | 52,300 | | | | 3,659,044 | |
| | | | | | | | |
| | | | | | $ | 6,643,659 | |
| | | | | | | | |
| Gaming & Lodging – 0.5% | |
| Sands China Ltd. | | | 397,200 | | | $ | 1,272,370 | |
| | | | | | | | |
| General Merchandise – 0.5% | |
| Lojas Renner S.A. | | | 46,000 | | | $ | 1,290,565 | |
| | | | | | | | |
| Insurance – 1.3% | |
| AIA Group Ltd. | | | 913,800 | | | $ | 3,150,733 | |
| | | | | | | | |
| Internet – 0.8% | |
| Yahoo Japan Corp. | | | 6,130 | | | $ | 1,983,834 | |
| | | | | | | | |
4
MFS International Growth Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Machinery & Tools – 2.2% | |
| KONE Oyj “B” | | | 33,162 | | | $ | 2,008,136 | |
| Schindler Holding AG | | | 20,350 | | | | 2,275,738 | |
| Weir Group PLC | | | 54,380 | | | | 1,311,580 | |
| | | | | | | | |
| | | | | | $ | 5,595,454 | |
| | | | | | | | |
| Major Banks – 2.3% | |
| HSBC Holdings PLC | | | 333,572 | | | $ | 2,941,253 | |
| Standard Chartered PLC | | | 134,554 | | | | 2,933,390 | |
| | | | | | | | |
| | | | | | $ | 5,874,643 | |
| | | | | | | | |
| Medical & Health Technology & Services – 1.5% | |
| Diagnosticos da America S.A. | | | 129,800 | | | $ | 853,701 | |
| Fleury S.A. | | | 69,100 | | | | 877,296 | |
| Fresenius Medical Care AG & Co. KGaA | | | 30,218 | | | | 2,138,879 | |
| | | | | | | | |
| | | | | | $ | 3,869,876 | |
| | | | | | | | |
| Medical Equipment – 2.7% | |
| Essilor International S.A. | | | 33,262 | | | $ | 3,089,841 | |
| Sonova Holding AG | | | 37,546 | | | | 3,623,039 | |
| | | | | | | | |
| | | | | | $ | 6,712,880 | |
| | | | | | | | |
| Metals & Mining – 1.9% | |
| Iluka Resources Ltd. | | | 132,992 | | | $ | 1,558,411 | |
| Rio Tinto Ltd. | | | 55,687 | | | | 3,273,219 | |
| | | | | | | | |
| | | | | | $ | 4,831,630 | |
| | | | | | | | |
| Network & Telecom – 0.7% | |
| Ericsson, Inc., “B” (l) | | | 196,347 | | | $ | 1,789,630 | |
| | | | | | | | |
| Oil Services – 1.3% | |
| Saipem S.p.A. | | | 39,977 | | | $ | 1,780,399 | |
| Technip | | | 13,230 | | | | 1,380,617 | |
| | | | | | | | |
| | | | | | $ | 3,161,016 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 6.2% | |
| Banco Santander Brasil S.A., ADR | | | 153,100 | | | $ | 1,186,525 | |
| Banco Santander Chile, ADR | | | 17,480 | | | | 1,354,525 | |
| Bank Rakyat Indonesia | | | 1,474,500 | | | | 1,009,116 | |
| China Construction Bank | | | 2,098,410 | | | | 1,446,799 | |
| Credicorp Ltd. | | | 18,430 | | | | 2,320,153 | |
| HDFC Bank Ltd. | | | 190,749 | | | | 1,936,275 | |
| Itau Unibanco Holding S.A., ADR | | | 169,350 | | | | 2,357,352 | |
| Julius Baer Group Ltd. | | | 55,174 | | | | 1,997,647 | |
| Siam Commercial Bank Co. Ltd. | | | 394,100 | | | | 1,824,077 | |
| | | | | | | | |
| | | | | | $ | 15,432,469 | |
| | | | | | | | |
| Pharmaceuticals – 4.9% | |
| Bayer AG | | | 34,815 | | | $ | 2,510,462 | |
| Novo Nordisk A/S, “B” | | | 20,421 | | | | 2,954,328 | |
| Roche Holding AG | | | 20,849 | | | | 3,599,109 | |
| Santen Pharmaceutical Co. Ltd. | | | 52,700 | | | | 2,159,161 | |
| Teva Pharmaceutical Industries Ltd., ADR | | | 24,020 | | | | 947,349 | |
| | | | | | | | |
| | | | | | $ | 12,170,409 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Precious Metals & Minerals – 1.1% | |
| Goldcorp, Inc. | | | 37,880 | | | $ | 1,426,127 | |
| Newcrest Mining Ltd. | | | 56,564 | | | | 1,316,600 | |
| | | | | | | | |
| | | | | | $ | 2,742,727 | |
| | | | | | | | |
| Railroad & Shipping – 2.2% | |
| Canadian National Railway Co. | | | 51,360 | | | $ | 4,333,757 | |
| Kuehne & Nagel, Inc. AG | | | 11,880 | | | | 1,257,439 | |
| | | | | | | | |
| | | | | | $ | 5,591,196 | |
| | | | | | | | |
| Real Estate – 0.5% | |
| Brasil Brokers Participacoes | | | 355,900 | | | $ | 1,157,096 | |
| | | | | | | | |
| Specialty Chemicals – 5.9% | |
| Akzo Nobel N.V. | | | 36,482 | | | $ | 1,716,111 | |
| Croda International PLC | | | 446 | | | | 15,836 | |
| L’Air Liquide S.A. | | | 22,456 | | | | 2,569,205 | |
| Linde AG | | | 32,539 | | | | 5,068,208 | |
| Shin-Etsu Chemical Co. Ltd. | | | 49,100 | | | | 2,701,313 | |
| Symrise AG | | | 84,855 | | | | 2,576,141 | |
| | | | | | | | |
| | | | | | $ | 14,646,814 | |
| | | | | | | | |
| Specialty Stores – 1.7% | |
| Industria de Diseno Textil S.A. | | | 40,114 | | | $ | 4,148,977 | |
| | | | | | | | |
| Telecommunications – Wireless – 1.6% | |
| MTN Group Ltd. | | | 77,983 | | | $ | 1,347,995 | |
| TIM Participacoes S.A., ADR | | | 101,600 | | | | 2,789,936 | |
| | | | | | | | |
| | | | | | $ | 4,137,931 | |
| | | | | | | | |
| Telephone Services – 0.9% | |
| China Unicom (Hong Kong) Ltd. | | | 1,728,000 | | | $ | 2,173,935 | |
| | | | | | | | |
| Tobacco – 2.6% | |
| Japan Tobacco, Inc. | | | 216,600 | | | $ | 6,418,628 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $225,739,658) | | | $ | 248,644,531 | |
| | | | | | | | |
|
| MONEY MARKET FUNDS – 0.6% | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 1,487,152 | | | $ | 1,487,152 | |
| | | | | | | | |
|
| COLLATERAL FOR SECURITIES LOANED – 2.1% | |
| Navigator Securities Lending Prime Portfolio, 0.28%, at Cost and Net Asset Value (j) | | | 5,318,283 | | | $ | 5,318,283 | |
| | | | | | | | |
Total Investments
(Identified Cost, $232,545,093) | | | | | | $ | 255,449,966 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – (2.2)% | | | | | | | (5,483,497 | ) |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 249,966,469 | |
| | | | | | | | |
5
MFS International Growth Portfolio
Portfolio of Investments (unaudited) – continued
| (a) | | Non-income producing 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. |
| (v) | | Underlying affiliated fund 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 |
| PLC | | Public Limited Company |
See Notes to Financial Statements
6
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $231,057,941) | | | $253,962,814 | | | | | |
Underlying affiliated funds, at cost and value | | | 1,487,152 | | | | | |
Total investments, at value, including $5,333,864 of securities on loan (identified cost, $232,545,093) | | | $255,449,966 | | | | | |
Cash | | | 14,488 | | | | | |
Foreign currency, at value (identified cost, $321,422) | | | 324,341 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 112,230 | | | | | |
Fund shares sold | | | 445,470 | | | | | |
Interest and dividends | | | 456,782 | | | | | |
Other assets | | | 1,655 | | | | | |
Total assets | | | | | | | $256,804,932 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | $750,974 | | | | | |
Fund shares reacquired | | | 590,020 | | | | | |
Collateral for securities loaned, at value | | | 5,318,283 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 18,139 | | | | | |
Shareholder servicing costs | | | 194 | | | | | |
Distribution and/or service fees | | | 562 | | | | | |
Payable for independent Trustees’ compensation | | | 16 | | | | | |
Accrued expenses and other liabilities | | | 160,275 | | | | | |
Total liabilities | | | | | | | $6,838,463 | |
Net assets | | | | | | | $249,966,469 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $228,064,698 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (net of $96,129 deferred country tax) | | | 22,801,195 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (5,919,292 | ) | | | | |
Undistributed net investment income | | | 5,019,868 | | | | | |
Net assets | | | | | | | $249,966,469 | |
Shares of beneficial interest outstanding | | | | | | | 21,220,961 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $221,538,211 | | | | 18,789,574 | | | | $11.79 | |
Service Class | | | 28,428,258 | | | | 2,431,387 | | | | 11.69 | |
See Notes to Financial Statements
7
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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $4,049,106 | | | | | |
Interest | | | 85,883 | | | | | |
Dividends from underlying affiliated funds | | | 1,850 | | | | | |
Foreign taxes withheld | | | (367,010 | ) | | | | |
Total investment income | | | | | | | $3,769,829 | |
Expenses | | | | | | | | |
Management fee | | | $1,052,670 | | | | | |
Distribution and/or service fees | | | 37,034 | | | | | |
Shareholder servicing costs | | | 12,005 | | | | | |
Administrative services fee | | | 22,475 | | | | | |
Independent Trustees’ compensation | | | 6,484 | | | | | |
Custodian fee | | | 70,940 | | | | | |
Shareholder communications | | | 4,844 | | | | | |
Audit and tax fees | | | 30,542 | | | | | |
Legal fees | | | 1,864 | | | | | |
Miscellaneous | | | 12,698 | | | | | |
Total expenses | | | | | | | $1,251,556 | |
Fees paid indirectly | | | (3 | ) | | | | |
Reduction of expenses by investment adviser | | | (594 | ) | | | | |
Net expenses | | | | | | | $1,250,959 | |
Net investment income | | | | | | | $2,518,870 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments (net of $8,057 country tax) | | | $(2,768,613 | ) | | | | |
Foreign currency | | | (34,954 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $(2,803,567 | ) |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments (net of $83,065 increase in deferred country tax) | | | $15,150,714 | | | | | |
Translation of assets and liabilities in foreign currencies | | | (2,054 | ) | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $15,148,660 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $12,345,093 | |
Change in net assets from operations | | | | | | | $14,863,963 | |
See Notes to Financial Statements
8
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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $2,518,870 | | | | $2,687,916 | |
Net realized gain (loss) on investments and foreign currency | | | (2,803,567 | ) | | | (2,607,608 | ) |
Net unrealized gain (loss) on investments and foreign currency translation | | | 15,148,660 | | | | (25,354,861 | ) |
Change in net assets from operations | | | $14,863,963 | | | | $(25,274,553 | ) |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(2,595,452 | ) |
From net realized gain on investments | | | — | | | | (20,352,060 | ) |
Total distributions declared to shareholders | | | $— | | | | $(22,947,512 | ) |
Change in net assets from fund share transactions | | | $18,126,934 | | | | $12,393,444 | |
Total change in net assets | | | $32,990,897 | | | | $(35,828,621 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 216,975,572 | | | | 252,804,193 | |
At end of period (including undistributed net investment income of $5,019,868 and
$2,500,998, respectively) | | | $249,966,469 | | | | $216,975,572 | |
See Notes to Financial Statements
9
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $11.08 | | | | $13.85 | | | | $12.13 | | | | $8.90 | | | | $17.63 | | | | $17.93 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.13 | | | | $0.15 | | | | $0.15 | | | | $0.14 | | | | $0.16 | | | | $0.21 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.58 | | | | (1.60 | ) | | | 1.68 | | | | 3.20 | | | | (6.04 | ) | | | 2.57 | |
Total from investment operations | | | $0.71 | | | | $(1.45 | ) | | | $1.83 | | | | $3.34 | | | | $(5.88 | ) | | | $2.78 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.15 | ) | | | $(0.11 | ) | | | $(0.11 | ) | | | $(0.19 | ) | | | $(0.27 | ) |
From net realized gain on investments | | | — | | | | (1.17 | ) | | | — | | | | — | | | | (2.66 | ) | | | (2.81 | ) |
Total distributions declared to shareholders | | | $— | | | | $(1.32 | ) | | | $(0.11 | ) | | | $(0.11 | ) | | | $(2.85 | ) | | | $(3.08 | ) |
Net asset value, end of period (x) | | | $11.79 | | | | $11.08 | | | | $13.85 | | | | $12.13 | | | | $8.90 | | | | $17.63 | |
Total return (%) (k)(r)(s)(x) | | | 6.41 | (n) | | | (10.89 | ) | | | 15.16 | | | | 38.06 | | | | (39.82 | ) | | | 16.58 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.04 | (a) | | | 1.06 | | | | 1.09 | | | | 1.25 | | | | 1.22 | | | | 1.11 | |
Expenses after expense reductions (f) | | | 1.04 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 2.19 | (a) | | | 1.16 | | | | 1.21 | | | | 1.39 | | | | 1.25 | | | | 1.16 | |
Portfolio turnover | | | 25 | (n) | | | 52 | | | | 66 | | | | 56 | | | | 73 | | | | 56 | |
Net assets at end of period (000 omitted) | | | $221,538 | | | | $188,066 | | | | $221,456 | | | | $179,925 | | | | $87,034 | | | | $139,633 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $11.00 | | | | $13.76 | | | | $12.06 | | | | $8.84 | | | | $17.53 | | | | $17.85 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.11 | | | | $0.11 | | | | $0.11 | | | | $0.12 | | | | $0.13 | | | | $0.15 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.58 | | | | (1.58 | ) | | | 1.67 | | | | 3.18 | | | | (6.00 | ) | | | 2.56 | |
Total from investment operations | | | $0.69 | | | | $(1.47 | ) | | | $1.78 | | | | $3.30 | | | | $(5.87 | ) | | | $2.71 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.12 | ) | | | $(0.08 | ) | | | $(0.08 | ) | | | $(0.16 | ) | | | $(0.22 | ) |
From net realized gain on investments | | | — | | | | (1.17 | ) | | | — | | | | — | | | | (2.66 | ) | | | (2.81 | ) |
Total distributions declared to shareholders | | | $— | | | | $(1.29 | ) | | | $(0.08 | ) | | | $(0.08 | ) | | | $(2.82 | ) | | | $(3.03 | ) |
Net asset value, end of period (x) | | | $11.69 | | | | $11.00 | | | | $13.76 | | | | $12.06 | | | | $8.84 | | | | $17.53 | |
Total return (%) (k)(r)(s)(x) | | | 6.27 | (n) | | | (11.11 | ) | | | 14.86 | | | | 37.69 | | | | (39.96 | ) | | | 16.26 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.29 | (a) | | | 1.31 | | | | 1.34 | | | | 1.50 | | | | 1.46 | | | | 1.37 | |
Expenses after expense reductions (f) | | | 1.29 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 1.89 | (a) | | | 0.89 | | | | 0.94 | | | | 1.17 | | | | 1.04 | | | | 0.85 | |
Portfolio turnover | | | 25 | (n) | | | 52 | | | | 66 | | | | 56 | | | | 73 | | | | 56 | |
Net assets at end of period (000 omitted) | | | $28,428 | | | | $28,910 | | | | $31,348 | | | | $27,338 | | | | $18,056 | | | | $28,689 | |
See Notes to Financial Statements
10
MFS International Growth Portfolio
Financial Highlights – continued
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values per share 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 Growth Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS International Growth Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to
12
MFS International Growth Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
France | | | $7,151,011 | | | | $31,039,201 | | | | $— | | | | $38,190,212 | |
United Kingdom | | | 11,524,550 | | | | 24,392,275 | | | | — | | | | 35,916,825 | |
Japan | | | 2,159,161 | | | | 28,794,003 | | | | — | | | | 30,953,164 | |
Switzerland | | | — | | | | 21,791,071 | | | | — | | | | 21,791,071 | |
Germany | | | 2,576,141 | | | | 19,166,229 | | | | — | | | | 21,742,370 | |
Brazil | | | 12,888,448 | | | | — | | | | — | | | | 12,888,448 | |
Hong Kong | | | — | | | | 9,335,496 | | | | — | | | | 9,335,496 | |
Netherlands | | | 2,500,040 | | | | 5,623,166 | | | | — | | | | 8,123,206 | |
Canada | | | 7,151,785 | | | | — | | | | — | | | | 7,151,785 | |
Other Countries | | | 25,702,697 | | | | 36,849,257 | | | | — | | | | 62,551,954 | |
| Mutual Funds | | | 6,805,435 | | | | — | | | | — | | | | 6,805,435 | |
| Total Investments | | | $78,459,268 | | | | $176,990,698 | | | | $— | | | | $255,449,966 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 2 investments presented above, equity investments amounting to $86,389,282 would have been considered level 1 investments at the beginning of the period. Of the level 1 investments presented above, equity investments amounting to $4,023,615 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the
13
MFS International Growth Portfolio
Notes to Financial Statements (unaudited) – continued
fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $4,599,059 | |
| Long-term capital gains | | | 18,348,453 | |
| Total distributions | | | $22,947,512 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $235,531,273 | |
| Gross appreciation | | | 30,201,182 | |
| Gross depreciation | | | (10,282,489 | ) |
| Net unrealized appreciation (depreciation) | | | $19,918,693 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 2,504,745 | |
| Capital loss carryforwards | | | (129,545 | ) |
| Other temporary differences | | | (22,306 | ) |
| Net unrealized appreciation (depreciation) | | | 4,684,914 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
As of December 31, 2011 the fund had capital loss carryforwards available to offset future realized gains. Such losses are characterized as follows:
| | | | |
| Short-term losses | | | $(129,545 | ) |
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), the above net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses.
14
MFS International Growth Portfolio
Notes to Financial Statements (unaudited) – continued
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | | | | | | | | | |
| | | From net investment
income | | | From net realized gain on
investments | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $2,313,897 | | | | $— | | | | $17,674,412 | |
| Service Class | | | — | | | | 281,555 | | | | — | | | | 2,677,648 | |
| Total | | | $— | | | | $2,595,452 | | | | $— | | | | $20,352,060 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.90% | |
| Next $1 billion of average daily net assets | | | 0.80% | |
| Average daily net assets in excess of $2 billion | | | 0.70% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 1.35% of average daily net assets for the Initial Class shares and 1.60% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2014. For the six months ended June 30, 2012, 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, 2012, the fee was $11,990, which equated to 0.0103% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2012, these costs amounted to $15.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0192% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the
15
MFS International Growth Portfolio
Notes to Financial Statements (unaudited) – continued
Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $1,184 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $594, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $80,144,253 and $58,929,024, 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 2,682,465 | | | | $30,957,864 | | | | 2,376,645 | | | | $29,705,818 | |
Service Class | | | 147,629 | | | | 1,726,617 | | | | 529,083 | | | | 6,566,825 | |
| | | 2,830,094 | | | | $32,684,481 | | | | 2,905,728 | | | | $36,272,643 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 1,714,263 | | | | $19,988,309 | |
Service Class | | | — | | | | — | | | | 255,323 | | | | 2,959,203 | |
| | | — | | | | $— | | | | 1,969,586 | | | | $22,947,512 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (861,348 | ) | | | $(10,383,524 | ) | | | (3,115,040 | ) | | | $(41,294,745 | ) |
Service Class | | | (343,387 | ) | | | (4,174,023 | ) | | | (435,552 | ) | | | (5,531,966 | ) |
| | | (1,204,735 | ) | | | $(14,557,547 | ) | | | (3,550,592 | ) | | | $(46,826,711 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | 1,821,117 | | | | $20,574,340 | | | | 975,868 | | | | $8,399,382 | |
Service Class | | | (195,758 | ) | | | (2,447,406 | ) | | | 348,854 | | | | 3,994,062 | |
| | | 1,625,359 | | | | $18,126,934 | | | | 1,324,722 | | | | $12,393,444 | |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $787 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 1,785,076 | | | | 41,280,832 | | | | (41,578,756 | ) | | | 1,487,152 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $1,850 | | | | $1,487,152 | |
16
MFS International Growth Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
17
SEMIANNUAL REPORT
June 30, 2012
MFS® BLENDED RESEARCH® CORE EQUITY PORTFOLIO
MFS® Variable Insurance Trust II
CGS-SEM
MFS® BLENDED RESEARCH® CORE EQUITY PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owner. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Blended Research Core Equity Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Blended Research Core Equity Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Apple, Inc. | | | 5.8% | |
| Exxon Mobil Corp. | | | 4.6% | |
| Microsoft Corp. | | | 2.9% | |
| Chevron Corp. | | | 2.8% | |
| Google, Inc., “A” | | | 2.3% | |
| Pfizer, Inc. | | | 2.1% | |
| Abbott Laboratories | | | 2.0% | |
| JPMorgan Chase & Co. | | | 2.0% | |
| Procter & Gamble Co. | | | 1.8% | |
| Amgen, Inc. | | | 1.7% | |
| | | | |
| Equity sectors | | | | |
| Technology | | | 17.2% | |
| Financial Services | | | 13.3% | |
| Health Care | | | 12.3% | |
| Energy | | | 10.1% | |
| Consumer Staples | | | 9.8% | |
| Utilities & Communications | | | 8.7% | |
| Industrial Goods & Services | | | 7.8% | |
| Retailing | | | 6.6% | |
| Leisure | | | 4.7% | |
| Basic Materials | | | 3.5% | |
| Special Products & Services | | | 1.9% | |
| Transportation | | | 1.8% | |
| Autos & Housing | | | 1.7% | |
Percentages are based on net assets as of 6/30/12.
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, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.60% | | | | $1,000.00 | | | | $1,086.63 | | | | $3.11 | |
| | Hypothetical (h) | | | 0.60% | | | | $1,000.00 | | | | $1,021.88 | | | | $3.02 | |
| Service Class | | Actual | | | 0.85% | | | | $1,000.00 | | | | $1,085.31 | | | | $4.41 | |
| | Hypothetical (h) | | | 0.85% | | | | $1,000.00 | | | | $1,020.64 | | | | $4.27 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Blended Research Core Equity Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 99.4% | |
| Aerospace – 3.7% | |
| Lockheed Martin Corp. | | | 63,790 | | | $ | 5,554,831 | |
| Northrop Grumman Corp. | | | 83,160 | | | | 5,304,776 | |
| United Technologies Corp. | | | 80,130 | | | | 6,052,219 | |
| | | | | | | | |
| | | | | | $ | 16,911,826 | |
| | | | | | | | |
| Automotive – 1.7% | |
| Delphi Automotive PLC (a) | | | 132,510 | | | $ | 3,379,005 | |
| Johnson Controls, Inc. | | | 151,240 | | | | 4,190,860 | |
| | | | | | | | |
| | | | | | $ | 7,569,865 | |
| | | | | | | | |
| Biotechnology – 2.1% | |
| Amgen, Inc. | | | 109,440 | | | $ | 7,993,498 | |
| Gilead Sciences, Inc. (a) | | | 28,530 | | | | 1,463,018 | |
| | | | | | | | |
| | | | | | $ | 9,456,516 | |
| | | | | | | | |
| Broadcasting – 1.0% | |
| Viacom, Inc., “B” | | | 96,180 | | | $ | 4,522,384 | |
| | | | | | | | |
| Business Services – 1.1% | |
| Accenture PLC, “A” | | | 85,890 | | | $ | 5,161,130 | |
| | | | | | | | |
| Cable TV – 2.7% | |
| Comcast Corp., “A” | | | 195,140 | | | $ | 6,238,626 | |
| Time Warner Cable, Inc. | | | 76,570 | | | | 6,286,397 | |
| | | | | | | | |
| | | | | | $ | 12,525,023 | |
| | | | | | | | |
| Chemicals – 1.2% | |
| CF Industries Holdings, Inc. | | | 27,750 | | | $ | 5,376,285 | |
| | | | | | | | |
| Computer Software – 5.2% | |
| Microsoft Corp. | | | 428,670 | | | $ | 13,113,015 | |
| Oracle Corp. | | | 179,640 | | | | 5,335,308 | |
| SolarWinds, Inc. (a) | | | 121,540 | | | | 5,294,282 | |
| | | | | | | | |
| | | | | | $ | 23,742,605 | |
| | | | | | | | |
| Computer Software – Systems – 7.4% | |
| Apple, Inc. (a) | | | 45,470 | | | $ | 26,554,480 | |
| Hewlett-Packard Co. | | | 169,830 | | | | 3,415,281 | |
| International Business Machines Corp. | | | 20,480 | | | | 4,005,478 | |
| | | | | | | | |
| | | | | | $ | 33,975,239 | |
| | | | | | | | |
| Consumer Products – 2.9% | |
| Nu Skin Enterprises, Inc., “A” | | | 103,550 | | | $ | 4,856,495 | |
| Procter & Gamble Co. | | | 137,040 | | | | 8,393,700 | |
| | | | | | | | |
| | | | | | $ | 13,250,195 | |
| | | | | | | | |
| Consumer Services – 0.8% | |
| Priceline.com, Inc. (a) | | | 5,700 | | | $ | 3,787,764 | |
| | | | | | | | |
| Electrical Equipment – 2.0% | |
| General Electric Co. | | | 216,870 | | | $ | 4,519,571 | |
| Tyco International Ltd. | | | 87,330 | | | | 4,615,391 | |
| | | | | | | | |
| | | | | | $ | 9,134,962 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | |
| Electronics – 1.7% | |
| Intel Corp. | | | 159,830 | | | $ | 4,259,470 | |
| KLA-Tencor Corp. | | | 74,680 | | | | 3,677,990 | |
| | | | | | | | |
| | | | | | $ | 7,937,460 | |
| | | | | | | | |
| Energy – Independent – 1.5% | |
| Energy XXI (Bermuda) Ltd. | | | 99,325 | | | $ | 3,107,879 | |
| HollyFrontier Corp. | | | 109,850 | | | | 3,891,986 | |
| | | | | | | | |
| | | | | | $ | 6,999,865 | |
| | | | | | | | |
| Energy – Integrated – 7.5% | |
| Chevron Corp. | | | 122,990 | | | $ | 12,975,445 | |
| Exxon Mobil Corp. | | | 247,050 | | | | 21,140,069 | |
| | | | | | | | |
| | | | | | $ | 34,115,514 | |
| | | | | | | | |
| Food & Beverages – 4.3% | |
| Bunge Ltd. | | | 74,330 | | | $ | 4,663,464 | |
| Coca-Cola Co. | | | 19,790 | | | | 1,547,380 | |
| Coca-Cola Enterprises, Inc. | | | 176,840 | | | | 4,958,594 | |
| General Mills, Inc. | | | 140,230 | | | | 5,404,464 | |
| PepsiCo, Inc. | | | 44,720 | | | | 3,159,915 | |
| | | | | | | | |
| | | | | | $ | 19,733,817 | |
| | | | | | | | |
| Food & Drug Stores – 2.8% | |
| CVS Caremark Corp. | | | 166,950 | | | $ | 7,801,574 | |
| Kroger Co. | | | 215,300 | | | | 4,992,807 | |
| | | | | | | | |
| | | | | | $ | 12,794,381 | |
| | | | | | | | |
| General Merchandise – 1.0% | |
| Macy’s, Inc. | | | 137,100 | | | $ | 4,709,385 | |
| | | | | | | | |
| Insurance – 4.7% | |
| ACE Ltd. | | | 25,520 | | | $ | 1,891,798 | |
| American International Group, Inc. (a) | | | 129,620 | | | | 4,159,506 | |
| Berkshire Hathaway, Inc., “B” (a) | | | 7,150 | | | | 595,810 | |
| Everest Re Group Ltd. | | | 27,740 | | | | 2,870,813 | |
| Hartford Financial Services Group, Inc. | | | 283,660 | | | | 5,000,926 | |
| Prudential Financial, Inc. | | | 92,980 | | | | 4,503,021 | |
| Travelers Cos., Inc. | | | 38,540 | | | | 2,460,394 | |
| | | | | | | | |
| | | | | | $ | 21,482,268 | |
| | | | | | | | |
| Internet – 2.3% | |
| Google, Inc., “A” (a) | | | 17,890 | | | $ | 10,377,452 | |
| | | | | | | | |
| Machinery & Tools – 2.1% | |
| Cummins, Inc. | | | 55,810 | | | $ | 5,408,547 | |
| Kennametal, Inc. | | | 43,150 | | | | 1,430,423 | |
| United Rentals, Inc. (a) | | | 86,370 | | | | 2,940,035 | |
| | | | | | | | |
| | | | | | $ | 9,779,005 | |
| | | | | | | | |
| Major Banks – 4.9% | |
| Goldman Sachs Group, Inc. | | | 34,740 | | | $ | 3,330,176 | |
| JPMorgan Chase & Co. | | | 258,380 | | | | 9,231,917 | |
| KeyCorp | | | 260,350 | | | | 2,015,109 | |
| PNC Financial Services Group, Inc. | | | 79,590 | | | | 4,863,745 | |
4
MFS Blended Research Core Equity Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | |
| Major Banks – continued | |
| Wells Fargo & Co. | | | 82,480 | | | $ | 2,758,131 | |
| | | | | | | | |
| | | | | | $ | 22,199,078 | |
| | | | | | | | |
| Medical & Health Technology & Services – 2.5% | |
| HCA Holdings, Inc. | | | 169,880 | | | $ | 5,169,448 | |
| McKesson Corp. | | | 67,150 | | | | 6,295,313 | |
| | | | | | | | |
| | | | | | $ | 11,464,761 | |
| | | | | | | | |
| Medical Equipment – 1.5% | |
| Medtronic, Inc. | | | 85,600 | | | $ | 3,315,288 | |
| Thermo Fisher Scientific, Inc. | | | 69,490 | | | | 3,607,226 | |
| | | | | | | | |
| | | | | | $ | 6,922,514 | |
| | | | | | | | |
| Metals & Mining – 1.1% | |
| Cliffs Natural Resources, Inc. | | | 101,180 | | | $ | 4,987,162 | |
| | | | | | | | |
| Natural Gas – Pipeline – 0.8% | |
| Williams Cos., Inc. | | | 122,080 | | | $ | 3,518,346 | |
| | | | | | | | |
| Network & Telecom – 0.6% | |
| F5 Networks, Inc. (a) | | | 28,760 | | | $ | 2,863,346 | |
| | | | | | | | |
| Oil Services – 1.1% | |
| Halliburton Co. | | | 101,680 | | | $ | 2,886,695 | |
| Oil States International, Inc. (a) | | | 29,450 | | | | 1,949,590 | |
| | | | | | | | |
| | | | | | $ | 4,836,285 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 3.4% | |
| Capital One Financial Corp. | | | 54,930 | | | $ | 3,002,474 | |
| Citigroup, Inc. | | | 110,193 | | | | 3,020,390 | |
| Discover Financial Services | | | 206,240 | | | | 7,131,779 | |
| Visa, Inc., “A” | | | 17,650 | | | | 2,182,070 | |
| | | | | | | | |
| | | | | | $ | 15,336,713 | |
| | | | | | | | |
| Pharmaceuticals – 6.2% | |
| Abbott Laboratories | | | 143,930 | | | $ | 9,279,167 | |
| Johnson & Johnson | | | 107,790 | | | | 7,282,292 | |
| Merck & Co., Inc. | | | 57,680 | | | | 2,408,140 | |
| Pfizer, Inc. | | | 418,390 | | | | 9,622,970 | |
| | | | | | | | |
| | | | | | $ | 28,592,569 | |
| | | | | | | | |
| Railroad & Shipping – 0.5% | |
| CSX Corp. | | | 90,660 | | | $ | 2,027,158 | |
| Union Pacific Corp. | | | 2,680 | | | | 319,751 | |
| | | | | | | | |
| | | | | | $ | 2,346,909 | |
| | | | | | | | |
| Real Estate – 0.3% | |
| Public Storage, Inc., REIT | | | 10,740 | | | $ | 1,550,963 | |
| | | | | | | | |
| Restaurants – 1.0% | |
| McDonald’s Corp. | | | 52,080 | | | $ | 4,610,642 | |
| | | | | | | | |
| Specialty Chemicals – 1.2% | |
| Airgas, Inc. | | | 65,500 | | | $ | 5,502,655 | |
| | | | | | | | |
| Specialty Stores – 2.8% | |
| American Eagle Outfitters, Inc. | | | 55,420 | | | $ | 1,093,437 | |
| Gap, Inc. | | | 187,890 | | | | 5,140,670 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | |
| Specialty Stores – continued | |
| O’Reilly Automotive, Inc. (a) | | | 20,010 | | | $ | 1,676,238 | |
| PetSmart, Inc. | | | 73,170 | | | | 4,988,731 | |
| | | | | | | | |
| | | | | | $ | 12,899,076 | |
| | | | | | | | |
| Telecommunications – Wireless – 1.3% | |
| American Tower Corp., REIT | | | 87,040 | | | $ | 6,084,966 | |
| | | | | | | | |
| Telephone Services – 2.7% | |
| AT&T, Inc. | | | 104,110 | | | $ | 3,712,563 | |
| CenturyLink, Inc. | | | 104,470 | | | | 4,125,520 | |
| Verizon Communications, Inc. | | | 97,640 | | | | 4,339,122 | |
| | | | | | | | |
| | | | | | $ | 12,177,205 | |
| | | | | | | | |
| Tobacco – 2.6% | |
| Lorillard, Inc. | | | 40,620 | | | $ | 5,359,809 | |
| Philip Morris International, Inc. | | | 74,800 | | | | 6,527,048 | |
| | | | | | | | |
| | | | | | $ | 11,886,857 | |
| | | | | | | | |
| Trucking – 1.3% | |
| United Parcel Service, Inc., “B” | | | 73,020 | | | $ | 5,751,055 | |
| | | | | | | | |
| Utilities – Electric Power – 3.9% | |
| AES Corp. (a) | | | 392,240 | | | $ | 5,032,439 | |
| American Electric Power Co., Inc. | | | 133,110 | | | | 5,311,089 | |
| CMS Energy Corp. | | | 81,790 | | | | 1,922,065 | |
| FirstEnergy Corp. | | | 110,040 | | | | 5,412,868 | |
| | | | | | | | |
| | | | | | $ | 17,678,461 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $414,196,514) | | | $ | 454,552,504 | |
| | | | | | | | |
|
| MONEY MARKET FUNDS – 0.0% | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 117,340 | | | $ | 117,340 | |
| | | | | | | | |
Total Investments
(Identified Cost, $414,313,854) | | | | | | $ | 454,669,844 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 0.6% | | | | | | | 2,664,795 | |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 457,334,639 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (v) | | Underlying affiliated fund 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:
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
See Notes to Financial Statements
5
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $414,196,514) | | | $454,552,504 | | | | | |
Underlying affiliated funds, at cost and value | | | 117,340 | | | | | |
Total investments, at value (identified cost, $414,313,854) | | | $454,669,844 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 2,905,109 | | | | | |
Dividends | | | 401,552 | | | | | |
Other assets | | | 3,176 | | | | | |
Total assets | | | | | | | $457,979,681 | |
Liabilities | | | | | | | | |
Payable for fund shares reacquired | | | $531,428 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 15,216 | | | | | |
Shareholder servicing costs | | | 359 | | | | | |
Distribution and/or service fees | | | 2,811 | | | | | |
Payable for independent Trustees’ compensation | | | 50 | | | | | |
Accrued expenses and other liabilities | | | 95,178 | | | | | |
Total liabilities | | | | | | | $645,042 | |
Net assets | | | | | | | $457,334,639 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $511,586,097 | | | | | |
Unrealized appreciation (depreciation) on investments | | | 40,355,990 | | | | | |
Accumulated net realized gain (loss) on investments | | | (105,739,444 | ) | | | | |
Undistributed net investment income | | | 11,131,996 | | | | | |
Net assets | | | | | | | $457,334,639 | |
Shares of beneficial interest outstanding | | | | | | | 13,242,791 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $316,883,134 | | | | 9,153,721 | | | | $34.62 | |
Service Class | | | 140,451,505 | | | | 4,089,070 | | | | 34.35 | |
See Notes to Financial Statements
6
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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $5,391,636 | | | | | |
Interest | | | 4,318 | | | | | |
Dividends from underlying affiliated funds | | | 1,053 | | | | | |
Total investment income | | | | | | | $5,397,007 | |
Expenses | | | | | | | | |
Management fee | | | $1,302,032 | | | | | |
Distribution and/or service fees | | | 185,782 | | | | | |
Shareholder servicing costs | | | 24,297 | | | | | |
Administrative services fee | | | 40,416 | | | | | |
Independent Trustees’ compensation | | | 8,437 | | | | | |
Custodian fee | | | 23,460 | | | | | |
Shareholder communications | | | 12,092 | | | | | |
Audit and tax fees | | | 23,854 | | | | | |
Legal fees | | | 3,997 | | | | | |
Miscellaneous | | | 14,021 | | | | | |
Total expenses | | | | | | | $1,638,388 | |
Fees paid indirectly | | | (2 | ) | | | | |
Reduction of expenses by investment adviser | | | (30,406 | ) | | | | |
Net expenses | | | | | | | $1,607,980 | |
Net investment income | | | | | | | $3,789,027 | |
Realized and unrealized gain (loss) on investments | | | | | | | | |
Realized gain (loss) on investments (identified cost basis) | | | | | | | $12,131,933 | |
Change in unrealized appreciation (depreciation) on investments | | | | | | | $23,838,123 | |
Net realized and unrealized gain (loss) on investments | | | | | | | $35,970,056 | |
Change in net assets from operations | | | | | | | $39,759,083 | |
See Notes to Financial Statements
7
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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $3,789,027 | | | | $7,344,092 | |
Net realized gain (loss) on investments | | | 12,131,933 | | | | 30,452,125 | |
Net unrealized gain (loss) on investments | | | 23,838,123 | | | | (26,479,652 | ) |
Change in net assets from operations | | | $39,759,083 | | | | $11,316,565 | |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(9,057,199 | ) |
Change in net assets from fund share transactions | | | $(45,421,271 | ) | | | $(84,728,511 | ) |
Total change in net assets | | | $(5,662,188 | ) | | | $(82,469,145 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 462,996,827 | | | | 545,465,972 | |
At end of period (including undistributed net investment income of $11,131,996 and
$7,342,969, respectively) | | | $457,334,639 | | | | $462,996,827 | |
See Notes to Financial Statements
8
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $31.86 | | | | $31.89 | | | | $27.84 | | | | $22.80 | | | | $35.51 | | | | $33.89 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.29 | | | | $0.49 | | | | $0.51 | | | | $0.43 | | | | $0.48 | | | | $0.38 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 2.47 | | | | 0.10 | | | | 4.05 | | | | 5.16 | | | | (12.74 | ) | | | 1.64 | |
Total from investment operations | | | $2.76 | | | | $0.59 | | | | $4.56 | | | | $5.59 | | | | $(12.26 | ) | | | $2.02 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.62 | ) | | | $(0.51 | ) | | | $(0.55 | ) | | | $(0.45 | ) | | | $(0.40 | ) |
Net asset value, end of period (x) | | | $34.62 | | | | $31.86 | | | | $31.89 | | | | $27.84 | | | | $22.80 | | | | $35.51 | |
Total return (%) (k)(r)(s)(x) | | | 8.66 | (n) | | | 1.97 | | | | 16.46 | | | | 25.26 | | | | (34.95 | ) | | | 5.95 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.61 | (a) | | | 0.64 | | | | 0.65 | | | | 0.66 | | | | 0.64 | | | | 0.62 | |
Expenses after expense reductions (f) | | | 0.60 | (a) | | | 0.60 | | | | 0.60 | | | | 0.60 | | | | 0.60 | | | | 0.61 | |
Net investment income | | | 1.68 | (a) | | | 1.52 | | | | 1.77 | | | | 1.81 | | | | 1.60 | | | | 1.07 | |
Portfolio turnover | | | 34 | (n) | | | 77 | | | | 68 | | | | 74 | | | | 76 | | | | 102 | |
Net assets at end of period (000 omitted) | | | $316,883 | | | | $315,115 | | | | $360,667 | | | | $361,105 | | | | $342,241 | | | | $673,008 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $31.65 | | | | $31.66 | | | | $27.66 | | | | $22.62 | | | | $35.23 | | | | $33.65 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.24 | | | | $0.41 | | | | $0.44 | | | | $0.37 | | | | $0.41 | | | | $0.29 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 2.46 | | | | 0.11 | | | | 4.00 | | | | 5.14 | | | | (12.66 | ) | | | 1.63 | |
Total from investment operations | | | $2.70 | | | | $0.52 | | | | $4.44 | | | | $5.51 | | | | $(12.25 | ) | | | $1.92 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.53 | ) | | | $(0.44 | ) | | | $(0.47 | ) | | | $(0.36 | ) | | | $(0.34 | ) |
Net asset value, end of period (x) | | | $34.35 | | | | $31.65 | | | | $31.66 | | | | $27.66 | | | | $22.62 | | | | $35.23 | |
Total return (%) (k)(r)(s)(x) | | | 8.53 | (n) | | | 1.74 | | | | 16.12 | | | | 25.00 | | | | (35.12 | ) | | | 5.69 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.86 | (a) | | | 0.89 | | | | 0.90 | | | | 0.91 | | | | 0.90 | | | | 0.87 | |
Expenses after expense reductions (f) | | | 0.85 | (a) | | | 0.85 | | | | 0.85 | | | | 0.85 | | | | 0.85 | | | | 0.86 | |
Net investment income | | | 1.43 | (a) | | | 1.26 | | | | 1.52 | | | | 1.57 | | | | 1.35 | | | | 0.84 | |
Portfolio turnover | | | 34 | (n) | | | 77 | | | | 68 | | | | 74 | | | | 76 | | | | 102 | |
Net assets at end of period (000 omitted) | | | $140,452 | | | | $147,882 | | | | $184,799 | | | | $199,348 | | | | $193,658 | | | | $338,647 | |
See Notes to Financial Statements
9
MFS Blended Research Core Equity Portfolio
Financial Highlights – continued
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values per share 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 Blended Research Core Equity Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Blended Research Core Equity Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
11
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements (unaudited) – continued
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities | | | $454,552,504 | | | | $— | | | | $— | | | | $454,552,504 | |
| Mutual Funds | | | 117,340 | | | | — | | | | — | | | | 117,340 | |
| Total Investments | | | $454,669,844 | | | | $— | | | | $— | | | | $454,669,844 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
12
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements (unaudited) – continued
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $9,057,199 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $414,519,275 | |
| Gross appreciation | | | 58,945,467 | |
| Gross depreciation | | | (18,794,898 | ) |
| Net unrealized appreciation (depreciation) | | | $40,150,569 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 7,342,969 | |
| Capital loss carryforwards | | | (117,665,956 | ) |
| Net unrealized appreciation (depreciation) | | | 16,312,446 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/16 | | | $(45,841,291 | ) |
| 12/31/17 | | | (71,824,665 | ) |
| Total | | | $(117,665,956 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $6,388,464 | |
| Service Class | | | — | | | | 2,668,735 | |
| Total | | | $— | | | | $9,057,199 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.55% of the fund’s average daily net assets.
Effective May 1, 2013, the investment adviser has agreed in writing to reduce its management fee to 0.40% of the fund’s average daily net assets. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2014.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.60% of average daily net assets for the Initial Class shares and 0.85% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue until April 30, 2013. For the six months ended June 30, 2012, this reduction amounted to $29,187 and is reflected as a reduction of total expenses in the Statements of Operations.
13
MFS Blended Research Core Equity 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, 2012, the fee was $24,286, which equated to 0.0103% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2012, these costs amounted to $11.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0171% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $2,443 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $1,219, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $158,274,565 and $199,162,025, 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 22,235 | | | | $761,461 | | | | 101,422 | | | | $3,234,643 | |
Service Class | | | 2,455 | | | | 81,423 | | | | 107,431 | | | | 3,177,466 | |
| | | 24,690 | | | | $842,884 | | | | 208,853 | | | | $6,412,109 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 212,171 | | | | $6,388,464 | |
Service Class | | | — | | | | — | | | | 89,136 | | | | 2,668,735 | |
| | | — | | | | $— | | | | 301,307 | | | | $9,057,199 | |
14
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements (unaudited) – continued
| | | | | | | | | | | | | | | | |
| | | Six months ended 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (760,148 | ) | | | $(26,166,231 | ) | | | (1,733,153 | ) | | | $(56,314,858 | ) |
Service Class | | | (586,160 | ) | | | (20,097,924 | ) | | | (1,360,219 | ) | | | (43,882,961 | ) |
| | | (1,346,308 | ) | | | $(46,264,155 | ) | | | (3,093,372 | ) | | | $(100,197,819 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (737,913 | ) | | | $(25,404,770 | ) | | | (1,419,560 | ) | | | $(46,691,751 | ) |
Service Class | | | (583,705 | ) | | | (20,016,501 | ) | | | (1,163,652 | ) | | | (38,036,760 | ) |
| | | (1,321,618 | ) | | | $(45,421,271 | ) | | | (2,583,212 | ) | | | $(84,728,511 | ) |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $1,613 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 632,653 | | | | 36,278,344 | | | | (36,793,657 | ) | | | 117,340 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $1,053 | | | | $117,340 | |
15
MFS Blended Research Core Equity Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
16
SEMIANNUAL REPORT
June 30, 2012
MFS® TECHNOLOGY PORTFOLIO
MFS® Variable Insurance Trust II
TKS-SEM
MFS® TECHNOLOGY PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Technology Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Technology Portfolio
PORTFOLIO COMPOSITION
Portfolio structure (i)(s)
| | | | |
| Top ten holdings (i) | | | | |
| Apple, Inc. | | | 12.0% | |
| Google, Inc., “A” | | | 8.8% | |
| Oracle Corp. | | | 6.5% | |
| Microsoft Corp. | | | 4.2% | |
| Qualcomm, Inc. | | | 4.1% | |
| EMC Corp. | | | 3.7% | |
| MasterCard, Inc., “A” | | | 3.5% | |
| Amazon.com, Inc. | | | 3.4% | |
| Visa, Inc., “A” | | | 3.4% | |
| Hewlett-Packard Co. | | | 3.3% | |
| | | | |
| Top five industries (i) | | | | |
| Computer Software-Systems (s) | | | 23.9% | |
| Computer Software (s) | | | 19.7% | |
| Internet | | | 12.3% | |
| Electronics | | | 9.3% | |
| Network & Telecom | | | 8.7% | |
| (i) | For purposes of this presentation, the components include the market value of securities, and reflect the impact of the equivalent exposure of derivative positions, if 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 market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio. |
| (s) | Includes securities sold short. |
Percentages are based on net assets as of 6/30/12.
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, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 1.04% | | | | $1,000.00 | | | | $1,088.15 | | | | $5.40 | |
| | Hypothetical (h) | | | 1.04% | | | | $1,000.00 | | | | $1,019.69 | | | | $5.22 | |
| Service Class | | Actual | | | 1.29% | | | | $1,000.00 | | | | $1,086.18 | | | | $6.69 | |
| | Hypothetical (h) | | | 1.29% | | | | $1,000.00 | | | | $1,018.45 | | | | $6.47 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
Expenses Impacting Table
Expense ratios include 0.04% of investment related expenses from short sale dividend and interest expenses that are outside of the expense cap arrangement (See Note 3 of the Notes to Financial Statements).
3
MFS Technology Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 100.1% | |
| Broadcasting – 1.4% | |
| Viacom, Inc., “B” | | | 10,920 | | | $ | 513,458 | |
| | | | | | | | |
| Business Services – 5.0% | |
| Accenture PLC, “A” | | | 8,490 | | | $ | 510,164 | |
| Cognizant Technology Solutions Corp., “A” (a) | | | 11,540 | | | | 692,400 | |
| FleetCor Technologies, Inc. (a) | | | 18,860 | | | | 660,854 | |
| | | | | | | | |
| | | | | | $ | 1,863,418 | |
| | | | | | | | |
| Computer Software – 22.4% | |
| Autodesk, Inc. (a) | | | 17,580 | | | $ | 615,124 | |
| BMC Software, Inc. (a) | | | 5,080 | | | | 216,814 | |
| Check Point Software Technologies Ltd. (a) | | | 4,300 | | | | 213,237 | |
| Citrix Systems, Inc. (a) | | | 7,560 | | | | 634,586 | |
| Microsoft Corp. | | | 51,340 | | | | 1,570,491 | |
| NetSuite, Inc. (a) | | | 2,310 | | | | 126,519 | |
| Nuance Communications, Inc. (a) | | | 9,830 | | | | 234,151 | |
| Oracle Corp. (s) | | | 81,360 | | | | 2,416,392 | |
| Parametric Technology Corp. (a) | | | 17,340 | | | | 363,446 | |
| Red Hat, Inc. (a) | | | 7,450 | | | | 420,776 | |
| Salesforce.com, Inc. (a) | | | 4,940 | | | | 683,004 | |
| Symantec Corp. (a) | | | 25,160 | | | | 367,588 | |
| TIBCO Software, Inc. (a) | | | 8,540 | | | | 255,517 | |
| VeriSign, Inc. (a) | | | 5,970 | | | | 260,113 | |
| | | | | | | | |
| | | | | | $ | 8,377,758 | |
| | | | | | | | |
| Computer Software – Systems – 24.8% | |
| Active Network, Inc. (a) | | | 12,310 | | | $ | 189,451 | |
| Apple, Inc. (a)(s) | | | 7,690 | | | | 4,490,960 | |
| EMC Corp. (a) | | | 54,050 | | | | 1,385,302 | |
| Fusion-io, Inc. (a) | | | 6,560 | | | | 137,038 | |
| Guidewire Software, Inc. (a) | | | 6,870 | | | | 193,184 | |
| Hewlett-Packard Co. | | | 61,480 | | | | 1,236,363 | |
| International Business Machines Corp. | | | 4,320 | | | | 844,906 | |
| NetApp, Inc. (a) | | | 7,570 | | | | 240,877 | |
| Quantum Corp. (a) | | | 38,560 | | | | 78,277 | |
| ServiceSource International, Inc. (a) | | | 7,300 | | | | 101,105 | |
| Tangoe, Inc. (a) | | | 10,810 | | | | 230,361 | |
| Verifone Systems, Inc. (a) | | | 5,230 | | | | 173,061 | |
| | | | | | | | |
| | | | | | $ | 9,300,885 | |
| | | | | | | | |
| Consumer Services – 1.9% | |
| Priceline.com, Inc. (a) | | | 1,070 | | | $ | 711,036 | |
| | | | | | | | |
| Electrical Equipment – 0.4% | |
| Amphenol Corp., “A” | | | 2,480 | | | $ | 136,202 | |
| | | | | | | | |
| Electronics – 11.6% | |
| Aeroflex Holding Corp. (a) | | | 31,640 | | | $ | 191,422 | |
| Altera Corp. | | | 13,700 | | | | 463,608 | |
| Atmel Corp. (a) | | | 49,130 | | | | 329,171 | |
| Broadcom Corp., “A” | | | 10,240 | | | | 346,112 | |
| Corning, Inc. | | | 42,090 | | | | 544,224 | |
| JDS Uniphase Corp. (a) | | | 84,750 | | | | 932,250 | |
| Linear Technology Corp. | | | 10,410 | | | | 326,145 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Electronics – continued | |
| Microchip Technology, Inc. | | | 32,240 | | | $ | 1,066,499 | |
| Vishay Intertechnology, Inc. (a) | | | 14,360 | | | | 135,415 | |
| | | | | | | | |
| | | | | | $ | 4,334,846 | |
| | | | | | | | |
| Internet – 12.3% | |
| eBay, Inc. (a) | | | 26,250 | | | $ | 1,102,763 | |
| Google, Inc., “A” (a)(s) | | | 5,660 | | | | 3,283,196 | |
| Yahoo!, Inc. (a) | | | 14,970 | | | | 236,975 | |
| | | | | | | | |
| | | | | | $ | 4,622,934 | |
| | | | | | | | |
| Leisure & Toys – 0.1% | |
| Take-Two Interactive Software, Inc. (a) | | | 2,900 | | | $ | 27,434 | |
| | | | | | | | |
| Network & Telecom – 8.7% | |
| F5 Networks, Inc. (a) | | | 1,100 | | | $ | 109,516 | |
| Finisar Corp. (a) | | | 38,320 | | | | 573,267 | |
| Fortinet, Inc. (a) | | | 11,200 | | | | 260,064 | |
| Juniper Networks, Inc. (a) | | | 31,180 | | | | 508,546 | |
| Qualcomm, Inc. | | | 27,900 | | | | 1,553,472 | |
| Radware Ltd. (a) | | | 2,770 | | | | 106,063 | |
| Riverbed Technology, Inc. (a) | | | 8,640 | | | | 139,536 | |
| | | | | | | | |
| | | | | | $ | 3,250,464 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 6.9% | |
| MasterCard, Inc., “A” | | | 3,020 | | | $ | 1,298,932 | |
| Visa, Inc., “A” | | | 10,250 | | | | 1,267,208 | |
| | | | | | | | |
| | | | | | $ | 2,566,140 | |
| | | | | | | | |
| Specialty Stores – 3.4% | |
| Amazon.com, Inc. (a) | | | 5,620 | | | $ | 1,283,327 | |
| | | | | | | | |
| Telecommunications – Wireless – 0.6% | |
| SBA Communications Corp. (a) | | | 4,200 | | | $ | 239,610 | |
| | | | | | | | |
| Telephone Services – 0.6% | |
| Cogent Communications Group, Inc. (a) | | | 6,070 | | | $ | 116,848 | |
| Ziggo N.V. | | | 4,000 | | | | 127,486 | |
| | | | | | | | |
| | | | | | $ | 244,334 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $35,733,745) | | | | | | $ | 37,471,846 | |
| | | | | | | | |
| Issuer/Expiration Date/ Strike Price | | Number of
Contracts | | | | |
|
| PUT OPTIONS PURCHASED – 0.3% | |
| Business Services – 0.1% | |
| Computer Sciences Corp. – December 2012 @ $27.50 (a) | | | 84 | | | $ | 35,280 | |
| | | | | | | | |
| Electronics – 0.2% | |
| Intel Corp. – August 2012 @ $27 (a) | | | 549 | | | $ | 70,272 | |
| | | | | | | | |
Total Put Options Purchased
(Premiums Paid, $142,643) | | | | | | $ | 105,552 | |
| | | | | | | | |
4
MFS Technology Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| MONEY MARKET FUNDS – 0.1% | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 39,205 | | | $ | 39,205 | |
| | | | | | | | |
Total Investments
(Identified Cost, $35,915,593) | | | $ | 37,616,603 | |
| | | | | | | | |
| Issuer/Expiration Date/ Strike Price | | Number of
Contracts | | | | |
|
| CALL OPTIONS WRITTEN – (0.1)% | |
| Computer Software – (0.1)% | |
| Oracle Corp. – July 2012 @ $29 (a) | | | (133 | ) | | $ | (12,635 | ) |
| Red Hat, Inc. – July 2012 @ $55 (a) | | | (23 | ) | | | (6,210 | ) |
| Red Hat, Inc. – July 2012 @ $62.50 (a) | | | (16 | ) | | | (464 | ) |
| | | | | | | | |
| | | | | | $ | (19,309 | ) |
| | | | | | | | |
| Computer Software – Systems – 0.0% | |
| Apple, Inc. – July 2012 @ $620 (a) | | | (7 | ) | | $ | (1,323 | ) |
| Tangoe, Inc. – July 2012 @ $22.50 (a) | | | (19 | ) | | | (665 | ) |
| | | | | | | | |
| | | | | | $ | (1,988 | ) |
| | | | | | | | |
Total Call Options Written
(Premium Received, $13,622) | | | $ | (21,297 | ) |
| | | | | | | | |
|
| PUT OPTIONS WRITTEN – 0.0% | |
| Computer Software – 0.0% | |
| Red Hat, Inc. – July 2012 @ $45 (a) | | | (4 | ) | | $ | (20 | ) |
| | | | | | | | |
| Entertainment – 0.0% | |
| Netflix, Inc. – July 2012 @ $57.50 (a) | | | (55 | ) | | $ | (1,650 | ) |
| | | | | | | | |
| Computer Software – Systems – 0.0% | |
| Tangoe, Inc. – July 2012 @ $20 (a) | | | (24 | ) | | $ | (840 | ) |
| Unisys Corp. – July 2012 @ $15 (a) | | | (72 | ) | | | (576 | ) |
| Unisys Corp. – July 2012 @ $16 (a) | | | (68 | ) | | | (1,020 | ) |
| Unisys Corp. – July 2012 @ $17 (a) | | | (30 | ) | | | (660 | ) |
| | | | | | | | |
| | | | | | $ | (3,096 | ) |
| | | | | | | | |
| Business Services – 0.0% | |
| Computer Sciences Corp. – July 2012 @ $22.50 (a) | | | (31 | ) | | $ | (620 | ) |
| | | | | | | | |
Total Put Options Written
(Premium Received, $19,293) | | | $ | (5,386 | ) |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| SECURITIES SOLD SHORT – (4.9)% | |
| Business Services – (1.3)% | |
| Computer Sciences Corp. | | | (20,100 | ) | | $ | (498,882 | ) |
| | | | | | | | |
| Computer Software – (1.7)% | |
| Adobe Systems, Inc. (a) | | | (8,400 | ) | | $ | (271,908 | ) |
| Informatica Corp. (a) | | | (3,000 | ) | | | (127,080 | ) |
| Intuit, Inc. | | | (3,900 | ) | | | (231,465 | ) |
| | | | | | | | |
| | | | | | $ | (630,453 | ) |
| | | | | | | | |
| Computer Software – Systems – (0.9)% | |
| Unisys Corp. (a) | | | (17,000 | ) | | $ | (332,350 | ) |
| | | | | | | | |
| Entertainment – (1.0)% | |
| Netflix, Inc. (a) | | | (5,500 | ) | | $ | (376,585 | ) |
| | | | | | | | |
Total Securities Sold Short
(Proceeds Received, $1,744,955) | | | $ | (1,838,270 | ) |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 4.5% | | | | | | | 1,695,425 | |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 37,447,075 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (s) | | Security or a portion of the security was pledged to cover collateral requirements for securities sold short and/or certain derivative transactions. |
| (v) | | Underlying affiliated fund 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. |
At June 30, 2012, the fund had cash collateral of $1,713,317 and other liquid securities with an aggregate value of $626,218 to cover any commitments for securities sold short and/or certain derivative contracts. Cash collateral includes “Deposits with brokers” on the Statement of Assets and Liabilities.
The following abbreviations are used in this report and are defined:
| PLC | | Public Limited Company |
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $35,876,388) | | | $37,577,398 | | | | | |
Underlying affiliated funds, at cost and value | | | 39,205 | | | | | |
Total investments, at value (identified cost, $35,915,593) | | | $37,616,603 | | | | | |
Foreign currency, at value (identified cost, $124,728) | | | 126,298 | | | | | |
Deposits with brokers | | | 1,713,317 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 52,562 | | | | | |
Fund shares sold | | | 160,995 | | | | | |
Dividends | | | 11,012 | | | | | |
Other assets | | | 351 | | | | | |
Total assets | | | | | | | $39,681,138 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Dividends on securities sold short | | | $3,400 | | | | | |
Securities sold short, at value (proceeds received, $1,744,955) | | | 1,838,270 | | | | | |
Investments purchased | | | 315,795 | | | | | |
Fund shares reacquired | | | 13,596 | | | | | |
Written options outstanding, at value (premiums received, $32,915) | | | 26,683 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 482 | | | | | |
Shareholder servicing costs | | | 29 | | | | | |
Distribution and/or service fees | | | 438 | | | | | |
Payable for independent Trustees’ compensation | | | 3 | | | | | |
Accrued expenses and other liabilities | | | 35,367 | | | | | |
Total liabilities | | | | | | | $2,234,063 | |
Net assets | | | | | | | $37,447,075 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $37,186,190 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 1,613,661 | | | | | |
Accumulated net realized gain (loss) on investments | | | (1,234,685 | ) | | | | |
Accumulated net investment loss | | | (118,091 | ) | | | | |
Net assets | | | | | | | $37,447,075 | |
Shares of beneficial interest outstanding | | �� | | | | | 5,063,780 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $15,288,123 | | | | 2,031,304 | | | | $7.53 | |
Service Class | | | 22,158,952 | | | | 3,032,476 | | | | 7.31 | |
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 6/30/12 | | | | | | | | |
Net investment loss | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $88,696 | | | | | |
Interest | | | 1,262 | | | | | |
Dividends from underlying affiliated funds | | | 345 | | | | | |
Foreign taxes withheld | | | (357 | ) | | | | |
Total investment income | | | | | | | $89,946 | |
Expenses | | | | | | | | |
Management fee | | | $132,012 | | | | | |
Distribution and/or service fees | | | 24,401 | | | | | |
Shareholder servicing costs | | | 1,805 | | | | | |
Administrative services fee | | | 8,701 | | | | | |
Independent Trustees’ compensation | | | 867 | | | | | |
Custodian fee | | | 6,519 | | | | | |
Shareholder communications | | | 3,469 | | | | | |
Audit and tax fees | | | 27,171 | | | | | |
Legal fees | | | 288 | | | | | |
Dividend and interest expense on securities sold short | | | 7,608 | | | | | |
Miscellaneous | | | 5,273 | | | | | |
Total expenses | | | | | | | $218,114 | |
Fees paid indirectly | | | (4 | ) | | | | |
Reduction of expenses by investment adviser | | | (10,073 | ) | | | | |
Net expenses | | | | | | | $208,037 | |
Net investment loss | | | | | | | $(118,091 | ) |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $1,130,574 | | | | | |
Written options | | | 91,742 | | | | | |
Securities sold short | | | (211,063 | ) | | | | |
Net realized gain (loss) on investments | | | | | | | $1,011,253 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $1,471,438 | | | | | |
Written options | | | 9,007 | | | | | |
Securities sold short | | | (70,863 | ) | | | | |
Translation of assets and liabilities in foreign currencies | | | (266 | ) | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $1,409,316 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $2,420,569 | |
Change in net assets from operations | | | | | | | $2,302,478 | |
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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment loss | | | $(118,091 | ) | | | $(238,755 | ) |
Net realized gain (loss) on investments and foreign currency | | | 1,011,253 | | | | 1,809,543 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 1,409,316 | | | | (1,479,013 | ) |
Change in net assets from operations | | | $2,302,478 | | | | $91,775 | |
Change in net assets from fund share transactions | | | $5,865,406 | | | | $7,691,444 | |
Total change in net assets | | | $8,167,884 | | | | $7,783,219 | |
| Net assets | | | | | | | | |
At beginning of period | | | 29,279,191 | | | | 21,495,972 | |
At end of period (including accumulated net investment loss of $118,091 and
$0, respectively) | | | $37,447,075 | | | | $29,279,191 | |
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended 6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $6.92 | | | | $6.84 | | | | $5.67 | | | | $3.21 | | | | $6.54 | | | | $5.44 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) (d) | | | $(0.02 | ) | | | $(0.05 | ) | | | $(0.00 | )(w) | | | $(0.00 | )(w) | | | $(0.00 | )(w) | | | $(0.02 | ) |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.63 | | | | 0.13 | | | | 1.17 | | | | 2.46 | | | | (3.33 | ) | | | 1.12 | |
Total from investment operations | | | $0.61 | | | | $0.08 | | | | $1.17 | | | | $2.46 | | | | $(3.33 | ) | | | $1.10 | |
Net asset value, end of period (x) | | | $7.53 | | | | $6.92 | | | | $6.84 | | | | $5.67 | | | | $3.21 | | | | $6.54 | |
Total return (%) (k)(r)(s)(x) | | | 8.82 | (n) | | | 1.17 | | | | 20.63 | | | | 76.64 | | | | (50.92 | ) | | | 20.22 | |
Ratios (%) (to average net assets) and
Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.10 | (a) | | | 1.28 | | | | 1.38 | | | | 1.60 | | | | 1.39 | | | | 1.21 | |
Expenses after expense reductions (f) | | | 1.04 | (a) | | | 1.08 | | | | 1.07 | | | | 1.04 | | | | 1.02 | | | | 1.00 | |
Net investment loss | | | (0.54 | )(a) | | | (0.77 | ) | | | (0.07 | ) | | | (0.05 | ) | | | (0.00 | )(w) | | | (0.31 | ) |
Portfolio turnover | | | 34 | (n) | | | 90 | | | | 140 | | | | 227 | | | | 244 | | | | 249 | |
Net assets at end of period (000 omitted) | | | $15,288 | | | | $14,598 | | | | $15,844 | | | | $14,542 | | | | $8,051 | | | | $21,184 | |
| Supplemental Ratios (%): | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of expenses to average net assets after expense reductions
excluding short sale dividend and interest expense (f) | | | 1.00 | (a) | | | 1.00 | | | | 1.00 | | | | 1.00 | | | | 1.00 | | | | N/A | |
| | |
| Service Class | | Six months
ended 6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $6.73 | | | | $6.66 | | | | $5.54 | | | | $3.14 | | | | $6.42 | | | | $5.35 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) (d) | | | $(0.03 | ) | | | $(0.08 | ) | | | $(0.00 | )(w) | | | $(0.01 | ) | | | $(0.02 | ) | | | $(0.03 | ) |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.61 | | | | 0.15 | | | | 1.12 | | | | 2.41 | | | | (3.26 | ) | | | 1.10 | |
Total from investment operations | | | $0.58 | | | | $0.07 | | | | $1.12 | | | | $2.40 | | | | $(3.28 | ) | | | $1.07 | |
Net asset value, end of period (x) | | | $7.31 | | | | $6.73 | | | | $6.66 | | | | $5.54 | | | | $3.14 | | | | $6.42 | |
Total return (%) (k)(r)(s)(x) | | | 8.62 | (n) | | | 1.05 | | | | 20.22 | | | | 76.43 | | | | (51.09 | ) | | | 20.00 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.35 | (a) | | | 1.53 | | | | 1.63 | | | | 1.85 | | | | 1.62 | | | | 1.46 | |
Expenses after expense reductions (f) | | | 1.29 | (a) | | | 1.33 | | | | 1.32 | | | | 1.29 | | | | 1.27 | | | | 1.25 | |
Net investment loss | | | (0.78 | )(a) | | | (1.13 | ) | | | (0.04 | ) | | | (0.32 | ) | | | (0.29 | ) | | | (0.56 | ) |
Portfolio turnover | | | 34 | (n) | | | 90 | | | | 140 | | | | 227 | | | | 244 | | | | 249 | |
Net assets at end of period (000 omitted) | | | $22,159 | | | | $14,681 | | | | $5,652 | | | | $1,776 | | | | $990 | | | | $3,555 | |
| Supplemental Ratios (%): | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of expenses to average net assets after expense reductions
excluding short sale dividend and interest expense (f) | | | 1.25 | (a) | | | 1.25 | | | | 1.25 | | | | 1.25 | | | | 1.25 | | | | N/A | |
See Notes to Financial Statements
9
MFS Technology Portfolio
Financial Highlights – continued
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. Excluding the effect of the proceeds received from a non-recurring litigation settlement against Nortel Networks Corp., the total returns for the year ended December 31, 2008 would have been lower by approximately 0.58%. |
| (w) | Per share amount was less than $0.01. |
| (x) | The net asset values per share 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 series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests primarily in securities of issuers in the technology industry. Issuers in a single industry can react similarly to market, economic, political and regulatory conditions and developments.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as provided by a third-party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as provided by a third-party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in
11
MFS Technology Portfolio
Notes to Financial Statements (unaudited) – continued
the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as written options. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities | | | $37,577,398 | | | | $— | | | | $— | | | | $37,577,398 | |
| Mutual Funds | | | 39,205 | | | | — | | | | — | | | | 39,205 | |
| Total Investments | | | $37,616,603 | | | | $— | | | | $— | | | | $37,616,603 | |
| Short Sales | | | $(1,838,270 | ) | | | $— | | | | $— | | | | $(1,838,270 | ) |
| | | | |
| Other Financial Instruments | | | | | | | | | | | | |
| Written Options | | | $(26,107 | ) | | | $(576 | ) | | | $— | | | | $(26,683 | ) |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives – The fund uses derivatives for different purposes, 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 were written options and purchased options. The fund’s period end derivatives, as presented in the Portfolio of Investments, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2012 as reported in the Statement of Assets and Liabilities:
| | | | | | | | | | |
| | | | | Fair Value (a) | |
| Risk | | Derivative Contracts | | Asset Derivatives | | | Liability Derivatives | |
| Equity | | Purchased Equity Options | | | $105,552 | | | | $— | |
| Equity | | Written Equity Options | | | — | | | | (26,683 | ) |
| Total | | | | | $105,552 | | | | $(26,683 | ) |
| (a) | The value of purchased options outstanding is included in total investments, at value, within the fund’s Statement of Assets and Liabilities. |
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | | | | | |
| Risk | | Investments
(Purchased Options) | | | Written Options | |
| Equity | | | $(124,454 | ) | | | $91,742 | |
12
MFS Technology Portfolio
Notes to Financial Statements (unaudited) – continued
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | | | | | |
| Risk | | Investments
(Purchased Options) | | | Written Options | |
| Equity | | | $(27,439 | ) | | | $9,007 | |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as “Deposits with brokers.” Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.
Written Options – In exchange for a premium, the fund wrote call options on securities that it anticipated the price would decline and also wrote put options on securities that it anticipated the price would increase. At the time the option was written, the fund believed the premium received exceeded the potential loss that could result from adverse price changes in the options’ underlying securities. In a written option, the fund as the option writer grants the buyer the right to purchase from, or sell to, the fund a specified number of shares or units of a particular security, currency or index at a specified price within a specified period of time.
The premium received is initially recorded as a liability on the Statement of Assets and Liabilities. The option is subsequently marked-to-market daily with the difference between the premium received and the market value of the written option being recorded as unrealized appreciation or depreciation. When a written option expires, the fund realizes a gain equal to the amount of the premium received. The difference between the premium received and the amount paid on effecting a closing transaction is considered a realized gain or loss. When a written call option is exercised, the premium received is offset against the proceeds to determine the realized gain or loss. When a written put option is exercised, the premium reduces the cost basis of the security purchased by the fund.
At the initiation of the written option contract, for exchange traded options, the fund is required to deposit securities or cash as collateral with the custodian for the benefit of the broker. For over-the-counter options, the fund may post collateral subject to the terms of an ISDA Master Agreement as generally described above if the market value of the options contract moves against it. The fund, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities underlying the written option. Losses from writing options can exceed the premium received and can exceed the potential loss from an ordinary buy and sell transaction. Although the fund’s market risk may be significant, the maximum counterparty credit risk to the fund is equal to the market value of any collateral posted to the broker. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above.
13
MFS Technology Portfolio
Notes to Financial Statements (unaudited) – continued
Written Options
| | | | | | | | |
| | | Number of
contracts | | | Premiums
received | |
| Outstanding, beginning of period | | | 555 | | | | $18,794 | |
| Options written | | | 4,860 | | | | 237,151 | |
| Options closed | | | (978 | ) | | | (56,898 | ) |
| Options exercised | | | (1,522 | ) | | | (62,579 | ) |
| Options expired | | | (2,433 | ) | | | (103,553 | ) |
| Outstanding, end of period | | | 482 | | | | $32,915 | |
Purchased Options – The fund purchased call and put options for a premium. Purchased call and put options entitle the holder to buy and sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing call options may be used to hedge against an anticipated increase in the dollar cost of securities or currency to be acquired or to increase the fund’s exposure to an underlying instrument. Purchasing put options may hedge against a decline in the value of portfolio securities or currency.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased call and put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased call option, the premium paid is added to the cost of the security or financial instrument. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.
The risk in purchasing an option is that the fund pays a premium whether or not the option is exercised. The fund’s maximum risk of loss due to counterparty credit risk is limited to the market value of the option. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Short Sales – The fund entered into short sales whereby it sells a security it does not own in anticipation of a decline in the value of that security. The fund will realize a gain if the security price decreases and a loss if the security price increases between the date of the short sale and the date on which the fund replaces the borrowed security. Losses from short sales can exceed the proceeds of the security sold; and they can also exceed the potential loss from an ordinary buy and sell transaction. The amount of any premium, dividends, or interest the fund may be required to pay in connection with a short sale will be recognized as a fund expense. During the six months ended June 30, 2012, this expense amounted to $7,608. The fund segregates cash or marketable securities in an amount that, when combined with the amount of proceeds from the short sale deposited with the broker, at least equals the current market value of the security sold short.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for
14
MFS Technology Portfolio
Notes to Financial Statements (unaudited) – continued
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. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to net operating losses, wash sale loss deferrals, and straddle loss deferrals.
The fund declared no distributions for the current period or for the year ended December 31, 2011.
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $35,967,416 | |
| Gross appreciation | | | 3,655,734 | |
| Gross depreciation | | | (2,006,547 | ) |
| Net unrealized appreciation (depreciation) | | | $1,649,187 | |
| |
| As of 12/31/11 | | | | |
| Capital loss carryforwards | | | (2,154,117 | ) |
| Other temporary differences | | | (65,226 | ) |
| Net unrealized appreciation (depreciation) | | | 177,750 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/16 | | | $(1,010,091 | ) |
| 12/31/17 | | | (1,144,026 | ) |
| Total | | | $(2,154,117 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses.
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund.
The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.75% | |
| Average daily net assets in excess of $1 billion | | | 0.70% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses (such 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
15
MFS Technology Portfolio
Notes to Financial Statements (unaudited) – continued
least until April 30, 2014. For the six months ended June 30, 2012, this reduction amounted to $9,984 and is reflected as a reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2012, the fee was $1,800, which equated to 0.0102% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2012, these costs amounted to $5.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0494% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $173 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $89, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying affiliated funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, short sales, and short-term obligations, aggregated $17,601,549 and $11,650,781, 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 143,119 | | | | $1,112,065 | | | | 293,666 | | | | $2,055,628 | |
Service Class | | | 1,161,798 | | | | 8,714,161 | | | | 1,982,378 | | | | 13,664,728 | |
| | | 1,304,917 | | | | $9,826,226 | | | | 2,276,044 | | | | $15,720,356 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (219,964 | ) | | | $(1,669,049 | ) | | | (502,515 | ) | | | $(3,535,100 | ) |
Service Class | | | (310,330 | ) | | | (2,291,771 | ) | | | (649,475 | ) | | | (4,493,812 | ) |
| | | (530,294 | ) | | | $(3,960,820 | ) | | | (1,151,990 | ) | | | $(8,028,912 | ) |
16
MFS Technology Portfolio
Notes to Financial Statements (unaudited) – continued
| | | | | | | | | | | | | | | | |
| | | Six months ended 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (76,845 | ) | | | $(556,984 | ) | | | (208,849 | ) | | | $(1,479,472 | ) |
Service Class | | | 851,468 | | | | 6,422,390 | | | | 1,332,903 | | | | 9,170,916 | |
| | | 774,623 | | | | $5,865,406 | | | | 1,124,054 | | | | $7,691,444 | |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $119 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 543,876 | | | | 8,875,355 | | | | (9,380,026 | ) | | | 39,205 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $345 | | | | $39,205 | |
17
MFS Technology Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under ”Variable Insurance Portfolios — VIT II“ in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the ”News & Commentary“ section of mfs.com or by clicking on the fund’s name under ”Variable Insurance Portfolios — VIT II“ in the ”Products and Performance“ section of mfs.com.
18
SEMIANNUAL REPORT
June 30, 2012
MFS® GLOBAL RESEARCH PORTFOLIO
MFS® Variable Insurance Trust II
RES-SEM
MFS® GLOBAL RESEARCH PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Research Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Global Research Portfolio
PORTFOLIO COMPOSITION
Portfolio structure (s)
| | | | |
| Top ten holdings | | | | |
| Apple, Inc. | | | 3.0% | |
| Exxon Mobil Corp. | | | 2.6% | |
| Target Corp. | | | 1.9% | |
| Japan Tobacco, Inc. | | | 1.8% | |
| Royal Dutch Shell PLC, “A” | | | 1.7% | |
| Vodafone Group PLC | | | 1.6% | |
| Groupe Danone | | | 1.5% | |
| Oracle Corp. | | | 1.3% | |
| Pfizer, Inc. | | | 1.3% | |
| Danaher Corp. | | | 1.3% | |
| |
| Global equity sectors | | | | |
| Capital Goods (s) | | | 19.0% | |
| Financial Services | | | 19.1% | |
| Energy | | | 14.5% | |
| Technology (s) | | | 14.1% | |
| Health Care | | | 9.3% | |
| Consumer Cyclicals | | | 9.2% | |
| Consumer Staples | | | 8.0% | |
| Telecommunications/Cable Television | | | 6.0% | |
| | | | |
| Issuer country weightings (s)(x) | | | | |
| United States | | | 51.0% | |
| United Kingdom | | | 9.2% | |
| Japan | | | 8.9% | |
| Switzerland | | | 4.3% | |
| France | | | 3.5% | |
| Netherlands | | | 3.4% | |
| Hong Kong | | | 3.2% | |
| Germany | | | 3.1% | |
| Brazil | | | 2.3% | |
| Other Countries | | | 11.1% | |
| |
| Currency exposure weightings (s)(y) | | | | |
| United States Dollar | | | 52.1% | |
| Euro | | | 10.4% | |
| British Pound Sterling | | | 9.2% | |
| Japanese Yen | | | 8.9% | |
| Hong Kong Dollar | | | 5.0% | |
| Swiss Franc | | | 4.3% | |
| Brazilian Real | | | 2.3% | |
| Australian Dollar | | | 1.5% | |
| Czech Koruna | | | 1.1% | |
| Other Currencies | | | 5.2% | |
| (s) | Includes securities sold short. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. |
Percentages are based on net assets as of 6/30/12.
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, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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 1/01/12 | | | Ending Account Value
6/30/12 | | | Expenses Paid
During Period (p) 1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.95% | | | | $1,000.00 | | | | $1,061.55 | | | | $4.87 | |
| | Hypothetical (h) | | | 0.95% | | | | $1,000.00 | | | | $1,020.14 | | | | $4.77 | |
| Service Class | | Actual | | | 1.20% | | | | $1,000.00 | | | | $1,060.23 | | | | $6.15 | |
| | Hypothetical (h) | | | 1.20% | | | | $1,000.00 | | | | $1,018.90 | | | | $6.02 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
Expenses Impacting Table
Expense ratios include 0.01% of investment related expenses from short sale dividend and interest expenses.
3
MFS Global Research Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 99.6% | | | | | | | | |
| Aerospace – 2.0% | | | | | | | | |
| Honeywell International, Inc. | | | 13,530 | | | $ | 755,515 | |
| Precision Castparts Corp. | | | 4,090 | | | | 672,764 | |
| Rolls-Royce Holdings PLC | | | 40,440 | | | | 545,572 | |
| United Technologies Corp. | | | 7,400 | | | | 558,922 | |
| | | | | | | | |
| | | | | | $ | 2,532,773 | |
| | | | | | | | |
| Alcoholic Beverages – 1.2% | | | | | |
| Heineken N.V. | | | 29,537 | | | $ | 1,542,858 | |
| | | | | | | | |
| Apparel Manufacturers – 2.2% | | | | | |
| Guess?, Inc. | | | 16,760 | | | $ | 509,001 | |
| Li & Fung Ltd. | | | 380,000 | | | | 737,371 | |
| LVMH Moet Hennessy Louis Vuitton S.A. | | | 2,503 | | | | 381,503 | |
| NIKE, Inc., “B” | | | 6,370 | | | | 559,159 | |
| VF Corp. | | | 5,150 | | | | 687,268 | |
| | | | | | | | |
| | | | | | $ | 2,874,302 | |
| | | | | | | | |
| Automotive – 2.7% | | | | | |
| Bayerische Motoren Werke AG | | | 7,473 | | | $ | 541,478 | |
| Delphi Automotive PLC (a) | | | 15,400 | | | | 392,700 | |
| DENSO Corp. | | | 18,500 | | | | 629,906 | |
| GKN PLC | | | 151,478 | | | | 431,316 | |
Guangzhou Automobile Group Co.
Ltd., “H” | | | 420,000 | | | | 353,471 | |
| Honda Motor Co. Ltd. | | | 19,500 | | | | 679,275 | |
| Kia Motors Corp. | | | 5,790 | | | | 381,372 | |
| | | | | | | | |
| | | | | | $ | 3,409,518 | |
| | | | | | | | |
| Biotechnology – 0.6% | | | | | |
| Gilead Sciences, Inc. (a) | | | 14,360 | | | $ | 736,381 | |
| | | | | | | | |
| Broadcasting – 2.0% | | | | | |
| News Corp., “A” | | | 32,930 | | | $ | 734,010 | |
| Nippon Television Network Corp. | | | 3,070 | | | | 466,645 | |
| Publicis Groupe S.A. | | | 6,402 | | | | 292,773 | |
| Walt Disney Co. | | | 21,540 | | | | 1,044,690 | |
| | | | | | | | |
| | | | | | $ | 2,538,118 | |
| | | | | | | | |
| Brokerage & Asset Managers – 0.9% | | | | | |
| BlackRock, Inc. | | | 3,071 | | | $ | 521,517 | |
| Franklin Resources, Inc. | | | 5,310 | | | | 589,357 | |
| | | | | | | | |
| | | | | | $ | 1,110,874 | |
| | | | | | | | |
| Business Services – 1.1% | | | | | |
| Accenture PLC, “A” | | | 14,000 | | | $ | 841,260 | |
| Cognizant Technology Solutions Corp., “A” (a) | | | 8,870 | | | | 532,200 | |
| | | | | | | | |
| | | | | | $ | 1,373,460 | |
| | | | | | | | |
| Cable TV – 1.3% | | | | | |
| Comcast Corp., “Special A” | | | 37,360 | | | $ | 1,173,104 | |
| Virgin Media, Inc. | | | 19,570 | | | | 477,312 | |
| | | | | | | | |
| | | | | | $ | 1,650,416 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | |
| Chemicals – 1.5% | | | | | |
| 3M Co. | | | 11,590 | | | $ | 1,038,464 | |
| Celanese Corp. | | | 16,850 | | | | 583,347 | |
| Nufarm Ltd. | | | 58,284 | | | | 303,339 | |
| | | | | | | | |
| | | | | | $ | 1,925,150 | |
| | | | | | | | |
| Computer Software – 3.8% | | | | | |
| Autodesk, Inc. (a) | | | 14,000 | | | $ | 489,860 | |
| Check Point Software Technologies Ltd. (a) | | | 14,390 | | | | 713,600 | |
| Citrix Systems, Inc. (a) | | | 6,920 | | | | 580,865 | |
| Microsoft Corp. | | | 15,130 | | | | 462,827 | |
| Oracle Corp. | | | 57,920 | | | | 1,720,224 | |
| Red Hat, Inc. (a) | | | 6,480 | | | | 365,990 | |
| Salesforce.com, Inc. (a) | | | 4,010 | | | | 554,423 | |
| | | | | | | | |
| | | | | | $ | 4,887,789 | |
| | | | | | | | |
| Computer Software – Systems – 4.5% | | | | | |
| Apple, Inc. (a)(s) | | | 6,540 | | | $ | 3,819,360 | |
| EMC Corp. (a) | | | 52,210 | | | | 1,338,142 | |
| Hewlett-Packard Co. | | | 28,970 | | | | 582,587 | |
| | | | | | | | |
| | | | | | $ | 5,740,089 | |
| | | | | | | | |
| Conglomerates – 0.2% | | | | | |
| Hutchison Whampoa Ltd. | | | 35,000 | | | $ | 302,711 | |
| | | | | | | | |
| Construction – 0.9% | | | | | |
| Anhui Conch Cement Co. Ltd. | | | 129,000 | | | $ | 353,835 | |
| Stanley Black & Decker, Inc. | | | 8,450 | | | | 543,842 | |
| Urbi Desarrollos Urbanos S.A. de C.V. (a) | | | 312,950 | | | | 300,758 | |
| | | | | | | | |
| | | | | | $ | 1,198,435 | |
| | | | | | | | |
| Electrical Equipment – 2.3% | | | | | |
| Danaher Corp. (s) | | | 31,040 | | | $ | 1,616,563 | |
| Schneider Electric S.A. | | | 9,727 | | | | 541,976 | |
| Siemens AG | | | 8,725 | | | | 733,403 | |
| | | | | | | | |
| | | | | | $ | 2,891,942 | |
| | | | | | | | |
| Electronics – 2.5% | | | | | |
| Altera Corp. | | | 14,770 | | | $ | 499,817 | |
| ASML Holding N.V. | | | 15,417 | | | | 792,742 | |
| Microchip Technology, Inc. | | | 27,880 | | | | 922,270 | |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | | 339,000 | | | | 927,889 | |
| | | | | | | | |
| | | | | | $ | 3,142,718 | |
| | | | | | | | |
| Energy – Independent – 3.8% | | | | | |
| Cabot Oil & Gas Corp. | | | 24,350 | | | $ | 959,390 | |
| Cairn Energy PLC | | | 51,771 | | | | 214,784 | |
| Cenovus Energy, Inc. | | | 11,830 | | | | 376,129 | |
| CNOOC Ltd. | | | 269,000 | | | | 542,651 | |
| EOG Resources, Inc. | | | 7,720 | | | | 695,649 | |
| INPEX Corp. | | | 107 | | | | 599,876 | |
| Occidental Petroleum Corp. | | | 13,900 | | | | 1,192,203 | |
| WPX Energy, Inc. (a) | | | 18,920 | | | | 306,126 | |
| | | | | | | | |
| | | | | | $ | 4,886,808 | |
| | | | | | | | |
4
MFS Global Research Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | |
| Energy – Integrated – 5.8% | | | | | |
| BG Group PLC | | | 29,747 | | | $ | 608,857 | |
| BP PLC | | | 190,770 | | | | 1,278,190 | |
| Exxon Mobil Corp. (s) | | | 39,120 | | | | 3,347,498 | |
| Royal Dutch Shell PLC, “A” | | | 66,397 | | | | 2,236,667 | |
| | | | | | | | |
| | | | | | $ | 7,471,212 | |
| | | | | | | | |
| Engineering – Construction – 1.7% | | | | | |
| Fluor Corp. | | | 13,360 | | | $ | 659,182 | |
| JGC Corp. | | | 40,000 | | | | 1,157,731 | |
| Keppel Corp. Ltd. | | | 42,400 | | | | 347,430 | |
| | | | | | | | |
| | | | | | $ | 2,164,343 | |
| | | | | | | | |
| Food & Beverages – 3.8% | | | | | |
| Groupe Danone | | | 31,601 | | | $ | 1,960,161 | |
| Kraft Foods, Inc., “A” | | | 28,750 | | | | 1,110,325 | |
| M. Dias Branco S.A. Industria e Comercio de Alimentos | | | 4,600 | | | | 135,126 | |
| Nestle S.A. | | | 23,250 | | | | 1,386,895 | |
| Want Want China Holdings Ltd. | | | 243,000 | | | | 300,618 | |
| | | | | | | | |
| | | | | | $ | 4,893,125 | |
| | | | | | | | |
| Food & Drug Stores – 0.8% | | | | | |
| Lawson, Inc. | | | 7,900 | | | $ | 552,705 | |
| William Morrison Supermarkets PLC | | | 119,530 | | | | 498,860 | |
| | | | | | | | |
| | | | | | $ | 1,051,565 | |
| | | | | | | | |
| Gaming & Lodging – 0.6% | | | | | |
| Sands China Ltd. | | | 220,400 | | | $ | 706,018 | |
| | | | | | | | |
| General Merchandise – 1.9% | | | | | |
| Target Corp. | | | 42,330 | | | $ | 2,463,183 | |
| | | | | | | | |
| Insurance – 5.0% | | | | | |
| ACE Ltd. | | | 18,760 | | | $ | 1,390,679 | |
| AIA Group Ltd. | | | 280,000 | | | | 965,425 | |
| Hiscox Ltd. | | | 136,746 | | | | 916,034 | |
| ING Groep N.V. (a) | | | 131,174 | | | | 885,008 | |
| Prudential Financial, Inc. | | | 10,910 | | | | 528,371 | |
| QBE Insurance Group Ltd. | | | 43,990 | | | | 606,498 | |
| Swiss Re Ltd. | | | 17,057 | | | | 1,071,569 | |
| | | | | | | | |
| | | | | | $ | 6,363,584 | |
| | | | | | | | |
| Internet – 1.7% | | | | | |
| eBay, Inc. (a) | | | 18,550 | | | $ | 779,286 | |
| Google, Inc., “A” (a) | | | 2,520 | | | | 1,461,776 | |
| | | | | | | | |
| | | | | | $ | 2,241,062 | |
| | | | | | | | |
| Machinery & Tools – 1.7% | | | | | |
| Glory Ltd. | | | 22,200 | | | $ | 461,656 | |
| Joy Global, Inc. | | | 14,450 | | | | 819,749 | |
| Schindler Holding AG | | | 5,971 | | | | 667,736 | |
| Sinotruk Hong Kong Ltd. | | | 465,500 | | | | 279,504 | |
| | | | | | | | |
| | | | | | $ | 2,228,645 | |
| | | | | | | | |
| Major Banks – 5.4% | | | | | |
| Barclays PLC | | | 157,614 | | | $ | 403,459 | |
| BNP Paribas | | | 15,634 | | | | 603,532 | |
| BOC Hong Kong Holdings Ltd. | | | 238,500 | | | | 732,446 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | |
| Major Banks – continued | | | | | |
| Goldman Sachs Group, Inc. | | | 8,320 | | | $ | 797,555 | |
| JPMorgan Chase & Co. | | | 42,960 | | | | 1,534,961 | |
| PNC Financial Services Group, Inc. | | | 12,290 | | | | 751,042 | |
| Standard Chartered PLC | | | 58,144 | | | | 1,267,588 | |
| State Street Corp. | | | 18,280 | | | | 816,019 | |
| | | | | | | | |
| | | | | | $ | 6,906,602 | |
| | | | | | | | |
| Medical & Health Technology & Services – 1.0% | |
| Diagnosticos da America S.A. | | | 82,400 | | | $ | 541,949 | |
| Kobayashi Pharmaceutical Co. Ltd. | | | 13,700 | | | | 761,851 | |
| | | | | | | | |
| | | | | | $ | 1,303,800 | |
| | | | | | | | |
| Medical Equipment – 2.8% | |
| Covidien PLC | | | 20,120 | | | $ | 1,076,420 | |
| Sonova Holding AG | | | 5,867 | | | | 566,142 | |
| St. Jude Medical, Inc. | | | 22,090 | | | | 881,612 | |
| Thermo Fisher Scientific, Inc. | | | 20,670 | | | | 1,072,980 | |
| | | | | | | | |
| | | | | | $ | 3,597,154 | |
| | | | | | | | |
| Metals & Mining – 1.9% | |
| Iluka Resources Ltd. | | | 50,558 | | | $ | 592,443 | |
| Rio Tinto Ltd. | | | 22,590 | | | | 1,078,883 | |
| Steel Authority of India Ltd. | | | 223,424 | | | | 366,257 | |
| Sumitomo Metal Industries Ltd. | | | 260,000 | | | | 427,997 | |
| | | | | | | | |
| | | | | | $ | 2,465,580 | |
| | | | | | | | |
| Natural Gas – Distribution – 1.0% | |
| GDF SUEZ | | | 31,352 | | | $ | 748,025 | |
| Tokyo Gas Co. Ltd. | | | 105,000 | | | | 536,242 | |
| | | | | | | | |
| | | | | | $ | 1,284,267 | |
| | | | | | | | |
| Network & Telecom – 0.7% | |
| Finisar Corp. (a) | | | 31,540 | | | $ | 471,838 | |
| Juniper Networks, Inc. (a) | | | 27,600 | | | | 450,156 | |
| | | | | | | | |
| | | | | | $ | 921,994 | |
| | | | | | | | |
| Oil Services – 1.0% | |
| AMEC PLC | | | 18,460 | | | $ | 291,357 | |
| Dresser-Rand Group, Inc. (a) | | | 7,440 | | | | 331,378 | |
| Schlumberger Ltd. | | | 9,650 | | | | 626,382 | |
| | | | | | | | |
| | | | | | $ | 1,249,117 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 6.9% | |
| Bank Rakyat Indonesia | | | 893,500 | | | $ | 611,492 | |
| DBS Group Holdings Ltd. | | | 77,000 | | | | 849,925 | |
| Discover Financial Services | | | 20,040 | | | | 692,983 | |
| Federal Bank Ltd. | | | 51,677 | | | | 415,147 | |
| Fifth Third Bancorp | | | 62,540 | | | | 838,036 | |
| ICICI Bank Ltd. | | | 33,754 | | | | 548,973 | |
| Itau Unibanco Holding S.A., IPS | | | 59,500 | | | | 838,066 | |
| Julius Baer Group Ltd. | | | 13,461 | | | | 487,373 | |
| Komercni Banka A.S. | | | 4,160 | | | | 722,009 | |
| National Bank of Canada | | | 9,800 | | | | 700,468 | |
| Siam Commercial Bank Co. Ltd. | | | 172,400 | | | | 797,947 | |
| Visa, Inc., “A” | | | 11,050 | | | | 1,366,112 | |
| | | | | | | | |
| | | | | | $ | 8,868,531 | |
| | | | | | | | |
5
MFS Global Research Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | |
| Pharmaceuticals – 4.9% | |
| Abbott Laboratories | | | 17,530 | | | $ | 1,130,159 | |
| Bayer AG | | | 18,561 | | | | 1,338,408 | |
| Pfizer, Inc. | | | 72,000 | | | | 1,656,000 | |
| Roche Holding AG | | | 7,642 | | | | 1,319,219 | |
| Santen Pharmaceutical Co. Ltd. | | | 21,600 | | | | 884,969 | |
| | | | | | | | |
| | | | | | $ | 6,328,755 | |
| | | | | | | | |
| Precious Metals & Minerals – 0.3% | |
| Newcrest Mining Ltd. | | | 19,160 | | | $ | 445,974 | |
| | | | | | | | |
| Railroad & Shipping – 0.9% | |
| East Japan Railway Co. | | | 5,400 | | | $ | 339,034 | |
| Union Pacific Corp. | | | 6,280 | | | | 749,267 | |
| | | | | | | | |
| | | | | | $ | 1,088,301 | |
| | | | | | | | |
| Real Estate – 0.9% | |
| GSW Immobilien AG (l) | | | 14,439 | | | $ | 492,993 | |
| Hang Lung Properties Ltd. | | | 208,000 | | | | 708,039 | |
| | | | | | | | |
| | | | | | $ | 1,201,032 | |
| | | | | | | | |
| Restaurants – 0.6% | |
| Ajisen China Holdings Ltd. | | | 134,000 | | | $ | 93,040 | |
| YUM! Brands, Inc. | | | 10,220 | | | | 658,372 | |
| | | | | | | | |
| | | | | | $ | 751,412 | |
| | | | | | | | |
| Specialty Chemicals – 2.0% | |
| Airgas, Inc. | | | 8,040 | | | $ | 675,440 | |
| Akzo Nobel N.V. | | | 22,260 | | | | 1,047,109 | |
| Linde AG | | | 5,228 | | | | 814,303 | |
| | | | | | | | |
| | | | | | $ | 2,536,852 | |
| | | | | | | | |
| Specialty Stores – 1.1% | |
| Industria de Diseno Textil S.A. | | | 4,440 | | | $ | 459,228 | |
| Tiffany & Co. | | | 7,420 | | | | 392,889 | |
| Urban Outfitters, Inc. (a) | | | 20,480 | | | | 565,043 | |
| | | | | | | | |
| | | | | | $ | 1,417,160 | |
| | | | | | | | |
| Telecommunications – Wireless – 3.2% | |
| American Tower Corp., REIT | | | 6,390 | | | $ | 446,725 | |
| KDDI Corp. | | | 150 | | | | 967,551 | |
| TIM Participacoes S.A., ADR | | | 24,220 | | | | 665,081 | |
| Vodafone Group PLC | | | 708,152 | | | | 1,989,649 | |
| | | | | | | | |
| | | | | | $ | 4,069,006 | |
| | | | | | | | |
| Telephone Services – 1.5% | |
| AT&T, Inc. | | | 21,510 | | | $ | 767,047 | |
| China Unicom (Hong Kong) Ltd. | | | 252,000 | | | | 317,029 | |
| Telecom Italia S.p.A. | | | 299,152 | | | | 294,796 | |
| Telecom Italia S.p.A. | | | 555,149 | | | | 446,562 | |
| Ziggo N.V. | | | 4,270 | | | | 136,092 | |
| | | | | | | | |
| | | | | | $ | 1,961,526 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | |
| Tobacco – 3.0% | |
| Japan Tobacco, Inc. | | | 78,600 | | | $ | 2,329,197 | |
| Philip Morris International, Inc. | | | 16,650 | | | | 1,452,879 | |
| | | | | | | | |
| | | | | | $ | 3,782,076 | |
| | | | | | | | |
| Trucking – 1.1% | |
| Expeditors International of Washington, Inc. | | | 21,250 | | | $ | 823,438 | |
| Yamato Holdings Co. Ltd. | | | 33,800 | | | | 544,200 | |
| | | | | | | | |
| | | | | | $ | 1,367,638 | |
| | | | | | | | |
| Utilities – Electric Power – 2.9% | |
| CEZ A.S. | | | 21,324 | | | $ | 736,920 | |
| CMS Energy Corp. | | | 57,380 | | | | 1,348,430 | |
| Edison International | | | 17,570 | | | | 811,734 | |
| Energias do Brasil S.A. | | | 45,000 | | | | 288,798 | |
| Tractebel Energia S.A. | | | 28,970 | | | | 535,840 | |
| | | | | | | | |
| | | | | | $ | 3,721,722 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $122,427,532) | | | | | | $ | 127,595,578 | |
| | | | | | | | |
| |
| MONEY MARKET FUNDS – 0.5% | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 710,653 | | | $ | 710,653 | |
| | | | | | | | |
|
| COLLATERAL FOR SECURITIES LOANED – 0.3% | |
| Navigator Securities Lending Prime Portfolio, 0.28%, at Cost and Net Asset Value (j) | | | 372,589 | | | $ | 372,589 | |
| | | | | | | | |
Total Investments
(Identified Cost, $123,510,774) | | | | | | $ | 128,678,820 | |
| | | | | | | | |
| |
| SECURITIES SOLD SHORT – (0.4)% | | | | | |
| Business Services – (0.2)% | |
| Computer Sciences Corp. | | | (13,200 | ) | | $ | (327,624 | ) |
| | | | | | | | |
| Machinery & Tools – (0.2)% | |
| Manitowoc Co., Inc. | | | (8,800 | ) | | $ | (102,960 | ) |
| Terex Corp. (a) | | | (5,520 | ) | | | (98,422 | ) |
| | | | | | | | |
| | | | | | $ | (201,382 | ) |
| | | | | | | | |
Total Securities Sold Short
(Proceeds Received, $618,852) | | | | | | $ | (529,006 | ) |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – (0.0)% | | | | | | | (34,950 | ) |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 128,114,864 | |
| | | | | | | | |
6
MFS Global Research Portfolio
Portfolio of Investments (unaudited) – continued
| (a) | | Non-income producing 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. |
| (s) | | Security or a portion of the security was pledged to cover collateral requirements for securities sold short and/or certain derivative transactions. |
| (v) | | Underlying affiliated fund 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. |
At June 30, 2012, the fund had cash collateral of $339,366 and other liquid securities with an aggregate value of $777,190 to cover any commitments for securities sold short and/or certain derivative contracts. Cash collateral includes “Deposits with brokers” on the Statement of Assets and Liabilities.
The following abbreviations are used in this report and are defined:
| ADR | | American Depositary Receipt |
| IPS | | International Preference Stock |
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
See Notes to Financial Statements
7
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $122,800,121) | | | $127,968,167 | | | | | |
Underlying affiliated funds, at cost and value | | | 710,653 | | | | | |
Total investments, at value, including $359,983 of securities on loan (identified cost, $123,510,774) | | | $128,678,820 | | | | | |
Foreign currency, at value (identified cost, $49,014) | | | 49,253 | | | | | |
Deposits with brokers | | | 339,366 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 984,622 | | | | | |
Interest and dividends | | | 280,851 | | | | | |
Other assets | | | 1,112 | | | | | |
Total assets | | | | | | | $130,334,024 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Dividends on securities sold short | | | $1,860 | | | | | |
Securities sold short, at value (proceeds received, $618,852) | | | 529,006 | | | | | |
Investments purchased | | | 1,002,719 | | | | | |
Fund shares reacquired | | | 200,737 | | | | | |
Collateral for securities loaned, at value | | | 372,589 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 7,882 | | | | | |
Shareholder servicing costs | | | 100 | | | | | |
Distribution and/or service fees | | | 248 | | | | | |
Payable for independent Trustees’ compensation | | | 15 | | | | | |
Accrued expenses and other liabilities | | | 104,004 | | | | | |
Total liabilities | | | | | | | $2,219,160 | |
Net assets | | | | | | | $128,114,864 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $161,880,299 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies
(net of $28,718 deferred country tax) | | | 5,228,021 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (42,487,013 | ) | | | | |
Undistributed net investment income | | | 3,493,557 | | | | | |
Net assets | | | | | | | $128,114,864 | |
Shares of beneficial interest outstanding | | | | | | | 6,820,957 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $115,629,540 | | | | 6,151,938 | | | | $18.80 | |
Service Class | | | 12,485,324 | | | | 669,019 | | | | 18.66 | |
See Notes to Financial Statements
8
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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $2,203,039 | | | | | |
Interest | | | 24,571 | | | | | |
Dividends from underlying affiliated funds | | | 403 | | | | | |
Foreign taxes withheld | | | (123,329 | ) | | | | |
Total investment income | | | | | | | $2,104,684 | |
Expenses | | | | | | | | |
Management fee | | | $502,619 | | | | | |
Distribution and/or service fees | | | 16,291 | | | | | |
Shareholder servicing costs | | | 6,883 | | | | | |
Administrative services fee | | | 15,018 | | | | | |
Independent Trustees’ compensation | | | 3,419 | | | | | |
Custodian fee | | | 44,491 | | | | | |
Shareholder communications | | | 6,656 | | | | | |
Audit and tax fees | | | 35,676 | | | | | |
Legal fees | | | 1,152 | | | | | |
Dividend and interest expense on securities sold short | | | 7,245 | | | | | |
Miscellaneous | | | 11,016 | | | | | |
Total expenses | | | | | | | $650,466 | |
Fees paid indirectly | | | (1 | ) | | | | |
Reduction of expenses by investment adviser | | | (346 | ) | | | | |
Net expenses | | | | | | | $650,119 | |
Net investment income | | | | | | | $1,454,565 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments (net of $4,844 country tax) | | | $4,097,893 | | | | | |
Written options | | | 6,193 | | | | | |
Securities sold short | | | (198,746 | ) | | | | |
Foreign currency | | | (12,241 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $3,893,099 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments (net of $25,773 increase in deferred country tax) | | | $2,628,357 | | | | | |
Written options | | | (673 | ) | | | | |
Securities sold short | | | 229,784 | | | | | |
Translation of assets and liabilities in foreign currencies | | | 1,595 | | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $2,859,063 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $6,752,162 | |
Change in net assets from operations | | | | | | | $8,206,727 | |
See Notes to Financial Statements
9
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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $1,454,565 | | | | $2,037,782 | |
Net realized gain (loss) on investments and foreign currency | | | 3,893,099 | | | | 6,955,216 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 2,859,063 | | | | (18,310,024 | ) |
Change in net assets from operations | | | $8,206,727 | | | | $(9,317,026 | ) |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(1,734,310 | ) |
Change in net assets from fund share transactions | | | $(10,476,964 | ) | | | $(19,755,648 | ) |
Total change in net assets | | | $(2,270,237 | ) | | | $(30,806,984 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 130,385,101 | | | | 161,192,085 | |
At end of period (including undistributed net investment income of $3,493,557 and
$2,038,992, respectively) | | | $128,114,864 | | | | $130,385,101 | |
See Notes to Financial Statements
10
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $17.71 | | | | $19.23 | | | | $17.29 | | | | $13.30 | | | | $21.04 | | | | $18.73 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.21 | | | | $0.27 | | | | $0.20 | | | | $0.20 | | | | $0.19 | | | | $0.10 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.88 | | | | (1.56 | ) | | | 1.97 | | | | 4.03 | | | | (7.81 | ) | | | 2.37 | |
Total from investment operations | | | $1.09 | | | | $(1.29 | ) | | | $2.17 | | | | $4.23 | | | | $(7.62 | ) | | | $2.47 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.23 | ) | | | $(0.23 | ) | | | $(0.24 | ) | | | $(0.12 | ) | | | $(0.16 | ) |
Net asset value, end of period (x) | | | $18.80 | | | | $17.71 | | | | $19.23 | | | | $17.29 | | | | $13.30 | | | | $21.04 | |
Total return (%) (k)(r)(s)(x) | | | 6.15 | (n) | | | (6.73 | ) | | | 12.66 | | | | 32.44 | | | | (36.43 | ) | | | 13.24 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.95 | (a) | | | 0.97 | | | | 0.97 | | | | 0.98 | | | | 0.87 | | | | 0.83 | |
Expenses after expense reductions (f) | | | 0.95 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 2.20 | (a) | | | 1.38 | | | | 1.18 | | | | 1.42 | | | | 1.06 | | | | 0.48 | |
Portfolio turnover | | | 26 | (n) | | | 54 | | | | 59 | | | | 63 | | | | 144 | | | | 84 | |
Net assets at end of period (000 omitted) | | | $115,630 | | | | $117,312 | | | | $144,156 | | | | $149,758 | | | | $134,672 | | | | $268,217 | |
| Supplemental Ratios (%): | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of expenses to average net assets after expense
reductions excluding short sale dividend and interest expense (f) | | | 0.93 | (a) | | | 0.96 | | | | 0.96 | | | | 0.98 | | | | N/A | | | | N/A | |
See Notes to Financial Statements
11
MFS Global Research Portfolio
Financial Highlights – continued
| | | | | | | | | | | | | | | | | | | | | | | | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $17.60 | | | | $19.11 | | | | $17.18 | | | | $13.21 | | | | $20.89 | | | | $18.60 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.18 | | | | $0.22 | | | | $0.16 | | | | $0.17 | | | | $0.14 | | | | $0.05 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.88 | | | | (1.55 | ) | | | 1.96 | | | | 3.99 | | | | (7.76 | ) | | | 2.36 | |
Total from investment operations | | | $1.06 | | | | $(1.33 | ) | | | $2.12 | | | | $4.16 | | | | $(7.62 | ) | | | $2.41 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.18 | ) | | | $(0.19 | ) | | | $(0.19 | ) | | | $(0.06 | ) | | | $(0.12 | ) |
Net asset value, end of period (x) | | | $18.66 | | | | $17.60 | | | | $19.11 | | | | $17.18 | | | | $13.21 | | | | $20.89 | |
Total return (%) (k)(r)(s)(x) | | | 6.02 | (n) | | | (7.00 | ) | | | 12.42 | | | | 32.03 | | | | (36.57 | ) | | | 12.97 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.20 | (a) | | | 1.22 | | | | 1.22 | | | | 1.23 | | | | 1.12 | | | | 1.08 | |
Expenses after expense reductions (f) | | | 1.20 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 1.93 | (a) | | | 1.13 | | | | 0.93 | | | | 1.21 | | | | 0.81 | | | | 0.23 | |
Portfolio turnover | | | 26 | (n) | | | 54 | | | | 59 | | | | 63 | | | | 144 | | | | 84 | |
Net assets at end of period (000 omitted) | | | $12,485 | | | | $13,073 | | | | $17,036 | | | | $17,901 | | | | $18,199 | | | | $28,832 | |
| Supplemental Ratios (%): | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of expenses to average net assets after expense
reductions excluding short sale dividend and interest expense (f) | | | 1.18 | (a) | | | 1.21 | | | | 1.21 | | | | 1.23 | | | | N/A | | | | N/A | |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. Excluding the effect of the proceeds received from a non-recurring litigation settlement against Enron Corp., the Initial Class and Service Class total returns for the year ended December 31, 2008 would have each been lower by approximately 0.86%. Excluding the effect of the proceeds received from a non-recurring litigation settlement against Tyco International Ltd., the Initial Class and Service Class total returns for the year ended December 31, 2010 would have been lower by approximately 0.71% and 0.70%, respectively. |
| (x) | The net asset values per share 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 Global Research Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Global Research Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as provided by a third-party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as provided by a third-party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be
13
MFS Global Research Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
United States | | | $64,802,053 | | | | $— | | | | $— | | | | $64,802,053 | |
United Kingdom | | | 214,784 | | | | 11,546,433 | | | | — | | | | 11,761,217 | |
Japan | | | 884,969 | | | | 10,453,867 | | | | — | | | | 11,338,836 | |
Switzerland | | | — | | | | 5,498,935 | | | | — | | | | 5,498,935 | |
France | | | 1,960,161 | | | | 2,567,809 | | | | — | | | | 4,527,970 | |
Netherlands | | | 928,834 | | | | 3,474,975 | | | | — | | | | 4,403,809 | |
Hong Kong | | | — | | | | 4,152,010 | | | | — | | | | 4,152,010 | |
Germany | | | 492,993 | | | | 3,427,592 | | | | — | | | | 3,920,585 | |
Brazil | | | 3,004,859 | | | | — | | | | — | | | | 3,004,859 | |
Other Countries | | | 4,282,063 | | | | 9,903,241 | | | | — | | | | 14,185,304 | |
| Mutual Funds | | | 1,083,242 | | | | — | | | | — | | | | 1,083,242 | |
| Total Investments | | | $77,653,958 | | | | $51,024,862 | | | | $— | | | | $128,678,820 | |
| Short Sales | | | $(529,006 | ) | | | $— | | | | $— | | | | $(529,006 | ) |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 2 investments presented above, equity investments amounting to $25,937,866 would have been considered level 1 investments at the beginning of the period. Of the level 1 investments presented above, equity investments amounting to $492,993 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives – The fund uses derivatives for different purposes, 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 were written options. At June 30, 2012, the fund did not have any outstanding derivate instruments.
14
MFS Global Research Portfolio
Notes to Financial Statements (unaudited) – continued
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | |
| Risk | | Written Options |
| Equity | | $6,193 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | |
| Risk | | Written Options |
| Equity | | $(673) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.
Written Options – In exchange for a premium, the fund wrote call options on securities that it anticipated the price would decline and also wrote put options on securities that it anticipated the price would increase. At the time the option was written, the fund believed the premium received exceeded the potential loss that could result from adverse price changes in the options’ underlying securities. In a written option, the fund as the option writer grants the buyer the right to purchase from, or sell to, the fund a specified number of shares or units of a particular security, currency or index at a specified price within a specified period of time.
The premium received is initially recorded as a liability on the Statement of Assets and Liabilities. The option is subsequently marked-to-market daily with the difference between the premium received and the market value of the written option being recorded as unrealized appreciation or depreciation. When a written option expires, the fund realizes a gain equal to the amount of the premium received. The difference between the premium received and the amount paid on effecting a closing transaction is considered a realized gain or loss. When a written call option is exercised, the premium received is offset against the proceeds to determine the realized gain or loss. When a written put option is exercised, the premium reduces the cost basis of the security purchased by the fund.
At the initiation of the written option contract, for exchange traded options, the fund is required to deposit securities or cash as collateral with the custodian for the benefit of the broker. For over-the-counter options, the fund may post collateral subject to the terms of an ISDA Master Agreement as generally described above if the market value of the options contract moves against it. The fund, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities underlying the written option. Losses from writing options can exceed the premium received and can exceed the potential loss from an ordinary buy and sell transaction. Although the fund’s market risk may be significant, the maximum counterparty credit risk to the fund is equal to the market value of any collateral posted to the broker. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above.
15
MFS Global Research Portfolio
Notes to Financial Statements (unaudited) – continued
Written Options
| | | | | | | | |
| | | Number of
contracts | | | Premiums
received | |
| Outstanding, beginning of period | | | 32 | | | | $2,369 | |
| Options written | | | 82 | | | | 7,447 | |
| Options closed | | | (35 | ) | | | (5,624 | ) |
| Options exercised | | | (57 | ) | | | (2,540 | ) |
| Options expired | | | (22 | ) | | | (1,652 | ) |
| Outstanding, end of period | | | — | | | | $— | |
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, 2012, this expense amounted to $7,245. The fund segregates cash or marketable securities in an amount that, when combined with the amount of proceeds from the short sale deposited with the broker, at least equals the current market value of the security sold short.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
16
MFS Global Research Portfolio
Notes to Financial Statements (unaudited) – continued
Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $1,734,310 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $123,610,179 | |
| Gross appreciation | | | 15,297,887 | |
| Gross depreciation | | | (10,229,246 | ) |
| Net unrealized appreciation (depreciation) | | | $5,068,641 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 2,038,992 | |
| Capital loss carryforwards | | | (46,280,707 | ) |
| Other temporary differences | | | (144,958 | ) |
| Net unrealized appreciation (depreciation) | | | 2,414,511 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/16 | | | $(27,558,952 | ) |
| 12/31/17 | | | (18,721,755 | ) |
| Total | | | $(46,280,707 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $1,599,294 | |
| Service Class | | | — | | | | 135,016 | |
| Total | | | $— | | | | $1,734,310 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $300 million of average daily net assets | | | 0.75% | |
| Average daily net assets in excess of $300 million | | | 0.675% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
17
MFS Global Research 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, 2012, the fee was $6,877, which equated to 0.0103% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2012, these costs amounted to $6.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0224% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $695 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $346, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, short sales, and short-term obligations, aggregated $34,557,264 and $43,973,396, 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 12,418 | | | | $236,467 | | | | 28,690 | | | | $520,163 | |
Service Class | | | 22,605 | | | | 415,362 | | | | 74,343 | | | | 1,365,536 | |
| | | 35,023 | | | | $651,829 | | | | 103,033 | | | | $1,885,699 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 87,537 | | | | $1,599,294 | |
Service Class | | | — | | | | — | | | | 7,427 | | | | 135,016 | |
| | | — | | | | $— | | | | 94,964 | | | | $1,734,310 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (486,340 | ) | | | $(9,287,270 | ) | | | (985,079 | ) | | | $(18,958,720 | ) |
Service Class | | | (96,326 | ) | | | (1,841,523 | ) | | | (230,372 | ) | | | (4,416,937 | ) |
| | | (582,666 | ) | | | $(11,128,793 | ) | | | (1,215,451 | ) | | | $(23,375,657 | ) |
18
MFS Global Research Portfolio
Notes to Financial Statements (unaudited) – continued
| | | | | | | | | | | | | | | | |
| | | Six months ended 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (473,922 | ) | | | $(9,050,803 | ) | | | (868,852 | ) | | | $(16,839,263 | ) |
Service Class | | | (73,721 | ) | | | (1,426,161 | ) | | | (148,602 | ) | | | (2,916,385 | ) |
| | | (547,643 | ) | | | $(10,476,964 | ) | | | (1,017,454 | ) | | | $(19,755,648 | ) |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $459 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 316,413 | | | | 16,334,571 | | | | (15,940,331 | ) | | | 710,653 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $403 | | | | $710,653 | |
19
MFS Global Research Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
20
SEMIANNUAL REPORT
June 30, 2012
MFS® INTERNATIONAL VALUE PORTFOLIO
MFS® Variable Insurance Trust II
FCG-SEM
MFS® INTERNATIONAL VALUE PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS International Value Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS International Value Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| KDDI Corp. | | | 3.5% | |
| Heineken N.V. | | | 3.1% | |
| Royal Dutch Shell PLC, “A” | | | 3.0% | |
| Groupe Danone | | | 2.8% | |
| British American Tobacco PLC | | | 2.8% | |
| Vodafone Group PLC | | | 2.8% | |
| GlaxoSmithKline PLC | | | 2.7% | |
| Nestle S.A. | | | 2.7% | |
| Kao Corp. | | | 2.6% | |
| Japan Tobacco, Inc. | | | 2.5% | |
| |
| Equity sectors | | | | |
| Consumer Staples | | | 21.0% | |
| Financial Services | | | 17.4% | |
| Health Care | | | 10.6% | |
| Utilities & Communications | | | 9.4% | |
| Technology | | | 7.9% | |
| Special Products & Services | | | 6.2% | |
| Energy | | | 6.1% | |
| Industrial Goods & Services | | | 4.6% | |
| Leisure | | | 3.8% | |
| Basic Materials | | | 3.4% | |
| Retailing | | | 1.9% | |
| Transportation | | | 1.6% | |
| Autos & Housing | | | 1.5% | |
| | | | |
| Issuer country weightings (x) | | | | |
| Japan | | | 27.9% | |
| United Kingdom | | | 27.8% | |
| Switzerland | | | 10.9% | |
| Germany | | | 7.5% | |
| France | | | 6.0% | |
| Netherlands | | | 4.6% | |
| United States | | | 4.6% | |
| Sweden | | | 1.7% | |
| Taiwan | | | 1.5% | |
| Other Countries | | | 7.5% | |
| |
| Currency exposure weightings (i)(y) | | | | |
| British Pound Sterling | | | 27.8% | |
| Japanese Yen | | | 27.3% | |
| Euro | | | 21.2% | |
| Swiss Franc | | | 10.9% | |
| United States Dollar | | | 4.9% | |
| Swedish Krona | | | 1.7% | |
| Taiwan Dollar | | | 1.5% | |
| Norwegian Krone | | | 1.0% | |
| Danish Krone | | | 0.9% | |
| Other Currencies | | | 2.8% | |
| (i) | For purposes of this presentation, the components include the market value of securities, and reflect the impact of the equivalent exposure of derivative positions, if 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 market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. |
Percentages are based on net assets as of 6/30/12.
The portfolio is actively managed and current holdings may be different.
2
MFS International Value Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders During the Period,
January 1, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.98% | | | | $1,000.00 | | | | $1,062.67 | | | | $5.03 | |
| | Hypothetical (h) | | | 0.98% | | | | $1,000.00 | | | | $1,019.99 | | | | $4.92 | |
| Service Class | | Actual | | | 1.23% | | | | $1,000.00 | | | | $1,061.37 | | | | $6.30 | |
| | Hypothetical (h) | | | 1.23% | | | | $1,000.00 | | | | $1,018.75 | | | | $6.17 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS International Value Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 95.4% | | | | | | | | |
| Aerospace – 1.2% | | | | | | | | |
| Cobham PLC | | | 1,718,279 | | | $ | 6,258,062 | |
| | | | | | | | |
| Alcoholic Beverages – 3.1% | | | | | | | | |
| Heineken N.V. | | | 316,859 | | | $ | 16,551,051 | |
| | | | | | | | |
| Automotive – 0.8% | | | | | | | | |
| USS Co. Ltd. | | | 39,250 | | | $ | 4,239,685 | |
| | | | | | | | |
| Broadcasting – 1.9% | | | | | | | | |
| Fuji Television Network, Inc. | | | 3,090 | | | $ | 5,316,087 | |
| Nippon Television Network Corp. | | | 31,380 | | | | 4,769,809 | |
| | | | | | | | |
| | | | | | $ | 10,085,896 | |
| | | | | | | | |
| Brokerage & Asset Managers – 1.5% | | | | | | | | |
| Computershare Ltd. | | | 364,538 | | | $ | 2,786,692 | |
| Daiwa Securities Group, Inc. | | | 1,379,000 | | | | 5,191,969 | |
| | | | | | | | |
| | | | | | $ | 7,978,661 | |
| | | | | | | | |
| Business Services – 6.2% | | | | | | | | |
| Amadeus IT Holding S.A. | | | 353,899 | | | $ | 7,494,554 | |
| Brenntag AG | | | 30,239 | | | | 3,345,279 | |
| Bunzl PLC | | | 464,720 | | | | 7,612,960 | |
| Compass Group PLC | | | 870,235 | | | | 9,128,097 | |
| Nomura Research, Inc. | | | 260,400 | | | | 5,739,307 | |
| | | | | | | | |
| | | | | | $ | 33,320,197 | |
| | | | | | | | |
| Chemicals – 1.2% | | | | | | | | |
| Givaudan S.A. | | | 6,385 | | | $ | 6,271,209 | |
| | | | | | | | |
| Computer Software – 0.8% | | | | | | | | |
| OBIC Co. Ltd. | | | 21,380 | | | $ | 4,106,011 | |
| | | | | | | | |
| Computer Software – Systems – 2.1% | | | | | |
| Asustek Computer, Inc. | | | 248,640 | | | $ | 2,299,964 | |
| Konica Minolta Holdings, Inc. | | | 491,500 | | | | 3,873,381 | |
| Nintendo Co. Ltd. | | | 27,500 | | | | 3,208,813 | |
| Venture Corp. Ltd. | | | 326,000 | | | | 2,018,886 | |
| | | | | | | | |
| | | | | | $ | 11,401,044 | |
| | | | | | | | |
| Construction – 0.7% | | | | | | | | |
| Geberit AG | | | 19,230 | | | $ | 3,793,188 | |
| | | | | | | | |
| Consumer Products – 7.0% | | | | | | | | |
| Henkel KGaA, IPS | | | 151,774 | | | $ | 10,079,571 | |
| Kao Corp. | | | 505,800 | | | | 13,949,954 | |
| KOSE Corp. | | | 109,600 | | | | 2,593,180 | |
| Reckitt Benckiser Group PLC | | | 207,592 | | | | 10,940,303 | |
| | | | | | | | |
| | | | | | $ | 37,563,008 | |
| | | | | | | | |
| Containers – 0.4% | | | | | | | | |
| Brambles Ltd. | | | 303,589 | | | $ | 1,925,566 | |
| | | | | | | | |
| Electrical Equipment – 1.7% | | | | | | | | |
| Legrand S.A. (l) | | | 188,370 | | | $ | 6,406,479 | |
| Spectris PLC | | | 117,261 | | | | 2,820,258 | |
| | | | | | | | |
| | | | | | $ | 9,226,737 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | |
| Electronics – 3.3% | | | | | | | | |
| ASM International N.V. | | | 54,084 | | | $ | 2,055,141 | |
| Halma PLC | | | 582,719 | | | | 3,828,276 | |
| Hirose Electric Co. Ltd. | | | 15,700 | | | | 1,552,315 | |
| Samsung Electronics Co. Ltd. | | | 4,436 | | | | 4,703,149 | |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | | 413,067 | | | | 5,766,415 | |
| | | | | | | | |
| | | | | | $ | 17,905,296 | |
| | | | | | | | |
| Energy – Independent – 0.7% | | | | | | | | |
| Cairn Energy PLC | | | 850,029 | | | $ | 3,526,544 | |
| | | | | | | | |
| Energy – Integrated – 5.4% | | | | | | | | |
| BP PLC | | | 1,898,256 | | | $ | 12,718,629 | |
| Royal Dutch Shell PLC, “A” | | | 475,805 | | | | 16,028,095 | |
| | | | | | | | |
| | | | | | $ | 28,746,724 | |
| | | | | | | | |
| Food & Beverages – 5.6% | | | | | | | | |
| Groupe Danone | | | 245,813 | | | $ | 15,247,398 | |
| ITO EN Ltd. | | | 35,500 | | | | 664,174 | |
| Nestle S.A. | | | 239,923 | | | | 14,311,747 | |
| | | | | | | | |
| | | | | | $ | 30,223,319 | |
| | | | | | | | |
| Food & Drug Stores – 1.5% | | | | | | | | |
| Lawson, Inc. | | | 117,100 | | | $ | 8,192,620 | |
| | | | | | | | |
| Insurance – 6.0% | | | | | | | | |
| Amlin PLC | | | 314,083 | | | $ | 1,743,398 | |
| Catlin Group Ltd. | | | 318,798 | | | | 2,126,817 | |
| Euler Hermes | | | 22,226 | | | | 1,440,756 | |
| Hiscox Ltd. | | | 601,913 | | | | 4,032,093 | |
| ING Groep N.V. (a) | | | 629,662 | | | | 4,248,220 | |
| Jardine Lloyd Thompson Group PLC | | | 247,978 | | | | 2,718,597 | |
| Swiss Re Ltd. | | | 141,195 | | | | 8,870,272 | |
| Zurich Insurance Group AG | | | 30,578 | | | | 6,898,998 | |
| | | | | | | | |
| | | | | | $ | 32,079,151 | |
| | | | | | | | |
| Leisure & Toys – 0.4% | | | | | | | | |
| Sankyo Co. Ltd. | | | 39,600 | | | $ | 1,932,094 | |
| | | | | | | | |
| Machinery & Tools – 1.7% | | | | | | | | |
| Glory Ltd. | | | 115,800 | | | $ | 2,408,099 | |
| Neopost S.A. | | | 78,391 | | | | 4,183,807 | |
| Schindler Holding AG | | | 23,658 | | | | 2,645,671 | |
| | | | | | | | |
| | | | | | $ | 9,237,577 | |
| | | | | | | | |
| Major Banks – 3.5% | | | | | | | | |
| HSBC Holdings PLC | | | 1,533,193 | | | $ | 13,518,847 | |
| Sumitomo Mitsui Financial Group, Inc. | | | 166,800 | | | | 5,502,544 | |
| | | | | | | | |
| | | | | | $ | 19,021,391 | |
| | | | | | | | |
| Medical & Health Technology & Services – 0.9% | | | | | |
| Kobayashi Pharmaceutical Co. Ltd. | | | 90,100 | | | $ | 5,010,423 | |
| | | | | | | | |
| Medical Equipment – 0.5% | | | | | | | | |
| Nihon Kohden Corp. | | | 89,000 | | | $ | 2,710,087 | |
| | | | | | | | |
4
MFS International Value Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Network & Telecom – 1.7% | | | | | | | | |
| Ericsson, Inc., “B” (l) | | | 980,231 | | | $ | 8,934,443 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 4.1% | | | | | |
| Anglo Irish Bank Corp. PLC (a) | | | 249,800 | | | $ | 0 | |
| Chiba Bank Ltd. | | | 354,000 | | | | 2,126,122 | |
| DnB NOR A.S.A. | | | 513,294 | | | | 5,106,378 | |
| Hachijuni Bank Ltd. | | | 346,000 | | | | 1,800,125 | |
| Joyo Bank Ltd. | | | 504,000 | | | | 2,294,588 | |
| Julius Baer Group Ltd. | | | 76,175 | | | | 2,758,015 | |
| Jyske Bank A.S. (a) | | | 34,752 | | | | 936,643 | |
| Sapporo Hokuyo Holdings, Inc. | | | 461,800 | | | | 1,430,261 | |
| Sydbank A.S. (a) | | | 56,267 | | | | 913,745 | |
| UniCredit S.p.A. (a) | | | 1,134,384 | | | | 4,298,475 | |
| Unione di Banche Italiane ScpA | | | 185,392 | | | | 608,495 | |
| | | | | | | | |
| | | | | | $ | 22,272,847 | |
| | | | | | | | |
| Pharmaceuticals – 9.2% | | | | | | | | |
| Bayer AG | | | 143,005 | | | $ | 10,311,893 | |
| GlaxoSmithKline PLC | | | 634,147 | | | | 14,379,822 | |
| Hisamitsu Pharmaceutical Co., Inc. | | | 45,800 | | | | 2,255,788 | |
| Roche Holding AG | | | 75,126 | | | | 12,968,808 | |
| Sanofi | | | 68,236 | | | | 5,174,408 | |
| Santen Pharmaceutical Co. Ltd. | | | 110,000 | | | | 4,506,787 | |
| | | | | | | | |
| | | | | | $ | 49,597,506 | |
| | | | | | | | |
| Printing & Publishing – 1.5% | | | | | | | | |
| Pearson PLC | | | 327,910 | | | $ | 6,512,660 | |
| United Business Media Ltd. | | | 179,812 | | | | 1,649,146 | |
| | | | | | | | |
| | | | | | $ | 8,161,806 | |
| | | | | | | | |
| Real Estate – 2.3% | | | | | | | | |
| Deutsche Wohnen AG | | | 398,242 | | | $ | 6,711,174 | |
| GSW Immobilien AG (l) | | | 132,288 | | | | 4,516,731 | |
| TAG Immobilien AG (l) | | | 135,220 | | | | 1,269,716 | |
| | | | | | | | |
| | | | | | $ | 12,497,621 | |
| | | | | | | | |
| Specialty Chemicals – 1.8% | | | | | | | | |
| Shin-Etsu Chemical Co. Ltd. | | | 103,800 | | | $ | 5,710,719 | |
| Symrise AG | | | 124,041 | | | | 3,765,801 | |
| | | | | | | | |
| | | | | | $ | 9,476,520 | |
| | | | | | | | |
| Specialty Stores – 0.4% | | | | | | | | |
| Esprit Holdings Ltd. | | | 1,857,672 | | | $ | 2,401,985 | |
| | | | | | | | |
| Telecommunications – Wireless – 7.7% | | | | | |
| KDDI Corp. | | | 2,891 | | | $ | 18,647,939 | |
| NTT DoCoMo, Inc. | | | 4,731 | | | | 7,873,225 | |
| Vodafone Group PLC | | | 5,263,903 | | | | 14,789,651 | |
| | | | | | | | |
| | | | | | $ | 41,310,815 | |
| | | | | | | | |
| Telephone Services – 1.7% | | | | | | | | |
| China Unicom (Hong Kong) Ltd. | | | 1,104,000 | | | $ | 1,388,903 | |
| Royal KPN N.V. | | | 216,552 | | | | 2,070,694 | |
| TDC A.S. | | | 465,790 | | | | 3,237,652 | |
| Telecom Italia S.p.A. | | | 3,337,082 | | | | 2,684,347 | |
| | | | | | | | |
| | | | | | $ | 9,381,596 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Tobacco – 5.3% | | | | | | | | |
| British American Tobacco PLC | | | 292,591 | | | $ | 14,892,392 | |
| Japan Tobacco, Inc. | | | 457,800 | | | | 13,566,242 | |
| | | | | | | | |
| | | | | | $ | 28,458,634 | |
| | | | | | | | |
| Trucking – 1.6% | | | | | | | | |
| Yamato Holdings Co. Ltd. | | | 519,200 | | | $ | 8,359,431 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $505,458,108) | | | | | | $ | 512,158,745 | |
| | | | | | | | |
| Issuer/Expiration Date/ Strike Price | | Par Amount
of Contracts | | | | |
| PUT OPTIONS PURCHASED – 0.0% | | | | | |
| JPY Currency – August 2012 @ $0.0118 | | JPY | 1,342,944,000 | | | $ | 9,401 | |
| JPY Currency – January 2013 @ $0.0119 | | JPY | 360,804,000 | | | | 49,430 | |
| JPY Currency – March 2013 @ $0.0110 | | JPY | 374,496,933 | | | | 20,223 | |
| | | | | | | | |
| Total Put Options Purchased (Premiums Paid, $413,340) | | | | | | $ | 79,054 | |
| | | | | | | | |
| CALL OPTIONS PURCHASED – 0.0% | | | | | |
| EUR Currency – March 2013 @ JPY 121.25 (Premiums Paid, $431,434) | | EUR | 17,140,165 | | | $ | 59,185 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | | |
| MONEY MARKET FUNDS – 4.1% | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 22,257,006 | | | $ | 22,257,006 | |
| | | | | | | | |
| COLLATERAL FOR SECURITIES LOANED – 1.6% | | | | | |
| Navigator Securities Lending Prime Portfolio, 0.28%, at Cost and Net Asset Value (j) | | | 8,423,659 | | | $ | 8,423,659 | |
| | | | | | | | |
Total Investments (Identified Cost, $536,983,547) | | | | | | $ | 542,977,649 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – (1.1)% | | | | (6,078,611 | ) |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 536,899,038 | |
| | | | | | | | |
| (a) | | Non-income producing 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. |
| (v) | | Underlying affiliated fund 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 |
| IPS | | International Preference Stock |
| PLC | | Public Limited Company |
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:
See Notes to Financial Statements
5
MFS International 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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $514,726,541) | | | $520,720,643 | | | | | |
Underlying affiliated funds, at cost and value | | | 22,257,006 | | | | | |
Total investments, at value, including $8,393,728 of securities on loan (identified cost, $536,983,547) | | | $542,977,649 | | | | | |
Foreign currency, at value (identified cost, $702,308) | | | 701,105 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 1,826,281 | | | | | |
Fund shares sold | | | 1,554,536 | | | | | |
Interest and dividends | | | 1,525,068 | | | | | |
Other assets | | | 2,920 | | | | | |
Total assets | | | | | | | $548,587,559 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | $2,211,764 | | | | | |
Fund shares reacquired | | | 932,793 | | | | | |
Collateral for securities loaned, at value | | | 8,423,659 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 39,165 | | | | | |
Shareholder servicing costs | | | 419 | | | | | |
Distribution and/or service fees | | | 9,310 | | | | | |
Payable for independent Trustees’ compensation | | | 37 | | | | | |
Accrued expenses and other liabilities | | | 71,374 | | | | | |
Total liabilities | | | | | | | $11,688,521 | |
Net assets | | | | | | | $536,899,038 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $538,871,160 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 5,970,575 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (26,471,344 | ) | | | | |
Undistributed net investment income | | | 18,528,647 | | | | | |
Net assets | | | | | | | $536,899,038 | |
Shares of beneficial interest outstanding | | | | | | | 33,692,984 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $68,665,637 | | | | 4,263,604 | | | | $16.11 | |
Service Class | | | 468,233,401 | | | | 29,429,380 | | | | 15.91 | |
See Notes to Financial Statements
6
MFS International 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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $14,276,740 | | | | | |
Interest | | | 169,609 | | | | | |
Dividends from underlying affiliated funds | | | 13,350 | | | | | |
Foreign taxes withheld | | | (825,173 | ) | | | | |
Total investment income | | | | | | | $13,634,526 | |
Expenses | | | | | | | | |
Management fee | | | $2,222,964 | | | | | |
Distribution and/or service fees | | | 534,144 | | | | | |
Shareholder servicing costs | | | 25,312 | | | | | |
Administrative services fee | | | 41,851 | | | | | |
Independent Trustees’ compensation | | | 8,257 | | | | | |
Custodian fee | | | 67,313 | | | | | |
Shareholder communications | | | 7,231 | | | | | |
Audit and tax fees | | | 27,063 | | | | | |
Legal fees | | | 3,742 | | | | | |
Miscellaneous | | | 17,526 | | | | | |
Total expenses | | | | | | | $2,955,403 | |
Fees paid indirectly | | | (8 | ) | | | | |
Reduction of expenses by investment adviser | | | (1,248 | ) | | | | |
Net expenses | | | | | | | $2,954,147 | |
Net investment income | | | | | | | $10,680,379 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $(2,028,787 | ) | | | | |
Foreign currency | | | 28,782 | | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $(2,000,005 | ) |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $19,086,066 | | | | | |
Translation of assets and liabilities in foreign currencies | | | 1,903 | | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $19,087,969 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $17,087,964 | |
Change in net assets from operations | | | | | | | $27,768,343 | |
See Notes to Financial Statements
7
MFS International 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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $10,680,379 | | | | $8,616,811 | |
Net realized gain (loss) on investments and foreign currency | | | (2,000,005 | ) | | | 2,321,685 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 19,087,969 | | | | (19,156,161 | ) |
Change in net assets from operations | | | $27,768,343 | | | | $(8,217,665 | ) |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(4,742,528 | ) |
Change in net assets from fund share transactions | | | $67,029,906 | | | | $61,502,991 | |
Total change in net assets | | | $94,798,249 | | | | $48,542,798 | |
| Net assets | | | | | | | | |
At beginning of period | | | 442,100,789 | | | | 393,557,991 | |
At end of period (including undistributed net investment income of $18,528,647 and
$7,848,268, respectively) | | | $536,899,038 | | | | $442,100,789 | |
See Notes to Financial Statements
8
MFS International 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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended 6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $15.16 | | | | $15.59 | | | | $14.51 | | | | $12.03 | | | | $18.68 | | | | $20.02 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.36 | | | | $0.36 | | | | $0.26 | | | | $0.25 | | | | $0.44 | | | | $0.33 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.59 | | | | (0.59 | ) | | | 1.05 | | | | 2.64 | | | | (5.94 | ) | | | 1.13 | |
Total from investment operations | | | $0.95 | | | | $(0.23 | ) | | | $1.31 | | | | $2.89 | | | | $(5.50 | ) | | | $1.46 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.20 | ) | | | $(0.23 | ) | | | $(0.41 | ) | | | $(0.16 | ) | | | $(0.33 | ) |
From net realized gain on investments | | | — | | | | — | | | | — | | | | — | | | | (0.99 | ) | | | (2.47 | ) |
Total distributions declared to shareholders | | | $— | | | | $(0.20 | ) | | | $(0.23 | ) | | | $(0.41 | ) | | | $(1.15 | ) | | | $(2.80 | ) |
Net asset value, end of period (x) | | | $16.11 | | | | $15.16 | | | | $15.59 | | | | $14.51 | | | | $12.03 | | | | $18.68 | |
Total return (%) (k)(r)(s)(x) | | | 6.27 | (n) | | | (1.52 | ) | | | 9.11 | | | | 25.37 | | | | (31.41 | ) | | | 7.35 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.98 | (a) | | | 1.01 | | | | 1.06 | | | | 1.09 | | | | 1.05 | | | | 1.05 | |
Expenses after expense reductions (f) | | | 0.98 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 4.59 | (a) | | | 2.28 | | | | 1.79 | | | | 2.00 | | | | 2.82 | | | | 1.67 | |
Portfolio turnover | | | 11 | (n) | | | 16 | | | | 28 | | | | 49 | | | | 44 | | | | 44 | |
Net assets at end of period (000 omitted) | | | $68,666 | | | | $60,532 | | | | $68,356 | | | | $63,978 | | | | $57,968 | | | | $117,100 | |
| | |
| Service Class | | Six months
ended 6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $14.99 | | | | $15.43 | | | | $14.38 | | | | $11.91 | | | | $18.53 | | | | $19.92 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.33 | | | | $0.31 | | | | $0.20 | | | | $0.23 | | | | $0.39 | | | | $0.16 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.59 | | | | (0.58 | ) | | | 1.05 | | | | 2.62 | | | | (5.87 | ) | | | 1.24 | |
Total from investment operations | | | $0.92 | | | | $(0.27 | ) | | | $1.25 | | | | $2.85 | | | | $(5.48 | ) | | | $1.40 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.17 | ) | | | $(0.20 | ) | | | $(0.38 | ) | | | $(0.15 | ) | | | $(0.32 | ) |
From net realized gain on investments | | | — | | | | — | | | | — | | | | — | | | | (0.99 | ) | | | (2.47 | ) |
Total distributions declared to shareholders | | | $— | | | | $(0.17 | ) | | | $(0.20 | ) | | | $(0.38 | ) | | | $(1.14 | ) | | | $(2.79 | ) |
Net asset value, end of period (x) | | | $15.91 | | | | $14.99 | | | | $15.43 | | | | $14.38 | | | | $11.91 | | | | $18.53 | |
Total return (%) (k)(r)(s)(x) | | | 6.14 | (n) | | | (1.78 | ) | | | 8.78 | | | | 25.11 | | | | (31.58 | ) | | | 7.04 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.23 | (a) | | | 1.26 | | | | 1.31 | | | | 1.34 | | | | 1.30 | | | | 1.30 | |
Expenses after expense reductions (f) | | | 1.23 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 4.28 | (a) | | | 1.98 | | | | 1.43 | | | | 1.83 | | | | 2.52 | | | | 0.87 | |
Portfolio turnover | | | 11 | (n) | | | 16 | | | | 28 | | | | 49 | | | | 44 | | | | 44 | |
Net assets at end of period (000 omitted) | | | $468,233 | | | | $381,569 | | | | $325,202 | | | | $206,006 | | | | $179,067 | | | | $224,339 | |
See Notes to Financial Statements
9
MFS International Value Portfolio
Financial Highlights – continued
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values per share 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 Value Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS International Value Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as provided by a third-party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as provided by a third-party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the
11
MFS International Value Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
Japan | | | $4,506,786 | | | | $145,024,992 | | | | $— | | | | $149,531,778 | |
United Kingdom | | | 17,185,444 | | | | 132,039,201 | | | | — | | | | 149,224,645 | |
Switzerland | | | — | | | | 58,517,909 | | | | — | | | | 58,517,909 | |
Germany | | | 9,552,249 | | | | 30,447,918 | | | | — | | | | 40,000,167 | |
France | | | 15,247,398 | | | | 17,205,451 | | | | — | | | | 32,452,849 | |
Netherlands | | | 2,070,694 | | | | 22,854,413 | | | | — | | | | 24,925,107 | |
Sweden | | | 8,934,443 | | | | — | | | | — | | | | 8,934,443 | |
Taiwan | | | 5,766,415 | | | | 2,299,964 | | | | — | | | | 8,066,379 | |
Italy | | | — | | | | 7,591,317 | | | | — | | | | 7,591,317 | |
Other Countries | | | 1,388,903 | | | | 31,525,248 | | | | 0 | | | | 32,914,151 | |
| Purchased Currency Options | | | — | | | | 138,239 | | | | — | | | | 138,239 | |
| Mutual Funds | | | 30,680,665 | | | | — | | | | — | | | | 30,680,665 | |
| Total Investments | | | $95,332,997 | | | | $447,644,652 | | | | $0 | | | | $542,977,649 | |
For further information regarding security characteristics, see the Portfolio of Investments. At June 30, 2012, the fund held one level 3 security valued at $0, which was also held and valued at $0 at December 31, 2011.
Of the level 2 investments presented above, equity investments amounting to $230,626,212 would have been considered level 1 investments at the beginning of the period. Of the level 1 investments presented above, equity investments amounting to $26,462,172 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives – The fund uses derivatives for different purposes, 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 were purchased options. The fund’s period end derivatives, as presented in the Portfolio of Investments, generally are indicative of the volume of its derivative activity during the period.
12
MFS International 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, 2012 as reported in the Statement of Assets and Liabilities:
| | | | | | |
| | | | | Fair Value (a) | |
| Risk | | Derivative Contracts | | Asset Derivatives | |
| Foreign Exchange | | Purchased Currency Options | | | $138,239 | |
| (a) | The value of purchased options outstanding is included in total investments, at value, within the fund’s Statement of Assets and Liabilities. |
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | |
| Risk | | Investments
(Purchased Options) | |
| Foreign Exchange | | | $(128,439 | ) |
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | |
| Risk | | Investments
(Purchased Options) | |
| Foreign Exchange | | | $(397,393 | ) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.
Purchased Options – The fund purchased call and put options for a premium. Purchased call and put options entitle the holder to buy and sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing call options may be used to hedge against an anticipated increase in the dollar cost of securities or currency to be acquired or to increase the fund’s exposure to an underlying instrument. Purchasing put options may hedge against a decline in the value of portfolio securities or currency.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased call and put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased call option, the premium paid is added to the cost of the security or financial instrument. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.
The risk in purchasing an option is that the fund pays a premium whether or not the option is exercised. The fund’s maximum risk of loss due to counterparty credit risk is limited to the market value of the option. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above
13
MFS International Value Portfolio
Notes to Financial Statements (unaudited) – continued
and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $4,742,528 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $537,637,894 | |
| Gross appreciation | | | 45,981,839 | |
| Gross depreciation | | | (40,642,084 | ) |
| Net unrealized appreciation (depreciation) | | | $5,339,755 | |
14
MFS International Value Portfolio
Notes to Financial Statements (unaudited) – continued
| | | | |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 7,872,137 | |
| Capital loss carryforwards | | | (23,816,992 | ) |
| Other temporary differences | | | (49,299 | ) |
| Net unrealized appreciation (depreciation) | | | (13,746,311 | ) |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/16 | | | $(4,502,795 | ) |
| 12/31/17 | | | (18,221,256 | ) |
| 12/31/18 | | | (1,092,941 | ) |
| Total | | | $(23,816,992 | ) |
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 on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $789,091 | |
| Service Class | | | — | | | | 3,953,437 | |
| Total | | | $— | | | | $4,742,528 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.90% | |
| Next $1 billion of average daily net assets | | | 0.80% | |
| Average daily net assets in excess of $2 billion | | | 0.70% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2012, the fee was $25,282, which equated to 0.0102% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2012, these costs amounted to $30.
15
MFS International Value 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 partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0169% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $2,447 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $1,248, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $125,973,152 and $53,318,269, 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 753,779 | | | | $11,936,102 | | | | 299,507 | | | | $4,681,107 | |
Service Class | | | 6,300,036 | | | | 98,972,969 | | | | 8,945,525 | | | | 139,378,085 | |
| | | 7,053,815 | | | | $110,909,071 | | | | 9,245,032 | | | | $144,059,192 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 50,876 | | | | $789,091 | |
Service Class | | | — | | | | — | | | | 257,385 | | | | 3,953,437 | |
| | | — | | | | $— | | | | 308,261 | | | | $4,742,528 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (483,540 | ) | | | $(7,627,959 | ) | | | (741,692 | ) | | | $(11,743,882 | ) |
Service Class | | | (2,319,011 | ) | | | (36,251,206 | ) | | | (4,825,216 | ) | | | (75,554,847 | ) |
| | | (2,802,551 | ) | | | $(43,879,165 | ) | | | (5,566,908 | ) | | | $(87,298,729 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | 270,239 | | | | $4,308,143 | | | | (391,309 | ) | | | $(6,273,684 | ) |
Service Class | | | 3,981,025 | | | | 62,721,763 | | | | 4,377,694 | | | | 67,776,675 | |
| | | 4,251,264 | | | | $67,029,906 | | | | 3,986,385 | | | | $61,502,991 | |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and
16
MFS International Value Portfolio
Notes to Financial Statements (unaudited) – continued
other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $1,633 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 19,740,443 | | | | 84,321,326 | | | | (81,804,763 | ) | | | 22,257,006 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $13,350 | | | | $22,257,006 | |
17
MFS International Value Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
18
SEMIANNUAL REPORT
June 30, 2012
MFS® GLOBAL GROWTH PORTFOLIO
MFS® Variable Insurance Trust II
WGO-SEM
MFS® GLOBAL GROWTH PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Growth Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Global Growth Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Groupe Danone | | | 2.5% | |
| Colgate-Palmolive Co. | | | 2.5% | |
| LVMH Moet Hennessy Louis Vuitton S.A. | | | 2.3% | |
| Danaher Corp. | | | 2.3% | |
| Pernod Ricard S.A. | | | 2.2% | |
| Google, Inc., “A” | | | 2.1% | |
| Compass Group PLC | | | 2.0% | |
| Apple, Inc. | | | 2.0% | |
| United Technologies Corp. | | | 1.9% | |
| Reckitt Benckiser Group PLC | | | 1.9% | |
| |
| Equity sectors | | | | |
| Technology | | | 15.4% | |
| Consumer Staples | | | 14.8% | |
| Financial Services | | | 12.1% | |
| Industrial Goods & Services | | | 12.1% | |
| Health Care | | | 10.0% | |
| Special Products & Services | | | 8.6% | |
| Retailing | | | 8.3% | |
| Basic Materials | | | 5.8% | |
| Energy | | | 4.4% | |
| Leisure | | | 3.4% | |
| Transportation | | | 1.9% | |
| Autos & Housing | | | 1.4% | |
| Utilities & Communications | | | 0.5% | |
| | | | |
| Issuer country weightings (x) | | | | |
| United States | | | 52.5% | |
| France | | | 12.4% | |
| United Kingdom | | | 10.1% | |
| Switzerland | | | 6.0% | |
| Brazil | | | 4.0% | |
| Germany | | | 4.0% | |
| Taiwan | | | 1.7% | |
| Japan | | | 1.6% | |
| Spain | | | 1.6% | |
| Other Countries | | | 6.1% | |
| |
| Currency exposure weightings (y) | | | | |
| United States Dollar | | | 55.9% | |
| Euro | | | 18.7% | |
| British Pound Sterling | | | 10.1% | |
| Swiss Franc | | | 6.0% | |
| Brazilian Real | | | 2.9% | |
| Taiwan Dollar | | | 1.7% | |
| Japanese Yen | | | 1.6% | |
| Hong Kong Dollar | | | 1.1% | |
| South Korean Won | | | 0.9% | |
| Other Currencies | | | 1.1% | |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. |
Percentages are based on net assets as of 6/30/12.
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, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 1.18% | | | | $1,000.00 | | | | $1,071.48 | | | | $6.08 | |
| | Hypothetical (h) | | | 1.18% | | | | $1,000.00 | | | | $1,019.00 | | | | $5.92 | |
| Service Class | | Actual | | | 1.43% | | | | $1,000.00 | | | | $1,070.48 | | | | $7.36 | |
| | Hypothetical (h) | | | 1.43% | | | | $1,000.00 | | | | $1,017.75 | | | | $7.17 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Global Growth Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 98.7% | | | | | | | | |
| Aerospace – 2.4% | | | | | | | | |
| Rolls-Royce Holdings PLC | | | 23,225 | | | $ | 313,323 | |
| United Technologies Corp. | | | 14,870 | | | | 1,123,131 | |
| | | | | | | | |
| | | | | | $ | 1,436,454 | |
| | | | | | | | |
| Alcoholic Beverages – 4.3% | | | | | |
| Diageo PLC | | | 33,234 | | | $ | 854,652 | |
| Heineken N.V. | | | 7,530 | | | | 393,328 | |
| Pernod Ricard S.A. | | | 12,491 | | | | 1,336,243 | |
| | | | | | | | |
| | | | | | $ | 2,584,223 | |
| | | | | | | | |
| Apparel Manufacturers – 4.7% | | | | | |
| Compagnie Financiere Richemont S.A. | | | 7,952 | | | $ | 436,410 | |
| Li & Fung Ltd. | | | 331,600 | | | | 643,453 | |
| LVMH Moet Hennessy Louis Vuitton S.A. | | | 8,872 | | | | 1,352,255 | |
| NIKE, Inc., “B” | | | 4,090 | | | | 359,020 | |
| | | | | | | | |
| | | | | | $ | 2,791,138 | |
| | | | | | | | |
| Automotive – 1.4% | | | | | |
| Johnson Controls, Inc. | | | 29,620 | | | $ | 820,770 | |
| | | | | | | | |
| Broadcasting – 3.4% | | | | | |
| Publicis Groupe S.A. (l) | | | 19,011 | | | $ | 869,403 | |
| Viacom, Inc., “B” | | | 16,640 | | | | 782,413 | |
| Walt Disney Co. | | | 7,320 | | | | 355,020 | |
| | | | | | | | |
| | | | | | $ | 2,006,836 | |
| | | | | | | | |
| Brokerage & Asset Managers – 3.6% | | | | | |
| BM&F Bovespa S.A. | | | 105,200 | | | $ | 536,868 | |
| Charles Schwab Corp. | | | 27,770 | | | | 359,066 | |
| CME Group, Inc. | | | 1,140 | | | | 305,645 | |
| Franklin Resources, Inc. | | | 8,570 | | | | 951,184 | |
| | | | | | | | |
| | | | | | $ | 2,152,763 | |
| | | | | | | | |
| Business Services – 8.6% | | | | | |
| Accenture PLC, “A” | | | 16,000 | | | $ | 961,440 | |
| Brenntag AG | | | 4,435 | | | | 490,635 | |
| Cognizant Technology Solutions Corp., “A” (a) | | | 7,850 | | | | 471,000 | |
| Compass Group PLC | | | 116,670 | | | | 1,223,779 | |
| Dun & Bradstreet Corp. | | | 4,430 | | | | 315,283 | |
| Intertek Group PLC | | | 8,686 | | | | 365,051 | |
| LPS Brasil – Consultoria de Imoveis S.A. | | | 22,400 | | | | 373,612 | |
| Michael Page International PLC | | | 5,553 | | | | 32,726 | |
| MSCI, Inc., “A” (a) | | | 16,800 | | | | 571,536 | |
| Verisk Analytics, Inc., “A” (a) | | | 6,340 | | | | 312,308 | |
| | | | | | | | |
| | | | | | $ | 5,117,370 | |
| | | | | | | | |
| Chemicals – 0.5% | | | | | |
| Monsanto Co. | | | 3,890 | | | $ | 322,014 | |
| | | | | | | | |
| Computer Software – 3.9% | | | | | |
| Autodesk, Inc. (a) | | | 11,370 | | | $ | 397,836 | |
| Check Point Software Technologies Ltd. (a) | | | 12,190 | | | | 604,502 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | |
| Computer Software – continued | | | | | |
| Dassault Systems S.A. | | | 3,662 | | | $ | 344,015 | |
| Oracle Corp. | | | 33,350 | | | | 990,495 | |
| | | | | | | | |
| | | | | | $ | 2,336,848 | |
| | | | | | | | |
| Computer Software – Systems – 3.5% | | | | | |
| Apple, Inc. (a) | | | 2,090 | | | $ | 1,220,560 | |
| EMC Corp. (a) | | | 11,890 | | | | 304,741 | |
| International Business Machines Corp. | | | 2,910 | | | | 569,138 | |
| | | | | | | | |
| | | | | | $ | 2,094,439 | |
| | | | | | | | |
| Consumer Products – 5.9% | | | | | |
| Colgate-Palmolive Co. | | | 14,300 | | | $ | 1,488,630 | |
| Procter & Gamble Co. | | | 14,930 | | | | 914,463 | |
| Reckitt Benckiser Group PLC | | | 21,234 | | | | 1,119,053 | |
| | | | | | | | |
| | | | | | $ | 3,522,146 | |
| | | | | | | | |
| Electrical Equipment – 8.4% | | | | | |
| Amphenol Corp., “A” | | | 9,250 | | | $ | 508,010 | |
| Danaher Corp. | | | 25,850 | | | | 1,346,268 | |
| Legrand S.A. (l) | | | 25,807 | | | | 877,698 | |
| Mettler-Toledo International, Inc. (a) | | | 3,870 | | | | 603,140 | |
| Schneider Electric S.A. | | | 9,084 | | | | 506,149 | |
| Sensata Technologies Holding B.V. (a) | | | 27,220 | | | | 728,952 | |
| W.W. Grainger, Inc. | | | 2,310 | | | | 441,764 | |
| | | | | | | | |
| | | | | | $ | 5,011,981 | |
| | | | | | | | |
| Electronics – 4.7% | | | | | |
| ASML Holding N.V. | | | 5,940 | | | $ | 305,435 | |
| Microchip Technology, Inc. | | | 27,670 | | | | 915,324 | |
| Samsung Electronics Co. Ltd. | | | 529 | | | | 560,858 | |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | | 73,328 | | | | 1,023,659 | |
| | | | | | | | |
| | | | | | $ | 2,805,276 | |
| | | | | | | | |
| Energy – Independent – 1.4% | | | | | |
| Occidental Petroleum Corp. | | | 9,560 | | | $ | 819,961 | |
| | | | | | | | |
| Energy – Integrated – 0.9% | | | | | |
| Exxon Mobil Corp. | | | 6,530 | | | $ | 558,772 | |
| | | | | | | | |
| Food & Beverages – 4.6% | | | | | |
| Groupe Danone | | | 24,217 | | | $ | 1,502,143 | |
| Mead Johnson Nutrition Co., “A” | | | 3,880 | | | | 312,379 | |
| Nestle S.A. | | | 5,441 | | | | 324,563 | |
| PepsiCo, Inc. | | | 8,950 | | | | 632,407 | |
| | | | | | | | |
| | | | | | $ | 2,771,492 | |
| | | | | | | | |
| General Merchandise – 2.0% | | | | | |
| Kohl’s Corp. | | | 6,170 | | | $ | 280,673 | |
| Lojas Renner S.A. | | | 15,700 | | | | 440,475 | |
| Target Corp. | | | 8,530 | | | | 496,361 | |
| | | | | | | | |
| | | | | | $ | 1,217,509 | |
| | | | | | | | |
4
MFS Global Growth Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | |
| Internet – 2.8% | | | | | |
| Google, Inc., “A” (a) | | | 2,200 | | | $ | 1,276,154 | |
| Yahoo Japan Corp. | | | 1,284 | | | | 415,537 | |
| | | | | | | | |
| | | | | | $ | 1,691,691 | |
| | | | | | | | |
| Machinery & Tools – 1.3% | | | | | |
| Schindler Holding AG | | | 6,717 | | | $ | 751,161 | |
| | | | | | | | |
| Major Banks – 2.1% | | | | | |
| HSBC Holdings PLC | | | 62,948 | | | $ | 555,041 | |
| Standard Chartered PLC | | | 32,847 | | | | 716,092 | |
| | | | | | | | |
| | | | | | $ | 1,271,133 | |
| | | | | | | | |
| Medical & Health Technology & Services – 1.3% | | | | | |
| Diagnosticos da America S.A. | | | 29,100 | | | $ | 191,392 | |
| Fresenius Medical Care AG & Co. KGaA | | | 4,239 | | | | 300,043 | |
| Patterson Cos., Inc. | | | 8,850 | | | | 305,060 | |
| | | | | | | | |
| | | | | | $ | 796,495 | |
| | | | | | | | |
| Medical Equipment – 6.6% | | | | | |
| Becton, Dickinson & Co. | | | 4,120 | | | $ | 307,970 | |
| DENTSPLY International, Inc. | | | 16,630 | | | | 628,780 | |
| Essilor International S.A. | | | 3,469 | | | | 322,249 | |
| Sonova Holding AG | | | 7,886 | | | | 760,968 | |
| St. Jude Medical, Inc. | | | 12,460 | | | | 497,279 | |
| Thermo Fisher Scientific, Inc. | | | 18,390 | | | | 954,625 | |
| Waters Corp. (a) | | | 5,660 | | | | 449,800 | |
| | | | | | | | |
| | | | | | $ | 3,921,671 | |
| | | | | | | | |
| Metals & Mining – 1.5% | | | | | |
| Rio Tinto Ltd. | | | 18,150 | | | $ | 866,832 | |
| | | | | | | | |
| Network & Telecom – 0.5% | | | | | |
| Cisco Systems, Inc. | | | 19,080 | | | $ | 327,604 | |
| | | | | | | | |
| Oil Services – 2.1% | | | | | |
| National Oilwell Varco, Inc. | | | 3,470 | | | $ | 223,607 | |
| Schlumberger Ltd. | | | 15,660 | | | | 1,016,491 | |
| | | | | | | | |
| | | | | | $ | 1,240,098 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 6.0% | | | | | |
| Banco Santander Brasil S.A., ADR | | | 82,450 | | | $ | 638,988 | |
| Credicorp Ltd. | | | 3,760 | | | | 473,346 | |
| HDFC Bank Ltd. | | | 34,530 | | | | 350,511 | |
| Julius Baer Group Ltd. | | | 20,715 | | | | 750,014 | |
| MasterCard, Inc., “A” | | | 1,110 | | | | 477,422 | |
| Visa, Inc., “A” | | | 7,060 | | | | 872,828 | |
| | | | | | | | |
| | | | | | $ | 3,563,109 | |
| | | | | | | | |
| Pharmaceuticals – 2.1% | | | | | |
| Allergan, Inc. | | | 3,570 | | | $ | 330,475 | |
| Bayer AG | | | 8,608 | | | | 620,711 | |
| Johnson & Johnson | | | 4,680 | | | | 316,181 | |
| | | | | | | | |
| | | | | | $ | 1,267,367 | |
| | | | | | | | |
| Railroad & Shipping – 0.9% | | | | | |
| Kuehne & Nagel, Inc. AG | | | 5,120 | | | $ | 541,927 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | |
| Real Estate – 0.4% | | | | | |
| Brasil Brokers Participacoes | | | 65,700 | | | $ | 213,603 | |
| | | | | | | | |
| Specialty Chemicals – 3.8% | | | | | |
| Croda International PLC | | | 215 | | | $ | 7,634 | |
| L’Air Liquide S.A. | | | 2,581 | | | | 295,294 | |
| Linde AG | | | 3,772 | | | | 587,519 | |
| Praxair, Inc. | | | 4,300 | | | | 467,539 | |
| Shin-Etsu Chemical Co. Ltd. | | | 10,100 | | | | 555,667 | |
| Symrise AG | | | 12,452 | | | | 378,034 | |
| | | | | | | | |
| | | | | | $ | 2,291,687 | |
| | | | | | | | |
| Specialty Stores – 1.6% | | | | | |
| Industria de Diseno Textil S.A. | | | 9,299 | | | $ | 961,792 | |
| | | | | | | | |
| Telecommunications – Wireless – 0.5% | | | | | |
| MTN Group Ltd. | | | 16,604 | | | $ | 287,013 | |
| | | | | | | | |
| Trucking – 1.0% | | | | | |
| Expeditors International of Washington, Inc. | | | 14,710 | | | $ | 570,013 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $56,783,297) | | | | | | $ | 58,933,188 | |
| | | | | | | | |
| |
| COLLATERAL FOR SECURITIES LOANED – 2.1% | | | | | |
| Navigator Securities Lending Prime Portfolio, 0.28%, at Cost and Net Asset Value (j) | | | 1,228,655 | | | $ | 1,228,655 | |
| | | | | | | | |
| |
| MONEY MARKET FUNDS – 0.5% | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 328,136 | | | $ | 328,136 | |
| | | | | | | | |
Total Investments
(Identified Cost, $58,340,088) | | | | | | $ | 60,489,979 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – (1.3)% | | | | | | | (784,500 | ) |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 59,705,479 | |
| | | | | | | | |
| (a) | | Non-income producing 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. |
| (v) | | Underlying affiliated fund 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 |
| PLC | | Public Limited Company |
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $58,011,952) | | | $60,161,843 | | | | | |
Underlying affiliated funds, at cost and value | | | 328,136 | | | | | |
Total investments, at value, including $1,231,325 of securities on loan (identified cost, $58,340,088) | | | $60,489,979 | | | | | |
Foreign currency, at value (identified cost, $138,910) | | | 140,788 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 582,433 | | | | | |
Interest and dividends | | | 108,706 | | | | | |
Other assets | | | 609 | | | | | |
Total assets | | | | | | | $61,322,515 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | $226,097 | | | | | |
Fund shares reacquired | | | 97,688 | | | | | |
Collateral for securities loaned, at value | | | 1,228,655 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 4,415 | | | | | |
Shareholder servicing costs | | | 46 | | | | | |
Distribution and/or service fees | | | 65 | | | | | |
Payable for independent Trustees’ compensation | | | 6 | | | | | |
Accrued expenses and other liabilities | | | 60,064 | | | | | |
Total liabilities | | | | | | | $1,617,036 | |
Net assets | | | | | | | $59,705,479 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $64,879,752 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 2,148,630 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (8,104,820 | ) | | | | |
Undistributed net investment income | | | 781,917 | | | | | |
Net assets | | | | | | | $59,705,479 | |
Shares of beneficial interest outstanding | | | | | | | 3,689,839 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $56,413,491 | | | | 3,485,344 | | | | $16.19 | |
Service Class | | | 3,291,988 | | | | 204,495 | | | | 16.10 | |
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 6/30/12 | | | | | | | | |
Net Investment Income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $757,887 | | | | | |
Interest | | | 11,087 | | | | | |
Dividends from underlying affiliated funds | | | 403 | | | | | |
Foreign taxes withheld | | | (42,972 | ) | | | | |
Total investment income | | | | | | | $726,405 | |
Expenses | | | | | | | | |
Management fee | | | $280,010 | | | | | |
Distribution and/or service fees | | | 4,236 | | | | | |
Shareholder servicing costs | | | 3,201 | | | | | |
Administrative services fee | | | 9,642 | | | | | |
Independent Trustees’ compensation | | | 1,910 | | | | | |
Custodian fee | | | 24,846 | | | | | |
Shareholder communications | | | 4,146 | | | | | |
Audit and tax fees | | | 35,301 | | | | | |
Legal fees | | | 546 | | | | | |
Miscellaneous | | | 7,234 | | | | | |
Total expenses | | | | | | | $371,072 | |
Reduction of expenses by investment adviser | | | (160 | ) | | | | |
Net expenses | | | | | | | $370,912 | |
Net investment income | | | | | | | $355,493 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $1,438,696 | | | | | |
Foreign currency | | | (6,248 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $1,432,448 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $2,533,002 | | | | | |
Translation of assets and liabilities in foreign currencies | | | 58 | | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $2,533,060 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $3,965,508 | |
Change in net assets from operations | | | | | | | $4,321,001 | |
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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
From operations | | | | | | | | |
Net investment income | | | $355,493 | | | | $479,568 | |
Net realized gain (loss) on investments and foreign currency | | | 1,432,448 | | | | 3,058,867 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 2,533,060 | | | | (7,688,985 | ) |
Change in net assets from operations | | | $4,321,001 | | | | $(4,150,550 | ) |
Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(453,630 | ) |
Change in net assets from fund share transactions | | | $(4,025,704 | ) | | | $(11,628,987 | ) |
Total change in net assets | | | $295,297 | | | | $(16,233,167 | ) |
Net assets | | | | | | | | |
At beginning of period | | | 59,410,182 | | | | 75,643,349 | |
At end of period (including undistributed net investment income of $781,917 and
$426,424, respectively) | | | $59,705,479 | | | | $59,410,182 | |
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $15.11 | | | | $16.26 | | | | $14.65 | | | | $10.62 | | | | $17.54 | | | | $15.74 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.09 | | | | $0.11 | | | | $0.10 | | | | $0.10 | | | | $0.13 | | | | $0.14 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.99 | | | | (1.15 | ) | | | 1.62 | | | | 4.07 | | | | (6.90 | ) | | | 1.94 | |
Total from investment operations | | | $1.08 | | | | $(1.04 | ) | | | $1.72 | | | | $4.17 | | | | $(6.77 | ) | | | $2.08 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.11 | ) | | | $(0.11 | ) | | | $(0.14 | ) | | | $(0.15 | ) | | | $(0.28 | ) |
Net asset value, end of period (x) | | | $16.19 | | | | $15.11 | | | | $16.26 | | | | $14.65 | | | | $10.62 | | | | $17.54 | |
Total return (%) (k)(r)(s)(x) | | | 7.15 | (n) | | | (6.38 | ) | | | 11.80 | | | | 39.81 | | | | (38.93 | ) | | | 13.27 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.18 | (a) | | | 1.22 | | | | 1.19 | | | | 1.34 | | | | 1.25 | | | | 1.10 | |
Expenses after expense reductions (f) | | | 1.18 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 1.16 | (a) | | | 0.72 | | | | 0.66 | | | | 0.85 | | | | 0.90 | | | | 0.83 | |
Portfolio turnover | | | 23 | (n) | | | 36 | | | | 61 | | | | 76 | | | | 81 | | | | 76 | |
Net assets at end of period (000 omitted) | | | $56,413 | | | | $56,309 | | | | $71,546 | | | | $75,171 | | | | $62,289 | | | | $131,870 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $15.04 | | | | $16.18 | | | | $14.58 | | | | $10.55 | | | | $17.42 | | | | $15.63 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.08 | | | | $0.08 | | | | $0.06 | | | | $0.07 | | | | $0.10 | | | | $0.09 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.98 | | | | (1.16 | ) | | | 1.62 | | | | 4.05 | | | | (6.86 | ) | | | 1.94 | |
Total from investment operations | | | $1.06 | | | | $(1.08 | ) | | | $1.68 | | | | $4.12 | | | | $(6.76 | ) | | | $2.03 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.06 | ) | | | $(0.08 | ) | | | $(0.09 | ) | | | $(0.11 | ) | | | $(0.24 | ) |
Net asset value, end of period (x) | | | $16.10 | | | | $15.04 | | | | $16.18 | | | | $14.58 | | | | $10.55 | | | | $17.42 | |
Total return (%) (k)(r)(s)(x) | | | 7.05 | (n) | | | (6.67 | ) | | | 11.53 | | | | 39.43 | | | | (39.07 | ) | | | 13.04 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.43 | (a) | | | 1.47 | | | | 1.44 | | | | 1.59 | | | | 1.49 | | | | 1.35 | |
Expenses after expense reductions (f) | | | 1.43 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 0.92 | (a) | | | 0.49 | | | | 0.42 | | | | 0.58 | | | | 0.67 | | | | 0.56 | |
Portfolio turnover | | | 23 | (n) | | | 36 | | | | 61 | | | | 76 | | | | 81 | | | | 76 | |
Net assets at end of period (000 omitted) | | | $3,292 | | | | $3,101 | | | | $4,098 | | | | $5,002 | | | | $4,670 | | | | $8,716 | |
See Notes to Financial Statements
9
MFS Global Growth Portfolio
Financial Highlights – continued
| (d) | | Per share data is based on average shares outstanding. |
| (f) | | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | | Certain expenses have been reduced without which performance would have been lower. |
| (s) | | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | | The net asset values per share 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 series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ
11
MFS Global Growth Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
United States | | | $30,561,530 | | | | $— | | | | $— | | | | $30,561,530 | |
France | | | 1,502,143 | | | | 5,903,306 | | | | — | | | | 7,405,449 | |
United Kingdom | | | 1,973,705 | | | | 4,080,481 | | | | — | | | | 6,054,186 | |
Switzerland | | | — | | | | 3,565,042 | | | | — | | | | 3,565,042 | |
Brazil | | | 2,394,938 | | | | — | | | | — | | | | 2,394,938 | |
Germany | | | 378,034 | | | | 1,998,909 | | | | — | | | | 2,376,943 | |
Taiwan | | | 1,023,659 | | | | — | | | | — | | | | 1,023,659 | |
Japan | | | — | | | | 971,204 | | | | — | | | | 971,204 | |
Spain | | | — | | | | 961,792 | | | | — | | | | 961,792 | |
Other Countries | | | 1,383,283 | | | | 2,235,162 | | | | — | | | | 3,618,445 | |
| Mutual Funds | | | 1,556,791 | | | | — | | | | — | | | | 1,556,791 | |
| Total Investments | | | $40,774,083 | | | | $19,715,896 | | | | $— | | | | $60,489,979 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 2 investments presented above, equity investments amounting to $6,185,737 would have been considered level 1 investments at the beginning of the period. Of the level 1 investments presented above, equity investments amounting to $1,119,053 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
12
MFS Global Growth 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. For the six months ended June 30, 2012, custody fees were not reduced.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $453,630 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $58,368,849 | |
| Gross appreciation | | | 6,241,953 | |
| Gross depreciation | | | (4,120,823 | ) |
| Net unrealized appreciation (depreciation) | | | $2,121,130 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 427,717 | |
| Capital loss carryforwards | | | (9,508,505 | ) |
| Other temporary differences | | | (2,612 | ) |
| Net unrealized appreciation (depreciation) | | | (411,874 | ) |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
13
MFS Global Growth Portfolio
Notes to Financial Statements (unaudited) – continued
As of December 31, 2011 the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/16 | | | $(4,185,178 | ) |
| 12/31/17 | | | (5,323,327 | ) |
| Total | | | $(9,508,505 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $440,257 | |
| Service Class | | | — | | | | 13,373 | |
| Total | | | $— | | | | $453,630 | |
| (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:
| | | | |
| First $1 billion of average daily net assets | | | 0.90% | |
| Next $1 billion of average daily net assets | | | 0.75% | |
| Average daily net assets in excess of $2 billion | | | 0.65% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 1.40% of average daily net assets for the Initial Class shares and 1.65% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2014. For the six months ended June 30, 2012, 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, 2012, the fee was $3,192, which equated to 0.0103% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2012, these costs amounted to $9.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0310% of the fund’s average daily net assets.
14
MFS Global Growth 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $320 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $160, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $14,092,729 and $18,051,209, 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 17,293 | | | | $277,380 | | | | 27,519 | | | | $426,605 | |
Service Class | | | 17,838 | | | | 302,192 | | | | 13,987 | | | | 220,430 | |
| | | 35,131 | | | | $579,572 | | | | 41,506 | | | | $647,035 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 28,813 | | | | $440,257 | |
Service Class | | | — | | | | — | | | | 878 | | | | 13,373 | |
| | | — | | | | $— | | | | 29,691 | | | | $453,630 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (259,418 | ) | | | $(4,286,998 | ) | | | (728,901 | ) | | | $(11,745,204 | ) |
Service Class | | | (19,513 | ) | | | (318,278 | ) | | | (61,974 | ) | | | (984,448 | ) |
| | | (278,931 | ) | | | $(4,605,276 | ) | | | (790,875 | ) | | | $(12,729,652 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (242,125 | ) | | | $(4,009,618 | ) | | | (672,569 | ) | | | $(10,878,342 | ) |
Service Class | | | (1,675 | ) | | | (16,086 | ) | | | (47,109 | ) | | | (750,645 | ) |
| | | (243,800 | ) | | | $(4,025,704 | ) | | | (719,678 | ) | | | $(11,628,987 | ) |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $212 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
15
MFS Global Growth Portfolio
Notes to Financial Statements (unaudited) – continued
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 432,111 | | | | 6,062,811 | | | | (6,166,786 | ) | | | 328,136 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $403 | | | | $328,136 | |
16
MFS Global Growth Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
17
SEMIANNUAL REPORT
June 30, 2012
MFS® HIGH YIELD PORTFOLIO
MFS® Variable Insurance Trust II
HYS-SEM
MFS® HIGH YIELD PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS High Yield Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS High Yield Portfolio
PORTFOLIO COMPOSITION
Portfolio structure (i)
| | | | |
| Top five industries (i) | | | | |
| Energy-Independent | | | 8.6% | |
| Medical & Health Technology & Services | | | 5.9% | |
| Broadcasting | | | 5.8% | |
| Utilities-Electric Power | | | 5.3% | |
| Gaming & Lodging | | | 4.2% | |
| | | | |
| Composition including fixed income credit quality (a)(i) | |
| A | | | 0.3% | |
| BBB | | | 5.9% | |
| BB | | | 32.1% | |
| B | | | 44.4% | |
| CCC | | | 13.9% | |
| CC | | | 0.2% | |
| C | | | 0.1% | |
| D | | | 0.3% | |
| Not Rated | | | 0.2% | |
| Non-Fixed Income | | | 1.3% | |
| Cash & Other | | | 1.3% | |
| |
| Portfolio facts (i) | | | | |
| Average Duration (d) | | | 4.1 | |
| Average Effective Maturity (m) | | | 7.0 yrs. | |
| (a) | | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. Not Rated includes fixed income securities, including fixed income futures contracts, which have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives) and commodities. Cash & Other includes cash, other assets less liabilities, offsets to derivative positions, and short-term securities. The fund may not hold all of these instruments. The fund 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 market 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. The bond component will include any accrued interest amounts. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio. |
| (m) | | In determining an instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
Percentages are based on net assets as of 6/30/12.
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, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.79% | | | | $1,000.00 | | | | $1,069.15 | | | | $4.06 | |
| | Hypothetical (h) | | | 0.79% | | | | $1,000.00 | | | | $1,020.93 | | | | $3.97 | |
| Service Class | | Actual | | | 1.04% | | | | $1,000.00 | | | | $1,067.98 | | | | $5.35 | |
| | Hypothetical (h) | | | 1.04% | | | | $1,000.00 | | | | $1,019.69 | | | | $5.22 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS High Yield Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – 95.3% | | | | | | | | |
| Aerospace – 2.1% | | | | | | | | |
| BE Aerospace, Inc., 8.5%, 2018 | | $ | 370,000 | | | $ | 404,645 | |
| Bombardier, Inc., 7.5%, 2018 (n) | | | 1,020,000 | | | | 1,118,175 | |
| Bombardier, Inc., 7.75%, 2020 (n) | | | 390,000 | | | | 433,875 | |
| CPI International, Inc., 8%, 2018 | | | 755,000 | | | | 680,444 | |
| Heckler & Koch GmbH, 9.5%, 2018 (z) | | EUR | 390,000 | | | | 360,288 | |
Huntington Ingalls Industries, Inc.,
7.125%, 2021 | | $ | 785,000 | | | | 820,325 | |
| Kratos Defense & Security Solutions, Inc., 10%, 2017 | | | 730,000 | | | | 786,575 | |
| | | | | | | | |
| | | | | | $ | 4,604,327 | |
| | | | | | | | |
| Apparel Manufacturers – 0.8% | | | | | | | | |
| Hanesbrands, Inc., 6.375%, 2020 | | $ | 390,000 | | | $ | 410,475 | |
| Jones Group, Inc., 6.875%, 2019 | | | 435,000 | | | | 417,600 | |
| Levi Strauss & Co., 6.875%, 2022 (n) | | | 110,000 | | | | 112,888 | |
| Phillips-Van Heusen Corp., 7.375%, 2020 | | | 795,000 | | | | 880,463 | |
| | | | | | | | |
| | | | | | $ | 1,821,426 | |
| | | | | | | | |
| Asset-Backed & Securitized – 0.7% | | | | | | | | |
| Arbor Realty Mortgage Securities, CDO, FRN, 2.765%, 2038 (z) | | $ | 568,228 | | | $ | 142,057 | |
| Citigroup Commercial Mortgage Trust, FRN, 5.888%, 2049 | | | 1,100,911 | | | | 284,100 | |
| Crest Ltd., CDO, 7%, 2040 (a)(p) | | | 176,928 | | | | 8,846 | |
CWCapital Cobalt Ltd., CDO,
6.23%, 2045 (a)(p)(z) | | | 1,179,483 | | | | 11,795 | |
| CWCapital Cobalt Ltd., CDO, “F”, FRN, 1.765%, 2050 (z) | | | 521,248 | | | | 10,425 | |
| First Union National Bank Commercial Mortgage Trust, 6.75%, 2032 | | | 987,771 | | | | 533,609 | |
| G-Force LLC, CDO, “A2”, 4.83%, 2036 (z) | | | 384,670 | | | | 367,360 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., “C”, FRN, 6.251%, 2051 | | | 800,000 | | | | 183,242 | |
| | | | | | | | |
| | | | | | $ | 1,541,434 | |
| | | | | | | | |
| Automotive – 3.4% | | | | | | | | |
| Accuride Corp., 9.5%, 2018 | | $ | 1,070,000 | | | $ | 1,102,100 | |
| Allison Transmission, Inc., 7.125%, 2019 (n) | | | 650,000 | | | | 677,625 | |
Chrysler Group LLC/CG Co-Issuer, Inc.,
8.25%, 2021 | | | 235,000 | | | | 241,463 | |
| Ford Motor Co., 7.45%, 2031 | | | 225,000 | | | | 281,813 | |
| Ford Motor Credit Co. LLC, 8%, 2014 | | | 100,000 | | | | 110,930 | |
| Ford Motor Credit Co. LLC, 12%, 2015 | | | 1,264,000 | | | | 1,570,520 | |
| Ford Motor Credit Co. LLC, 8.125%, 2020 | | | 280,000 | | | | 341,997 | |
General Motors Financial Co., Inc.,
6.75%, 2018 | | | 610,000 | | | | 666,806 | |
| Goodyear Tire & Rubber Co., 7%, 2022 | | | 295,000 | | | | 294,631 | |
| IDQ Holdings, Inc., 11.5%, 2017 (z) | | | 255,000 | | | | 265,200 | |
| Jaguar Land Rover PLC, 7.75%, 2018 (n) | | | 155,000 | | | | 159,650 | |
| Jaguar Land Rover PLC, 8.125%, 2021 (n) | | | 1,165,000 | | | | 1,202,863 | |
| Lear Corp., 8.125%, 2020 | | | 450,000 | | | | 504,000 | |
| | | | | | | | |
| | | | | | $ | 7,419,598 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Basic Industry – 0.3% | | | | | | | | |
| Trimas Corp., 9.75%, 2017 | | $ | 608,000 | | | $ | 668,800 | |
| | | | | | | | |
| Broadcasting – 5.3% | | | | | | | | |
| Allbritton Communications Co., 8%, 2018 | | $ | 340,000 | | | $ | 355,300 | |
| AMC Networks, Inc., 7.75%, 2021 (n) | | | 454,000 | | | | 500,535 | |
Clear Channel Communications, Inc.,
9%, 2021 | | | 546,000 | | | | 475,020 | |
| Clear Channel Worldwide Holdings, Inc., 7.625%, 2020 (n) | | | 370,000 | | | | 361,675 | |
| Clear Channel Worldwide Holdings, Inc., “A”, 7.625%, 2020 (n) | | | 35,000 | | | | 33,513 | |
Hughes Network Systems LLC,
7.625%, 2021 | | | 455,000 | | | | 494,813 | |
| Inmarsat Finance PLC, 7.375%, 2017 (n) | | | 610,000 | | | | 651,175 | |
| Intelsat Bermuda Ltd., 11.25%, 2017 | | | 1,240,000 | | | | 1,277,200 | |
| Intelsat Bermuda Ltd., 11.5%, 2017 (p) | | | 955,000 | | | | 986,038 | |
Intelsat Jackson Holdings Ltd.,
11.25%, 2016 | | | 318,000 | | | | 333,105 | |
| LBI Media, Inc., 8.5%, 2017 (z) | | | 740,000 | | | | 153,550 | |
| Liberty Media Corp., 8.5%, 2029 | | | 875,000 | | | | 901,250 | |
| Liberty Media Corp., 8.25%, 2030 | | | 90,000 | | | | 92,475 | |
| Local TV Finance LLC, 9.25%, 2015 (p)(z) | | | 537,186 | | | | 541,886 | |
| Newport Television LLC, 13%, 2017 (n)(p) | | | 371,819 | | | | 384,833 | |
Nexstar Broadcasting Group, Inc.,
8.875%, 2017 | | | 315,000 | | | | 332,719 | |
| Sinclair Broadcast Group, Inc., 9.25%, 2017 (n) | | | 465,000 | | | | 513,825 | |
Sinclair Broadcast Group, Inc.,
8.375%, 2018 | | | 125,000 | | | | 136,250 | |
| SIRIUS XM Radio, Inc., 13%, 2013 (n) | | | 220,000 | | | | 245,300 | |
| SIRIUS XM Radio, Inc., 8.75%, 2015 (n) | | | 535,000 | | | | 601,875 | |
| SIRIUS XM Radio, Inc., 7.625%, 2018 (n) | | | 595,000 | | | | 639,625 | |
| Townsquare Radio LLC, 9%, 2019 (z) | | | 285,000 | | | | 297,825 | |
Univision Communications, Inc.,
6.875%, 2019 (n) | | | 440,000 | | | | 453,200 | |
Univision Communications, Inc.,
7.875%, 2020 (n) | | | 375,000 | | | | 401,250 | |
Univision Communications, Inc.,
8.5%, 2021 (n) | | | 495,000 | | | | 498,713 | |
| | | | | | | | |
| | | | | | $ | 11,662,950 | |
| | | | | | | | |
| Brokerage & Asset Managers – 0.6% | | | | | |
| E*TRADE Financial Corp., 7.875%, 2015 | | $ | 50,000 | | | $ | 50,750 | |
| E*TRADE Financial Corp., 12.5%, 2017 | | | 1,090,000 | | | | 1,249,413 | |
| | | | | | | | |
| | | | | | $ | 1,300,163 | |
| | | | | | | | |
| Building – 2.0% | | | | | | | | |
Building Materials Holding Corp.,
6.875%, 2018 (n) | | $ | 565,000 | | | $ | 600,313 | |
Building Materials Holding Corp.,
7%, 2020 (n) | | | 345,000 | | | | 371,738 | |
Building Materials Holding Corp.,
6.75%, 2021 (n) | | | 305,000 | | | | 326,350 | |
| CEMEX S.A., 9.25%, 2020 | | | 790,000 | | | | 664,588 | |
4
MFS High Yield Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Building – continued | | | | | |
| HD Supply, Inc., 8.125%, 2019 (n) | | $ | 225,000 | | | $ | 243,000 | |
Masonite International Corp.,
8.25%, 2021 (n) | | | 680,000 | | | | 700,400 | |
| Nortek, Inc., 8.5%, 2021 | | | 930,000 | | | | 909,075 | |
| Roofing Supply Group LLC/Roofing Supply Finance, Inc., 10%, 2020 (z) | | | 225,000 | | | | 235,125 | |
| USG Corp., 7.875%, 2020 (n) | | | 340,000 | | | | 351,900 | |
| | | | | | | | |
| | | | | | $ | 4,402,489 | |
| | | | | | | | |
| Business Services – 1.6% | | | | | | | | |
| Ceridian Corp., 12.25%, 2015 (p) | | $ | 440,000 | | | $ | 426,800 | |
| Ceridian Corp., 8.875%, 2019 (z) | | | 145,000 | | | | 149,713 | |
| Fidelity National Information Services, Inc., 7.625%, 2017 | | | 300,000 | | | | 330,750 | |
| Fidelity National Information Services, Inc., 5%, 2022 (n) | | | 290,000 | | | | 295,075 | |
| iGATE Corp., 9%, 2016 | | | 771,000 | | | | 824,970 | |
| Iron Mountain, Inc., 8.375%, 2021 | | | 845,000 | | | | 916,825 | |
| SunGard Data Systems, Inc., 10.25%, 2015 | | | 103,000 | | | | 105,833 | |
| SunGard Data Systems, Inc., 7.375%, 2018 | | | 325,000 | | | | 348,563 | |
| | | | | | | | |
| | | | | | $ | 3,398,529 | |
| | | | | | | | |
| Cable TV – 3.8% | | | | | | | | |
Bresnan Broadband Holdings LLC,
8%, 2018 (n) | | $ | 185,000 | | | $ | 193,325 | |
| CCH II LLC, 13.5%, 2016 | | | 785,000 | | | | 875,275 | |
| CCO Holdings LLC, 7.875%, 2018 | | | 660,000 | | | | 717,750 | |
| CCO Holdings LLC, 8.125%, 2020 | | | 980,000 | | | | 1,092,700 | |
| Cequel Communications Holdings, 8.625%, 2017 (n) | | | 415,000 | | | | 447,163 | |
| CSC Holdings LLC, 8.5%, 2014 | | | 70,000 | | | | 77,000 | |
| DISH DBS Corp., 6.75%, 2021 | | | 385,000 | | | | 415,800 | |
| EchoStar Corp., 7.125%, 2016 | | | 605,000 | | | | 663,988 | |
Telenet Finance Luxembourg,
6.375%, 2020 (n) | | EUR | 165,000 | | | | 207,241 | |
| UPC Holding B.V., 9.875%, 2018 (n) | | $ | 485,000 | | | | 531,075 | |
| UPCB Finance III Ltd., 6.625%, 2020 (n) | | | 908,000 | | | | 921,620 | |
| Videotron Ltee, 5%, 2022 (n) | | | 370,000 | | | | 375,550 | |
| Virgin Media Finance PLC, 9.5%, 2016 | | | 94,000 | | | | 104,810 | |
| Virgin Media Finance PLC, 8.375%, 2019 | | | 275,000 | | | | 309,031 | |
| Virgin Media Finance PLC, 5.25%, 2022 | | | 730,000 | | | | 746,425 | |
| Ziggo Bond Co. B.V., 8%, 2018 (n) | | EUR | 495,000 | | | | 679,668 | |
| | | | | | | | |
| | | | | | $ | 8,358,421 | |
| | | | | | | | |
| Chemicals – 3.0% | | | | | | | | |
| Celanese U.S. Holdings LLC, 6.625%, 2018 | | $ | 630,000 | | | $ | 685,125 | |
| Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, 8.875%, 2018 | | | 730,000 | | | | 744,600 | |
| Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, 9%, 2020 | | | 190,000 | | | | 163,875 | |
Huntsman International LLC,
8.625%, 2021 | | | 520,000 | | | | 586,300 | |
| INEOS Finance PLC, 8.375%, 2019 (n) | | | 470,000 | | | | 486,450 | |
| INEOS Group Holdings PLC, 8.5%, 2016 (n) | | | 625,000 | | | | 573,438 | |
| LyondellBasell Industries N.V., 5%, 2019 (n) | | | 320,000 | | | | 335,600 | |
| LyondellBasell Industries N.V., 6%, 2021 (n) | | | 625,000 | | | | 685,938 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Chemicals – continued | | | | | |
| Momentive Performance Materials, Inc., 12.5%, 2014 | | $ | 1,039,000 | | | $ | 1,083,158 | |
| Momentive Performance Materials, Inc., 11.5%, 2016 | | | 652,000 | | | | 485,740 | |
| Polypore International, Inc., 7.5%, 2017 | | | 695,000 | | | | 737,569 | |
| | | | | | | | |
| | | | | | $ | 6,567,793 | |
| | | | | | | | |
| Computer Software – 1.1% | | | | | | | | |
| Lawson Software, Inc., 11.5%, 2018 (n) | | $ | 780,000 | | | $ | 881,400 | |
| Lawson Software, Inc., 9.375%, 2019 (n) | | | 190,000 | | | | 202,825 | |
| Syniverse Holdings, Inc., 9.125%, 2019 | | | 745,000 | | | | 808,325 | |
TransUnion Holding Co., Inc.,
9.625%, 2018 (n)(p) | | | 290,000 | | | | 313,200 | |
| TransUnion LLC/TransUnion Financing Corp., 11.375%, 2018 | | | 140,000 | | | | 164,675 | |
| | | | | | | | |
| | | | | | $ | 2,370,425 | |
| | | | | | | | |
| Computer Software – Systems – 1.1% | | | | | |
| Audatex North America, Inc., 6.75%, 2018 (n) | | $ | 445,000 | | | $ | 468,363 | |
CDW LLC/CDW Finance Corp.,
12.535%, 2017 | | | 340,000 | | | | 368,900 | |
| CDW LLC/CDW Finance Corp., 8.5%, 2019 | | | 975,000 | | | | 1,038,375 | |
DuPont Fabros Technology, Inc., REIT,
8.5%, 2017 | | | 415,000 | | | | 456,500 | |
| | | | | | | | |
| | | | | | $ | 2,332,138 | |
| | | | | | | | |
| Conglomerates – 1.6% | | | | | | | | |
| Amsted Industries, Inc., 8.125%, 2018 (n) | | $ | 1,205,000 | | | $ | 1,274,288 | |
| Dynacast International LLC, 9.25%, 2019 (z) | | | 530,000 | | | | 549,875 | |
| Griffon Corp., 7.125%, 2018 | | | 945,000 | | | | 959,175 | |
| Tomkins LLC/Tomkins, Inc., 9%, 2018 | | | 600,000 | | | | 667,500 | |
| | | | | | | | |
| | | | | | $ | 3,450,838 | |
| | | | | | | | |
| Consumer Products – 0.9% | | | | | | | | |
| ACCO Brands Corp., 6.75%, 2020 | | $ | 110,000 | | | $ | 116,050 | |
| Easton-Bell Sports, Inc., 9.75%, 2016 | | | 230,000 | | | | 252,138 | |
| Elizabeth Arden, Inc., 7.375%, 2021 | | | 650,000 | | | | 713,375 | |
| FGI Operating Co./FGI Finance, Inc., 7.875%, 2020 (z) | | | 55,000 | | | | 57,338 | |
| Jarden Corp., 7.5%, 2020 | | | 545,000 | | | | 595,413 | |
| Libbey Glass, Inc., 6.875%, 2020 (z) | | | 225,000 | | | | 231,188 | |
| Prestige Brands, Inc., 8.125%, 2020 (z) | | | 65,000 | | | | 71,338 | |
| | | | | | | | |
| | | | | | $ | 2,036,840 | |
| | | | | | | | |
| Consumer Services – 0.6% | | | | | | | | |
| Service Corp. International, 6.75%, 2015 | | $ | 380,000 | | | $ | 412,300 | |
| Service Corp. International, 7%, 2017 | | | 825,000 | | | | 917,813 | |
| | | | | | | | |
| | | | | | $ | 1,330,113 | |
| | | | | | | | |
| Containers – 1.9% | | | | | | | | |
Ardagh Packaging Finance PLC,
9.125%, 2020 (n) | | $ | 490,000 | | | $ | 514,500 | |
| Ball Corp., 5%, 2022 | | | 372,000 | | | | 386,880 | |
| Consolidated Container Co. LLC/Consolidated Container Finance, Inc., 10.125%, 2020 (z) | | | 160,000 | | | | 164,800 | |
5
MFS High Yield Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Containers – continued | | | | | |
| Exopack Holding Corp., 10%, 2018 | | $ | 375,000 | | | $ | 375,938 | |
| Greif, Inc., 6.75%, 2017 | | | 770,000 | | | | 835,450 | |
| Reynolds Group, 7.75%, 2016 (n) | | | 285,000 | | | | 299,963 | |
| Reynolds Group, 7.125%, 2019 (n) | | | 570,000 | | | | 597,075 | |
| Reynolds Group, 9.875%, 2019 (n) | | | 240,000 | | | | 249,000 | |
| Reynolds Group, 8.5%, 2021 (n) | | | 495,000 | | | | 470,250 | |
| Sealed Air Corp., 8.125%, 2019 (n) | | | 115,000 | | | | 128,225 | |
| Sealed Air Corp., 8.375%, 2021 (n) | | | 115,000 | | | | 129,950 | |
| | | | | | | | |
| | | | | | $ | 4,152,031 | |
| | | | | | | | |
| Defense Electronics – 0.7% | | | | | | | | |
| Ducommun, Inc., 9.75%, 2018 | | $ | 629,000 | | | $ | 662,023 | |
| ManTech International Corp., 7.25%, 2018 | | | 540,000 | | | | 567,000 | |
| MOOG, Inc., 7.25%, 2018 | | | 295,000 | | | | 312,700 | |
| | | | | | | | |
| | | | | | $ | 1,541,723 | |
| | | | | | | | |
| Electrical Equipment – 0.2% | | | | | | | | |
| Avaya, Inc., 9.75%, 2015 | | $ | 445,000 | | | $ | 368,238 | |
| Avaya, Inc., 7%, 2019 (z) | | | 175,000 | | | | 162,313 | |
| | | | | | | | |
| | | | | | $ | 530,551 | |
| | | | | | | | |
| Electronics – 1.0% | | | | | | | | |
Freescale Semiconductor, Inc.,
9.25%, 2018 (n) | | $ | 1,045,000 | | | $ | 1,118,150 | |
| Nokia Corp., 5.375%, 2019 | | | 235,000 | | | | 185,063 | |
| NXP B.V., 9.75%, 2018 (n) | | | 105,000 | | | | 119,700 | |
| Sensata Technologies B.V., 6.5%, 2019 (n) | | | 715,000 | | | | 738,238 | |
| | | | | | | | |
| | | | | | $ | 2,161,151 | |
| | | | | | | | |
| Energy – Independent – 8.4% | | | | | | | | |
| ATP Oil & Gas Corp., 11.875%, 2015 | | $ | 295,000 | | | $ | 137,175 | |
BreitBurn Energy Partners LP,
8.625%, 2020 | | | 325,000 | | | | 343,688 | |
BreitBurn Energy Partners LP,
7.875%, 2022 (n) | | | 370,000 | | | | 370,000 | |
| Carrizo Oil & Gas, Inc., 8.625%, 2018 | | | 280,000 | | | | 292,600 | |
| Chaparral Energy, Inc., 7.625%, 2022 (n) | | | 355,000 | | | | 362,100 | |
| Chesapeake Energy Corp., 6.875%, 2020 | | | 390,000 | | | | 384,150 | |
| Concho Resources, Inc., 8.625%, 2017 | | | 440,000 | | | | 485,100 | |
| Concho Resources, Inc., 6.5%, 2022 | | | 810,000 | | | | 842,400 | |
| Continental Resources, Inc., 8.25%, 2019 | | | 665,000 | | | | 743,138 | |
| Denbury Resources, Inc., 8.25%, 2020 | | | 945,000 | | | | 1,034,775 | |
| Energy XXI Gulf Coast, Inc., 9.25%, 2017 | | | 1,050,000 | | | | 1,123,500 | |
| Everest Acquisition LLC/Everest Acquisition Finance, Inc., 9.375%, 2020 (n) | | | 1,400,000 | | | | 1,450,750 | |
| EXCO Resources, Inc., 7.5%, 2018 | | | 965,000 | | | | 834,725 | |
Harvest Operations Corp.,
6.875%, 2017 (n) | | | 885,000 | | | | 940,313 | |
Hilcorp Energy I/Hilcorp Finance Co.,
8%, 2020 (n) | | | 255,000 | | | | 274,763 | |
| Laredo Petroleum, Inc., 9.5%, 2019 | | | 445,000 | | | | 496,175 | |
| LINN Energy LLC, 6.5%, 2019 (n) | | | 310,000 | | | | 306,900 | |
| LINN Energy LLC, 8.625%, 2020 | | | 350,000 | | | | 377,125 | |
| LINN Energy LLC, 7.75%, 2021 | | | 428,000 | | | | 447,260 | |
| Newfield Exploration Co., 6.625%, 2016 | | | 375,000 | | | | 384,375 | |
| Newfield Exploration Co., 6.875%, 2020 | | | 650,000 | | | | 692,250 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Energy – Independent – continued | |
| OGX Petroleo e Gas Participacoes S.A., 8.5%, 2018 (n) | | $ | 1,209,000 | | | $ | 1,076,010 | |
| Pioneer Natural Resources Co., 7.5%, 2020 | | | 630,000 | | | | 779,495 | |
| Plains Exploration & Production Co., 8.625%, 2019 | | | 480,000 | | | | 529,800 | |
| QEP Resources, Inc., 6.875%, 2021 | | | 940,000 | | | | 1,043,400 | |
| Range Resources Corp., 8%, 2019 | | | 650,000 | | | | 710,125 | |
| SandRidge Energy, Inc., 8%, 2018 (n) | | | 1,160,000 | | | | 1,174,500 | |
| SM Energy Co., 6.5%, 2021 | | | 645,000 | | | | 656,288 | |
| Whiting Petroleum Corp., 6.5%, 2018 | | | 210,000 | | | | 223,650 | |
| | | | | | | | |
| | | | | | $ | 18,516,530 | |
| | | | | | | | |
| Energy – Integrated – 0.1% | | | | | | | | |
| Pacific Rubiales Energy Corp., 7.25%, 2021 (n) | | $ | 290,000 | | | $ | 314,650 | |
| | | | | | | | |
| Engineering – Construction – 0.3% | | | | | | | | |
| B-Corp. Merger Sub, Inc., 8.25%, 2019 (n) | | $ | 570,000 | | | $ | 565,725 | |
| | | | | | | | |
| Entertainment – 1.1% | | | | | | | | |
| AMC Entertainment, Inc., 8.75%, 2019 | | $ | 310,000 | | | $ | 332,475 | |
| AMC Entertainment, Inc., 9.75%, 2020 | | | 500,000 | | | | 540,000 | |
| Cedar Fair LP, 9.125%, 2018 | | | 420,000 | | | | 466,200 | |
| Cinemark USA, Inc., 8.625%, 2019 | | | 550,000 | | | | 609,125 | |
NAI Entertainment Holdings LLC,
8.25%, 2017 (n) | | | 330,000 | | | | 364,650 | |
| | | | | | | | |
| | | | | | $ | 2,312,450 | |
| | | | | | | | |
| Financial Institutions – 4.8% | | | | | | | | |
| Ally Financial, Inc., 5.5%, 2017 | | $ | 660,000 | | | $ | 670,389 | |
| CIT Group, Inc., 5.25%, 2014 (n) | | | 1,005,000 | | | | 1,040,175 | |
| CIT Group, Inc., 7%, 2017 (z) | | | 268,738 | | | | 269,242 | |
| CIT Group, Inc., 5.25%, 2018 | | | 475,000 | | | | 490,438 | |
| CIT Group, Inc., 6.625%, 2018 (n) | | | 846,000 | | | | 911,565 | |
| CIT Group, Inc., 5.5%, 2019 (n) | | | 777,000 | | | | 798,368 | |
| Credit Acceptance Corp., 9.125%, 2017 | | | 585,000 | | | | 634,725 | |
| GMAC, Inc., 8%, 2031 | | | 130,000 | | | | 152,425 | |
| Icahn Enterprises LP, 8%, 2018 | | | 653,000 | | | | 693,813 | |
International Lease Finance Corp.,
4.875%, 2015 | | | 290,000 | | | | 291,435 | |
International Lease Finance Corp.,
8.625%, 2015 | | | 295,000 | | | | 325,975 | |
International Lease Finance Corp.,
7.125%, 2018 (n) | | | 691,000 | | | | 761,828 | |
| Nationstar Mortgage LLC/Capital Corp., 10.875%, 2015 | | | 955,000 | | | | 1,031,400 | |
| Nationstar Mortgage LLC/Capital Corp., 9.625%, 2019 (n) | | | 245,000 | | | | 259,088 | |
| PHH Corp., 9.25%, 2016 | | | 615,000 | | | | 653,438 | |
| SLM Corp., 8.45%, 2018 | | | 230,000 | | | | 257,600 | |
| SLM Corp., 8%, 2020 | | | 910,000 | | | | 996,450 | |
| SLM Corp., 7.25%, 2022 | | | 165,000 | | | | 174,488 | |
| | | | | | | | |
| | | | | | $ | 10,412,842 | |
| | | | | | | | |
| Food & Beverages – 1.6% | | | | | | | | |
| ARAMARK Corp., 8.5%, 2015 | | $ | 485,000 | | | $ | 496,524 | |
| B&G Foods, Inc., 7.625%, 2018 | | | 980,000 | | | | 1,053,500 | |
| Constellation Brands, Inc., 7.25%, 2016 | | | 230,000 | | | | 260,475 | |
6
MFS High Yield Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Food & Beverages – continued | | | | | |
JBS USA LLC/JBS USA Finance,
8.25%, 2020 (n) | | $ | 360,000 | | | $ | 350,100 | |
| Pinnacle Foods Finance LLC, 9.25%, 2015 | | | 440,000 | | | | 452,100 | |
| Pinnacle Foods Finance LLC, 8.25%, 2017 | | | 195,000 | | | | 206,213 | |
| TreeHouse Foods, Inc., 7.75%, 2018 | | | 590,000 | | | | 639,413 | |
| | | | | | | | |
| | | | | | $ | 3,458,325 | |
| | | | | | | | |
| Forest & Paper Products – 1.6% | | | | | | | | |
| Boise, Inc., 8%, 2020 | | $ | 480,000 | | | $ | 530,400 | |
| Cascades, Inc., 7.75%, 2017 | | | 535,000 | | | | 539,013 | |
| Georgia-Pacific Corp., 8%, 2024 | | | 415,000 | | | | 554,315 | |
Graphic Packaging Holding Co.,
7.875%, 2018 | | | 275,000 | | | | 302,500 | |
Millar Western Forest Products Ltd.,
8.5%, 2021 | | | 145,000 | | | | 110,925 | |
| Smurfit Kappa Group PLC, 7.75%, 2019 (n) | | EUR | 565,000 | | | | 766,845 | |
| Tembec Industries, Inc., 11.25%, 2018 | | $ | 175,000 | | | | 174,563 | |
| Tembec Industries, Inc., 11.25%, 2018 (n) | | | 170,000 | | | | 169,575 | |
| Xerium Technologies, Inc., 8.875%, 2018 | | | 515,000 | | | | 405,563 | |
| | | | | | | | |
| | | | | | $ | 3,553,699 | |
| | | | | | | | |
| Gaming & Lodging – 4.1% | | | | | | | | |
| Boyd Gaming Corp., 7.125%, 2016 | | $ | 435,000 | | | $ | 419,775 | |
Caesars Operating Escrow LLC,
8.5%, 2020 (n) | | | 180,000 | | | | 181,350 | |
Choice Hotels International, Inc.,
5.75%, 2022 | | | 105,000 | | | | 109,786 | |
| Fontainebleau Las Vegas Holdings LLC, 10.25%, 2015 (a)(d)(n) | | | 1,450,000 | | | | 906 | |
GWR Operating Partnership LLP,
10.875%, 2017 | | | 340,000 | | | | 380,800 | |
Harrah’s Operating Co., Inc.,
11.25%, 2017 | | | 1,395,000 | | | | 1,522,294 | |
| Harrah’s Operating Co., Inc., 10%, 2018 | | | 408,000 | | | | 270,300 | |
Host Hotels & Resorts, Inc.,
5.25%, 2022 (z) | | | 350,000 | | | | 358,750 | |
| MGM Mirage, 10.375%, 2014 | | | 155,000 | | | | 174,763 | |
| MGM Mirage, 6.625%, 2015 | | | 260,000 | | | | 267,800 | |
| MGM Mirage, 7.5%, 2016 | | | 130,000 | | | | 134,550 | |
MGM Resorts International,
11.375%, 2018 | | | 630,000 | | | | 741,825 | |
| MGM Resorts International, 9%, 2020 | | | 565,000 | | | | 627,150 | |
| Penn National Gaming, Inc., 8.75%, 2019 | | | 1,050,000 | | | | 1,162,875 | |
| Pinnacle Entertainment, Inc., 8.75%, 2020 | | | 500,000 | | | | 547,500 | |
| Rivers Pittsburgh Borrower LP/Rivers Pittsburgh Finance Corp., 9.5%, 2019 (z) | | | 110,000 | | | | 114,263 | |
Seven Seas Cruises S. de R.L.,
9.125%, 2019 | | | 840,000 | | | | 867,300 | |
| Wyndham Worldwide Corp., 7.375%, 2020 | | | 375,000 | | | | 445,743 | |
| Wynn Las Vegas LLC, 7.75%, 2020 | | | 580,000 | | | | 642,350 | |
| | | | | | | | |
| | | | | | $ | 8,970,080 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Industrial – 1.6% | | | | | | | | |
| Altra Holdings, Inc., 8.125%, 2016 | | $ | 565,000 | | | $ | 606,669 | |
| Dematic S.A., 8.75%, 2016 (z) | | | 1,035,000 | | | | 1,084,163 | |
| Hillman Group, Inc., 10.875%, 2018 | | | 405,000 | | | | 428,288 | |
| Hyva Global B.V., 8.625%, 2016 (n) | | | 467,000 | | | | 396,950 | |
| Mueller Water Products, Inc., 8.75%, 2020 | | | 550,000 | | | | 610,500 | |
| Rexel S.A., 6.125%, 2019 (n) | | | 445,000 | | | | 448,338 | |
| | | | | | | | |
| | | | | | $ | 3,574,908 | |
| | | | | | | | |
| Insurance – 1.2% | | | | | | | | |
American International Group, Inc.,
8.25%, 2018 | | $ | 635,000 | | | $ | 766,564 | |
| American International Group, Inc., 8.175% to 2038, FRN to 2068 | | | 1,730,000 | | | | 1,877,050 | |
| | | | | | | | |
| | | | | | $ | 2,643,614 | |
| | | | | | | | |
| Insurance – Health – 0.2% | | | | | | | | |
| AMERIGROUP Corp., 7.5%, 2019 | | $ | 410,000 | | | $ | 440,750 | |
| | | | | | | | |
| Insurance – Property & Casualty – 0.8% | | | | | |
Liberty Mutual Group, Inc.,
10.75% to 2038, FRN to 2088 (n) | | $ | 765,000 | | | $ | 1,040,400 | |
| XL Group PLC, 6.5% to 2017, FRN to 2049 | | | 1,000,000 | | | | 812,500 | |
| | | | | | | | |
| | | | | | $ | 1,852,900 | |
| | | | | | | | |
| Machinery & Tools – 1.9% | | | | | | | | |
| Ashtead Capital, Inc., 6.5%, 2022 (z) | | $ | 210,000 | | | $ | 210,000 | |
| Case Corp., 7.25%, 2016 | | | 390,000 | | | | 429,000 | |
| Case New Holland, Inc., 7.875%, 2017 | | | 1,260,000 | | | | 1,455,300 | |
| CNH Capital LLC, 6.25%, 2016 (n) | | | 175,000 | | | | 187,250 | |
NESCO LLC/NESCO Holdings Corp.,
11.75%, 2017 (z) | | | 445,000 | | | | 456,125 | |
| RSC Equipment Rental, Inc., 8.25%, 2021 | | | 665,000 | | | | 708,225 | |
UR Financing Escrow Corp.,
5.75%, 2018 (n) | | | 320,000 | | | | 332,800 | |
UR Financing Escrow Corp.,
7.625%, 2022 (n) | | | 324,000 | | | | 339,390 | |
| | | | | | | | |
| | | | | | $ | 4,118,090 | |
| | | | | | | | |
| Major Banks – 0.8% | | | | | | | | |
| Bank of America Corp., 5.65%, 2018 | | $ | 655,000 | | | $ | 700,387 | |
| Royal Bank of Scotland Group PLC, 6.99% to 2017, FRN to 2049 (a)(d)(n) | | | 320,000 | | | | 246,400 | |
| Royal Bank of Scotland Group PLC, 7.648% to 2031, FRN to 2049 | | | 1,125,000 | | | | 900,000 | |
| | | | | | | | |
| | | | | | $ | 1,846,787 | |
| | | | | | | | |
| Medical & Health Technology & Services – 5.8% | | | | | |
| Biomet, Inc., 10%, 2017 | | $ | 700,000 | | | $ | 747,688 | |
| Biomet, Inc., 10.375%, 2017 (p) | | | 265,000 | | | | 283,219 | |
| Biomet, Inc., 11.625%, 2017 | | | 370,000 | | | | 399,138 | |
| Davita, Inc., 6.375%, 2018 | | | 980,000 | | | | 1,011,850 | |
| Davita, Inc., 6.625%, 2020 | | | 760,000 | | | | 792,300 | |
| Fresenius Medical Care AG & Co. KGaA, 9%, 2015 (n) | | | 720,000 | | | | 827,100 | |
| Fresenius Medical Care Capital Trust III, 5.625%, 2019 (n) | | | 230,000 | | | | 239,775 | |
| HCA, Inc., 8.5%, 2019 | | | 1,960,000 | | | | 2,195,200 | |
7
MFS High Yield Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Medical & Health Technology & Services – continued | |
| HCA, Inc., 7.5%, 2022 | | $ | 495,000 | | | $ | 539,550 | |
| HCA, Inc., 5.875%, 2022 | | | 310,000 | | | | 323,950 | |
| HealthSouth Corp., 8.125%, 2020 | | | 1,005,000 | | | | 1,097,963 | |
| IASIS Healthcare LLC/IASIS Capital Corp., 8.375%, 2019 | | | 470,000 | | | | 465,300 | |
| Physio-Control International, Inc., 9.875%, 2019 (z) | | | 425,000 | | | | 452,625 | |
| Select Medical Corp., 7.625%, 2015 | | | 225,000 | | | | 225,281 | |
| Teleflex, Inc., 6.875%, 2019 | | | 340,000 | | | | 361,250 | |
| Tenet Healthcare Corp., 9.25%, 2015 | | | 425,000 | | | | 472,813 | |
Truven Health Analytics, Inc.,
10.625%, 2020 (z) | | | 285,000 | | | | 296,400 | |
| Universal Health Services, Inc., 7%, 2018 | | | 515,000 | | | | 553,625 | |
Universal Hospital Services, Inc.,
8.5%, 2015 (p) | | | 690,000 | | | | 703,369 | |
| Universal Hospital Services, Inc., FRN, 4.111%, 2015 | | | 335,000 | | | | 318,250 | |
| Vanguard Health Systems, Inc., 0%, 2016 | | | 3,000 | | | | 1,995 | |
| Vanguard Health Systems, Inc., 8%, 2018 | | | 385,000 | | | | 393,663 | |
| | | | | | | | |
| | | | | | $ | 12,702,304 | |
| | | | | | | | |
| Metals & Mining – 1.8% | | | | | | | | |
| Arch Coal, Inc., 7.25%, 2020 | | $ | 410,000 | | | $ | 346,450 | |
| Cloud Peak Energy, Inc., 8.25%, 2017 | | | 1,185,000 | | | | 1,226,475 | |
| Cloud Peak Energy, Inc., 8.5%, 2019 | | | 580,000 | | | | 601,750 | |
| Consol Energy, Inc., 8%, 2017 | | | 555,000 | | | | 575,813 | |
Fortescue Metals Group Ltd.,
8.25%, 2019 (n) | | | 600,000 | | | | 636,000 | |
| Peabody Energy Corp., 6%, 2018 (n) | | | 305,000 | | | | 303,475 | |
| Peabody Energy Corp., 6.25%, 2021 (n) | | | 305,000 | | | | 301,950 | |
| | | | | | | | |
| | | | | | $ | 3,991,913 | |
| | | | | | | | |
| Natural Gas – Distribution – 0.4% | | | | | | | | |
| AmeriGas Finance LLC, 6.75%, 2020 | | $ | 510,000 | | | $ | 520,200 | |
Ferrellgas LP/Ferrellgas Finance Corp.,
6.5%, 2021 | | | 390,000 | | | | 355,875 | |
| | | | | | | | |
| | | | | | $ | 876,075 | |
| | | | | | | | |
| Natural Gas – Pipeline – 2.7% | | | | | | | | |
| Atlas Pipeline Partners LP, 8.75%, 2018 | | $ | 850,000 | | | $ | 907,375 | |
| Crosstex Energy, Inc., 8.875%, 2018 | | | 1,040,000 | | | | 1,098,500 | |
| El Paso Corp., 7%, 2017 | | | 660,000 | | | | 748,675 | |
| El Paso Corp., 7.75%, 2032 | | | 1,040,000 | | | | 1,169,324 | |
| Energy Transfer Equity LP, 7.5%, 2020 | | | 855,000 | | | | 938,363 | |
| Enterprise Products Partners LP, 8.375% to 2016, FRN to 2066 | | | 465,000 | | | | 503,944 | |
| Enterprise Products Partners LP, 7.034% to 2018, FRN to 2068 | | | 287,000 | | | | 307,090 | |
Rockies Express Pipeline LLC,
5.625%, 2020 (n) | | | 328,000 | | | | 298,480 | |
| | | | | | | | |
| | | | | | $ | 5,971,751 | |
| | | | | | | | |
| Network & Telecom – 1.8% | | | | | | | | |
| Cincinnati Bell, Inc., 8.25%, 2017 | | $ | 230,000 | | | $ | 239,200 | |
| Citizens Communications Co., 9%, 2031 | | | 485,000 | | | | 463,175 | |
| Eileme 2 AB, 11.625%, 2020 (n) | | | 504,000 | | | | 517,860 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Network & Telecom – continued | | | | | |
Frontier Communications Corp.,
8.125%, 2018 | | $ | 215,000 | | | $ | 228,438 | |
| Qwest Communications International, Inc., 7.125%, 2018 (n) | | | 1,075,000 | | | | 1,134,125 | |
| Telefonica S.A., 5.877%, 2019 | | | 165,000 | | | | 147,582 | |
| Windstream Corp., 8.125%, 2018 | | | 150,000 | | | | 161,250 | |
| Windstream Corp., 7.75%, 2020 | | | 755,000 | | | | 800,300 | |
| Windstream Corp., 7.75%, 2021 | | | 315,000 | | | | 333,900 | |
| | | | | | | | |
| | | | | | $ | 4,025,830 | |
| | | | | | | | |
| Oil Services – 1.1% | | | | | | | | |
Chesapeake Energy Corp.,
6.625%, 2019 (n) | | $ | 230,000 | | | $ | 207,000 | |
| Dresser-Rand Group, Inc., 6.5%, 2021 | | | 300,000 | | | | 311,250 | |
| Edgen Murray Corp., 12.25%, 2015 | | | 460,000 | | | | 457,700 | |
| Pioneer Energy Services Corp., 9.875%, 2018 | | | 950,000 | | | | 997,500 | |
| Pioneer Energy Services Corp., 9.875%, 2018 (n) | | | 70,000 | | | | 73,500 | |
| Unit Corp., 6.625%, 2021 | | | 450,000 | | | | 447,750 | |
| | | | | | | | |
| | | | | | $ | 2,494,700 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 1.7% | | | | | |
Capital One Financial Corp.,
10.25%, 2039 | | $ | 1,130,000 | | | $ | 1,152,600 | |
Groupe BPCE S.A., 12.5% to 2019,
FRN to 2049 (n) | | | 545,000 | | | | 548,586 | |
| LBG Capital No. 1 PLC, 7.875%, 2020 (n) | | | 705,000 | | | | 638,025 | |
Santander UK PLC, 8.963% to 2030,
FRN to 2049 | | | 1,384,000 | | | | 1,328,640 | |
| | | | | | | | |
| | | | | | $ | 3,667,851 | |
| | | | | | | | |
| Pharmaceuticals – 0.8% | | | | | | | | |
Capsugel FinanceCo. SCA,
9.875%, 2019 (n) | | EUR | 375,000 | | | $ | 507,782 | |
| Endo Health Solutions, Inc., 7%, 2019 | | $ | 430,000 | | | | 467,625 | |
| Valeant Pharmaceuticals International, Inc., 6.5%, 2016 (n) | | | 240,000 | | | | 250,800 | |
| Valeant Pharmaceuticals International, Inc., 7%, 2020 (n) | | | 485,000 | | | | 489,850 | |
| | | | | | | | |
| | | | | | $ | 1,716,057 | |
| | | | | | | | |
| Pollution Control – 0.2% | | | | | | | | |
| Heckmann Corp., 9.875%, 2018 (z) | | $ | 410,000 | | | $ | 389,500 | |
| | | | | | | | |
| Printing & Publishing – 0.5% | | | | | | | | |
| American Media, Inc., 13.5%, 2018 (z) | | $ | 100,346 | | | $ | 94,325 | |
| Nielsen Finance LLC, 11.5%, 2016 | | | 286,000 | | | | 325,325 | |
| Nielsen Finance LLC, 7.75%, 2018 | | | 605,000 | | | | 670,038 | |
| | | | | | | | |
| | | | | | $ | 1,089,688 | |
| | | | | | | | |
| Railroad & Shipping – 0.2% | | | | | | | | |
| Kansas City Southern de Mexico S.A. de C.V., 6.125%, 2021 | | $ | 310,000 | | | $ | 341,000 | |
| | | | | | | | |
| Real Estate – 1.2% | | | | | | | | |
CB Richard Ellis Group, Inc.,
11.625%, 2017 | | $ | 290,000 | | | $ | 329,150 | |
CNL Lifestyle Properties, Inc., REIT,
7.25%, 2019 | | | 325,000 | | | | 299,000 | |
8
MFS High Yield Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Real Estate – continued | | | | | |
| Entertainment Properties Trust, REIT, 7.75%, 2020 | | $ | 755,000 | | | $ | 830,114 | |
| Kennedy Wilson, Inc., 8.75%, 2019 | | | 280,000 | | | | 288,400 | |
| MPT Operating Partnership LP, REIT, 6.875%, 2021 | | | 560,000 | | | | 583,800 | |
| MPT Operating Partnership LP, REIT, 6.375%, 2022 | | | 195,000 | | | | 195,488 | |
| | | | | | | | |
| | | | | | $ | 2,525,952 | |
| | | | | | | | |
| Retailers – 2.6% | | | | | | | | |
| Academy Ltd., 9.25%, 2019 (n) | | $ | 470,000 | | | $ | 509,950 | |
| Burlington Coat Factory Warehouse Corp., 10%, 2019 | | | 655,000 | | | | 694,300 | |
| J. Crew Group, Inc., 8.125%, 2019 | | | 555,000 | | | | 573,038 | |
| Limited Brands, Inc., 6.9%, 2017 | | | 550,000 | | | | 610,500 | |
| Limited Brands, Inc., 7%, 2020 | | | 205,000 | | | | 227,550 | |
| Limited Brands, Inc., 6.95%, 2033 | | | 320,000 | | | | 310,400 | |
| QVC, Inc., 7.375%, 2020 (n) | | | 390,000 | | | | 431,925 | |
| Rite Aid Corp., 9.25%, 2020 (z) | | | 305,000 | | | | 305,000 | |
| Sally Beauty Holdings, Inc., 6.875%, 2019 | | | 290,000 | | | | 315,375 | |
Toys “R” Us Property Co. II LLC,
8.5%, 2017 | | | 249,000 | | | | 259,271 | |
| Toys “R” Us, Inc., 10.75%, 2017 | | | 1,050,000 | | | | 1,147,125 | |
| Yankee Acquisition Corp., 8.5%, 2015 | | | 5,000 | | | | 5,100 | |
| YCC Holdings LLC/Yankee Finance, Inc., 10.25%, 2016 (p) | | | 320,000 | | | | 325,600 | |
| | | | | | | | |
| | | | | | $ | 5,715,134 | |
| | | | | | | | |
| Specialty Chemicals – 0.1% | | | | | | | | |
| Koppers, Inc., 7.875%, 2019 | | $ | 260,000 | | | $ | 280,150 | |
| | | | | | | | |
| Specialty Stores – 0.4% | | | | | | | | |
| Gymboree Corp., 9.125%, 2018 | | $ | 110,000 | | | $ | 102,025 | |
| Michaels Stores, Inc., 11.375%, 2016 | | | 325,000 | | | | 345,316 | |
| Michaels Stores, Inc., 7.75%, 2018 | | | 355,000 | | | | 374,525 | |
| | | | | | | | |
| | | | | | $ | 821,866 | |
| | | | | | | | |
| Telecommunications – Wireless – 3.7% | | | | | |
| Clearwire Corp., 12%, 2015 (n) | | $ | 435,000 | | | $ | 395,850 | |
Cricket Communications, Inc.,
7.75%, 2016 | | | 95,000 | | | | 100,819 | |
Cricket Communications, Inc.,
7.75%, 2020 | | | 830,000 | | | | 792,650 | |
Crown Castle International Corp.,
9%, 2015 | | | 825,000 | | | | 900,281 | |
Crown Castle International Corp.,
7.125%, 2019 | | | 575,000 | | | | 616,688 | |
| Digicel Group Ltd., 12%, 2014 (n) | | | 140,000 | | | | 155,400 | |
| Digicel Group Ltd., 8.25%, 2017 (n) | | | 895,000 | | | | 910,663 | |
| Digicel Group Ltd., 10.5%, 2018 (n) | | | 280,000 | | | | 292,600 | |
| MetroPCS Wireless, Inc., 7.875%, 2018 | | | 325,000 | | | | 337,188 | |
| Sprint Capital Corp., 6.875%, 2028 | | | 530,000 | | | | 426,650 | |
| Sprint Nextel Corp., 6%, 2016 | | | 745,000 | | | | 713,338 | |
| Sprint Nextel Corp., 8.375%, 2017 | | | 675,000 | | | | 691,875 | |
| Sprint Nextel Corp., 9%, 2018 (n) | | | 310,000 | | | | 346,425 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Telecommunications – Wireless – continued | | | | | |
Wind Acquisition Finance S.A.,
11.75%, 2017 (n) | | $ | 1,110,000 | | | $ | 896,325 | |
Wind Acquisition Finance S.A.,
7.25%, 2018 (n) | | | 555,000 | | | | 485,625 | |
| | | | | | | | |
| | | | | | $ | 8,062,377 | |
| | | | | | | | |
| Telephone Services – 0.7% | | | | | | | | |
| Cogent Communications Group, Inc., 8.375%, 2018 (n) | | $ | 320,000 | | | $ | 341,600 | |
| Level 3 Financing, Inc., 9.375%, 2019 | | | 585,000 | | | | 631,800 | |
| Level 3 Financing, Inc., 8.625%, 2020 | | | 295,000 | | | | 309,750 | |
Sable International Finance Ltd.,
8.75%, 2020 (n) | | | 200,000 | | | | 214,000 | |
| | | | | | | | |
| | | | | | $ | 1,497,150 | |
| | | | | | | | |
| Transportation – 0.2% | | | | | | | | |
| Navios South American Logistics, Inc., 9.25%, 2019 | | $ | 547,000 | | | $ | 503,240 | |
| | | | | | | | |
| Transportation – Services – 3.1% | | | | | | | | |
| ACL I Corp., 10.625%, 2016 (p) | | $ | 745,073 | | | $ | 712,114 | |
Aguila American Resources Ltd.,
7.875%, 2018 (n) | | | 615,000 | | | | 633,450 | |
Avis Budget Car Rental LLC,
8.25%, 2019 (n) | | | 140,000 | | | | 150,150 | |
| Avis Budget Car Rental LLC, 8.25%, 2019 | | | 290,000 | | | | 311,025 | |
| Avis Budget Car Rental LLC, 9.75%, 2020 | | | 260,000 | | | | 288,925 | |
| CEVA Group PLC, 8.375%, 2017 (n) | | | 835,000 | | | | 809,950 | |
| Commercial Barge Line Co., 12.5%, 2017 | | | 1,370,000 | | | | 1,548,100 | |
| Navios Maritime Acquisition Corp., 8.625%, 2017 | | | 790,000 | | | | 734,700 | |
Navios Maritime Holdings, Inc.,
8.875%, 2017 (z) | | | 435,000 | | | | 436,053 | |
Navios Maritime Holdings, Inc.,
8.875%, 2017 | | | 220,000 | | | | 221,650 | |
| Swift Services Holdings, Inc., 10%, 2018 | | | 965,000 | | | | 1,047,025 | |
| | | | | | | | |
| | | | | | $ | 6,893,142 | |
| | | | | | | | |
| Utilities – Electric Power – 5.1% | | | | | | | | |
| AES Corp., 8%, 2017 | | $ | 665,000 | | | $ | 756,438 | |
| Atlantic Power Corp., 9%, 2018 (z) | | | 400,000 | | | | 409,000 | |
| Calpine Corp., 8%, 2016 (n) | | | 625,000 | | | | 675,000 | |
| Calpine Corp., 7.875%, 2020 (n) | | | 840,000 | | | | 926,100 | |
| Covanta Holding Corp., 7.25%, 2020 | | | 835,000 | | | | 904,650 | |
| Covanta Holding Corp., 6.375%, 2022 | | | 190,000 | | | | 200,829 | |
| Dolphin Subsidiary ll, Inc., 7.25%, 2021 (n) | | | 495,000 | | | | 549,450 | |
| Edison Mission Energy, 7%, 2017 | | | 565,000 | | | | 316,400 | |
| EDP Finance B.V., 6%, 2018 (n) | | | 1,195,000 | | | | 1,039,553 | |
| Energy Future Holdings Corp., 10%, 2020 | | | 950,000 | | | | 1,014,125 | |
| Energy Future Holdings Corp., 10%, 2020 | | | 1,305,000 | | | | 1,419,188 | |
Energy Future Holdings Corp.,
11.75%, 2022 (n) | | | 415,000 | | | | 424,338 | |
| GenOn Energy, Inc., 9.875%, 2020 | | | 1,145,000 | | | | 1,116,375 | |
| NRG Energy, Inc., 7.375%, 2017 | | | 420,000 | | | | 436,800 | |
| NRG Energy, Inc., 8.25%, 2020 | | | 685,000 | | | | 708,975 | |
9
MFS High Yield Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Utilities – Electric Power – continued | |
| Texas Competitive Electric Holdings Co. LLC, 11.5%, 2020 (n) | | $ | 340,000 | | | $ | 232,050 | |
| | | | | | | | |
| | | | | | $ | 11,129,271 | |
| | | | | | | | |
Total Bonds
(Identified Cost, $209,028,389) | | | | | | $ | 208,928,041 | |
| | | | | | | | |
| FLOATING RATE LOANS (g)(r) – 0.2% | |
| Financial Institutions – 0.1% | | | | | | | | |
Springleaf Finance Corp., Term Loan,
5.5%, 2017 | | $ | 326,932 | | | $ | 307,258 | |
| | | | | | | | |
| Utilities – Electric Power – 0.1% | | | | | | | | |
| Dynegy Midwest Generation LLC, Term Loan, 9.25%, 2017 | | $ | 87,263 | | | $ | 89,008 | |
| Dynegy Power LLC, Term Loan, 9.25%, 2017 | | | 130,894 | | | | 134,457 | |
| | | | | | | | |
| | | | | | $ | 223,465 | |
| | | | | | | | |
Total Floating Rate Loans
(Identified Cost, $540,021) | | | | | | $ | 530,723 | |
| | | | | | | | |
| COMMON STOCKS – 0.3% | | | | | | | | |
| Automotive – 0.0% | | | | | | | | |
| Accuride Corp. (a) | | | 17,214 | | | $ | 103,284 | |
| Broadcasting – 0.2% | | | | | | | | |
| New Young Broadcasting Holding Co., Inc. (a) | | | 131 | | | $ | 379,900 | |
| Printing & Publishing – 0.1% | | | | | | | | |
| American Media Operations, Inc. (a) | | | 25,715 | | | $ | 142,718 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $897,426) | | | | | | $ | 625,902 | |
| | | | | | | | |
| CONVERTIBLE PREFERRED STOCKS – 0.2% | |
| Automotive – 0.2% | | | | | | | | |
General Motors Co., 4.75%
(Identified Cost, $566,560) | | | 11,360 | | | $ | 377,152 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| PREFERRED STOCKS – 0.4% | | | | | |
| Other Banks & Diversified Financials – 0.4% | |
| Ally Financial, Inc., 7% (z) | | | 363 | | | $ | 323,399 | |
| GMAC Capital Trust I, 8.125% | | | 19,950 | | | | 479,798 | |
| | | | | | | | |
Total Preferred Stocks
(Identified Cost, $845,303) | | | | | | $ | 803,197 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | Strike
Price | | | First
Exercise | | | | | | | |
| WARRANTS – 0.1% | | | | | | | | | |
| Broadcasting – 0.1% | | | | | | | | | |
New Young Broadcasting Holding Co., Inc. (a) (1 share for 1 warrant)
(Identified Cost, $197,830) | | $ | 0.01 | | | | 7/14/10 | | | | 103 | | | $ | 298,700 | |
| | | | | | | | | | | | | | | | |
| |
| CONVERTIBLE BONDS – 0.3% | | | | | |
| Network & Telecom – 0.3% | | | | | |
| Nortel Networks Corp., 2.125%, 2014 (a)(d) (Identified Cost, $676,063) | | | $ | 685,000 | | | $ | 678,150 | |
| | | | | | | | | | | | | | | | |
| |
| MONEY MARKET FUNDS – 1.4% | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | | 3,003,948 | | | $ | 3,003,948 | |
| | | | | | | | | | | | | | | | |
Total Investments
(Identified Cost, $215,755,540) | | | | | | | $ | 215,245,813 | |
| | | | | | | | | | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 1.8% | | | | | | | | 3,961,986 | |
| | | | | | | | | | | | | | | | |
| Net Assets – 100.0% | | | | | | | $ | 219,207,799 | |
| | | | | | | | | | | | | | | | |
| (a) | | Non-income producing security. |
| (d) | | In default. Interest and/or scheduled principal payment(s) have been missed. |
| (g) | | The rate shown represents a weighted average coupon rate on settled positions at period end, unless otherwise indicated. |
| (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 $57,647,967, representing 26.3% of net assets. |
| (p) | | Payment-in-kind security. |
| (r) | | Remaining maturities of floating rate loans may be less than stated maturities shown as a result of contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. These loans may be subject to restrictions on resale. Floating rate loans generally have rates of interest which are determined periodically by reference to a base lending rate plus a premium. |
| (v) | | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted 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 | |
| Ally Financial, Inc., 7% (Preferred Stock) | | 4/13/11-4/14/11 | | | $340,313 | | | | $323,399 | |
| American Media, Inc., 13.5%, 2018 | | 12/22/10 | | | 101,736 | | | | 94,325 | |
10
MFS High Yield Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | | | |
| Restricted Securities - continued | | Acquisition
Date | | Cost | | | Value | |
| Arbor Realty Mortgage Securities, CDO, FRN, 2.765%, 2038 | | 12/20/05 | | | $568,229 | | | | $142,057 | |
| Ashtead Capital, Inc., 6.5%, 2022 | | 6/29/12 | | | 210,000 | | | | 210,000 | |
| Atlantic Power Corp., 9%, 2018 | | 10/26/11-3/02/12 | | | 397,688 | | | | 409,000 | |
| Avaya, Inc., 7%, 2019 | | 5/24/12 | | | 160,268 | | | | 162,313 | |
| CIT Group, Inc., 7%, 2017 | | 6/26/12 | | | 269,744 | | | | 269,242 | |
| CWCapital Cobalt Ltd., CDO, 6.23%, 2045 | | 3/20/06 | | | 968,384 | | | | 11,795 | |
| CWCapital Cobalt Ltd., CDO, “F”, FRN, 1.765%, 2050 | | 4/12/06 | | | 521,470 | | | | 10,425 | |
| Ceridian Corp., 8.875%, 2019 | | 6/28/12 | | | 145,000 | | | | 149,713 | |
| Consolidated Container Co. LLC/Consolidated Container Finance, Inc., 10.125%, 2020 | | 6/28/12 | | | 160,000 | | | | 164,800 | |
| Dematic S.A., 8.75%, 2016 | | 4/19/11-1/24/12 | | | 1,039,198 | | | | 1,084,163 | |
| Dynacast International LLC, 9.25%, 2019 | | 7/12/11-7/15/11 | | | 535,619 | | | | 549,875 | |
| FGI Operating Co./FGI Finance, Inc., 7.875%, 2020 | | 4/12/12 | | | 55,000 | | | | 57,338 | |
| G-Force LLC, CDO, “A2”, 4.83%, 2036 | | 1/20/11 | | | 373,618 | | | | 367,360 | |
| Heckler & Koch GmbH, 9.5%, 2018 | | 5/06/11-5/10/11 | | | 553,194 | | | | 360,288 | |
| Heckmann Corp., 9.875%, 2018 | | 4/04/12 | | | 407,776 | | | | 389,500 | |
| Host Hotels & Resorts, Inc., 5.25%, 2022 | | 6/26/12-6/27/12 | | | 361,135 | | | | 358,750 | |
| IDQ Holdings, Inc., 11.5%, 2017 | | 3/20/12 | | | 250,102 | | | | 265,200 | |
| LBI Media, Inc., 8.5%, 2017 | | 7/18/07 | | | 732,521 | | | | 153,550 | |
| Libbey Glass, Inc., 6.875%, 2020 | | 5/11/12 | | | 225,000 | | | | 231,188 | |
| Local TV Finance LLC, 9.25%, 2015 | | 12/10/07-11/30/10 | | | 533,426 | | | | 541,886 | |
| NESCO LLC/NESCO Holdings Corp., 11.75%, 2017 | | 4/05/12-6/15/12 | | | 441,987 | | | | 456,125 | |
| Navios Maritime Holdings, Inc., 8.875%, 2017 | | 6/27/12 | | | 435,000 | | | | 436,053 | |
| Physio-Control International, Inc., 9.875%, 2019 | | 1/13/12-1/30/12 | | | 431,635 | | | | 452,625 | |
| Prestige Brands, Inc., 8.125%, 2020 | | 1/24/12 | | | 65,000 | | | | 71,338 | |
| Rite Aid Corp., 9.25%, 2020 | | 5/03/12-5/21/12 | | | 302,418 | | | | 305,000 | |
| Rivers Pittsburgh Borrower LP/Rivers Pittsburgh Finance Corp., 9.5%, 2019 | | 5/30/12 | | | 110,000 | | | | 114,263 | |
| Roofing Supply Group LLC/Roofing Supply Finance, Inc., 10%, 2020 | | 5/24/12 | | | 225,000 | | | | 235,125 | |
| Townsquare Radio LLC, 9%, 2019 | | 3/30/12 | | | 282,222 | | | | 297,825 | |
| Truven Health Analytics, Inc., 10.625%, 2020 | | 5/24/12-6/15/12 | | | 289,283 | | | | 296,400 | |
| Total Restricted Securities | | | | | | | | | $8,970,921 | |
| % of Net assets | | | | | | | | | 4.1% | |
The following abbreviations are used in this report and are defined:
| CDO | | Collateralized Debt Obligation |
| FRN | | Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end. |
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:
11
MFS High Yield Portfolio
Portfolio of Investments (unaudited) – continued
Derivative Contracts at 6/30/12
Forward Foreign Currency Exchange Contracts at 6/30/12
| | | | | | | | | | | | | | | | | | | | | | | | |
| Type | | Currency | | | Counterparty | | Contracts to
Deliver/Receive | | Settlement Date
Range | | In Exchange For | | | Contracts
at Value | | | Net Unrealized
Appreciation
(Depreciation) | |
| Asset Derivatives | | | | | | | | | | | | | | | | | | | | | | |
| SELL | | | EUR | | | JPMorgan Chase Bank N.A. | | 2,061,505 | | 7/13/12 | | $ | 2,695,376 | | | $ | 2,609,039 | | | $ | 86,337 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $212,751,592) | | | $212,241,865 | | | | | |
Underlying affiliated funds, at cost and value | | | 3,003,948 | | | | | |
Total investments, at value (identified cost, $215,755,540) | | | $215,245,813 | | | | | |
Receivables for | | | | | | | | |
Forward foreign currency exchange contracts | | | 86,337 | | | | | |
Investments sold | | | 1,454,157 | | | | | |
Fund shares sold | | | 25 | | | | | |
Interest | | | 4,234,119 | | | | | |
Other assets | | | 1,372 | | | | | |
Total assets | | | | | | | $221,021,823 | |
Liabilities | | | | | | | | |
Payable to custodian | | | $1,647 | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | 1,546,860 | | | | | |
Fund shares reacquired | | | 203,685 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 12,876 | | | | | |
Distribution and/or service fees | | | 1,554 | | | | | |
Payable for independent Trustees’ compensation | | | 26 | | | | | |
Accrued expenses and other liabilities | | | 47,376 | | | | | |
Total liabilities | | | | | | | $1,814,024 | |
Net assets | | | | | | | $219,207,799 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $245,308,338 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | (423,775 | ) | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (48,567,124 | ) | | | | |
Undistributed net investment income | | | 22,890,360 | | | | | |
Net assets | | | | | | | $219,207,799 | |
Shares of beneficial interest outstanding | | | | | | | 36,478,570 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $143,165,307 | | | | 23,731,887 | | | | $6.03 | |
Service Class | | | 76,042,492 | | | | 12,746,683 | | | | 5.97 | |
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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Interest | | | $8,883,641 | | | | | |
Dividends | | | 101,886 | | | | | |
Dividends from underlying affiliated funds | | | 2,282 | | | | | |
Total investment income | | | | | | | $8,987,809 | |
Expenses | | | | | | | | |
Management fee | | | $803,724 | | | | | |
Distribution and/or service fees | | | 102,290 | | | | | |
Administrative services fee | | | 22,163 | | | | | |
Independent Trustees’ compensation | | | 6,388 | | | | | |
Custodian fee | | | 13,956 | | | | | |
Shareholder communications | | | 12,117 | | | | | |
Audit and tax fees | | | 32,489 | | | | | |
Legal fees | | | 1,981 | | | | | |
Miscellaneous | | | 10,273 | | | | | |
Total expenses | | | | | | | $1,005,381 | |
Fees paid indirectly | | | (38 | ) | | | | |
Reduction of expenses by investment adviser | | | (594 | ) | | | | |
Net expenses | | | | | | | $1,004,749 | |
Net investment income | | | | | | | $7,983,060 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $367,715 | | | | | |
Foreign currency | | | 87,515 | | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $455,230 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $6,862,536 | | | | | |
Translation of assets and liabilities in foreign currencies | | | (25,200 | ) | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $6,837,336 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $7,292,566 | |
Change in net assets from operations | | | | | | | $15,275,626 | |
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
6/30/12 (unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
From operations | | | | | | | | |
Net investment income | | | $7,983,060 | | | | $14,433,915 | |
Net realized gain (loss) on investments and foreign currency | | | 455,230 | | | | (29,817 | ) |
Net unrealized gain (loss) on investments and foreign currency translation | | | 6,837,336 | | | | (5,240,877 | ) |
Change in net assets from operations | | | $15,275,626 | | | | $9,163,221 | |
Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(17,370,717 | ) |
Change in net assets from fund share transactions | | | $(25,240,840 | ) | | | $13,526,079 | |
Total change in net assets | | | $(9,965,214 | ) | | | $5,318,583 | |
Net assets | | | | | | | | |
At beginning of period | | | 229,173,013 | | | | 223,854,430 | |
At end of period (including undistributed net investment income of $22,890,360 and
$14,907,300, respectively) | | | $219,207,799 | | | | $229,173,013 | |
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $5.64 | | | | $5.96 | | | | $5.67 | | | | $4.25 | | | | $6.56 | | | | $6.93 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.21 | | | | $0.41 | | | | $0.42 | | | | $0.44 | | | | $0.49 | | | | $0.49 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.18 | | | | (0.18 | ) | | | 0.42 | | | | 1.49 | | | | (2.26 | ) | | | (0.34 | ) |
Total from investment operations | | | $0.39 | | | | $0.23 | | | | $0.84 | | | | $1.93 | | | | $(1.77 | ) | | | $0.15 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.55 | ) | | | $(0.55 | ) | | | $(0.51 | ) | | | $(0.54 | ) | | | $(0.52 | ) |
Net asset value, end of period (x) | | | $6.03 | | | | $5.64 | | | | $5.96 | | | | $5.67 | | | | $4.25 | | | | $6.56 | |
Total return (%) (k)(r)(s)(x) | | | 6.91 | (n) | | | 4.13 | | | | 15.53 | | | | 50.00 | | | | (29.50 | ) | | | 1.93 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.79 | (a) | | | 0.86 | | | | 0.88 | | | | 0.87 | | | | 0.89 | | | | 0.84 | |
Expenses after expense reductions (f) | | | 0.79 | (a) | | | 0.81 | | | | 0.83 | | | | 0.82 | | | | 0.84 | | | | 0.79 | |
Net investment income | | | 7.04 | (a) | | | 6.97 | | | | 7.42 | | | | 9.21 | | | | 8.60 | | | | 7.25 | |
Portfolio turnover | | | 22 | (n) | | | 57 | | | | 62 | | | | 58 | | | | 63 | | | | 69 | |
Net assets at end of period (000 omitted) | | | $143,165 | | | | $145,773 | | | | $122,666 | | | | $121,416 | | | | $96,605 | | | | $175,408 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $5.59 | | | | $5.91 | | | | $5.63 | | | | $4.21 | | | | $6.50 | | | | $6.88 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.20 | | | | $0.40 | | | | $0.41 | | | | $0.43 | | | | $0.47 | | | | $0.47 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.18 | | | | (0.19 | ) | | | 0.40 | | | | 1.49 | | | | (2.24 | ) | | | (0.35 | ) |
Total from investment operations | | | $0.38 | | | | $0.21 | | | | $0.81 | | | | $1.92 | | | | $(1.77 | ) | | | $0.12 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.53 | ) | | | $(0.53 | ) | | | $(0.50 | ) | | | $(0.52 | ) | | | $(0.50 | ) |
Net asset value, end of period (x) | | | $5.97 | | | | $5.59 | | | | $5.91 | | | | $5.63 | | | | $4.21 | | | | $6.50 | |
Total return (%) (k)(r)(s)(x) | | | 6.80 | (n) | | | 3.86 | | | | 15.17 | | | | 49.97 | | | | (29.64 | ) | | | 1.56 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.04 | (a) | | | 1.11 | | | | 1.13 | | | | 1.12 | | | | 1.14 | | | | 1.09 | |
Expenses after expense reductions (f) | | | 1.04 | (a) | | | 1.06 | | | | 1.08 | | | | 1.07 | | | | 1.09 | | | | 1.04 | |
Net investment income | | | 6.79 | (a) | | | 6.73 | | | | 7.18 | | | | 9.01 | | | | 8.38 | | | | 7.01 | |
Portfolio turnover | | | 22 | (n) | | | 57 | | | | 62 | | | | 58 | | | | 63 | | | | 69 | |
Net assets at end of period (000 omitted) | | | $76,042 | | | | $83,400 | | | | $101,189 | | | | $108,217 | | | | $103,169 | | | | $149,162 | |
See Notes to Financial Statements
16
MFS High Yield Portfolio
Financial Highlights – continued
| (d) | | Per share data is based on average shares outstanding. |
| (f) | | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | | Certain expenses have been reduced without which performance would have been lower. |
| (s) | | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | | The net asset values per share 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 series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in high-yield securities rated below investment grade. Investments in high-yield securities involve greater degrees of credit and market risk than investments in higher-rated securities and tend to be more sensitive to economic conditions. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as provided by a third-party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as provided by a third-party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on
18
MFS High Yield Portfolio
Notes to Financial Statements (unaudited) – continued
third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as forward foreign currency exchange contracts. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities | | | $960,234 | | | | $1,001,999 | | | | $142,718 | | | | $2,104,951 | |
| Corporate Bonds | | | — | | | | 173,681,515 | | | | — | | | | 173,681,515 | |
| Commercial Mortgage-Backed Securities | | | — | | | | 1,000,951 | | | | — | | | | 1,000,951 | |
| Asset-Backed Securities (including CDOs) | | | — | | | | 540,483 | | | | — | | | | 540,483 | |
| Foreign Bonds | | | — | | | | 34,383,242 | | | | — | | | | 34,383,242 | |
| Floating Rate Loans | | | — | | | | 530,723 | | | | — | | | | 530,723 | |
| Mutual Funds | | | 3,003,948 | | | | — | | | | — | | | | 3,003,948 | |
| Total Investments | | | $3,964,182 | | | | $211,138,913 | | | | $142,718 | | | | $215,245,813 | |
| | | | |
| Other Financial Instruments | | | | | | | | | | | | |
| Forward Foreign Currency Exchange Contracts | | | $— | | | | $86,337 | | | | $— | | | | $86,337 | |
For further information regarding security characteristics, see the Portfolio of Investments.
The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period. The table presents the activity of level 3 securities held at the beginning and the end of the period.
| | | | |
| | | Equity
Securities | |
| Balance as of 12/31/11 | | | $305,751 | |
Change in unrealized appreciation (depreciation) | | | (163,033 | ) |
| Balance as of 6/30/12 | | | $142,718 | |
The net change in unrealized appreciation (depreciation) from investments still held as level 3 at June 30, 2012 is $(163,033).
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives – The fund uses derivatives for different purposes, 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 were purchased options and forward foreign currency exchange contracts. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract Tables, generally are indicative of the volume of its derivative activity during the period.
19
MFS High Yield 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, 2012 as reported in the Statement of Assets and Liabilities:
| | | | | | |
| | | | | Fair Value | |
| Risk | | Derivative Contracts | | Asset Derivatives | |
| Foreign Exchange | | Forward Foreign Currency Exchange | | | $86,337 | |
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, 2012 as reported in the Statement of Operations:
| | | | | | | | |
| Risk | | Foreign Currency | | | Investments
(Purchased Options) | |
| Foreign Exchange | | | $92,365 | | | | $— | |
| Equity | | | — | | | | (116,546 | ) |
| Total | | | $— | | | | $— | |
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | | | | | |
| Risk | | Translation of
Assets and Liabilities in
Foreign Currencies | | | Investments
(Purchased Options) | |
| Foreign Exchange | | | $(26,805 | ) | | | $— | |
| Equity | | | — | | | | 95,100 | |
| Total | | | $— | | | | $— | |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.
Purchased Options – The fund purchased put options for a premium. Purchased put options entitle the holder to sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing put options may hedge against a decline in the value of portfolio securities or currency.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.
The risk in purchasing an option is that the fund pays a premium whether or not the option is exercised. The fund’s maximum risk of loss due to counterparty credit risk is limited to the market value of the option. For over-the-counter options, this risk is mitigated in
20
MFS High Yield Portfolio
Notes to Financial Statements (unaudited) – continued
cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Forward Foreign Currency Exchange Contracts – The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on foreign currency.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, an industry accepted settlement system. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Loans and Other Direct Debt Instruments – The fund invests in loans and loan participations or other receivables. These investments may include standby financing commitments, including revolving credit facilities, which obligate the fund to supply additional cash to the borrower on demand. Loan participations involve a risk of insolvency of the lending bank or other financial intermediary.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. The fund earns certain fees in connection with its floating rate loan purchasing activities. These fees are in addition to interest payments earned and may include amendment fees, commitment fees, facility fees, consent fees, and prepayment fees. Commitment fees are recorded on an accrual basis as income in the accompanying financial statements. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date. Debt obligations may be placed on non-accrual status or set to accrue at a rate of interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by the write-off of the related interest receivables when deemed uncollectible.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions
21
MFS High Yield Portfolio
Notes to Financial Statements (unaudited) – continued
in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to amortization and accretion of debt securities.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $17,370,717 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $217,049,161 | |
| Gross appreciation | | | 8,413,767 | |
| Gross depreciation | | | (10,217,115 | ) |
| Net unrealized appreciation (depreciation) | | | $(1,803,348 | ) |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 15,107,524 | |
| Capital loss carryforwards | | | (48,005,452 | ) |
| Other temporary differences | | | 6,028 | |
| Net unrealized appreciation (depreciation) | | | (8,484,265 | ) |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011 the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/13 | | | $(5,089,839 | ) |
| 12/31/14 | | | (7,011,353 | ) |
| 12/31/16 | | | (23,243,372 | ) |
| 12/31/17 | | | (11,194,472 | ) |
| Total | | | $(46,539,036 | ) |
| |
| Post-enactment losses: | | | | |
| Long-Term | | | $(1,466,416 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $9,741,063 | |
| Service Class | | | — | | | | 7,629,654 | |
| Total | | | $— | | | | $17,370,717 | |
| (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:
| | | | |
| First $1 billion of average daily net assets | | | 0.70% | |
| Average daily net assets in excess of $1 billion | | | 0.65% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.70% of the fund’s average daily net assets.
22
MFS High Yield 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, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0193% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $1,182 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $594, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $48,407,253 and $59,840,893, 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 504,308 | | | | $2,963,280 | | | | 2,391,503 | | | | $13,890,676 | |
Service Class | | | 178,894 | | | | 1,050,591 | | | | 915,930 | | | | 5,120,442 | |
| | | 683,202 | | | | $4,013,871 | | | | 3,307,433 | | | | $19,011,118 | |
| Shares issued in connection with acquisition of High Yield Variable Account | | | | | | | | | | | | | | | | |
Initial Class | | | | | | | | | | | 6,689,850 | | | | $37,062,971 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 1,774,328 | | | | $9,741,063 | |
Service Class | | | — | | | | — | | | | 1,402,510 | | | | 7,629,654 | |
| | | — | | | | $— | | | | 3,176,838 | | | | $17,370,717 | |
23
MFS High Yield Portfolio
Notes to Financial Statements (unaudited) – continued
| | | | | | | | | | | | | | | | |
| | | Six months ended 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (2,614,385 | ) | | | $(15,447,311 | ) | | | (5,578,901 | ) | | | $(33,317,490 | ) |
Service Class | | | (2,364,594 | ) | | | (13,807,400 | ) | | | (4,510,215 | ) | | | (26,601,237 | ) |
| | | (4,978,979 | ) | | | $(29,254,711 | ) | | | (10,089,116 | ) | | | $(59,918,727 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (2,110,077 | ) | | | $(12,484,031 | ) | | | 5,276,780 | | | | $27,377,220 | |
Service Class | | | (2,185,700 | ) | | | (12,756,809 | ) | | | (2,191,775 | ) | | | (13,851,141 | ) |
| | | (4,295,777 | ) | | | $(25,240,840 | ) | | | 3,085,005 | | | | $13,526,079 | |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $783 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 8,583,165 | | | | 31,792,976 | | | | (37,372,193 | ) | | | 3,003,948 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $2,282 | | | | $3,003,948 | |
At the close of business on December 2, 2011, the fund with net assets of $189,041,440, acquired all of the investment-related assets and liabilities of High Yield Variable Account. The acquisition was part of a transaction in which the High Yield Variable Account was converted into a unit investment trust (“UIT”) that invests in the fund (the acquisition of the Account’s assets and liabilities and subsequent conversion into a UIT hereinafter referred to as the “Reorganization”). The Reorganization provided the contract owners of the High Yield Variable Account with the opportunity to participate in a larger combined portfolio with an identical investment objective and similar investment policies and strategies. The acquisition was accomplished by a tax-free exchange of 6,689,850 shares of the fund (valued at $37,062,971) for all of the investment-related assets and liabilities of High Yield Variable Account. High Yield Variable Account’s net assets on that date were $37,062,971, including investments valued at $36,182,636 with a cost basis of $37,558,906. For financial reporting purposes, assets received and shares issued by the fund were recorded at fair value; however, the cost basis of the investments received from High Yield Variable Account were carried forward to align ongoing reporting of the fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
24
MFS High Yield Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
25
SEMIANNUAL REPORT
June 30, 2012
MFS® BOND PORTFOLIO
MFS® Variable Insurance Trust II
BDS-SEM
MFS® BOND PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Bond Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Bond Portfolio
PORTFOLIO COMPOSITION
Portfolio structure (i)
| | | | |
| Fixed income sectors (i) | | | | |
| High Grade Corporates | | | 63.4% | |
| High Yield Corporates | | | 23.2% | |
| Emerging Markets Bonds | | | 6.4% | |
| Commercial Mortgage-Backed Securities | | | 1.4% | |
| Collateralized Debt Obligations | | | 0.9% | |
| Asset-Backed Securities | | | 0.1% | |
| Mortgage-Backed Securities (o) | | | 0.0% | |
| | | | |
| Composition including fixed income credit quality (a)(i) | |
| AAA (o) | | | 0.0% | |
| AA | | | 0.9% | |
| A | | | 13.4% | |
| BBB | | | 56.9% | |
| BB | | | 19.5% | |
| B | | | 4.3% | |
| CCC | | | 0.3% | |
| C | | | 0.1% | |
| D (o) | | | 0.0% | |
| Federal Agencies (o) | | | 0.0% | |
| Not Rated (o) | | | 0.0% | |
| Cash & Other | | | 4.6% | |
| |
| Portfolio facts (i) | | | | |
| Average Duration (d) | | | 5.4 | |
| Average Effective Maturity (m) | | | 8.3 yrs. | |
| (a) | | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities, including fixed income futures contracts, which have not been rated by any rating agency. Cash & Other includes cash, other assets less liabilities, offsets to derivative positions, and short-term securities. The fund may not hold all of these instruments. The fund 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 market 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. The bond component will include any accrued interest amounts. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio. |
| (m) | | In determining an instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
Percentages are based on net assets as of 6/30/12.
The portfolio is actively managed and current holdings may be different.
2
MFS Bond Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders During the Period,
January 1, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.67% | | | | $1,000.00 | | | | $1,054.84 | | | | $3.42 | |
| | Hypothetical (h) | | | 0.67% | | | | $1,000.00 | | | | $1,021.53 | | | | $3.37 | |
| Service Class | | Actual | | | 0.92% | | | | $1,000.00 | | | | $1,053.63 | | | | $4.70 | |
| | Hypothetical (h) | | | 0.92% | | | | $1,000.00 | | | | $1,020.29 | | | | $4.62 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Bond Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – 93.8% | | | | | | | | |
| Aerospace – 0.9% | | | | | | | | |
| BE Aerospace, Inc., 8.5%, 2018 | | $ | 2,258,000 | | | $ | 2,469,686 | |
| | | | | | | | |
| Airlines – 0.6% | | | | | | | | |
| Continental Airlines, Inc., 7.25%, 2021 | | $ | 338,155 | | | $ | 381,269 | |
| Continental Airlines, Inc., FRN, 0.816%, 2015 | | | 1,233,255 | | | | 1,196,257 | |
| | | | | | | | |
| | | | | | $ | 1,577,526 | |
| | | | | | | | |
| Apparel Manufacturers – 0.7% | | | | | | | | |
| Phillips-Van Heusen Corp., 7.375%, 2020 | | $ | 1,702,000 | | | $ | 1,884,965 | |
| | | | | | | | |
| Asset-Backed & Securitized – 2.4% | | | | | | | | |
| Anthracite Ltd., “A”, CDO, FRN, 0.605%, 2019 (z) | | $ | 396,406 | | | $ | 338,927 | |
ARCap REIT, Inc., CDO, “G”, FRN,
6.099%, 2045 (a)(d)(z) | | | 263,665 | | | | 26 | |
| Bayview Financial Revolving Mortgage Loan Trust, FRN, 1.845%, 2040 (z) | | | 316,448 | | | | 205,914 | |
Capital Trust Realty Ltd., CDO,
5.16%, 2035 (n) | | | 1,009,059 | | | | 1,016,627 | |
| Commercial Mortgage Acceptance Corp., FRN, 2.064%, 2030 (i) | | | 835,588 | | | | 33,790 | |
| Crest Ltd., “A2”, CDO, 4.669%, 2018 (z) | | | 210,380 | | | | 195,653 | |
Falcon Franchise Loan LLC, FRN,
5.43%, 2025 (i)(z) | | | 577,375 | | | | 90,648 | |
| G-Force LLC, CDO, “A2”, 4.83%, 2036 (z) | | | 594,879 | | | | 568,109 | |
| GMAC LLC, FRN, 6.02%, 2033 (z) | | | 315,693 | | | | 324,627 | |
| GMAC LLC, FRN, 7.997%, 2034 (d)(n)(q) | | | 825,000 | | | | 628,787 | |
| Greenwich Capital Commercial Funding Corp., FRN, 6.07%, 2038 | | | 350,000 | | | | 365,597 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., “A4”, FRN, 6.009%, 2049 | | | 1,195,039 | | | | 1,311,919 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.613%, 2042 (n) | | | 765,072 | | | | 163,875 | |
KKR Financial CLO Ltd., “C”, FRN,
1.916%, 2021 (n) | | | 505,395 | | | | 394,208 | |
| Lehman Brothers Commercial Conduit Mortgage Trust, FRN, 1.111%, 2030 (i) | | | 1,223,617 | | | | 15,621 | |
Morgan Stanley Capital I, Inc., FRN,
1.184%, 2030 (i)(n) | | | 2,195,058 | | | | 53,625 | |
| Prudential Securities Secured Financing Corp., FRN, 7.266%, 2013 (z) | | | 567,000 | | | | 564,971 | |
| Spirit Master Funding LLC, 5.05%, 2023 (z) | | | 321,541 | | | | 301,062 | |
| | | | | | | | |
| | | | | | $ | 6,573,986 | |
| | | | | | | | |
| Automotive – 4.3% | | | | | | | | |
American Honda Finance Corp.,
2.125%, 2017 (n) | | $ | 1,672,000 | | | $ | 1,691,547 | |
| Delphi Corp., 6.125%, 2021 | | | 742,000 | | | | 810,635 | |
| Ford Motor Credit Co. LLC, 8%, 2014 | | | 1,415,000 | | | | 1,569,652 | |
| Ford Motor Credit Co. LLC, 4.207%, 2022 (z) | | | 560,000 | | | | 581,492 | |
| Ford Motor Credit Co. LLC, 3.984%, 2022 (z) | | | 638,000 | | | | 657,082 | |
Harley-Davidson Financial Services,
3.875%, 2016 (n) | | | 1,061,000 | | | | 1,120,569 | |
| Lear Corp., 8.125%, 2020 | | | 2,372,000 | | | | 2,656,640 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | �� | | | | | | | |
| Automotive – continued | | | | | | | | |
| RCI Banque S.A., 4.6%, 2016 (n) | | $ | 420,000 | | | $ | 418,236 | |
| TRW Automotive, Inc., 7.25%, 2017 (n) | | | 1,613,000 | | | | 1,842,853 | |
| Volkswagen International Finance N.V., 2.375%, 2017 (n) | | | 500,000 | | | | 507,913 | |
| | | | | | | | |
| | | | | | $ | 11,856,619 | |
| | | | | | | | |
| Biotechnology – 0.7% | | | | | | | | |
| Life Technologies Corp., 6%, 2020 | | $ | 1,727,000 | | | $ | 2,026,059 | |
| | | | | | | | |
| Broadcasting – 1.9% | | | | | | | | |
| CBS Corp., 8.875%, 2019 | | $ | 760,000 | | | $ | 1,005,013 | |
| CBS Corp., 5.75%, 2020 | | | 440,000 | | | | 511,754 | |
| News America, Inc., 8.5%, 2025 | | | 770,000 | | | | 967,791 | |
| SIRIUS XM Radio, Inc., 13%, 2014 (n) | | | 2,005,000 | | | | 2,235,575 | |
| WPP Finance, 8%, 2014 | | | 366,000 | | | | 412,766 | |
| | | | | | | | |
| | | | | | $ | 5,132,899 | |
| | | | | | | | |
| Brokerage & Asset Managers – 0.9% | | | | | | | | |
| BlackRock, Inc., 3.375%, 2022 | | $ | 576,000 | | | $ | 584,483 | |
| E*TRADE Financial Corp., 12.5%, 2017 | | | 789,000 | | | | 904,391 | |
| TD Ameritrade Holding Co., 4.15%, 2014 | | | 855,000 | | | | 903,826 | |
| | | | | | | | |
| | | | | | $ | 2,392,700 | |
| | | | | | | | |
| Building – 1.6% | | | | | | | | |
| Mohawk Industries, Inc., 6.375%, 2016 | | $ | 1,840,000 | | | $ | 2,028,600 | |
| Owens Corning, Inc., 6.5%, 2016 | | | 2,221,000 | | | | 2,469,577 | |
| | | | | | | | |
| | | | | | $ | 4,498,177 | |
| | | | | | | | |
| Cable TV – 3.7% | | | | | | | | |
| CCH II LLC, 13.5%, 2016 | | $ | 1,500,000 | | | $ | 1,672,500 | |
| Comcast Corp., 3.125%, 2022 | | | 852,000 | | | | 856,009 | |
| Cox Communications, Inc., 6.25%, 2018 (n) | | | 261,000 | | | | 306,880 | |
| DIRECTV Holdings LLC, 5.875%, 2019 | | | 490,000 | | | | 562,133 | |
| DIRECTV Holdings LLC, 6.375%, 2041 | | | 690,000 | | | | 790,008 | |
| DIRECTV Holdings LLC, 5.15%, 2042 | | | 750,000 | | | | 754,837 | |
Myriad International Holdings B.V.,
6.375%, 2017 (n) | | | 586,000 | | | | 645,746 | |
| Time Warner Cable, Inc., 8.25%, 2019 | | | 850,000 | | | | 1,110,693 | |
| Time Warner Cable, Inc., 5%, 2020 | | | 354,000 | | | | 397,553 | |
| Time Warner Cable, Inc., 4%, 2021 | | | 470,000 | | | | 493,900 | |
Time Warner Entertainment Co. LP,
8.375%, 2033 | | | 266,000 | | | | 360,322 | |
| Videotron Ltee, 5%, 2022 (n) | | | 1,555,000 | | | | 1,578,325 | |
| Virgin Media Finance PLC, 9.5%, 2016 | | | 662,000 | | | | 738,130 | |
| | | | | | | | |
| | | | | | $ | 10,267,036 | |
| | | | | | | | |
| Chemicals – 2.6% | | | | | | | | |
| Ashland, Inc., 9.125%, 2017 | | $ | 1,432,000 | | | $ | 1,575,200 | |
| CF Industries Holdings, Inc. , 7.125%, 2020 | | | 1,045,000 | | | | 1,272,288 | |
| Dow Chemical Co., 8.55%, 2019 | | | 936,000 | | | | 1,244,949 | |
| LyondellBasell Industries N.V., 5%, 2019 (n) | | | 1,614,000 | | | | 1,692,683 | |
| LyondellBasell Industries N.V., 6%, 2021 (n) | | | 1,256,000 | | | | 1,378,460 | |
| | | | | | | | |
| | | | | | $ | 7,163,580 | |
| | | | | | | | |
4
MFS Bond Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Conglomerates – 0.4% | | | | | | | | |
| ABB Treasury Center USA, Inc., 4%, 2021 (n) | | $ | 313,000 | | | $ | 336,959 | |
| United Technologies Corp., 4.5%, 2042 | | | 705,000 | | | | 774,376 | |
| | | | | | | | |
| | | | | | $ | 1,111,335 | |
| | | | | | | | |
| Consumer Products – 0.2% | | | | | | | | |
| Mattel, Inc., 5.45%, 2041 | | $ | 630,000 | | | $ | 688,618 | |
| | | | | | | | |
| Consumer Services – 0.8% | | | | | | | | |
| Experian Finance PLC, 2.375%, 2017 (z) | | $ | 807,000 | | | $ | 807,904 | |
| Service Corp. International, 7.375%, 2014 | | | 820,000 | | | | 897,900 | |
| Service Corp. International, 7%, 2019 | | | 450,000 | | | | 483,750 | |
| | | | | | | | |
| | | | | | $ | 2,189,554 | |
| | | | | | | | |
| Containers – 1.6% | | | | | | | | |
| Ball Corp., 5%, 2022 | | $ | 576,000 | | | $ | 599,040 | |
| Crown Americas LLC, 7.625%, 2017 | | | 2,356,000 | | | | 2,544,480 | |
| Greif, Inc., 6.75%, 2017 | | | 1,136,000 | | | | 1,232,560 | |
| | | | | | | | |
| | | | | | $ | 4,376,080 | |
| | | | | | | | |
| Defense Electronics – 0.6% | | | | | | | | |
| BAE Systems Holdings, Inc., 6.375%, 2019 (n) | | $ | 1,358,000 | | | $ | 1,588,260 | |
| | | | | | | | |
| Electrical Equipment – 0.2% | | | | | | | | |
| Ericsson, Inc., 4.125%, 2022 | | $ | 594,000 | | | $ | 595,642 | |
| | | | | | | | |
| Electronics – 0.2% | | | | | | | | |
| Tyco Electronics Group S.A., 6.55%, 2017 | | $ | 360,000 | | | $ | 429,773 | |
| Tyco Electronics Group S.A., 3.5%, 2022 | | | 252,000 | | | | 251,182 | |
| | | | | | | | |
| | | | | | $ | 680,955 | |
| | | | | | | | |
| Emerging Market Quasi-Sovereign – 2.8% | | | | | |
Centrais Eletricas Brasileiras S.A.,
5.75%, 2021 (n) | | $ | 1,400,000 | | | $ | 1,530,200 | |
| CEZ A.S., 4.25%, 2022 (n) | | | 417,000 | | | | 427,246 | |
| CNPC General Capital Ltd., 2.75%, 2017 (z) | | | 1,559,000 | | | | 1,572,051 | |
| Gaz Capital S.A., 8.125%, 2014 (n) | | | 409,000 | | | | 447,685 | |
Petrobras International Finance Co.,
3.875%, 2016 | | | 1,179,000 | | | | 1,217,247 | |
Petrobras International Finance Co.,
5.375%, 2021 | | | 875,000 | | | | 943,050 | |
| Petroleos Mexicanos, 4.875%, 2022 (n) | | | 316,000 | | | | 341,280 | |
| Petroleos Mexicanos, 6.5%, 2041 | | | 70,000 | | | | 81,725 | |
| Petroleos Mexicanos, 6.5%, 2041 (n) | | | 928,000 | | | | 1,083,440 | |
| | | | | | | | |
| | | | | | $ | 7,643,924 | |
| | | | | | | | |
| Energy – Independent – 3.8% | | | | | | | | |
| Anadarko Petroleum Corp., 6.375%, 2017 | | $ | 1,337,000 | | | $ | 1,553,105 | |
| Hess Corp., 8.125%, 2019 | | | 440,000 | | | | 566,361 | |
| LINN Energy LLC, 7.75%, 2021 | | | 600,000 | | | | 627,000 | |
| Noble Energy, Inc., 4.15%, 2021 | | | 1,920,000 | | | | 2,018,966 | |
| Pioneer Natural Resources Co., 6.65%, 2017 | | | 1,100,000 | | | | 1,277,616 | |
| Pioneer Natural Resources Co., 7.5%, 2020 | | | 1,518,000 | | | | 1,878,211 | |
| QEP Resources, Inc., 5.375%, 2022 | | | 259,000 | | | | 259,648 | |
| Southwestern Energy Co., 7.5%, 2018 | | | 1,851,000 | | | | 2,220,637 | |
| | | | | | | | |
| | | | | | $ | 10,401,544 | |
| | | | | | | | |
| Energy – Integrated – 0.7% | | | | | | | | |
| BG Energy Capital PLC, 5.125%, 2041 (n) | | $ | 906,000 | | | $ | 999,620 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Energy – Integrated – continued | | | | | | | | |
| BP Capital Markets PLC, 4.5%, 2020 | | $ | 747,000 | | | $ | 840,999 | |
| | | | | | | | |
| | | | | | $ | 1,840,619 | |
| | | | | | | | |
| Entertainment – 0.3% | | | | | | | | |
| Viacom, Inc., 3.5%, 2017 | | $ | 800,000 | | | $ | 860,703 | |
| | | | | | | | |
| Financial Institutions – 3.5% | | | | | | | | |
| CIT Group, Inc., 5.25%, 2018 | | $ | 365,000 | | | $ | 376,861 | |
| CIT Group, Inc., 6.625%, 2018 (n) | | | 1,900,000 | | | | 2,047,250 | |
| CIT Group, Inc., 5.5%, 2019 (n) | | | 781,000 | | | | 802,476 | |
| General Electric Capital Corp., 3.75%, 2014 | | | 413,000 | | | | 433,602 | |
| General Electric Capital Corp., 5.5%, 2020 | | | 1,470,000 | | | | 1,682,471 | |
International Lease Finance Corp.,
7.125%, 2018 (n) | | | 570,000 | | | | 628,425 | |
International Lease Finance Corp.,
6.25%, 2019 | | | 1,147,000 | | | | 1,168,506 | |
| SLM Corp., 6.25%, 2016 | | | 727,000 | | | | 763,350 | |
| SLM Corp., 6%, 2017 | | | 1,147,000 | | | | 1,184,881 | |
| SLM Corp., 8%, 2020 | | | 468,000 | | | | 512,460 | |
| | | | | | | | |
| | | | | | $ | 9,600,282 | |
| | | | | | | | |
| Food & Beverages – 5.9% | | | | | | | | |
| Anheuser-Busch InBev S.A., 7.75%, 2019 | | $ | 610,000 | | | $ | 805,660 | |
| Constellation Brands, Inc., 7.25%, 2016 | | | 1,119,000 | | | | 1,267,268 | |
| Grupo Bimbo S.A.B. de C.V., 4.5%, 2022 (n) | | | 1,517,000 | | | | 1,613,780 | |
| J.M. Smucker Co., 3.5%, 2021 | | | 880,000 | | | | 921,193 | |
| Kraft Foods Group, Inc., 2.25%, 2017 (n) | | | 1,256,000 | | | | 1,285,991 | |
| Kraft Foods, Inc., 6.5%, 2040 | | | 1,475,000 | | | | 1,894,770 | |
| Molson Coors Brewing Co., 3.5%, 2022 | | | 1,018,000 | | | | 1,045,267 | |
| Pernod Ricard S.A., 5.75%, 2021 (n) | | | 831,000 | | | | 938,130 | |
| Pernod-Ricard S.A., 4.45%, 2022 (n) | | | 524,000 | | | | 542,944 | |
| SABMiller Holdings, Inc., 3.75%, 2022 (n) | | | 1,341,000 | | | | 1,426,090 | |
| Smithfield Foods, Inc., 7.75%, 2017 | | | 1,370,000 | | | | 1,515,563 | |
| Tyson Foods, Inc., 6.85%, 2016 | | | 2,229,000 | | | | 2,549,419 | |
| Tyson Foods, Inc., 4.5%, 2022 | | | 598,000 | | | | 615,940 | |
| | | | | | | | |
| | | | | | $ | 16,422,015 | |
| | | | | | | | |
| Food & Drug Stores – 1.0% | | | | | | | | |
| CVS Caremark Corp., 3.25%, 2015 | | $ | 296,000 | | | $ | 311,568 | |
| CVS Caremark Corp., 5.75%, 2017 | | | 664,000 | | | | 784,175 | |
| CVS Caremark Corp., 5.75%, 2041 | | | 1,465,000 | | | | 1,743,958 | |
| | | | | | | | |
| | | | | | $ | 2,839,701 | |
| | | | | | | | |
| Forest & Paper Products – 0.9% | | | | | | | | |
| Georgia-Pacific Corp., 5.4%, 2020 (n) | | $ | 806,000 | | | $ | 935,257 | |
| International Paper Co., 6%, 2041 | | | 860,000 | | | | 969,581 | |
| Packaging Corp. of America, 3.9%, 2022 | | | 712,000 | | | | 714,309 | |
| | | | | | | | |
| | | | | | $ | 2,619,147 | |
| | | | | | | | |
| Gaming & Lodging – 1.7% | | | | | | | | |
| Host Hotels & Resorts, Inc., 6.75%, 2016 | | $ | 1,600,000 | | | $ | 1,644,000 | |
| Starwood Hotels & Resorts Worldwide, Inc., 6.75%, 2018 | | | 150,000 | | | | 174,234 | |
| Wyndham Worldwide Corp., 6%, 2016 | | | 19,000 | | | | 21,135 | |
| Wyndham Worldwide Corp., 4.25%, 2022 | | | 1,227,000 | | | | 1,235,517 | |
| Wynn Las Vegas LLC, 7.75%, 2020 | | | 1,200,000 | | | | 1,329,000 | |
5
MFS Bond Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Gaming & Lodging – continued | | | | | | | | |
| Wynn Las Vegas LLC, 5.375%, 2022 (n) | | $ | 260,000 | | | $ | 261,300 | |
| | | | | | | | |
| | | | | | $ | 4,665,186 | |
| | | | | | | | |
| Insurance – 2.0% | | | | | | | | |
American International Group, Inc.,
3.8%, 2017 | | $ | 937,000 | | | $ | 955,168 | |
American International Group, Inc.,
6.4%, 2020 | | | 1,200,000 | | | | 1,357,772 | |
Metropolitan Life Global Funding I,
5.125%, 2014 (n) | | | 370,000 | | | | 396,775 | |
| Prudential Financial, Inc., 4.75%, 2015 | | | 631,000 | | | | 679,342 | |
| Unum Group, 7.125%, 2016 | | | 500,000 | | | | 576,685 | |
| UnumProvident Corp., 6.85%, 2015 (n) | | | 1,340,000 | | | | 1,496,704 | |
| | | | | | | | |
| | | | | | $ | 5,462,446 | |
| | | | | | | | |
| Insurance – Health – 1.3% | | | | | | | | |
| CIGNA Corp., 2.75%, 2016 | | $ | 1,400,000 | | | $ | 1,442,381 | |
| CIGNA Corp., 5.375%, 2042 | | | 700,000 | | | | 744,797 | |
| Humana, Inc., 7.2%, 2018 | | | 1,157,000 | | | | 1,390,355 | |
| | | | | | | | |
| | | | | | $ | 3,577,533 | |
| | | | | | | | |
| Insurance – Property & Casualty – 2.3% | | | | | |
| AXIS Capital Holdings Ltd., 5.75%, 2014 | | $ | 855,000 | | | $ | 905,961 | |
| AXIS Capital Holdings Ltd., 5.875%, 2020 | | | 190,000 | | | | 205,764 | |
| Chubb Corp., 6.375% to 2017, FRN to 2067 | | | 279,000 | | | | 288,068 | |
| CNA Financial Corp., 5.875%, 2020 | | | 1,570,000 | | | | 1,726,457 | |
| Marsh & McLennan Cos., Inc., 4.8%, 2021 | | | 500,000 | | | | 544,436 | |
| XL Group PLC, 5.75%, 2021 | | | 1,110,000 | | | | 1,228,001 | |
| XL Group PLC, 6.5% to 2017, FRN to 2049 | | | 663,000 | | | | 538,688 | |
| ZFS Finance USA Trust V, 6.5% to 2017, FRN to 2067 (n) | | | 896,000 | | | | 878,080 | |
| | | | | | | | |
| | | | | | $ | 6,315,455 | |
| | | | | | | | |
| Machinery & Tools – 0.8% | | | | | | | | |
| Case New Holland, Inc., 7.875%, 2017 | | $ | 1,989,000 | | | $ | 2,297,295 | |
| | | | | | | | |
| Major Banks – 4.4% | | | | | | | | |
| Bank of America Corp., 5.65%, 2018 | | $ | 580,000 | | | $ | 620,190 | |
| Bank of America Corp., 7.625%, 2019 | | | 500,000 | | | | 587,940 | |
| Bank of America Corp., 5.625%, 2020 | | | 185,000 | | | | 198,067 | |
Commonwealth Bank of Australia,
5%, 2019 (n) | | | 400,000 | | | | 439,452 | |
| Goldman Sachs Group, Inc., 5.625%, 2017 | | | 1,123,000 | | | | 1,177,917 | |
| JPMorgan Chase & Co., 4.25%, 2020 | | | 893,000 | | | | 938,109 | |
| JPMorgan Chase & Co., 4.5%, 2022 | | | 500,000 | | | | 538,609 | |
| Macquarie Bank Ltd., 5%, 2017 (n) | | | 400,000 | | | | 407,401 | |
| Macquarie Group Ltd., 6%, 2020 (n) | | | 418,000 | | | | 415,838 | |
| Merrill Lynch & Co., Inc., 6.15%, 2013 | | | 500,000 | | | | 517,503 | |
| Merrill Lynch & Co., Inc., 6.05%, 2016 | | | 349,000 | | | | 360,827 | |
| Morgan Stanley, 5.75%, 2016 | | | 906,000 | | | | 930,055 | |
| Morgan Stanley, 7.3%, 2019 | | | 1,240,000 | | | | 1,339,496 | |
| PNC Funding Corp., 5.625%, 2017 | | | 1,095,000 | | | | 1,218,364 | |
| Wachovia Corp., 6.605%, 2025 | | | 1,270,000 | | | | 1,504,960 | |
| Wells Fargo & Co., 2.625%, 2016 | | | 919,000 | | | | 944,450 | |
| | | | | | | | |
| | | | | | $ | 12,139,178 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Medical & Health Technology & Services – 2.7% | | | | | |
| Aristotle Holding, Inc., 3.9%, 2022 (n) | | $ | 983,000 | | | $ | 1,018,893 | |
| Davita, Inc., 6.625%, 2020 | | | 1,540,000 | | | | 1,605,450 | |
| Fresenius Medical Care AG & Co. KGaA, 9%, 2015 (n) | | | 1,775,000 | | | | 2,039,031 | |
| Fresenius Medical Care US Finance II, Inc., 6.5%, 2018 (n) | | | 734,000 | | | | 798,225 | |
| Hospira, Inc., 6.05%, 2017 | | | 906,000 | | | | 1,021,943 | |
| McKesson Corp., 5.7%, 2017 | | | 770,000 | | | | 901,596 | |
| McKesson Corp., 7.5%, 2019 | | | 120,000 | | | | 154,321 | |
| | | | | | | | |
| | | | | | $ | 7,539,459 | |
| | | | | | | | |
| Metals & Mining – 2.8% | | | | | | | | |
| Freeport-McMoRan Copper & Gold, Inc., 3.55%, 2022 | | $ | 1,393,000 | | | $ | 1,370,542 | |
| Gold Fields Orogen Holding Ltd., 4.875%, 2020 (n) | | | 1,701,000 | | | | 1,620,793 | |
| Southern Copper Corp., 6.75%, 2040 | | | 1,764,000 | | | | 1,868,004 | |
| Teck Resources Ltd., 10.75%, 2019 | | | 470,000 | | | | 565,175 | |
| Vale Overseas Ltd., 5.625%, 2019 | | | 1,501,000 | | | | 1,663,962 | |
| Vale Overseas Ltd., 4.375%, 2022 | | | 527,000 | | | | 536,656 | |
| | | | | | | | |
| | | | | | $ | 7,625,132 | |
| | | | | | | | |
| Mortgage-Backed – 0.0% | | | | | | | | |
| Fannie Mae, 7.5%, 2030 – 2031 | | $ | 56,895 | | | $ | 69,754 | |
| | | | | | | | |
| Natural Gas – Distribution – 0.4% | | | | | | | | |
| AmeriGas Finance LLC, 7%, 2022 | | $ | 970,000 | | | $ | 999,100 | |
| | | | | | | | |
| Natural Gas – Pipeline – 4.1% | | | | | | | | |
| El Paso Pipeline Partners LP, 6.5%, 2020 | | $ | 940,000 | | | $ | 1,090,942 | |
| El Paso Pipeline Partners LP, 5%, 2021 | | | 311,000 | | | | 336,480 | |
| Energy Transfer Partners LP, 8.5%, 2014 | | | 1,004,000 | | | | 1,111,467 | |
| Energy Transfer Partners LP, 9.7%, 2019 | | | 213,000 | | | | 273,113 | |
| Energy Transfer Partners LP, 6.5%, 2042 | | | 1,183,000 | | | | 1,267,750 | |
| Enterprise Products Operating LP, 5.65%, 2013 | | | 354,000 | | | | 365,210 | |
| Enterprise Products Partners LP, 6.3%, 2017 | | | 540,000 | | | | 644,552 | |
| Enterprise Products Partners LP, 8.375% to 2016, FRN to 2066 | | | 506,000 | | | | 548,378 | |
| Enterprise Products Partners LP, 7.034% to 2018, FRN to 2068 | | | 267,000 | | | | 285,690 | |
| Kinder Morgan Energy Partners, 6.85%, 2020 | | | 370,000 | | | | 444,232 | |
| Kinder Morgan Energy Partners LP, 5.125%, 2014 | | | 410,000 | | | | 443,289 | |
| Kinder Morgan Energy Partners LP, 7.4%, 2031 | | | 581,000 | | | | 707,539 | |
| NiSource Finance Corp., 3.85%, 2023 | | | 1,106,000 | | | | 1,104,933 | |
| Plains All American Pipeline, LP, 3.95%, 2015 | | | 1,290,000 | | | | 1,381,764 | |
| Spectra Energy Capital LLC, 8%, 2019 | | | 942,000 | | | | 1,206,756 | |
| | | | | | | | |
| | | | | | $ | 11,212,095 | |
| | | | | | | | |
| Network & Telecom – 1.7% | | | | | | | | |
| AT&T, Inc., 5.55%, 2041 | | $ | 1,024,000 | | | $ | 1,220,564 | |
| CenturyLink, Inc., 7.6%, 2039 | | | 1,580,000 | | | | 1,525,823 | |
| Telefonica Emisiones S.A.U., 5.134%, 2020 | | | 1,200,000 | | | | 1,033,661 | |
| Verizon Communications, Inc., 6%, 2041 | | | 690,000 | | | | 874,746 | |
| | | | | | | | |
| | | | | | $ | 4,654,794 | |
| | | | | | | | |
6
MFS Bond Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Oils – 0.1% | | | | | | | | |
| Phillips 66, 5.875%, 2042 (n) | | $ | 255,000 | | | $ | 274,504 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 4.4% | | | | | |
American Express Centurion Bank,
5.5%, 2013 | | $ | 590,000 | | | $ | 612,019 | |
| American Express Co., 8.125%, 2019 | | | 320,000 | | | | 426,113 | |
| American Express Credit Corp., 2.375%, 2017 | | | 745,000 | | | | 763,574 | |
| Banco Bradesco S.A., 5.75%, 2022 (n) | | | 633,000 | | | | 640,913 | |
Banco Santander U.S. Debt S.A.U.,
3.781%, 2015 (n) | | | 1,500,000 | | | | 1,400,504 | |
| BB&T Corp., 3.95%, 2016 | | | 500,000 | | | | 544,277 | |
| Capital One Financial Corp., 2.15%, 2015 | | | 700,000 | | | | 705,458 | |
| Capital One Financial Corp., 8.8%, 2019 | | | 1,000,000 | | | | 1,259,352 | |
| Capital One Financial Corp., 10.25%, 2039 | | | 510,000 | | | | 520,200 | |
| Citigroup, Inc., 4.45%, 2017 | | | 982,000 | | | | 1,029,375 | |
| Discover Bank, 7%, 2020 | | | 1,776,000 | | | | 2,067,035 | |
| Fifth Third Bancorp, 3.5%, 2022 | | | 673,000 | | | | 680,115 | |
| Santander Holdings USA, Inc., 4.625%, 2016 | | | 290,000 | | | | 280,243 | |
| Santander UK PLC, 3.875%, 2014 (n) | | | 413,000 | | | | 406,877 | |
| Svenska Handelsbanken AB, 2.875%, 2017 | | | 767,000 | | | | 777,532 | |
| | | | | | | | |
| | | | | | $ | 12,113,587 | |
| | | | | | | | |
| Personal Computers & Peripherals – 0.4% | | | | | |
| Motorola Solutions, Inc., 3.75%, 2022 | | $ | 1,000,000 | | | $ | 986,170 | |
| | | | | | | | |
| Pharmaceuticals – 1.5% | | | | | | | | |
| Celgene Corp., 2.45%, 2015 | | $ | 606,000 | | | $ | 620,735 | |
| Mylan Laboratories, Inc., 7.625%, 2017 (n) | | | 1,977,000 | | | | 2,174,700 | |
| Teva Pharmaceutical Finance IV LLC, 3.65%, 2021 | | | 1,330,000 | | | | 1,398,865 | |
| | | | | | | | |
| | | | | | $ | 4,194,300 | |
| | | | | | | | |
| Pollution Control – 0.5% | | | | | | | | |
| Republic Services, Inc., 5.25%, 2021 | | $ | 1,160,000 | | | $ | 1,331,780 | |
| | | | | | | | |
| Precious Metals & Minerals – 0.0% | | | | | | | | |
| Teck Resources Ltd., 3%, 2019 | | $ | 68,000 | | | $ | 67,552 | |
| | | | | | | | |
| Printing & Publishing – 0.9% | | | | | | | | |
| Pearson Funding Four PLC, 3.75%, 2022 (n) | | $ | 693,000 | | | $ | 706,716 | |
| Pearson PLC, 5.5%, 2013 (n) | | | 260,000 | | | | 269,293 | |
| Pearson PLC, 4%, 2016 (n) | | | 1,320,000 | | | | 1,401,477 | |
| | | | | | | | |
| | | | | | $ | 2,377,486 | |
| | | | | | | | |
| Railroad & Shipping – 0.8% | | | | | | | | |
| Canadian Pacific Railway Co., 7.25%, 2019 | | $ | 424,000 | | | $ | 521,375 | |
| Canadian Pacific Railway Co., 4.5%, 2022 | | | 400,000 | | | | 432,165 | |
| CSX Corp., 7.375%, 2019 | | | 365,000 | | | | 465,604 | |
| Kansas City Southern, 8%, 2018 | | | 757,000 | | | | 843,147 | |
| | | | | | | | |
| | | | | | $ | 2,262,291 | |
| | | | | | | | |
| Real Estate – 3.7% | | | | | | | | |
| Boston Properties LP, REIT, 3.7%, 2018 | | $ | 754,000 | | | $ | 787,852 | |
| Boston Properties LP, REIT, 3.85%, 2023 | | | 1,131,000 | | | | 1,141,625 | |
| DDR Corp., REIT, 4.625%, 2022 | | | 362,000 | | | | 357,267 | |
| ERP Operating LP, REIT, 4.625%, 2021 | | | 670,000 | | | | 727,736 | |
| HCP, Inc., REIT, 5.375%, 2021 | | | 1,893,000 | | | | 2,093,285 | |
| HRPT Properties Trust, REIT, 6.25%, 2016 | | | 1,027,000 | | | | 1,083,743 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Real Estate – continued | | | | | | | | |
Simon Property Group, Inc., REIT,
5.75%, 2015 | | $ | 440,000 | | | $ | 491,614 | |
Simon Property Group, Inc., REIT,
10.35%, 2019 | | | 1,026,000 | | | | 1,439,279 | |
| Ventas Realty LP, REIT, 4%, 2019 | | | 343,000 | | | | 351,744 | |
| WEA Finance LLC, REIT, 6.75%, 2019 (n) | | | 1,447,000 | | | | 1,707,276 | |
| | | | | | | | |
| | | | | | $ | 10,181,421 | |
| | | | | | | | |
| Retailers – 2.7% | | | | | | | | |
| AutoZone, Inc., 3.7%, 2022 | | $ | 258,000 | | | $ | 265,739 | |
| Dollar General Corp., 4.125%, 2017 | | | 1,544,000 | | | | 1,565,230 | |
| Gap, Inc., 5.95%, 2021 | | | 2,173,000 | | | | 2,252,332 | |
| Kohl’s Corp., 4%, 2021 | | | 1,117,000 | | | | 1,160,965 | |
| Limited Brands, Inc., 7%, 2020 | | | 1,441,000 | | | | 1,599,510 | |
| Limited Brands, Inc., 5.625%, 2022 | | | 479,000 | | | | 493,370 | |
| | | | | | | | |
| | | | | | $ | 7,337,146 | |
| | | | | | | | |
| Specialty Stores – 0.5% | | | | | | | | |
| Advance Auto Parts, Inc., 5.75%, 2020 | | $ | 965,000 | | | $ | 1,090,550 | |
| Advance Auto Parts, Inc., 4.5%, 2022 | | | 332,000 | | | | 347,655 | |
| | | | | | | | |
| | | | | | $ | 1,438,205 | |
| | | | | | | | |
| Supermarkets – 0.5% | | | | | | | | |
| Kroger Co., 3.4%, 2022 | | $ | 1,500,000 | | | $ | 1,498,710 | |
| | | | | | | | |
| Telecommunications – Wireless – 2.1% | |
| American Tower Corp., 4.5%, 2018 | | $ | 1,150,000 | | | $ | 1,215,566 | |
| American Tower Corp., REIT, 4.625%, 2015 | | | 1,770,000 | | | | 1,873,540 | |
Crown Castle International Corp.,
7.75%, 2017 (n) | | | 960,000 | | | | 1,040,400 | |
| Crown Castle Towers LLC, 6.113%, 2040 (n) | | | 955,000 | | | | 1,105,523 | |
| Rogers Cable, Inc., 5.5%, 2014 | | | 364,000 | | | | 390,705 | |
| Vodafone Group PLC, 5.625%, 2017 | | | 201,000 | | | | 235,192 | |
| | | | | | | | |
| | | | | | $ | 5,860,926 | |
| | | | | | | | |
| Telephone Services – 0.2% | | | | | | | | |
| Oi S.A., 5.75%, 2022 (n) | | $ | 551,000 | | | $ | 561,469 | |
| | | | | | | | |
| Tobacco – 2.2% | | | | | | | | |
B.A.T. International Finance PLC,
2.125%, 2017 (n) | | $ | 1,052,000 | | | $ | 1,050,612 | |
B.A.T. International Finance PLC,
9.5%, 2018 (n) | | | 1,048,000 | | | | 1,426,780 | |
| Lorillard Tobacco Co., 8.125%, 2019 | | | 1,567,000 | | | | 1,944,760 | |
| Lorillard Tobacco Co., 7%, 2041 | | | 434,000 | | | | 470,752 | |
| Reynolds American, Inc., 6.75%, 2017 | | | 1,100,000 | | | | 1,320,627 | |
| | | | | | | | |
| | | | | | $ | 6,213,531 | |
| | | | | | | | |
| Transportation – Services – 0.8% | | | | | | | | |
| Erac USA Finance Co., 6.375%, 2017 (n) | | $ | 200,000 | | | $ | 233,763 | |
| Erac USA Finance Co., 7%, 2037 (n) | | | 654,000 | | | | 788,357 | |
| Erac USA Finance Co., 5.625%, 2042 (n) | | | 1,080,000 | | | | 1,101,621 | |
| | | | | | | | |
| | | | | | $ | 2,123,741 | |
| | | | | | | | |
| Utilities – Electric Power – 5.1% | | | | | | | | |
| Calpine Corp., 7.875%, 2020 (n) | | $ | 1,434,000 | | | $ | 1,580,985 | |
| CenterPoint Energy, Inc., 5.95%, 2017 | | | 800,000 | | | | 912,182 | |
7
MFS Bond Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Utilities – Electric Power – continued | | | | | | | | |
| CMS Energy Corp., 2.75%, 2014 | | $ | 780,000 | | | $ | 784,035 | |
| CMS Energy Corp., 6.25%, 2020 | | | 1,010,000 | | | | 1,121,635 | |
| CMS Energy Corp., 5.05%, 2022 | | | 209,000 | | | | 216,783 | |
| Dominion Resources, Inc., 4.9%, 2041 | | | 700,000 | | | | 791,108 | |
| EDP Finance B.V., 6%, 2018 (n) | | | 1,056,000 | | | | 918,634 | |
Enel Finance International S.A.,
6%, 2039 (n) | | | 1,132,000 | | | | 888,686 | |
| Enersis S.A., 7.375%, 2014 | | | 686,000 | | | | 734,178 | |
| FirstEnergy Solutions Corp., 6.05%, 2021 | | | 1,766,000 | | | | 1,939,571 | |
| Oncor Electric Delivery Co., 4.1%, 2022 (n) | | | 1,400,000 | | | | 1,427,369 | |
| PPL Capital Funding, Inc., 4.2%, 2022 | | | 622,000 | | | | 623,995 | |
| PPL WEM Holdings PLC, 5.375%, 2021 (n) | | | 1,057,000 | | | | 1,138,821 | |
| PSEG Power LLC, 5.32%, 2016 | | | 288,000 | | | | 324,779 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Utilities – Electric Power – continued | |
System Energy Resources, Inc.,
5.129%, 2014 (z) | | $ | 227,428 | | | $ | 232,177 | |
| Waterford 3 Funding Corp., 8.09%, 2017 | | | 487,952 | | | | 489,031 | |
| | | | | | | | |
| | | | | | $ | 14,123,969 | |
| | | | | | | | |
Total Bonds
(Identified Cost, $245,726,935) | | | | | | $ | 258,805,827 | |
| | | | | | | | |
|
| MONEY MARKET FUNDS – 5.4% | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 15,012,291 | | | $ | 15,012,291 | |
| | | | | | | | |
Total Investments
(Identified Cost, $260,739,226) | | | | | | $ | 273,818,118 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 0.8% | | | | | | | 2,078,770 | |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 275,896,888 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (d) | | In default. Interest and/or scheduled principal payment(s) have been missed. |
| (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 $64,668,714, representing 23.4% of net assets. |
| (q) | | Interest received was less than stated coupon rate. |
| (v) | | Underlying affiliated fund 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 | |
| ARCap REIT, Inc., CDO, “G”, FRN, 6.099%, 2045 | | 9/21/04-3/08/12 | | | $240,724 | | | | $26 | |
| Anthracite Ltd., “A”, CDO, FRN, 0.605%, 2019 | | 1/15/10 | | | 299,877 | | | | 338,927 | |
| Bayview Financial Revolving Mortgage Loan Trust, FRN, 1.845%, 2040 | | 3/01/06 | | | 316,448 | | | | 205,914 | |
| CNPC General Capital Ltd., 2.75%, 2017 | | 4/12/12 | | | 1,558,865 | | | | 1,572,051 | |
| Crest Ltd., “A2”, CDO, 4.669%, 2018 | | 3/02/10 | | | 177,528 | | | | 195,653 | |
| Experian Finance PLC, 2.375%, 2017 | | 6/26/12 | | | 804,843 | | | | 807,904 | |
| Falcon Franchise Loan LLC, FRN, 5.43%, 2025 | | 1/29/03 | | | 44,890 | | | | 90,648 | |
| Ford Motor Credit Co. LLC, 4.207%, 2022 | | 10/28/11 | | | 563,492 | | | | 581,492 | |
| Ford Motor Credit Co. LLC, 3.984%, 2022 | | 10/28/11 | | | 636,198 | | | | 657,082 | |
| G-Force LLC, CDO, “A2”, 4.83%, 2036 | | 1/20/11 | | | 577,787 | | | | 568,109 | |
| GMAC LLC, FRN, 6.02%, 2033 | | 3/20/02 | | | 187,170 | | | | 324,627 | |
| Prudential Securities Secured Financing Corp., FRN, 7.266%, 2013 | | 12/06/04 | | | 573,983 | | | | 564,971 | |
| Spirit Master Funding LLC, 5.05%, 2023 | | 10/04/05 | | | 318,787 | | | | 301,062 | |
| System Energy Resources, Inc., 5.129%, 2014 | | 4/16/04-9/08/04 | | | 227,500 | | | | 232,177 | |
| Total Restricted Securities | | | | | | | | | $6,440,643 | |
| % of Net Assets | | | | | | | | | 2.3% | |
8
MFS Bond Portfolio
Portfolio of Investments (unaudited) – continued
The following abbreviations are used in this report and are defined:
| CDO | | Collateralized Debt Obligation |
| CLO | | Collateralized Loan Obligation |
| FRN | | Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end. |
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
Derivative Contracts at 6/30/12
Swap Agreements at 6/30/12
| | | | | | | | | | | | | | | | | | |
| Expiration | | Notional Amount | | | Counterparty | | Cash Flows to
Receive | | Cash Flows
to Pay | | Fair Value | |
| Liability Derivatives | | | | | | | | | | | | | | | |
| Credit Default Swap Agreements | | | | | | | | |
| 12/20/12 | | | USD | | | | 910,000 | | | Merrill Lynch International | | 1.00% (fixed rate) | | (1) | | | $(76,433 | ) |
| | | | | | | | | | | | | | | | | | |
| (1) | | Fund, as protection seller, to pay notional amount upon a defined credit event by MBIA, Inc., 7.0%, 12/15/25, a B rated bond. The fund entered into the contract to gain issuer exposure. |
| | | The credit ratings presented here are an indicator of the current payment/performance risk of the related swap agreement, the reference obligation for which may be either a single security or, in the case of a credit default index, a basket of securities issued by corporate or sovereign issuers. Ratings are assigned to each reference security, including each individual security within a reference basket of securities, utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). The ratings for a credit default index are calculated by MFS as a weighted average of the external credit ratings of the individual securities that compose the index’s reference basket of securities. |
At June 30, 2012, the fund had cash collateral of $290,000 to cover any commitments for certain derivative contracts. Cash collateral includes “Restricted cash” on the Statement of Assets and Liabilities.
See Notes to Financial Statements
9
MFS 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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $245,726,935) | | | $258,805,827 | | | | | |
Underlying affiliated funds, at cost and value | | | 15,012,291 | | | | | |
Total investments, at value (identified cost, $260,739,226) | | | $273,818,118 | | | | | |
Cash | | | 116,889 | | | | | |
Restricted cash | | | 290,000 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 1,789,556 | | | | | |
Fund shares sold | | | 40,096 | | | | | |
Interest | | | 3,658,612 | | | | | |
Other assets | | | 1,933 | | | | | |
Total assets | | | | | | | $279,715,204 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | $3,446,868 | | | | | |
Fund shares reacquired | | | 236,912 | | | | | |
Swaps, at value | | | 76,433 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 13,987 | | | | | |
Distribution and/or service fees | | | 3,754 | | | | | |
Payable for independent Trustees’ compensation | | | 18 | | | | | |
Accrued expenses and other liabilities | | | 40,344 | | | | | |
Total liabilities | | | | | | | $3,818,316 | |
Net assets | | | | | | | $275,896,888 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $242,192,984 | | | | | |
Unrealized appreciation (depreciation) on investments | | | 13,002,459 | | | | | |
Accumulated net realized gain (loss) on investments | | | 1,545,736 | | | | | |
Undistributed net investment income | | | 19,155,709 | | | | | |
Net assets | | | | | | | $275,896,888 | |
Shares of beneficial interest outstanding | | | | | | | 22,569,768 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $92,871,795 | | | | 7,543,574 | | | | $12.31 | |
Service Class | | | 183,025,093 | | | | 15,026,194 | | | | 12.18 | |
See Notes to Financial Statements
10
MFS 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 6/30/12 | | | | | | | | |
| Net investment income | | | | | | | | |
Income | | | | | | | | |
Interest | | | $6,841,641 | | | | | |
Dividends from underlying affiliated funds | | | 5,112 | | | | | |
Total investment income | | | | | | | $6,846,753 | |
Expenses | | | | | | | | |
Management fee | | | $795,635 | | | | | |
Distribution and/or service fees | | | 217,001 | | | | | |
Administrative services fee | | | 24,782 | | | | | |
Independent Trustees’ compensation | | | 6,813 | | | | | |
Custodian fee | | | 17,380 | | | | | |
Shareholder communications | | | 6,821 | | | | | |
Audit and tax fees | | | 30,603 | | | | | |
Legal fees | | | 2,196 | | | | | |
Miscellaneous | | | 10,565 | | | | | |
Total expenses | | | | | | | $1,111,796 | |
Fees paid indirectly | | | (60 | ) | | | | |
Reduction of expenses by investment adviser | | | (677 | ) | | | | |
Net expenses | | | | | | | $1,111,059 | |
Net investment income | | | | | | | $5,735,694 | |
Realized and unrealized gain (loss) on investments | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $3,976,125 | | | | | |
Swap agreements | | | 4,626 | | | | | |
Net realized gain (loss) on investments | | | | | | | $3,980,751 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $4,123,013 | | | | | |
Swap agreements | | | 60,013 | | | | | |
Net unrealized gain (loss) on investments | | | | | | | $4,183,026 | |
Net realized and unrealized gain (loss) on investments | | | | | | | $8,163,777 | |
Change in net assets from operations | | | | | | | $13,899,471 | |
See Notes to Financial Statements
11
MFS 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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $5,735,694 | | | | $11,853,807 | |
Net realized gain (loss) on investments | | | 3,980,751 | | | | 5,367,550 | |
Net unrealized gain (loss) on investments | | | 4,183,026 | | | | (1,643,723 | ) |
Change in net assets from operations | | | $13,899,471 | | | | $15,577,634 | |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(12,189,902 | ) |
Change in net assets from fund share transactions | | | $5,807,956 | | | | $10,240,192 | |
Total change in net assets | | | $19,707,427 | | | | $13,627,924 | |
| Net assets | | | | | | | | |
At beginning of period | | | 256,189,461 | | | | 242,561,537 | |
At end of period (including undistributed net investment income of $19,155,709 and
$13,420,015, respectively) | | | $275,896,888 | | | | $256,189,461 | |
See Notes to Financial Statements
12
MFS 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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $11.67 | | | | $11.49 | | | | $10.84 | | | | $9.11 | | | | $10.89 | | | | $11.19 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.27 | | | | $0.57 | | | | $0.58 | | | | $0.59 | | | | $0.57 | | | | $0.60 | |
Net realized and unrealized gain (loss) on investments | | | 0.37 | | | | 0.18 | | | | 0.57 | | | | 1.81 | | | | (1.64 | ) | | | (0.21 | ) |
Total from investment operations | | | $0.64 | | | | $0.75 | | | | $1.15 | | | | $2.40 | | | | $(1.07 | ) | | | $0.39 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.57 | ) | | | $(0.50 | ) | | | $(0.67 | ) | | | $(0.71 | ) | | | $(0.69 | ) |
Net asset value, end of period (x) | | | $12.31 | | | | $11.67 | | | | $11.49 | | | | $10.84 | | | | $9.11 | | | | $10.89 | |
Total return (%) (k)(r)(s)(x) | | | 5.48 | (n) | | | 6.63 | | | | 10.86 | | | | 27.96 | | | | (10.53 | ) | | | 3.53 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.67 | (a) | | | 0.70 | | | | 0.72 | | | | 0.74 | | | | 0.74 | | | | 0.71 | |
Expenses after expense reductions (f) | | | 0.67 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 4.50 | (a) | | | 4.85 | | | | 5.17 | | | | 5.93 | | | | 5.64 | | | | 5.50 | |
Portfolio turnover | | | 33 | (n) | | | 55 | | | | 58 | | | | 71 | | | | 46 | | | | 42 | |
Net assets at end of period (000 omitted) | | | $92,872 | | | | $90,822 | | | | $95,584 | | | | $92,244 | | | | $70,504 | | | | $105,554 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $11.56 | | | | $11.40 | | | | $10.76 | | | | $9.04 | | | | $10.81 | | | | $11.11 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.25 | | | | $0.53 | | | | $0.55 | | | | $0.56 | | | | $0.54 | | | | $0.57 | |
Net realized and unrealized gain (loss) on investments | | | 0.37 | | | | 0.18 | | | | 0.57 | | | | 1.80 | | | | (1.63 | ) | | | (0.21 | ) |
Total from investment operations | | | $0.62 | | | | $0.71 | | | | $1.12 | | | | $2.36 | | | | $(1.09 | ) | | | $0.36 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.55 | ) | | | $(0.48 | ) | | | $(0.64 | ) | | | $(0.68 | ) | | | $(0.66 | ) |
Net asset value, end of period (x) | | | $12.18 | | | | $11.56 | | | | $11.40 | | | | $10.76 | | | | $9.04 | | | | $10.81 | |
Total return (%) (k)(r)(s)(x) | | | 5.36 | (n) | | | 6.30 | | | | 10.67 | | | | 27.66 | | | | (10.77 | ) | | | 3.28 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.92 | (a) | | | 0.95 | | | | 0.97 | | | | 0.99 | | | | 0.99 | | | | 0.96 | |
Expenses after expense reductions (f) | | | 0.92 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 4.23 | (a) | | | 4.59 | | | | 4.90 | | | | 5.64 | | | | 5.39 | | | | 5.25 | |
Portfolio turnover | | | 33 | (n) | | | 55 | | | | 58 | | | | 71 | | | | 46 | | | | 42 | |
Net assets at end of period (000 omitted) | | | $183,025 | | | | $165,367 | | | | $146,977 | | | | $96,293 | | | | $52,038 | | | | $77,588 | |
See Notes to Financial Statements
13
MFS Bond Portfolio
Financial Highlights – continued
| (d) | | Per share data is based on average shares outstanding. |
| (f) | | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | | Certain expenses have been reduced without which performance would have been lower. |
| (s) | | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | | The net asset values per share 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
14
MFS Bond Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Bond Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in high-yield securities rated below investment grade. Investments in high-yield securities involve greater degrees of credit and market risk than investments in higher-rated securities and tend to be more sensitive to economic conditions. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Swap agreements are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
15
MFS Bond Portfolio
Notes to Financial Statements (unaudited) – continued
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as swap agreements. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Non-U.S. Sovereign Debt | | | $— | | | | $7,643,924 | | | | $— | | | | $7,643,924 | |
| Corporate Bonds | | | — | | | | 203,979,141 | | | | — | | | | 203,979,141 | |
| Residential Mortgage-Backed Securities | | | — | | | | 69,754 | | | | — | | | | 69,754 | |
| Commercial Mortgage-Backed Securities | | | — | | | | 3,854,522 | | | | — | | | | 3,854,522 | |
| Asset-Backed Securities (including CDOs) | | | — | | | | 2,719,464 | | | | — | | | | 2,719,464 | |
| Foreign Bonds | | | — | | | | 40,539,022 | | | | — | | | | 40,539,022 | |
| Mutual Funds | | | 15,012,291 | | | | — | | | | — | | | | 15,012,291 | |
| Total Investments | | | $15,012,291 | | | | $258,805,827 | | | | $— | | | | $273,818,118 | |
| | | | |
| Other Financial Instruments | | | | | | | | | | | | |
| Swap Agreements | | | $— | | | | $(76,433 | ) | | | $— | | | | $(76,433 | ) |
For further information regarding security characteristics, see the Portfolio of Investments.
Derivatives – The fund uses derivatives for different purposes, 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 were swap agreements. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract Tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2012 as reported in the Statement of Assets and Liabilities:
| | | | | | |
| | | | | Fair Value | |
| Risk | | Derivative Contracts | | Liability Derivatives | |
| Credit | | Credit Default Swaps | | | $(76,433 | ) |
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, 2012 as reported in the Statement of Operations:
| | | | |
| Risk | | Swap
Agreements | |
| Credit | | | $4,626 | |
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | |
| Risk | | Swap
Agreements | |
| Credit | | | $60,013 | |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or
16
MFS Bond Portfolio
Notes to Financial Statements (unaudited) – continued
a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as “Restricted cash.” Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.
Swap Agreements – The fund entered into swap agreements. A swap agreement is generally an exchange of cash payments, at specified intervals or upon the occurrence of specified events, between the fund and a counterparty. The net cash payments exchanged are recorded as a realized gain or loss on swap agreements in the Statement of Operations. The value of the swap agreement, which is adjusted daily and includes any related interest accruals to be paid or received by the fund, is recorded on the Statement of Assets and Liabilities. The daily change in value, including any related interest accruals to be paid or received, is recorded as unrealized appreciation or depreciation on swap agreements in the Statement of Operations. Amounts paid or received at the inception of the swap agreement are reflected as premiums paid or received on the Statement of Assets and Liabilities and are amortized using the effective interest method over the term of the agreement. A liquidation payment received or made upon early termination is recorded as a realized gain or loss on swap agreements in the Statement of Operations.
Risks related to swap agreements include the possible lack of a liquid market, unfavorable market and interest rate movements of the underlying instrument and the failure of the counterparty to perform under the terms of the agreements. To address counterparty risk, swap agreements are limited to only highly-rated counterparties. The risk is further mitigated by having an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
The fund entered into credit default 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 based on a fixed percentage applied to the agreement notional amount to the protection seller in exchange for the right to receive a specified return upon the occurrence of a defined credit event on the reference obligation (which may be either a single security or a basket of securities issued by corporate or sovereign issuers) and, with respect to the rare cases where physical settlement applies, the delivery by the buyer to the seller of a defined deliverable obligation. Although 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.
Credit default swap agreements are considered to have credit-risk-related contingent features since they trigger payment by the protection seller to the protection buyer upon the occurrence of a defined credit event. The aggregate fair value of credit default swap agreements in a net liability position as of June 30, 2012 is disclosed in the footnotes to the Portfolio of Investments. As discussed earlier in this note, collateral requirements for these swap agreements are based generally on the market value of the swap agreement netted against collateral requirements for other types of over-the-counter derivatives traded under each counterparty’s ISDA Master Agreement. The maximum amount of future, undiscounted payments that the fund, as protection seller, could be required to make is equal to the swap agreement’s notional amount. The protection seller’s payment obligation would be offset to the extent of the value of the agreement’s deliverable obligation. If a defined credit event had occurred as of June 30, 2012, the swap agreement’s credit-risk-related contingent features would have been triggered and, for those swap agreements in a net liability position for which the fund is the protection seller, the fund in order to settle these swap agreements would have been required to either (1) pay the swap agreement’s notional value of $910,000 less the value of the agreements’ related deliverable obligations as
17
MFS Bond Portfolio
Notes to Financial Statements (unaudited) – continued
decided through an ISDA auction or (2) pay the notional value of the swap agreements in return for physical receipt of the deliverable obligations.
The fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the agreement. This risk is mitigated by having an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
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. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date. Debt obligations may be placed on non-accrual status or set to accrue at a rate of interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by the write-off of the related interest receivables when deemed uncollectible.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to amortization and accretion of debt securities and derivative transactions.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $12,189,902 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $262,547,212 | |
| Gross appreciation | | | 13,816,061 | |
| Gross depreciation | | | (2,545,155 | ) |
| Net unrealized appreciation (depreciation) | | | $11,270,906 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 13,340,627 | |
| Capital loss carryforwards | | | (715,383 | ) |
| Other temporary differences | | | (57,361 | ) |
| Net unrealized appreciation (depreciation) | | | 7,236,550 | |
18
MFS Bond Portfolio
Notes to Financial Statements (unaudited) – continued
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/16 | | | $(267,263 | ) |
| 12/31/17 | | | (448,120 | ) |
| Total | | | $(715,383 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $4,438,708 | |
| Service Class | | | — | | | | 7,751,194 | |
| Total | | | $— | | | | $12,189,902 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.60% | |
| Average daily net assets in excess of $1 billion | | | 0.50% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.60% of the fund’s average daily net assets.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 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
19
MFS Bond Portfolio
Notes to Financial Statements (unaudited) – continued
to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $1,320 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $677, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than purchased option transactions and short-term obligations, were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
| U.S. Government securities | | | $— | | | | $29,666 | |
| Investments (non-U.S. Government securities) | | | $86,477,275 | | | | $85,520,737 | |
| (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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 301,040 | | | | $3,640,880 | | | | 598,989 | | | | $7,091,720 | |
Service Class | | | 2,423,010 | | | | 29,176,591 | | | | 3,224,003 | | | | 37,338,728 | |
| | | 2,724,050 | | | | $32,817,471 | | | | 3,822,992 | | | | $44,430,448 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 386,647 | | | | $4,438,708 | |
Service Class | | | — | | | | — | | | | 680,526 | | | | 7,751,194 | |
| | | — | | | | $— | | | | 1,067,173 | | | | $12,189,902 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (541,941 | ) | | | $(6,538,257 | ) | | | (1,518,031 | ) | | | $(17,713,423 | ) |
Service Class | | | (1,705,467 | ) | | | (20,471,258 | ) | | | (2,492,911 | ) | | | (28,666,735 | ) |
| | | (2,247,408 | ) | | | $(27,009,515 | ) | | | (4,010,942 | ) | | | $(46,380,158 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (240,901 | ) | | | $(2,897,377 | ) | | | (532,395 | ) | | | $(6,182,995 | ) |
Service Class | | | 717,543 | | | | 8,705,333 | | | | 1,411,618 | | | | 16,423,187 | |
| | | 476,642 | | | | $5,807,956 | | | | 879,223 | | | | $10,240,192 | |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $866 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
20
MFS Bond Portfolio
Notes to Financial Statements (unaudited) – continued
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 1,192,839 | | | | 71,910,970 | | | | (58,091,518 | ) | | | 15,012,291 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $5,112 | | | | $15,012,291 | |
21
MFS Bond Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
22
SEMIANNUAL REPORT
June 30, 2012
MFS® UTILITIES PORTFOLIO
MFS® Variable Insurance Trust II
UTS-SEM
MFS® UTILITIES PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Utilities Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Utilities Portfolio
PORTFOLIO COMPOSITION
Portfolio structure (i)
| | | | |
| Top ten holdings (i) | | | | |
| Comcast Corp., “Special A” | | | 4.0% | |
| Virgin Media, Inc. | | | 3.6% | |
| CMS Energy Corp. | | | 3.0% | |
| Williams Cos., Inc. | | | 3.0% | |
| Edison International | | | 2.7% | |
| Kinder Morgan, Inc. | | | 2.6% | |
| Energias de Portugal S.A. | | | 2.4% | |
| Public Service Enterprise Group, Inc. | | | 2.3% | |
| AES Corp. | | | 2.2% | |
| Calpine Corp. | | | 2.1% | |
| | | | |
| Top five industries (i) | | | | |
| Utilities-Electric Power | | | 46.6% | |
| Cable TV | | | 12.2% | |
| Telephone Services | | | 10.3% | |
| Natural Gas – Pipeline | | | 9.2% | |
| Telecommunications – Wireless | | | 7.1% | |
| |
| Issuer country weightings (i)(x) | | | | |
| United States | | | 67.1% | |
| Brazil | | | 7.4% | |
| United Kingdom | | | 4.2% | |
| Spain | | | 4.2% | |
| Portugal | | | 3.5% | |
| Germany | | | 2.9% | |
| Czech Republic | | | 1.5% | |
| Chile | | | 1.4% | |
| Italy | | | 1.3% | |
| Other Countries | | | 6.5% | |
| (i) | For purposes of this presentation, the components include the market value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. The bond component will include any accrued interest amounts. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. |
Percentages are based on net assets as of 6/30/12.
The portfolio is actively managed and current holdings may be different.
2
MFS Utilities Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders During the Period,
January 1, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.84% | | | | $1,000.00 | | | | $1,051.48 | | | | $4.28 | |
| | Hypothetical (h) | | | 0.84% | | | | $1,000.00 | | | | $1,020.69 | | | | $4.22 | |
| Service Class | | Actual | | | 1.09% | | | | $1,000.00 | | | | $1,050.23 | | | | $5.56 | |
| | Hypothetical (h) | | | 1.09% | | | | $1,000.00 | | | | $1,019.44 | | | | $5.47 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Utilities Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 91.0% | | | | | |
| Broadcasting – 0.7% | | | | | |
| Viacom, Inc., “B” | | | 45,650 | | | $ | 2,146,463 | |
| | | | | | | | |
| Cable TV – 11.5% | | | | | |
| Charter Communications, Inc., “A” (a) | | | 6,880 | | | $ | 487,586 | |
| Comcast Corp., “Special A” | | | 378,470 | | | | 11,883,958 | |
| Liberty Global, Inc., “A” (a) | | | 56,830 | | | | 2,820,473 | |
| Telenet Group Holding N.V. | | | 50,176 | | | | 2,190,670 | |
| Time Warner Cable, Inc. | | | 75,529 | | | | 6,200,931 | |
| Virgin Media, Inc. | | | 446,280 | | | | 10,884,769 | |
| | | | | | | | |
| | | | | | $ | 34,468,387 | |
| | | | | | | | |
| Energy – Independent – 5.1% | | | | | |
| Cabot Oil & Gas Corp. | | | 35,470 | | | $ | 1,397,518 | |
| Energen Corp. | | | 37,660 | | | | 1,699,596 | |
| EQT Corp. | | | 83,980 | | | | 4,503,847 | |
| Occidental Petroleum Corp. | | | 19,470 | | | | 1,669,942 | |
| QEP Resources, Inc. | | | 124,070 | | | | 3,718,378 | |
| WPX Energy, Inc. (a) | | | 145,434 | | | | 2,353,122 | |
| | | | | | | | |
| | | | | | $ | 15,342,403 | |
| | | | | | | | |
| Natural Gas – Distribution – 5.8% | | | | | |
| AGL Resources, Inc. | | | 36,000 | | | $ | 1,395,000 | |
| Atmos Energy Corp. | | | 9,370 | | | | 328,606 | |
| GDF SUEZ | | | 149,775 | | | | 3,573,470 | |
| NiSource, Inc. | | | 44,550 | | | | 1,102,613 | |
| ONEOK, Inc. | | | 17,630 | | | | 745,925 | |
| Sempra Energy | | | 87,900 | | | | 6,054,552 | |
| Spectra Energy Corp. | | | 143,640 | | | | 4,174,178 | |
| | | | | | | | |
| | | | | | $ | 17,374,344 | |
| | | | | | | | |
| Natural Gas – Pipeline – 8.7% | | | | | |
| El Paso Pipeline Partners LP | | | 12,970 | | | $ | 438,386 | |
| Enagas S.A. | | | 239,695 | | | | 4,373,980 | |
| Kinder Morgan, Inc. | | | 245,326 | | | | 7,904,404 | |
| Williams Cos., Inc. | | | 311,197 | | | | 8,968,698 | |
| Williams Partners LP | | | 88,270 | | | | 4,611,225 | |
| | | | | | | | |
| | | | | | $ | 26,296,693 | |
| | | | | | | | |
| Oil Services – 0.1% | | | | | |
| Cheniere Energy, Inc. (a) | | | 23,410 | | | $ | 345,063 | |
| | | | | | | | |
| Telecommunications – Wireless – 6.4% | | | | | |
| American Tower Corp., REIT | | | 45,290 | | | $ | 3,166,224 | |
| Cellcom Israel Ltd. | | | 120,522 | | | | 735,184 | |
| KDDI Corp. | | | 24 | | | | 154,808 | |
| Mobile TeleSystems OJSC, ADR | | | 133,860 | | | | 2,302,392 | |
| NII Holdings, Inc. (a) | | | 37,610 | | | | 384,750 | |
| SBA Communications Corp. (a) | | | 45,550 | | | | 2,598,628 | |
| TIM Participacoes S.A., ADR | | | 177,847 | | | | 4,883,679 | |
| Vodafone Group PLC | | | 1,742,489 | | | | 4,895,760 | |
| | | | | | | | |
| | | | | | $ | 19,121,425 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Telephone Services – 10.3% | | | | | |
| Bezeq-The Israel Telecommunication Corp. Ltd. | | | 1,832,290 | | | $ | 1,938,817 | |
| CenturyLink, Inc. | | | 87,845 | | | | 3,468,999 | |
| China Unicom (Hong Kong) Ltd. | | | 268,000 | | | | 337,161 | |
| Crown Castle International Corp. (a) | | | 27,100 | | | | 1,589,686 | |
| Deutsche Telekom AG | | | 277,270 | | | | 3,041,721 | |
| Empresa Nacional de Telecomunicaciones S.A. | | | 115,297 | | | | 2,187,362 | |
| Frontier Communications Corp. (l) | | | 257,370 | | | | 985,727 | |
| Kabel Deutschland Holding AG (a) | | | 35,178 | | | | 2,189,223 | |
| PT XL Axiata Tbk. | | | 2,683,500 | | | | 1,757,096 | |
| TDC A.S. | | | 487,190 | | | | 3,386,401 | |
| Telecom Italia S.p.A. | | | 4,980,784 | | | | 4,006,540 | |
| Telefonica Brasil S.A., ADR | | | 171,396 | | | | 4,240,337 | |
| Ziggo N.V. | | | 56,460 | | | | 1,799,470 | |
| | | | | | | | |
| | | | | | $ | 30,928,540 | |
| | | | | | | | |
| Utilities – Electric Power – 42.4% | | | | | |
| AES Corp. (a) | | | 518,100 | | | $ | 6,647,223 | |
| Aguas Andinas S.A. | | | 1,885,045 | | | | 1,166,977 | |
| American Electric Power Co., Inc. | | | 90,460 | | | | 3,609,354 | |
| Calpine Corp. (a) | | | 379,260 | | | | 6,261,583 | |
| CenterPoint Energy, Inc. | | | 185,870 | | | | 3,841,933 | |
| CEZ A.S. | | | 126,205 | | | | 4,361,424 | |
| China Hydroelectric Corp., ADR (a) | | | 85,650 | | | | 60,392 | |
| China Longyuan Power Group | | | 174,000 | | | | 114,597 | |
| CMS Energy Corp. | | | 386,930 | | | | 9,092,855 | |
| Companhia de Saneamento Basico do Estado de Sao Paulo | | | 14,600 | | | | 559,721 | |
| Companhia de Saneamento de Minas Gerais – Copasa MG | | | 88,100 | | | | 1,908,066 | |
| Companhia Energetica de Minas Gerais, IPS | | | 80,625 | | | | 1,506,525 | |
| Companhia Paranaense de Energia, ADR | | | 62,650 | | | | 1,358,252 | |
| Companhia Paranaense de Energia, IPS | | | 83,200 | | | | 1,830,939 | |
| E-CL S.A. | | | 399,540 | | | | 952,593 | |
| E.ON AG | | | 80,303 | | | | 1,729,762 | |
| E.On Russia JSC | | | 5,010,603 | | | | 363,579 | |
| Edison International | | | 174,910 | | | | 8,080,842 | |
| EDP Renovaveis S.A. (a) | | | 901,079 | | | | 3,087,724 | |
| Enel OGK-5 OAO (a) | | | 5,282,896 | | | | 271,615 | |
| Energias de Portugal S.A. | | | 3,107,729 | | | | 7,341,694 | |
| Energias do Brasil S.A. | | | 330,900 | | | | 2,123,625 | |
| FirstEnergy Corp. | | | 58,540 | | | | 2,879,583 | |
| GenOn Energy, Inc. (a) | | | 1,138,890 | | | | 1,947,502 | |
| Great Plains Energy, Inc. | | | 96,250 | | | | 2,060,713 | |
| Iberdrola S.A. | | | 803,836 | | | | 3,806,078 | |
| ITC Holdings Corp. | | | 38,230 | | | | 2,634,429 | |
| Light S.A. | | | 184,780 | | | | 2,281,575 | |
| National Grid PLC | | | 323,151 | | | | 3,418,728 | |
| NextEra Energy, Inc. | | | 82,580 | | | | 5,682,330 | |
| Northeast Utilities | | | 84,930 | | | | 3,296,133 | |
| NRG Energy, Inc. (a) | | | 264,166 | | | | 4,585,922 | |
4
MFS Utilities Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Utilities – Electric Power – continued | | | | | |
| NV Energy, Inc. | | | 96,450 | | | $ | 1,695,591 | |
| OGE Energy Corp. | | | 73,470 | | | | 3,805,011 | |
| PPL Corp. | | | 139,790 | | | | 3,887,560 | |
| Public Service Enterprise Group, Inc. | | | 214,420 | | | | 6,968,650 | |
| Red Electrica de Espana | | | 98,059 | | | | 4,276,320 | |
| RWE AG | | | 43,860 | | | | 1,792,950 | |
| SSE PLC | | | 144,587 | | | | 3,149,851 | |
| SUEZ Environnement | | | 27,780 | | | | 299,038 | |
| TGK International GmbH | | | 1,035,209,542 | | | | 219,464 | |
| Tractebel Energia S.A. | | | 87,500 | | | | 1,618,434 | |
| United Utilities Group PLC | | | 58,531 | | | | 619,291 | |
| | | | | | | | |
| | | | | | $ | 127,196,428 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $272,930,887) | | | $ | 273,219,746 | |
| | | | | | | | |
| |
| BONDS – 1.7% | | | | | |
| Asset-Backed & Securitized – 0.0% | | | | | |
| Falcon Franchise Loan LLC, FRN, 5.541%, 2023 (i)(z) | | $ | 195,736 | | | $ | 18,634 | |
| | | | | | | | |
| Energy – Independent – 0.6% | | | | | |
Everest Acquisition LLC/Everest Acquisition Finance, Inc.,
9.375%, 2020 (n) | | $ | 1,675,000 | | | $ | 1,735,719 | |
| | | | | | | | |
| Utilities – Electric Power – 1.1% | | | | | |
| GenOn Energy, Inc., 9.875%, 2020 | | $ | 2,130,000 | | | $ | 2,076,750 | |
| NRG Energy, Inc., 7.875%, 2021 | | | 795,000 | | | | 802,950 | |
| Viridian Group FundCo II, 11.125%, 2017 (z) | | | 480,000 | | | | 441,600 | |
| | | | | | | | |
| | | | | | $ | 3,321,300 | |
| | | | | | | | |
Total Bonds
(Identified Cost, $5,007,003) | | | $ | 5,075,653 | |
| | | | | | | | |
|
| CONVERTIBLE PREFERRED STOCKS – 3.1% | |
| Utilities – Electric Power – 3.1% | | | | | |
| NextEra Energy, Inc., 7% | | | 54,650 | | | $ | 2,993,181 | |
| PPL Corp., 9.5% | | | 58,420 | | | | 3,090,418 | |
| PPL Corp., 8.75% | | | 58,920 | | | | 3,150,452 | |
| | | | | | | | |
Total Convertible Preferred Stocks
(Identified Cost, $9,040,246) | | | $ | 9,234,051 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | |
| Issuer | | Strike
Price | | | First
Exercise | | | Shares/Par | | | Value ($) | |
| | | | | | | | | | | | | | | | |
| WARRANTS – 0.1% | | | | | | | | | |
| Natural Gas – Pipeline – 0.1% | | | | | | | | | |
| Kinder Morgan, Inc. (1 share for 1 warrant) (Identified Cost, $228,674) (a) | | $ | 40 | | | | 2/15/12 | | | | 120,039 | | | $ | 259,284 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| |
| CONVERTIBLE BONDS – 1.4% | | | | | |
| Cable TV – 0.7% | | | | | | | | |
| Virgin Media, Inc., 6.5%, 2016 | | $ | 1,406,000 | | | $ | 2,101,970 | |
| | | | | | | | |
| Telecommunications – Wireless – 0.7% | | | | | |
| SBA Communications Corp., 4%, 2014 | | $ | 1,084,000 | | | $ | 2,090,765 | |
| | | | | | | | |
Total Convertible Bonds
(Identified Cost, $2,840,444) | | | $ | 4,192,735 | |
| | | | | | | | |
| |
| MONEY MARKET FUNDS – 1.9% | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 5,714,140 | | | $ | 5,714,140 | |
| | | | | | | | |
|
| COLLATERAL FOR SECURITIES LOANED – 0.2% | |
| Navigator Securities Lending Prime Portfolio, 0.28%, at Cost and Net Asset Value (j) | | | 657,376 | | | $ | 657,376 | |
| | | | | | | | |
Total Investments
(Identified Cost, $296,418,770) | | | $ | 298,352,985 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 0.6% | | | | 1,688,054 | |
| | | | | | | | |
| Net Assets – 100.0% | | | $ | 300,041,039 | |
| | | | | | | | |
5
MFS Utilities Portfolio
Portfolio of Investments (unaudited) – continued
| (a) | | Non-income producing security. |
| (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. |
| (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 $1,735,719, representing 0.6% of net assets. |
| (v) | | Underlying affiliated fund 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 | |
| Falcon Franchise Loan LLC, FRN, 5.541%, 2023 | | 1/18/02 | | | $9,875 | | | | $18,634 | |
| Viridian Group FundCo II, 11.125%, 2017 | | 5/01/12 | | | 465,024 | | | | 441,600 | |
| Total Restricted Securities | | | | | | | | | $460,234 | |
| % of Net Assets | | | | | | | | | 0.2% | |
The following abbreviations are used in this report and are defined:
| ADR | | American Depositary Receipt |
| FRN | | Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end. |
| IPS | | International Preference Stock |
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
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:
6
MFS Utilities Portfolio
Portfolio of Investments (unaudited) – continued
Derivative Contracts at 6/30/12
Forward Foreign Currency Exchange Contracts at 6/30/12
| | | | | | | | | | | | | | | | | | | | | | | | |
Type | | Currency | | | Counterparty | | Contracts to
Deliver/Receive | | Settlement Date
Range | | In Exchange For | | | Contracts
at Value | | | Net Unrealized
Appreciation
(Depreciation) | |
| Asset Derivatives | | | | | | | | | | | | | | | | | | | |
| SELL | | | | | BRL | | | UBS AG | | 7,934,678 | | 8/02/12 | | $ | 3,928,059 | | | $ | 3,925,207 | | | $ | 2,852 | |
| BUY | | | | | EUR | | | Barclays Bank PLC | | 123 | | 7/13/12 | | | 154 | | | | 156 | | | | 2 | |
| BUY | | | | | EUR | | | Credit Suisse Group | | 33,586 | | 7/13/12 | | | 41,795 | | | | 42,506 | | | | 711 | |
| BUY | | | | | EUR | | | Deutsche Bank AG | | 68,610 | | 7/13/12 | | | 84,847 | | | | 86,832 | | | | 1,985 | |
| BUY | | | | | EUR | | | Merrill Lynch International Bank | | 51,426 | | 7/13/12 | | | 64,473 | | | | 65,084 | | | | 611 | |
| BUY | | | | | EUR | | | UBS AG | | 146,694 | | 7/13/12 | | | 184,406 | | | | 185,656 | | | | 1,250 | |
| SELL | | | | | EUR | | | Barclays Bank PLC | | 874,156 | | 7/13/12 | | | 1,127,547 | | | | 1,106,331 | | | | 21,216 | |
| SELL | | | | | EUR | | | Citibank N.A. | | 1,121,744 | | 7/13/12 | | | 1,470,280 | | | | 1,419,678 | | | | 50,602 | |
| SELL | | | | | EUR | | | Credit Suisse Group | | 1,735,748 | | 7/13/12 | | | 2,272,914 | | | | 2,196,761 | | | | 76,153 | |
| SELL | | | | | EUR | | | Deutsche Bank AG | | 565,395 | | 7/13/12 | | | 729,319 | | | | 715,563 | | | | 13,756 | |
| SELL | | | | | EUR | | | JPMorgan Chase Bank N.A. | | 805,953 | | 7/13/12 | | | 1,053,767 | | | | 1,020,013 | | | | 33,754 | |
| SELL | | | | | EUR | | | Merrill Lynch International Bank | | 928,226 | | 7/13/12 | | | 1,215,483 | | | | 1,174,763 | | | | 40,720 | |
| SELL | | | | | EUR | | | UBS AG | | 1,147,863 | | 7/13/12 | | | 1,504,257 | | | | 1,452,735 | | | | 51,522 | |
| SELL | | | | | GBP | | | Barclays Bank PLC | | 4,138,880 | | 7/13/12 | | | 6,565,372 | | | | 6,481,951 | | | | 83,421 | |
| SELL | | | | | GBP | | | Citibank N.A. | | 70,013 | | 7/13/12 | | | 113,880 | | | | 109,649 | | | | 4,231 | |
| SELL | | | | | GBP | | | Deutsche Bank AG | | 4,051,600 | | 7/13/12 | | | 6,420,502 | | | | 6,345,261 | | | | 75,241 | |
| SELL | | | | | GBP | | | JPMorgan Chase Bank N.A. | | 21,694 | | 7/13/12 | | | 33,982 | | | | 33,975 | | | | 7 | |
| SELL | | | | | GBP | | | UBS AG | | 120,134 | | 7/13/12 | | | 192,077 | | | | 188,143 | | | | 3,934 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | 461,968 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Liability Derivatives | | | | | | | | | | | | | | | | | | | |
| BUY | | | | | BRL | | | UBS AG | | 1,305,000 | | 8/02/12 | | $ | 646,040 | | | $ | 645,571 | | | $ | (469 | ) |
| BUY | | | | | EUR | | | Barclays Bank PLC | | 53,656 | | 7/13/12 | | | 69,483 | | | | 67,907 | | | | (1,576 | ) |
| BUY | | | | | EUR | | | Credit Suisse Group | | 19,884 | | 7/13/12 | | | 25,772 | | | | 25,165 | | | | (607 | ) |
| BUY | | | | | EUR | | | Deutsche Bank AG | | 519,657 | | 7/13/12 | | | 686,549 | | | | 657,677 | | | | (28,872 | ) |
| BUY | | | | | EUR | | | Goldman Sachs International | | 47,592 | | 7/13/12 | | | 61,197 | | | | 60,233 | | | | (964 | ) |
| BUY | | | | | EUR | | | UBS AG | | 455,948 | | 7/13/12 | | | 591,901 | | | | 577,048 | | | | (14,853 | ) |
| SELL | | | | | EUR | | | Barclays Bank PLC | | 231,831 | | 7/13/12 | | | 290,515 | | | | 293,405 | | | | (2,890 | ) |
| SELL | | | | | EUR | | | Citibank N.A. | | 362 | | 7/13/12 | | | 455 | | | | 458 | | | | (3 | ) |
| SELL | | | | | EUR | | | Credit Suisse Group | | 318,737 | | 7/13/12 | | | 398,414 | | | | 403,393 | | | | (4,979 | ) |
| SELL | | | | | EUR | | | Deutsche Bank AG | | 11,606 | | 7/13/12 | | | 14,499 | | | | 14,689 | | | | (190 | ) |
| SELL | | | | | EUR | | | JPMorgan Chase Bank N.A. | | 226,800 | | 7/13/12 | | | 285,038 | | | | 287,038 | | | | (2,000 | ) |
| SELL | | | | | EUR | | | Merrill Lynch International Bank | | 215,691 | | 7/13/12 | | | 271,209 | | | | 272,979 | | | | (1,770 | ) |
| SELL | | | | | EUR | | | UBS AG | | 13,415,943 | | 7/13/12-9/17/12 | | | 16,754,846 | | | | 16,989,476 | | | | (234,630 | ) |
| BUY | | | | | GBP | | | Citibank N.A. | | 90,821 | | 7/13/12 | | | 146,712 | | | | 142,236 | | | | (4,476 | ) |
| SELL | | | | | GBP | | | Barclays Bank PLC | | 28,039 | | 7/13/12 | | | 43,909 | | | | 43,911 | | | | (2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | (298,281 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
See Notes to Financial Statements
7
MFS Utilities 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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $290,704,630) | | | $292,638,845 | | | | | |
Underlying affiliated funds, at cost and value | | | 5,714,140 | | | | | |
Total investments, at value, including $629,438 of securities on loan (identified cost, $296,418,770) | | | $298,352,985 | | | | | |
Foreign currency, at value (identified cost, $88,548) | | | 90,125 | | | | | |
Receivables for | | | | | | | | |
Forward foreign currency exchange contracts | | | 461,968 | | | | | |
Investments sold | | | 2,347,706 | | | | | |
Fund shares sold | | | 4,210 | | | | | |
Interest and dividends | | | 1,265,312 | | | | | |
Other assets | | | 2,231 | | | | | |
Total assets | | | | | | | $302,524,537 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Forward foreign currency exchange contracts | | | $298,281 | | | | | |
Investments purchased | | | 1,055,871 | | | | | |
Fund shares reacquired | | | 388,351 | | | | | |
Collateral for securities loaned, at value | | | 657,376 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 18,518 | | | | | |
Distribution and/or service fees | | | 2,497 | | | | | |
Payable for independent Trustees’ compensation | | | 32 | | | | | |
Accrued expenses and other liabilities | | | 62,572 | | | | | |
Total liabilities | | | | | | | $2,483,498 | |
Net assets | | | | | | | $300,041,039 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $272,906,902 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 2,105,431 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | 7,358,299 | | | | | |
Undistributed net investment income | | | 17,670,407 | | | | | |
Net assets | | | | | | | $300,041,039 | |
Shares of beneficial interest outstanding | | | | | | | 12,837,066 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $175,711,671 | | | | 7,481,221 | | | | $23.49 | |
Service Class | | | 124,329,368 | | | | 5,355,845 | | | | 23.21 | |
See Notes to Financial Statements
8
MFS Utilities 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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $6,641,022 | | | | | |
Interest | | | 262,739 | | | | | |
Dividends from underlying affiliated funds | | | 3,060 | | | | | |
Foreign taxes withheld | | | (465,771 | ) | | | | |
Total investment income | | | | | | | $6,441,050 | |
Expenses | | | | | | | | |
Management fee | | | $1,140,229 | | | | | |
Distribution and/or service fees | | | 159,590 | | | | | |
Administrative services fee | | | 27,805 | | | | | |
Independent Trustees’ compensation | | | 7,134 | | | | | |
Custodian fee | | | 63,661 | | | | | |
Shareholder communications | | | 7,861 | | | | | |
Audit and tax fees | | | 25,032 | | | | | |
Legal fees | | | 2,656 | | | | | |
Miscellaneous | | | 15,280 | | | | | |
Total expenses | | | | | | | $1,449,248 | |
Fees paid indirectly | | | (10 | ) | | | | |
Reduction of expenses by investment adviser | | | (789 | ) | | | | |
Net expenses | | | | | | | $1,448,449 | |
Net investment income | | | | | | | $4,992,601 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $13,222,323 | | | | | |
Foreign currency | | | 1,469,263 | | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $14,691,586 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $(3,640,322 | ) | | | | |
Translation of assets and liabilities in foreign currencies | | | (917,302 | ) | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $(4,557,624 | ) |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $10,133,962 | |
Change in net assets from operations | | | | | | | $15,126,563 | |
See Notes to Financial Statements
9
MFS Utilities Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | | | | | | | |
| |
| Six months ended
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $4,992,601 | | | | $11,390,882 | |
Net realized gain (loss) on investments and foreign currency | | | 14,691,586 | | | | 25,795,718 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | (4,557,624 | ) | | | (15,892,238 | ) |
Change in net assets from operations | | | $15,126,563 | | | | $21,294,362 | |
Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(10,670,058 | ) |
Change in net assets from fund share transactions | | | $(24,063,119 | ) | | | $(18,328,446 | ) |
Total change in net assets | | | $(8,936,556 | ) | | | $(7,704,142 | ) |
Net assets | | | | | | | | |
At beginning of period | | | 308,977,595 | | | | 316,681,737 | |
At end of period (including undistributed net investment income of $17,670,407 and
$12,677,806, respectively) | | | $300,041,039 | | | | $308,977,595 | |
See Notes to Financial Statements
10
MFS Utilities Portfolio
FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $22.34 | | | | $21.64 | | | | $19.61 | | | | $15.56 | | | | $29.51 | | | | $23.25 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.39 | | | | $0.83 | | | | $0.67 | | | | $0.69 | | | | $0.62 | | | | $0.58 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.76 | | | | 0.67 | | | | 1.98 | | | | 4.21 | | | | (9.78 | ) | | | 6.02 | |
Total from investment operations | | | $1.15 | | | | $1.50 | | | | $2.65 | | | | $4.90 | | | | $(9.16 | ) | | | $6.60 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.80 | ) | | | $(0.62 | ) | | | $(0.85 | ) | | | $(0.47 | ) | | | $(0.34 | ) |
From net realized gain on investments | | | — | | | | — | | | | — | | | | — | | | | (4.32 | ) | | | — | |
Total distributions declared to shareholders | | | $— | | | | $(0.80 | ) | | | $(0.62 | ) | | | $(0.85 | ) | | | $(4.79 | ) | | | $(0.34 | ) |
Net asset value, end of period (x) | | | $23.49 | | | | $22.34 | | | | $21.64 | | | | $19.61 | | | | $15.56 | | | | $29.51 | |
Total return (%) (k)(r)(s)(x) | | | 5.15 | (n) | | | 7.12 | | | | 13.90 | | | | 33.63 | | | | (37.16 | ) | | | 28.53 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.85 | (a) | | | 0.87 | | | | 0.88 | | | | 0.88 | | | | 0.86 | | | | 0.84 | |
Expenses after expense reductions (f) | | | 0.84 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 3.38 | (a) | | | 3.69 | | | | 3.43 | | | | 4.14 | | | | 2.73 | | | | 2.18 | |
Portfolio turnover | | | 25 | (n) | | | 52 | | | | 55 | | | | 70 | | | | 63 | | | | 90 | |
Net assets at end of period (000 omitted) | | | $175,712 | | | | $178,973 | | | | $191,566 | | | | $199,634 | | | | $178,805 | | | | $381,498 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $22.10 | | | | $21.42 | | | | $19.43 | | | | $15.41 | | | | $29.28 | | | | $23.09 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.35 | | | | $0.77 | | | | $0.62 | | | | $0.63 | | | | $0.57 | | | | $0.52 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.76 | | | | 0.66 | | | | 1.96 | | | | 4.18 | | | | (9.71 | ) | | | 5.97 | |
Total from investment operations | | | $1.11 | | | | $1.43 | | | | $2.58 | | | | $4.81 | | | | $(9.14 | ) | | | $6.49 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.75 | ) | | | $(0.59 | ) | | | $(0.79 | ) | | | $(0.41 | ) | | | $(0.30 | ) |
From net realized gain on investments | | | — | | | | — | | | | — | | | | — | | | | (4.32 | ) | | | — | |
Total distributions declared to shareholders | | | $— | | | | $(0.75 | ) | | | $(0.59 | ) | | | $(0.79 | ) | | | $(4.73 | ) | | | $(0.30 | ) |
Net asset value, end of period (x) | | | $23.21 | | | | $22.10 | | | | $21.42 | | | | $19.43 | | | | $15.41 | | | | $29.28 | |
Total return (%) (k)(r)(s)(x) | | | 5.02 | (n) | | | 6.84 | | | | 13.60 | | | | 33.27 | | | | (37.31 | ) | | | 28.24 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.10 | (a) | | | 1.12 | | | | 1.13 | | | | 1.13 | | | | 1.12 | | | | 1.08 | |
Expenses after expense reductions (f) | | | 1.09 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 3.12 | (a) | | | 3.43 | | | | 3.20 | | | | 3.81 | | | | 2.57 | | | | 1.93 | |
Portfolio turnover | | | 25 | (n) | | | 52 | | | | 55 | | | | 70 | | | | 63 | | | | 90 | |
Net assets at end of period (000 omitted) | | | $124,329 | | | | $130,005 | | | | $125,116 | | | | $115,435 | | | | $83,248 | | | | $126,288 | |
See Notes to Financial Statements
11
MFS Utilities Portfolio
Financial Highlights – continued
| (d) | | Per share data is based on average shares outstanding. |
| (f) | | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | | Certain expenses have been reduced without which performance would have been lower. |
| (s) | | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. Excluding the effect of the proceeds received from a non-recurring litigation settlement against Enron Corp., the Initial Class and Service Class total returns for the year ended December 31, 2008 would have been lower by approximately 1.01%. |
| (w) | | Per share amount was less than $0.01. |
| (x) | | The net asset values per share 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 Utilities Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Utilities Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests primarily in securities of issuers in the utility industry. Issuers in a single industry can react similarly to market, economic, political and regulatory conditions and developments. The fund invests in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a
13
MFS Utilities Portfolio
Notes to Financial Statements (unaudited) – continued
material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as forward foreign currency exchange contracts. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
United States | | | $184,499,794 | | | | $— | | | | $— | | | | $184,499,794 | |
Brazil | | | 22,311,153 | | | | — | | | | — | | | | 22,311,153 | |
Spain | | | — | | | | 12,456,378 | | | | — | | | | 12,456,378 | |
United Kingdom | | | 6,568,579 | | | | 5,515,051 | | | | — | | | | 12,083,630 | |
Portugal | | | — | | | | 10,429,418 | | | | — | | | | 10,429,418 | |
Germany | | | — | | | | 8,753,656 | | | | — | | | | 8,753,656 | |
Czech Republic | | | 4,361,424 | | | | — | | | | — | | | | 4,361,424 | |
Chile | | | 4,306,932 | | | | — | | | | — | | | | 4,306,932 | |
Italy | | | — | | | | 4,006,540 | | | | — | | | | 4,006,540 | |
Other Countries | | | 9,182,367 | | | | 10,321,789 | | | | — | | | | 19,504,156 | |
| Corporate Bonds | | | | | | | 8,808,154 | | | | | | | | 8,808,154 | |
| Commercial Mortgage-Backed Securities | | | — | | | | 18,634 | | | | — | | | | 18,634 | |
| Foreign Bonds | | | | | | | 441,600 | | | | | | | | 441,600 | |
| Mutual Funds | | | 6,371,516 | | | | — | | | | — | | | | 6,371,516 | |
| Total Investments | | | $237,601,765 | | | | $60,751,220 | | | | $— | | | | $298,352,985 | |
| | | | |
| Other Financial Instruments | | | | | | | | | | | | |
| Forward Foreign Currency Exchange Contracts | | | $— | | | | $163,687 | | | | $— | | | | $163,687 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 2 investments presented above, equity investments amounting to $17,853,185 would have been considered level 1 investments at the beginning of the period. Of the level 1 investments presented above, equity investments amounting to $2,190,670 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
14
MFS Utilities Portfolio
Notes to Financial Statements (unaudited) – continued
Derivatives – The fund uses derivatives for different purposes, 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 were forward foreign currency exchange contracts. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract Tables, generally are indicative of the volume of its derivative activity during the period.
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, 2012 as reported in the Statement of Assets and Liabilities:
| | | | | | | | | | |
| Risk | | Derivative Contracts | | Asset Derivatives | | | Liability Derivatives | |
| Foreign Exchange | | Forward Foreign Currency Exchange | | | $461,968 | | | | $(298,281 | ) |
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, 2012 as reported in the Statement of Operations:
| | | | |
| Risk | | Foreign Currency Transactions | |
| Foreign Exchange | | | $1,588,050 | |
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | |
| Risk | | Translation of Assets and Liabilities in Foreign Currencies | |
| Foreign Exchange | | | $(933,277 | ) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.
Forward Foreign Currency Exchange Contracts – The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
15
MFS Utilities Portfolio
Notes to Financial Statements (unaudited) – continued
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on foreign currency.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, an industry accepted settlement system. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to amortization and accretion of debt securities, wash sale loss deferrals, and derivative transactions.
16
MFS Utilities Portfolio
Notes to Financial Statements (unaudited) – continued
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $10,670,058 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $297,586,513 | |
| Gross appreciation | | | 32,113,020 | |
| Gross depreciation | | | (31,346,548 | ) |
| Net unrealized appreciation (depreciation) | | | $766,472 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 13,778,952 | |
| Capital loss carryforwards | | | (6,267,255 | ) |
| Other temporary differences | | | (12,628 | ) |
| Net unrealized appreciation (depreciation) | | | 4,508,505 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/17 | | | $(6,267,255 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $6,480,865 | |
| Service Class | | | — | | | | 4,189,193 | |
| Total | | | $— | | | | $10,670,058 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund.
The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $300 million of average daily net assets | | | 0.75% | |
| Average daily net assets in excess of $300 million | | | 0.675% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these
17
MFS Utilities Portfolio
Notes to Financial Statements (unaudited) – continued
participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0182% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $1,566 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $789, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $74,032,125 and $86,114,178, 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 88,054 | | | | $2,036,397 | | | | 195,064 | | | | $4,398,559 | |
Service Class | | | 109,981 | | | | 2,496,077 | | | | 1,112,704 | | | | 24,780,307 | |
| | | 198,035 | | | | $4,532,474 | | | | 1,307,768 | | | | $29,178,866 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 303,981 | | | | $6,480,865 | |
Service Class | | | — | | | | — | | | | 198,352 | | | | 4,189,193 | |
| | | — | | | | $— | | | | 502,333 | | | | $10,670,058 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (619,282 | ) | | | $(14,232,313 | ) | | | (1,339,096 | ) | | | $(30,204,101 | ) |
Service Class | | | (635,549 | ) | | | (14,363,280 | ) | | | (1,269,723 | ) | | | (27,973,269 | ) |
| | | (1,254,831 | ) | | | $(28,595,593 | ) | | | (2,608,819 | ) | | | $(58,177,370 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (531,228 | ) | | | $(12,195,916 | ) | | | (840,051 | ) | | | $(19,324,677 | ) |
Service Class | | | (525,568 | ) | | | (11,867,203 | ) | | | 41,333 | | | | 996,231 | |
| | | (1,056,796 | ) | | | $(24,063,119 | ) | | | (798,718 | ) | | | $(18,328,446 | ) |
18
MFS Utilities Portfolio
Notes to Financial Statements (unaudited) – continued
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $1,041 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 6,151,225 | | | | 41,586,935 | | | | (42,024,020 | ) | | | 5,714,140 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $3,060 | | | | $5,714,140 | |
19
MFS Utilities Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
20
SEMIANNUAL REPORT
June 30, 2012
MFS® GROWTH PORTFOLIO
MFS® Variable Insurance Trust II
EGS-SEM
MFS® GROWTH PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Growth Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Growth Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Apple, Inc. | | | 7.9% | |
| Google, Inc., “A” | | | 3.9% | |
| Danaher Corp. | | | 3.3% | |
| American Tower Corp., REIT | | | 2.6% | |
| EMC Corp. | | | 2.3% | |
| Precision Castparts Corp. | | | 2.0% | |
| Qualcomm, Inc. | | | 2.0% | |
| Visa, Inc., “A” | | | 1.9% | |
| MasterCard, Inc., “A” | | | 1.8% | |
| Target Corp. | | | 1.8% | |
| | | | |
| Equity sectors | | | | |
| Technology | | | 26.1% | |
| Health Care | | | 12.8% | |
| Leisure | | | 10.0% | |
| Retailing | | | 10.0% | |
| Industrial Goods & Services | | | 7.9% | |
| Consumer Staples | | | 6.9% | |
| Energy | | | 5.9% | |
| Financial Services | | | 4.8% | |
| Special Products & Services | | | 3.6% | |
| Utilities & Communications | | | 3.0% | |
| Transportation | | | 2.1% | |
| Basic Materials | | | 2.1% | |
| Autos & Housing | | | 2.0% | |
Percentages are based on net assets as of 6/30/12.
The portfolio is actively managed and current holdings may be different.
2
MFS Growth Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders During the Period,
January 1, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.84% | | | | $1,000.00 | | | | $1,090.99 | | | | $4.37 | |
| | Hypothetical (h) | | | 0.84% | | | | $1,000.00 | | | | $1,020.69 | | | | $4.22 | |
| Service Class | | Actual | | | 1.09% | | | | $1,000.00 | | | | $1,089.48 | | | | $5.66 | |
| | Hypothetical (h) | | | 1.09% | | | | $1,000.00 | | | | $1,019.44 | | | | $5.47 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Growth Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 97.2% | | | | | | | | |
| Aerospace – 3.0% | | | | | | | | |
| Honeywell International, Inc. | | | 26,530 | | | $ | 1,481,430 | |
| Precision Castparts Corp. | | | 18,555 | | | | 3,052,112 | |
| | | | | | | | |
| | | | | | $ | 4,533,542 | |
| | | | | | | | |
| Alcoholic Beverages – 1.4% | | | | | | | | |
| Diageo PLC | | | 85,112 | | | $ | 2,188,757 | |
| | | | | | | | |
| Apparel Manufacturers – 1.7% | | | | | | | | |
| LVMH Moet Hennessy Louis Vuitton S.A. | | | 5,077 | | | $ | 773,828 | |
| NIKE, Inc., “B” | | | 9,580 | | | | 840,932 | |
| VF Corp. | | | 7,304 | | | | 974,719 | |
| | | | | | | | |
| | | | | | $ | 2,589,479 | |
| | | | | | | | |
| Automotive – 1.2% | | | | | | | | |
| Johnson Controls, Inc. | | | 55,600 | | | $ | 1,540,676 | |
| LKQ Corp. (a) | | | 10,780 | | | | 360,052 | |
| | | | | | | | |
| | | | | | $ | 1,900,728 | |
| | | | | | | | |
| Biotechnology – 4.8% | | | | | | | | |
| Alexion Pharmaceuticals, Inc. (a) | | | 20,370 | | | $ | 2,022,741 | |
| Biogen Idec, Inc. (a) | | | 14,131 | | | | 2,040,234 | |
| Celgene Corp. (a) | | | 29,480 | | | | 1,891,437 | |
| Gilead Sciences, Inc. (a) | | | 26,770 | | | | 1,372,766 | |
| | | | | | | | |
| | | | | | $ | 7,327,178 | |
| | | | | | | | |
| Broadcasting – 4.9% | | | | | | | | |
| Discovery Communications, Inc., “A” (a) | | | 22,150 | | | $ | 1,196,100 | |
| News Corp., “A” | | | 100,280 | | | | 2,235,241 | |
| Viacom, Inc., “B” | | | 52,450 | | | | 2,466,199 | |
| Walt Disney Co. | | | 32,090 | | | | 1,556,365 | |
| | | | | | | | |
| | | | | | $ | 7,453,905 | |
| | | | | | | | |
| Brokerage & Asset Managers – 1.1% | | | | | |
| Affiliated Managers Group, Inc. (a) | | | 8,050 | | | $ | 881,073 | |
| BlackRock, Inc. | | | 4,450 | | | | 755,699 | |
| | | | | | | | |
| | | | | | $ | 1,636,772 | |
| | | | | | | | |
| Business Services – 2.9% | | | | | | | | |
| Cognizant Technology Solutions Corp., “A” (a) | | | 32,487 | | | $ | 1,949,220 | |
| FleetCor Technologies, Inc. (a) | | | 17,180 | | | | 601,987 | |
| Verisk Analytics, Inc., “A” (a) | | | 36,960 | | | | 1,820,650 | |
| | | | | | | | |
| | | | | | $ | 4,371,857 | |
| | | | | | | | |
| Cable TV – 1.5% | | | | | | | | |
| Comcast Corp., “Special A” | | | 72,184 | | | $ | 2,266,578 | |
| | | | | | | | |
| Chemicals – 0.4% | | | | | | | | |
| Monsanto Co. | | | 7,620 | | | $ | 630,784 | |
| | | | | | | | |
| Computer Software – 5.2% | | | | | | | | |
| Autodesk, Inc. (a) | | | 21,240 | | | $ | 743,188 | |
| Check Point Software Technologies Ltd. (a) | | | 40,060 | | | | 1,986,575 | |
| Citrix Systems, Inc. (a) | | | 16,850 | | | | 1,414,389 | |
| Oracle Corp. | | | 39,010 | | | | 1,158,597 | |
| Parametric Technology Corp. (a) | | | 25,850 | | | | 541,816 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | | | | |
| Computer Software – continued | | | | | | | | |
| Red Hat, Inc. (a) | | | 13,970 | | | $ | 789,026 | |
| Salesforce.com, Inc. (a) | | | 5,260 | | | | 727,248 | |
| VeriSign, Inc. (a) | | | 14,478 | | | | 630,806 | |
| | | | | | | | |
| | | | | | $ | 7,991,645 | |
| | | | | | | | |
| Computer Software – Systems – 11.0% | | | | | |
| Apple, Inc. (a) | | | 20,628 | | | $ | 12,046,752 | |
| EMC Corp. (a) | | | 136,780 | | | | 3,505,671 | |
| NetApp, Inc. (a) | | | 25,820 | | | | 821,592 | |
| Verifone Systems, Inc. (a) | | | 11,420 | | | | 377,888 | |
| | | | | | | | |
| | | | | | $ | 16,751,903 | |
| | | | | | | | |
| Construction – 0.8% | | | | | | | | |
| Stanley Black & Decker, Inc. | | | 18,510 | | | $ | 1,191,304 | |
| | | | | | | | |
| Consumer Products – 0.7% | | | | | | | | |
| Estee Lauder Cos., Inc., “A” | | | 20,310 | | | $ | 1,099,177 | |
| | | | | | | | |
| Consumer Services – 0.7% | | | | | | | | |
| Priceline.com, Inc. (a) | | | 1,505 | | | $ | 1,000,103 | |
| | | | | | | | |
| Electrical Equipment – 3.3% | | | | | | | | |
| Danaher Corp. | | | 95,510 | | | $ | 4,974,161 | |
| | | | | | | | |
| Electronics – 2.3% | | | | | | | | |
| Altera Corp. | | | 34,730 | | | $ | 1,175,263 | |
| ASML Holding N.V. | | | 14,015 | | | | 720,651 | |
| Broadcom Corp., “A” | | | 34,789 | | | | 1,175,868 | |
| Linear Technology Corp. | | | 15,290 | | | | 479,036 | |
| | | | | | | | |
| | | | | | $ | 3,550,818 | |
| | | | | | | | |
| Energy – Independent – 3.6% | | | | | | | | |
| Cabot Oil & Gas Corp. | | | 37,030 | | | $ | 1,458,982 | |
| EOG Resources, Inc. | | | 8,080 | | | | 728,089 | |
| EQT Corp. | | | 12,240 | | | | 656,431 | |
| Noble Energy, Inc. | | | 17,900 | | | | 1,518,278 | |
| Pioneer Natural Resources Co. | | | 5,497 | | | | 484,890 | |
| Range Resources Corp. | | | 11,560 | | | | 715,217 | |
| | | | | | | | |
| | | | | | $ | 5,561,887 | |
| | | | | | | | |
| Engineering – Construction – 0.3% | | | | | | | | |
| Fluor Corp. | | | 8,240 | | | $ | 406,562 | |
| | | | | | | | |
| Food & Beverages – 2.9% | | | | | | | | |
| General Mills, Inc. | | | 12,590 | | | $ | 485,219 | |
| Groupe Danone | | | 19,301 | | | | 1,197,211 | |
| Kraft Foods, Inc., “A” | | | 19,960 | | | | 770,855 | |
| Mead Johnson Nutrition Co., “A” | | | 24,530 | | | | 1,974,910 | |
| | | | | | | | |
| | | | | | $ | 4,428,195 | |
| | | | | | | | |
| Gaming & Lodging – 1.4% | | | | | | | | |
| Las Vegas Sands Corp. | | | 30,240 | | | $ | 1,315,138 | |
| Royal Caribbean Cruises Ltd. | | | 16,280 | | | | 423,768 | |
| Wynn Resorts Ltd. | | | 4,474 | | | | 464,043 | |
| | | | | | | | |
| | | | | | $ | 2,202,949 | |
| | | | | | | | |
4
MFS Growth Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | | | | |
| General Merchandise – 4.1% | | | | | | | | |
| Costco Wholesale Corp. | | | 22,584 | | | $ | 2,145,480 | |
| Dollar General Corp. (a) | | | 25,410 | | | | 1,382,050 | |
| Target Corp. | | | 46,685 | | | | 2,716,600 | |
| | | | | | | | |
| | | | | | $ | 6,244,130 | |
| | | | | | | | |
| Internet – 4.9% | | | | | | | | |
| Baidu, Inc., ADR (a) | | | 2,570 | | | $ | 295,499 | |
| eBay, Inc. (a) | | | 19,620 | | | | 824,236 | |
| Facebook, Inc., “A “ (a) | | | 13,510 | | | | 420,431 | |
| Google, Inc., “A” (a) | | | 10,136 | | | | 5,879,590 | |
| | | | | | | | |
| | | | | | $ | 7,419,756 | |
| | | | | | | | |
| Leisure & Toys – 0.5% | | | | | | | | |
| Polaris Industries, Inc. | | | 11,363 | | | $ | 812,227 | |
| | | | | | | | |
| Machinery & Tools – 0.9% | | | | | | | | |
| Joy Global, Inc. | | | 13,620 | | | $ | 772,663 | |
| Polypore International, Inc. (a) | | | 10,820 | | | | 437,020 | |
| United Rentals, Inc. (a) | | | 4,160 | | | | 141,606 | |
| | | | | | | | |
| | | | | | $ | 1,351,289 | |
| | | | | | | | |
| Medical & Health Technology & Services – 2.2% | |
| Catamaran Corp. (a) | | | 10,597 | | | $ | 1,051,328 | |
| Cerner Corp. (a) | | | 15,688 | | | | 1,296,770 | |
| Express Scripts Holding Co. (a) | | | 9,850 | | | | 549,926 | |
| IDEXX Laboratories, Inc. (a) | | | 5,160 | | | | 496,031 | |
| | | | | | | | |
| | | | | | $ | 3,394,055 | |
| | | | | | | | |
| Medical Equipment – 3.3% | | | | | | | | |
| Cooper Cos., Inc. | | | 4,880 | | | $ | 389,229 | |
| Covidien PLC | | | 40,197 | | | | 2,150,540 | |
| Thermo Fisher Scientific, Inc. | | | 48,654 | | | | 2,525,629 | |
| | | | | | | | |
| | | | | | $ | 5,065,398 | |
| | | | | | | | |
| Natural Gas – Pipeline – 0.4% | | | | | | | | |
| Kinder Morgan, Inc. | | | 17,050 | | | $ | 549,351 | |
| | | | | | | | |
| Network & Telecom – 2.7% | | | | | | | | |
| F5 Networks, Inc. (a) | | | 11,038 | | | $ | 1,098,943 | |
| Qualcomm, Inc. | | | 54,712 | | | | 3,046,364 | |
| | | | | | | | |
| | | | | | $ | 4,145,307 | |
| | | | | | | | |
| Oil Services – 2.3% | | | | | | | | |
| Cameron International Corp. (a) | | | 25,900 | | | $ | 1,106,189 | |
| Dresser-Rand Group, Inc. (a) | | | 23,780 | | | | 1,059,161 | |
| FMC Technologies, Inc. (a) | | | 15,550 | | | | 610,027 | |
| Schlumberger Ltd. | | | 11,663 | | | | 757,045 | |
| | | | | | | | |
| | | | | | $ | 3,532,422 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 3.7% | | | | | |
| MasterCard, Inc., “A” | | | 6,425 | | | $ | 2,763,457 | |
| Visa, Inc., “A” | | | 23,565 | | | | 2,913,341 | |
| | | | | | | | |
| | | | | | $ | 5,676,798 | |
| | | | | | | | |
| Pharmaceuticals – 2.5% | | | | | | | | |
| Abbott Laboratories | | | 24,300 | | | $ | 1,566,621 | |
| Allergan, Inc. | | | 23,753 | | | | 2,198,815 | |
| | | | | | | | |
| | | | | | $ | 3,765,436 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | | | | |
| Pollution Control – 0.4% | | | | | | | | |
| Stericycle, Inc. (a) | | | 6,610 | | | $ | 605,939 | |
| | | | | | | | |
| Railroad & Shipping – 1.3% | | | | | | | | |
| Kansas City Southern Co. | | | 12,360 | | | $ | 859,762 | |
| Union Pacific Corp. | | | 9,543 | | | | 1,138,575 | |
| | | | | | | | |
| | | | | | $ | 1,998,337 | |
| | | | | | | | |
| Restaurants – 1.7% | | | | | | | | |
| Starbucks Corp. | | | 32,830 | | | $ | 1,750,496 | |
| YUM! Brands, Inc. | | | 14,100 | | | | 908,322 | |
| | | | | | | | |
| | | | | | $ | 2,658,818 | |
| | | | | | | | |
| Specialty Chemicals – 1.7% | | | | | | | | |
| Airgas, Inc. | | | 14,350 | | | $ | 1,205,544 | |
| Praxair, Inc. | | | 12,131 | | | | 1,319,004 | |
| | | | | | | | |
| | | | | | $ | 2,524,548 | |
| | | | | | | | |
| Specialty Stores – 4.2% | | | | | | | | |
| PetSmart, Inc. | | | 20,070 | | | $ | 1,368,373 | |
| Ross Stores, Inc. | | | 41,664 | | | | 2,602,750 | |
| Tiffany & Co. | | | 14,990 | | | | 793,721 | |
| Tractor Supply Co. | | | 6,920 | | | | 574,775 | |
| Urban Outfitters, Inc. (a) | | | 38,602 | | | | 1,065,029 | |
| | | | | | | | |
| | | | | | $ | 6,404,648 | |
| | | | | | | | |
| Telecommunications – Wireless – 2.6% | | | | | |
| American Tower Corp., REIT | | | 57,405 | | | $ | 4,013,184 | |
| | | | | | | | |
| Tobacco – 1.9% | | | | | | | | |
| Lorillard, Inc. | | | 6,940 | | | $ | 915,733 | |
| Philip Morris International, Inc. | | | 23,430 | | | | 2,044,502 | |
| | | | | | | | |
| | | | | | $ | 2,960,235 | |
| | | | | | | | |
| Trucking – 0.8% | | | | | | | | |
| Expeditors International of Washington, Inc. | | | 31,765 | | | $ | 1,230,894 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $122,807,157) | | | | | | $ | 148,411,056 | |
| | | | | | | | |
| MONEY MARKET FUNDS – 3.1% | | | | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 4,757,024 | | | $ | 4,757,024 | |
| | | | | | | | |
Total Investments
(Identified Cost, $127,564,181) | | | | | | $ | 153,168,080 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – (0.3)% | | | | | | | (512,489 | ) |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 152,655,591 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (v) | | Underlying affiliated fund 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 |
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
See Notes to Financial Statements
5
MFS Growth Portfolio
FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | | | | | |
At 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $122,807,157) | | | $148,411,056 | | | | | |
Underlying affiliated funds, at cost and value | | | 4,757,024 | | | | | |
Total investments, at value (identified cost, $127,564,181) | | | $153,168,080 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 1,141,426 | | | | | |
Fund shares sold | | | 50,028 | | | | | |
Dividends | | | 115,676 | | | | | |
Other assets | | | 1,200 | | | | | |
Total assets | | | | | | | $154,476,410 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | $1,674,839 | | | | | |
Fund shares reacquired | | | 109,552 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 9,426 | | | | | |
Distribution and/or service fees | | | 262 | | | | | |
Payable for independent Trustees’ compensation | | | 16 | | | | | |
Accrued expenses and other liabilities | | | 26,724 | | | | | |
Total liabilities | | | | | | | $1,820,819 | |
Net assets | | | | | | | $152,655,591 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $134,127,308 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 25,603,882 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (7,112,673 | ) | | | | |
Undistributed net investment income | | | 37,074 | | | | | |
Net assets | | | | | | | $152,655,591 | |
Shares of beneficial interest outstanding | | | | | | | 6,344,989 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $139,560,324 | | | | 5,790,677 | | | | $24.10 | |
Service Class | | | 13,095,267 | | | | 554,312 | | | | 23.62 | |
See Notes to Financial Statements
6
MFS 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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $724,046 | | | | | |
Interest | | | 978 | | | | | |
Dividends from underlying affiliated funds | | | 1,724 | | | | | |
Foreign taxes withheld | | | (8,693 | ) | | | | |
Total investment income | | | | | | | $718,055 | |
Expenses | | | | | | | | |
Management fee | | | $590,347 | | | | | |
Distribution and/or service fees | | | 16,422 | | | | | |
Administrative services fee | | | 16,757 | | | | | |
Independent Trustees’ compensation | | | 3,575 | | | | | |
Custodian fee | | | 12,181 | | | | | |
Shareholder communications | | | 7,006 | | | | | |
Audit and tax fees | | | 25,039 | | | | | |
Legal fees | | | 1,304 | | | | | |
Miscellaneous | | | 8,754 | | | | | |
Total expenses | | | | | | | $681,385 | |
Fees paid indirectly | | | (1 | ) | | | | |
Reduction of expenses by investment adviser | | | (403 | ) | | | | |
Net expenses | | | | | | | $680,981 | |
Net investment income | | | | | | | $37,074 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $7,445,012 | | | | | |
Foreign currency | | | (648 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $7,444,364 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $6,123,498 | | | | | |
Translation of assets and liabilities in foreign currencies | | | (37 | ) | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $6,123,461 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $13,567,825 | |
Change in net assets from operations | | | | | | | $13,604,899 | |
See Notes to Financial Statements
7
MFS 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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income (loss) | | | $37,074 | | | | $(96,007 | ) |
Net realized gain (loss) on investments and foreign currency | | | 7,444,364 | | | | 12,622,529 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 6,123,461 | | | | (12,855,148 | ) |
Change in net assets from operations | | | $13,604,899 | | | | $(328,626 | ) |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(249,547 | ) |
Change in net assets from fund share transactions | | | $(9,179,953 | ) | | | $(22,045,795 | ) |
Total change in net assets | | | $4,424,946 | | | | $(22,623,968 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 148,230,645 | | | | 170,854,613 | |
At end of period (including undistributed net investment income of $37,074 and
$0, respectively) | | | $152,655,591 | | | | $148,230,645 | |
See Notes to Financial Statements
8
MFS 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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $22.09 | | | | $22.23 | | | | $19.21 | | | | $13.99 | | | | $22.37 | | | | $18.45 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) (d) | | | $0.01 | | | | $(0.01 | ) | | | $0.04 | | | | $0.02 | | | | $0.04 | | | | $0.04 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 2.00 | | | | (0.09 | ) | | | 3.00 | | | | 5.24 | | | | (8.37 | ) | | | 3.88 | |
Total from investment operations | | | $2.01 | | | | $(0.10 | ) | | | $3.04 | | | | $5.26 | | | | $(8.33 | ) | | | $3.92 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.04 | ) | | | $(0.02 | ) | | | $(0.04 | ) | | | $(0.05 | ) | | | $— | |
Net asset value, end of period (x) | | | $24.10 | | | | $22.09 | | | | $22.23 | | | | $19.21 | | | | $13.99 | | | | $22.37 | |
Total return (%) (k)(r)(s)(x) | | | 9.10 | (n) | | | (0.45 | ) | | | 15.81 | | | | 37.74 | | | | (37.33 | ) | | | 21.25 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.84 | (a) | | | 0.87 | | | | 0.88 | | | | 0.89 | | | | 0.88 | | | | 0.84 | |
Expenses after expense reductions (f) | | | 0.84 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income (loss) | | | 0.07 | (a) | | | (0.04 | ) | | | 0.22 | | | | 0.11 | | | | 0.21 | | | | 0.19 | |
Portfolio turnover | | | 27 | (n) | | | 67 | | | | 99 | | | | 95 | | | | 120 | | | | 76 | |
Net assets at end of period (000 omitted) | | | $139,560 | | | | $136,991 | | | | $156,785 | | | | $155,357 | | | | $131,692 | | | | $264,089 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $21.68 | | | | $21.83 | | | | $18.90 | | | | $13.75 | | | | $22.01 | | | | $18.19 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment loss (d) | | | $(0.02 | ) | | | $(0.06 | ) | | | $(0.01 | ) | | | $(0.02 | ) | | | $(0.01 | ) | | | $(0.01 | ) |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 1.96 | | | | (0.09 | ) | | | 2.94 | | | | 5.17 | | | | (8.25 | ) | | | 3.83 | |
Total from investment operations | | | $1.94 | | | | $(0.15 | ) | | | $2.93 | | | | $5.15 | | | | $(8.26 | ) | | | $3.82 | |
Net asset value, end of period (x) | | | $23.62 | | | | $21.68 | | | | $21.83 | | | | $18.90 | | | | $13.75 | | | | $22.01 | |
Total return (%) (k)(r)(s)(x) | | | 8.95 | (n) | | | (0.69 | ) | | | 15.50 | | | | 37.45 | | | | (37.53 | ) | | | 21.00 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.09 | (a) | | | 1.12 | | | | 1.13 | | | | 1.14 | | | | 1.13 | | | | 1.09 | |
Expenses after expense reductions (f) | | | 1.09 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment loss | | | (0.17 | )(a) | | | (0.29 | ) | | | (0.03 | ) | | | (0.14 | ) | | | (0.04 | ) | | | (0.06 | ) |
Portfolio turnover | | | 27 | (n) | | | 67 | | | | 99 | | | | 95 | | | | 120 | | | | 76 | |
Net assets at end of period (000 omitted) | | | $13,095 | | | | $11,239 | | | | $14,069 | | | | $14,286 | | | | $13,256 | | | | $23,773 | |
See Notes to Financial Statements
9
MFS Growth Portfolio
Financial Highlights – continued
| (d) | | Per share data is based on average shares outstanding. |
| (f) | | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | | Certain expenses have been reduced without which performance would have been lower. |
| (s) | | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. Excluding the effect of the proceeds received from a non-recurring litigation settlement against Tyco International Ltd., the Initial Class and Service Class total returns for the year ended December 31, 2010 would have each been lower by approximately 0.61%. |
| (x) | | The net asset values per share 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 Growth Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Growth Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
11
MFS Growth Portfolio
Notes to Financial Statements (unaudited) – continued
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
United States | | | $140,197,207 | | | | $— | | | | $— | | | | $140,197,207 | |
United Kingdom | | | 2,188,757 | | | | — | | | | — | | | | 2,188,757 | |
Israel | | | 1,986,575 | | | | — | | | | — | | | | 1,986,575 | |
France | | | 1,197,211 | | | | 773,828 | | | | — | | | | 1,971,039 | |
Canada | | | 1,051,328 | | | | — | | | | — | | | | 1,051,328 | |
Netherlands | | | 720,651 | | | | — | | | | — | | | | 720,651 | |
China | | | 295,499 | | | | — | | | | — | | | | 295,499 | |
| Mutual Funds | | | 4,757,024 | | | | — | | | | — | | | | 4,757,024 | |
| Total Investments | | | $152,394,252 | | | | $773,828 | | | | $— | | | | $153,168,080 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
12
MFS Growth Portfolio
Notes to Financial Statements (unaudited) – continued
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to net operating losses, wash sale loss deferrals, and straddle loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) (a) | | | $249,547 | |
| | (a) | Included in the fund’s distributions from ordinary income is $1,048 in excess of investment company taxable income, which in accordance with applicable U.S. tax law, is taxable to shareholders as ordinary income distributions. | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $127,714,962 | |
| Gross appreciation | | | 29,954,192 | |
| Gross depreciation | | | (4,501,074 | ) |
| Net unrealized appreciation (depreciation) | | | $25,453,118 | |
| |
| As of 12/31/11 | | | | |
| Capital loss carryforwards | | | (14,345,987 | ) |
| Other temporary differences | | | (60,249 | ) |
| Net unrealized appreciation (depreciation) | | | 19,329,620 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/16 | | | $(4,017,207 | ) |
| 12/31/17 | | | (10,328,780 | ) |
| Total | | | $(14,345,987 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $249,547 | |
13
MFS Growth Portfolio
Notes to Financial Statements (unaudited) – continued
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $300 million of average daily net assets | | | 0.75% | |
| Average daily net assets in excess of $300 million | | | 0.675% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0213% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $804 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $403, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $42,076,743 and $52,966,768, respectively.
14
MFS Growth Portfolio
Notes to Financial Statements (unaudited) – continued
| (5) | | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | | | | | | | | | | | | | | | |
| | | Six months ended 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 39,436 | | | | $941,046 | | | | 68,730 | | | | $1,548,015 | |
Service Class | | | 118,551 | | | | 2,772,874 | | | | 56,393 | | | | 1,224,246 | |
| | | 157,987 | | | | $3,713,920 | | | | 125,123 | | | | $2,772,261 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 11,666 | | | | $249,547 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (449,479 | ) | | | $(10,940,280 | ) | | | (932,824 | ) | | | $(21,028,561 | ) |
Service Class | | | (82,586 | ) | | | (1,953,593 | ) | | | (182,474 | ) | | | (4,039,042 | ) |
| | | (532,065 | ) | | | $(12,893,873 | ) | | | (1,115,298 | ) | | | $(25,067,603 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (410,043 | ) | | | $(9,999,234 | ) | | | (852,428 | ) | | | $(19,230,999 | ) |
Service Class | | | 35,965 | | | | 819,281 | | | | (126,081 | ) | | | (2,814,796 | ) |
| | | (374,078 | ) | | | $(9,179,953 | ) | | | (978,509 | ) | | | $(22,045,795 | ) |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $534 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 3,552,303 | | | | 22,164,046 | | | | (20,959,325 | ) | | | 4,757,024 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $1,724 | | | | $4,757,024 | |
(8) Subsequent Event
On May 9, 2012, the Board of Trustees of the fund approved the proposed Agreement and Plan of Reorganization, whereby MFS Growth Portfolio would be reorganized into MFS Growth Series, a series of MFS Variable Insurance Trust. The Agreement and Plan of Reorganization is subject to the approval of the shareholders of the MFS Growth Portfolio. The proposed Agreement and Plan of Reorganization provides for the transfer of the assets of the MFS Growth Portfolio to the MFS Growth Series and the assumption by the MFS Growth Series of the liabilities of the MFS Growth Portfolio in exchange solely for shares of beneficial interest in the MFS Growth Series. Immediately following the transfer, the MFS Growth Series shares received by the MFS Growth Portfolio will be distributed to shareholders, pro rata, and the MFS Growth Portfolio will be liquidated and terminated. On August 9, 2012, shareholders approved the reorganization. It is expected that the reorganization will occur on or around August 17, 2012.
15
MFS Growth Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://wwwsec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
16
SEMIANNUAL REPORT
June 30, 2012
MFS® MID CAP GROWTH PORTFOLIO
MFS® Variable Insurance Trust II
MCS-SEM
MFS® MID CAP GROWTH PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Mid Cap Growth Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Mid Cap Growth Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Ross Stores, Inc. | | | 2.1% | |
| American Tower Corp., REIT | | | 2.1% | |
| AMETEK, Inc. | | | 1.9% | |
| MasterCard, Inc., “A” | | | 1.9% | |
| Alexion Pharmaceuticals, Inc. | | | 1.9% | |
| Verisk Analytics, Inc., “A” | | | 1.8% | |
| Cabot Oil & Gas Corp. | | | 1.7% | |
| Cognizant Technology Solutions Corp., “A” | | | 1.5% | |
| PetSmart, Inc. | | | 1.5% | |
| Dollar General Corp. | | | 1.4% | |
| | | | |
| Equity sectors | | | | |
| Technology | | | 16.0% | |
| Health Care | | | 14.6% | |
| Retailing | | | 12.3% | |
| Industrial Goods & Services | | | 11.1% | |
| Special Products & Services | | | 8.5% | |
| Energy | | | 8.2% | |
| Leisure | | | 5.7% | |
| Basic Materials | | | 5.0% | |
| Autos & Housing | | | 4.9% | |
| Financial Services | | | 4.2% | |
| Consumer Staples | | | 3.5% | |
| Utilities & Communications | | | 2.7% | |
| Transportation | | | 1.7% | |
Percentages are based on net assets as of 6/30/12.
The portfolio is actively managed and current holdings may be different.
2
MFS Mid Cap Growth Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders During the Period,
January 1, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 1.07% | | | | $1,000.00 | | | | $1,081.42 | | | | $5.54 | |
| | Hypothetical (h) | | | 1.07% | | | | $1,000.00 | | | | $1,019.54 | | | | $5.37 | |
| Service Class | | Actual | | | 1.32% | | | | $1,000.00 | | | | $1,081.52 | | | | $6.83 | |
| | Hypothetical (h) | | | 1.32% | | | | $1,000.00 | | | | $1,018.30 | | | | $6.62 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Mid Cap Growth Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 98.4% | | | | | | | | |
| Aerospace – 1.9% | | | | | | | | |
| BE Aerospace, Inc. (a) | | | 6,870 | | | $ | 299,944 | |
| TransDigm Group, Inc. (a) | | | 2,120 | | | | 284,716 | |
| | | | | | | | |
| | | | | | $ | 584,660 | |
| | | | | | | | |
| Alcoholic Beverages – 0.9% | | | | | | | | |
| Beam, Inc. | | | 4,140 | | | $ | 258,709 | |
| | | | | | | | |
| Apparel Manufacturers – 1.7% | | | | | | | | |
| Guess?, Inc. | | | 2,220 | | | $ | 67,421 | |
| Li & Fung Ltd. | | | 96,000 | | | | 186,283 | |
| VF Corp. | | | 1,890 | | | | 252,220 | |
| | | | | | | | |
| | | | | | $ | 505,924 | |
| | | | | | | | |
| Automotive – 2.5% | | | | | | | | |
| BorgWarner Transmission Systems, Inc. (a) | | | 4,770 | | | $ | 312,864 | |
| Delphi Automotive PLC (a) | | | 9,240 | | | | 235,620 | |
| LKQ Corp. (a) | | | 5,740 | | | | 191,716 | |
| | | | | | | | |
| | | | | | $ | 740,200 | |
| | | | | | | | |
| Biotechnology – 2.7% | | | | | | | | |
| Alexion Pharmaceuticals, Inc. (a) | | | 5,650 | | | $ | 561,045 | |
| Dendreon Corp. (a) | | | 6,300 | | | | 46,620 | |
| Regeneron Pharmaceuticals, Inc. (a) | | | 790 | | | | 90,234 | |
| ViroPharma, Inc. (a) | | | 5,190 | | | | 123,003 | |
| | | | | | | | |
| | | | | | $ | 820,902 | |
| | | | | | | | |
| Broadcasting – 1.8% | | | | | | | | |
| CBS Corp., “B” | | | 4,190 | | | $ | 137,348 | |
| Discovery Communications, Inc., “A” (a) | | | 7,584 | | | | 409,536 | |
| | | | | | | | |
| | | | | | $ | 546,884 | |
| | | | | | | | |
| Brokerage & Asset Managers – 2.3% | | | | | | | | |
| Affiliated Managers Group, Inc. (a) | | | 3,690 | | | $ | 403,871 | |
| Evercore Partners, Inc. | | | 3,100 | | | | 72,509 | |
| IntercontinentalExchange, Inc. (a) | | | 1,660 | | | | 225,727 | |
| | | | | | | | |
| | | | | | $ | 702,107 | |
| | | | | | | | |
| Business Services – 6.8% | | | | | | | | |
| Cognizant Technology Solutions Corp., “A” (a) | | | 7,510 | | | $ | 450,600 | |
| Concur Technologies, Inc. (a) | | | 3,470 | | | | 236,307 | |
| FleetCor Technologies, Inc. (a) | | | 7,040 | | | | 246,682 | |
| Gartner, Inc. (a) | | | 4,890 | | | | 210,515 | |
| IHS, Inc. “A” (a) | | | 830 | | | | 89,416 | |
| Jones Lang LaSalle, Inc. | | | 3,750 | | | | 263,888 | |
| Verisk Analytics, Inc., “A” (a) | | | 11,100 | | | | 546,786 | |
| | | | | | | | |
| | | | | | $ | 2,044,194 | |
| | | | | | | | |
| Cable TV – 0.9% | | | | | | | | |
| Charter Communications, Inc., “A” (a) | | | 3,690 | | | $ | 261,510 | |
| | | | | | | | |
| Chemicals – 0.6% | | | | | | | | |
| Celanese Corp. | | | 5,520 | | | $ | 191,102 | |
| | | | | | | | |
| Computer Software – 6.6% | | | | | | | | |
| Autodesk, Inc. (a) | | | 5,470 | | | $ | 191,395 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Computer Software – continued | | | | | | | | |
| Check Point Software Technologies Ltd. (a) | | | 7,090 | | | $ | 351,593 | |
| Citrix Systems, Inc. (a) | | | 2,510 | | | | 210,689 | |
| NetSuite, Inc. (a) | | | 2,230 | | | | 122,137 | |
| Parametric Technology Corp. (a) | | | 15,060 | | | | 315,658 | |
| Red Hat, Inc. (a) | | | 5,260 | | | | 297,085 | |
| SolarWinds, Inc. (a) | | | 5,070 | | | | 220,849 | |
| TIBCO Software, Inc. (a) | | | 9,430 | | | | 282,146 | |
| | | | | | | | |
| | | | | | $ | 1,991,552 | |
| | | | | | | | |
| Computer Software – Systems – 2.9% | | | | | | | | |
| MICROS Systems, Inc. (a) | | | 6,820 | | | $ | 349,184 | |
| NetApp, Inc. (a) | | | 4,920 | | | | 156,554 | |
| Qlik Technologies, Inc. (a) | | | 8,880 | | | | 196,426 | |
| Verifone Systems, Inc. (a) | | | 5,200 | | | | 172,068 | |
| | | | | | | | |
| | | | | | $ | 874,232 | |
| | | | | | | | |
| Construction – 2.4% | | | | | | | | |
| NVR, Inc. (a) | | | 300 | | | $ | 255,000 | |
| Sherwin-Williams Co. | | | 680 | | | | 89,998 | |
| Stanley Black & Decker, Inc. | | | 5,637 | | | | 362,797 | |
| | | | | | | | |
| | | | | | $ | 707,795 | |
| | | | | | | | |
| Consumer Products – 0.8% | | | | | | | | |
| Chr. Hansen Holding A/S | | | 6,083 | | | $ | 156,308 | |
| Nu Skin Enterprises, Inc., “A” | | | 1,960 | | | | 91,924 | |
| | | | | | | | |
| | | | | | $ | 248,232 | |
| | | | | | | | |
| Consumer Services – 1.7% | | | | | | | | |
| Anhanguera Educacional Participacoes S.A. | | | 4,700 | | | $ | 59,905 | |
| HomeAway, Inc. (a) | | | 1,380 | | | | 30,001 | |
| Priceline.com, Inc. (a) | | | 409 | | | | 271,789 | |
| Sotheby’s | | | 4,000 | | | | 133,440 | |
| | | | | | | | |
| | | | | | $ | 495,135 | |
| | | | | | | | |
| Containers – 2.2% | | | | | | | | |
| Ball Corp. | | | 9,180 | | | $ | 376,839 | |
| Silgan Holdings, Inc. | | | 6,950 | | | | 296,695 | |
| | | | | | | | |
| | | | | | $ | 673,534 | |
| | | | | | | | |
| Electrical Equipment – 5.0% | | | | | | | | |
| AMETEK, Inc. | | | 11,405 | | | $ | 569,224 | |
| Mettler-Toledo International, Inc. (a) | | | 1,910 | | | | 297,673 | |
| MSC Industrial Direct Co., Inc., “A” | | | 1,810 | | | | 118,645 | |
| Sensata Technologies Holding B.V. (a) | | | 7,050 | | | | 188,799 | |
| TriMas Corp. (a) | | | 3,830 | | | | 76,983 | |
| W.W. Grainger, Inc. | | | 1,380 | | | | 263,911 | |
| | | | | | | | |
| | | | | | $ | 1,515,235 | |
| | | | | | | | |
| Electronics – 3.2% | | | | | | | | |
| Altera Corp. | | | 7,720 | | | $ | 261,245 | |
| ARM Holdings PLC | | | 14,093 | | | | 112,228 | |
| Hittite Microwave Corp. (a) | | | 2,110 | | | | 107,863 | |
| Linear Technology Corp. | | | 5,420 | | | | 169,809 | |
4
MFS Mid Cap Growth Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Electronics – continued | | | | | | | | |
| Microchip Technology, Inc. | | | 9,570 | | | $ | 316,576 | |
| | | | | | | | |
| | | | | | $ | 967,721 | |
| | | | | | | | |
| Energy – Independent – 5.1% | | | | | | | | |
| Cabot Oil & Gas Corp. | | | 13,070 | | | $ | 514,958 | |
| Celtic Exploration Ltd. (a) | | | 12,080 | | | | 163,384 | |
| Concho Resources, Inc. (a) | | | 2,870 | | | | 244,294 | |
| EQT Corp. | | | 3,510 | | | | 188,241 | |
| Pioneer Natural Resources Co. | | | 1,330 | | | | 117,319 | |
| Range Resources Corp. | | | 2,140 | | | | 132,402 | |
| SM Energy Co. | | | 3,800 | | | | 186,618 | |
| | | | | | | | |
| | | | | | $ | 1,547,216 | |
| | | | | | | | |
| Engineering – Construction – 0.3% | | | | | | | | |
| Fluor Corp. | | | 1,876 | | | $ | 92,562 | |
| | | | | | | | |
| Entertainment – 0.3% | | | | | | | | |
| Six Flags Entertainment Corp. | | | 1,680 | | | $ | 91,022 | |
| | | | | | | | |
| Food & Beverages – 1.8% | | | | | | | | |
| Mead Johnson Nutrition Co., “A” | | | 4,690 | | | $ | 377,592 | |
| Want Want China Holdings Ltd. | | | 123,000 | | | | 152,165 | |
| | | | | | | | |
| | | | | | $ | 529,757 | |
| | | | | | | | |
| Gaming & Lodging – 0.8% | | | | | | | | |
| Royal Caribbean Cruises Ltd. | | | 5,640 | | | $ | 146,809 | |
| Sands China Ltd. | | | 24,800 | | | | 79,443 | |
| | | | | | | | |
| | | | | | $ | 226,252 | |
| | | | | | | | |
| General Merchandise – 1.4% | | | | | | | | |
| Dollar General Corp. (a) | | | 7,670 | | | $ | 417,171 | |
| | | | | | | | |
| Internet – 1.2% | | | | | | | | |
| LinkedIn Corp., “A” (a) | | | 1,790 | | | $ | 190,223 | |
| Rackspace Hosting, Inc. (a) | | | 3,550 | | | | 155,987 | |
| | | | | | | | |
| | | | | | $ | 346,210 | |
| | | | | | | | |
| Leisure & Toys – 1.3% | | | | | | | | |
| Brunswick Corp. | | | 7,880 | | | $ | 175,094 | |
| Polaris Industries, Inc. | | | 2,860 | | | | 204,433 | |
| | | | | | | | |
| | | | | | $ | 379,527 | |
| | | | | | | | |
| Machinery & Tools – 3.0% | | | | | | | | |
| Flowserve Corp. | | | 930 | | | $ | 106,718 | |
| Joy Global, Inc. | | | 4,060 | | | | 230,324 | |
| Polypore International, Inc. (a) | | | 4,230 | | | | 170,850 | |
| United Rentals, Inc. (a) | | | 3,710 | | | | 126,288 | |
| WABCO Holdings, Inc. (a) | | | 4,950 | | | | 262,004 | |
| | | | | | | | |
| | | | | | $ | 896,184 | |
| | | | | | | | |
| Medical & Health Technology & Services – 4.0% | | | | | |
| Catamaran Corp. (a) | | | 4,060 | | | $ | 402,793 | |
| Cerner Corp. (a) | | | 4,780 | | | | 395,115 | |
| IDEXX Laboratories, Inc. (a) | | | 1,560 | | | | 149,963 | |
| Patterson Cos., Inc. | | | 7,590 | | | | 261,627 | |
| | | | | | | | |
| | | | | | $ | 1,209,498 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Medical Equipment – 6.3% | | | | | | | | |
| Cooper Cos., Inc. | | | 3,343 | | | $ | 266,638 | |
| Covidien PLC | | | 6,540 | | | | 349,890 | |
| Edwards Lifesciences Corp. (a) | | | 3,480 | | | | 359,484 | |
| Endologix, Inc. (a) | | | 9,910 | | | | 153,010 | |
| Gen-Probe, Inc. (a) | | | 2,580 | | | | 212,076 | |
| Intuitive Surgical, Inc. (a) | | | 526 | | | | 291,294 | |
| Sirona Dental Systems, Inc. (a) | | | 1,940 | | | | 87,319 | |
| Thermo Fisher Scientific, Inc. | | | 3,540 | | | | 183,761 | |
| | | | | | | | |
| | | | | | $ | 1,903,472 | |
| | | | | | | | |
| Network & Telecom – 2.1% | | | | | | | | |
| F5 Networks, Inc. (a) | | | 2,470 | | | $ | 245,913 | |
| Fortinet, Inc. (a) | | | 16,630 | | | | 386,149 | |
| | | | | | | | |
| | | | | | $ | 632,062 | |
| | | | | | | | |
| Oil Services – 3.1% | | | | | | | | |
| Cameron International Corp. (a) | | | 2,300 | | | $ | 98,233 | |
| Core Laboratories N.V. | | | 1,200 | | | | 139,080 | |
| Dresser-Rand Group, Inc. (a) | | | 7,800 | | | | 347,412 | |
| FMC Technologies, Inc. (a) | | | 6,270 | | | | 245,972 | |
| Lufkin Industries, Inc. | | | 1,720 | | | | 93,430 | |
| | | | | | | | |
| | | | | | $ | 924,127 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 1.9% | | | | | |
| MasterCard, Inc., “A” | | | 1,320 | | | $ | 567,745 | |
| | | | | | | | |
| Pharmaceuticals – 1.6% | | | | | | | | |
| Auxilium Pharmaceuticals, Inc. (a) | | | 3,910 | | | $ | 105,140 | |
| Perrigo Co. | | | 3,070 | | | | 362,045 | |
| | | | | | | | |
| | | | | | $ | 467,185 | |
| | | | | | | | |
| Pollution Control – 0.9% | | | | | | | | |
| Stericycle, Inc. (a) | | | 1,230 | | | $ | 112,754 | |
| Waste Connections, Inc. | | | 5,570 | | | | 166,654 | |
| | | | | | | | |
| | | | | | $ | 279,408 | |
| | | | | | | | |
| Railroad & Shipping – 0.8% | | | | | | | | |
| Kansas City Southern Co. | | | 3,650 | | | $ | 253,894 | |
| | | | | | | | |
| Restaurants – 0.6% | | | | | | | | |
| Starbucks Corp. | | | 3,600 | | | $ | 191,952 | |
| | | | | | | | |
| Specialty Chemicals – 2.2% | | | | | | | | |
| Airgas, Inc. | | | 3,200 | | | $ | 268,832 | |
| Albemarle Corp. | | | 2,740 | | | | 163,414 | |
| Rockwood Holdings, Inc. | | | 5,390 | | | | 239,047 | |
| | | | | | | | |
| | | | | | $ | 671,293 | |
| | | | | | | | |
| Specialty Stores – 9.2% | | | | | | | | |
| American Eagle Outfitters, Inc. | | | 10,790 | | | $ | 212,887 | |
| AutoZone, Inc. (a) | | | 780 | | | | 286,393 | |
| Children’s Place Retail Store, Inc. (a) | | | 3,710 | | | | 184,869 | |
| O’Reilly Automotive, Inc. (a) | | | 2,380 | | | | 199,373 | |
| PetSmart, Inc. | | | 6,520 | | | | 444,534 | |
| Ross Stores, Inc. | | | 10,040 | | | | 627,199 | |
| rue21, Inc. (a) | | | 3,110 | | | | 78,496 | |
| Tiffany & Co. | | | 4,690 | | | | 248,336 | |
| Tractor Supply Co. | | | 1,700 | | | | 141,202 | |
5
MFS Mid Cap Growth Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Specialty Stores – continued | | | | | | | | |
| Urban Outfitters, Inc. (a) | | | 12,620 | | | $ | 348,186 | |
| | | | | | | | |
| | | | | | $ | 2,771,475 | |
| | | | | | | | |
| Telecommunications – Wireless – 2.1% | | | | | | | | |
| American Tower Corp., REIT | | | 8,920 | | | $ | 623,597 | |
| | | | | | | | |
| Trucking – 0.9% | | | | | | | | |
| Expeditors International of Washington, Inc. | | | 6,600 | | | $ | 255,750 | |
| | | | | | | | |
| Utilities – Electric Power – 0.6% | | | | | | | | |
| CMS Energy Corp. | | | 8,170 | | | $ | 191,995 | |
| | | | | | | | |
Total Common Stocks (Identified Cost, $25,755,695) | | | | | | $ | 29,598,982 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| MONEY MARKET FUNDS – 2.0% | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 609,117 | | | $ | 609,117 | |
| | | | | | | | |
Total Investments
(Identified Cost, $26,364,812) | | | | | | $ | 30,208,099 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – (0.4)% | | | | | | | (109,431 | ) |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 30,098,668 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (v) | | Underlying affiliated fund 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:
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
See Notes to Financial Statements
6
MFS Mid Cap Growth Portfolio
FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | | | | | |
At 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $25,755,695) | | | $29,598,982 | | | | | |
Underlying affiliated funds, at cost and value | | | 609,117 | | | | | |
Total investments, at value (identified cost, $26,364,812) | | | $30,208,099 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 368,545 | | | | | |
Fund shares sold | | | 11,922 | | | | | |
Dividends | | | 11,581 | | | | | |
Other assets | | | 372 | | | | | |
Total assets | | | | | | | $30,600,519 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | $458,716 | | | | | |
Fund shares reacquired | | | 15,024 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 1,944 | | | | | |
Distribution and/or service fees | | | 211 | | | | | |
Payable for independent Trustees’ compensation | | | 3 | | | | | |
Accrued expenses and other liabilities | | | 25,953 | | | | | |
Total liabilities | | | | | | | $501,851 | |
Net assets | | | | | | | $30,098,668 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $40,164,473 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 3,843,293 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (13,817,496 | ) | | | | |
Accumulated net investment loss | | | (91,602 | ) | | | | |
Net assets | | | | | | | $30,098,668 | |
Shares of beneficial interest outstanding | | | | | | | 4,966,478 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $19,541,234 | | | | 3,196,551 | | | | $6.11 | |
Service Class | | | 10,557,434 | | | | 1,769,927 | | | | 5.96 | |
See Notes to Financial Statements
7
MFS Mid Cap 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 6/30/12 | | | | | | | | |
Net investment loss | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $92,309 | | | | | |
Interest | | | 253 | | | | | |
Dividends from underlying affiliated funds | | | 341 | | | | | |
Foreign taxes withheld | | | (119 | ) | | | | |
Total investment income | | | | | | | $92,784 | |
Expenses | | | | | | | | |
Management fee | | | $119,365 | | | | | |
Distribution and/or service fees | | | 14,206 | | | | | |
Administrative services fee | | | 8,701 | | | | | |
Independent Trustees’ compensation | | | 884 | | | | | |
Custodian fee | | | 7,734 | | | | | |
Shareholder communications | | | 3,953 | | | | | |
Audit and tax fees | | | 24,326 | | | | | |
Legal fees | | | 305 | | | | | |
Miscellaneous | | | 4,994 | | | | | |
Total expenses | | | | | | | $184,468 | |
Reduction of expenses by investment adviser | | | (82 | ) | | | | |
Net expenses | | | | | | | $184,386 | |
Net investment loss | | | | | | | $(91,602 | ) |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $1,441,483 | | | | | |
Foreign currency | | | (830 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $1,440,653 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $1,166,969 | | | | | |
Translation of assets and liabilities in foreign currencies | | | 5 | | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $1,166,974 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $2,607,627 | |
Change in net assets from operations | | | | | | | $2,516,025 | |
See Notes to Financial Statements
8
MFS Mid Cap Growth Portfolio
FINANCIAL STATEMENTS | STATEMENT OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | | | | | | | |
| |
| Six months ended
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment loss | | | $(91,602 | ) | | | $(261,629 | ) |
Net realized gain (loss) on investments and foreign currency | | | 1,440,653 | | | | 5,191,748 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 1,166,974 | | | | (7,135,674 | ) |
Change in net assets from operations | | | $2,516,025 | | | | $(2,205,555 | ) |
Change in net assets from fund share transactions | | | $(3,126,441 | ) | | | $(7,532,661 | ) |
Total change in net assets | | | $(610,416 | ) | | | $(9,738,216 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 30,709,084 | | | | 40,447,300 | |
At end of period (including accumulated net investment loss of $91,602 and
$0, respectively) | | | $30,098,668 | | | | $30,709,084 | |
See Notes to Financial Statements
9
MFS Mid Cap 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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $5.65 | | | | $6.01 | | | | $4.65 | | | | $3.27 | | | | $6.72 | | | | $6.12 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) (d) | | | $(0.01 | ) | | | $(0.04 | ) | | | $(0.01 | ) | | | $(0.01 | ) | | | $0.01 | | | | $(0.01 | ) |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.47 | | | | (0.32 | ) | | | 1.37 | | | | 1.39 | | | | (3.46 | ) | | | 0.61 | |
Total from investment operations | | | $0.46 | | | | $(0.36 | ) | | | $1.36 | | | | $1.38 | | | | $(3.45 | ) | | | $0.60 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $— | | | | $— | | | | $(0.00 | )(w) | | | $— | | | | $(0.00 | )(w) |
From tax return of capital | | | — | | | | — | | | | — | | | | (0.00 | )(w) | | | — | | | | — | |
Total distribution declared to shareholders | | | $— | | | | $— | | | | $— | | | | $(0.00 | )(w) | | | $— | | | | $(0.00 | )(w) |
Net asset value, end of period (x) | | | $6.11 | | | | $5.65 | | | | $6.01 | | | | $4.65 | | | | $3.27 | | | | $6.72 | |
Total return (%) (k)(r)(s)(x) | | | 8.14 | (n) | | | (5.99 | ) | | | 29.25 | | | | 42.31 | | | | (51.34 | ) | | | 9.84 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses (f) | | | 1.07 | (a) | | | 1.04 | | | | 1.07 | | | | 1.05 | | | | 0.97 | | | | 0.88 | |
Expenses after expense reductions (f) | | | 1.07 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income (loss) | | | (0.49 | )(a) | | | (0.61 | ) | | | (0.11 | ) | | | (0.23 | ) | | | 0.13 | | | | (0.12 | ) |
Portfolio turnover | | | 32 | (n) | | | 73 | | | | 83 | | | | 100 | | | | 100 | | | | 80 | |
Net assets at end of period (000 omitted) | | | $19,541 | | | | $19,589 | | | | $24,944 | | | | $20,300 | | | | $15,803 | | | | $44,944 | |
| | |
| | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| Service Class | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $5.52 | | | | $5.89 | | | | $4.57 | | | | $3.22 | | | | $6.63 | | | | $6.05 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment loss (d) | | | $(0.02 | ) | | | $(0.05 | ) | | | $(0.02 | ) | | | $(0.02 | ) | | | $(0.01 | ) | | | $(0.02 | ) |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.46 | | | | (0.32 | ) | | | 1.34 | | | | 1.37 | | | | (3.40 | ) | | | 0.60 | |
Total from investment operations | | | $0.44 | | | | $(0.37 | ) | | | $1.32 | | | | $1.35 | | | | $(3.41 | ) | | | $0.58 | |
Net asset value, end of period (x) | | | $5.96 | | | | $5.52 | | | | $5.89 | | | | $4.57 | | | | $3.22 | | | | $6.63 | |
Total return (%) (k)(r)(s)(x) | | | 7.97 | (n) | | | (6.28 | ) | | | 28.88 | | | | 41.93 | | | | (51.43 | ) | | | 9.59 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses (f) | | | 1.32 | (a) | | | 1.29 | | | | 1.32 | | | | 1.30 | | | | 1.22 | | | | 1.13 | |
Expenses after expense reductions (f) | | | 1.32 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment loss | | | (0.74 | )(a) | | | (0.86 | ) | | | (0.38 | ) | | | (0.48 | ) | | | (0.12 | ) | | | (0.37 | ) |
Portfolio turnover | | | 32 | (n) | | | 73 | | | | 83 | | | | 100 | | | | 100 | | | | 80 | |
Net assets at end of period (000 omitted) | | | $10,557 | | | | $11,120 | | | | $15,504 | | | | $15,944 | | | | $14,310 | | | | $32,919 | |
See Notes to Financial Statements
10
MFS Mid Cap Growth Portfolio
Financial Highlights – continued
| (d) | | Per share data is based on average shares outstanding. |
| (f) | | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | | Certain expenses have been reduced without which performance would have been lower. |
| (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 per share 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 Mid Cap Growth Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Mid Cap Growth Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
12
MFS Mid Cap Growth Portfolio
Notes to Financial Statements (unaudited) – continued
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
United States | | | $27,934,880 | | | | $— | | | | $— | | | | $27,934,880 | |
Canada | | | 566,177 | | | | — | | | | — | | | | 566,177 | |
Israel | | | 351,593 | | | | — | | | | — | | | | 351,593 | |
Hong Kong | | | — | | | | 265,726 | | | | — | | | | 265,726 | |
Denmark | | | — | | | | 156,308 | | | | — | | | | 156,308 | |
China | | | — | | | | 152,165 | | | | — | | | | 152,165 | |
United Kingdom | | | — | | | | 112,228 | | | | — | | | | 112,228 | |
Brazil | | | 59,905 | | | | — | | | | — | | | | 59,905 | |
| Mutual Funds | | | 609,117 | | | | — | | | | — | | | | 609,117 | |
| Total Investments | | | $29,521,672 | | | | $686,427 | | | | $— | | | | $30,208,099 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 2 investments presented above, equity investments amounting to $338,448 would have been considered level 1 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
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.
13
MFS Mid Cap Growth 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.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. For the six months ended June 30, 2012, custody fees were not reduced.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to net operating losses and wash sale loss deferrals.
The fund declared no distributions for the current period or for the year ended December 31, 2011.
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $26,393,094 | |
| Gross appreciation | | | 5,261,176 | |
| Gross depreciation | | | (1,446,171 | ) |
| Net unrealized appreciation (depreciation) | | | $3,815,005 | |
| |
| As of 12/31/11 | | | | |
| Capital loss carryforwards | | | (15,229,914 | ) |
| Other temporary differences | | | 48 | |
| Net unrealized appreciation (depreciation) | | | 2,648,036 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/16 | | | $(10,796,194 | ) |
| 12/31/17 | | | (4,433,720 | ) |
| Total | | | $(15,229,914 | ) |
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.
14
MFS Mid Cap Growth Portfolio
Notes to Financial Statements (unaudited) – continued
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.75% | |
| Average daily net assets in excess of $1 billion | | | 0.70% | |
The investment adviser has agreed in writing to reduce its management fee to 0.65% of average daily net assets in excess of $2.5 billion. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2014. For the six months ended June 30, 2012, the fund’s average daily net assets did not exceed $2.5 billion and therefore, the management fee was not reduced.
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0547% 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 to officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD), and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $166 and are included in ”Miscellaneous“ expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $82, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in ”Dividends from underlying affiliated funds“ on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $10,142,365 and $13,318,316, respectively.
15
MFS Mid Cap Growth Portfolio
Notes to Financial Statements (unaudited) – continued
| (5) | | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
| | | | | | | | | | | | | | | | |
| | | Six months ended 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 93,316 | | | | $584,143 | | | | 387,423 | | | | $2,363,176 | |
Service Class | | | 36,574 | | | | 226,655 | | | | 140,064 | | | | 810,093 | |
| | | 129,890 | | | | $810,798 | | | | 527,487 | | | | $3,173,269 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (361,802 | ) | | | $(2,240,438 | ) | | | (1,069,893 | ) | | | $(6,255,789 | ) |
Service Class | | | (280,051 | ) | | | (1,696,801 | ) | | | (758,761 | ) | | | (4,450,141 | ) |
| | | (641,853 | ) | | | $(3,937,239 | ) | | | (1,828,654 | ) | | | $(10,705,930 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (268,486 | ) | | | $(1,656,295 | ) | | | (682,470 | ) | | | $(3,892,613 | ) |
Service Class | | | (243,477 | ) | | | (1,470,146 | ) | | | (618,697 | ) | | | (3,640,048 | ) |
| | | (511,963 | ) | | | $(3,126,441 | ) | | | (1,301,167 | ) | | | $(7,532,661 | ) |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $108 and $0, respectively, and are included in ”Miscellaneous“ expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 726,173 | | | | 4,859,445 | | | | (4,976,501 | ) | | | 609,117 | |
| | | | |
| Underlying Affiliated Fund | | Realized Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $341 | | | | $609,117 | |
On May 9, 2012, the Board of Trustees of the fund approved the proposed Agreement and Plan of Reorganization, whereby MFS Mid Cap Growth Portfolio would be reorganized into MFS Mid Cap Growth Series, a series of MFS Variable Insurance Trust. The Agreement and Plan of Reorganization is subject to the approval of the shareholders of the MFS Mid Cap Growth Portfolio. The proposed Agreement and Plan of Reorganization provides for the transfer of the assets of the MFS Mid Cap Growth Portfolio to the MFS Mid Cap Growth Series and the assumption by the MFS Mid Cap Growth Series of the liabilities of the MFS Mid Cap Growth Portfolio in exchange solely for shares of beneficial interest in the MFS Mid Cap Growth Series. Immediately following the transfer, the MFS Mid Cap Growth Series shares received by the MFS Mid Cap Growth Portfolio will be distributed to shareholders, pro rata, and the MFS Mid Cap Growth Portfolio will be liquidated and terminated. On August 9, 2012, shareholders approved the reorganization. It is expected that the reorganization will occur on or around August 17, 2012.
16
MFS Mid Cap Growth Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under ”Variable Insurance Portfolios — VIT II“ in the ”Products and Performance“ section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the ”News & Commentary“ section of mfs.com or by clicking on the fund’s name under ”Variable Insurance Portfolios — VIT II“ in the ”Products and Performance“ section of mfs.com.
17
SEMIANNUAL REPORT
June 30, 2012
MFS® RESEARCH INTERNATIONAL PORTFOLIO
MFS® Variable Insurance Trust II
RSS-SEM
MFS® RESEARCH INTERNATIONAL PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Research International Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Research International Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Royal Dutch Shell PLC, “A” | | | 3.1% | |
| Nestle S.A. | | | 2.9% | |
| Bayer AG | | | 2.5% | |
| Roche Holding AG | | | 2.5% | |
| Vodafone Group PLC | | | 2.3% | |
| Sumitomo Mitsui Financial Group, Inc. | | | 2.1% | |
| Rio Tinto Ltd. | | | 2.1% | |
| Novartis AG | | | 2.1% | |
| Groupe Danone | | | 1.9% | |
| BP PLC | | | 1.8% | |
| |
| Global equity sectors | | | | |
Capital Goods | | | 23.5% | |
Financial Services | | | 22.0% | |
Energy | | | 12.4% | |
Health Care | | | 10.4% | |
Consumer Staples | | | 9.5% | |
Consumer Cyclicals | | | 7.8% | |
Technology | | | 7.7% | |
Telecommunications/Cable Television | | | 5.8% | |
| | | | |
| Issuer country weightings (x) | | | | |
| Japan | | | 23.4% | |
| United Kingdom | | | 20.0% | |
| Switzerland | | | 11.0% | |
| France | | | 8.0% | |
| Germany | | | 7.6% | |
| Hong Kong | | | 4.7% | |
| Netherlands | | | 4.6% | |
| Australia | | | 3.9% | |
| Brazil | | | 2.7% | |
| Other Countries | | | 14.1% | |
| |
| Currency exposure weightings (y) | | | | |
| Japanese Yen | | | 23.4% | |
| Euro | | | 23.1% | |
| British Pound Sterling | | | 20.0% | |
| Swiss Franc | | | 11.0% | |
| Hong Kong Dollar | | | 6.4% | |
| Australian Dollar | | | 3.9% | |
| Brazilian Real | | | 2.7% | |
| United States Dollar | | | 2.0% | |
| Singapore Dollar | | | 1.4% | |
| Other Currencies | | | 6.1% | |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. |
Percentages are based on net assets as of 6/30/12.
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, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 1.10% | | | | $1,000.00 | | | | $1,033.50 | | | | $5.56 | |
| | Hypothetical (h) | | | 1.10% | | | | $1,000.00 | | | | $1,019.39 | | | | $5.52 | |
| Service Class | | Actual | | | 1.35% | | | | $1,000.00 | | | | $1,032.20 | | | | $6.82 | |
| | Hypothetical (h) | | | 1.35% | | | | $1,000.00 | | | | $1,018.15 | | | | $6.77 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Research International Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 99.1% | | | | | | | | |
| Aerospace – 1.2% | | | | | | | | |
| Rolls-Royce Holdings PLC | | | 117,799 | | | $ | 1,589,216 | |
| | | | | | | | |
| Alcoholic Beverages – 1.7% | | | | | | | | |
| Heineken N.V. | | | 43,479 | | | $ | 2,271,115 | |
| | | | | | | | |
| Apparel Manufacturers – 1.8% | | | | | | | | |
| Li & Fung Ltd. | | | 558,000 | | | $ | 1,082,770 | |
| LVMH Moet Hennessy Louis Vuitton S.A. | | | 8,306 | | | | 1,265,986 | |
| | | | | | | | |
| | | | | | $ | 2,348,756 | |
| | | | | | | | |
| Automotive – 3.9% | | | | | | | | |
| Bayerische Motoren Werke AG | | | 21,166 | | | $ | 1,533,644 | |
| DENSO Corp. | | | 37,800 | | | | 1,287,051 | |
| GKN PLC | | | 221,409 | | | | 630,437 | |
| Honda Motor Co. Ltd. | | | 51,000 | | | | 1,776,566 | |
| | | | | | | | |
| | | | | | $ | 5,227,698 | |
| | | | | | | | |
| Broadcasting – 1.6% | | | | | | | | |
| Nippon Television Network Corp. | | | 6,790 | | | $ | 1,032,091 | |
| Publicis Groupe S.A. (l) | | | 24,794 | | | | 1,133,868 | |
| | | | | | | | |
| | | | | | $ | 2,165,959 | |
| | | | | | | | |
| Business Services – 2.7% | | | | | | | | |
| Amadeus IT Holding S.A. | | | 29,680 | | | $ | 628,536 | |
| Cognizant Technology Solutions Corp., “A” (a) | | | 10,780 | | | | 646,800 | |
| Compass Group PLC | | | 57,040 | | | | 598,306 | |
| Mitsubishi Corp. | | | 51,800 | | | | 1,046,028 | |
| Nomura Research, Inc. | | | 32,000 | | | | 705,291 | |
| | | | | | | | |
| | | | | | $ | 3,624,961 | |
| | | | | | | | |
| Chemicals – 0.6% | | | | | | | | |
| Nufarm Ltd. | | | 148,396 | | | $ | 772,327 | |
| | | | | | | | |
| Computer Software – 0.6% | | | | | | | | |
| Dassault Systems S.A. | | | 8,730 | | | $ | 820,113 | |
| | | | | | | | |
| Computer Software – Systems – 1.2% | | | | | | | | |
| Canon, Inc. | | | 41,300 | | | $ | 1,653,766 | |
| | | | | | | | |
| Conglomerates – 0.5% | | | | | | | | |
| Hutchison Whampoa Ltd. | | | 79,000 | | | $ | 683,262 | |
| | | | | | | | |
| Consumer Products – 1.2% | | | | | | | | |
| Reckitt Benckiser Group PLC | | | 29,174 | | | $ | 1,537,499 | |
| | | | | | | | |
| Electrical Equipment – 2.8% | | | | | | | | |
| Legrand S.A. (l) | | | 12,456 | | | $ | 423,630 | |
| Schneider Electric S.A. | | | 25,522 | | | | 1,422,053 | |
| Siemens AG | | | 23,051 | | | | 1,937,614 | |
| | | | | | | | |
| | | | | | $ | 3,783,297 | |
| | | | | | | | |
| Electronics – 1.6% | | | | | | | | |
| ASML Holding N.V. | | | 12,515 | | | $ | 637,731 | |
| Samsung Electronics Co. Ltd. | | | 274 | | | | 290,501 | |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | | 430,804 | | | | 1,179,168 | |
| | | | | | | | |
| | | | | | $ | 2,107,400 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Energy – Independent – 2.4% | | | | | | | | |
| Cairn Energy PLC | | | 65,484 | | | $ | 271,676 | |
| Cenovus Energy, Inc. | | | 14,340 | | | | 455,933 | |
| CNOOC Ltd. | | | 272,000 | | | | 548,703 | |
| INPEX Corp. | | | 220 | | | | 1,233,391 | |
| Reliance Industries Ltd. | | | 50,507 | | | | 671,724 | |
| | | | | | | | |
| | | | | | $ | 3,181,427 | |
| | | | | | | | |
| Energy – Integrated – 5.8% | | | | | | | | |
| BG Group PLC | | | 55,500 | | | $ | 1,135,965 | |
| BP PLC | | | 367,435 | | | | 2,461,875 | |
| Royal Dutch Shell PLC, “A” | | | 124,351 | | | | 4,188,921 | |
| | | | | | | | |
| | | | | | $ | 7,786,761 | |
| | | | | | | | |
| Engineering – Construction – 2.0% | | | | | | | | |
| JGC Corp. | | | 64,000 | | | $ | 1,852,369 | |
| Keppel Corp. Ltd. | | | 100,600 | | | | 824,326 | |
| | | | | | | | |
| | | | | | $ | 2,676,695 | |
| | | | | | | | |
| Food & Beverages – 5.0% | | | | | | | | |
| Groupe Danone | | | 41,940 | | | $ | 2,601,473 | |
| M. Dias Branco S.A. Industria e Comercio de Alimentos | | | 9,100 | | | | 267,314 | |
| Nestle S.A. | | | 64,677 | | | | 3,858,075 | |
| | | | | | | | |
| | | | | | $ | 6,726,862 | |
| | | | | | | | |
| Food & Drug Stores – 1.1% | | | | | | | | |
| Lawson, Inc. | | | 21,200 | | | $ | 1,483,207 | |
| | | | | | | | |
| Gaming & Lodging – 0.8% | | | | | | | | |
| Sands China Ltd. | | | 348,800 | | | $ | 1,117,328 | |
| | | | | | | | |
| Insurance – 4.4% | | | | | | | | |
| AIA Group Ltd. | | | 429,200 | | | $ | 1,479,859 | |
| Hiscox Ltd. | | | 90,806 | | | | 608,291 | |
| ING Groep N.V. (a) | | | 207,225 | | | | 1,398,111 | |
| Sony Financial Holdings, Inc. | | | 40,000 | | | | 654,303 | |
| Swiss Re Ltd. | | | 28,606 | | | | 1,797,110 | |
| | | | | | | | |
| | | | | | $ | 5,937,674 | |
| | | | | | | | |
| Internet – 0.5% | | | | | | | | |
| Yahoo Japan Corp. | | | 2,069 | | | $ | 669,584 | |
| | | | | | | | |
| Machinery & Tools – 2.7% | | | | | | | | |
| Glory Ltd. | | | 48,700 | | | $ | 1,012,733 | |
| Joy Global, Inc. | | | 14,360 | | | | 814,643 | |
| Schindler Holding AG | | | 13,136 | | | | 1,468,997 | |
| Sinotruk Hong Kong Ltd. | | | 454,500 | | | | 272,899 | |
| | | | | | | | |
| | | | | | $ | 3,569,272 | |
| | | | | | | | |
| Major Banks – 11.0% | | | | | | | | |
| Banco Santander S.A. | | | 124,133 | | | $ | 829,058 | |
| Barclays PLC | | | 673,048 | | | | 1,722,864 | |
| BNP Paribas | | | 37,721 | | | | 1,456,173 | |
| BOC Hong Kong Holdings Ltd. | | | 306,500 | | | | 941,278 | |
| HSBC Holdings PLC | | | 138,501 | | | | 1,221,225 | |
4
MFS Research International Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Major Banks – continued | | | | | | | | |
| Mitsubishi UFJ Financial Group, Inc. | | | 199,200 | | | $ | 953,330 | |
| Standard Chartered PLC | | | 110,129 | | | | 2,400,905 | |
| Sumitomo Mitsui Financial Group, Inc. | | | 84,500 | | | | 2,787,560 | |
| Westpac Banking Corp. | | | 111,690 | | | | 2,429,764 | |
| | | | | | | | |
| | | | | | $ | 14,742,157 | |
| | | | | | | | |
| Medical & Health Technology & Services – 1.4% | | | | | | | | |
| Diagnosticos da America S.A. | | | 95,200 | | | $ | 626,135 | |
| Miraca Holdings, Inc. | | | 30,200 | | | | 1,255,728 | |
| | | | | | | | |
| | | | | | $ | 1,881,863 | |
| | | | | | | | |
| Medical Equipment – 0.5% | | | | | | | | |
| Sonova Holding AG | | | 7,463 | | | $ | 720,150 | |
| | | | | | | | |
| Metals & Mining – 3.3% | | | | | | | | |
| Iluka Resources Ltd. | | | 117,061 | | | $ | 1,371,731 | |
| Rio Tinto Ltd. | | | 58,210 | | | | 2,780,070 | |
| Sumitomo Metal Industries Ltd. | | | 173,000 | | | | 284,782 | |
| | | | | | | | |
| | | | | | $ | 4,436,583 | |
| | | | | | | | |
| Natural Gas – Distribution – 1.7% | | | | | | | | |
| China Resources Gas Group Ltd. | | | 74,000 | | | $ | 127,788 | |
| GDF SUEZ | | | 35,263 | | | | 841,337 | |
| Tokyo Gas Co. Ltd. | | | 265,000 | | | | 1,353,372 | |
| | | | | | | | |
| | | | | | $ | 2,322,497 | |
| | | | | | | | |
| Network & Telecom – 1.1% | | | | | | | | |
| Ericsson, Inc., “B” (l) | | | 154,591 | | | $ | 1,409,040 | |
| | | | | | | | |
| Oil Services – 0.6% | | | | | | | | |
| AMEC PLC | | | 31,000 | | | $ | 489,278 | |
| Technip | | | 2,950 | | | | 307,847 | |
| | | | | | | | |
| | | | | | $ | 797,125 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 5.5% | | | | | |
| Aeon Credit Service Co. Ltd. | | | 39,600 | | | $ | 734,317 | |
| Bank Rakyat Indonesia | | | 590,500 | | | | 404,125 | |
| China Construction Bank | | | 808,880 | | | | 557,702 | |
| DBS Group Holdings Ltd. | | | 99,000 | | | | 1,092,761 | |
| HDFC Bank Ltd., ADR | | | 16,650 | | | | 542,790 | |
| ICICI Bank Ltd. | | | 26,570 | | | | 432,133 | |
| Itau Unibanco Holding S.A., ADR | | | 72,810 | | | | 1,013,515 | |
| Julius Baer Group Ltd. | | | 23,600 | | | | 854,469 | |
| Komercni Banka A.S. | | | 4,687 | | | | 813,475 | |
| PT Bank Mandiri Tbk. | | | 584,500 | | | | 452,434 | |
| Siam Commercial Bank Co. Ltd. | | | 109,500 | | | | 506,817 | |
| | | | | | | | |
| | | | | | $ | 7,404,538 | |
| | | | | | | | |
| Pharmaceuticals – 8.5% | | | | | | | | |
| Bayer AG | | | 46,731 | | | $ | 3,369,708 | |
| Novartis AG | | | 49,830 | | | | 2,779,515 | |
| Roche Holding AG | | | 19,000 | | | | 3,279,921 | |
| Santen Pharmaceutical Co. Ltd. | | | 46,100 | | | | 1,888,753 | |
| | | | | | | | |
| | | | | | $ | 11,317,897 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Precious Metals & Minerals – 0.5% | | | | | | | | |
| Newcrest Mining Ltd. | | | 25,692 | | | $ | 598,014 | |
| | | | | | | | |
| Printing & Publishing – 0.8% | | | | | | | | |
| Pearson PLC | | | 50,850 | | | $ | 1,009,938 | |
| | | | | | | | |
| Railroad & Shipping – 0.6% | | | | | | | | |
| East Japan Railway Co. | | | 13,600 | | | $ | 853,863 | |
| | | | | | | | |
| Real Estate – 1.1% | | | | | | | | |
| GSW Immobilien AG (l) | | | 15,346 | | | $ | 523,961 | |
| Hang Lung Properties Ltd. | | | 279,000 | | | | 949,725 | |
| | | | | | | | |
| | | | | | $ | 1,473,686 | |
| | | | | | | | |
| Restaurants – 0.7% | | | | | | | | |
| Whitbread PLC | | | 29,004 | | | $ | 925,548 | |
| | | | | | | | |
| Specialty Chemicals – 4.1% | | | | | | | | |
| Akzo Nobel N.V. | | | 39,402 | | | $ | 1,853,467 | |
| Chugoku Marine Paints Ltd. | | | 53,000 | | | | 256,368 | |
| Linde AG | | | 14,718 | | | | 2,292,446 | |
| Nippon Paint Co. Ltd. | | | 57,000 | | | | 464,195 | |
| Symrise AG | | | 18,047 | | | | 547,895 | |
| | | | | | | | |
| | | | | | $ | 5,414,371 | |
| | | | | | | | |
| Specialty Stores – 1.0% | | | | | | | | |
| Industria de Diseno Textil S.A. | | | 12,566 | | | $ | 1,299,697 | |
| | | | | | | | |
| Telecommunications – Wireless – 4.4% | | | | | |
| KDDI Corp. | | | 332 | | | $ | 2,141,514 | |
| TIM Participacoes S.A., ADR | | | 22,564 | | | | 619,607 | |
| Vodafone Group PLC | | | 1,110,589 | | | | 3,120,351 | |
| | | | | | | | |
| | | | | | $ | 5,881,472 | |
| | | | | | | | |
| Telephone Services – 1.4% | | | | | | | | |
| China Unicom (Hong Kong) Ltd. | | | 640,000 | | | $ | 805,161 | |
| Telecom Italia S.p.A. | | | 312,212 | | | | 307,666 | |
| Telecom Italia S.p.A. | | | 873,369 | | | | 702,537 | |
| | | | | | | | |
| | | | | | $ | 1,815,364 | |
| | | | | | | | |
| Tobacco – 1.6% | | | | | | | | |
| Japan Tobacco, Inc. | | | 74,000 | | | $ | 2,192,883 | |
| | | | | | | | |
| Trucking – 1.3% | | | | | | | | |
| Yamato Holdings Co. Ltd. | | | 106,900 | | | $ | 1,721,154 | |
| | | | | | | | |
| Utilities – Electric Power – 1.9% | | | | | | | | |
| CEZ A.S. | | | 27,396 | | | $ | 946,758 | |
| Energias do Brasil S.A. | | | 65,200 | | | | 418,436 | |
| SUEZ Environnement | | | 39,000 | | | | 419,816 | |
| Tractebel Energia S.A. | | | 38,240 | | | | 707,302 | |
| | | | | | | | |
| | | | | | $ | 2,492,312 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $141,772,285) | | | | | | $ | 132,444,331 | |
| | | | | | | | |
| MONEY MARKET FUNDS – 0.4% | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 557,422 | | | $ | 557,422 | |
| | | | | | | | |
5
MFS Research International Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COLLATERAL FOR SECURITIES LOANED – 1.9% | |
| Navigator Securities Lending Prime Portfolio, 0.28%, at Cost and Net Asset Value (j) | | | 2,516,064 | | | $ | 2,516,064 | |
| | | | | | | | |
Total Investments (Identified Cost, $144,845,771) | | | | | | $ | 135,517,817 | |
| | | | | | | | |
OTHER ASSETS, LESS LIABILITIES – (1.4)% | | | | | | | (1,840,771 | ) |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 133,677,046 | |
| | | | | | | | |
| (a) | | Non-income producing 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. |
| (v) | | Underlying affiliated fund 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 |
| PLC | | Public Limited Company |
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $144,288,349) | | | $134,960,395 | | | | | |
Underlying affiliated funds, at cost and value | | | 557,422 | | | | | |
Total investments, at value, including $2,501,771 of securities on loan (identified cost, $144,845,771) | | | $135,517,817 | | | | | |
Foreign currency, at value (identified cost, $392,498) | | | 396,286 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 542,065 | | | | | |
Interest and dividends | | | 547,961 | | | | | |
Other assets | | | 1,144 | | | | | |
Total assets | | | | | | | $137,005,273 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | $565,730 | | | | | |
Fund shares reacquired | | | 137,006 | | | | | |
Collateral for securities loaned, at value | | | 2,516,064 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 9,551 | | | | | |
Shareholder servicing costs | | | 104 | | | | | |
Distribution and/or service fees | | | 1,871 | | | | | |
Payable for independent Trustees’ compensation | | | 14 | | | | | |
Accrued expenses and other liabilities | | | 97,887 | | | | | |
Total liabilities | | | | | | | $3,328,227 | |
Net assets | | | | | | | $133,677,046 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $163,963,213 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (net of $17,702 deferred country tax) | | | (9,346,373 | ) | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (25,907,616 | ) | | | | |
Undistributed net investment income | | | 4,967,822 | | | | | |
Net assets | | | | | | | $133,677,046 | |
Shares of beneficial interest outstanding | | | | | | | 10,935,854 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $39,358,717 | | | | 3,190,330 | | | | $12.34 | |
Service Class | | | 94,318,329 | | | | 7,745,524 | | | | 12.18 | |
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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $3,338,737 | | | | | |
Interest | | | 59,383 | | | | | |
Dividends from underlying affiliated funds | | | 414 | | | | | |
Foreign taxes withheld | | | (256,787 | ) | | | | |
Total investment income | | | | | | | $3,141,747 | |
Expenses | | | | | | | | |
Management fee | | | $618,600 | | | | | |
Distribution and/or service fees | | | 120,572 | | | | | |
Shareholder servicing costs | | | 7,069 | | | | | |
Administrative services fee | | | 15,284 | | | | | |
Independent Trustees’ compensation | | | 3,461 | | | | | |
Custodian fee | | | 57,599 | | | | | |
Shareholder communications | | | 7,833 | | | | | |
Audit and tax fees | | | 35,889 | | | | | |
Legal fees | | | 1,202 | | | | | |
Miscellaneous | | | 11,440 | | | | | |
Total expenses | | | | | | | $878,949 | |
Fees paid indirectly | | | (1 | ) | | | | |
Reduction of expenses by investment adviser | | | (1,966 | ) | | | | |
Net expenses | | | | | | | $876,982 | |
Net investment income | | | | | | | $2,264,765 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments (net of $572 country tax) | | | $(2,350,654 | ) | | | | |
Foreign currency | | | (28,866 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $(2,379,520 | ) |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments (net of $13,584 increase in deferred country tax) | | | $5,086,291 | | | | | |
Translation of assets and liabilities in foreign currencies | | | 3,855 | | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $5,090,146 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $2,710,626 | |
Change in net assets from operations | | | | | | | $4,975,391 | |
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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $2,264,765 | | | | $2,720,901 | |
Net realized gain (loss) on investments and foreign currency | | | (2,379,520 | ) | | | 5,649,366 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 5,090,146 | | | | (24,558,401 | ) |
Change in net assets from operations | | | $4,975,391 | | | | $(16,188,134 | ) |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(2,878,963 | ) |
Change in net assets from fund share transactions | | | $(8,401,230 | ) | | | $(17,547,891 | ) |
Total change in net assets | | | $(3,425,839 | ) | | | $(36,614,988 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 137,102,885 | | | | 173,717,873 | |
At end of period (including undistributed net investment income of $4,967,822 and
$2,703,057, respectively) | | | $133,677,046 | | | | $137,102,885 | |
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended 6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $11.94 | | | | $13.69 | | | | $12.54 | | | | $9.94 | | | | $19.92 | | | | $19.94 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.22 | | | | $0.25 | | | | $0.20 | | | | $0.17 | | | | $0.37 | | | | $0.30 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.18 | | | | (1.72 | ) | | | 1.12 | | | | 2.77 | | | | (7.71 | ) | | | 2.21 | |
Total from investment operations | | | $0.40 | | | | $(1.47 | ) | | | $1.32 | | | | $2.94 | | | | $(7.34 | ) | | | $2.51 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.28 | ) | | | $(0.17 | ) | | | $(0.34 | ) | | | $(0.29 | ) | | | $(0.23 | ) |
From net realized gain on investments | | | — | | | | — | | | | — | | | | — | | | | (2.35 | ) | | | (2.30 | ) |
Total distributions declared to shareholders | | | $— | | | | $(0.28 | ) | | | $(0.17 | ) | | | $(0.34 | ) | | | $(2.64 | ) | | | $(2.53 | ) |
Net asset value, end of period (x) | | | $12.34 | | | | $11.94 | | | | $13.69 | | | | $12.54 | | | | $9.94 | | | | $19.92 | |
Total return (%) (k)(r)(s)(x) | | | 3.35 | (n) | | | (10.88 | ) | | | 10.63 | | | | 30.94 | | | | (42.49 | ) | | | 13.15 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.10 | (a) | | | 1.14 | | | | 1.12 | | | | 1.18 | | | | 1.17 | | | | 1.06 | |
Expenses after expense reductions (f) | | | 1.10 | (a) | | | 1.10 | | | | 1.10 | | | | 1.10 | | | | 1.11 | | | | 1.06 | |
Net investment income | | | 3.49 | (a) | | | 1.89 | | | | 1.66 | | | | 1.62 | | | | 2.43 | | | | 1.51 | |
Portfolio turnover | | | 21 | (n) | | | 45 | | | | 60 | | | | 75 | | | | 82 | | | | 68 | |
Net assets at end of period (000 omitted) | | | $39,359 | | | | $40,134 | | | | $52,239 | | | | $93,714 | | | | $45,835 | | | | $108,167 | |
| | |
| Service Class | | Six months
ended 6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $11.80 | | | | $13.52 | | | | $12.39 | | | | $9.82 | | | | $19.70 | | | | $19.77 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.20 | | | | $0.22 | | | | $0.16 | | | | $0.17 | | | | $0.32 | | | | $0.23 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.18 | | | | (1.70 | ) | | | 1.11 | | | | 2.70 | | | | (7.61 | ) | | | 2.20 | |
Total from investment operations | | | $0.38 | | | | $(1.48 | ) | | | $1.27 | | | | $2.87 | | | | $(7.29 | ) | | | $2.43 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.24 | ) | | | $(0.14 | ) | | | $(0.30 | ) | | | $(0.24 | ) | | | $(0.20 | ) |
From net realized gain on investments | | | — | | | | — | | | | — | | | | — | | | | (2.35 | ) | | | (2.30 | ) |
Total distributions declared to shareholders | | | $— | | | | $(0.24 | ) | | | $(0.14 | ) | | | $(0.30 | ) | | | $(2.59 | ) | | | $(2.50 | ) |
Net asset value, end of period (x) | | | $12.18 | | | | $11.80 | | | | $13.52 | | | | $12.39 | | | | $9.82 | | | | $19.70 | |
Total return (%) (k)(r)(s)(x) | | | 3.22 | (n) | | | (11.06 | ) | | | 10.34 | | | | 30.50 | | | | (42.60 | ) | | | 12.81 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.35 | (a) | | | 1.39 | | | | 1.37 | | | | 1.43 | | | | 1.42 | | | | 1.31 | |
Expenses after expense reductions (f) | | | 1.35 | (a) | | | 1.35 | | | | 1.35 | | | | 1.35 | | | | 1.36 | | | | 1.31 | |
Net investment income | | | 3.21 | (a) | | | 1.64 | | | | 1.31 | | | | 1.64 | | | | 2.17 | | | | 1.19 | |
Portfolio turnover | | | 21 | (n) | | | 45 | | | | 60 | | | | 75 | | | | 82 | | | | 68 | |
Net assets at end of period (000 omitted) | | | $94,318 | | | | $96,969 | | | | $121,479 | | | | $126,055 | | | | $113,966 | | | | $202,567 | |
See Notes to Financial Statements
10
MFS Research International Portfolio
Financial Highlights – continued
| (d) | | Per share data is based on average shares outstanding. |
| (f) | | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | | Certain expenses have been reduced without which performance would have been lower. |
| (s) | | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | | The net asset values per share 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 series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance
12
MFS Research International Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
Japan | | | $1,888,753 | | | | $29,405,446 | | | | $— | | | | $31,294,199 | |
United Kingdom | | | 1,809,175 | | | | 24,883,190 | | | | — | | | | 26,692,365 | |
Switzerland | | | — | | | | 14,758,237 | | | | — | | | | 14,758,237 | |
France | | | 2,601,473 | | | | 8,090,823 | | | | — | | | | 10,692,296 | |
Germany | | | 1,071,856 | | | | 9,133,412 | | | | — | | | | 10,205,268 | |
Hong Kong | | | — | | | | 6,254,222 | | | | — | | | | 6,254,222 | |
Netherlands | | | — | | | | 6,160,424 | | | | — | | | | 6,160,424 | |
Australia | | | — | | | | 5,171,836 | | | | — | | | | 5,171,836 | |
Brazil | | | 3,652,309 | | | | — | | | | — | | | | 3,652,309 | |
Other Countries | | | 6,434,600 | | | | 11,128,575 | | | | — | | | | 17,563,175 | |
| Mutual Funds | | | 3,073,486 | | | | — | | | | — | | | | 3,073,486 | |
| Total Investments | | | $20,531,652 | | | | $114,986,165 | | | | $— | | | | $135,517,817 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 2 investments presented above, equity investments amounting to $60,938,575 would have been considered level 1 investments at the beginning of the period. Of the level 1 investments presented above, equity investments amounting to $3,470,499 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
13
MFS Research International 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $2,878,963 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $146,037,006 | |
| Gross appreciation | | | 8,765,540 | |
| Gross depreciation | | | (19,284,729 | ) |
| Net unrealized appreciation (depreciation) | | | $(10,519,189 | ) |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 2,709,587 | |
| Capital loss carryforwards | | | (22,336,861 | ) |
| Other temporary differences | | | (15,220 | ) |
| Net unrealized appreciation (depreciation) | | | (15,619,064 | ) |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
14
MFS Research International Portfolio
Notes to Financial Statements (unaudited) – continued
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/16 | | | $(10,292,409 | ) |
| 12/31/17 | | | (12,044,452 | ) |
| Total | | | $(22,336,861 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $962,485 | |
| Service Class | | | — | | | | 1,916,478 | |
| Total | | | $— | | | | $2,878,963 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.90% | |
| Next $1 billion of average daily net assets | | | 0.80% | |
| Average daily net assets in excess of $2 billion | | | 0.70% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 1.10% of average daily net assets for the Initial Class shares and 1.35% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2014. For the six months ended June 30, 2012, this reduction amounted to $1,611 and is reflected as a reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2012, the fee was $7,059, which equated to 0.0103% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2012, these costs amounted to $10.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0222% 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
15
MFS Research International Portfolio
Notes to Financial Statements (unaudited) – continued
to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $716 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $355, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions and short-term obligations, aggregated $28,954,421 and $35,340,271, 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 45,490 | | | | $561,490 | | | | 190,579 | | | | $2,456,622 | |
Service Class | | | 425,739 | | | | 4,972,604 | | | | 833,151 | | | | 10,165,576 | |
| | | 471,229 | | | | $5,534,094 | | | | 1,023,730 | | | | $12,622,198 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 74,902 | | | | $962,485 | |
Service Class | | | — | | | | — | | | | 150,785 | | | | 1,916,478 | |
| | | — | | | | $— | | | | 225,687 | | | | $2,878,963 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (215,821 | ) | | | $(2,720,027 | ) | | | (721,768 | ) | | | $(9,666,839 | ) |
Service Class | | | (896,189 | ) | | | (11,215,297 | ) | | | (1,750,964 | ) | | | (23,382,213 | ) |
| | | (1,112,010 | ) | | | $(13,935,324 | ) | | | (2,472,732 | ) | | | $(33,049,052 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (170,331 | ) | | | $(2,158,537 | ) | | | (456,287 | ) | | | $(6,247,732 | ) |
Service Class | | | (470,450 | ) | | | (6,242,693 | ) | | | (767,028 | ) | | | (11,300,159 | ) |
| | | (640,781 | ) | | | $(8,401,230 | ) | | | (1,223,315 | ) | | | $(17,547,891 | ) |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $470 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
16
MFS Research International Portfolio
Notes to Financial Statements (unaudited) – continued
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 301,201 | | | | 18,618,928 | | | | (18,362,707 | ) | | | 557,422 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $414 | | | | $557,422 | |
17
MFS Research International Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
18
SEMIANNUAL REPORT
June 30, 2012
MFS® GLOBAL GOVERNMENTS PORTFOLIO
MFS® Variable Insurance Trust II
WGS-SEM
MFS® GLOBAL GOVERNMENTS PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Governments Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Global Governments Portfolio
PORTFOLIO COMPOSITION
Portfolio structure (i)
| | | | |
| Fixed income sectors (i) | | | | |
| Non-U.S. Government Bonds | | | 62.3% | |
| U.S. Treasury Securities | | | 19.9% | |
| Mortgage-Backed Securities | | | 3.4% | |
| U.S. Government Agencies | | | 2.4% | |
| Commercial Mortgage-Backed Securities | | | 0.6% | |
| High Grade Corporates | | | 0.6% | |
|
| Composition including fixed income credit quality (a)(i) | |
| AAA | | | 30.1% | |
| AA | | | 1.8% | |
| A | | | 30.9% | |
| BB | | | 0.6% | |
| B | | | 0.1% | |
| CCC (o) | | | 0.0% | |
| U.S. Government | | | 19.9% | |
| Federal Agencies | | | 5.8% | |
| Cash & Other | | | 10.8% | |
| | | | |
| Portfolio facts (i) | | | | |
| Average Duration (d) | | | 6.8 | |
| Average Effective Maturity (m) | | | 9.5 yrs. | |
| |
| Issuer country weightings (i)(x) | | | | |
| United States | | | 36.7% | |
| Japan | | | 24.5% | |
| Germany | | | 9.9% | |
| Italy | | | 5.9% | |
| United Kingdom | | | 5.5% | |
| Canada | | | 3.4% | |
| Netherlands | | | 3.2% | |
| France | | | 3.2% | |
| Australia | | | 2.0% | |
| Other Countries | | | 5.7% | |
| |
| Currency exposure (i)(y) | | | | |
| United States Dollar | | | 35.8% | |
| Japanese Yen | | | 31.3% | |
| Euro | | | 22.6% | |
| British Pound Sterling | | | 6.9% | |
| Canadian Dollar | | | 1.7% | |
| Australian Dollar | | | 0.7% | |
| Danish Krone | | | 0.6% | |
| Swedish Krona | | | 0.4% | |
| New Zealand Dollar (o) | | | 0.0% | |
| Norwegian Krone (o) | | | (0.0)% | |
| (a) | | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). 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. Cash & Other includes cash, other assets less liabilities, offsets to derivative positions, and short-term securities. The fund may not hold all of these instruments. The fund 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 market 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. The bond component will include any accrued interest amounts. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio. |
| (m) | | In determining an instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (x) | | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. |
| (y) | | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. |
Percentages are based on net assets as of 6/30/12.
The portfolio is actively managed and current holdings may be different.
2
MFS Global Governments Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders During the Period,
January 1, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 1.00% | | | | $1,000.00 | | | | $999.11 | | | | $4.97 | |
| | Hypothetical (h) | | | 1.00% | | | | $1,000.00 | | | | $1,019.89 | | | | $5.02 | |
| Service Class | | Actual | | | 1.25% | | | | $1,000.00 | | | | $998.20 | | | | $6.21 | |
| | Hypothetical (h) | | | 1.25% | | | | $1,000.00 | | | | $1,018.65 | | | | $6.27 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Global Governments Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – 88.2% | | | | | | | | |
| Foreign Bonds – 62.5% | | | | | | | | |
| Australia – 2.0% | | | | | | | | |
Commonwealth of Australia,
5.75%, 2021 | | AUD | 565,000 | | | $ | 704,290 | |
| | | | | | | | |
| Belgium – 1.3% | | | | | | | | |
| Kingdom of Belgium, 4.25%, 2021 | | EUR | 330,000 | | | $ | 456,912 | |
| | | | | | | | |
| Canada – 3.4% | | | | | | | | |
Bayview Commercial Asset Trust,
FRN, 1.72%, 2023 (z) | | CAD | 180,000 | | | $ | 174,601 | |
| Government of Canada, 4.5%, 2015 | | CAD | 370,000 | | | | 398,645 | |
| Government of Canada, 4.25%, 2018 | | CAD | 12,000 | | | | 13,703 | |
| Government of Canada, 3.25%, 2021 | | CAD | 224,000 | | | | 249,390 | |
| Government of Canada, 5.75%, 2033 | | CAD | 229,000 | | | | 352,938 | |
| | | | | | | | |
| | | | | | $ | 1,189,277 | |
| | | | | | | | |
| Denmark – 1.0% | | | | | | | | |
| Kingdom of Denmark, 3%, 2021 | | DKK | 1,792,000 | | | $ | 345,870 | |
| | | | | | | | |
| France – 3.1% | | | | | | | | |
| Republic of France, 6%, 2025 | | EUR | 207,000 | | | $ | 343,139 | |
| Republic of France, 4.75%, 2035 | | EUR | 489,000 | | | | 737,298 | |
| | | | | | | | |
| | | | | | $ | 1,080,437 | |
| | | | | | | | |
| Germany – 9.6% | | | | | | | | |
Federal Republic of Germany,
3.75%, 2013 | | EUR | 1,244,000 | | | $ | 1,632,183 | |
Federal Republic of Germany,
3.75%, 2015 | | EUR | 366,000 | | | | 504,525 | |
Federal Republic of Germany,
4.25%, 2018 | | EUR | 221,000 | | | | 334,690 | |
Federal Republic of Germany,
3.25%, 2021 | | EUR | 308,000 | | | | 449,542 | |
Federal Republic of Germany,
6.25%, 2030 | | EUR | 213,000 | | | | 423,152 | |
| | | | | | | | |
| | | | | | $ | 3,344,092 | |
| | | | | | | | |
| Italy – 5.8% | | | | | | | | |
| Republic of Italy, 4.25%, 2015 | | EUR | 192,000 | | | $ | 244,319 | |
| Republic of Italy, 5.25%, 2017 | | EUR | 1,249,000 | | | | 1,593,106 | |
| Republic of Italy, 3.75%, 2021 | | EUR | 169,000 | | | | 189,685 | |
| | | | | | | | |
| | | | | | $ | 2,027,110 | |
| | | | | | | | |
| Japan – 24.3% | | | | | | | | |
| Government of Japan, 1.7%, 2017 | | JPY | 213,450,000 | | | $ | 2,858,841 | |
| Government of Japan, 1.1%, 2020 | | JPY | 92,200,000 | | | | 1,200,071 | |
| Government of Japan, 2.1%, 2024 | | JPY | 122,550,000 | | | | 1,711,942 | |
| Government of Japan, 2.2%, 2027 | | JPY | 123,900,000 | | | | 1,726,042 | |
| Government of Japan, 2.4%, 2037 | | JPY | 71,300,000 | | | | 994,682 | |
| | | | | | | | |
| | | | | | $ | 8,491,578 | |
| | | | | | | | |
| Netherlands – 3.2% | | | | | | | | |
ABN AMRO Bank N.V., FRN,
2.235%, 2014 (n) | | $ | 200,000 | | | $ | 200,075 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Foreign Bonds – continued | | | | | | | | |
| Netherlands – continued | | | | | | | | |
Kingdom of the Netherlands,
3.75%, 2014 | | EUR | 510,000 | | | $ | 690,325 | |
Kingdom of the Netherlands,
3.5%, 2020 | | EUR | 37,000 | | | | 52,564 | |
Kingdom of the Netherlands,
5.5%, 2028 | | EUR | 90,000 | | | | 157,213 | |
| | | | | | | | |
| | | | | | $ | 1,100,177 | |
| | | | | | | | |
| New Zealand – 0.4% | | | | | | | | |
| Government of New Zealand, 6%, 2021 | | NZD | 149,000 | | | $ | 143,404 | |
| | | | | | | | |
| Norway – 1.1% | | | | | | | | |
| Eksportfinans A.S.A., 1.875%, 2013 | | $ | 205,000 | | | $ | 200,910 | |
| Government of Norway, 3.75%, 2021 | | NOK | 990,000 | | | | 191,323 | |
| | | | | | | | |
| | | | | | $ | 392,233 | |
| | | | | | | | |
| Sweden – 1.8% | | | | | | | | |
| Kingdom of Sweden, 5%, 2020 | | SEK | 3,380,000 | | | $ | 623,075 | |
| | | | | | | | |
| United Kingdom – 5.5% | | | | | | | | |
| United Kingdom Treasury, 8%, 2021 | | GBP | 133,100 | | | $ | 320,495 | |
| United Kingdom Treasury, 4.25%, 2027 | | GBP | 355,000 | | | | 690,398 | |
| United Kingdom Treasury, 4.25%, 2036 | | GBP | 471,000 | | | | 909,458 | |
| | | | | | | | |
| | | | | | $ | 1,920,351 | |
| | | | | | | | |
| Total Foreign Bonds | | | | | | $ | 21,818,806 | |
| | | | | | | | |
| U.S. Bonds – 25.7% | | | | | | | | |
| Asset-Backed & Securitized – 0.1% | |
| Commercial Mortgage Asset Trust, FRN, 0.964%, 2032 (i)(z) | | $ | 4,964,921 | | | $ | 40,335 | |
| First Union National Bank Commercial Mortgage Trust, FRN, 1.819%, 2043 (i)(z) | | | 317,378 | | | | 506 | |
| | | | | | | | |
| | | | | | $ | 40,841 | |
| | | | | | | | |
| Mortgage-Backed – 3.4% | | | | | | | | |
| Fannie Mae, 4.757%, 2012 | | $ | 126,029 | | | $ | 125,986 | |
| Fannie Mae, 5.357%, 2013 | | | 108,335 | | | | 108,295 | |
| Fannie Mae, 4.78%, 2015 | | | 88,943 | | | | 96,532 | |
| Fannie Mae, 4.856%, 2015 | | | 42,782 | | | | 46,370 | |
| Fannie Mae, 5.5%, 2015 | | | 47,645 | | | | 51,599 | |
| Fannie Mae, 5.09%, 2016 | | | 84,000 | | | | 93,485 | |
| Fannie Mae, 5.423%, 2016 | | | 87,787 | | | | 99,213 | |
| Fannie Mae, 5.05%, 2017 | | | 52,257 | | | | 58,284 | |
| Fannie Mae, 5.16%, 2018 | | | 137,910 | | | | 153,266 | |
| Fannie Mae, 5.1%, 2019 | | | 62,459 | | | | 71,485 | |
| Fannie Mae, 5.18%, 2019 | | | 62,500 | | | | 71,745 | |
| Fannie Mae, 6.16%, 2019 | | | 46,546 | | | | 53,250 | |
| Freddie Mac, 3.882%, 2017 | | | 89,000 | | | | 98,690 | |
| Freddie Mac, 5.085%, 2019 | | | 43,000 | | | | 50,424 | |
| | | | | | | | |
| | | | | | $ | 1,178,624 | |
| | | | | | | | |
| U.S. Government Agencies and Equivalents – 2.4% | |
| Aid-Egypt, 4.45%, 2015 | | $ | 301,000 | | | $ | 337,030 | |
4
MFS Global Governments Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| U.S. Bonds – continued | | | | | | | | |
| U.S. Government Agencies and Equivalents – continued | |
| Small Business Administration, 4.57%, 2025 | | $ | 24,371 | | | $ | 27,164 | |
| Small Business Administration, 5.09%, 2025 | | | 27,432 | | | | 30,845 | |
| Small Business Administration, 5.21%, 2026 | | | 399,938 | | | | 443,453 | |
| | | | | | | | |
| | | | | | $ | 838,492 | |
| | | | | | | | |
| U.S. Treasury Obligations – 19.8% | | | | | |
| U.S. Treasury Bonds, 6.875%, 2025 | | $ | 255,000 | | | $ | 398,318 | |
| U.S. Treasury Bonds, 5.25%, 2029 | | | 101,000 | | | | 142,473 | |
| U.S. Treasury Bonds, 4.5%, 2039 | | | 1,114,400 | | | | 1,512,102 | |
| U.S. Treasury Notes, 4.125%, 2015 | | | 1,984,000 | | | | 2,192,475 | |
| U.S. Treasury Notes, 4.75%, 2017 | | | 1,825,000 | | | | 2,189,286 | |
| U.S. Treasury Notes, 3.5%, 2020 | | | 388,000 | | | | 453,354 | |
| | | | | | | | |
| | | | | | $ | 6,888,008 | |
| | | | | | | | |
| Total U.S. Bonds | | | | | | $ | 8,945,965 | |
| | | | | | | | |
Total Bonds
(Identified Cost, $28,071,379) | | | | | | $ | 30,764,771 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| SHORT-TERM OBLIGATIONS – 2.3% | |
| National Australia Funding, 0.06%, due 7/02/12 at Amortized Cost and Value (t)(y) | | $ | 803,000 | | | $ | 802,999 | |
| | | | | | | | |
|
| REPURCHASE AGREEMENTS – 5.2% | |
| Merrill Lynch, Pierce, Fenner & Smith, 0.14%, dated 6/29/12, due 7/02/12, total to be received $1,817,021 (secured by U.S. Treasury and Federal Agency obligations valued at $1,853,342 in a jointly traded account), at Cost and Value, | | $ | 1,817,000 | | | $ | 1,817,000 | |
| | | | | | | | |
|
| MONEY MARKET FUNDS – 2.6% | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 923,708 | | | $ | 923,708 | |
| | | | | | | | |
Total Investments
(Identified Cost, $31,615,086) | | | | | | $ | 34,308,478 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 1.7% | | | | | | | 591,996 | |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 34,900,474 | |
| | | | | | | | |
| (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 $200,075, representing 0.6% of net assets. |
| (t) | | Security exempt from registration with the U.S. Securities and Exchange Commission under Section 4(2) of the Securities Act of 1933. |
| (v) | | Underlying affiliated fund 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. |
| (y) | | The rate shown represents an annualized yield at time of purchase. |
| (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 | |
| Bayview Commercial Asset Trust, FRN, 1.72%, 2023 | | 5/25/06 | | | $180,261 | | | | $174,601 | |
| Commercial Mortgage Asset Trust, FRN, 0.964%, 2032 | | 8/25/03-12/02/11 | | | 48,296 | | | | 40,335 | |
| First Union National Bank Commercial Mortgage Trust, FRN, 1.819%, 2043 | | 12/11/03-11/30/11 | | | 683 | | | | 506 | |
| Total Restricted Securities | | | | | | | | | $215,442 | |
| % of Net assets | | | | | | | | | 0.6% | |
The following abbreviations are used in this report and are defined:
| FRN | | Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end. |
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:
5
MFS Global Governments Portfolio
Portfolio of Investments (unaudited) – continued
Derivative Contracts at 6/30/12
Forward Foreign Currency Exchange Contracts at 6/30/12
| | | | | | | | | | | | | | | | | | | | | | | | |
| Type | | Currency | | | Counterparty | | Contracts to
Deliver/Receive | | Settlement Date
Range | | In Exchange For | | | Contracts
at Value | | | Net Unrealized
Appreciation
(Depreciation) | |
| Asset Derivatives | | | | | | | | | | | | | | | | |
| SELL | | | AUD | | | Barclays Bank PLC | | 31,000 | | 7/13/12 | | $ | 31,745 | | | $ | 31,698 | | | $ | 47 | |
| SELL | | | AUD | | | Credit Suisse Group | | 15,000 | | 7/13/12 | | | 15,383 | | | | 15,338 | | | | 45 | |
| SELL | | | AUD | | | JPMorgan Chase Bank N.A. | | 6,000 | | 7/13/12 | | | 6,161 | | | | 6,135 | | | | 26 | |
| BUY | | | CAD | | | Barclays Bank PLC | | 17,000 | | 7/13/12 | | | 16,592 | | | | 16,694 | | | | 102 | |
| BUY | | | CAD | | | Citibank N.A. | | 15,000 | | 7/13/12 | | | 14,410 | | | | 14,730 | | | | 320 | |
| SELL | | | CAD | | | Barclays Bank PLC | | 34,000 | | 7/13/12 | | | 34,335 | | | | 33,388 | | | | 947 | |
| SELL | | | CAD | | | Goldman Sachs International | | 21,037 | | 7/13/12 | | | 20,979 | | | | 20,658 | | | | 321 | |
| SELL | | | CAD | | | Merrill Lynch International Bank | | 552,662 | | 7/13/12 | | | 551,311 | | | | 542,718 | | | | 8,593 | |
| SELL | | | DKK | | | Goldman Sachs International | | 16,356 | | 7/13/12 | | | 2,875 | | | | 2,785 | | | | 90 | |
| BUY | | | EUR | | | Barclays Bank PLC | | 111,924 | | 7/13/12 | | | 138,612 | | | | 141,652 | | | | 3,040 | |
| BUY | | | EUR | | | Citibank N.A. | | 159,935 | | 7/13/12 | | | 201,827 | | | | 202,414 | | | | 587 | |
| BUY | | | EUR | | | Merrill Lynch International Bank | | 45,000 | | 7/13/12 | | | 56,301 | | | | 56,952 | | | | 651 | |
| SELL | | | EUR | | | Barclays Bank PLC | | 71,809 | | 7/13/12 | | | 92,735 | | | | 90,882 | | | | 1,853 | |
| SELL | | | EUR | | | Citibank N.A. | | 67,000 | | 7/13/12 | | | 87,998 | | | | 84,795 | | | | 3,203 | |
| SELL | | | EUR | | | Deutsche Bank AG | | 168,000 | | 7/13/12 | | | 217,678 | | | | 212,621 | | | | 5,057 | |
| BUY | | | GBP | | | Barclays Bank PLC | | 18,000 | | 7/13/12 | | | 27,843 | | | | 28,190 | | | | 347 | |
| BUY | | | GBP | | | Deutsche Bank AG | | 12,000 | | 7/13/12 | | | 18,456 | | | | 18,793 | | | | 337 | |
| SELL | | | GBP | | | Barclays Bank PLC | | 15,000 | | 7/13/12 | | | 23,500 | | | | 23,492 | | | | 8 | |
| SELL | | | GBP | | | Deutsche Bank AG | | 6,000 | | 7/13/12 | | | 9,477 | | | | 9,397 | | | | 80 | |
| BUY | | | JPY | | | Barclays Bank PLC | | 15,916,000 | | 7/13/12 | | | 197,523 | | | | 199,140 | | | | 1,617 | |
| BUY | | | JPY | | | Goldman Sachs International | | 110,840,912 | | 7/13/12 | | | 1,372,379 | | | | 1,386,836 | | | | 14,457 | |
| BUY | | | JPY | | | UBS AG | | 110,840,912 | | 7/13/12 | | | 1,368,200 | | | | 1,386,836 | | | | 18,636 | |
| SELL | | | JPY | | | Barclays Bank PLC | | 7,825,000 | | 7/13/12 | | | 98,522 | | | | 97,906 | | | | 616 | |
| SELL | | | JPY | | | Citibank N.A. | | 5,684,015 | | 7/13/12 | | | 71,923 | | | | 71,118 | | | | 805 | |
| SELL | | | JPY | | | Credit Suisse Group | | 16,545,212 | | 7/13/12 | | | 208,278 | | | | 207,013 | | | | 1,265 | |
| SELL | | | JPY | | | Deutsche Bank AG | | 10,599,000 | | 7/13/12 | | | 135,373 | | | | 132,614 | | | | 2,759 | |
| SELL | | | JPY | | | Morgan Stanley Capital Services, Inc. | | 7,004,000 | | 7/13/12 | | | 88,206 | | | | 87,634 | | | | 572 | |
| SELL | | | NOK | | | Barclays Bank PLC | | 1,129,167 | | 7/12/12 | | | 193,547 | | | | 189,758 | | | | 3,789 | |
| SELL | | | NOK | | | Deutsche Bank AG | | 33,000 | | 7/13/12 | | | 5,636 | | | | 5,545 | | | | 91 | |
| BUY | | | SEK | | | Deutsche Bank AG | | 82,000 | | 7/13/12 | | | 11,611 | | | | 11,850 | | | | 239 | |
| SELL | | | SEK | | | Barclays Bank PLC | | 82,000 | | 7/13/12 | | | 12,099 | | | | 11,850 | | | | 249 | |
| SELL | | | SEK | | | Credit Suisse Group | | 3,257,000 | | 7/13/12 | | | 477,105 | | | | 470,664 | | | | 6,441 | |
| SELL | | | SEK | | | Deutsche Bank AG | | 29,000 | | 7/13/12 | | | 4,257 | | | | 4,191 | | | | 66 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | 77,256 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Liability Derivatives | | | | | | | | | | | | | | | | |
| SELL | | | AUD | | | Citibank N.A. | | 103,000 | | 7/13/12 | | $ | 103,404 | | | $ | 105,321 | | | $ | (1,917 | ) |
| SELL | | | AUD | | | UBS AG | | 4,699 | | 7/13/12 | | | 4,787 | | | | 4,805 | | | | (18 | ) |
| SELL | | | AUD | | | Westpac Banking Corp. | | 306,502 | | 7/13/12 | | | 312,201 | | | | 313,407 | | | | (1,206 | ) |
| SELL | | | CAD | | | Citibank N.A. | | 17,000 | | 7/13/12 | | | 16,336 | | | | 16,694 | | | | (358 | ) |
| SELL | | | DKK | | | Barclays Bank PLC | | 61,029 | | 7/13/12 | | | 10,297 | | | | 10,391 | | | | (94 | ) |
| SELL | | | DKK | | | Credit Suisse Group | | 766,529 | | 7/13/12 | | | 127,821 | | | | 130,510 | | | | (2,689 | ) |
| BUY | | | EUR | | | Barclays Bank PLC | | 63,586 | | 7/13/12 | | | 83,120 | | | | 80,475 | | | | (2,645 | ) |
| BUY | | | EUR | | | Citibank N.A. | | 199,545 | | 7/13/12 | | | 255,425 | | | | 252,544 | | | | (2,881 | ) |
| BUY | | | EUR | | | Credit Suisse Group | | 93,884 | | 7/13/12 | | | 121,498 | | | | 118,820 | | | | (2,678 | ) |
| BUY | | | EUR | | | Deutsche Bank AG | | 54,000 | | 7/13/12 | | | 71,620 | | | | 68,342 | | | | (3,278 | ) |
| BUY | | | EUR | | | JPMorgan Chase Bank N.A. | | 769,282 | | 7/13/12 | | | 1,005,821 | | | | 973,603 | | | | (32,218 | ) |
| BUY | | | EUR | | | UBS AG | | 268,728 | | 7/13/12 | | | 340,180 | | | | 340,102 | | | | (78 | ) |
| SELL | | | EUR | | | Barclays Bank PLC | | 70,353 | | 7/13/12 | | | 88,000 | | | | 89,038 | | | | (1,038 | ) |
| SELL | | | EUR | | | Credit Suisse Group | | 31,000 | | 7/13/12 | | | 38,389 | | | | 39,234 | | | | (845 | ) |
6
MFS Global Governments Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | | | | | | | | | | | | | | | | | |
| Type | | Currency | | | Counterparty | | Contracts to
Deliver/Receive | | Settlement Date
Range | | In Exchange For | | | Contracts
at Value | | | Net Unrealized
Appreciation
(Depreciation) | |
| Liability Derivatives – continued | | | | | | | | | | | | | | | | |
| SELL | | | EUR | | | Merrill Lynch International Bank | | 55,000 | | 7/13/12 | | $ | 68,553 | | | $ | 69,608 | | | $ | (1,055 | ) |
| SELL | | | EUR | | | Morgan Stanley Capital Services, Inc. | | 31,208 | | 7/13/12 | | | 39,000 | | | | 39,496 | | | | (496 | ) |
| SELL | | | EUR | | | UBS AG | | 1,353,622 | | 9/17/12 | | | 1,690,295 | | | | 1,714,246 | | | | (23,951 | ) |
| BUY | | | GBP | | | Barclays Bank PLC | | 155,394 | | 7/13/12 | | | 246,293 | | | | 243,365 | | | | (2,928 | ) |
| BUY | | | GBP | | | Deutsche Bank AG | | 155,394 | | 7/13/12 | | | 246,248 | | | | 243,365 | | | | (2,883 | ) |
| SELL | | | GBP | | | Barclays Bank PLC | | 6,000 | | 7/13/12 | | | 9,396 | | | | 9,397 | | | | (1 | ) |
| SELL | | | GBP | | | Deutsche Bank AG | | 13,000 | | 7/13/12 | | | 19,973 | | | | 20,359 | | | | (386 | ) |
| BUY | | | JPY | | | Citibank N.A. | | 8,989,329 | | 7/13/12 | | | 112,566 | | | | 112,474 | | | | (92 | ) |
| BUY | | | JPY | | | Goldman Sachs International | | 4,235,000 | | 7/13/12 | | | 53,359 | | | | 52,988 | | | | (371 | ) |
| BUY | | | JPY | | | JPMorgan Chase Bank N.A. | | 2,849,000 | | 7/13/12 | | | 35,825 | | | | 35,647 | | | | (178 | ) |
| SELL | | | JPY | | | Credit Suisse Group | | 7,709,000 | | 7/13/12 | | | 96,098 | | | | 96,455 | | | | (357 | ) |
| SELL | | | JPY | | | JPMorgan Chase Bank N.A. | | 2,902,000 | | 7/13/12 | | | 35,556 | | | | 36,310 | | | | (754 | ) |
| SELL | | | JPY | | | UBS AG | | 4,340,000 | | 7/13/12 | | | 53,425 | | | | 54,302 | | | | (877 | ) |
| SELL | | | NZD | | | Citibank N.A. | | 179,912 | | 7/13/12 | | | 135,380 | | | | 143,916 | | | | (8,536 | ) |
| SELL | | | SEK | | | Citibank N.A. | | 99,000 | | 7/13/12 | | | 13,769 | | | | 14,306 | | | | (537 | ) |
| SELL | | | SEK | | | Goldman Sachs International | | 51,000 | | 7/13/12 | | | 7,079 | | | | 7,370 | | | | (291 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | (95,636 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
See Notes to Financial Statements
7
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $30,691,378) | | | $33,384,770 | | | | | |
Underlying affiliated funds, at cost and value | | | 923,708 | | | | | |
Total investments, at value (identified cost, $31,615,086) | | | $34,308,478 | | | | | |
Cash | | | 777 | | | | | |
Receivables for | | | | | | | | |
Forward foreign currency exchange contracts | | | 77,256 | | | | | |
Investments sold | | | 452,714 | | | | | |
Interest | | | 387,648 | | | | | |
Receivable from investment adviser | | | 1,138 | | | | | |
Other assets | | | 337 | | | | | |
Total assets | | | | | | | $35,228,348 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Forward foreign currency exchange contracts | | | $95,636 | | | | | |
Investments purchased | | | 173,461 | | | | | |
Fund shares reacquired | | | 21,060 | | | | | |
Payable to affiliates | | | | | | | | |
Distribution and/or service fees | | | 48 | | | | | |
Payable for independent Trustees’ compensation | | | 3 | | | | | |
Accrued expenses and other liabilities | | | 37,666 | | | | | |
Total liabilities | | | | | | | $327,874 | |
Net assets | | | | | | | $34,900,474 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $32,048,146 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 2,665,476 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (846,820 | ) | | | | |
Undistributed net investment income | | | 1,033,672 | | | | | |
Net assets | | | | | | | $34,900,474 | |
Shares of beneficial interest outstanding | | | | | | | 3,097,115 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $32,540,052 | | | | 2,884,692 | | | | $11.28 | |
Service Class | | | 2,360,422 | | | | 212,423 | | | | 11.11 | |
See Notes to Financial Statements
8
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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Interest | | | $394,734 | | | | | |
Dividends from underlying affiliated funds | | | 492 | | | | | |
Total investment income | | | | | | | $395,226 | |
Expenses | | | | | | | | |
Management fee | | | $133,632 | | | | | |
Distribution and/or service fees | | | 3,126 | | | | | |
Administrative services fee | | | 8,701 | | | | | |
Independent Trustees’ compensation | | | 903 | | | | | |
Custodian fee | | | 13,100 | | | | | |
Shareholder communications | | | 3,829 | | | | | |
Audit and tax fees | | | 29,500 | | | | | |
Legal fees | | | 354 | | | | | |
Miscellaneous | | | 5,219 | | | | | |
Total expenses | | | | | | | $198,364 | |
Fees paid indirectly | | | (13 | ) | | | | |
Reduction of expenses by investment adviser | | | (16,916 | ) | | | | |
Net expenses | | | | | | | $181,435 | |
Net investment income | | | | | | | $213,791 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $(76,823 | ) | | | | |
Foreign currency | | | (183,156 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $(259,979 | ) |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $(19,475 | ) | | | | |
Translation of assets and liabilities in foreign currencies | | | 41,164 | | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $21,689 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $(238,290 | ) |
Change in net assets from operations | | | | | | | $(24,499 | ) |
See Notes to Financial Statements
9
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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $213,791 | | | | $505,450 | |
Net realized gain (loss) on investments and foreign currency | | | (259,979 | ) | | | 485,865 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 21,689 | | | | 890,990 | |
Change in net assets from operations | | | $(24,499 | ) | | | $1,882,305 | |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(707,802 | ) |
From net realized gain on investments | | | — | | | | (327,622 | ) |
Total distributions declared to shareholders | | | $— | | | | $(1,035,424 | ) |
Change in net assets from fund share transactions | | | $(1,944,296 | ) | | | $2,882,411 | |
Total change in net assets | | | $(1,968,795 | ) | | | $3,729,292 | |
| Net assets | | | | | | | | |
At beginning of period | | | 36,869,269 | | | | 33,139,977 | |
At end of period (including undistributed net investment income of $1,033,672 and
$819,881, respectively) | | | $34,900,474 | | | | $36,869,269 | |
See Notes to Financial Statements
10
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $11.29 | | | | $11.00 | | | | $10.60 | | | | $11.59 | | | | $11.43 | | | | $10.70 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.07 | | | | $0.18 | | | | $0.18 | | | | $0.22 | | | | $0.26 | | | | $0.36 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | (0.08 | ) | | | 0.49 | | | | 0.30 | | | | 0.13 | | | | 0.84 | | | | 0.58 | |
Total from investment operations | | | $(0.01 | ) | | | $0.67 | | | | $0.48 | | | | $0.35 | | | | $1.10 | | | | $0.94 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.26 | ) | | | $— | | | | $(1.34 | ) | | | $(0.94 | ) | | | $(0.21 | ) |
From net realized gain on investments | | | — | | | | (0.12 | ) | | | (0.08 | ) | | | — | | | | — | | | | — | |
Total distributions declared to shareholders | | | $— | | | | $(0.38 | ) | | | $(0.08 | ) | | | $(1.34 | ) | | | $(0.94 | ) | | | $(0.21 | ) |
Net asset value, end of period (x) | | | $11.28 | | | | $11.29 | | | | $11.00 | | | | $10.60 | | | | $11.59 | | | | $11.43 | |
Total return (%) (k)(r)(s)(x) | | | (0.09 | )(n) | | | 6.06 | | | | 4.61 | | | | 4.06 | | | | 10.12 | | | | 8.99 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.10 | (a) | | | 1.14 | | | | 1.15 | | | | 1.16 | | | | 1.09 | | | | 1.08 | |
Expenses after expense reductions (f) | | | 1.00 | (a) | | | 1.00 | | | | 1.00 | | | | 1.00 | | | | 1.00 | | | | 1.00 | |
Net investment income | | | 1.22 | (a) | | | 1.59 | | | | 1.64 | | | | 2.08 | | | | 2.31 | | | | 3.33 | |
Portfolio turnover | | | 10 | (n) | | | 70 | | | | 66 | | | | 84 | | | | 113 | | | | 134 | |
Net assets at end of period (000 omitted) | | | $32,540 | | | | $34,252 | | | | $30,047 | | | | $32,034 | | | | $36,813 | | | | $36,559 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $11.13 | | | | $10.85 | | | | $10.48 | | | | $11.47 | | | | $11.32 | | | | $10.60 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.05 | | | | $0.15 | | | | $0.15 | | | | $0.19 | | | | $0.23 | | | | $0.33 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | (0.07 | ) | | | 0.48 | | | | 0.30 | | | | 0.12 | | | | 0.84 | | | | 0.58 | |
Total from investment operations | | | $(0.02 | ) | | | $0.63 | | | | $0.45 | | | | $0.31 | | | | $1.07 | | | | $0.91 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.23 | ) | | | $— | | | | $(1.30 | ) | | | $(0.92 | ) | | | $(0.19 | ) |
From net realized gain on investments | | | — | | | | (0.12 | ) | | | (0.08 | ) | | | — | | | | — | | | | — | |
Total distributions declared to shareholders | | | $— | | | | $(0.35 | ) | | | $(0.08 | ) | | | $(1.30 | ) | | | $(0.92 | ) | | | $(0.19 | ) |
Net asset value, end of period (x) | | | $11.11 | | | | $11.13 | | | | $10.85 | | | | $10.48 | | | | $11.47 | | | | $11.32 | |
Total return (%) (k)(r)(s)(x) | | | (0.18 | )(n) | | | 5.75 | | | | 4.38 | | | | 3.77 | | | | 9.93 | | | | 8.67 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.35 | (a) | | | 1.39 | | | | 1.40 | | | | 1.41 | | | | 1.35 | | | | 1.33 | |
Expenses after expense reductions (f) | | | 1.25 | (a) | | | 1.25 | | | | 1.25 | | | | 1.25 | | | | 1.25 | | | | 1.25 | |
Net investment income | | | 0.97 | (a) | | | 1.34 | | | | 1.39 | | | | 1.78 | | | | 2.03 | | | | 3.08 | |
Portfolio turnover | | | 10 | (n) | | | 70 | | | | 66 | | | | 84 | | | | 113 | | | | 134 | |
Net assets at end of period (000 omitted) | | | $2,360 | | | | $2,617 | | | | $3,093 | | | | $3,573 | | | | $6,371 | | | | $4,063 | |
See Notes to Financial Statements
11
MFS Global Governments Portfolio
Financial Highlights – continued
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values per share 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 Global Governments Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Global Governments Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of the fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. 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.
13
MFS Global Governments Portfolio
Notes to Financial Statements (unaudited) – continued
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as forward foreign currency exchange contracts. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| U.S. Treasury Bonds & U.S. Government Agency & Equivalents | | | $— | | | | $7,726,500 | | | | $— | | | | $7,726,500 | |
| Non-U.S. Sovereign Debt | | | — | | | | 21,444,130 | | | | — | | | | 21,444,130 | |
| Residential Mortgage-Backed Securities | | | — | | | | 1,178,624 | | | | — | | | | 1,178,624 | |
| Commercial Mortgage-Backed Securities | | | — | | | | 215,442 | | | | — | | | | 215,442 | |
| Foreign Bonds | | | — | | | | 200,075 | | | | — | | | | 200,075 | |
| Short Term Securities | | | — | | | | 2,619,999 | | | | — | | | | 2,619,999 | |
| Mutual Funds | | | 923,708 | | | | — | | | | — | | | | 923,708 | |
| Total Investments | | | $923,708 | | | | $33,384,770 | | | | $— | | | | $34,308,478 | |
| | | | |
| Other Financial Instruments | | | | | | | | | | | | |
| Forward Foreign Currency Exchange Contracts | | | $— | | | | $(18,380 | ) | | | $— | | | | $(18,380 | ) |
For further information regarding security characteristics, see the Portfolio of Investments.
Repurchase Agreements – The fund entered into 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. The fund and other funds managed by MFS may utilize a joint trading account for the purpose of entering into one or more repurchase agreements.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives – The fund uses derivatives for different purposes, 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 were forward foreign currency exchange contracts. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract Tables, generally are indicative of the volume of its derivative activity during the period.
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, 2012 as reported in the Statement of Assets and Liabilities:
| | | | | | | | | | |
| | | | | Fair Value | |
| Risk | | Derivative Contracts | | Asset Derivatives | | | Liability Derivatives | |
| Foreign Exchange | | Forward Foreign Currency Exchange | | | $77,256 | | | | $(95,636 | ) |
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, 2012 as reported in the Statement of Operations:
| | | | |
| Risk | | Foreign Currency
Transactions | |
| Foreign Exchange | | | $(173,017 | ) |
14
MFS Global Governments Portfolio
Notes to Financial Statements (unaudited) – continued
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | |
| Risk | | Translation of
Assets and
Liabilities in
Foreign Currencies | |
| Foreign Exchange | | | $39,534 | |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as “Restricted cash.” Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.
Forward Foreign Currency Exchange Contracts – The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on foreign currency.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, an industry accepted settlement system. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
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. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized
15
MFS Global Governments Portfolio
Notes to Financial Statements (unaudited) – continued
gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to amortization and accretion of debt securities, wash sale loss deferrals, straddle loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $863,984 | |
| Long-term capital gains | | | 171,440 | |
| Total distributions | | | $1,035,424 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $32,171,418 | |
| Gross appreciation | | | 2,618,331 | |
| Gross depreciation | | | (481,271 | ) |
| Net unrealized appreciation (depreciation) | | | $2,137,060 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 996,242 | |
| Capital loss carryforwards | | | (128,619 | ) |
| Other temporary differences | | | (238,336 | ) |
| Net unrealized appreciation (depreciation) | | | 2,247,540 | |
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses are characterized as follows:
| | | | |
| Post-enactment losses: | | | | |
| Short-term | | | $(30,621 | ) |
| Long-term | | | (97,998 | ) |
| Total | | | $(128,619 | ) |
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
16
MFS Global Governments Portfolio
Notes to Financial Statements (unaudited) – continued
dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | | | | | | | | | |
| | | From net investment
income | | | From net realized gain on
investments | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $652,562 | | | | $— | | | | $298,684 | |
| Service Class | | | — | | | | 55,240 | | | | — | | | | 28,938 | |
| Total | | | $— | | | | $707,802 | | | | $— | | | | $327,622 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $300 million of average daily net assets | | | 0.75% | |
| Average daily net assets in excess of $300 million | | | 0.675% | |
The management fee incurred for the six month ended June 30, 2012 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transactions costs, and investment-related expenses, such that total annual fund 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, 2015. For the six months ended June 30, 2012, this reduction amounted to $16,824 and is reflected as a reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0488% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $182 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments
17
MFS Global Governments Portfolio
Notes to Financial Statements (unaudited) – continued
made by the fund in the amount of $92, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than purchased option transactions, and short-term obligations, were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
| U.S. Government securities | | | $1,123,198 | | | | $1,318,530 | |
| Investments (non-U.S. Government securities) | | | $1,882,854 | | | | $2,585,105 | |
| (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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 80,791 | | | | $906,653 | | | | 202,675 | | | | $2,304,762 | |
Service Class | | | 31,561 | | | | 348,356 | | | | 19,493 | | | | 215,069 | |
| | | 112,352 | | | | $1,255,009 | | | | 222,168 | | | | $2,519,831 | |
| Shares issued in connection with acquisition of Global Government Variable Account | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 528,467 | | | | $5,924,201 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 82,933 | | | | $951,246 | |
Service Class | | | — | | | | — | | | | 7,436 | | | | 84,178 | |
| | | — | | | | $— | | | | 90,369 | | | | $1,035,424 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (230,425 | ) | | | $(2,596,180 | ) | | | (511,532 | ) | | | $(5,748,742 | ) |
Service Class | | | (54,195 | ) | | | (603,125 | ) | | | (76,992 | ) | | | (848,303 | ) |
| | | (284,620 | ) | | | $(3,199,305 | ) | | | (588,524 | ) | | | $(6,597,045 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (149,634 | ) | | | $(1,689,527 | ) | | | 302,543 | | | | $3,431,467 | |
Service Class | | | (22,634 | ) | | | (254,769 | ) | | | (50,063 | ) | | | (549,056 | ) |
| | | (172,268 | ) | | | $(1,944,296 | ) | | | 252,480 | | | | $2,882,411 | |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $120 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
18
MFS Global Governments Portfolio
Notes to Financial Statements (unaudited) – continued
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 923,205 | | | | 503 | | | | — | | | | 923,708 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $492 | | | | $923,708 | |
At the close of business on December 2, 2011, the fund with net assets of $31,193,981 acquired all of the investment-related assets and liabilities of Global Governments Variable Account. The acquisition was part of a transaction in which the Global Governments Variable Account was converted into a unit investment trust (“UIT”) that invests in the fund (the acquisition of the Account’s assets and liabilities and subsequent conversion into a UIT hereinafter referred to as the “Reorganization”). The Reorganization provided the contract owners of the Global Governments Variable Account with the opportunity to participate in a larger combined portfolio with an identical investment objective and similar investment policies and strategies. The acquisition was accomplished by a tax-free exchange of 528,467 shares of the fund (valued at $5,924,201) for all of the investment-related assets and liabilities of Global Governments Variable Account. Global Governments Variable Account’s net assets on that date were $5,924,201 including investments valued at $5,952,050 with a cost basis of $5,657,871. For financial reporting purposes, assets received and shares issued by the fund were recorded at fair value; however, the cost basis of the investments received from Global Governments Variable Account were carried forward to align ongoing reporting of the fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
19
MFS Global Governments Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
20
SEMIANNUAL REPORT
June 30, 2012
MFS® MONEY MARKET PORTFOLIO
MFS® Variable Insurance Trust II
MKS-SEM
MFS® MONEY MARKET PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Money Market Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Money Market Portfolio
PORTFOLIO COMPOSITION
Portfolio structure (u)
| | | | |
| Composition including fixed income credit quality (a)(u) | |
| A-1+ | | | 13.0% | |
| A-1 | | | 76.7% | |
| A-2 | | | 9.9% | |
| Not Rated | | | 0.0% | |
| Cash & Other | | | 0.4% | |
| | | | |
| Maturity breakdown (u) | | | | |
| 0 - 7 days | | | 20.1% | |
| 8 - 29 days | | | 33.0% | |
| 30 - 59 days | | | 15.9% | |
| 60 - 89 days | | | 20.4% | |
| 90 - 365 days | | | 10.2% | |
| Other Assets Less Liabilities | | | 0.4% | |
| (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. Cash & Other portfolio assets that are not securities are not included in the categories mentioned above. Ratings are shown in the S&P scale. All ratings are subject to change. The fund is not rated by these agencies. |
| (u) | For purposes of this presentation, accrued interest, where applicable, is included. |
Percentages are based on net assets as of 6/30/12.
The portfolio is actively managed and current holdings may be different.
2
MFS Money Market Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders During the Period,
January 1, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.13% | | | | $1,000.00 | | | | $1,000.00 | | | | $0.65 | |
| | Hypothetical (h) | | | 0.13% | | | | $1,000.00 | | | | $1,024.22 | | | | $0.65 | |
| Service Class | | Actual | | | 0.13% | | | | $1,000.00 | | | | $1,000.00 | | | | $0.65 | |
| | Hypothetical (h) | | | 0.13% | | | | $1,000.00 | | | | $1,024.22 | | | | $0.65 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
Expense Changes Impacting Table
As more fully disclosed in footnote 3 to the financial statements, the expense ratios reported above include additional expense reductions to avoid a negative yield.
3
MFS Money Market Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMERCIAL PAPER (y) – 26.9% | | | | | | | | |
| Automotive – 5.2% | | | | | | | | |
American Honda Finance Corp.,
0.12%, due 7/25/12 | | $ | 341,000 | | | $ | 340,973 | |
American Honda Finance Corp.,
0.15%, due 7/18/12 | | | 6,191,000 | | | | 6,190,562 | |
Toyota Motor Credit Corp.,
0.21%, due 8/22/12 | | | 9,033,000 | | | | 9,030,260 | |
| | | | | | | | |
| | | | | | $ | 15,561,795 | |
| | | | | | | | |
| Consumer Products – 0.4% | | | | | | | | |
Procter & Gamble Co., 0.14%,
due 8/06/12 (t) | | $ | 1,115,000 | | | $ | 1,114,844 | |
| | | | | | | | |
| Electronics – 3.9% | | | | | | | | |
| Emerson Electric Co., 0.15%, due 7/13/12 (t) | | $ | 8,461,000 | | | $ | 8,460,577 | |
| Emerson Electric Co., 0.14%, due 7/16/12 (t) | | | 2,970,000 | | | | 2,969,827 | |
| | | | | | | | |
| | | | | | $ | 11,430,404 | |
| | | | | | | | |
| Financial Institutions – 3.0% | | | | | | | | |
General Electric Capital Corp.,
0.13%, due 8/13/12 | | $ | 5,479,000 | | | $ | 5,478,149 | |
General Electric Capital Corp.,
0.15%, due 8/03/12 | | | 3,372,000 | | | | 3,371,536 | |
| | | | | | | | |
| | | | | | $ | 8,849,685 | |
| | | | | | | | |
| Food & Beverages – 10.3% | | | | | | | | |
| Coca-Cola Co., 0.23%, due 10/09/12 (t) | | $ | 2,584,000 | | | $ | 2,582,349 | |
| Coca-Cola Co., 0.21%, due 9/04/12 (t) | | | 9,273,000 | | | | 9,269,484 | |
| Nestle Capital Corp., 0.13%, due 7/27/12 (t) | | | 7,795,000 | | | | 7,794,268 | |
| Pepsico, Inc., 0.13%, due 9/10/12 (t) | | | 7,004,000 | | | | 7,002,204 | |
| Pepsico, Inc., 0.12%, due 8/20/12 (t) | | | 4,000,000 | | | | 3,999,333 | |
| | | | | | | | |
| | | | | | $ | 30,647,638 | |
| | | | | | | | |
| Retailers – 0.1% | | | | | | | | |
Wal-Mart Stores, Inc.,
0.13%, due 7/16/12 (t) | | $ | 255,000 | | | $ | 254,986 | |
| | | | | | | | |
| Tobacco – 4.0% | | | | | | | | |
Philip Morris International, Inc.,
0.13%, due 7/16/12 (t) | | $ | 8,816,000 | | | $ | 8,815,523 | |
Philip Morris International, Inc.,
0.14%, due 7/17/12 (t) | | | 3,081,000 | | | | 3,080,808 | |
| | | | | | | | |
| | | | | | $ | 11,896,331 | |
| | | | | | | | |
Total Commercial Paper,
at Amortized Cost and Value | | | | | | $ | 79,755,683 | |
| | | | | | | | |
| | |
U.S. GOVERNMENT AGENCIES
AND EQUIVALENTS (y) – 33.9% | | | | | | | | |
| Fannie Mae, 0.08%, due 7/02/12 | | $ | 3,607,000 | | | $ | 3,606,992 | |
| Fannie Mae, 0.12%, due 7/02/12 | | | 5,700,000 | | | | 5,699,981 | |
| Fannie Mae, 0.115%, due 7/25/12 | | | 2,105,000 | | | | 2,104,839 | |
| Fannie Mae, 0.14%, due 8/01/12 | | | 2,245,000 | | | | 2,244,729 | |
| Fannie Mae, 0.15%, due 8/31/12 | | | 1,015,000 | | | | 1,014,742 | |
Federal Home Loan Bank,
0.09%, due 7/13/12 | | | 5,430,000 | | | | 5,429,837 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
U.S. GOVERNMENT AGENCIES
AND EQUIVALENTS (y) – continued | | | | | |
Federal Home Loan Bank,
0.12%, due 7/13/12 | | $ | 6,316,000 | | | $ | 6,315,747 | |
Federal Home Loan Bank,
0.05%, due 7/27/12 | | | 6,363,000 | | | | 6,362,770 | |
Federal Home Loan Bank,
0.06%, due 8/01/12 | | | 4,020,000 | | | | 4,019,792 | |
Federal Home Loan Bank,
0.13%, due 8/01/12 | | | 400,000 | | | | 399,955 | |
Federal Home Loan Bank,
0.11%, due 8/24/12 | | | 2,846,000 | | | | 2,845,531 | |
Federal Home Loan Bank,
0.16%, due 10/03/12 | | | 4,000,000 | | | | 3,998,329 | |
Federal Home Loan Bank,
0.14%, due 11/02/12 | | | 11,880,000 | | | | 11,874,271 | |
Federal Home Loan Bank,
0.145%, due 11/16/12 | | | 11,920,000 | | | | 11,913,375 | |
| Freddie Mac, 0.06%, due 7/23/12 | | | 5,580,000 | | | | 5,579,796 | |
| Freddie Mac, 0.065%, due 7/23/12 | | | 3,062,000 | | | | 3,061,878 | |
| Freddie Mac, 0.1%, due 8/15/12 | | | 9,655,000 | | | | 9,653,793 | |
| Freddie Mac, 0.12%, due 9/11/12 | | | 8,802,000 | | | | 8,799,888 | |
| Freddie Mac, 0.155%, due 9/24/12 | | | 5,637,000 | | | | 5,634,937 | |
| | | | | | | | |
| Total U.S. Government Agencies and Equivalents, at Amortized Cost and Value | | | | | | $ | 100,561,182 | |
| | | | | | | | |
| CERTIFICATES OF DEPOSIT – 25.5% | | | | | |
| Major Banks – 18.4% | | | | | | | | |
Bank of Montreal/Chicago Branch,
0.19%, due 9/13/12 | | $ | 2,570,000 | | | $ | 2,570,000 | |
Bank of Montreal/Chicago Branch,
0.2%, due 8/29/12 | | | 9,340,000 | | | | 9,340,000 | |
| Bank of Nova Scotia/Houston Branch, 0.14%, due 7/03/12 | | | 2,825,000 | | | | 2,825,000 | |
| Bank of Nova Scotia/Houston Branch, 0.18%, due 7/09/12 | | | 3,527,000 | | | | 3,527,000 | |
| Bank of Nova Scotia/Houston Branch, 0.18%, due 7/11/12 | | | 5,540,000 | | | | 5,540,000 | |
| Chase Bank USA N.A., 0.18%, due 7/23/12 | | | 9,044,000 | | | | 9,044,000 | |
| Royal Bank of Canada/Chicago Branch, 0.11%, due 7/06/12 | | | 700,000 | | | | 700,000 | |
| Toronto Dominion Holdings (USA), Inc., 0.17%, due 7/12/12 | | | 3,800,000 | | | | 3,800,000 | |
| Toronto Dominion Holdings (USA), Inc., 0.13%, due 7/02/12 | | | 4,470,000 | | | | 4,470,000 | |
| Toronto Dominion Holdings (USA), Inc., 0.14%, due 7/06/12 | | | 2,726,000 | | | | 2,726,000 | |
Westpac Banking Corp./New York Branch,
0.25%, due 9/17/12 | | | 10,130,000 | | | | 10,130,000 | |
| | | | | | | | |
| | | | | | $ | 54,672,000 | |
| | | | | | | | |
4
MFS Money Market Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| CERTIFICATES OF DEPOSIT – continued | | | | | |
| Other Banks & Diversified Financials – 7.1% | | | | | |
Branch Banking & Trust Co.,
0.18%, due 7/23/12 | | $ | 9,050,000 | | | $ | 9,050,000 | |
| Mizuho Corporate Bank (USA)/New York Branch, 0.36%, due 9/18/12 | | | 6,810,000 | | | | 6,810,000 | |
| Mizuho Corporate Bank (USA)/New York Branch, 0.23%, due 8/14/12 | | | 5,025,000 | | | | 5,025,000 | |
| | | | | | | | |
| | | | | | $ | 20,885,000 | |
| | | | | | | | |
Total Certificates of Deposit,
at Cost and Value | | | | | | $ | 75,557,000 | |
| | | | | | | | |
| |
| FLOATING RATE DEMAND NOTES – 3.1% | | | | | |
East Baton Rouge, LA, Pollution Control Rev. (Exxon Mobil Corp.),
0.14%, due 7/02/12 | | $ | 3,300,000 | | | $ | 3,300,000 | |
Lincoln County, WY, Pollution Control Rev. (Exxon Mobil Corp.),
0.14%, due 7/02/12 | | | 2,900,000 | | | | 2,900,000 | |
Lincoln County, WY, Pollution Control Rev. (Exxon Mobil Corp.), “C”,
0.14%, due 7/02/12 | | | 3,200,000 | | | | 3,200,000 | |
| | | | | | | | |
| Total Floating Rate Demand Notes, at Cost and Value | | | | | | $ | 9,400,000 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| REPURCHASE AGREEMENTS – 10.2% | | | | | |
| Goldman Sachs, 0.14%, dated 6/29/12, due 7/02/12, total to be received $29,491,344 (secured by U.S. Treasury and Federal Agency obligations valued at $30,081,037 in a jointly traded account) | | $ | 29,491,000 | | | $ | 29,491,000 | |
| Merrill Lynch, Pierce, Fenner & Smith, Inc., 0.14%, dated 6/29/12, due 7/02/12, total to be received $762,009 (secured by U.S. Treasury and Federal Agency obligations valued at $777,241 in a jointly traded account) | | | 762,000 | | | | 762,000 | |
| | | | | | | | |
Total Repurchase Agreements,
at Cost and Value | | | | | | $ | 30,253,000 | |
| | | | | | | | |
| Total Investments, at Amortized Cost and Value | | | | | | $ | 295,526,865 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 0.4% | | | | | | | 1,071,035 | |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 296,597,900 | |
| | | | | | | | |
| (t) | | Security exempt from registration with the U.S. Securities and Exchange Commission under Section 4(2) of the Securities Act of 1933. |
| (y) | | The rate shown represents an annualized yield at time of purchase. |
See Notes to Financial Statements
5
MFS 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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments, at amortized cost and value | | | $265,273,865 | | | | | |
Repurchase agreements, at cost and value | | | 30,253,000 | | | | | |
Total investments, at amortized cost and value | | | $295,526,865 | | | | | |
Cash | | | 909 | | | | | |
Receivables for | | | | | | | | |
Fund shares sold | | | 1,376,752 | | | | | |
Interest | | | 17,996 | | | | | |
Other assets | | | 2,099 | | | | | |
Total assets | | | | | | | $296,924,621 | |
Liabilities | | | | | | | | |
Payable for fund shares reacquired | | | $288,585 | | | | | |
Payable to Investment adviser | | | 2,861 | | | | | |
Payable for independent Trustees’ compensation | | | 29 | | | | | |
Accrued expenses and other liabilities | | | 35,246 | | | | | |
Total liabilities | | | | | | | $326,721 | |
Net assets | | | | | | | $296,597,900 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $296,821,345 | | | | | |
Accumulated net realized gain (loss) on investments | | | (223,445 | ) | | | | |
Net assets | | | | | | | $296,597,900 | |
Shares of beneficial interest outstanding | | | | | | | 296,822,440 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $174,895,863 | | | | 175,021,491 | | | | $1.00 | |
Service Class | | | 121,702,037 | | | | 121,800,949 | | | | 1.00 | |
See Notes to Financial Statements
6
MFS 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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Interest income | | | | | | | $193,492 | |
Expenses | | | | | | | | |
Management fee | | | $758,859 | | | | | |
Distribution and/or service fees | | | 156,320 | | | | | |
Administrative services fee | | | 27,693 | | | | | |
Independent Trustees’ compensation | | | 7,233 | | | | | |
Custodian fee | | | 13,276 | | | | | |
Shareholder communications | | | 7,698 | | | | | |
Audit and tax fees | | | 14,922 | | | | | |
Legal fees | | | 2,749 | | | | | |
Miscellaneous | | | 10,144 | | | | | |
Total expenses | | | | | | | $998,894 | |
Fees paid indirectly | | | (2 | ) | | | | |
Reduction of expenses by investment adviser and distributor | | | (805,400 | ) | | | | |
Net expenses | | | | | | | $193,492 | |
Net investment income | | | | | | | $0 | |
Net realized gain (loss) on investments | | | | | | | $0 | |
Change in net assets from operations | | | | | | | $0 | |
See Notes to Financial Statements
7
MFS 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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $0 | | | | $0 | |
Net realized gain (loss) on investments | | | 0 | | | | 366 | |
Change in net assets from operations | | | $0 | | | | $366 | |
Change in net assets from fund share transactions | | | $(23,432,166 | ) | | | $(20,794,103 | ) |
Total change in net assets | | | $(23,432,166 | ) | | | $(20,793,737 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 320,030,066 | | | | 340,823,803 | |
At end of period | | | $296,597,900 | | | | $320,030,066 | |
See Notes to Financial Statements
8
MFS 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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
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 (d) | | | $0.00 | | | | $0.00 | | | | $0.00 | | | | $0.00 | (w) | | | $0.02 | | | | $0.05 | |
Net realized and unrealized gain (loss) on
investments | | | 0.00 | | | | 0.00 | (w) | | | 0.00 | (w) | | | 0.00 | | | | (0.00 | )(w) | | | (0.00 | )(w) |
Total from investment operations | | | $0.00 | | | | $0.00 | (w) | | | $0.00 | (w) | | | $0.00 | (w) | | | $0.02 | | | | $0.05 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $— | | | | $— | | | | $(0.00 | )(w) | | | $(0.02 | ) | | | $(0.05 | ) |
Net asset value, end of period (m) | | | $1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | |
Total return (%) (k)(r)(m) | | | 0.00 | (n) | | | 0.00 | | | | 0.00 | | | | 0.00 | (x) | | | 2.03 | | | | 4.84 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.56 | (a) | | | 0.58 | | | | 0.59 | | | | 0.60 | | | | 0.59 | | | | 0.55 | |
Expenses after expense reductions (f) | | | 0.13 | (a) | | | 0.15 | | | | 0.27 | | | | 0.33 | | | | 0.57 | | | | N/A | |
Net investment income | | | 0.00 | (a) | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 2.02 | | | | 4.73 | |
Net assets at end of period (000 omitted) | | | $174,896 | | | | $188,106 | | | | $172,365 | | | | $206,513 | | | | $322,980 | | | | $320,807 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
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 (d) | | | $0.00 | | | | $0.00 | | | | $0.00 | | | | $0.00 | | | | $0.02 | | | | $0.04 | |
Net realized and unrealized gain (loss) on investments | | | 0.00 | | | | 0.00 | (w) | | | 0.00 | (w) | | | 0.00 | | | | (0.00 | )(w) | | | (0.00 | )(w) |
Total from investment operations | | | $0.00 | | | | $0.00 | (w) | | | $0.00 | (w) | | | $0.00 | | | | $0.02 | | | | $0.04 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $— | | | | $— | | | | $(0.00 | )(w) | | | $(0.02 | ) | | | $(0.04 | ) |
Net asset value, end of period (m) | | | $1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | |
Total return (%) (k)(r)(m) | | | 0.00 | (n) | | | 0.00 | | | | 0.00 | | | | 0.00 | (x) | | | 1.80 | | | | 4.58 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.81 | (a) | | | 0.83 | | | | 0.84 | | | | 0.85 | | | | 0.84 | | | | 0.80 | |
Expenses after expense reductions (f) | | | 0.13 | (a) | | | 0.16 | | | | 0.27 | | | | 0.33 | | | | 0.80 | | | | N/A | |
Net investment income | | | 0.00 | (a) | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 1.76 | | | | 4.48 | |
Net assets at end of period (000 omitted) | | | $121,702 | | | | $131,924 | | | | $168,459 | | | | $192,109 | | | | $241,404 | | | | $233,523 | |
See Notes to Financial Statements
9
MFS Money Market Portfolio
Financial Highlights – continued
| (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. |
| (m) | | The net asset values per share 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. |
| (r) | | Certain expenses have been reduced without which performance would have been lower. |
| (w) | | Per share amount was less than $0.01. |
| (x) | | Total return was less than 0.01%. |
See Notes to Financial Statements
10
MFS Money Market Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Money Market Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
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, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Short term securities | | | $— | | | | $295,526,865 | | | | $— | | | | $295,526,865 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Repurchase Agreements – The fund entered into 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. The fund and other funds managed by MFS may utilize a joint trading account for the purpose of entering into one or more repurchase agreements.
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.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
11
MFS Money Market 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.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
During the year ended December 31, 2011, there were no significant adjustments due to differences between book and tax accounting.
The fund declared no distributions for the current period or for the year ended December 31, 2011.
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $295,526,865 | |
| |
| As of 12/31/11 | | | | |
| Capital loss carryforwards | | | (223,445 | ) |
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/15 | | | $(30,520 | ) |
| 12/31/16 | | | (192,925 | ) |
| Total | | | $(223,445 | ) |
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.
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $500 million of average daily net assets | | | 0.50% | |
| Average daily net assets in excess of $500 million | | | 0.45% | |
During the six months ended June 30, 2012, MFS voluntarily waived receipt of $648,296 of the fund’s management fee in order to avoid a negative yield. For the six months ended June 30, 2012, this voluntary waiver had the effect of reducing the management fee by 0.43% of average daily net assets on an annualized basis. The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.07% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.57% of average daily net assets for the Initial Class shares and 0.82% 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, 2014. For the six months ended June 30, 2012, 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.
12
MFS Money Market 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. During the six months ended June 30, 2012, MFD voluntarily waived receipt of $156,320 of the fund’s distribution and/or service fees in order to avoid a negative yield. For the six months ended June 30, 2012, this voluntary waiver had the effect of reducing the distribution and/or service fees by 0.25% of average daily net assets attributable to Service Class shares on an annualized basis. The distribution and/or service fees incurred for the six months ended June 30, 2012 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, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0182% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $1,562 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $784, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
| (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. Transactions in fund shares were as follows:
| | | | | | | | | | | | | | | | |
| | | Six months ended 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 19,451,597 | | | | $19,451,597 | | | | 66,388,299 | | | | $66,388,299 | |
Service Class | | | 17,713,496 | | | | 17,713,496 | | | | 52,062,057 | | | | 52,062,056 | |
| | | 37,165,093 | | | | $37,165,093 | | | | 118,450,356 | | | | $118,450,355 | |
| Shares issued in connection with acquisition of Money Market Variable Account | | | | | | | | | | | | | | | | |
Initial Class | | | | | | | | | | | 24,205,785 | | | | $24,205,785 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (32,661,805 | ) | | | $(32,661,805 | ) | | | (74,853,361 | ) | | | $(74,853,361 | ) |
Service Class | | | (27,935,454 | ) | | | (27,935,454 | ) | | | (88,596,882 | ) | | | (88,596,882 | ) |
| | | (60,597,259 | ) | | | $(60,597,259 | ) | | | (163,450,243 | ) | | | $(163,450,243 | ) |
13
MFS Money Market Portfolio
Notes to Financial Statements (unaudited) – continued
| | | | | | | | | | | | | | | | |
| | | Six months ended 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (13,210,208 | ) | | | $(13,210,208 | ) | | | 15,740,723 | | | | $15,740,723 | |
Service Class | | | (10,221,958 | ) | | | (10,221,958 | ) | | | (36,534,825 | ) | | | (36,534,826 | ) |
| | | (23,432,166 | ) | | | $(23,432,166 | ) | | | (20,794,102 | ) | | | $(20,794,103 | ) |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $1,014 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
At the close of business on December 2, 2011, the fund with net assets of $297,118,105, acquired all of the investment-related assets and liabilities of Money Market Variable Account. The acquisition was part of a transaction in which the Money Market Variable Account was converted into a unit investment trust (“UIT”) that invests in the fund (the acquisition of the Account’s assets and liabilities and subsequent conversion into a UIT hereinafter referred to as the “Reorganization”). The Reorganization provided the contract owners of the Money Market Variable Account with the opportunity to participate in a larger combined portfolio with an identical investment objective and similar investment policies and strategies. The acquisition was accomplished by a tax-free exchange of 24,205,785 shares of the fund (valued at $24,205,785) for all of the investment-related assets and liabilities of Money Market Variable Account. Money Market Variable Account’s net assets on that date were $24,205,785, including investments valued at $24,276,204 with a cost basis of $24,276,204. For financial reporting purposes, assets received and shares issued by the fund were recorded at fair value; however, the cost basis of the investments received from Money Market Variable Account were carried forward to align ongoing reporting of the fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
14
MFS Money Market Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
15
SEMIANNUAL REPORT
June 30, 2012
MFS® MASSACHUSETTS INVESTORS GROWTH STOCK PORTFOLIO
MFS® Variable Insurance Trust II
MIS-SEM
MFS® MASSACHUSETTS INVESTORS GROWTH STOCK PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Massachusetts Investors Growth Stock Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Massachusetts Investors Growth Stock Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Apple, Inc. | | | 4.2% | |
| Google, Inc., “A” | | | 4.0% | |
| Danaher Corp. | | | 3.9% | |
| Colgate – Palmolive Co. | | | 3.9% | |
| Oracle Corp. | | | 3.4% | |
| United Technologies Corp. | | | 3.3% | |
| Visa, Inc., “A” | | | 2.9% | |
| Schlumberger Ltd. | | | 2.8% | |
| Accenture PLC, “A” | | | 2.7% | |
| Procter & Gamble Co. | | | 2.6% | |
| | | | |
| Equity sectors | | | | |
| Technology | | | 22.7% | |
| Industrial Goods & Services | | | 13.9% | |
| Consumer Staples | | | 12.6% | |
| Health Care | | | 10.7% | |
| Financial Services | | | 8.6% | |
| Special Products & Services | | | 6.6% | |
| Retailing | | | 6.2% | |
| Energy | | | 6.0% | |
| Leisure | | | 5.0% | |
| Basic Materials | | | 2.4% | |
| Transportation | | | 2.2% | |
| Autos & Housing | | | 1.9% | |
Percentages are based on net assets as of 6/30/12.
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, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.80% | | | | $1,000.00 | | | | $1,081.22 | | | | $4.14 | |
| | Hypothetical (h) | | | 0.80% | | | | $1,000.00 | | | | $1,020.89 | | | | $4.02 | |
| Service Class | | Actual | | | 1.05% | | | | $1,000.00 | | | | $1,079.16 | | | | $5.43 | |
| | Hypothetical (h) | | | 1.05% | | | | $1,000.00 | | | | $1,019.64 | | | | $5.27 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Massachusetts Investors Growth Stock Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 98.8% | | | | | |
| Aerospace – 4.0% | | | | | |
| Precision Castparts Corp. | | | 21,890 | | | $ | 3,600,684 | |
| United Technologies Corp. | | | 236,450 | | | | 17,859,069 | |
| | | | | | | | |
| | | | | | $ | 21,459,753 | |
| | | | | | | | |
| Alcoholic Beverages – 0.9% | | | | | |
| Diageo PLC | | | 186,729 | | | $ | 4,801,960 | |
| | | | | | | | |
| Apparel Manufacturers – 2.4% | | | | | |
| LVMH Moet Hennessy Louis Vuitton S.A. | | | 50,159 | | | $ | 7,645,148 | |
| NIKE, Inc., “B” | | | 60,920 | | | | 5,347,558 | |
| | | | | | | | |
| | | | | | $ | 12,992,706 | |
| | | | | | | | |
| Automotive – 1.9% | | | | | |
| Johnson Controls, Inc. | | | 375,980 | | | $ | 10,418,406 | |
| | | | | | | | |
| Broadcasting – 3.9% | | | | | |
| Omnicom Group, Inc. | | | 121,530 | | | $ | 5,906,358 | |
| Viacom, Inc., “B” | | | 224,490 | | | | 10,555,520 | |
| Walt Disney Co. | | | 90,230 | | | | 4,376,155 | |
| | | | | | | | |
| | | | | | $ | 20,838,033 | |
| | | | | | | | |
| Brokerage & Asset Managers – 4.5% | | | | | |
| Charles Schwab Corp. | | | 413,670 | | | $ | 5,348,753 | |
| CME Group, Inc. | | | 22,980 | | | | 6,161,168 | |
| Franklin Resources, Inc. | | | 114,520 | | | | 12,710,575 | |
| | | | | | | | |
| | | | | | $ | 24,220,496 | |
| | | | | | | | |
| Business Services – 6.6% | | | | | |
| Accenture PLC, “A” | | | 245,200 | | | $ | 14,734,068 | |
| Dun & Bradstreet Corp. | | | 90,950 | | | | 6,472,912 | |
| MSCI, Inc., “A” (a) | | | 273,100 | | | | 9,290,862 | |
| Verisk Analytics, Inc., “A” (a) | | | 103,440 | | | | 5,095,454 | |
| | | | | | | | |
| | | | | | $ | 35,593,296 | |
| | | | | | | | |
| Cable TV – 1.1% | | | | | |
| DIRECTV, “A” (a) | | | 123,530 | | | $ | 6,030,735 | |
| | | | | | | | |
| Chemicals – 0.6% | | | | | |
| Monsanto Co. | | | 36,680 | | | $ | 3,036,370 | |
| | | | | | | | |
| Computer Software – 5.8% | | | | | |
| Autodesk, Inc. (a) | | | 159,950 | | | $ | 5,596,651 | |
| Check Point Software Technologies Ltd. (a) | | | 153,590 | | | | 7,616,528 | |
| Oracle Corp. | | | 608,270 | | | | 18,065,619 | |
| | | | | | | | |
| | | | | | $ | 31,278,798 | |
| | | | | | | | |
| Computer Software – Systems – 6.6% | | | | | |
| Apple, Inc. (a) | | | 38,640 | | | $ | 22,565,760 | |
| EMC Corp. (a) | | | 170,870 | | | | 4,379,398 | |
| International Business Machines Corp. | | | 44,760 | | | | 8,754,161 | |
| | | | | | | | |
| | | | | | $ | 35,699,319 | |
| | | | | | | | |
| Consumer Products – 7.2% | | | | | |
| Church & Dwight Co., Inc. | | | 69,890 | | | $ | 3,876,798 | |
| Colgate-Palmolive Co. | | | 201,680 | | | | 20,994,888 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Consumer Products – continued | | | | | |
| Procter & Gamble Co. | | | 227,701 | | | $ | 13,946,686 | |
| | | | | | | | |
| | | | | | $ | 38,818,372 | |
| | | | | | | | |
| Electrical Equipment – 9.9% | | | | | |
| Amphenol Corp., “A” | | | 144,170 | | | $ | 7,917,816 | |
| Danaher Corp. | | | 405,690 | | | | 21,128,335 | |
| Mettler-Toledo International, Inc. (a) | | | 43,757 | | | | 6,819,528 | |
| Sensata Technologies Holding B.V. (a) | | | 400,240 | | | | 10,718,427 | |
| W.W. Grainger, Inc. | | | 34,570 | | | | 6,611,167 | |
| | | | | | | | |
| | | | | | $ | 53,195,273 | |
| | | | | | | | |
| Electronics – 4.5% | | | | | |
| ASML Holding N.V. | | | 69,250 | | | $ | 3,560,835 | |
| Microchip Technology, Inc. | | | 370,490 | | | | 12,255,809 | |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | | 593,319 | | | | 8,282,733 | |
| | | | | | | | |
| | | | | | $ | 24,099,377 | |
| | | | | | | | |
| Energy – Independent – 1.5% | | | | | |
| Occidental Petroleum Corp. | | | 93,630 | | | $ | 8,030,645 | |
| | | | | | | | |
| Energy – Integrated – 1.2% | | | | | |
| Exxon Mobil Corp. | | | 75,310 | | | $ | 6,444,277 | |
| | | | | | | | |
| Food & Beverages – 4.5% | | | | | |
| Groupe Danone | | | 162,971 | | | $ | 10,108,837 | |
| Mead Johnson Nutrition Co., “A” | | | 44,590 | | | | 3,589,941 | |
| PepsiCo, Inc. | | | 147,310 | | | | 10,408,925 | |
| | | | | | | | |
| | | | | | $ | 24,107,703 | |
| | | | | | | | |
| Food & Drug Stores – 0.7% | | | | | |
| CVS Caremark Corp. | | | 81,106 | | | $ | 3,790,083 | |
| | | | | | | | |
| General Merchandise – 2.3% | | | | | |
| Kohl’s Corp. | | | 95,410 | | | $ | 4,340,201 | |
| Target Corp. | | | 142,310 | | | | 8,281,019 | |
| | | | | | | | |
| | | | | | $ | 12,621,220 | |
| | | | | | | | |
| Internet – 4.8% | | | | | |
| eBay, Inc. (a) | | | 104,370 | | | $ | 4,384,584 | |
| Google, Inc., “A” (a) | | | 37,280 | | | | 21,625,010 | |
| | | | | | | | |
| | | | | | $ | 26,009,594 | |
| | | | | | | | |
| Medical & Health Technology & Services – 1.2% | |
| Express Scripts Holding Co. (a) | | | 48,377 | | | $ | 2,700,888 | |
| Patterson Cos., Inc. | | | 107,562 | | | | 3,707,662 | |
| | | | | | | | |
| | | | | | $ | 6,408,550 | |
| | | | | | | | |
| Medical Equipment – 7.6% | | | | | |
| Becton, Dickinson & Co. | | | 83,550 | | | $ | 6,245,363 | |
| DENTSPLY International, Inc. | | | 215,360 | | | | 8,142,762 | |
| St. Jude Medical, Inc. | | | 170,870 | | | | 6,819,422 | |
| Thermo Fisher Scientific, Inc. | | | 267,030 | | | | 13,861,527 | |
| Waters Corp. (a) | | | 70,490 | | | | 5,601,840 | |
| | | | | | | | |
| | | | | | $ | 40,670,914 | |
| | | | | | | | |
4
MFS Massachusetts Investors Growth Stock Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Metals & Mining – 0.5% | | | | | |
| Rio Tinto Ltd. | | | 61,310 | | | $ | 2,928,124 | |
| | | | | | | | |
| Network & Telecom – 1.0% | | | | | |
| Cisco Systems, Inc. | | | 324,217 | | | $ | 5,566,806 | |
| | | | | | | | |
| Oil Services – 3.3% | | | | | |
| National Oilwell Varco, Inc. | | | 36,520 | | | $ | 2,353,349 | |
| Schlumberger Ltd. | | | 233,570 | | | | 15,161,029 | |
| | | | | | | | |
| | | | | | $ | 17,514,378 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 4.1% | |
| MasterCard, Inc., “A” | | | 14,620 | | | $ | 6,288,208 | |
| Visa, Inc., “A” | | | 126,710 | | | | 15,665,157 | |
| | | | | | | | |
| | | | | | $ | 21,953,365 | |
| | | | | | | | |
| Pharmaceuticals – 1.9% | | | | | |
| Allergan, Inc. | | | 33,780 | | | $ | 3,127,015 | |
| Johnson & Johnson | | | 107,990 | | | | 7,295,804 | |
| | | | | | | | |
| | | | | | $ | 10,422,819 | |
| | | | | | | | |
| Railroad & Shipping – 0.5% | | | | | |
| Kuehne & Nagel, Inc. AG | | | 23,040 | | | $ | 2,438,670 | |
| | | | | | | | |
| Specialty Chemicals – 1.3% | | | | | |
| Praxair, Inc. | | | 66,490 | | | $ | 7,229,458 | |
| | | | | | | | |
| Specialty Stores – 0.8% | | | | | |
| Industria de Diseno Textil S.A. | | | 39,848 | | | $ | 4,121,465 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Trucking – 1.7% | | | | | |
| Expeditors International of Washington, Inc. | | | 237,180 | | | $ | 9,190,725 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $473,984,003) | | | $ | 531,931,690 | |
| | | | | | | | |
| |
| MONEY MARKET FUNDS – 0.5% | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 2,950,621 | | | $ | 2,950,621 | |
| | | | | | | | |
Total Investments
(Identified Cost, $476,934,624) | | | $ | 534,882,311 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 0.7% | | | | 3,775,513 | |
| | | | | | | | |
| Net Assets – 100.0% | | | $ | 538,657,824 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (v) | | Underlying affiliated fund 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 |
| PLC | | Public Limited Company |
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $473,984,003) | | | $531,931,690 | | | | | |
Underlying affiliated funds, at cost and value | | | 2,950,621 | | | | | |
Total investments, at value (identified cost, $476,934,624) | | | $534,882,311 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 4,929,207 | | | | | |
Dividends | | | 546,386 | | | | | |
Other assets | | | 2,745 | | | | | |
Total assets | | | | | | | $540,360,649 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | $1,134,604 | | | | | |
Fund shares reacquired | | | 472,206 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 32,916 | | | | | |
Distribution and/or service fees | | | 1,037 | | | | | |
Payable for independent Trustees’ compensation | | | 60 | | | | | |
Accrued expenses and other liabilities | | | 62,002 | | | | | |
Total liabilities | | | | | | | $1,702,825 | |
Net assets | | | | | | | $538,657,824 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $527,668,948 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 57,956,518 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (51,099,005 | ) | | | | |
Undistributed net investment income | | | 4,131,363 | | | | | |
Net assets | | | | | | | $538,657,824 | |
Shares of beneficial interest outstanding | | | | | | | 43,550,937 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $486,704,268 | | | | 39,318,316 | | | | $12.38 | |
Service Class | | | 51,953,556 | | | | 4,232,621 | | | | 12.27 | |
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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $4,401,961 | | | | | |
Interest | | | 26,032 | | | | | |
Dividends from underlying affiliated funds | | | 2,776 | | | | | |
Foreign taxes withheld | | | (89,963 | ) | | | | |
Total investment income | | | | | | | $4,340,806 | |
Expenses | | | | | | | | |
Management fee | | | $2,102,211 | | | | | |
Distribution and/or service fees | | | 68,844 | | | | | |
Administrative services fee | | | 46,925 | | | | | |
Independent Trustees’ compensation | | | 11,866 | | | | | |
Custodian fee | | | 28,495 | | | | | |
Shareholder communications | | | 10,834 | | | | | |
Audit and tax fees | | | 25,347 | | | | | |
Legal fees | | | 4,642 | | | | | |
Miscellaneous | | | 16,212 | | | | | |
Total expenses | | | | | | | $2,315,376 | |
Fees paid indirectly | | | (2 | ) | | | | |
Reduction of expenses by investment adviser | | | (1,441 | ) | | | | |
Net expenses | | | | | | | $2,313,933 | |
Net investment income | | | | | | | $2,026,873 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $33,204,649 | | | | | |
Foreign currency | | | (26 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $33,204,623 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $8,923,011 | | | | | |
Translation of assets and liabilities in foreign currencies | | | (4,678 | ) | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $8,918,333 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $42,122,956 | |
Change in net assets from operations | | | | | | | $44,149,829 | |
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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $2,026,873 | | | | $2,100,396 | |
Net realized gain (loss) on investments and foreign currency | | | 33,204,623 | | | | 29,337,064 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 8,918,333 | | | | (28,669,481 | ) |
Change in net assets from operations | | | $44,149,829 | | | | $2,767,979 | |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(2,503,255 | ) |
Change in net assets from fund share transactions | | | $(44,595,838 | ) | | | $39,199,459 | |
Total change in net assets | | | $(446,009 | ) | | | $39,464,183 | |
| Net assets | | | | | | | | |
At beginning of period | | | 539,103,833 | | | | 499,639,650 | |
At end of period (including undistributed net investment income of $4,131,363 and
$2,104,490, respectively) | | | $538,657,824 | | | | $539,103,833 | |
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $11.45 | | | | $11.43 | | | | $10.13 | | | | $7.30 | | | | $11.69 | | | | $10.52 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.05 | | | | $0.06 | | | | $0.06 | | | | $0.05 | | | | $0.06 | | | | $0.05 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.88 | | | | 0.03 | | | | 1.27 | | | | 2.85 | | | | (4.39 | ) | | | 1.16 | |
Total from investment operations | | | $0.93 | | | | $0.09 | | | | $1.33 | | | | $2.90 | | | | $(4.33 | ) | | | $1.21 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.07 | ) | | | $(0.03 | ) | | | $(0.07 | ) | | | $(0.06 | ) | | | $(0.04 | ) |
Net asset value, end of period (x) | | | $12.38 | | | | $11.45 | | | | $11.43 | | | | $10.13 | | | | $7.30 | | | | $11.69 | |
Total return (%) (k)(r)(s)(x) | | | 8.12 | (n) | | | 0.80 | | | | 13.15 | | | | 40.14 | | | | (37.22 | ) | | | 11.53 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.80 | (a) | | | 0.83 | | | | 0.86 | | | | 0.87 | | | | 0.86 | | | | 0.84 | |
Expenses after expense reductions (f) | | | 0.80 | (a) | | | 0.82 | | | | 0.82 | | | | 0.82 | | | | 0.83 | | | | 0.83 | |
Net investment income | | | 0.75 | (a) | | | 0.47 | | | | 0.55 | | | | 0.62 | | | | 0.62 | | | | 0.48 | |
Portfolio turnover | | | 18 | (n) | | | 24 | | | | 45 | | | | 53 | | | | 42 | | | | 62 | |
Net assets at end of period (000 omitted) | | | $486,704 | | | | $485,484 | | | | $429,925 | | | | $448,333 | | | | $145,858 | | | | $309,208 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $11.37 | | | | $11.34 | | | | $10.06 | | | | $7.24 | | | | $11.59 | | | | $10.43 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.03 | | | | $0.03 | | | | $0.03 | | | | $0.04 | | | | $0.04 | | | | $0.02 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.87 | | | | 0.03 | | | | 1.26 | | | | 2.82 | | | | (4.36 | ) | | | 1.15 | |
Total from investment operations | | | $0.90 | | | | $0.06 | | | | $1.29 | | | | $2.86 | | | | $(4.32 | ) | | | $1.17 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.03 | ) | | | $(0.01 | ) | | | $(0.04 | ) | | | $(0.03 | ) | | | $(0.01 | ) |
Net asset value, end of period (x) | | | $12.27 | | | | $11.37 | | | | $11.34 | | | | $10.06 | | | | $7.24 | | | | $11.59 | |
Total return (%) (k)(r)(s)(x) | | | 7.92 | (n) | | | 0.57 | | | | 12.83 | | | | 39.78 | | | | (37.35 | ) | | | 11.26 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.05 | (a) | | | 1.08 | | | | 1.11 | | | | 1.12 | | | | 1.11 | | | | 1.09 | |
Expenses after expense reductions (f) | | | 1.05 | (a) | | | 1.07 | | | | 1.07 | | | | 1.07 | | | | 1.08 | | | | 1.08 | |
Net investment income | | | 0.50 | (a) | | | 0.22 | | | | 0.30 | | | | 0.43 | | | | 0.37 | | | | 0.19 | |
Portfolio turnover | | | 18 | (n) | | | 24 | | | | 45 | | | | 53 | | | | 42 | | | | 62 | |
Net assets at end of period (000 omitted) | | | $51,954 | | | | $53,620 | | | | $69,714 | | | | $80,269 | | | | $59,579 | | | | $119,324 | |
See Notes to Financial Statements
9
MFS Massachusetts Investors Growth Stock Portfolio
Financial Highlights – continued
| (d) | | Per share data is based on average shares outstanding. |
| (f) | | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | | Certain expenses have been reduced without which performance would have been lower. |
| (s) | | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | | The net asset values per share 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 series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
11
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements (unaudited) – continued
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
United States | | | $480,427,391 | | | | $— | | | | $— | | | | $480,427,391 | |
France | | | 10,108,837 | | | | 7,645,147 | | | | — | | | | 17,753,984 | |
Taiwan | | | 8,282,733 | | | | — | | | | — | | | | 8,282,733 | |
United Kingdom | | | 4,801,960 | | | | 2,928,124 | | | | — | | | | 7,730,084 | |
Israel | | | 7,616,528 | | | | — | | | | — | | | | 7,616,528 | |
Spain | | | — | | | | 4,121,465 | | | | — | | | | 4,121,465 | |
Netherlands | | | 3,560,835 | | | | — | | | | — | | | | 3,560,835 | |
Switzerland | | | — | | | | 2,438,670 | | | | — | | | | 2,438,670 | |
| Mutual Funds | | | 2,950,621 | | | | — | | | | — | | | | 2,950,621 | |
| Total Investments | | | $517,748,905 | | | | $17,133,406 | | | | $— | | | | $534,882,311 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
12
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements (unaudited) – continued
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $2,503,255 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $477,248,356 | |
| Gross appreciation | | | 76,381,310 | |
| Gross depreciation | | | (18,747,355 | ) |
| Net unrealized appreciation (depreciation) | | | $57,633,955 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 2,104,490 | |
| Capital loss carryforwards | | | (83,989,896 | ) |
| Other temporary differences | | | 13,509 | |
| Net unrealized appreciation (depreciation) | | | 48,710,944 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/15 | | | $(23,309,924 | ) |
| 12/31/16 | | | (51,745,133 | ) |
| 12/31/17 | | | (8,934,839 | ) |
| Total | | | $(83,989,896 | ) |
The availability of a portion of the capital loss carryforwards, which were acquired on December 4, 2009 in connection with the MFS Capital Appreciation Portfolio merger, may be limited in a given year.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share
13
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements (unaudited) – continued
dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $2,330,869 | |
| Service Class | | | — | | | | 172,386 | |
| Total | | | $— | | | | $2,503,255 | �� |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.75% | |
| Average daily net assets in excess of $1 billion | | | 0.65% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.82% 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, 2014. For the six months ended June 30, 2012, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0167% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $2,875 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the
14
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements (unaudited) – continued
payments made by the fund in the amount of $1,441, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $100,035,105 and $144,287,183, 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 47,896 | | | | $590,992 | | | | 276,271 | | | | $3,177,926 | |
Service Class | | | 26,308 | | | | 323,124 | | | | 98,650 | | | | 1,129,009 | |
| | | 74,204 | | | | $914,116 | | | | 374,921 | | | | $4,306,935 | |
| Shares issued in connection with acquisition of Capital Appreciation Variable Account | | | | | | | | | | | | | | | | |
Initial Class | | | | | | | | | | | 10,255,347 | | | | $119,581,797 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 209,422 | | | | $2,330,869 | |
Service Class | | | — | | | | — | | | | 15,586 | | | | 172,386 | |
| | | — | | | | $— | | | | 225,008 | | | | $2,503,255 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (3,140,440 | ) | | | $(39,170,193 | ) | | | (5,943,995 | ) | | | $(69,272,697 | ) |
Service Class | | | (511,614 | ) | | | (6,339,761 | ) | | | (1,543,209 | ) | | | (17,919,831 | ) |
| | | (3,652,054 | ) | | | $(45,509,954 | ) | | | (7,487,204 | ) | | | $(87,192,528 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (3,092,544 | ) | | | $(38,579,201 | ) | | | 4,797,045 | | | | $55,817,895 | |
Service Class | | | (485,306 | ) | | | (6,016,637 | ) | | | (1,428,973 | ) | | | (16,618,436 | ) |
| | | (3,577,850 | ) | | | $(44,595,838 | ) | | | 3,368,072 | | | | $39,199,459 | |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $1,932 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
15
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements (unaudited) – continued
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 2,902,318 | | | | 57,725,323 | | | | (57,677,020 | ) | | | 2,950,621 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $2,776 | | | | $2,950,621 | |
At the close of business on December 2, 2011, the fund with net assets of $439,145,630, acquired all of the investment-related assets and liabilities of Capital Appreciation Variable Account. The acquisition was part of a transaction in which the Capital Appreciation Variable Account was converted into a unit investment trust (“UIT”) that invests in the fund (the acquisition of the Account’s assets and liabilities and subsequent conversion into a UIT hereinafter referred to as the “Reorganization”). The Reorganization provided the contract owners of the Capital Appreciation Variable Account with the opportunity to participate in a larger combined portfolio with an identical investment objective and similar investment policies and strategies. The acquisition was accomplished by a tax-free exchange of 10,255,347 shares of the fund (valued at $119,581,797) for all of the investment-related assets and liabilities of Capital Appreciation Variable Account. Capital Appreciation Variable Account’s net assets on that date were $119,581,797, including investments valued at $119,481,954 with a cost basis of $100,293,081. For financial reporting purposes, assets received and shares issued by the fund were recorded at fair value; however, the cost basis of the investments received from Capital Appreciation Variable Account were carried forward to align ongoing reporting of the fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
16
MFS Massachusetts Investors Growth Stock Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
17
SEMIANNUAL REPORT
June 30, 2012
MFS® NEW DISCOVERY PORTFOLIO
MFS® Variable Insurance Trust II
NWD-SEM
MFS® NEW DISCOVERY PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS New Discovery Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS New Discovery Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Cabot Oil & Gas Corp. | | | 3.3% | |
| Range Resources Corp. | | | 2.4% | |
| Conceptus, Inc. | | | 2.2% | |
| HomeAway, Inc. | | | 1.7% | |
| Brookdale Senior Living, Inc. | | | 1.6% | |
| Pulte Homes, Inc. | | | 1.5% | |
| Eagle Materials, Inc. | | | 1.4% | |
| SciQuest, Inc. | | | 1.4% | |
| Veeco Instruments, Inc. | | | 1.4% | |
| United Rentals, Inc. | | | 1.4% | |
| | | | |
| Equity sectors | | | | |
| Technology | | | 22.9% | |
| Health Care | | | 22.2% | |
| Energy | | | 12.7% | |
| Industrial Goods & Services | | | 10.4% | |
| Retailing | | | 6.6% | |
| Transportation | | | 5.7% | |
| Autos & Housing | | | 5.4% | |
| Special Products & Services | | | 5.4% | |
| Leisure | | | 3.5% | |
| Financial Services | | | 1.6% | |
| Basic Materials | | | 1.5% | |
| Consumer Staples | | | 1.3% | |
Percentages are based on net assets as of 6/30/12.
The portfolio is actively managed and current holdings may be different.
2
MFS New Discovery Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders During the Period,
January 1, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.95% | | | | $1,000.00 | | | | $1,119.74 | | | | $5.01 | |
| | Hypothetical (h) | | | 0.95% | | | | $1,000.00 | | | | $1,020.14 | | | | $4.77 | |
| Service Class | | Actual | | | 1.20% | | | | $1,000.00 | | | | $1,117.53 | | | | $6.32 | |
| | Hypothetical (h) | | | 1.20% | | | | $1,000.00 | | | | $1,018.90 | | | | $6.02 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS New Discovery Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 99.2% | | | | | |
| Aerospace – 0.5% | | | | | | | | |
| Kaman Corp. | | | 24,857 | | | $ | 769,076 | |
| | | | | | | | |
| Airlines – 2.5% | | | | | | | | |
| Allegiant Travel Co. (a) | | | 15,756 | | | $ | 1,097,878 | |
| Spirit Airlines, Inc. (a) | | | 39,646 | | | | 771,511 | |
| U.S. Airways Group, Inc. (a) | | | 55,670 | | | | 742,081 | |
| United Continental Holdings, Inc. (a) | | | 52,970 | | | | 1,288,760 | |
| | | | | | | | |
| | | | | | $ | 3,900,230 | |
| | | | | | | | |
| Apparel Manufacturers – 0.8% | | | | | | | | |
| Guess?, Inc. | | | 40,920 | | | $ | 1,242,740 | |
| | | | | | | | |
| Automotive – 0.4% | | | | | | | | |
| Delphi Automotive PLC (a) | | | 25,520 | | | $ | 650,760 | |
| | | | | | | | |
| Biotechnology – 1.5% | | | | | | | | |
| Anacor Pharmaceuticals, Inc. (a) | | | 88,208 | | | $ | 572,470 | |
| SEQUENOM, Inc. (a) | | | 177,150 | | | | 719,229 | |
| ViroPharma, Inc. (a) | | | 44,270 | | | | 1,049,199 | |
| | | | | | | | |
| | | | | | $ | 2,340,898 | |
| | | | | | | | |
| Business Services – 3.1% | | | | | | | | |
| Constant Contact, Inc. (a) | | | 107,608 | | | $ | 1,924,031 | |
| FleetCor Technologies, Inc. (a) | | | 47,662 | | | | 1,670,076 | |
| Jones Lang LaSalle, Inc. | | | 15,447 | | | | 1,087,005 | |
| | | | | | | | |
| | | | | | $ | 4,681,112 | |
| | | | | | | | |
| Computer Software – 5.6% | | | | | | | | |
| ANSYS, Inc. (a) | | | 17,490 | | | $ | 1,103,794 | |
| Check Point Software Technologies Ltd. (a) | | | 31,461 | | | | 1,560,151 | |
| NetSuite, Inc. (a) | | | 16,725 | | | | 916,028 | |
| Nuance Communications, Inc. (a) | | | 83,150 | | | | 1,980,633 | |
| Red Hat, Inc. (a) | | | 18,436 | | | | 1,041,265 | |
| SolarWinds, Inc. (a) | | | 44,309 | | | | 1,930,100 | |
| | | | | | | | |
| | | | | | $ | 8,531,971 | |
| | | | | | | | |
| Computer Software – Systems – 8.8% | | | | | |
| Aruba Networks, Inc. (a) | | | 87,134 | | | $ | 1,311,367 | |
| Ellie Mae, Inc. (a) | | | 18,080 | | | | 325,440 | |
| Exa Corp. (a) | | | 67,070 | | | | 711,613 | |
| ExactTarget, Inc. (a) | | | 18,660 | | | | 407,908 | |
| Fusion-io, Inc. (a)(l) | | | 37,088 | | | | 774,768 | |
| Guidewire Software, Inc. (a) | | | 46,040 | | | | 1,294,645 | |
| National Instruments Corp. | | | 58,475 | | | | 1,570,639 | |
| PROS Holdings, Inc. (a) | | | 50,834 | | | | 855,028 | |
| Qlik Technologies, Inc. (a) | | | 57,274 | | | | 1,266,901 | |
| SciQuest, Inc. (a) | | | 119,718 | | | | 2,150,135 | |
| ServiceSource International, Inc. (a) | | | 97,703 | | | | 1,353,187 | |
| Tangoe, Inc. (a) | | | 32,570 | | | | 694,067 | |
| Vantiv, Inc. (a) | | | 31,730 | | | | 738,992 | |
| | | | | | | | |
| | | | | | $ | 13,454,690 | |
| | | | | | | | |
| Construction – 5.0% | | | | | | | | |
| Beacon Roofing Supply, Inc. (a) | | | 49,774 | | | $ | 1,255,300 | |
| Eagle Materials, Inc. | | | 58,734 | | | | 2,193,128 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Construction – continued | | | | | | | | |
| NVR, Inc. (a) | | | 2,233 | | | $ | 1,898,050 | |
| Pulte Homes, Inc. (a) | | | 219,187 | | | | 2,345,301 | |
| | | | | | | | |
| | | | | | $ | 7,691,779 | |
| | | | | | | | |
| Consumer Products – 0.5% | | | | | | | | |
| L’Occitane International S.A. | | | 297,250 | | | $ | 823,296 | |
| | | | | | | | |
| Consumer Services – 2.3% | | | | | | | | |
| HomeAway, Inc. (a) | | | 119,097 | | | $ | 2,589,169 | |
| MakeMyTrip Ltd. (a) | | | 54,470 | | | | 894,942 | |
| | | | | | | | |
| | | | | | $ | 3,484,111 | |
| | | | | | | | |
| Electrical Equipment – 2.0% | | | | | | | | |
| MSC Industrial Direct Co., Inc., “A” | | | 28,302 | | | $ | 1,855,196 | |
| Sensata Technologies Holding B.V. (a) | | | 42,488 | | | | 1,137,829 | |
| | | | | | | | |
| | | | | | $ | 2,993,025 | |
| | | | | | | | |
| Electronics – 6.0% | | | | | | | | |
| CEVA, Inc. (a) | | | 91,110 | | | $ | 1,604,447 | |
| Entegris, Inc. (a) | | | 99,436 | | | | 849,183 | |
| Monolithic Power Systems, Inc. (a) | | | 91,751 | | | | 1,823,092 | |
| Stratasys, Inc. (a) | | | 19,517 | | | | 967,067 | |
| Ultratech, Inc. (a) | | | 47,052 | | | | 1,482,138 | |
| Universal Display Corp. (a) | | | 9,721 | | | | 349,373 | |
| Veeco Instruments, Inc. (a) | | | 62,250 | | | | 2,138,910 | |
| | | | | | | | |
| | | | | | $ | 9,214,210 | |
| | | | | | | | |
| Energy – Independent – 9.0% | | | | | | | | |
| Approach Resources, Inc. (a) | | | 46,160 | | | $ | 1,178,926 | |
| Cabot Oil & Gas Corp. | | | 128,105 | | | | 5,047,337 | |
| Celtic Exploration Ltd. (a) | | | 64,993 | | | | 879,043 | |
| Cloud Peak Energy, Inc. (a) | | | 47,790 | | | | 808,129 | |
| Midstates Petroleum Co., Inc. (a) | | | 113,480 | | | | 1,101,891 | |
| Pinecrest Energy, Inc. (a) | | | 591,961 | | | | 1,029,143 | |
| Range Resources Corp. | | | 59,357 | | | | 3,672,418 | |
| | | | | | | | |
| | | | | | $ | 13,716,887 | |
| | | | | | | | |
| Entertainment – 1.4% | | | | | | | | |
| Six Flags Entertainment Corp. | | | 38,939 | | | $ | 2,109,715 | |
| | | | | | | | |
| Food & Beverages – 0.8% | | | | | | | | |
| Green Mountain Coffee Roasters, Inc. (a) | | | 58,892 | | | $ | 1,282,668 | |
| | | | | | | | |
| Internet – 0.5% | | | | | | | | |
| Millennial Media, Inc. (a) | | | 63,500 | | | $ | 837,565 | |
| | | | | | | | |
| Machinery & Tools – 7.9% | | | | | | | | |
| Allison Transmission Holdings, Inc. | | | 96,780 | | | $ | 1,699,457 | |
| Douglas Dynamics, Inc. | | | 27,802 | | | | 396,179 | |
| IPG Photonics Corp. (a) | | | 38,101 | | | | 1,660,823 | |
| Joy Global, Inc. | | | 32,984 | | | | 1,871,182 | |
| Kennametal, Inc. | | | 42,270 | | | | 1,401,251 | |
| Polypore International, Inc. (a) | | | 40,593 | | | | 1,639,551 | |
| United Rentals, Inc. (a) | | | 62,119 | | | | 2,114,531 | |
| WABCO Holdings, Inc. (a) | | | 23,597 | | | | 1,248,989 | |
| | | | | | | | |
| | | | | | $ | 12,031,963 | |
| | | | | | | | |
4
MFS New Discovery Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Medical & Health Technology & Services – 6.8% | | | | | |
| Advisory Board Co. (a) | | | 25,336 | | | $ | 1,256,412 | |
| Air Methods Corp. (a) | | | 10,309 | | | | 1,012,859 | |
| Brookdale Senior Living, Inc. (a) | | | 140,453 | | | | 2,491,636 | |
| Cerner Corp. (a) | | | 16,062 | | | | 1,327,685 | |
| Healthcare Services Group, Inc. | | | 103,806 | | | | 2,011,760 | |
| HMS Holdings Corp. (a) | | | 44,920 | | | | 1,496,285 | |
| IDEXX Laboratories, Inc. (a) | | | 8,520 | | | | 819,028 | |
| | | | | | | | |
| | | | | | $ | 10,415,665 | |
| | | | | | | | |
| Medical Equipment – 13.3% | | | | | | | | |
| Align Technology, Inc. (a) | | | 41,981 | | | $ | 1,404,684 | |
| Cepheid, Inc. (a) | | | 22,061 | | | | 987,230 | |
| Conceptus, Inc. (a) | | | 172,360 | | | | 3,416,175 | |
| DexCom, Inc. (a) | | | 76,789 | | | | 995,185 | |
| Edwards Lifesciences Corp. (a) | | | 7,290 | | | | 753,057 | |
| Endologix, Inc. (a) | | | 96,802 | | | | 1,494,623 | |
| Essilor International S.A. | | | 8,184 | | | | 760,245 | |
| Heartware International, Inc. (a) | | | 8,289 | | | | 736,063 | |
| Masimo Corp. (a) | | | 72,441 | | | | 1,621,230 | |
| Novadaq Technologies, Inc. (a) | | | 24,790 | | | | 165,349 | |
| NxStage Medical, Inc. (a) | | | 103,265 | | | | 1,730,721 | |
| Sirona Dental Systems, Inc. (a) | | | 20,820 | | | | 937,108 | |
| Sonova Holding AG | | | 9,400 | | | | 907,062 | |
| Thoratec Corp. (a) | | | 16,379 | | | | 550,007 | |
| Uroplasty, Inc. (a) | | | 166,725 | | | | 765,268 | |
| Vocera Communications, Inc. (a) | | | 56,520 | | | | 1,514,171 | |
| Volcano Corp. (a) | | | 57,174 | | | | 1,638,035 | |
| | | | | | | | |
| | | | | | $ | 20,376,213 | |
| | | | | | | | |
| Metals & Mining – 1.2% | | | | | | | | |
| Globe Specialty Metals, Inc. | | | 112,787 | | | $ | 1,514,729 | |
| Iluka Resources Ltd. | | | 28,734 | | | | 336,707 | |
| | | | | | | | |
| | | | | | $ | 1,851,436 | |
| | | | | | | | |
| Network & Telecom – 2.0% | | | | | | | | |
| Calix, Inc. (a) | | | 160,351 | | | $ | 1,318,085 | |
| Fortinet, Inc. (a) | | | 76,496 | | | | 1,776,237 | |
| | | | | | | | |
| | | | | | $ | 3,094,322 | |
| | | | | | | | |
| Oil Services – 3.7% | | | | | | | | |
| Atwood Oceanics, Inc. (a) | | | 51,939 | | | $ | 1,965,372 | |
| Dresser-Rand Group, Inc. (a) | | | 36,903 | | | | 1,643,660 | |
| Helmerich & Payne, Inc. | | | 22,450 | | | | 976,126 | |
| Lufkin Industries, Inc. | | | 20,760 | | | | 1,127,683 | |
| | | | | | | | |
| | | | | | $ | 5,712,841 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 1.6% | | | | | |
| Air Lease Corp. (a) | | | 51,558 | | | $ | 999,710 | |
| First Republic Bank (a) | | | 41,630 | | | | 1,398,768 | |
| | | | | | | | |
| | | | | | $ | 2,398,478 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Pharmaceuticals – 0.6% | | | | | | | | |
| Perrigo Co. | | | 7,310 | | | $ | 862,068 | |
| | | | | | | | |
| Precious Metals & Minerals – 0.2% | | | | | | | | |
| Colossus Minerals, Inc. (a) | | | 102,463 | | | $ | 356,271 | |
| | | | | | | | |
| Railroad & Shipping – 0.9% | | | | | | | | |
| Diana Shipping, Inc. (a) | | | 177,208 | | | $ | 1,378,678 | |
| | | | | | | | |
| Restaurants – 2.1% | | | | | | | | |
| Arcos Dorados Holdings, Inc. | | | 141,421 | | | $ | 2,090,202 | |
| BJ’s Restaurants, Inc. (a) | | | 10,030 | | | | 381,140 | |
| Dunkin Brands Group, Inc. | | | 20,305 | | | | 697,274 | |
| | | | | | | | |
| | | | | | $ | 3,168,616 | |
| | | | | | | | |
| Specialty Chemicals – 0.1% | | | | | | | | |
| Ecosynthetix, Inc. (a)(z) | | | 46,190 | | | $ | 176,938 | |
| | | | | | | | |
| Specialty Stores – 5.8% | | | | | | | | |
| Citi Trends, Inc. (a) | | | 125,993 | | | $ | 1,945,332 | |
| Ethan Allen Interiors, Inc. | | | 78,734 | | | | 1,569,169 | |
| Francesca’s Holdings Corp. (a) | | | 33,820 | | | | 913,478 | |
| Monro Muffler Brake, Inc. | | | 54,883 | | | | 1,824,311 | |
| Tiffany & Co. | | | 22,580 | | | | 1,195,611 | |
| Urban Outfitters, Inc. (a) | | | 51,541 | | | | 1,422,016 | |
| | | | | | | | |
| | | | | | $ | 8,869,917 | |
| | | | | | | | |
| Trucking – 2.3% | | | | | | | | |
| Atlas Air Worldwide Holdings, Inc. (a) | | | 32,662 | | | $ | 1,421,124 | |
| Swift Transportation Co. (a) | | | 214,626 | | | | 2,028,216 | |
| | | | | | | | |
| | | | | | $ | 3,449,340 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $143,035,901) | | | | | | $ | 151,867,479 | |
| | | | | | | | |
| MONEY MARKET FUNDS – 1.5% | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 2,395,372 | | | $ | 2,395,372 | |
| | | | | | | | |
| COLLATERAL FOR SECURITIES LOANED – 0.4% | | | | | |
| Navigator Securities Lending Prime Portfolio, 0.28%, at Cost and Net Asset Value (j) | | | 568,554 | | | $ | 568,554 | |
| | | | | | | | |
Total Investments
(Identified Cost, $145,999,827) | | | | | | $ | 154,831,405 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – (1.1)% | | | | | | | (1,734,955 | ) |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 153,096,450 | |
| | | | | | | | |
| (a) | | Non-income producing 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. |
| (v) | | Underlying affiliated fund 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. |
5
MFS New Discovery Portfolio
Portfolio of Investments (unaudited) – continued
| (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 | |
| Ecosynthetix, Inc. | | 7/28/11 | | | $436,877 | | | | $176,938 | |
| % of Net assets | | | | | | | | | 0.1% | |
The following abbreviations are used in this report and are defined:
| PLC | | Public Limited Company |
See Notes to Financial Statements
6
MFS New Discovery 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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $143,604,455) | | | $152,436,033 | | | | | |
Underlying affiliated funds, at cost and value | | | 2,395,372 | | | | | |
Total investments, at value, including $565,576 of securities on loan (identified cost, $145,999,827) | | | $154,831,405 | | | | | |
Cash | | | 1,030 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 2,512,694 | | | | | |
Fund shares sold | | | 15,756 | | | | | |
Interest and dividends | | | 14,883 | | | | | |
Other assets | | | 1,248 | | | | | |
Total assets | | | | | | | $157,377,016 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | $3,439,408 | | | | | |
Fund shares reacquired | | | 209,014 | | | | | |
Collateral for securities loaned, at value | | | 568,554 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 676 | | | | | |
Distribution and/or service fees | | | 1,591 | | | | | |
Payable for independent Trustees’ compensation | | | 17 | | | | | |
Accrued expenses and other liabilities | | | 61,306 | | | | | |
Total liabilities | | | | | | | $4,280,566 | |
Net assets | | | | | | | $153,096,450 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $134,709,263 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 8,831,700 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | 10,054,150 | | | | | |
Accumulated net investment loss | | | (498,663 | ) | | | | |
Net assets | | | | | | | $153,096,450 | |
Shares of beneficial interest outstanding | | | | | | | 9,157,541 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $73,000,568 | | | | 4,289,572 | | | | $17.02 | |
Service Class | | | 80,095,882 | | | | 4,867,969 | | | | 16.45 | |
See Notes to Financial Statements
7
MFS New Discovery 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 6/30/12 | | | | | | | | |
Net investment loss | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $319,028 | | | | | |
Income on securities loaned | | | 38,119 | | | | | |
Dividends from underlying affiliated funds | | | 283 | | | | | |
Foreign taxes withheld | | | (4,057 | ) | | | | |
Total investment income | | | | | | | $353,373 | |
Expenses | | | | | | | | |
Management fee | | | $708,272 | | | | | |
Distribution and/or service fees | | | 103,357 | | | | | |
Administrative services fee | | | 16,764 | | | | | |
Independent Trustees’ compensation | | | 3,588 | | | | | |
Custodian fee | | | 27,418 | | | | | |
Shareholder communications | | | 9,281 | | | | | |
Audit and tax fees | | | 26,552 | | | | | |
Legal fees | | | 1,320 | | | | | |
Miscellaneous | | | 9,335 | | | | | |
Total expenses | | | | | | | $905,887 | |
Fees paid indirectly | | | (6 | ) | | | | |
Reduction of expenses by investment adviser | | | (53,845 | ) | | | | |
Net expenses | | | | | | | $852,036 | |
Net investment loss | | | | | | | $(498,663 | ) |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $(364,325 | ) | | | | |
Foreign currency | | | (23,974 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $(388,299 | ) |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $18,761,597 | | | | | |
Translation of assets and liabilities in foreign currencies | | | 702 | | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $18,762,299 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $18,374,000 | |
Change in net assets from operations | | | | | | | $17,875,337 | |
See Notes to Financial Statements
8
MFS New Discovery Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | | | | | | | |
| |
| Six months ended
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment loss | | | $(498,663 | ) | | | $(1,232,958 | ) |
Net realized gain (loss) on investments and foreign currency | | | (388,299 | ) | | | 11,911,446 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 18,762,299 | | | | (27,205,896 | ) |
Change in net assets from operations | | | $17,875,337 | | | | $(16,527,408 | ) |
| Distributions declared to shareholders | | | | | | | | |
From net realized gain on investments | | | $— | | | | $(14,519,487 | ) |
Change in net assets from fund share transactions | | | $(14,101,483 | ) | | | $(14,650,729 | ) |
Total change in net assets | | | $3,773,854 | | | | $(45,697,624 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 149,322,596 | | | | 195,020,220 | |
At end of period (including accumulated net investment loss of $498,663 and
$0, respectively) | | | $153,096,450 | | | | $149,322,596 | |
See Notes to Financial Statements
9
MFS New Discovery Portfolio
FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $15.20 | | | | $18.63 | | | | $13.64 | | | | $8.37 | | | | $16.24 | | | | $16.24 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment loss (d) | | | $(0.04 | ) | | | $(0.10 | ) | | | $(0.07 | ) | | | $(0.05 | ) | | | $(0.04 | ) | | | $(0.08 | ) |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 1.86 | | | | (1.78 | ) | | | 5.06 | | | | 5.32 | | | | (5.42 | ) | | | 0.52 | |
Total from investment operations | | | $1.82 | | | | $(1.88 | ) | | | $4.99 | | | | $5.27 | | | | $(5.46 | ) | | | $0.44 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net realized gain on investments | | | $— | | | | $(1.55 | ) | | | $— | | | | $— | | | | $(2.41 | ) | | | $(0.44 | ) |
Net asset value, end of period (x) | | | $17.02 | | | | $15.20 | | | | $18.63 | | | | $13.64 | | | | $8.37 | | | | $16.24 | |
Total return (%) (k)(r)(s)(x) | | | 11.97 | (n) | | | (10.37 | ) | | | 36.58 | | | | 62.96 | | | | (39.57 | ) | | | 2.56 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.02 | (a) | | | 1.04 | | | | 1.09 | | | | 1.05 | | | | 1.02 | | | | 1.00 | |
Expenses after expense reductions (f) | | | 0.95 | (a) | | | 0.95 | | | | 0.95 | | | | 0.95 | | | | 0.95 | | | | 0.95 | |
Net investment loss | | | (0.50 | )(a) | | | (0.55 | ) | | | (0.48 | ) | | | (0.49 | ) | | | (0.28 | ) | | | (0.45 | ) |
Portfolio turnover | | | 63 | (n) | | | 176 | | | | 192 | | | | 153 | | | | 127 | | | | 95 | |
Net assets at end of period (000 omitted) | | | $73,001 | | | | $69,664 | | | | $87,806 | | | | $78,620 | | | | $59,861 | | | | $130,029 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $14.72 | | | | $18.13 | | | | $13.31 | | | | $8.18 | | | | $15.97 | | | | $16.02 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment loss (d) | | | $(0.06 | ) | | | $(0.14 | ) | | | $(0.11 | ) | | | $(0.07 | ) | | | $(0.07 | ) | | | $(0.12 | ) |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 1.79 | | | | (1.72 | ) | | | 4.93 | | | | 5.20 | | | | (5.31 | ) | | | 0.51 | |
Total from investment operations | | | $1.73 | | | | $(1.86 | ) | | | $4.82 | | | | $5.13 | | | | $(5.38 | ) | | | $0.39 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net realized gain on investments | | | $— | | | | $(1.55 | ) | | | $— | | | | $— | | | | $(2.41 | ) | | | $(0.44 | ) |
Net asset value, end of period (x) | | | $16.45 | | | | $14.72 | | | | $18.13 | | | | $13.31 | | | | $8.18 | | | | $15.97 | |
Total return (%) (k)(r)(s)(x) | | | 11.75 | (n) | | | (10.55 | ) | | | 36.21 | | | | 62.71 | | | | (39.76 | ) | | | 2.28 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.27 | (a) | | | 1.29 | | | | 1.34 | | | | 1.30 | | | | 1.27 | | | | 1.25 | |
Expenses after expense reductions (f) | | | 1.20 | (a) | | | 1.20 | | | | 1.20 | | | | 1.20 | | | | 1.20 | | | | 1.20 | |
Net investment loss | | | (0.75 | )(a) | | | (0.80 | ) | | | (0.73 | ) | | | (0.74 | ) | | | (0.54 | ) | | | (0.70 | ) |
Portfolio turnover | | | 63 | (n) | | | 176 | | | | 192 | | | | 153 | | | | 127 | | | | 95 | |
Net assets at end of period (000 omitted) | | | $80,096 | | | | $79,659 | | | | $107,214 | | | | $115,516 | | | | $104,937 | | | | $186,516 | |
See Notes to Financial Statements
10
MFS New Discovery Portfolio
Financial Highlights – continued
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values per share 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 New Discovery Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS New Discovery Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
12
MFS New Discovery Portfolio
Notes to Financial Statements (unaudited) – continued
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
United States | | | $140,509,451 | | | | $— | | | | $— | | | | $140,509,451 | |
Canada | | | 2,429,806 | | | | 176,938 | | | | — | | | | 2,606,744 | |
Virgin Islands GB | | | 2,090,202 | | | | — | | | | — | | | | 2,090,202 | |
Israel | | | 1,560,151 | | | | — | | | | — | | | | 1,560,151 | |
Greece | | | 1,378,678 | | | | — | | | | — | | | | 1,378,678 | |
Switzerland | | | — | | | | 907,062 | | | | — | | | | 907,062 | |
India | | | 894,942 | | | | — | | | | — | | | | 894,942 | |
Luxembourg | | | — | | | | 823,297 | | | | — | | | | 823,297 | |
France | | | — | | | | 760,245 | | | | — | | | | 760,245 | |
Other Countries | | | — | | | | 336,707 | | | | — | | | | 336,707 | |
| Mutual Funds | | | 2,963,926 | | | | — | | | | — | | | | 2,963,926 | |
| Total Investments | | | $151,827,156 | | | | $3,004,249 | | | | $— | | | | $154,831,405 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 2 investments presented above, equity investments amounting to $1,730,358 would have been considered level 1 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend
13
MFS New Discovery Portfolio
Notes to Financial Statements (unaudited) – continued
and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $10,192,031 | |
| Long-term capital gains | | | 4,327,456 | |
| Total distributions | | | $14,519,487 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $150,456,596 | |
| Gross appreciation | | | 19,176,728 | |
| Gross depreciation | | | (14,801,919 | ) |
| Net unrealized appreciation (depreciation) | | | $4,374,809 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 14,899,218 | |
| Other temporary differences | | | (580 | ) |
| Net unrealized appreciation (depreciation) | | | (14,386,788 | ) |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net realized gain on
investments | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $6,701,669 | |
| Service Class | | | — | | | | 7,817,818 | |
| Total | | | $— | | | | $14,519,487 | |
14
MFS New Discovery Portfolio
Notes to Financial Statements (unaudited) – continued
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.90% | |
| Average daily net assets in excess of $1 billion | | | 0.80% | |
The investment adviser has agreed in writing to reduce its management fee to 0.75% of average daily net assets in excess of $2.5 billion. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2014. For the six months ended June 30, 2012, the fund’s average daily net assets did not exceed $2.5 billion and therefore, the management fee was not reduced. The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.95% of average daily net assets for the Initial Class shares and 1.20% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2014. For the six months ended June 30, 2012, this reduction amounted to $53,440 and is reflected as a reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0213% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $814 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $405, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
15
MFS New Discovery Portfolio
Notes to Financial Statements (unaudited) – continued
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $99,704,715 and $114,748,192, 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 100,562 | | | | $1,652,898 | | | | 389,956 | | | | $6,770,709 | |
Service Class | | | 120,508 | | | | 1,910,243 | | | | 488,436 | | | | 7,547,690 | |
| | | 221,070 | | | | $3,563,141 | | | | 878,392 | | | | $14,318,399 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 424,694 | | | | $6,701,669 | |
Service Class | | | — | | | | — | | | | 511,303 | | | | 7,817,818 | |
| | | — | | | | $— | | | | 935,997 | | | | $14,519,487 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (393,516 | ) | | | $(6,691,042 | ) | | | (944,373 | ) | | | $(17,044,090 | ) |
Service Class | | | (665,615 | ) | | | (10,973,582 | ) | | | (1,498,709 | ) | | | (26,444,525 | ) |
| | | (1,059,131 | ) | | | $(17,664,624 | ) | | | (2,443,082 | ) | | | $(43,488,615 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (292,954 | ) | | | $(5,038,144 | ) | | | (129,723 | ) | | | $(3,571,712 | ) |
Service Class | | | (545,107 | ) | | | (9,063,339 | ) | | | (498,970 | ) | | | (11,079,017 | ) |
| | | (838,061 | ) | | | $(14,101,483 | ) | | | (628,693 | ) | | | $(14,650,729 | ) |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $538 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 529,518 | | | | 18,799,068 | | | | (16,933,214 | ) | | | 2,395,372 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $283 | | | | 2,395,372 | |
16
MFS New Discovery Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
17
SEMIANNUAL REPORT
June 30, 2012
MFS® VALUE PORTFOLIO
MFS® Variable Insurance Trust II
EIS-SEM
MFS® VALUE PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Value Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Value Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Philip Morris International, Inc. | | | 4.0% | |
| Lockheed Martin Corp. | | | 3.4% | |
| Pfizer, Inc. | | | 3.1% | |
| JPMorgan Chase & Co. | | | 3.0% | |
| Johnson & Johnson | | | 2.7% | |
| AT&T, Inc. | | | 2.3% | |
| Chevron Corp. | | | 2.1% | |
| Wells Fargo & Co. | | | 2.1% | |
| Accenture PLC, “A” | | | 2.1% | |
| International Business Machines Corp. | | | 2.1% | |
| | | | |
| Equity sectors | | | | |
| Financial Services | | | 20.7% | |
| Consumer Staples | | | 13.2% | |
| Health Care | | | 13.1% | |
| Industrial Goods & Services | | | 11.7% | |
| Energy | | | 7.1% | |
| Leisure | | | 6.2% | |
| Technology | | | 6.0% | |
| Utilities & Communications | | | 5.4% | |
| Retailing | | | 4.2% | |
| Basic Materials | | | 4.0% | |
| Special Products & Services | | | 3.0% | |
| Autos & Housing | | | 2.7% | |
| Transportation | | | 1.8% | |
Percentages are based on net assets as of 6/30/12.
The portfolio is actively managed and current holdings may be different.
2
MFS Value Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders During the Period,
January 1, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.80% | | | | $1,000.00 | | | | $1,079.91 | | | | $4.14 | |
| | Hypothetical (h) | | | 0.80% | | | | $1,000.00 | | | | $1,020.89 | | | | $4.02 | |
| Service Class | | Actual | | | 1.05% | | | | $1,000.00 | | | | $1,079.07 | | | | $5.43 | |
| | Hypothetical (h) | | | 1.05% | | | | $1,000.00 | | | | $1,019.64 | | | | $5.27 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Value Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 98.8% | | | | | |
| Aerospace – 8.4% | | | | | |
| Honeywell International, Inc. | | | 152,340 | | | $ | 8,506,666 | |
| Huntington Ingalls Industries, Inc. (a) | | | 15,338 | | | | 617,201 | |
| Lockheed Martin Corp. | | | 196,387 | | | | 17,101,380 | |
| Northrop Grumman Corp. | | | 86,860 | | | | 5,540,799 | |
| United Technologies Corp. | | | 137,835 | | | | 10,410,678 | |
| | | | | | | | |
| | | | | | $ | 42,176,724 | |
| | | | | | | | |
| Alcoholic Beverages – 1.8% | | | | | |
| Diageo PLC | | | 348,840 | | | $ | 8,970,840 | |
| | | | | | | | |
| Automotive – 1.6% | | | | | |
| Delphi Automotive PLC (a) | | | 80,230 | | | $ | 2,045,865 | |
| General Motors Co. (a) | | | 41,740 | | | | 823,113 | |
| Johnson Controls, Inc. | | | 186,595 | | | | 5,170,547 | |
| | | | | | | | |
| | | | | | $ | 8,039,525 | |
| | | | | | | | |
| Broadcasting – 4.1% | | | | | |
| Omnicom Group, Inc. | | | 120,338 | | | $ | 5,848,427 | |
| Viacom, Inc., “B” | | | 117,920 | | | | 5,544,598 | |
| Walt Disney Co. | | | 189,782 | | | | 9,204,427 | |
| | | | | | | | |
| | | | | | $ | 20,597,452 | |
| | | | | | | | |
| Brokerage & Asset Managers – 1.8% | | | | | |
| BlackRock, Inc. | | | 35,968 | | | $ | 6,108,086 | |
| Franklin Resources, Inc. | | | 28,100 | | | | 3,118,819 | |
| | | | | | | | |
| | | | | | $ | 9,226,905 | |
| | | | | | | | |
| Business Services – 3.0% | | | | | |
| Accenture PLC, “A” | | | 173,407 | | | $ | 10,420,027 | |
| Dun & Bradstreet Corp. | | | 35,047 | | | | 2,494,295 | |
| Fiserv, Inc. (a) | | | 30,720 | | | | 2,218,598 | |
| | | | | | | | |
| | | | | | $ | 15,132,920 | |
| | | | | | | | |
| Cable TV – 0.9% | | | | | |
| Comcast Corp., “Special A” | | | 147,320 | | | $ | 4,625,848 | |
| | | | | | | | |
| Chemicals – 3.1% | | | | | |
| 3M Co. | | | 95,468 | | | $ | 8,553,933 | |
| PPG Industries, Inc. | | | 63,777 | | | | 6,768,015 | |
| | | | | | | | |
| | | | | | $ | 15,321,948 | |
| | | | | | | | |
| Computer Software – 1.9% | | | | | |
| Oracle Corp. | | | 329,053 | | | $ | 9,772,874 | |
| | | | | | | | |
| Computer Software – Systems – 2.3% | | | | | |
| Hewlett-Packard Co. | | | 54,340 | | | $ | 1,092,777 | |
| International Business Machines Corp. | | | 53,275 | | | | 10,419,524 | |
| | | | | | | | |
| | | | | | $ | 11,512,301 | |
| | | | | | | | |
| Construction – 1.1% | | | | | |
| Stanley Black & Decker, Inc. | | | 83,626 | | | $ | 5,382,169 | |
| | | | | | | | |
| Consumer Products – 0.6% | | | | | |
| Procter & Gamble Co. | | | 46,888 | | | $ | 2,871,890 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Electrical Equipment – 2.5% | | | | | |
| Danaher Corp. | | | 112,300 | | | $ | 5,848,584 | |
| Tyco International Ltd. | | | 127,670 | | | | 6,747,360 | |
| | | | | | | | |
| | | | | | $ | 12,595,944 | |
| | | | | | | | |
| Electronics – 1.2% | | | | | |
| ASML Holding N.V. | | | 21,170 | | | $ | 1,088,561 | |
| Intel Corp. | | | 183,582 | | | | 4,892,460 | |
| | | | | | | | |
| | | | | | $ | 5,981,021 | |
| | | | | | | | |
| Energy – Independent – 2.9% | | | | | |
| Apache Corp. | | | 41,055 | | | $ | 3,608,324 | |
| EOG Resources, Inc. | | | 30,892 | | | | 2,783,678 | |
| Occidental Petroleum Corp. | | | 94,687 | | | | 8,121,304 | |
| | | | | | | | |
| | | | | | $ | 14,513,306 | |
| | | | | | | | |
| Energy – Integrated – 3.9% | | | | | |
| Chevron Corp. | | | 99,563 | | | $ | 10,503,896 | |
| Exxon Mobil Corp. | | | 100,287 | | | | 8,581,559 | |
| Hess Corp. | | | 7,775 | | | | 337,824 | |
| | | | | | | | |
| | | | | | $ | 19,423,279 | |
| | | | | | | | |
| Engineering – Construction – 0.1% | | | | | |
| Fluor Corp. | | | 14,290 | | | $ | 705,069 | |
| | | | | | | | |
| Food & Beverages – 5.4% | | | | | |
| General Mills, Inc. | | | 200,770 | | | $ | 7,737,676 | |
| Groupe Danone | | | 82,162 | | | | 5,096,381 | |
| J.M. Smucker Co. | | | 23,550 | | | | 1,778,496 | |
| Kellogg Co. | | | 46,020 | | | | 2,270,167 | |
| Nestle S.A. | | | 100,844 | | | | 6,015,488 | |
| PepsiCo, Inc. | | | 58,293 | | | | 4,118,983 | |
| | | | | | | | |
| | | | | | $ | 27,017,191 | |
| | | | | | | | |
| Food & Drug Stores – 1.6% | | | | | |
| CVS Caremark Corp. | | | 100,343 | | | $ | 4,689,028 | |
| Walgreen Co. | | | 104,320 | | | | 3,085,786 | |
| | | | | | | | |
| | | | | | $ | 7,774,814 | |
| | | | | | | | |
| General Merchandise – 1.9% | | | | | |
| Kohl’s Corp. | | | 33,660 | | | $ | 1,531,193 | |
| Target Corp. | | | 134,480 | | | | 7,825,391 | |
| | | | | | | | |
| | | | | | $ | 9,356,584 | |
| | | | | | | | |
| Insurance – 6.7% | | | | | |
| ACE Ltd. | | | 56,790 | | | $ | 4,209,843 | |
| Aon PLC | | | 102,710 | | | | 4,804,774 | |
| Chubb Corp. | | | 54,675 | | | | 3,981,433 | |
| MetLife, Inc. | | | 273,038 | | | | 8,423,222 | |
| Prudential Financial, Inc. | | | 119,867 | | | | 5,805,159 | |
| Travelers Cos., Inc. | | | 101,335 | | | | 6,469,226 | |
| | | | | | | | |
| | | | | | $ | 33,693,657 | |
| | | | | | | | |
| Leisure & Toys – 0.8% | | | | | |
| Hasbro, Inc. | | | 124,593 | | | $ | 4,219,965 | |
| | | | | | | | |
4
MFS Value Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Machinery & Tools – 0.6% | | | | | |
| Eaton Corp. | | | 79,860 | | | $ | 3,164,852 | |
| | | | | | | | |
| Major Banks – 10.6% | | | | | |
| Bank of America Corp. | | | 157,720 | | | $ | 1,290,150 | |
| Bank of New York Mellon Corp. | | | 353,405 | | | | 7,757,240 | |
| Goldman Sachs Group, Inc. | | | 108,362 | | | | 10,387,581 | |
| JPMorgan Chase & Co. | | | 424,262 | | | | 15,158,881 | |
| PNC Financial Services Group, Inc. | | | 64,755 | | | | 3,957,178 | |
| State Street Corp. | | | 99,425 | | | | 4,438,332 | |
| Wells Fargo & Co. | | | 311,882 | | | | 10,429,334 | |
| | | | | | | | |
| | | | | | $ | 53,418,696 | |
| | | | | | | | |
| Medical & Health Technology & Services – 0.6% | |
| Quest Diagnostics, Inc. | | | 47,400 | | | $ | 2,839,260 | |
| | | | | | | | |
| Medical Equipment – 3.4% | | | | | |
| Becton, Dickinson & Co. | | | 40,312 | | | $ | 3,013,322 | |
| Medtronic, Inc. | | | 143,710 | | | | 5,565,888 | |
| St. Jude Medical, Inc. | | | 113,920 | | | | 4,546,547 | |
| Thermo Fisher Scientific, Inc. | | | 80,415 | | | | 4,174,343 | |
| | | | | | | | |
| | | | | | $ | 17,300,100 | |
| | | | | | | | |
| Network & Telecom – 0.6% | | | | | |
| Cisco Systems, Inc. | | | 172,910 | | | $ | 2,968,865 | |
| | | | | | | | |
| Oil Services – 0.3% | | | | | |
| Transocean, Inc. | | | 28,380 | | | $ | 1,269,437 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 1.6% | | | | | |
| MasterCard, Inc., “A” | | | 6,100 | | | $ | 2,623,671 | |
| SunTrust Banks, Inc. | | | 32,390 | | | | 784,810 | |
| Western Union Co. | | | 275,215 | | | | 4,634,621 | |
| | | | | | | | |
| | | | | | $ | 8,043,102 | |
| | | | | | | | |
| Pharmaceuticals – 9.1% | | | | | |
| Abbott Laboratories | | | 137,242 | | | $ | 8,847,992 | |
| Johnson & Johnson | | | 203,787 | | | | 13,767,850 | |
| Merck & Co., Inc. | | | 119,922 | | | | 5,006,744 | |
| Pfizer, Inc. | | | 677,588 | | | | 15,584,524 | |
| Roche Holding AG | | | 15,403 | | | | 2,658,980 | |
| | | | | | | | |
| | | | | | $ | 45,866,090 | |
| | | | | | | | |
| Printing & Publishing – 0.4% | | | | | |
| Moody’s Corp. | | | 59,920 | | | $ | 2,190,076 | |
| | | | | | | | |
| Railroad & Shipping – 0.7% | | | | | |
| Canadian National Railway Co. | | | 38,680 | | | $ | 3,263,818 | |
| | | | | | | | |
| Specialty Chemicals – 0.9% | | | | | |
| Air Products & Chemicals, Inc. | | | 56,887 | | | $ | 4,592,488 | |
| | | | | | | | |
| Specialty Stores – 0.7% | | | | | |
| Advance Auto Parts, Inc. | | | 23,150 | | | $ | 1,579,293 | |
| Staples, Inc. | | | 158,660 | | | | 2,070,513 | |
| | | | | | | | |
| | | | | | $ | 3,649,806 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Telecommunications – Wireless – 1.7% | | | | | |
| Vodafone Group PLC | | | 2,998,568 | | | $ | 8,424,884 | |
| | | | | | | | |
| Telephone Services – 2.3% | | | | | |
| AT&T, Inc. | | | 316,632 | | | $ | 11,291,097 | |
| | | | | | | | |
| Tobacco – 5.4% | | | | | |
| Altria Group, Inc. | | | 89,172 | | | $ | 3,080,893 | |
| Lorillard, Inc. | | | 29,580 | | | | 3,903,081 | |
| Philip Morris International, Inc. | | | 227,665 | | | | 19,866,048 | |
| | | | | | | | |
| | | | | | $ | 26,850,022 | |
| | | | | | | | |
| Trucking – 1.1% | | | | | |
| United Parcel Service, Inc., “B” | | | 70,140 | | | $ | 5,524,226 | |
| | | | | | | | |
| Utilities – Electric Power – 1.2% | | | | | |
| PG&E Corp. | | | 85,508 | | | $ | 3,870,947 | |
| PPL Corp. | | | 35,062 | | | | 975,074 | |
| Public Service Enterprise Group, Inc. | | | 34,793 | | | | 1,130,773 | |
| | | | | | | | |
| | | | | | $ | 5,976,794 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $459,209,249) | | | $ | 495,545,839 | |
| | | | | | | | |
|
| CONVERTIBLE PREFERRED STOCKS – 0.3% | |
| Aerospace – 0.1% | | | | | |
| United Technologies Corp., 7.5% (a) | | | 12,330 | | | $ | 649,668 | |
| | | | | | | | |
| Utilities – Electric Power – 0.2% | | | | | |
| PPL Corp., 9.5% | | | 17,340 | | | $ | 917,286 | |
| | | | | | | | |
Total Convertible Preferred Stocks
(Identified Cost, $1,486,397) | | | $ | 1,566,954 | |
| | | | | | | | |
| |
| MONEY MARKET FUNDS – 0.7% | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 3,741,188 | | | $ | 3,741,188 | |
| | | | | | | | |
Total Investments
(Identified Cost, $464,436,834) | | | $ | 500,853,981 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 0.2% | | | | 928,121 | |
| | | | | | | | |
| Net Assets – 100.0% | | | $ | 501,782,102 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (v) | | Underlying affiliated fund 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:
| PLC | | Public Limited Company |
See Notes to Financial Statements
5
MFS 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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $460,695,646) | | | $497,112,793 | | | | | |
Underlying affiliated funds, at cost and value | | | 3,741,188 | | | | | |
Total investments, at value (identified cost, $464,436,834) | | | $500,853,981 | | | | | |
Cash | | | 12,046 | | | | | |
Receivables for | | | | | | | | |
Fund shares sold | | | 134,891 | | | | | |
Interest and dividends | | | 1,130,243 | | | | | |
Other assets | | | 3,427 | | | | | |
Total assets | | | | | | | $502,134,588 | |
Liabilities | | | | | | | | |
Payable for fund shares reacquired | | | $266,138 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 30,737 | | | | | |
Distribution and/or service fees | | | 4,002 | | | | | |
Payable for independent Trustees’ compensation | | | 53 | | | | | |
Accrued expenses and other liabilities | | | 51,556 | | | | | |
Total liabilities | | | | | | | $352,486 | |
Net assets | | | | | | | $501,782,102 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $420,514,973 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 36,415,478 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | 31,306,070 | | | | | |
Undistributed net investment income | | | 13,545,581 | | | | | |
Net assets | | | | | | | $501,782,102 | |
Shares of beneficial interest outstanding | | | | | | | 36,917,222 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $301,674,571 | | | | 22,100,362 | | | | $13.65 | |
Service Class | | | 200,107,531 | | | | 14,816,860 | | | | 13.51 | |
See Notes to Financial Statements
6
MFS 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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $7,111,275 | | | | | |
Interest | | | 9,154 | | | | | |
Dividends from underlying affiliated funds | | | 2,252 | | | | | |
Foreign taxes withheld | | | (75,690 | ) | | | | |
Total investment income | | | | | | | $7,046,991 | |
Expenses | | | | | | | | |
Management fee | | | $1,942,175 | | | | | |
Distribution and/or service fees | | | 258,909 | | | | | |
Administrative services fee | | | 43,756 | | | | | |
Independent Trustees’ compensation | | | 11,979 | | | | | |
Custodian fee | | | 28,514 | | | | | |
Shareholder communications | | | 7,675 | | | | | |
Audit and tax fees | | | 22,834 | | | | | |
Legal fees | | | 4,391 | | | | | |
Miscellaneous | | | 15,748 | | | | | |
Total expenses | | | | | | | $2,335,981 | |
Fees paid indirectly | | | (3 | ) | | | | |
Reduction of expenses by investment adviser | | | (1,335 | ) | | | | |
Net expenses | | | | | | | $2,334,643 | |
Net investment income | | | | | | | $4,712,348 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $12,749,357 | | | | | |
Foreign currency | | | (8,731 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $12,740,626 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $23,463,127 | | | | | |
Translation of assets and liabilities in foreign currencies | | | 5,473 | | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $23,468,600 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $36,209,226 | |
Change in net assets from operations | | | | | | | $40,921,574 | |
See Notes to Financial Statements
7
MFS 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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $4,712,348 | | | | $8,824,407 | |
Net realized gain (loss) on investments and foreign currency | | | 12,740,626 | | | | 25,313,395 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 23,468,600 | | | | (32,312,741 | ) |
Change in net assets from operations | | | $40,921,574 | | | | $1,825,061 | |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(7,907,338 | ) |
From net realized gain on investments | | | — | | | | (35,328,011 | ) |
Total distributions declared to shareholders | | | $— | | | | $(43,235,349 | ) |
Change in net assets from fund share transactions | | | $(50,586,503 | ) | | | $21,633,004 | |
Total change in net assets | | | $(9,664,929 | ) | | | $(19,777,284 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 511,447,031 | | | | 531,224,315 | |
At end of period (including undistributed net investment income of $13,545,581 and
$8,833,233, respectively) | | | $501,782,102 | | | | $511,447,031 | |
See Notes to Financial Statements
8
MFS 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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $12.64 | | | | $13.91 | | | | $12.64 | | | | $10.70 | | | | $18.78 | | | | $18.70 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.13 | | | | $0.24 | | | | $0.20 | | | | $0.22 | | | | $0.25 | | | | $0.27 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.88 | | | | (0.31 | ) | | | 1.25 | | | | 1.92 | | | | (5.50 | ) | | | 1.22 | |
Total from investment operations | | | $1.01 | | | | $(0.07 | ) | | | $1.45 | | | | $2.14 | | | | $(5.25 | ) | | | $1.49 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.23 | ) | | | $(0.18 | ) | | | $(0.20 | ) | | | $(0.30 | ) | | | $(0.30 | ) |
From net realized gain on investments | | | — | | | | (0.97 | ) | | | — | | | | — | | | | (2.53 | ) | | | (1.11 | ) |
Total distributions declared to shareholders | | | $— | | | | $(1.20 | ) | | | $(0.18 | ) | | | $(0.20 | ) | | | $(2.83 | ) | | | $(1.41 | ) |
Net asset value, end of period (x) | | | $13.65 | | | | $12.64 | | | | $13.91 | | | | $12.64 | | | | $10.70 | | | | $18.78 | |
Total return (%) (k)(r)(s)(x) | | | 7.99 | (n) | | | (0.00 | )(w) | | | 11.51 | | | | 20.49 | | | | (32.64 | ) | | | 7.92 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.80 | (a) | | | 0.82 | | | | 0.84 | | | | 0.85 | | | | 0.84 | | | | 0.83 | |
Expenses after expense reductions (f) | | | 0.80 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 1.92 | (a) | | | 1.81 | | | | 1.59 | | | | 1.98 | | | | 1.75 | | | | 1.40 | |
Portfolio turnover | | | 9 | (n) | | | 22 | | | | 34 | | | | 27 | | | | 44 | | | | 25 | |
Net assets at end of period (000 omitted) | | | $301,675 | | | | $307,523 | | | | $298,799 | | | | $268,001 | | | | $146,011 | | | | $267,967 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $12.52 | | | | $13.79 | | | | $12.54 | | | | $10.61 | | | | $18.66 | | | | $18.59 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.11 | | | | $0.21 | | | | $0.17 | | | | $0.19 | | | | $0.22 | | | | $0.22 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.88 | | | | (0.31 | ) | | | 1.23 | | | | 1.91 | | | | (5.48 | ) | | | 1.22 | |
Total from investment operations | | | $0.99 | | | | $(0.10 | ) | | | $1.40 | | | | $2.10 | | | | $(5.26 | ) | | | $1.44 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.20 | ) | | | $(0.15 | ) | | | $(0.17 | ) | | | $(0.26 | ) | | | $(0.26 | ) |
From net realized gain on investments | | | — | | | | (0.97 | ) | | | — | | | | — | | | | (2.53 | ) | | | (1.11 | ) |
Total distributions declared to shareholders | | | $— | | | | $(1.17 | ) | | | $(0.15 | ) | | | $(0.17 | ) | | | $(2.79 | ) | | | $(1.37 | ) |
Net asset value, end of period (x) | | | $13.51 | | | | $12.52 | | | | $13.79 | | | | $12.54 | | | | $10.61 | | | | $18.66 | |
Total return (%) (k)(r)(s)(x) | | | 7.91 | (n) | | | (0.29 | ) | | | 11.22 | | | | 20.30 | | | | (32.87 | ) | | | 7.67 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.05 | (a) | | | 1.07 | | | | 1.09 | | | | 1.10 | | | | 1.09 | | | | 1.08 | |
Expenses after expense reductions (f) | | | 1.05 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 1.67 | (a) | | | 1.54 | | | | 1.33 | | | | 1.73 | | | | 1.62 | | | | 1.16 | |
Portfolio turnover | | | 9 | (n) | | | 22 | | | | 34 | | | | 27 | | | | 44 | | | | 25 | |
Net assets at end of period (000 omitted) | | | $200,108 | | | | $203,924 | | | | $232,425 | | | | $228,388 | | | | $165,519 | | | | $141,584 | |
See Notes to Financial Statements
9
MFS Value Portfolio
Financial Highlights – continued
| (d) | | Per share data is based on average shares outstanding. |
| (f) | | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | | Certain expenses have been reduced without which performance would have been lower. |
| (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 per share 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 Value Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Value Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
11
MFS Value Portfolio
Notes to Financial Statements (unaudited) – continued
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
United States | | | $461,593,841 | | | | $— | | | | $— | | | | $461,593,841 | |
United Kingdom | | | 8,970,840 | | | | 8,424,884 | | | | — | | | | 17,395,724 | |
Switzerland | | | — | | | | 8,674,468 | | | | — | | | | 8,674,468 | |
France | | | 5,096,381 | | | | — | | | | — | | | | 5,096,381 | |
Canada | | | 3,263,818 | | | | — | | | | — | | | | 3,263,818 | |
Netherlands | | | 1,088,561 | | | | — | | | | — | | | | 1,088,561 | |
| Mutual Funds | | | 3,741,188 | | | | — | | | | — | | | | 3,741,188 | |
| Total Investments | | | $483,754,629 | | | | $17,099,352 | | | | $— | | | | $500,853,981 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 2 investments presented above, equity investments amounting to $8,424,884 would have been considered level 1 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price 3 due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest income” on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/
12
MFS Value Portfolio
Notes to Financial Statements (unaudited) – continued
loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $9,458,810 | |
| Long-term capital gains | | | 33,776,539 | |
| Total distributions | | | $43,235,349 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $464,986,192 | |
| Gross appreciation | | | 66,701,000 | |
| Gross depreciation | | | (30,833,211 | ) |
| Net unrealized appreciation (depreciation) | | | $35,867,789 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 12,861,709 | |
| Undistributed long-term capital gain | | | 20,306,496 | |
| Capital loss carryforwards | | | (5,220,170 | ) |
| Other temporary differences | | | (7,142 | ) |
| Net unrealized appreciation (depreciation) | | | 12,404,662 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011 the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/15 | | | $(4,844,492 | ) |
| 12/31/16 | | | (375,678 | ) |
| Total | | | $(5,220,170 | ) |
The availability of a portion of the capital loss carryforwards, which were acquired on June 26, 2009 in connection with the MFS Strategic Value Portfolio and on December 4, 2009 in connection with the Mid Cap Value Portfolio mergers, may be limited in a given year.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to
13
MFS Value Portfolio
Notes to Financial Statements (unaudited) – continued
shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | | | | | | | | | |
| | | From net investment
income | | | From net realized gain on
investments | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $4,858,021 | | | | $— | | | | $20,263,116 | |
| Service Class | | | — | | | | 3,049,317 | | | | — | | | | 15,064,895 | |
| Total | | | $— | | | | $7,907,338 | | | | $— | | | | $35,328,011 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.75% | |
| Average daily net assets in excess of $1 billion | | | 0.65% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.90% of average daily net assets for the Initial Class shares and 1.15% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2014. For the six months ended June 30, 2012, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0169% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $2,649 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the
14
MFS Value Portfolio
Notes to Financial Statements (unaudited) – continued
payments made by the fund in the amount of $1,335, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $43,888,356 and $85,964,411, 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
6/30/12 | | | Year ended
12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 513,684 | | | | $6,899,457 | | | | 4,023,037 | | | | $52,098,813 | |
Service Class | | | 210,177 | | | | 2,812,633 | | | | 1,151,500 | | | | 14,661,660 | |
| | | 723,861 | | | | $9,712,090 | | | | 5,174,537 | | | | $66,760,473 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 2,096,923 | | | | $25,121,137 | |
Service Class | | | — | | | | — | | | | 1,524,766 | | | | 18,114,212 | |
| | | — | | | | $— | | | | 3,621,689 | | | | $43,235,349 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (2,744,441 | ) | | | $(37,606,845 | ) | | | (3,262,487 | ) | | | $(45,265,120 | ) |
Service Class | | | (1,680,378 | ) | | | (22,691,748 | ) | | | (3,242,419 | ) | | | (43,097,698 | ) |
| | | (4,424,819 | ) | | | $(60,298,593 | ) | | | (6,504,906 | ) | | | $(88,362,818 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (2,230,757 | ) | | | $(30,707,388 | ) | | | 2,857,473 | | | | $31,954,830 | |
Service Class | | | (1,470,201 | ) | | | (19,879,115 | ) | | | (566,153 | ) | | | (10,321,826 | ) |
| | | (3,700,958 | ) | | | $(50,586,503 | ) | | | 2,291,320 | | | | $21,633,004 | |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $1,771 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 4,110,358 | | | | 45,043,268 | | | | (45,412,438 | ) | | | 3,741,188 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain(Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $2,252 | | | | $3,741,188 | |
15
MFS Value Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
16
SEMIANNUAL REPORT
June 30, 2012
MFS® CORE EQUITY PORTFOLIO
MFS® Variable Insurance Trust II
RGS-SEM
MFS® CORE EQUITY PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Core Equity Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Core Equity Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Apple, Inc. | | | 5.2% | |
| Exxon Mobil Corp. | | | 4.7% | |
| JPMorgan Chase & Co. | | | 2.2% | |
| Danaher Corp. | | | 2.1% | |
| Philip Morris International, Inc. | | | 1.8% | |
| Target Corp. | | | 1.7% | |
| Pfizer, Inc. | | | 1.7% | |
| ACE Ltd. | | | 1.5% | |
| Google, Inc., “A” | | | 1.3% | |
| AT&T, Inc. | | | 1.3% | |
| | | | |
| Equity sectors | | | | |
| Technology | | | 17.3% | |
| Financial Services | | | 16.5% | |
| Health Care | | | 11.0% | |
| Energy | | | 10.2% | |
| Industrial Goods & Services | | | 8.1% | |
| Consumer Staples | | | 7.7% | |
| Retailing | | | 7.1% | |
| Utilities & Communications | | | 6.9% | |
| Leisure | | | 5.5% | |
| Basic Materials | | | 3.2% | |
| Special Products & Services | | | 2.6% | |
| Transportation | | | 2.0% | |
| Autos & Housing | | | 1.4% | |
Percentages are based on net assets as of 6/30/12.
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, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.85% | | | | $1,000.00 | | | | $1,080.29 | | | | $4.40 | |
| | Hypothetical (h) | | | 0.85% | | | | $1,000.00 | | | | $1,020.64 | | | | $4.27 | |
| Service Class | | Actual | | | 1.10% | | | | $1,000.00 | | | | $1,078.76 | | | | $5.69 | |
| | Hypothetical (h) | | | 1.10% | | | | $1,000.00 | | | | $1,019.39 | | | | $5.52 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Core Equity Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 98.9% | | | | | |
| Aerospace – 2.6% | | | | | | | | |
| Embraer S.A., ADR | | | 8,240 | | | $ | 218,607 | |
| Honeywell International, Inc. | | | 17,600 | | | | 982,784 | |
| Lockheed Martin Corp. | | | 4,670 | | | | 406,664 | |
| Precision Castparts Corp. | | | 4,400 | | | | 723,756 | |
| Textron, Inc. | | | 7,610 | | | | 189,261 | |
| United Technologies Corp. | | | 12,380 | | | | 935,061 | |
| | | | | | | | |
| | | | | | $ | 3,456,133 | |
| | | | | | | | |
| Apparel Manufacturers – 1.2% | | | | | | | | |
| Guess?, Inc. | | | 20,250 | | | $ | 614,993 | |
| NIKE, Inc., “B” | | | 6,530 | | | | 573,203 | |
| VF Corp. | | | 2,880 | | | | 384,336 | |
| | | | | | | | |
| | | | | | $ | 1,572,532 | |
| | | | | | | | |
| Automotive – 1.0% | | | | | | | | |
| Delphi Automotive PLC (a) | | | 35,730 | | | $ | 911,115 | |
| General Motors Co. (a) | | | 20,490 | | | | 404,063 | |
| | | | | | | | |
| | | | | | $ | 1,315,178 | |
| | | | | | | | |
| Biotechnology – 1.7% | | | | | | | | |
| Amgen, Inc. | | | 3,500 | | | $ | 255,640 | |
| Celgene Corp. (a) | | | 9,290 | | | | 596,046 | |
| Gilead Sciences, Inc. (a) | | | 16,280 | | | | 834,838 | |
| ViroPharma, Inc. (a) | | | 24,750 | | | | 586,575 | |
| | | | | | | | |
| | | | | | $ | 2,273,099 | |
| | | | | | | | |
| Broadcasting – 2.2% | | | | | | | | |
| News Corp., “A” | | | 64,180 | | | $ | 1,430,572 | |
| Walt Disney Co. | | | 33,260 | | | | 1,613,110 | |
| | | | | | | | |
| | | | | | $ | 3,043,682 | |
| | | | | | | | |
| Brokerage & Asset Managers – 1.2% | | | | | | | | |
| BlackRock, Inc. | | | 3,162 | | | $ | 536,971 | |
| CME Group, Inc. | | | 1,050 | | | | 281,516 | |
| Franklin Resources, Inc. | | | 2,130 | | | | 236,409 | |
| FXCM, Inc. “A” | | | 17,380 | | | | 204,389 | |
| GFI Group, Inc. | | | 61,500 | | | | 218,940 | |
| NASDAQ OMX Group, Inc. | | | 8,059 | | | | 182,698 | |
| | | | | | | | |
| | | | | | $ | 1,660,923 | |
| | | | | | | | |
| Business Services – 1.7% | | | | | | | | |
| Accenture PLC, “A” | | | 8,920 | | | $ | 536,003 | |
| Automatic Data Processing, Inc. | | | 12,050 | | | | 670,703 | |
| FleetCor Technologies, Inc. (a) | | | 21,400 | | | | 749,856 | |
| Global Payments, Inc. | | | 7,840 | | | | 338,923 | |
| | | | | | | | |
| | | | | | $ | 2,295,485 | |
| | | | | | | | |
| Cable TV – 1.3% | | | | | | | | |
| Comcast Corp., “Special A” | | | 31,970 | | | $ | 1,003,858 | |
| Time Warner Cable, Inc. | | | 9,700 | | | | 796,370 | |
| | | | | | | | |
| | | | | | $ | 1,800,228 | |
| | | | | | | | |
| Chemicals – 0.5% | | | | | | | | |
| Celanese Corp. | | | 18,370 | | | $ | 635,969 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Computer Software – 4.5% | | | | | | | | |
| Autodesk, Inc. (a) | | | 17,910 | | | $ | 626,671 | |
| Check Point Software Technologies Ltd. (a) | | | 14,790 | | | | 733,436 | |
| Citrix Systems, Inc. (a) | | | 14,070 | | | | 1,181,036 | |
| Microsoft Corp. | | | 13,090 | | | | 400,423 | |
| Oracle Corp. | | | 50,230 | | | | 1,491,831 | |
| Red Hat, Inc. (a) | | | 7,180 | | | | 405,526 | |
| Salesforce.com, Inc. (a) | | | 3,970 | | | | 548,892 | |
| SolarWinds, Inc. (a) | | | 15,300 | | | | 666,468 | |
| | | | | | | | |
| | | | | | $ | 6,054,283 | |
| | | | | | | | |
| Computer Software – Systems – 7.8% | | | | | | | | |
| Apple, Inc. (a)(s) | | | 12,050 | | | $ | 7,037,200 | |
| EMC Corp. (a) | | | 52,510 | | | | 1,345,831 | |
| Hewlett-Packard Co. | | | 45,220 | | | | 909,374 | |
| International Business Machines Corp. | | | 2,690 | | | | 526,110 | |
| NICE Systems Ltd., ADR (a) | | | 11,490 | | | | 420,534 | |
| ServiceSource International, Inc. (a) | | | 19,220 | | | | 266,197 | |
| | | | | | | | |
| | | | | | $ | 10,505,246 | |
| | | | | | | | |
| Construction – 0.4% | | | | | | | | |
| Mohawk Industries, Inc. (a) | | | 2,220 | | | $ | 155,023 | |
| Stanley Black & Decker, Inc. | | | 6,400 | | | | 411,904 | |
| | | | | | | | |
| | | | | | $ | 566,927 | |
| | | | | | | | |
| Consumer Products – 1.9% | | | | | | | | |
| Colgate-Palmolive Co. | | | 13,600 | | | $ | 1,415,760 | |
| International Flavors & Fragrances, Inc. | | | 9,860 | | | | 540,328 | |
| Newell Rubbermaid, Inc. | | | 31,210 | | | | 566,149 | |
| Nu Skin Enterprises, Inc., “A” | | | 2,180 | | | | 102,242 | |
| | | | | | | | |
| | | | | | $ | 2,624,479 | |
| | | | | | | | |
| Consumer Services – 0.9% | | | | | | | | |
| DeVry, Inc. | | | 16,470 | | | $ | 510,076 | |
| Priceline.com, Inc. (a) | | | 1,020 | | | | 677,810 | |
| | | | | | | | |
| | | | | | $ | 1,187,886 | |
| | | | | | | | |
| Containers – 0.8% | | | | | | | | |
| Silgan Holdings, Inc. | | | 25,790 | | | $ | 1,100,975 | |
| | | | | | | | |
| Electrical Equipment – 2.7% | | | | | | | | |
| AMETEK, Inc. | | | 8,180 | | | $ | 408,264 | |
| Danaher Corp. | | | 53,580 | | | | 2,790,446 | |
| Sensata Technologies Holding B.V. (a) | | | 14,590 | | | | 390,720 | |
| | | | | | | | |
| | | | | | $ | 3,589,430 | |
| | | | | | | | |
| Electronics – 2.3% | | | | | | | | |
| Altera Corp. | | | 26,480 | | | $ | 896,083 | |
| ASML Holding N.V. | | | 12,350 | | | | 635,037 | |
| KLA-Tencor Corp. | | | 4,390 | | | | 216,208 | |
| Linear Technology Corp. | | | 13,570 | | | | 425,148 | |
| Microchip Technology, Inc. | | | 30,040 | | | | 993,723 | |
| | | | | | | | |
| | | | | | $ | 3,166,199 | |
| | | | | | | | |
4
MFS Core Equity Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Energy – Independent – 3.2% | | | | | | | | |
| Cabot Oil & Gas Corp. | | | 14,760 | | | $ | 581,544 | |
| Concho Resources, Inc. (a) | | | 2,930 | | | | 249,402 | |
| CONSOL Energy, Inc. | | | 3,950 | | | | 119,448 | |
| EOG Resources, Inc. | | | 3,410 | | | | 307,275 | |
| EQT Corp. | | | 10,700 | | | | 573,841 | |
| Noble Energy, Inc. | | | 8,990 | | | | 762,532 | |
| Occidental Petroleum Corp. | | | 7,800 | | | | 669,006 | |
| Peabody Energy Corp. | | | 4,180 | | | | 102,494 | |
| Pioneer Natural Resources Co. | | | 7,110 | | | | 627,173 | |
| SM Energy Co. | | | 4,202 | | | | 206,360 | |
| WPX Energy, Inc. (a) | | | 5,900 | | | | 95,462 | |
| | | | | | | | |
| | | | | | $ | 4,294,537 | |
| | | | | | | | |
| Energy – Integrated – 5.4% | | | | | | | | |
| Chevron Corp. | | | 8,030 | | | $ | 847,165 | |
| Exxon Mobil Corp. (s) | | | 74,956 | | | | 6,413,985 | |
| | | | | | | | |
| | | | | | $ | 7,261,150 | |
| | | | | | | | |
| Engineering – Construction – 0.4% | | | | | |
| Fluor Corp. | | | 10,640 | | | $ | 524,978 | |
| | | | | | | | |
| Food & Beverages – 3.3% | | | | | | | | |
| Coca-Cola Enterprises, Inc. | | | 13,340 | | | $ | 374,054 | |
| General Mills, Inc. | | | 34,980 | | | | 1,348,129 | |
| J.M. Smucker Co. | | | 6,730 | | | | 508,250 | |
| Kraft Foods, Inc., “A” | | | 40,050 | | | | 1,546,731 | |
| Mead Johnson Nutrition Co., “A” | | | 8,770 | | | | 706,073 | |
| | | | | | | | |
| | | | | | $ | 4,483,237 | |
| | | | | | | | |
| Food & Drug Stores – 1.0% | | | | | | | | |
| CVS Caremark Corp. | | | 23,240 | | | $ | 1,086,005 | |
| Kroger Co. | | | 10,800 | | | | 250,452 | |
| | | | | | | | |
| | | | | | $ | 1,336,457 | |
| | | | | | | | |
| Gaming & Lodging – 0.6% | | | | | | | | |
| Las Vegas Sands Corp. | | | 8,250 | | | $ | 358,793 | |
| Royal Caribbean Cruises Ltd. | | | 16,220 | | | | 422,207 | |
| | | | | | | | |
| | | | | | $ | 781,000 | |
| | | | | | | | |
| General Merchandise – 1.7% | | | | | | | | |
| Target Corp. | | | 40,430 | | | $ | 2,352,622 | |
| | | | | | | | |
| Health Maintenance Organizations – 0.7% | | | | | |
| Aetna, Inc. | | | 22,070 | | | $ | 855,654 | |
| UnitedHealth Group, Inc. | | | 1,280 | | | | 74,880 | |
| | | | | | | | |
| | | | | | $ | 930,534 | |
| | | | | | | | |
| Insurance – 3.5% | | | | | | | | |
| ACE Ltd. | | | 27,730 | | | $ | 2,055,625 | |
| Aflac, Inc. | | | 2,450 | | | | 104,344 | |
| American International Group, Inc. (a) | | | 2,380 | | | | 76,374 | |
| Aon PLC | | | 9,570 | | | | 447,685 | |
| Chubb Corp. | | | 6,190 | | | | 450,756 | |
| Everest Re Group Ltd. | | | 8,410 | | | | 870,351 | |
| MetLife, Inc. | | | 11,510 | | | | 355,084 | |
| Prudential Financial, Inc. | | | 7,520 | | | | 364,194 | |
| | | | | | | | |
| | | | | | $ | 4,724,413 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Internet – 1.8% | | | | | | | | |
| eBay, Inc. (a) | | | 15,230 | | | $ | 639,812 | |
| Google, Inc., “A” (a) | | | 3,080 | | | | 1,786,616 | |
| | | | | | | | |
| | | | | | $ | 2,426,428 | |
| | | | | | | | |
| Leisure & Toys – 0.2% | | | | | | | | |
| Activision Blizzard, Inc. | | | 13,010 | | | $ | 155,990 | |
| Brunswick Corp. | | | 6,380 | | | | 141,764 | |
| | | | | | | | |
| | | | | | $ | 297,754 | |
| | | | | | | | |
| Machinery & Tools – 2.2% | | | | | | | | |
| Allison Transmission Holdings, Inc. | | | 8,670 | | | $ | 152,245 | |
| Eaton Corp. | | | 13,390 | | | | 530,646 | |
| Gardner Denver, Inc. | | | 5,010 | | | | 265,079 | |
| Joy Global, Inc. | | | 10,660 | | | | 604,742 | |
| Kennametal, Inc. | | | 17,470 | | | | 579,131 | |
| Polypore International, Inc. (a) | | | 7,350 | | | | 296,865 | |
| Roper Industries, Inc. | | | 5,740 | | | | 565,849 | |
| | | | | | | | |
| | | | | | $ | 2,994,557 | |
| | | | | | | | |
| Major Banks – 4.7% | | | | | | | | |
| Goldman Sachs Group, Inc. | | | 10,330 | | | $ | 990,234 | |
| JPMorgan Chase & Co. (s) | | | 82,080 | | | | 2,932,718 | |
| PNC Financial Services Group, Inc. | | | 23,350 | | | | 1,426,919 | |
| State Street Corp. | | | 21,840 | | | | 974,938 | |
| | | | | | | | |
| | | | | | $ | 6,324,809 | |
| | | | | | | | |
| Medical & Health Technology & Services – 1.3% | | | | | |
| AmerisourceBergen Corp. | | | 10,930 | | | $ | 430,096 | |
| Cerner Corp. (a) | | | 2,270 | | | | 187,638 | |
| Express Scripts Holding Co. (a) | | | 12,750 | | | | 711,833 | |
| Henry Schein, Inc. (a) | | | 2,930 | | | | 229,976 | |
| Quest Diagnostics, Inc. | | | 2,260 | | | | 135,374 | |
| | | | | | | | |
| | | | | | $ | 1,694,917 | |
| | | | | | | | |
| Medical Equipment – 2.3% | | | | | | | | |
| Cooper Cos., Inc. | | | 8,490 | | | $ | 677,162 | |
| Covidien PLC | | | 19,210 | | | | 1,027,735 | |
| Sirona Dental Systems, Inc. (a) | | | 3,570 | | | | 160,686 | |
| St. Jude Medical, Inc. | | | 20,130 | | | | 803,388 | |
| Thermo Fisher Scientific, Inc. | | | 8,420 | | | | 437,082 | |
| | | | | | | | |
| | | | | | $ | 3,106,053 | |
| | | | | | | | |
| Metals & Mining – 0.5% | | | | | | | | |
| Cliffs Natural Resources, Inc. | | | 6,510 | | | $ | 320,878 | |
| Teck Resources Ltd., “B” | | | 10,771 | | | | 333,572 | |
| | | | | | | | |
| | | | | | $ | 654,450 | |
| | | | | | | | |
| Natural Gas – Distribution – 0.5% | | | | | | | | |
| Spectra Energy Corp. | | | 23,130 | | | $ | 672,158 | |
| | | | | | | | |
| Natural Gas – Pipeline – 0.1% | | | | | | | | |
| Kinder Morgan, Inc. | | | 4,988 | | | $ | 160,713 | |
| | | | | | | | |
| Network & Telecom – 0.9% | | | | | | | | |
| Acme Packet, Inc. (a) | | | 2,360 | | | $ | 44,014 | |
| F5 Networks, Inc. (a) | | | 3,230 | | | | 321,579 | |
| Finisar Corp. (a) | | | 21,590 | | | | 322,986 | |
| Fortinet, Inc. (a) | | | 18,690 | | | | 433,982 | |
5
MFS Core Equity Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Network & Telecom – continued | | | | | |
| Juniper Networks, Inc. (a) | | | 9,710 | | | $ | 158,370 | |
| | | | | | | | |
| | | | | | $ | 1,280,931 | |
| | | | | | | | |
| Oil Services – 1.6% | | | | | | | | |
| Cameron International Corp. (a) | | | 14,330 | | | $ | 612,034 | |
| Dresser-Rand Group, Inc. (a) | | | 9,280 | | | | 413,331 | |
| FMC Technologies, Inc. (a) | | | 6,470 | | | | 253,818 | |
| Lufkin Industries, Inc. | | | 1,850 | | | | 100,492 | |
| Schlumberger Ltd. | | | 10,100 | | | | 655,591 | |
| Transocean, Inc. | | | 4,240 | | | | 189,655 | |
| | | | | | | | |
| | | | | | $ | 2,224,921 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 3.7% | | | | | |
| American Express Co. | | | 5,100 | | | $ | 296,871 | |
| CapitalSource, Inc. | | | 54,290 | | | | 364,829 | |
| CIT Group, Inc. (a) | | | 27,660 | | | | 985,802 | |
| EuroDekania Ltd. (a)(z) | | | 100,530 | | | | 212,223 | |
| Fifth Third Bancorp | | | 61,250 | | | | 820,750 | |
| First Republic Bank (a) | | | 9,690 | | | | 325,584 | |
| Visa, Inc., “A” | | | 11,740 | | | | 1,451,416 | |
| Western Union Co. | | | 30,210 | | | | 508,736 | |
| | | | | | | | |
| | | | | | $ | 4,966,211 | |
| | | | | | | | |
| Pharmaceuticals – 5.0% | | | | | | | | |
| Abbott Laboratories | | | 23,020 | | | $ | 1,484,099 | |
| Auxilium Pharmaceuticals, Inc. (a) | | | 1,680 | | | | 45,175 | |
| Johnson & Johnson | | | 16,690 | | | | 1,127,576 | |
| Merck & Co., Inc. | | | 36,500 | | | | 1,523,875 | |
| Pfizer, Inc. | | | 97,362 | | | | 2,239,326 | |
| Teva Pharmaceutical Industries Ltd., ADR | | | 7,710 | | | | 304,082 | |
| | | | | | | | |
| | | | | | $ | 6,724,133 | |
| | | | | | | | |
| Pollution Control – 0.2% | | | | | | | | |
| Waste Connections, Inc. | | | 7,740 | | | $ | 231,581 | |
| | | | | | | | |
| Precious Metals & Minerals – 0.3% | | | | | |
| Goldcorp, Inc. | | | 10,430 | | | $ | 391,959 | |
| | | | | | | | |
| Printing & Publishing – 0.4% | | | | | | | | |
| Moody’s Corp. | | | 13,710 | | | $ | 501,101 | |
| | | | | | | | |
| Railroad & Shipping – 0.8% | | | | | | | | |
| Union Pacific Corp. | | | 9,570 | | | $ | 1,141,797 | |
| | | | | | | | |
| Real Estate – 3.4% | | | | | | | | |
| Atrium European Real Estate Ltd. | | | 56,750 | | | $ | 266,584 | |
| BioMed Realty Trust, Inc., REIT | | | 48,220 | | | | 900,750 | |
| Mid-America Apartment Communities, Inc., REIT | | | 16,470 | | | | 1,123,913 | |
| Public Storage, Inc., REIT | | | 7,740 | | | | 1,117,733 | |
| Tanger Factory Outlet Centers, Inc., REIT | | | 35,380 | | | | 1,133,929 | |
| | | | | | | | |
| | | | | | $ | 4,542,909 | |
| | | | | | | | |
| Restaurants – 0.8% | | | | | | | | |
| YUM! Brands, Inc. | | | 17,830 | | | $ | 1,148,609 | |
| | | | | | | | |
| Specialty Chemicals – 1.1% | | | | | | | | |
| Airgas, Inc. | | | 7,450 | | | $ | 625,875 | |
| Albemarle Corp. | | | 6,760 | | | | 403,166 | |
| Chemtura Corp. (a) | | | 20,320 | | | | 294,640 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Specialty Chemicals – continued | | | | | | | | |
| Ferro Corp. (a) | | | 27,470 | | | $ | 131,856 | |
| | | | | | | | |
| | | | | | $ | 1,455,537 | |
| | | | | | | | |
| Specialty Stores – 3.2% | | | | | | | | |
| American Eagle Outfitters, Inc. | | | 29,810 | | | $ | 588,151 | |
| Children’s Place Retail Store, Inc. (a) | | | 10,310 | | | | 513,747 | |
| Gap, Inc. | | | 16,410 | | | | 448,978 | |
| PetSmart, Inc. | | | 16,760 | | | | 1,142,697 | |
| rue21, Inc. (a) | | | 17,060 | | | | 430,594 | |
| Tiffany & Co. | | | 8,900 | | | | 471,255 | |
| Urban Outfitters, Inc. (a) | | | 25,020 | | | | 690,302 | |
| | | | | | | | |
| | | | | | $ | 4,285,724 | |
| | | | | | | | |
| Telecommunications – Wireless – 0.7% | | | | | |
| American Tower Corp., REIT | | | 8,510 | | | $ | 594,934 | |
| SBA Communications Corp. (a) | | | 6,180 | | | | 352,569 | |
| | | | | | | | |
| | | | | | $ | 947,503 | |
| | | | | | | | |
| Telephone Services – 2.4% | | | | | | | | |
| AT&T, Inc. | | | 48,470 | | | $ | 1,728,440 | |
| CenturyLink, Inc. | | | 8,148 | | | | 321,764 | |
| Verizon Communications, Inc. | | | 27,900 | | | | 1,239,876 | |
| | | | | | | | |
| | | | | | $ | 3,290,080 | |
| | | | | | | | |
| Tobacco – 2.5% | | | | | | | | |
| Lorillard, Inc. | | | 7,940 | | | $ | 1,047,683 | |
| Philip Morris International, Inc. | | | 27,300 | | | | 2,382,198 | |
| | | | | | | | |
| | | | | | $ | 3,429,881 | |
| | | | | | | | |
| Trucking – 1.2% | | | | | | | | |
| Expeditors International of Washington, Inc. | | | 22,060 | | | $ | 854,825 | |
| Swift Transportation Co. (a) | | | 83,140 | | | | 785,673 | |
| | | | | | | | |
| | | | | | $ | 1,640,498 | |
| | | | | | | | |
| Utilities – Electric Power – 2.6% | | | | | | | | |
| AES Corp. (a) | | | 33,160 | | | $ | 425,443 | |
| American Electric Power Co., Inc. | | | 12,190 | | | | 486,381 | |
| Calpine Corp. (a) | | | 28,670 | | | | 473,342 | |
| CMS Energy Corp. | | | 26,680 | | | | 626,980 | |
| Edison International | | | 9,770 | | | | 451,374 | |
| Great Plains Energy, Inc. | | | 25,590 | | | | 547,882 | |
| PG&E Corp. | | | 10,270 | | | | 464,923 | |
| | | | | | | | |
| | | | | | $ | 3,476,325 | |
| | | | | | | | |
Total Common Stocks (Identified Cost, $122,861,131) | | | | | | $ | 133,549,121 | |
| | | | | | | | |
| CONVERTIBLE PREFERRED STOCKS – 0.6% | |
| Utilities – Electric Power – 0.6% | | | | | | | | |
| PPL Corp., 9.5% | | | 8,010 | | | $ | 423,729 | |
| PPL Corp., 8.75% | | | 7,350 | | | | 393,005 | |
| | | | | | | | |
Total Convertible Preferred Stocks
(Identified Cost, $780,978) | | | | | | $ | 816,734 | |
| | | | | | | | |
6
MFS Core Equity Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | | | | | | | | | |
| Issuer | | Strike
Price | | | First
Exercise | | | Shares/Par | | | Value ($) | |
| | | | | | | | | | | | | | | | |
| WARRANTS – 0.0% | | | | | |
| Natural Gas – Pipeline – 0.0% | |
Kinder Morgan, Inc.
(1 share for 1 warrant) (Identified Cost, $14,373) (a) | | $ | 40 | | | | 2/15/17 | | | | 7,545 | | | $ | 16,297 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| MONEY MARKET FUNDS – 0.7% | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 894,491 | | | $ | 894,491 | |
| | | | | | | | |
Total Investments
(Identified Cost, $124,550,973) | | | | | | $ | 135,276,643 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – (0.2)% | | | | | | | (205,928 | ) |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 135,070,715 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (s) | | Security or a portion of the security was pledged to cover collateral requirements for securities sold short and/or certain derivative transactions. At June 30, 2012, the fund had no short sales outstanding. |
| (v) | | Underlying affiliated fund 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 | |
| EuroDekania Ltd. | | 3/08/07-6/25/07 | | | $1,412,164 | | | | $212,223 | |
| % of Net Assets | | | | | | | | | 0.2% | |
At June 30, 2012, the fund had liquid securities with an aggregate value of $558,561 to cover any commitments for securities sold short and/or certain derivative transactions.
The following abbreviations are used in this report and are defined:
| ADR | | American Depositary Receipt |
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $123,656,482) | | | $134,382,152 | | | | | |
Underlying affiliated funds, at cost and value | | | 894,491 | | | | | |
Total investments, at value (identified cost, $124,550,973) | | | $135,276,643 | | | | | |
Foreign currency, at value (identified cost, $9,577) | | | 9,413 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 324,660 | | | | | |
Interest and dividends | | | 151,637 | | | | | |
Other assets | | | 1,102 | | | | | |
Total assets | | | | | | | $135,763,455 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | $518,350 | | | | | |
Fund shares reacquired | | | 128,192 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 8,351 | | | | | |
Distribution and/or service fees | | | 768 | | | | | |
Payable for independent Trustees’ compensation | | | 15 | | | | | |
Accrued expenses and other liabilities | | | 37,064 | | | | | |
Total liabilities | | | | | | | $692,740 | |
Net assets | | | | | | | $135,070,715 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $147,718,480 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 10,725,511 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (24,966,646 | ) | | | | |
Undistributed net investment income | | | 1,593,370 | | | | | |
Net assets | | | | | | | $135,070,715 | |
Shares of beneficial interest outstanding | | | | | | | 8,987,971 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $96,707,101 | | | | 6,419,012 | | | | $15.07 | |
Service Class | | | 38,363,614 | | | | 2,568,959 | | | | 14.93 | |
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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $1,259,917 | | | | | |
Interest | | | 115 | | | | | |
Dividends from underlying affiliated funds | | | 807 | | | | | |
Foreign taxes withheld | | | (3,840 | ) | | | | |
Total investment income | | | | | | | $1,256,999 | |
Expenses | | | | | | | | |
Management fee | | | $520,603 | | | | | |
Distribution and/or service fees | | | 49,087 | | | | | |
Administrative services fee | | | 15,370 | | | | | |
Independent Trustees’ compensation | | | 3,424 | | | | | |
Custodian fee | | | 11,411 | | | | | |
Shareholder communications | | | 6,366 | | | | | |
Audit and tax fees | | | 23,855 | | | | | |
Legal fees | | | 1,183 | | | | | |
Interest expense on securities sold short | | | 50 | | | | | |
Miscellaneous | | | 7,569 | | | | | |
Total expenses | | | | | | | $638,918 | |
Fees paid indirectly | | | (1 | ) | | | | |
Reduction of expenses by investment adviser | | | (357 | ) | | | | |
Net expenses | | | | | | | $638,560 | |
Net investment income | | | | | | | $618,439 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $5,068,284 | | | | | |
Written options | | | 13,882 | | | | | |
Securities sold short | | | (14,802 | ) | | | | |
Foreign currency | | | 181 | | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $5,067,545 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $5,044,763 | | | | | |
Written options | | | (2,590 | ) | | | | |
Translation of assets and liabilities in foreign currencies | | | (206 | ) | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $5,041,967 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $10,109,512 | |
Change in net assets from operations | | | | | | | $10,727,951 | |
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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $618,439 | | | | $977,380 | |
Net realized gain (loss) on investments and foreign currency | | | 5,067,545 | | | | 7,098,901 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 5,041,967 | | | | (9,380,672 | ) |
Change in net assets from operations | | | $10,727,951 | | | | $(1,304,391 | ) |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(1,287,609 | ) |
Change in net assets from fund share transactions | | | $(9,369,195 | ) | | | $(11,636,008 | ) |
Total change in net assets | | | $1,358,756 | | | | $(14,228,008 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 133,711,959 | | | | 147,939,967 | |
At end of period (including undistributed net investment income of $1,593,370 and
$974,931, respectively) | | | $135,070,715 | | | | $133,711,959 | |
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $13.95 | | | | $14.23 | | | | $12.27 | | | | $9.43 | | | | $16.52 | | | | $17.13 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.07 | | | | $0.11 | | | | $0.12 | | | | $0.13 | | | | $0.16 | | | | $0.11 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 1.05 | | | | (0.25 | ) | | | 1.98 | | | | 2.89 | | | | (6.11 | ) | | | 1.41 | |
Total from investment operations | | | $1.12 | | | | $(0.14 | ) | | | $2.10 | | | | $3.02 | | | | $(5.95 | ) | | | $1.52 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.14 | ) | | | $(0.14 | ) | | | $(0.18 | ) | | | $(0.09 | ) | | | $(0.09 | ) |
From net realized gain on investments | | | — | | | | — | | | | — | | | | — | | | | (1.05 | ) | | | (2.04 | ) |
Total distributions declared to shareholders | | | $— | | | | $(0.14 | ) | | | $(0.14 | ) | | | $(0.18 | ) | | | $(1.14 | ) | | | $(2.13 | ) |
Net asset value, end of period (x) | | | $15.07 | | | | $13.95 | | | | $14.23 | | | | $12.27 | | | | $9.43 | | | | $16.52 | |
Total return (%) (k)(r)(s)(x) | | | 8.03 | (n) | | | (0.94 | ) | | | 17.22 | | | | 32.74 | | | | (38.63 | ) | | | 8.71 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.85 | (a) | | | 0.88 | | | | 0.90 | | | | 0.89 | | | | 0.88 | | | | 0.86 | |
Expenses after expense reductions (f) | | | 0.85 | (a) | | | 0.87 | | | | 0.86 | | | | 0.85 | | | | 0.85 | | | | N/A | |
Net investment income | | | 0.96 | (a) | | | 0.75 | | | | 0.98 | | | | 1.28 | | | | 1.22 | | | | 0.65 | |
Portfolio turnover | | | 36 | (n) | | | 65 | | | | 69 | | | | 91 | | | | 109 | | | | 156 | |
Net assets at end of period (000 omitted) | | | $96,707 | | | | $96,375 | | | | $112,121 | | | | $109,322 | | | | $97,648 | | | | $212,063 | |
| Supplemental Ratios (%): | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of expenses to average net assets after expense
reductions excluding short sale dividend and
interest expense (f) | | | 0.85 | (a) | | | 0.87 | | | | 0.85 | | | | 0.85 | | | | N/A | | | | N/A | |
See Notes to Financial Statements
11
MFS Core Equity Portfolio
Financial Highlights – continued
| | | | | | | | | | | | | | | | | | | | | | | | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $13.84 | | | | $14.13 | | | | $12.19 | | | | $9.36 | | | | $16.42 | | | | $17.05 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.05 | | | | $0.07 | | | | $0.09 | | | | $0.10 | | | | $0.13 | | | | $0.07 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 1.04 | | | | (0.25 | ) | | | 1.97 | | | | 2.88 | | | | (6.08 | ) | | | 1.39 | |
Total from investment operations | | | $1.09 | | | | $(0.18 | ) | | | $2.06 | | | | $2.98 | | | | $(5.95 | ) | | | $1.46 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.11 | ) | | | $(0.12 | ) | | | $(0.15 | ) | | | $(0.06 | ) | | | $(0.05 | ) |
From net realized gain on investments | | | — | | | | — | | | | — | | | | — | | | | (1.05 | ) | | | (2.04 | ) |
Total distributions declared to shareholders | | | $— | | | | $(0.11 | ) | | | $(0.12 | ) | | | $(0.15 | ) | | | $(1.11 | ) | | | $(2.09 | ) |
Net asset value, end of period (x) | | | $14.93 | | | | $13.84 | | | | $14.13 | | | | $12.19 | | | | $9.36 | | | | $16.42 | |
Total return (%) (k)(r)(s)(x) | | | 7.88 | (n) | | | (1.25 | ) | | | 16.95 | | | | 32.44 | | | | (38.79 | ) | | | 8.40 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.10 | (a) | | | 1.13 | | | | 1.15 | | | | 1.14 | | | | 1.13 | | | | 1.11 | |
Expenses after expense reductions (f) | | | 1.10 | (a) | | | 1.12 | | | | 1.11 | | | | 1.10 | | | | 1.10 | | | | N/A | |
Net investment income | | | 0.71 | (a) | | | 0.51 | | | | 0.73 | | | | 1.02 | | | | 1.00 | | | | 0.41 | |
Portfolio turnover | | | 36 | (n) | | | 65 | | | | 69 | | | | 91 | | | | 109 | | | | 156 | |
Net assets at end of period (000 omitted) | | | $38,364 | | | | $37,337 | | | | $35,819 | | | | $33,583 | | | | $21,684 | | | | $34,932 | |
| Supplemental Ratios (%): | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of expenses to average net assets after expense
reductions excluding short sale dividend and
interest expense (f) | | | 1.10 | (a) | | | 1.12 | | | | 1.10 | | | | 1.10 | | | | N/A | | | | N/A | |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values per share 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 series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as provided by a third-party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as provided by a third-party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the
13
MFS Core Equity Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
United States | | | $130,866,118 | | | | $— | | | | $— | | | | $130,866,118 | |
Israel | | | 1,458,052 | | | | — | | | | — | | | | 1,458,052 | |
Canada | | | 725,531 | | | | — | | | | — | | | | 725,531 | |
Netherlands | | | 635,037 | | | | — | | | | — | | | | 635,037 | |
Austria | | | — | | | | 266,584 | | | | — | | | | 266,584 | |
Brazil | | | 218,607 | | | | — | | | | — | | | | 218,607 | |
United Kingdom | | | — | | | | — | | | | 212,223 | | | | 212,223 | |
| Mutual Funds | | | 894,491 | | | | — | | | | — | | | | 894,491 | |
| Total Investments | | | $134,797,836 | | | | $266,584 | | | | $212,223 | | | | $135,276,643 | |
For further information regarding security characteristics, see the Portfolio of Investments.
The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period. The table presents the activity of level 3 securities held at the beginning and the end of the period.
| | | | |
| | | Equity Securities | |
| Balance as of 12/31/11 | | | $252,783 | |
Change in unrealized appreciation (depreciation) | | | (40,560 | ) |
| Balance as of 6/30/12 | | | $212,223 | |
The net change in unrealized appreciation (depreciation) from investments still held as level 3 at June 30, 2012 is $(40,560).
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives – The fund uses derivatives for different purposes, 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 were written options and purchased options. At June 30, 2012, the fund did not have any outstanding derivative instruments.
14
MFS Core Equity Portfolio
Notes to Financial Statements (unaudited) – continued
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | | | | | |
| Risk | | Investment
Transactions
(Purchased Options) | | | Written Options | |
| Equity | | | $(9,401 | ) | | | $13,882 | |
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | |
| Risk | | Written Options | |
| Equity | | | $(2,590 | ) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.
Written Options – In exchange for a premium, the fund wrote call options on securities that it anticipated the price would decline and also wrote put options on securities that it anticipated the price would increase. At the time the option was written, the fund believed the premium received exceeded the potential loss that could result from adverse price changes in the options’ underlying securities. In a written option, the fund as the option writer grants the buyer the right to purchase from, or sell to, the fund a specified number of shares or units of a particular security, currency or index at a specified price within a specified period of time.
The premium received is initially recorded as a liability on the Statement of Assets and Liabilities. The option is subsequently marked-to-market daily with the difference between the premium received and the market value of the written option being recorded as unrealized appreciation or depreciation. When a written option expires, the fund realizes a gain equal to the amount of the premium received. The difference between the premium received and the amount paid on effecting a closing transaction is considered a realized gain or loss. When a written call option is exercised, the premium received is offset against the proceeds to determine the realized gain or loss. When a written put option is exercised, the premium reduces the cost basis of the security purchased by the fund.
At the initiation of the written option contract, for exchange traded options, the fund is required to deposit securities or cash as collateral with the custodian for the benefit of the broker. For over-the-counter options, the fund may post collateral subject to the terms of an ISDA Master Agreement as generally described above if the market value of the options contract moves against it. The fund, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities underlying the written option. Losses from writing options can exceed the premium received and can exceed the potential loss from an ordinary buy and sell transaction. Although the fund’s market risk may be significant, the maximum counterparty credit risk to the fund is equal to the market value of any collateral posted to the broker. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above.
15
MFS Core Equity Portfolio
Notes to Financial Statements (unaudited) – continued
Written Options
| | | | | | | | |
| | | Number of
contracts | | | Premiums
received | |
| Outstanding, beginning of period | | | 36 | | | | $3,850 | |
| Options written | | | 73 | | | | 11,755 | |
| Options closed | | | (10 | ) | | | (7,958 | ) |
| Options expired | | | (99 | ) | | | (7,647 | ) |
| Outstanding, end of period | | | — | | | | $— | |
Purchased Options – The fund purchased put options for a premium. Purchased put options entitle the holder to sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing put options may hedge against a decline in the value of portfolio securities or currency.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.
The risk in purchasing an option is that the fund pays a premium whether or not the option is exercised. The fund’s maximum risk of loss due to counterparty credit risk is limited to the market value of the option. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
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, 2012, this expense amounted to $50. 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, 2012, the fund had no short sales outstanding.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
16
MFS Core Equity Portfolio
Notes to Financial Statements (unaudited) – continued
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $1,287,609 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $124,660,245 | |
| Gross appreciation | | | 18,896,859 | |
| Gross depreciation | | | (8,280,461 | ) |
| Net unrealized appreciation (depreciation) | | | $10,616,398 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 974,931 | |
| Capital loss carryforwards | | | (29,892,035 | ) |
| Other temporary differences | | | (30,247 | ) |
| Net unrealized appreciation (depreciation) | | | 5,571,635 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses are characterized as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/16 | | | $(13,521,109 | ) |
| 12/31/17 | | | (16,370,926 | ) |
| Total | | | $(29,892,035 | ) |
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
17
MFS Core Equity Portfolio
Notes to Financial Statements (unaudited) – continued
dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $1,006,030 | |
| Service Class | | | — | | | | 281,579 | |
| Total | | | $— | | | | $1,287,609 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.75% | |
| Average daily net assets in excess of $1 billion | | | 0.65% | |
The investment adviser has agreed in writing to reduce its management fee to 0.60% of average daily net assets in excess of $2.5 billion. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2014. For the six months ended June 30, 2012, the fund’s average daily net assets did not exceed $2.5 billion and therefore, the management fee was not reduced. The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0221% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $712 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $357, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
18
MFS Core Equity Portfolio
Notes to Financial Statements (unaudited) – continued
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $49,493,993 and $57,555,259, 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 17,164 | | | | $263,001 | | | | 84,615 | | | | $1,181,327 | |
Service Class | | | 214,081 | | | | 3,181,715 | | | | 634,165 | | | | 8,900,700 | |
| | | 231,245 | | | | $3,444,716 | | | | 718,780 | | | | $10,082,027 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 75,471 | | | | $1,006,030 | |
Service Class | | | — | | | | — | | | | 21,267 | | | | 281,579 | |
| | | — | | | | $— | | | | 96,738 | | | | $1,287,609 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (509,054 | ) | | | $(7,658,370 | ) | | | (1,125,770 | ) | | | $(16,146,864 | ) |
Service Class | | | (342,841 | ) | | | (5,155,541 | ) | | | (492,675 | ) | | | (6,858,780 | ) |
| | | (851,895 | ) | | | $(12,813,911 | ) | | | (1,618,445 | ) | | | $(23,005,644 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (491,890 | ) | | | $(7,395,369 | ) | | | (965,684 | ) | | | $(13,959,507 | ) |
Service Class | | | (128,760 | ) | | | (1,973,826 | ) | | | 162,757 | | | | 2,323,499 | |
| | | (620,650 | ) | | | $(9,369,195 | ) | | | (802,927 | ) | | | $(11,636,008 | ) |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $473 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 757,029 | | | | 16,496,998 | | | | (16,359,536 | ) | | | 894,491 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $807 | | | | $894,491 | |
19
MFS Core Equity Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
20
SEMIANNUAL REPORT
June 30, 2012
MFS® GOVERNMENT SECURITIES PORTFOLIO
MFS® Variable Insurance Trust II
GSS-SEM
MFS® GOVERNMENT SECURITIES PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Government Securities Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Government Securities Portfolio
PORTFOLIO COMPOSITION
Portfolio structure (i)
| | | | |
| Fixed income sectors (i) | | | | |
| Mortgage-Backed Securities | | | 50.3% | |
| U.S. Treasury Securities | | | 31.8% | |
| U.S. Government Agencies | | | 8.6% | |
| Municipal Bonds | | | 2.5% | |
| Commercial Mortgage-Backed Securities | | | 1.7% | |
| High Grade Corporates | | | 1.3% | |
| | | | |
| Composition including fixed income credit quality (a)(i) | |
| AAA | | | 2.3% | |
| AA | | | 2.3% | |
| A | | | 0.5% | |
| BBB | | | 0.4% | |
| U.S. Government | | | 31.8% | |
| Federal Agencies | | | 58.9% | |
| Cash & Other | | | 3.8% | |
| |
| Portfolio facts (i) | | | | |
| Average Duration (d) | | | 3.9 | |
| Average Effective Maturity (m) | | | 5.7 yrs. | |
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). 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. Cash & Other includes cash, other assets less liabilities, offsets to derivative positions, and short-term securities. The fund may not hold all of these instruments. The fund 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 market 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. The bond component will include any accrued interest amounts. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio. |
| (m) | In determining an instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
Percentages are based on net assets as of 6/30/12.
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, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.60% | | | | $1,000.00 | | | | $1,016.04 | | | | $3.01 | |
| | Hypothetical (h) | | | 0.60% | | | | $1,000.00 | | | | $1,021.88 | | | | $3.02 | |
| Service Class | | Actual | | | 0.85% | | | | $1,000.00 | | | | $1,014.68 | | | | $4.26 | |
| | Hypothetical (h) | | | 0.85% | | | | $1,000.00 | | | | $1,020.64 | | | | $4.27 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Government Securities Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – 95.6% | | | | | | | | |
| Agency – Other – 5.4% | | | | | |
| Financing Corp., 9.4%, 2018 | | $ | 6,495,000 | | | $ | 9,289,688 | |
| Financing Corp., 9.8%, 2018 | | | 7,760,000 | | | | 11,299,352 | |
| Financing Corp., 10.35%, 2018 | | | 3,915,000 | | | | 5,911,552 | |
| Financing Corp., STRIPS, 0%, 2017 | | | 10,160,000 | | | | 9,402,552 | |
| | | | | | | | |
| | | | | | $ | 35,903,144 | |
| | | | | | | | |
| Asset-Backed & Securitized – 1.7% | | | | | |
| Citigroup/Deutsche Bank Commercial Mortgage Trust, 5.322%, 2049 | | $ | 1,860,000 | | | $ | 2,065,935 | |
| Commercial Mortgage Pass-Through Certificates, “A4”, 5.306%, 2046 | | | 3,870,649 | | | | 4,348,434 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., “A3”, FRN, 6.179%, 2051 | | | 2,223,578 | | | | 2,362,038 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., “A4”, FRN, 6.009%, 2049 | | | 2,275,833 | | | | 2,498,419 | |
| | | | | | | | |
| | | | | | $ | 11,274,826 | |
| | | | | | | | |
| Local Authorities – 1.3% | | | | | |
| Nashville & Davidson County, TN, Metropolitan Government Convention Center Authority (Build America Bonds), 6.731%, 2043 | | $ | 2,225,000 | | | $ | 2,556,503 | |
| Port Authority NY & NJ (168th Series), 4.926%, 2051 | | | 2,735,000 | | | | 3,081,825 | |
| San Francisco, CA, City & County Public Utilities Commission, Water Rev. (Build America Bonds), 6%, 2040 | | | 320,000 | | | | 391,456 | |
| State of California (Build America Bonds), 7.625%, 2040 | | | 435,000 | | | | 562,385 | |
| University of California Rev. (Build America Bonds), 5.77%, 2043 | | | 1,345,000 | | | | 1,650,597 | |
| | | | | | | | |
| | | | | | $ | 8,242,766 | |
| | | | | | | | |
| Mortgage-Backed – 50.1% | | | | | |
| Fannie Mae, 4.722%, 2012 | | $ | 318,333 | | | $ | 318,221 | |
| Fannie Mae, 4.325%, 2013 | | | 340,103 | | | | 344,900 | |
| Fannie Mae, 4.501%, 2013 | | | 580,064 | | | | 585,492 | |
| Fannie Mae, 4.553%, 2013 | | | 1,323,955 | | | | 1,340,279 | |
| Fannie Mae, 4.845%, 2013 | | | 1,826,806 | | | | 1,861,232 | |
| Fannie Mae, 5%, 2013 - 2041 | | | 27,267,910 | | | | 29,576,649 | |
| Fannie Mae, 5.06%, 2013 | | | 903,728 | | | | 938,840 | |
| Fannie Mae, 5.156%, 2013 | | | 2,114,460 | | | | 2,186,167 | |
| Fannie Mae, 5.357%, 2013 | | | 1,397,949 | | | | 1,397,445 | |
| Fannie Mae, 4.561%, 2014 | | | 925,565 | | | | 972,000 | |
| Fannie Mae, 4.6%, 2014 | | | 890,351 | | | | 929,818 | |
| Fannie Mae, 4.606%, 2014 | | | 3,207,697 | | | | 3,350,907 | |
| Fannie Mae, 4.77%, 2014 | | | 760,381 | | | | 804,205 | |
| Fannie Mae, 4.82%, 2014 - 2015 | | | 913,951 | | | | 986,436 | |
| Fannie Mae, 4.842%, 2014 | | | 5,152,452 | | | | 5,457,612 | |
| Fannie Mae, 4.858%, 2014 | | | 2,985,004 | | | | 3,071,658 | |
| Fannie Mae, 4.88%, 2014 - 2020 | | | 839,835 | | | | 922,305 | |
| Fannie Mae, 5.1%, 2014 - 2019 | | | 1,226,749 | | | | 1,323,059 | |
| Fannie Mae, 4.56%, 2015 | | | 1,154,250 | | | | 1,235,597 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Mortgage-Backed – continued | | | | | |
| Fannie Mae, 4.62%, 2015 | | $ | 1,570,905 | | | $ | 1,680,416 | |
| Fannie Mae, 4.665%, 2015 | | | 780,651 | | | | 839,179 | |
| Fannie Mae, 4.69%, 2015 | | | 556,386 | | | | 597,141 | |
| Fannie Mae, 4.7%, 2015 | | | 1,010,315 | | | | 1,086,765 | |
| Fannie Mae, 4.74%, 2015 | | | 733,120 | | | | 791,638 | |
| Fannie Mae, 4.78%, 2015 | | | 887,648 | | | | 963,389 | |
| Fannie Mae, 4.79%, 2015 | | | 1,018,349 | | | | 1,107,215 | |
| Fannie Mae, 4.81%, 2015 | | | 1,008,216 | | | | 1,094,713 | |
| Fannie Mae, 4.815%, 2015 | | | 914,299 | | | | 988,951 | |
| Fannie Mae, 4.85%, 2015 | | | 559,207 | | | | 601,602 | |
| Fannie Mae, 4.856%, 2015 | | | 303,041 | | | | 328,452 | |
| Fannie Mae, 4.87%, 2015 | | | 588,429 | | | | 637,103 | |
| Fannie Mae, 4.89%, 2015 | | | 745,108 | | | | 803,690 | |
| Fannie Mae, 4.894%, 2015 | | | 1,570,813 | | | | 1,716,507 | |
| Fannie Mae, 4.997%, 2015 | | | 155,840 | | | | 172,350 | |
| Fannie Mae, 5.466%, 2015 | | | 3,157,213 | | | | 3,496,666 | |
| Fannie Mae, 5.152%, 2016 | | | 1,790,145 | | | | 1,997,488 | |
| Fannie Mae, 5.35%, 2016 | | | 52,753 | | | | 59,047 | |
| Fannie Mae, 5.423%, 2016 | | | 1,804,509 | | | | 2,039,373 | |
| Fannie Mae, 5.724%, 2016 | | | 1,639,825 | | | | 1,868,458 | |
| Fannie Mae, 6.5%, 2016 - 2037 | | | 4,203,133 | | | | 4,776,731 | |
| Fannie Mae, 4.99%, 2017 | | | 3,326,340 | | | | 3,581,096 | |
| Fannie Mae, 5.5%, 2017 - 2038 | | | 46,761,330 | | | | 51,241,567 | |
| Fannie Mae, 6%, 2017 - 2037 | | | 7,786,755 | | | | 8,603,437 | |
| Fannie Mae, 3.8%, 2018 | | | 647,225 | | | | 708,598 | |
| Fannie Mae, 3.99%, 2018 | | | 600,000 | | | | 663,544 | |
| Fannie Mae, 4%, 2018 | | | 689,265 | | | | 760,880 | |
| Fannie Mae, 4.19%, 2018 | | | 394,112 | | | | 438,352 | |
| Fannie Mae, 5.16%, 2018 | | | 1,386,392 | | | | 1,540,766 | |
| Fannie Mae, 5.68%, 2018 | | | 504,867 | | | | 577,715 | |
| Fannie Mae, 4.5%, 2019 - 2041 | | | 17,793,475 | | | | 19,254,188 | |
| Fannie Mae, 4.67%, 2019 | | | 525,000 | | | | 598,795 | |
| Fannie Mae, 4.83%, 2019 | | | 386,429 | | | | 442,093 | |
| Fannie Mae, 4.876%, 2019 | | | 2,570,319 | | | | 2,955,008 | |
| Fannie Mae, 5.05%, 2019 | | | 323,778 | | | | 371,747 | |
| Fannie Mae, 5.6%, 2019 | | | 609,225 | | | | 687,620 | |
| Fannie Mae, 3.87%, 2020 | | | 753,115 | | | | 830,656 | |
| Fannie Mae, 4.14%, 2020 | | | 463,897 | | | | 518,531 | |
| Fannie Mae, 7.5%, 2022 - 2031 | | | 556,442 | | | | 678,401 | |
| Fannie Mae, 4.5%, 2025 | | | 807,932 | | | | 866,559 | |
| Fannie Mae, 3%, 2027 | | | 1,588,744 | | | | 1,667,342 | |
| Fannie Mae, 3.5%, 2042 | | | 4,253,899 | | | | 4,494,533 | |
| Fannie Mae, TBA, 3%, 2018 | | | 2,622,000 | | | | 2,742,038 | |
| Freddie Mac, 1.655%, 2016 | | | 2,969,038 | | | | 3,025,334 | |
| Freddie Mac, 5%, 2016 - 2040 | | | 9,819,994 | | | | 10,545,213 | |
| Freddie Mac, 3.882%, 2017 | | | 2,158,000 | | | | 2,392,952 | |
| Freddie Mac, 3.154%, 2018 | | | 2,151,000 | | | | 2,315,139 | |
| Freddie Mac, 4.186%, 2019 | | | 814,000 | | | | 918,131 | |
| Freddie Mac, 5.085%, 2019 | | | 3,191,000 | | | | 3,741,939 | |
| Freddie Mac, 6%, 2019 - 2038 | | | 16,592,871 | | | | 18,484,281 | |
| Freddie Mac, 3.32%, 2020 | | | 962,297 | | | | 1,040,778 | |
| Freddie Mac, 4.224%, 2020 | | | 1,911,350 | | | | 2,168,683 | |
4
MFS Government Securities Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Mortgage-Backed – continued | | | | | |
| Freddie Mac, 4.251%, 2020 | | $ | 1,449,000 | | | $ | 1,645,382 | |
| Freddie Mac, 4.5%, 2022 - 2040 | | | 5,861,872 | | | | 6,258,088 | |
| Freddie Mac, 5.5%, 2022 - 2036 | | | 9,891,364 | | | | 10,871,869 | |
| Freddie Mac, 4%, 2025 | | | 3,153,507 | | | | 3,334,544 | |
| Freddie Mac, 6.5%, 2032 - 2037 | | | 2,599,293 | | | | 2,950,310 | |
| Freddie Mac, 3.5%, 2041 - 2042 | | | 5,037,289 | | | | 5,312,995 | |
| Freddie Mac, TBA, 3%, 2018 | | | 7,790,000 | | | | 8,119,238 | |
| Freddie Mac, TBA, 3.5%, 2033 | | | 8,820,000 | | | | 9,198,984 | |
| Ginnie Mae, 5.5%, 2033 - 2042 | | | 7,922,518 | | | | 8,829,597 | |
| Ginnie Mae, 4.5%, 2039 - 2041 | | | 14,074,752 | | | | 15,523,240 | |
| Ginnie Mae, 3.5%, 2041 - 2042 | | | 3,643,578 | | | | 3,904,105 | |
| Ginnie Mae, 5.612%, 2058 | | | 4,442,491 | | | | 4,730,978 | |
| Ginnie Mae, 6.357%, 2058 | | | 2,274,304 | | | | 2,437,681 | |
| Ginnie Mae, TBA, 3.5%, 2040 | | | 12,500,000 | | | | 13,302,577 | |
| | | | | | | | |
| | | | | | $ | 330,525,200 | |
| | | | | | | | |
| Municipals – 2.5% | | | | | |
| Florida Department of Transportation, (Right of Way), “A”, 5%, 2021 | | $ | 1,045,000 | | | $ | 1,310,545 | |
| Garland, TX, Independent School District, N, 5%, 2022 | | | 2,060,000 | | | | 2,541,092 | |
| Metropolitan Government of Nashville & Davidson County, TN, General Obligation, 5%, 2022 | | | 1,970,000 | | | | 2,468,252 | |
| New York Dormitory Authority Rev., Non-State Supported Debt (Columbia University), “A”, 5%, 2022 | | | 655,000 | | | | 838,190 | |
| New York Dormitory Authority, State Personal Income Tax Rev., “A”, 4%, 2022 | | | 2,765,000 | | | | 3,188,100 | |
| Omaha, NE, General Obligation, (Omaha Convention Center/Arena Project), 5.25%, 2022 | | | 1,365,000 | | | | 1,759,949 | |
| Seattle, WA, General Obligation, 5%, 2021 | | | 1,155,000 | | | | 1,458,638 | |
| University of Texas, Financing Systems, “B”, 5.375%, 2023 | | | 2,060,000 | | | | 2,692,070 | |
| | | | | | | | |
| | | | | | $ | 16,256,836 | |
| | | | | | | | |
U.S. Government Agencies and
Equivalents – 3.0% | | | | | |
| Aid-Egypt, 4.45%, 2015 | | $ | 3,162,000 | | | $ | 3,540,491 | |
| FDIC Structured Sale Guarantee Note, 0%, 2012 (n) | | | 516,000 | | | | 515,644 | |
| Freddie Mac, 2.375%, 2022 | | | 3,990,000 | | | | 4,094,754 | |
| Small Business Administration, 6.35%, 2021 | | | 673,559 | | | | 752,534 | |
| Small Business Administration, 6.34%, 2021 | | | 552,274 | | | | 618,006 | |
| Small Business Administration, 6.44%, 2021 | | | 964,659 | | | | 1,083,069 | |
| Small Business Administration, 6.625%, 2021 | | | 1,268,081 | | | | 1,418,836 | |
| Small Business Administration, 6.07%, 2022 | | | 832,524 | | | | 927,855 | |
| Small Business Administration, 4.98%, 2023 | | | 972,431 | | | | 1,081,227 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
U.S. Government Agencies and
Equivalents – continued | | | | | |
| Small Business Administration, 4.77%, 2024 | | $ | 1,764,474 | | | $ | 1,956,211 | |
| Small Business Administration, 5.52%,2024 | | | 1,081,904 | | | | 1,222,132 | |
| Small Business Administration, 4.99%, 2024 | | | 140,383 | | | | 156,510 | |
| Small Business Administration, 5.11%, 2025 | | | 1,376,636 | | | | 1,538,448 | |
| U.S. Department of Housing & Urban Development, 6.36%, 2016 | | | 499,000 | | | | 499,856 | |
| U.S. Department of Housing & Urban Development, 6.59%, 2016 | | | 239,000 | | | | 239,328 | |
| | | | | | | | |
| | | | | | $ | 19,644,901 | |
| | | | | | | | |
| U.S. Treasury Obligations – 31.6% | | | | | |
| U.S. Treasury Bonds, 9.25%, 2016 | | $ | 19,000 | | | $ | 24,914 | |
| U.S. Treasury Bonds, 7.5%, 2016 | | | 218,000 | | | | 281,969 | |
| U.S. Treasury Bonds, 7.875%, 2021 | | | 177,000 | | | | 270,755 | |
| U.S. Treasury Bonds, 6.25%, 2023 | | | 2,891,000 | | | | 4,199,178 | |
| U.S. Treasury Bonds, 6%, 2026 | | | 2,699,000 | | | | 3,956,567 | |
| U.S. Treasury Bonds, 6.75%, 2026 | | | 1,862,000 | | | | 2,920,432 | |
| U.S. Treasury Bonds, 6.375%, 2027 | | | 326,000 | | | | 502,091 | |
| U.S. Treasury Bonds, 5.25%, 2029 | | | 2,058,000 | | | | 2,903,066 | |
| U.S. Treasury Bonds, 4.5%, 2036 | | | 1,226,000 | | | | 1,646,671 | |
| U.S. Treasury Bonds, 5%, 2037 | | | 488,000 | | | | 704,245 | |
| U.S. Treasury Bonds, 4.375%, 2038 | | | 1,501,000 | | | | 1,991,639 | |
| U.S. Treasury Bonds, 4.5%, 2039 | | | 21,070,500 | | | | 28,590,035 | |
| U.S. Treasury Notes, 1.375%, 2013 | | | 57,000 | | | | 57,363 | |
| U.S. Treasury Notes, 1.375%, 2013 | | | 648,000 | | | | 653,341 | |
| U.S. Treasury Notes, 4%, 2014 | | | 211,000 | | | | 223,520 | |
| U.S. Treasury Notes, 1.875%, 2014 | | | 59,663,000 | | | | 61,194,191 | |
| U.S. Treasury Notes, 1.875%, 2014 | | | 12,853,000 | | | | 13,214,491 | |
| U.S. Treasury Notes, 4%, 2015 | | | 6,718,000 | | | | 7,347,289 | |
| U.S. Treasury Notes, 2.125%, 2015 | | | 34,052,000 | | | | 35,722,659 | |
| U.S. Treasury Notes, 2.625%, 2016 | | | 201,000 | | | | 216,703 | |
| U.S. Treasury Notes, 0.875%, 2016 | | | 12,000,000 | | | | 12,107,808 | |
| U.S. Treasury Notes, 2.625%, 2018 | | | 9,719,000 | | | | 10,665,844 | |
| U.S. Treasury Notes, 2.75%, 2019 | | | 5,047,400 | | | | 5,601,433 | |
| U.S. Treasury Notes, 3.125%, 2019 | | | 1,637,000 | | | | 1,860,552 | |
| U.S. Treasury Notes, 3.5%, 2020 | | | 4,084,000 | | | | 4,771,901 | |
| U.S. Treasury Notes, 2.625%, 2020 | | | 3,987,000 | | | | 4,387,881 | |
| U.S. Treasury Notes, 3.125%, 2021 | | | 1,901,000 | | | | 2,164,171 | |
| | | | | | | | |
| | | | | | $ | 208,180,709 | |
| | | | | | | | |
Total Bonds
(Identified Cost, $586,468,389) | | | | | | $ | 630,028,382 | |
| | | | | | | | |
| |
| MONEY MARKET FUNDS – 5.4% | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 35,671,164 | | | $ | 35,671,164 | |
| | | | | | | | |
Total Investments
(Identified Cost, $622,139,553) | | | | | | $ | 665,699,546 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – (1.0)% | | | | | | | (6,565,453 | ) |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 659,134,093 | |
| | | | | | | | |
5
MFS Government Securities Portfolio
Portfolio of Investments (unaudited) – continued
| (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 $515,644, representing 0.1% of net assets. |
| (v) | | Underlying affiliated fund 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:
| FRN | | Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end. |
| STRIPS | | Separate Trading of Registered Interest and Principal of Securities |
See Notes to Financial Statements
6
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $586,468,389) | | | $630,028,382 | | | | | |
Underlying affiliated funds, at cost and value | | | 35,671,164 | | | | | |
Total investments, at value (identified cost, $622,139,553) | | | $665,699,546 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 25,178,675 | | | | | |
Fund shares sold | | | 71 | | | | | |
Interest | | | 3,763,902 | | | | | |
Other assets | | | 3,909 | | | | | |
Total assets | | | | | | | $694,646,103 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | $33,264,278 | | | | | |
Fund shares reacquired | | | 2,140,143 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 30,657 | | | | | |
Distribution and/or service fees | | | 8,342 | | | | | |
Payable for independent Trustees’ compensation | | | 65 | | | | | |
Accrued expenses and other liabilities | | | 68,525 | | | | | |
Total liabilities | | | | | | | $35,512,010 | |
Net assets | | | | | | | $659,134,093 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $580,651,103 | | | | | |
Unrealized appreciation (depreciation) on investments | | | 43,559,993 | | | | | |
Accumulated net realized gain (loss) on investments | | | 7,039,049 | | | | | |
Undistributed net investment income | | | 27,883,948 | | | | | |
Net assets | | | | | | | $659,134,093 | |
Shares of beneficial interest outstanding | | | | | | | 47,545,231 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $253,425,871 | | | | 18,182,633 | | | | $13.94 | |
Service Class | | | 405,708,222 | | | | 29,362,598 | | | | 13.82 | |
See Notes to Financial Statements
7
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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Interest | | | $10,610,281 | | | | | |
Dividends from underlying affiliated funds | | | 12,393 | | | | | |
Total investment income | | | | | | | $10,622,674 | |
Expenses | | | | | | | | |
Management fee | | | $1,856,008 | | | | | |
Distribution and/or service fees | | | 521,758 | | | | | |
Administrative services fee | | | 55,431 | | | | | |
Independent Trustees’ compensation | | | 13,178 | | | | | |
Custodian fee | | | 36,799 | | | | | |
Shareholder communications | | | 12,966 | | | | | |
Audit and tax fees | | | 25,491 | | | | | |
Legal fees | | | 5,806 | | | | | |
Miscellaneous | | | 18,771 | | | | | |
Total expenses | | | | | | | $2,546,208 | |
Fees paid indirectly | | | (11 | ) | | | | |
Reduction of expenses by investment adviser | | | (1,740 | ) | | | | |
Net expenses | | | | | | | $2,544,457 | |
Net investment income | | | | | | | $8,078,217 | |
Realized and unrealized gain (loss) on investments | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $6,948,289 | | | | | |
Futures contracts | | | 111,122 | | | | | |
Net realized gain (loss) on investments | | | | | | | $7,059,411 | |
Change in unrealized appreciation (depreciation) on investments | | | | | | | $(5,120,001 | ) |
Net realized and unrealized gain (loss) on investments | | | | | | | $1,939,410 | |
Change in net assets from operations | | | | | | | $10,017,627 | |
See Notes to Financial Statements
8
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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $8,078,217 | | | | $17,572,400 | |
Net realized gain (loss) on investments | | | 7,059,411 | | | | 7,435,824 | |
Net unrealized gain (loss) on investments | | | (5,120,001 | ) | | | 20,361,037 | |
Change in net assets from operations | | | $10,017,627 | | | | $45,369,261 | |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(23,218,426 | ) |
From net realized gain on investments | | | — | | | | (228,585 | ) |
Total distributions declared to shareholders | | | $— | | | | $(23,447,011 | ) |
Change in net assets from fund share transactions | | | $(35,376,165 | ) | | | $(6,053,896 | ) |
Total change in net assets | | | $(25,358,538 | ) | | | $15,868,354 | |
| Net assets | | | | | | | | |
At beginning of period | | | 684,492,631 | | | | 668,624,277 | |
At end of period (including undistributed net investment income of $27,883,948 and
$19,805,731, respectively) | | | $659,134,093 | | | | $684,492,631 | |
See Notes to Financial Statements
9
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $13.72 | | | | $13.27 | | | | $13.14 | | | | $13.23 | | | | $12.89 | | | | $12.65 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.17 | | | | $0.39 | | | | $0.45 | | | | $0.50 | | | | $0.55 | | | | $0.56 | |
Net realized and unrealized gain (loss) on investments | | | 0.05 | | | | 0.58 | | | | 0.16 | | | | 0.08 | | | | 0.51 | | | | 0.31 | |
Total from investment operations | | | $0.22 | | | | $0.97 | | | | $0.61 | | | | $0.58 | | | | $1.06 | | | | $0.87 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.52 | ) | | | $(0.48 | ) | | | $(0.67 | ) | | | $(0.72 | ) | | | $(0.63 | ) |
From net realized gain on investments | | | — | | | | (0.00 | )(w) | | | — | | | | — | | | | — | | | | — | |
Total distributions declared to shareholders | | | $— | | | | $(0.52 | ) | | | $(0.48 | ) | | | $(0.67 | ) | | | $(0.72 | ) | | | $(0.63 | ) |
Net asset value, end of period (x) | | | $13.94 | | | | $13.72 | | | | $13.27 | | | | $13.14 | | | | $13.23 | | | | $12.89 | |
Total return (%) (k)(r)(s)(x) | | | 1.60 | (n) | | | 7.40 | | | | 4.75 | | | | 4.49 | | | | 8.55 | | | | 7.18 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.60 | (a) | | | 0.63 | | | | 0.64 | | | | 0.64 | | | | 0.65 | | | | 0.63 | |
Expenses after expense reductions (f) | | | 0.60 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 2.55 | (a) | | | 2.88 | | | | 3.39 | | | | 3.85 | | | | 4.31 | | | | 4.48 | |
Portfolio turnover | | | 29 | (n) | | | 29 | | | | 36 | | | | 36 | | | | 52 | | | | 39 | |
Net assets at end of period (000 omitted) | | | $253,426 | | | | $264,328 | | | | $227,694 | | | | $250,133 | | | | $266,170 | | | | $299,871 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $13.62 | | | | $13.18 | | | | $13.06 | | | | $13.15 | | | | $12.81 | | | | $12.58 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.16 | | | | $0.35 | | | | $0.41 | | | | $0.46 | | | | $0.52 | | | | $0.53 | |
Net realized and unrealized gain (loss) on investments | | | 0.04 | | | | 0.57 | | | | 0.17 | | | | 0.08 | | | | 0.50 | | | | 0.31 | |
Total from investment operations | | | $0.20 | | | | $0.92 | | | | $0.58 | | | | $0.54 | | | | $1.02 | | | | $0.84 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.48 | ) | | | $(0.46 | ) | | | $(0.63 | ) | | | $(0.68 | ) | | | $(0.61 | ) |
From net realized gain on investments | | | — | | | | (0.00 | )(w) | | | — | | | | — | | | | — | | | | — | |
Total distributions declared to shareholders | | | $— | | | | $(0.48 | ) | | | $(0.46 | ) | | | $(0.63 | ) | | | $(0.68 | ) | | | $(0.61 | ) |
Net asset value, end of period (x) | | | $13.82 | | | | $13.62 | | | | $13.18 | | | | $13.06 | | | | $13.15 | | | | $12.81 | |
Total return (%) (k)(r)(s)(x) | | | 1.47 | (n) | | | 7.11 | | | | 4.49 | | | | 4.23 | | | | 8.29 | | | | 6.91 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.85 | (a) | | | 0.88 | | | | 0.89 | | | | 0.89 | | | | 0.90 | | | | 0.88 | |
Expenses after expense reductions (f) | | | 0.85 | (a) | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 2.30 | (a) | | | 2.64 | | | | 3.13 | | | | 3.54 | | | | 4.06 | | | | 4.23 | |
Portfolio turnover | | | 29 | (n) | | | 29 | | | | 36 | | | | 36 | | | | 52 | | | | 39 | |
Net assets at end of period (000 omitted) | | | $405,708 | | | | $420,164 | | | | $440,930 | | | | $417,263 | | | | $271,052 | | | | $320,695 | |
See Notes to Financial Statements
10
MFS Government Securities Portfolio
Financial Highlights – continued
| (d) | | Per share data is based on average shares outstanding. |
| (f) | | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | | Certain expenses have been reduced without which performance would have been lower. |
| (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 per share 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 Government Securities Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Government Securities Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. The value of these securities may depend, in part, on the issuer’s or borrower’s credit quality or ability to pay principal and interest when due and may fall if an issuer or borrower defaults on its obligation to pay principal or interest or if the instrument’s credit rating is downgraded by a credit rating agency. 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.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price as provided by a third-party pricing service on the market on which they are primarily traded. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation as provided by a third-party pricing service on the market on which such futures contracts are primarily traded. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. 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
12
MFS Government Securities Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| U.S. Treasury Bonds & U.S. Government Agency & Equivalents | | | $— | | | | $263,728,754 | | | | $— | | | | $263,728,754 | |
| Municipal Bonds | | | — | | | | 16,256,836 | | | | — | | | | 16,256,836 | |
| Corporate Bonds | | | — | | | | 8,242,766 | | | | — | | | | 8,242,766 | |
| Residential Mortgage-Backed Securities | | | — | | | | 330,525,200 | | | | — | | | | 330,525,200 | |
| Commercial Mortgage-Backed Securities | | | — | | | | 11,274,826 | | | | — | | | | 11,274,826 | |
| Mutual Funds | | | 35,671,164 | | | | — | | | | — | | | | 35,671,164 | |
| Total Investments | | | $35,671,164 | | | | $630,028,382 | | | | $— | | | | $665,699,546 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Derivatives – The fund uses derivatives for different purposes, 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 were futures contracts. At June 30, 2012, 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, 2012 as reported in the Statement of Operations:
| | | | |
| Risk | | Futures Contracts | |
| Interest Rate | | | $111,122 | |
There is no unrealized gain (loss) from derivative transactions during the period.
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations.
13
MFS Government Securities Portfolio
Notes to Financial Statements (unaudited) – continued
Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as “Restricted cash.” Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.
Futures Contracts – The fund entered into futures contracts which may be used to hedge against or obtain broad market 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 certain percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures 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.
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. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
The fund purchased or sold debt securities on a when-issued or delayed delivery basis, or in a “To Be Announced” (TBA) or “forward commitment” transaction with delivery or payment to occur at a later date beyond the normal settlement period. TBA securities resulting from these transactions are included in the Portfolio of Investments. At the time a fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the security acquired is reflected in the fund’s net asset value. The price of such security and the date that the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the fund until payment takes place. At the time that a fund enters into this type of transaction, the fund is required to have sufficient cash and/or liquid securities to cover its commitments. Losses may arise due to changes in the value of the underlying securities 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. Additionally, losses may arise due to declines in the value of the securities prior to settlement date.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
14
MFS Government Securities Portfolio
Notes to Financial Statements (unaudited) – continued
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:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $22,218,426 | |
| Long-term capital gains | | | 228,585 | |
| Total distributions | | | $22,447,011 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $628,568,675 | |
| Gross appreciation | | | 38,257,483 | |
| Gross depreciation | | | (1,126,612 | ) |
| Net unrealized appreciation (depreciation) | | | $37,130,871 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 23,921,103 | |
| Undistributed long-term capital gain | | | 1,793,816 | |
| Other temporary differences | | | (69,733 | ) |
| Net unrealized appreciation (depreciation) | | | 42,820,177 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | | | | | | | | | |
| | | From net investment
income | | | From net realized gain on
investments | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $7,932,135 | | | | $— | | | | $74,653 | |
| Service Class | | | — | | | | 15,286,291 | | | | — | | | | 153,932 | |
| Total | | | $— | | | | $23,218,426 | | | | $— | | | | $228,585 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.55% | |
| Average daily net assets in excess of $1 billion | | | 0.50% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.55% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.61% of average daily net assets for the Initial Class shares and 0.86% 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, 2014. For the six months ended June 30, 2012, 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
15
MFS Government Securities Portfolio
Notes to Financial Statements (unaudited) – continued
participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0164% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $3,448 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $1,740, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than purchased option transactions, and short-term obligations, were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
| U.S. Government securities | | | $232,668,987 | | | | $164,600,882 | |
| Investments (non-U.S. Government securities) | | | $16,336,669 | | | | $9,373,084 | |
| (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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 613,307 | | | | $8,460,619 | | | | 1,368,448 | | | | $18,583,787 | |
Service Class | | | 2,058,357 | | | | 28,027,910 | | | | 3,457,872 | | | | 46,547,288 | |
| | | 2,671,664 | | | | $36,488,529 | | | | 4,826,320 | | | | $65,131,075 | |
| Shares issued in connection with acquisition of Government Securities Variable Account | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 3,911,252 | | | | $53,310,360 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 593,095 | | | | $8,006,788 | |
Service Class | | | — | | | | — | | | | 1,151,396 | | | | 15,440,223 | |
| | | — | | | | $— | | | | 1,744,491 | | | | $23,447,011 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (1,689,735 | ) | | | $(23,335,188 | ) | | | (3,767,855 | ) | | | $(50,830,241 | ) |
Service Class | | | (3,538,568 | ) | | | (48,529,506 | ) | | | (7,224,647 | ) | | | (97,112,101 | ) |
| | | (5,228,303 | ) | | | $(71,864,694 | ) | | | (10,992,502 | ) | | | $(147,942,342 | ) |
16
MFS Government Securities Portfolio
Notes to Financial Statements (unaudited) – continued
| | | | | | | | | | | | | | | | |
| | | Six months ended 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (1,076,428 | ) | | | $(14,874,569 | ) | | | 2,104,940 | | | | $29,070,694 | |
Service Class | | | (1,480,211 | ) | | | (20,501,596 | ) | | | (2,615,379 | ) | | | (35,124,590 | ) |
| | | (2,556,639 | ) | | | $(35,376,165 | ) | | | (510,439 | ) | | | $(6,053,896 | ) |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $2,253 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 21,906,213 | | | | 154,671,495 | | | | (140,906,544 | ) | | | 35,671,164 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $12,393 | | | | $35,671,164 | |
At the close of business on December 2, 2011, the fund with net assets of $622,179,000, acquired all of the investment-related assets and liabilities of Government Securities Variable Account. The acquisition was part of a transaction in which the Government Securities Variable Account was converted into a unit investment trust (“UIT”) that invests in the fund (the acquisition of the Account’s assets and liabilities and subsequent conversion into a UIT hereinafter referred to as the “Reorganization”). The Reorganization provided the contract owners of the Government Securities Variable Account with the opportunity to participate in a larger combined portfolio with an identical investment objective and similar investment policies and strategies. The acquisition was accomplished by a tax-free exchange of 3,911,252 shares of the fund (valued at $53,310,360) for all of the investment-related assets and liabilities of Government Securities Variable Account. Government Securities Variable Account’s net assets on that date were $53,310,360, including investments valued at $53,536,440 with a cost basis of $50,354,919. For financial reporting purposes, assets received and shares issued by the fund were recorded at fair value; however, the cost basis of the investments received from Government Securities Variable Account were carried forward to align ongoing reporting of the fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
17
MFS Government Securities Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
18
SEMIANNUAL REPORT
June 30, 2012
MFS® TOTAL RETURN PORTFOLIO
MFS® Variable Insurance Trust II
TRS-SEM
MFS® TOTAL RETURN PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Total Return Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Total Return Portfolio
PORTFOLIO COMPOSITION
Portfolio structure (i)
| | | | |
| Top ten holdings (i) | | | | |
| U.S. Treasury Notes, 3.125%, 2013 | | | 2.6% | |
| Philip Morris International, Inc. | | | 2.2% | |
| Fannie Mae, 5.5%, 30 Years | | | 2.0% | |
| JPMorgan Chase & Co. | | | 2.0% | |
| U.S. Treasury Notes, 3.5%, 2020 | | | 1.9% | |
| Exxon Mobil Corp. | | | 1.7% | |
| U.S. Treasury Bonds, 4.5%, 2039 | | | 1.5% | |
| Pfizer, Inc. | | | 1.5% | |
| Lockheed Martin Corp. | | | 1.5% | |
| Johnson & Johnson | | | 1.4% | |
|
| Composition including fixed income credit quality (a)(i) | |
| AAA | | | 1.5% | |
| AA | | | 1.4% | |
| A | | | 3.6% | |
| BBB | | | 5.3% | |
| BB | | | 0.5% | |
| CC | | | 0.1% | |
| C | | | 0.1% | |
| D (o) | | | 0.0% | |
| U.S. Government | | | 13.7% | |
| Federal Agencies | | | 13.1% | |
| Not Rated (o) | | | 0.0% | |
| Non-Fixed Income | | | 59.3% | |
| Cash & Other | | | 1.4% | |
| | | | |
| Equity sectors | | | | |
| Financial Services | | | 12.7% | |
| Consumer Staples | | | 7.2% | |
| Health Care | | | 7.1% | |
| Industrial Goods & Services | | | 6.6% | |
| Energy | | | 5.9% | |
| Utilities & Communications | | | 3.8% | |
| Leisure | | | 3.7% | |
| Technology | | | 3.4% | |
| Basic Materials | | | 2.9% | |
| Retailing | | | 2.7% | |
| Autos & Housing | | | 1.5% | |
| Transportation | | | 0.9% | |
| Special Products & Services | | | 0.9% | |
| |
| Fixed income sectors (i) | | | | |
| U.S. Treasury Securities | | | 13.7% | |
| Mortgage-Backed Securities | | | 12.7% | |
| High Grade Corporates | | | 8.6% | |
| Commercial Mortgage-Backed Securities | | | 1.8% | |
| Emerging Markets Bonds | | | 0.8% | |
| Non-U.S. Government Bonds | | | 0.7% | |
| U.S. Government Agencies | | | 0.4% | |
| High Yield Corporates | | | 0.3% | |
| Asset-Backed Securities | | | 0.2% | |
| Collateralized Debt Obligations | | | 0.1% | |
| Residential Mortgage-Backed Securities (o) | | | 0.0% | |
2
MFS Total Return Portfolio
Portfolio Composition – continued
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). 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, including fixed income futures contracts, which have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives) and commodities. Cash & Other includes cash, other assets less liabilities, offsets to derivative positions, and short-term securities. The fund may not hold all of these instruments. The fund is not rated by these agencies. |
| (i) | For purposes of this presentation, the components include the market value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. The bond component will include any accrued interest amounts. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio. |
Percentages are based on net assets as of 6/30/12.
The portfolio is actively managed and current holdings may be different.
3
MFS Total Return Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders During the Period,
January 1, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.72% | | | | $1,000.00 | | | | $1,052.95 | | | | $3.68 | |
| | Hypothetical (h) | | | 0.72% | | | | $1,000.00 | | | | $1,021.28 | | | | $3.62 | |
| Service Class | | Actual | | | 0.97% | | | | $1,000.00 | | | | $1,051.64 | | | | $4.95 | |
| | Hypothetical (h) | | | 0.97% | | | | $1,000.00 | | | | $1,020.04 | | | | $4.87 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
4
MFS Total Return Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 59.1% | | | | | |
| Aerospace – 4.3% | | | | | | | | |
| Honeywell International, Inc. | | | 224,360 | | | $ | 12,528,261 | |
| Huntington Ingalls Industries, Inc. (a) | | | 12,408 | | | | 499,297 | |
| Lockheed Martin Corp. | | | 223,750 | | | | 19,484,149 | |
| Northrop Grumman Corp. | | | 72,340 | | | | 4,614,568 | |
| Precision Castparts Corp. | | | 18,830 | | | | 3,097,346 | |
| United Technologies Corp. | | | 206,000 | | | | 15,559,179 | |
| | | | | | | | |
| | | | | | $ | 55,782,800 | |
| | | | | | | | |
| Alcoholic Beverages – 0.9% | | | | | | | | |
| Diageo PLC | | | 446,441 | | | $ | 11,480,766 | |
| | | | | | | | |
| Automotive – 0.9% | | | | | | | | |
| Delphi Automotive PLC (a) | | | 138,360 | | | $ | 3,528,180 | |
| General Motors Co. (a) | | | 65,160 | | | | 1,284,955 | |
| Johnson Controls, Inc. | | | 229,130 | | | | 6,349,192 | |
| | | | | | | | |
| | | | | | $ | 11,162,327 | |
| | | | | | | | |
| Broadcasting – 2.4% | | | | | | | | |
| Omnicom Group, Inc. | | | 161,970 | | | $ | 7,871,742 | |
| Viacom, Inc., “B” | | | 209,880 | | | | 9,868,558 | |
| Walt Disney Co. | | | 271,330 | | | | 13,159,505 | |
| | | | | | | | |
| | | | | | $ | 30,899,805 | |
| | | | | | | | |
| Brokerage & Asset Managers – 1.0% | | | | | |
| BlackRock, Inc. | | | 41,360 | | | $ | 7,023,755 | |
| Franklin Resources, Inc. | | | 49,670 | | | | 5,512,873 | |
| | | | | | | | |
| | | | | | $ | 12,536,628 | |
| | | | | | | | |
| Business Services – 0.9% | | | | | | | | |
| Accenture PLC, “A” | | | 134,920 | | | $ | 8,107,343 | |
| Dun & Bradstreet Corp. | | | 26,770 | | | | 1,905,221 | |
| Fiserv, Inc. (a) | | | 23,990 | | | | 1,732,558 | |
| | | | | | | | |
| | | | | | $ | 11,745,122 | |
| | | | | | | | |
| Cable TV – 0.8% | | | | | | | | |
| Comcast Corp., “Special A” | | | 306,690 | | | $ | 9,630,066 | |
| | | | | | | | |
| Chemicals – 2.2% | | | | | | | | |
| 3M Co. | | | 142,790 | | | $ | 12,793,984 | |
| Celanese Corp. | | | 58,860 | | | | 2,037,733 | |
| E.I. du Pont de Nemours & Co. | | | 66,300 | | | | 3,352,791 | |
| PPG Industries, Inc. | | | 100,700 | | | | 10,686,284 | |
| | | | | | | | |
| | | | | | $ | 28,870,792 | |
| | | | | | | | |
| Computer Software – 1.3% | | | | | | | | |
| Check Point Software Technologies Ltd. (a) | | | 34,460 | | | $ | 1,708,871 | |
| Microsoft Corp. | | | 75,290 | | | | 2,303,121 | |
| Oracle Corp. | | | 430,370 | | | | 12,781,989 | |
| | | | | | | | |
| | | | | | $ | 16,793,981 | |
| | | | | | | | |
| Computer Software – Systems – 1.1% | | | | | |
| Hewlett-Packard Co. | | | 177,760 | | | $ | 3,574,754 | |
| International Business Machines Corp. | | | 53,860 | | | | 10,533,939 | |
| | | | | | | | |
| | | | | | $ | 14,108,693 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Construction – 0.5% | | | | | | | | |
| Stanley Black & Decker, Inc. | | | 90,087 | | | $ | 5,797,999 | |
| | | | | | | | |
| Consumer Products – 0.7% | | | | | | | | |
| Procter & Gamble Co. | | | 123,134 | | | $ | 7,541,958 | |
| Reckitt Benckiser Group PLC | | | 38,149 | | | | 2,010,490 | |
| | | | | | | | |
| | | | | | $ | 9,552,448 | |
| | | | | | | | |
| Electrical Equipment – 1.7% | | | | | | | | |
| Danaher Corp. | | | 266,660 | | | $ | 13,887,653 | |
| Tyco International Ltd. | | | 140,470 | | | | 7,423,840 | |
| | | | | | | | |
| | | | | | $ | 21,311,493 | |
| | | | | | | | |
| Electronics – 0.6% | | | | | | | | |
| ASML Holding N.V. | | | 40,107 | | | $ | 2,062,302 | |
| Intel Corp. | | | 143,430 | | | | 3,822,410 | |
| Microchip Technology, Inc. | | | 58,980 | | | | 1,951,058 | |
| | | | | | | | |
| | | | | | $ | 7,835,770 | |
| | | | | | | | |
| Energy – Independent – 2.6% | | | | | | | | |
| Anadarko Petroleum Corp. | | | 61,590 | | | $ | 4,077,258 | |
| Apache Corp. | | | 100,830 | | | | 8,861,949 | |
| EOG Resources, Inc. | | | 24,170 | | | | 2,177,959 | |
| EQT Corp. | | | 45,260 | | | | 2,427,294 | |
| Noble Energy, Inc. | | | 61,810 | | | | 5,242,724 | |
| Occidental Petroleum Corp. | | | 124,380 | | | | 10,668,073 | |
| | | | | | | | |
| | | | | | $ | 33,455,257 | |
| | | | | | | | |
| Energy – Integrated – 2.9% | | | | | | | | |
| Chevron Corp. | | | 142,542 | | | $ | 15,038,181 | |
| Exxon Mobil Corp. | | | 258,548 | | | | 22,123,952 | |
| Hess Corp. | | | 6,060 | | | | 263,307 | |
| | | | | | | | |
| | | | | | $ | 37,425,440 | |
| | | | | | | | |
| Engineering – Construction – 0.2% | | | | | | | | |
| Fluor Corp. | | | 44,400 | | | $ | 2,190,696 | |
| | | | | | | | |
| Food & Beverages – 2.8% | | | | | | | | |
| General Mills, Inc. | | | 228,960 | | | $ | 8,824,118 | |
| Groupe Danone | | | 109,584 | | | | 6,797,325 | |
| J.M. Smucker Co. | | | 18,370 | | | | 1,387,302 | |
| Kellogg Co. | | | 36,150 | | | | 1,783,280 | |
| Nestle S.A. | | | 176,533 | | | | 10,530,444 | |
| PepsiCo, Inc. | | | 94,960 | | | | 6,709,874 | |
| | | | | | | | |
| | | | | | $ | 36,032,343 | |
| | | | | | | | |
| Food & Drug Stores – 1.2% | | | | | | | | |
| CVS Caremark Corp. | | | 184,286 | | | $ | 8,611,685 | |
| Kroger Co. | | | 88,860 | | | | 2,060,663 | |
| Walgreen Co. | | | 149,270 | | | | 4,415,407 | |
| | | | | | | | |
| | | | | | $ | 15,087,755 | |
| | | | | | | | |
| General Merchandise – 1.2% | | | | | | | | |
| Kohl’s Corp. | | | 103,560 | | | $ | 4,710,944 | |
| Target Corp. | | | 194,210 | | | | 11,301,080 | |
| | | | | | | | |
| | | | | | $ | 16,012,024 | |
| | | | | | | | |
5
MFS Total Return Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Health Maintenance Organizations – 0.1% | | | | | |
| Aetna, Inc. | | | 44,750 | | | $ | 1,734,958 | |
| | | | | | | | |
| Insurance – 3.9% | | | | | | | | |
| ACE Ltd. | | | 138,730 | | | $ | 10,284,055 | |
| Aon PLC | | | 148,380 | | | | 6,941,216 | |
| Chubb Corp. | | | 41,570 | | | | 3,027,127 | |
| MetLife, Inc. | | | 357,070 | | | | 11,015,610 | |
| Prudential Financial, Inc. | | | 193,190 | | | | 9,356,192 | |
| Travelers Cos., Inc. | | | 145,490 | | | | 9,288,082 | |
| | | | | | | | |
| | | | | | $ | 49,912,282 | |
| | | | | | | | |
| Leisure & Toys – 0.4% | | | | | | | | |
| Hasbro, Inc. | | | 139,560 | | | $ | 4,726,897 | |
| | | | | | | | |
| Machinery & Tools – 0.4% | | | | | | | | |
| Eaton Corp. | | | 122,940 | | | $ | 4,872,112 | |
| | | | | | | | |
| Major Banks – 6.4% | | | | | | | | |
| Bank of America Corp. | | | 570,710 | | | $ | 4,668,408 | |
| Bank of New York Mellon Corp. | | | 559,069 | | | | 12,271,565 | |
| Goldman Sachs Group, Inc. | | | 131,410 | | | | 12,596,963 | |
| JPMorgan Chase & Co. | | | 714,434 | | | | 25,526,727 | |
| PNC Financial Services Group, Inc. | | | 84,880 | | | | 5,187,017 | |
| State Street Corp. | | | 172,490 | | | | 7,699,954 | |
| Wells Fargo & Co. | | | 444,780 | | | | 14,873,443 | |
| | | | | | | | |
| | | | | | $ | 82,824,077 | |
| | | | | | | | |
| Medical & Health Technology & Services – 0.4% | |
| AmerisourceBergen Corp. | | | 58,500 | | | $ | 2,301,975 | |
| Quest Diagnostics, Inc. | | | 36,650 | | | | 2,195,335 | |
| | | | | | | | |
| | | | | | $ | 4,497,310 | |
| | | | | | | | |
| Medical Equipment – 2.1% | | | | | | | | |
| Becton, Dickinson & Co. | | | 57,570 | | | $ | 4,303,358 | |
| Covidien PLC | | | 85,140 | | | | 4,554,990 | |
| Medtronic, Inc. | | | 111,760 | | | | 4,328,465 | |
| St. Jude Medical, Inc. | | | 151,950 | | | | 6,064,325 | |
| Thermo Fisher Scientific, Inc. | | | 142,940 | | | | 7,420,015 | |
| | | | | | | | |
| | | | | | $ | 26,671,153 | |
| | | | | | | | |
| Metals & Mining – 0.1% | | | | | | | | |
| Cliffs Natural Resources, Inc. | | | 20,690 | | | $ | 1,019,810 | |
| | | | | | | | |
| Natural Gas – Pipeline – 0.3% | | | | | | | | |
| Williams Cos., Inc. | | | 134,690 | | | $ | 3,881,766 | |
| | | | | | | | |
| Network & Telecom – 0.4% | | | | | | | | |
| Cisco Systems, Inc. | | | 293,430 | | | $ | 5,038,193 | |
| | | | | | | | |
| Oil Services – 0.4% | | | | | | | | |
| Schlumberger Ltd. | | | 24,410 | | | $ | 1,584,453 | |
| Transocean, Inc. | | | 82,510 | | | | 3,690,672 | |
| | | | | | | | |
| | | | | | $ | 5,275,125 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 1.4% | | | | | |
| American Express Co. | | | 36,390 | | | $ | 2,118,262 | |
| MasterCard, Inc., “A” | | | 4,756 | | | | 2,045,603 | |
| SunTrust Banks, Inc. | | | 89,110 | | | | 2,159,135 | |
| Visa, Inc., “A” | | | 35,380 | | | | 4,374,029 | |
| Western Union Co. | | | 352,160 | | | | 5,930,374 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Other Banks & Diversified Financials – continued | |
| Zions Bancorporation | | | 92,440 | | | $ | 1,795,185 | |
| | | | | | | | |
| | | | | | $ | 18,422,588 | |
| | | | | | | | |
| Pharmaceuticals – 4.5% | | | | | | | | |
| Abbott Laboratories | | | 206,330 | | | $ | 13,302,095 | |
| Bayer AG | | | 26,363 | | | | 1,901,000 | |
| Johnson & Johnson | | | 257,670 | | | | 17,408,185 | |
| Merck & Co., Inc. | | | 93,280 | | | | 3,894,440 | |
| Pfizer, Inc. | | | 847,638 | | | | 19,495,674 | |
| Roche Holding AG | | | 11,670 | | | | 2,014,562 | |
| | | | | | | | |
| | | | | | $ | 58,015,956 | |
| | | | | | | | |
| Printing & Publishing – 0.1% | | | | | | | | |
| Moody’s Corp. | | | 46,840 | | | $ | 1,712,002 | |
| | | | | | | | |
| Railroad & Shipping – 0.3% | | | | | | | | |
| Canadian National Railway Co. | | | 30,040 | | | $ | 2,534,775 | |
| Union Pacific Corp. | | | 14,740 | | | | 1,758,629 | |
| | | | | | | | |
| | | | | | $ | 4,293,404 | |
| | | | | | | | |
| Specialty Chemicals – 0.6% | | | | | | | | |
| Air Products & Chemicals, Inc. | | | 90,850 | | | $ | 7,334,321 | |
| | | | | | | | |
| Specialty Stores – 0.3% | | | | | | | | |
| Advance Auto Parts, Inc. | | | 18,190 | | | $ | 1,240,922 | |
| Staples, Inc. | | | 242,460 | | | | 3,164,103 | |
| | | | | | | | |
| | | | | | $ | 4,405,025 | |
| | | | | | | | |
| Telecommunications – Wireless – 0.9% | | | | | |
| Vodafone Group PLC | | | 4,013,791 | | | $ | 11,277,291 | |
| | | | | | | | |
| Telephone Services – 1.4% | | | | | | | | |
| AT&T, Inc. | | | 440,720 | | | $ | 15,716,075 | |
| CenturyLink, Inc. | | | 57,758 | | | | 2,280,863 | |
| | | | | | | | |
| | | | | | $ | 17,996,938 | |
| | | | | | | | |
| Tobacco – 2.8% | | | | | | | | |
| Altria Group, Inc. | | | 69,860 | | | $ | 2,413,663 | |
| Lorillard, Inc. | | | 46,790 | | | | 6,173,941 | |
| Philip Morris International, Inc. | | | 320,120 | | | | 27,933,671 | |
| | | | | | | | |
| | | | | | $ | 36,521,275 | |
| | | | | | | | |
| Trucking – 0.6% | | | | | | | | |
| United Parcel Service, Inc., “B” | | | 96,290 | | | $ | 7,583,800 | |
| | | | | | | | |
| Utilities – Electric Power – 1.1% | | | | | | | | |
| NRG Energy, Inc. (a) | | | 81,480 | | | $ | 1,414,493 | |
| PG&E Corp. | | | 94,260 | | | | 4,267,150 | |
| PPL Corp. | | | 153,010 | | | | 4,255,208 | |
| Public Service Enterprise Group, Inc. | | | 148,860 | | | | 4,837,950 | |
| | | | | | | | |
| | | | | | $ | 14,774,801 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $722,530,342) | | | | | | $ | 760,503,289 | |
| | | | | | | | |
| | |
| BONDS – 39.0% | | | | | | | | |
| Agency – Other – 0.1% | | | | | | | | |
| Financing Corp., 9.65%, 2018 | | $ | 535,000 | | | $ | 793,942 | |
| | | | | | | | |
6
MFS Total Return Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Asset-Backed & Securitized – 2.1% | | | | | | | | |
Anthracite Ltd., “A”, CDO, FRN,
0.695%, 2017 (n) | | $ | 771,090 | | | $ | 747,957 | |
| Bayview Financial Revolving Mortgage Loan Trust, FRN, 1.845%, 2040 (z) | | | 1,413,916 | | | | 920,042 | |
BlackRock Capital Finance LP,
7.75%, 2026 (n) | | | 173,291 | | | | 19,495 | |
Capital Trust Realty Ltd., CDO,
5.16%, 2035 (n) | | | 770,441 | | | | 776,219 | |
Citigroup Commercial Mortgage Trust,
FRN, 5.888%, 2017 | | | 3,050,000 | | | | 3,521,420 | |
| Citigroup/Deutsche Bank Commercial Mortgage Trust, 5.322%, 2049 | | | 137,638 | | | | 152,877 | |
| Credit Suisse Mortgage Capital Certificate, FRN, 5.695%, 2017 | | | 2,034,095 | | | | 2,181,575 | |
GMAC Mortgage Corp. Loan Trust,
FRN, 5.805%, 2036 | | | 799,688 | | | | 573,213 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., 4.78%, 2042 | | | 1,772,000 | | | | 1,882,993 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., 5.552%, 2045 | | | 1,131,871 | | | | 1,277,475 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., “A3”, FRN, 6.179%, 2051 | | | 2,664,573 | | | | 2,830,493 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., “A4”, FRN, 6.009%, 2049 | | | 777,548 | | | | 853,595 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.386%, 2041 | | | 2,024,903 | | | | 2,144,731 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.475%, 2043 | | | 1,839,069 | | | | 2,055,548 | |
| Merrill Lynch Mortgage Trust, FRN, “A3”, 6.041%, 2050 | | | 28,792 | | | | 29,712 | |
| Merrill Lynch/Countrywide Commercial Mortgage Trust, FRN, 5.81%, 2050 | | | 2,460,824 | | | | 2,649,023 | |
Morgan Stanley Capital I, Inc.,
FRN, 1.184%, 2030 (i)(n) | | | 6,822,254 | | | | 166,668 | |
| Residential Asset Mortgage Products, Inc., FRN, 4.97%, 2034 | | | 284,839 | | | | 286,322 | |
| Residential Funding Mortgage Securities, Inc., FRN, 5.32%, 2035 | | | 1,534,000 | | | | 927,756 | |
| Spirit Master Funding LLC, 5.05%, 2023 (z) | | | 1,286,164 | | | | 1,204,248 | |
| Wachovia Bank Commercial Mortgage Trust, “A4”, FRN, 6.096%, 2017 | | | 1,545,000 | | | | 1,731,369 | |
| | | | | | | | |
| | | | | | $ | 26,932,731 | |
| | | | | | | | |
| Automotive – 0.2% | | | | | | | | |
| Toyota Motor Credit Corp., 3.2%, 2015 | | $ | 770,000 | | | $ | 817,869 | |
| Toyota Motor Credit Corp., 3.4%, 2021 | | | 1,120,000 | | | | 1,177,827 | |
| Volkswagen International Finance N.V., 2.375%, 2017 (n) | | | 1,084,000 | | | | 1,101,155 | |
| | | | | | | | |
| | | | | | $ | 3,096,851 | |
| | | | | | | | |
| Broadcasting – 0.1% | | | | | | | | |
| News America, Inc., 8.5%, 2025 | | $ | 1,253,000 | | | $ | 1,574,859 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Cable TV – 0.4% | | | | | | | | |
| Cox Communications, Inc., 4.625%, 2013 | | $ | 1,282,000 | | | $ | 1,326,991 | |
| DIRECTV Holdings LLC, 4.6%, 2021 | | | 1,610,000 | | | | 1,712,296 | |
Time Warner Entertainment Co. LP,
8.375%, 2033 | | | 1,940,000 | | | | 2,627,910 | |
| | | | | | | | |
| | | | | | $ | 5,667,197 | |
| | | | | | | | |
| Conglomerates – 0.1% | | | | | | | | |
| ABB Finance (USA), Inc., 2.875%, 2022 | | $ | 393,000 | | | $ | 397,542 | |
| United Technologies Corp., 3.1%, 2022 | | | 540,000 | | | | 565,845 | |
| | | | | | | | |
| | | | | | $ | 963,387 | |
| | | | | | | | |
| Defense Electronics – 0.1% | | | | | | | | |
| BAE Systems Holdings, Inc., 5.2%, 2015��(n) | | $ | 862,000 | | | $ | 937,865 | |
| | | | | | | | |
| Emerging Market Quasi-Sovereign – 0.4% | | | | | |
CNOOC Finance (2012) Ltd.,
3.875%, 2022 (n) | | $ | 1,280,000 | | | $ | 1,323,878 | |
| Corporacion Nacional del Cobre de Chile, 3.75%, 2020 (n) | | | 342,000 | | | | 356,667 | |
| Petrobras International Finance Co., 5.375%, 2021 | | | 481,000 | | | | 518,408 | |
Petrobras International Finance Co.,
6.75%, 2041 | | | 340,000 | | | | 398,815 | |
| Petroleos Mexicanos, 8%, 2019 | | | 918,000 | | | | 1,165,860 | |
| Ras Laffan Liquefied Natural Gas Co. Ltd., 5.832%, 2016 (n) | | | 803,543 | | | | 860,795 | |
| | | | | | | | |
| | | | | | $ | 4,624,423 | |
| | | | | | | | |
| Emerging Market Sovereign – 0.4% | | | | | |
| Republic of Peru, 7.35%, 2025 | | $ | 103,000 | | | $ | 144,715 | |
| Russian Federation, 3.625%, 2015 (z) | | | 2,700,000 | | | | 2,793,069 | |
| United Mexican States, 4.75%, 2044 | | | 1,739,000 | | | | 1,873,773 | |
| | | | | | | | |
| | | | | | $ | 4,811,557 | |
| | | | | | | | |
| Energy – Independent – 0.1% | | | | | | | | |
| Apache Corp., 3.25%, 2022 | | $ | 534,000 | | | $ | 557,609 | |
| Apache Corp., 4.75%, 2043 | | | 407,000 | | | | 452,085 | |
| Hess Corp., 8.125%, 2019 | | | 350,000 | | | | 450,514 | |
| | | | | | | | |
| | | | | | $ | 1,460,208 | |
| | | | | | | | |
| Energy – Integrated – 0.6% | | | | | | | | |
| BP Capital Markets PLC, 4.5%, 2020 | | $ | 371,000 | | | $ | 417,685 | |
| BP Capital Markets PLC, 4.742%, 2021 | | | 1,061,000 | | | | 1,214,413 | |
| Husky Energy, Inc., 5.9%, 2014 | | | 944,000 | | | | 1,026,225 | |
| Husky Energy, Inc., 7.25%, 2019 | | | 959,000 | | | | 1,183,663 | |
| Petro-Canada, 6.05%, 2018 | | | 1,942,000 | | | | 2,298,072 | |
Total Capital International S.A.,
1.55%, 2017 | | | 1,570,000 | | | | 1,573,677 | |
| | | | | | | | |
| | | | | | $ | 7,713,735 | |
| | | | | | | | |
| Financial Institutions – 0.0% | | | | | | | | |
| General Electric Capital Corp., 5.45%, 2013 | | $ | 179,000 | | | $ | 183,626 | |
| | | | | | | | |
7
MFS Total Return Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Food & Beverages – 0.2% | | | | | | | | |
| Anheuser-Busch InBev Worldwide, Inc., 8%, 2039 | | $ | 1,270,000 | | | $ | 1,996,785 | |
| Kraft Foods, Inc., 3.5%, 2022 (n) | | | 525,000 | | | | 538,735 | |
| Molson Coors Brewing Co., 5%, 2042 | | | 446,000 | | | | 481,846 | |
| | | | | | | | |
| | | | | | $ | 3,017,366 | |
| | | | | | | | |
| Food & Drug Stores – 0.1% | | | | | | | | |
| CVS Caremark Corp., 6.125%, 2016 | | $ | 1,250,000 | | | $ | 1,462,143 | |
| | | | | | | | |
| Gaming & Lodging – 0.0% | | | | | | | | |
| Wyndham Worldwide Corp., 6%, 2016 | | $ | 9,000 | | | $ | 10,011 | |
| | | | | | | | |
| Insurance – 0.2% | | | | | | | | |
Metropolitan Life Global Funding I,
5.125%, 2013 (n) | | $ | 690,000 | | | $ | 712,818 | |
Metropolitan Life Global Funding I,
5.125%, 2014 (n) | | | 680,000 | | | | 729,208 | |
| Prudential Financial, Inc., 6.625%, 2040 | | | 530,000 | | | | 604,064 | |
| | | | | | | | |
| | | | | | $ | 2,046,090 | |
| | | | | | | | |
| Insurance – Property & Casualty – 0.2% | | | | | |
| Chubb Corp., 6.375% to 2017, FRN to 2067 | | $ | 1,910,000 | | | $ | 1,972,075 | |
| ZFS Finance USA Trust V, 6.5% to 2017, FRN to 2067 (n) | | | 524,000 | | | | 513,520 | |
| | | | | | | | |
| | | | | | $ | 2,485,595 | |
| | | | | | | | |
| International Market Quasi-Sovereign – 0.5% | | | | | |
Achmea Hypotheekbank N.V.,
3.2%, 2014 (n) | | $ | 663,000 | | | $ | 691,595 | |
| ING Bank N.V., 3.9%, 2014 (n) | | | 1,560,000 | | | | 1,637,239 | |
| Irish Life & Permanent PLC, 3.6%, 2013 (n)(e) | | | 1,900,000 | | | | 1,841,279 | |
KFW International Finance, Inc.,
4.875%, 2019 | | | 1,580,000 | | | | 1,900,460 | |
| Societe Financement de l’ Economie Francaise, 3.375%, 2014 (n) | | | 900,000 | | | | 935,062 | |
| | | | | | | | |
| | | | | | $ | 7,005,635 | |
| | | | | | | | |
| Local Authorities – 0.1% | | | | | | | | |
| New Jersey Turnpike Authority Rev. (Build America Bonds), “F”, 7.414%, 2040 | | $ | 1,280,000 | | | $ | 1,865,792 | |
| | | | | | | | |
| Machinery & Tools – 0.2% | | | | | | | | |
| Atlas Copco AB, 5.6%, 2017 (n) | | $ | 1,850,000 | | | $ | 2,091,826 | |
| | | | | | | | |
| Major Banks – 1.6% | | | | | | | | |
ABN AMRO Bank N.V., FRN,
2.235%, 2014 (n) | | $ | 1,310,000 | | | $ | 1,310,490 | |
| Bank of America Corp., 7.375%, 2014 | | | 590,000 | | | | 634,506 | |
| Bank of America Corp., 5.49%, 2019 | | | 829,000 | | | | 844,252 | |
| Bank of America Corp., 7.625%, 2019 | | | 840,000 | | | | 987,740 | |
BNP Paribas, 7.195% to 2037,
FRN to 2049 (n) | | | 800,000 | | | | 684,000 | |
Commonwealth Bank of Australia,
5%, 2019 (n) | | | 840,000 | | | | 922,848 | |
| Credit Suisse New York, 5.5%, 2014 | | | 1,720,000 | | | | 1,823,449 | |
| Goldman Sachs Group, Inc., 5.625%, 2017 | | | 1,547,000 | | | | 1,622,651 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Major Banks – continued | | | | | | | | |
| HSBC Holdings PLC, 5.1%, 2021 | | $ | 842,000 | | | $ | 940,051 | |
| ING Bank N.V., 3.75%, 2017 (n) | | | 1,048,000 | | | | 1,043,084 | |
| JPMorgan Chase & Co., 6.3%, 2019 | | | 1,410,000 | | | | 1,647,912 | |
| JPMorgan Chase Capital XXII, 6.45%, 2087 | | | 679,000 | | | | 679,000 | |
| JPMorgan Chase Capital XXVII, 7%, 2039 | | | 179,000 | | | | 179,000 | |
| Merrill Lynch & Co., Inc., 6.15%, 2013 | | | 1,320,000 | | | | 1,366,207 | |
| Morgan Stanley, 6.625%, 2018 | | | 1,790,000 | | | | 1,871,567 | |
| PNC Funding Corp., 5.625%, 2017 | | | 1,270,000 | | | | 1,413,079 | |
| Wachovia Corp., 5.25%, 2014 | | | 868,000 | | | | 925,957 | |
| Wells Fargo & Co., 2.1%, 2017 | | | 1,570,000 | | | | 1,573,509 | |
| | | | | | | | |
| | | | | | $ | 20,469,302 | |
| | | | | | | | |
| Medical & Health Technology & Services – 0.4% | | | | | |
| Aristotle Holding, Inc., 2.65%, 2017 (n) | | $ | 1,640,000 | | | $ | 1,668,485 | |
| CareFusion Corp., 6.375%, 2019 | | | 1,400,000 | | | | 1,651,150 | |
| Hospira, Inc., 6.05%, 2017 | | | 1,164,000 | | | | 1,312,959 | |
| | | | | | | | |
| | | | | | $ | 4,632,594 | |
| | | | | | | | |
| Metals & Mining – 0.1% | | | | | | | | |
| Vale Overseas Ltd., 4.625%, 2020 | | $ | 337,000 | | | $ | 352,534 | |
| Vale Overseas Ltd., 6.875%, 2039 | | | 257,000 | | | | 300,273 | |
| | | | | | | | |
| | | | | | $ | 652,807 | |
| | | | | | | | |
| Mortgage-Backed – 12.6% | | | | | | | | |
| Fannie Mae, 4.01%, 2013 | | $ | 187,845 | | | $ | 191,764 | |
| Fannie Mae, 4.561%, 2014 | | | 790,912 | | | | 830,592 | |
| Fannie Mae, 4.842%, 2014 | | | 772,306 | | | | 818,046 | |
| Fannie Mae, 4.88%, 2014 | | | 292,096 | | | | 311,559 | |
| Fannie Mae, 4.56%, 2015 | | | 322,541 | | | | 345,272 | |
| Fannie Mae, 4.7%, 2015 | | | 619,825 | | | | 666,727 | |
| Fannie Mae, 4.78%, 2015 | | | 446,492 | | | | 484,591 | |
| Fannie Mae, 4.856%, 2015 | | | 294,128 | | | | 318,791 | |
| Fannie Mae, 4.894%, 2015 | | | 54,525 | | | | 59,583 | |
| Fannie Mae, 4.997%, 2015 | | | 129,501 | | | | 143,221 | |
| Fannie Mae, 5.1%, 2015 | | | 480,000 | | | | 508,351 | |
| Fannie Mae, 5.09%, 2016 | | | 500,000 | | | | 556,456 | |
| Fannie Mae, 5.27%, 2016 | | | 534,774 | | | | 592,580 | |
| Fannie Mae, 5.5%, 2016 - 2040 | | | 25,643,970 | | | | 28,142,719 | |
| Fannie Mae, 5.662%, 2016 | | | 416,210 | | | | 469,744 | |
| Fannie Mae, 5.724%, 2016 | | | 305,190 | | | | 347,741 | |
| Fannie Mae, 4.989%, 2017 | | | 77,447 | | | | 83,378 | |
| Fannie Mae, 5.05%, 2017 | | | 482,895 | | | | 538,585 | |
| Fannie Mae, 6%, 2017 - 2037 | | | 14,741,431 | | | | 16,472,150 | |
| Fannie Mae, 2.578%, 2018 | | | 843,000 | | | | 878,944 | |
| Fannie Mae, 3.849%, 2018 | | | 199,004 | | | | 219,302 | |
| Fannie Mae, 4.5%, 2018 - 2041 | | | 4,580,112 | | | | 4,969,763 | |
| Fannie Mae, 5%, 2018 - 2041 | | | 14,141,440 | | | | 15,355,727 | |
| Fannie Mae, 5.37%, 2018 | | | 600,000 | | | | 685,194 | |
| Fannie Mae, 4.6%, 2019 | | | 186,000 | | | | 213,221 | |
| Fannie Mae, 3%, 2027 | | | 2,174,378 | | | | 2,281,948 | |
| Fannie Mae, 7.5%, 2030 - 2031 | | | 169,037 | | | | 207,207 | |
| Fannie Mae, 6.5%, 2031 - 2037 | | | 4,104,937 | | | | 4,679,351 | |
| Fannie Mae, 4%, 2040 | | | 530,176 | | | | 565,160 | |
| Fannie Mae, 3.5%, 2041 - 2042 | | | 3,211,719 | | | | 3,393,318 | |
| Freddie Mac, 6%, 2016 - 2037 | | | 5,699,450 | | | | 6,331,301 | |
8
MFS Total Return Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Mortgage-Backed – continued | | | | | | | | |
| Freddie Mac, 3.882%, 2017 | | $ | 406,817 | | | $ | 451,109 | |
| Freddie Mac, 5%, 2017 - 2039 | | | 8,786,618 | | | | 9,520,827 | |
| Freddie Mac, 2.303%, 2018 | | | 216,058 | | | | 222,963 | |
| Freddie Mac, 2.412%, 2018 (n) | | | 594,000 | | | | 616,609 | |
| Freddie Mac, 3.154%, 2018 | | | 156,000 | | | | 167,904 | |
| Freddie Mac, 4.5%, 2018 - 2035 | | | 4,577,897 | | | | 4,895,014 | |
| Freddie Mac, 5.085%, 2019 | | | 1,523,000 | | | | 1,785,952 | |
| Freddie Mac, 5.5%, 2019 - 2037 | | | 6,886,139 | | | | 7,550,402 | |
| Freddie Mac, 3.808%, 2020 | | | 1,303,000 | | | | 1,446,196 | |
| Freddie Mac, 6.5%, 2034 - 2038 | | | 2,363,249 | | | | 2,674,075 | |
| Freddie Mac, 4%, 2040 - 2041 | | | 7,186,359 | | | | 7,635,856 | |
| Freddie Mac, 3.5%, 2042 | | | 2,712,632 | | | | 2,856,451 | |
| Ginnie Mae, 4.5%, 2033 - 2041 | | | 7,929,780 | | | | 8,725,779 | |
| Ginnie Mae, 5%, 2033 - 2041 | | | 6,004,850 | | | | 6,637,643 | |
| Ginnie Mae, 5.5%, 2033 - 2035 | | | 2,816,678 | | | | 3,145,320 | |
| Ginnie Mae, 6%, 2033 - 2038 | | | 3,015,040 | | | | 3,409,242 | |
| Ginnie Mae, 3.5%, 2041 - 2042 | | | 2,347,842 | | | | 2,514,054 | |
| Ginnie Mae, 4%, 2041 | | | 3,820,578 | | | | 4,180,507 | |
| Ginnie Mae, TBA, 3.5%, 2042 | | | 1,990,000 | | | | 2,120,904 | |
| | | | | | | | |
| | | | | | $ | 162,219,093 | |
| | | | | | | | |
| Natural Gas – Pipeline – 0.3% | | | | | | | | |
Enterprise Products Operating LLC,
6.5%, 2019 | | $ | 1,042,000 | | | $ | 1,255,896 | |
Kinder Morgan Energy Partners LP,
7.4%, 2031 | | | 804,000 | | | | 979,107 | |
Kinder Morgan Energy Partners LP,
7.75%, 2032 | | | 661,000 | | | | 823,047 | |
| Spectra Energy Capital LLC, 8%, 2019 | | | 1,040,000 | | | | 1,332,299 | |
| | | | | | | | |
| | | | | | $ | 4,390,349 | |
| | | | | | | | |
| Network & Telecom – 0.2% | | | | | | | | |
| AT&T, Inc., 5.55%, 2041 | | $ | 539,000 | | | $ | 642,465 | |
| BellSouth Corp., 6.55%, 2034 | | | 1,472,000 | | | | 1,728,715 | |
| Telecom Italia Capital, 5.25%, 2013 | | | 812,000 | | | | 814,030 | |
| | | | | | | | |
| | | | | | $ | 3,185,210 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 0.7% | |
| American Express Co., 5.5%, 2016 | | $ | 1,034,000 | | | $ | 1,180,345 | |
| Banco Bradesco S.A., 6.75%, 2019 (n) | | | 681,000 | | | | 755,910 | |
Banco Santander U.S. Debt S.A.U.,
3.781%, 2015 (n) | | | 700,000 | | | | 653,568 | |
| Capital One Financial Corp., 6.15%, 2016 | | | 1,670,000 | | | | 1,867,015 | |
Groupe BPCE S.A., 12.5% to 2019,
FRN to 2049 (n) | | | 1,612,000 | | | | 1,622,607 | |
| Nordea Bank AB, 4.875%, 2021 (z) | | | 820,000 | | | | 892,390 | |
Svenska Handelsbanken AB,
4.875%, 2014 (n) | | | 1,220,000 | | | | 1,287,760 | |
UBS Preferred Funding Trust V,
6.243% to 2016, FRN to 2049 | | | 1,390,000 | | | | 1,306,600 | |
| | | | | | | | |
| | | | | | $ | 9,566,195 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| Pharmaceuticals – 0.3% | | | | | | | | |
| Roche Holdings, Inc., 6%, 2019 (n) | | $ | 1,578,000 | | | $ | 1,962,786 | |
Teva Pharmaceutical Finance IV LLC,
3.65%, 2021 | | | 1,610,000 | | | | 1,693,363 | |
| | | | | | | | |
| | | | | | $ | 3,656,149 | |
| | | | | | | | |
| Real Estate – 0.7% | | | | | | | | |
| Boston Properties, Inc., REIT, 5%, 2015 | | $ | 411,000 | | | $ | 446,552 | |
| ERP Operating LP, REIT, 5.375%, 2016 | | | 320,000 | | | | 358,421 | |
| ERP Operating LP, REIT, 4.625%, 2021 | | | 1,141,000 | | | | 1,239,323 | |
| HCP, Inc., REIT, 5.375%, 2021 | | | 919,000 | | | | 1,016,233 | |
| HRPT Properties Trust, REIT, 6.25%, 2016 | | | 2,725,000 | | | | 2,875,559 | |
Simon Property Group, Inc., REIT,
5.875%, 2017 | | | 1,131,000 | | | | 1,301,974 | |
| WEA Finance LLC, REIT, 6.75%, 2019 (n) | | | 457,000 | | | | 539,202 | |
| WEA Finance LLC, REIT, 4.625%, 2021 (n) | | | 1,240,000 | | | | 1,310,468 | |
| | | | | | | | |
| | | | | | $ | 9,087,732 | |
| | | | | | | | |
| Retailers – 0.4% | | | | | | | | |
| Home Depot, Inc., 5.95%, 2041 | | $ | 346,000 | | | $ | 450,163 | |
| Limited Brands, Inc., 5.25%, 2014 | | | 440,000 | | | | 462,000 | |
| Target Corp., 4%, 2042 | | | 1,292,000 | | | | 1,272,652 | |
| Wal-Mart Stores, Inc., 5.25%, 2035 | | | 2,435,000 | | | | 2,946,986 | |
| | | | | | | | |
| | | | | | $ | 5,131,801 | |
| | | | | | | | |
| Specialty Chemicals – 0.0% | | | | | | | | |
| Ecolab, Inc., 5.5%, 2041 | | $ | 210,000 | | | $ | 251,957 | |
| | | | | | | | |
| Supranational – 0.2% | | | | | | | | |
| Asian Development Bank, 2.75%, 2014 | | $ | 1,120,000 | | | $ | 1,169,921 | |
| Asian Development Bank, 1.125%, 2017 | | | 729,000 | | | | 740,231 | |
| | | | | | | | |
| | | | | | $ | 1,910,152 | |
| | | | | | | | |
| Telecommunications – Wireless – 0.3% | | | | | |
Crown Castle Towers LLC,
6.113%, 2020 (n) | | $ | 888,000 | | | $ | 1,027,963 | |
Crown Castle Towers LLC,
4.883%, 2020 (n) | | | 440,000 | | | | 477,715 | |
Rogers Communications, Inc.,
6.8%, 2018 | | | 1,686,000 | | | | 2,079,270 | |
| | | | | | | | |
| | | | | | $ | 3,584,948 | |
| | | | | | | | |
| Tobacco – 0.1% | | | | | | | | |
B.A.T. International Finance PLC,
3.25%, 2022 (n) | | $ | 1,302,000 | | | $ | 1,286,726 | |
| | | | | | | | |
| Transportation – Services – 0.1% | | | | | |
| Erac USA Finance Co., 7%, 2037 (n) | | $ | 1,423,000 | | | $ | 1,715,340 | |
| | | | | | | | |
U.S. Government Agencies and
Equivalents – 0.4% | | | | | |
| Aid-Egypt, 4.45%, 2015 | | $ | 152,000 | | | $ | 170,194 | |
Small Business Administration,
4.35%, 2023 | | | 19,908 | | | | 21,774 | |
Small Business Administration,
4.77%, 2024 | | | 520,047 | | | | 576,558 | |
Small Business Administration,
5.18%, 2024 | | | 843,716 | | | | 935,041 | |
9
MFS Total Return Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
U.S. Government Agencies and
Equivalents – continued | | | | | |
Small Business Administration,
5.52%, 2024 | | $ | 110,216 | | | $ | 124,501 | |
Small Business Administration,
4.99%, 2024 | | | 790,289 | | | | 881,073 | |
Small Business Administration,
4.95%, 2025 | | | 51,464 | | | | 57,509 | |
Small Business Administration,
5.11%, 2025 | | | 1,604,974 | | | | 1,800,570 | |
| | | | | | | | |
| | | | | | $ | 4,567,220 | |
| | | | | | | | |
| U.S. Treasury Obligations – 13.6% | | | | | | | | |
| U.S. Treasury Bonds, 8.5%, 2020 | | $ | 2,604,000 | | | $ | 3,991,442 | |
| U.S. Treasury Bonds, 8%, 2021 | | | 357,000 | | | | 560,434 | |
| U.S. Treasury Bonds, 6%, 2026 | | | 499,000 | | | | 731,503 | |
| U.S. Treasury Bonds, 6.75%, 2026 | | | 440,000 | | | | 690,113 | |
| U.S. Treasury Bonds, 5.25%, 2029 | | | 159,000 | | | | 224,289 | |
| U.S. Treasury Bonds, 5.375%, 2031 | | | 79,000 | | | | 115,118 | |
| U.S. Treasury Bonds, 4.5%, 2036 | | | 94,000 | | | | 126,254 | |
| U.S. Treasury Bonds, 5%, 2037 | | | 8,070,000 | | | | 11,646,019 | |
| U.S. Treasury Bonds, 4.5%, 2039 | | | 14,282,200 | | | | 19,379,160 | |
| U.S. Treasury Notes, 4.625%, 2012 | | | 1,800,000 | | | | 1,806,469 | |
| U.S. Treasury Notes, 1.375%, 2013 | | | 733,000 | | | | 737,667 | |
| U.S. Treasury Notes, 3.875%, 2013 | | | 281,000 | | | | 287,410 | |
| U.S. Treasury Notes, 1.375%, 2013 | | | 849,000 | | | | 855,997 | |
| U.S. Treasury Notes, 3.5%, 2013 | | | 420,000 | | | | 432,436 | |
| U.S. Treasury Notes, 3.125%, 2013 | | | 32,695,000 | | | | 33,849,526 | |
| U.S. Treasury Notes, 2.75%, 2013 | | | 1,218,000 | | | | 1,257,633 | |
| U.S. Treasury Notes, 2%, 2013 | | | 2,545,000 | | | | 2,606,139 | |
| U.S. Treasury Notes, 1.5%, 2013 | | | 280,000 | | | | 284,966 | |
| U.S. Treasury Notes, 1.875%, 2014 | | | 15,111,000 | | | | 15,535,997 | |
| U.S. Treasury Notes, 4.75%, 2014 | | | 150,000 | | | | 162,352 | |
| U.S. Treasury Notes, 4.125%, 2015 | | | 4,512,000 | | | | 4,986,112 | |
| U.S. Treasury Notes, 2.125%, 2015 | | | 15,410,000 | | | | 16,166,045 | |
| U.S. Treasury Notes, 2.625%, 2016 | | | 936,000 | | | | 1,007,297 | |
| U.S. Treasury Notes, 5.125%, 2016 | | | 488,000 | | | | 572,828 | |
| U.S. Treasury Notes, 0.875%, 2016 | | | 10,446,000 | | | | 10,539,847 | |
| U.S. Treasury Notes, 4.75%, 2017 | | | 1,507,000 | | | | 1,807,811 | |
| U.S. Treasury Notes, 3.75%, 2018 | | | 1,633,000 | | | | 1,912,779 | |
| U.S. Treasury Notes, 2.75%, 2019 | | | 405,500 | | | | 450,010 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | | | | |
| U.S. Treasury Obligations – continued | |
| U.S. Treasury Notes, 3.125%, 2019 | | $ | 11,695,000 | | | $ | 13,292,093 | |
| U.S. Treasury Notes, 3.5%, 2020 | | | 21,024,000 | | | | 24,565,241 | |
| U.S. Treasury Notes, TIPS, 0.5%, 2014 | | | 4,732,000 | | | | 4,747,895 | |
| | | | | | | | |
| | | | | | $ | 175,328,882 | |
| | | | | | | | |
| Utilities – Electric Power – 0.9% | | | | | |
| Bruce Mansfield Unit, 6.85%, 2034 | | $ | 1,993,370 | | | $ | 2,075,896 | |
| MidAmerican Funding LLC, 6.927%, 2029 | | | 2,816,000 | | | | 3,706,301 | |
| Oncor Electric Delivery Co., 7%, 2022 | | | 1,658,000 | | | | 2,013,949 | |
| Progress Energy, Inc., 3.15%, 2022 | | | 1,374,000 | | | | 1,386,597 | |
| PSEG Power LLC, 5.32%, 2016 | | | 1,014,000 | | | | 1,143,493 | |
System Energy Resources, Inc.,
5.129%, 2014 (z) | | | 305,886 | | | | 312,273 | |
| Waterford 3 Funding Corp., 8.09%, 2017 | | | 1,356,768 | | | | 1,359,766 | |
| | | | | | | | |
| | | | | | $ | 11,998,275 | |
| | | | | | | | |
Total Bonds
(Identified Cost, $466,053,237) | | | | | | $ | 502,379,571 | |
| | | | | | | | |
|
| CONVERTIBLE PREFERRED STOCKS – 0.2% | |
| Aerospace – 0.0% | | | | | | | | |
| United Technologies Corp. (a) | | | 9,520 | | | $ | 501,609 | |
| | | | | | | | |
| Automotive – 0.1% | | | | | | | | |
| General Motors Co., 4.75% | | | 45,390 | | | $ | 1,506,948 | |
| | | | | | | | |
| Utilities – Electric Power – 0.1% | | | | | |
| PPL Corp. | | | 13,190 | | | $ | 697,751 | |
| | | | | | | | |
Total Convertible Preferred Stocks
(Identified Cost, $3,407,282) | | | $ | 2,706,308 | |
| | | | | | | | |
| |
| MONEY MARKET FUNDS – 1.6% | | | | | |
MFS Institutional Money Market
Portfolio, 0.14%, at Cost and
Net Asset Value (v) | | | 20,423,087 | | | $ | 20,423,087 | |
| | | | | | | | |
Total Investments
(Identified Cost, $1,212,413,948) | | | $ | 1,286,012,255 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 0.1% | | | | 1,768,905 | |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 1,287,781,160 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (e) | | Guaranteed by Minister for Finance of Ireland. |
| (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 $34,867,542, representing 2.7% of net assets. |
| (v) | | Underlying affiliated fund 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. |
10
MFS Total Return Portfolio
Portfolio of Investments (unaudited) – continued
| (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 | |
| Bayview Financial Revolving Mortgage Loan Trust, FRN, 1.845%, 2040 | | 3/01/06 | | | $1,413,916 | | | | $920,042 | |
| Nordea Bank AB, 4.875%, 2021 | | 1/11/11 | | | 816,549 | | | | 892,390 | |
| Russian Federation, 3.625%, 2015 | | 4/22/10 | | | 2,691,665 | | | | 2,793,069 | |
| Spirit Master Funding LLC, 5.05%, 2023 | | 10/04/05 | | | 1,275,153 | | | | 1,204,248 | |
| System Energy Resources, Inc., 5.129%, 2014 | | 4/16/04 | | | 305,886 | | | | 312,273 | |
| Total Restricted Securities | | | | | | | | | $6,122,022 | |
| % of Net Assets | | | | | | | | | 0.5% | |
The following abbreviations are used in this report and are defined:
| CDO | | Collateralized Debt Obligation |
| FRN | | Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end. |
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
| TIPS | | Treasury Inflation Protected Security |
See Notes to Financial Statements
11
MFS Total Return 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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $1,191,990,861) | | | $1,265,589,168 | | | | | |
Underlying affiliated funds, at cost and value | | | 20,423,087 | | | | | |
Total investments, at value (identified cost, $1,212,413,948) | | | $1,286,012,255 | | | | | |
Cash | | | 36,476 | | | | | |
Receivables for | | | | | | | | |
Interest and dividends | | | 5,141,771 | | | | | |
Other assets | | | 7,705 | | | | | |
Total assets | | | | | | | $1,291,198,207 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | $2,111,832 | | | | | |
Fund shares reacquired | | | 1,123,685 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 72,035 | | | | | |
Distribution and/or service fees | | | 14,206 | | | | | |
Payable for independent Trustees’ compensation | | | 134 | | | | | |
Accrued expenses and other liabilities | | | 95,155 | | | | | |
Total liabilities | | | | | | | $3,417,047 | |
Net assets | | | | | | | $1,287,781,160 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $1,224,038,806 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 73,597,411 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (56,254,408 | ) | | | | |
Undistributed net investment income | | | 46,399,351 | | | | | |
Net assets | | | | | | | $1,287,781,160 | |
Shares of beneficial interest outstanding | | | | | | | 74,020,109 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $585,056,202 | | | | 33,427,236 | | | | $17.50 | |
Service Class | | | 702,724,958 | | | | 40,592,873 | | | | 17.31 | |
See Notes to Financial Statements
12
MFS Total Return 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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $10,642,206 | | | | | |
Interest | | | 9,939,302 | | | | | |
Dividends from underlying affiliated funds | | | 9,376 | | | | | |
Foreign taxes withheld | | | (114,078 | ) | | | | |
Total investment income | | | | | | | $20,476,806 | |
Expenses | | | | | | | | |
Management fee | | | $4,456,922 | | | | | |
Distribution and/or service fees | | | 907,842 | | | | | |
Administrative services fee | | | 104,045 | | | | | |
Independent Trustees’ compensation | | | 22,371 | | | | | |
Custodian fee | | | 70,484 | | | | | |
Shareholder communications | | | 15,099 | | | | | |
Audit and tax fees | | | 29,759 | | | | | |
Legal fees | | | 11,290 | | | | | |
Miscellaneous | | | 31,856 | | | | | |
Total expenses | | | | | | | $5,649,668 | |
Fees paid indirectly | | | (48 | ) | | | | |
Reduction of expenses by investment adviser | | | (3,412 | ) | | | | |
Net expenses | | | | | | | $5,646,208 | |
Net investment income | | | | | | | $14,830,598 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $30,657,819 | | | | | |
Foreign currency | | | (4,568 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $30,653,251 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $23,212,584 | | | | | |
Translation of assets and liabilities in foreign currencies | | | 6,439 | | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $23,219,023 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $53,872,274 | |
Change in net assets from operations | | | | | | | $68,702,872 | |
See Notes to Financial Statements
13
MFS Total Return Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | | | | | | | |
| |
| Six months ended
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $14,830,598 | | | | $29,779,694 | |
Net realized gain (loss) on investments and foreign currency | | | 30,653,251 | | | | 45,159,844 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 23,219,023 | | | | (49,901,548 | ) |
Change in net assets from operations | | | $68,702,872 | | | | $25,037,990 | |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(33,161,222 | ) |
Change in net assets from fund share transactions | | | $(105,307,088 | ) | | | $(72,331,661 | ) |
Total change in net assets | | | $(36,604,216 | ) | | | $(80,454,893 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 1,324,385,376 | | | | 1,404,840,269 | |
At end of period (including undistributed net investment income of $46,399,351 and
$31,568,753, respectively) | | | $1,287,781,160 | | | | $1,324,385,376 | |
See Notes to Financial Statements
14
MFS Total Return Portfolio
FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $16.62 | | | | $16.77 | | | | $15.66 | | | | $13.83 | | | | $19.50 | | | | $20.02 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.21 | | | | $0.40 | | | | $0.38 | | | | $0.40 | | | | $0.49 | | | | $0.53 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.67 | | | | (0.09 | ) | | | 1.16 | | | | 1.98 | | | | (4.30 | ) | | | 0.36 | |
Total from investment operations | | | $0.88 | | | | $0.31 | | | | $1.54 | | | | $2.38 | | | | $(3.81 | ) | | | $0.89 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.46 | ) | | | $(0.43 | ) | | | $(0.55 | ) | | | $(0.60 | ) | | | $(0.60 | ) |
From net realized gain on investments | | | — | | | | — | | | | — | | | | — | | | | (1.26 | ) | | | (0.81 | ) |
Total distributions declared to shareholders | | | $— | | | | $(0.46 | ) | | | $(0.43 | ) | | | $(0.55 | ) | | | $(1.86 | ) | | | $(1.41 | ) |
Net asset value, end of period (x) | | | $17.50 | | | | $16.62 | | | | $16.77 | | | | $15.66 | | | | $13.83 | | | | $19.50 | |
Total return (%) (k)(r)(s)(x) | | | 5.29 | (n) | | | 1.93 | | | | 9.97 | | | | 18.09 | | | | (21.55 | ) | | | 4.32 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.72 | (a) | | | 0.76 | | | | 0.75 | | | | 0.76 | | | | 0.74 | | | | 0.70 | |
Expenses after expense reductions (f) | | | 0.72 | (a) | | | 0.74 | | | | 0.74 | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 2.38 | (a) | | | 2.38 | | | | 2.37 | | | | 2.87 | | | | 2.93 | | | | 2.67 | |
Portfolio turnover | | | 11 | (n) | | | 20 | | | | 32 | | | | 45 | | | | 62 | | | | 60 | |
Net assets at end of period (000 omitted) | | | $585,056 | | | | $593,602 | | | | $571,781 | | | | $604,214 | | | | $604,843 | | | | $1,013,465 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $16.46 | | | | $16.61 | | | | $15.52 | | | | $13.70 | | | | $19.33 | | | | $19.86 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.18 | | | | $0.36 | | | | $0.33 | | | | $0.36 | | | | $0.44 | | | | $0.48 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.67 | | | | (0.10 | ) | | | 1.16 | | | | 1.97 | | | | (4.26 | ) | | | 0.36 | |
Total from investment operations | | | $0.85 | | | | $0.26 | | | | $1.49 | | | | $2.33 | | | | $(3.82 | ) | | | $0.84 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.41 | ) | | | $(0.40 | ) | | | $(0.51 | ) | | | $(0.55 | ) | | | $(0.56 | ) |
From net realized gain on investments | | | — | | | | — | | | | — | | | | — | | | | (1.26 | ) | | | (0.81 | ) |
Total distributions declared to shareholders | | | $— | | | | $(0.41 | ) | | | $(0.40 | ) | | | $(0.51 | ) | | | $(1.81 | ) | | | $(1.37 | ) |
Net asset value, end of period (x) | | | $17.31 | | | | $16.46 | | | | $16.61 | | | | $15.52 | | | | $13.70 | | | | $19.33 | |
Total return (%) (k)(r)(s)(x) | | | 5.16 | (n) | | | 1.66 | | | | 9.69 | | | | 17.81 | | | | (21.74 | ) | | | 4.07 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.97 | (a) | | | 1.01 | | | | 1.00 | | | | 1.00 | | | | 0.99 | | | | 0.95 | |
Expenses after expense reductions (f) | | | 0.97 | (a) | | | 0.99 | | | | 0.99 | | | | N/A | | | | N/A | | | | N/A | |
Net investment income | | | 2.13 | (a) | | | 2.13 | | | | 2.12 | | | | 2.60 | | | | 2.69 | | | | 2.42 | |
Portfolio turnover | | | 11 | (n) | | | 20 | | | | 32 | | | | 45 | | | | 62 | | | | 60 | |
Net assets at end of period (000 omitted) | | | $702,725 | | | | $730,783 | | | | $833,059 | | | | $855,092 | | | | $708,517 | | | | $994,977 | |
See Notes to Financial Statements
15
MFS Total Return Portfolio
Financial Highlights – continued
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values per share 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
16
MFS Total Return Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Total Return Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. The value of these securities may depend, in part, on the issuer’s or borrower’s credit quality or ability to pay principal and interest when due and may fall if an issuer or borrower defaults on its obligation to pay principal or interest or if the instrument’s credit rating is downgraded by a credit rating agency. 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.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the
17
MFS Total Return Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
United States | | | $710,891,774 | | | | $— | | | | $— | | | | $710,891,774 | |
United Kingdom | | | 13,491,256 | | | | 11,277,292 | | | | — | | | | 24,768,548 | |
Switzerland | | | — | | | | 12,545,006 | | | | — | | | | 12,545,006 | |
France | | | 6,797,325 | | | | — | | | | — | | | | 6,797,325 | |
Canada | | | 2,534,775 | | | | — | | | | — | | | | 2,534,775 | |
Netherlands | | | 2,062,302 | | | | — | | | | — | | | | 2,062,302 | |
Germany | | | — | | | | 1,901,000 | | | | — | | | | 1,901,000 | |
Israel | | | 1,708,871 | | | | — | | | | — | | | | 1,708,871 | |
| U.S. Treasury Bonds & U.S. Government Agency & Equivalents | | | — | | | | 180,690,043 | | | | — | | | | 180,690,043 | |
| Non-U.S. Sovereign Debt | | | — | | | | 18,351,766 | | | | — | | | | 18,351,766 | |
| Corporate Bonds | | | — | | | | 80,060,441 | | | | — | | | | 80,060,441 | |
| Residential Mortgage-Backed Securities | | | — | | | | 164,025,874 | | | | — | | | | 164,025,874 | |
| Commercial Mortgage-Backed Securities | | | — | | | | 22,681,727 | | | | — | | | | 22,681,727 | |
| Asset-Backed Securities (including CDOs) | | | — | | | | 2,444,219 | | | | — | | | | 2,444,219 | |
| Foreign Bonds | | | — | | | | 34,125,497 | | | | — | | | | 34,125,497 | |
| Mutual Funds | | | 20,423,087 | | | | — | | | | — | | | | 20,423,087 | |
| Total Investments | | | $757,909,390 | | | | $528,102,865 | | | | $— | | | | $1,286,012,255 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 2 investments presented above, equity investments amounting to $13,178,291 would have been considered level 1 investments at the beginning of the period. Of the level 1 investments presented above, equity investments amounting to $2,010,490 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Inflation-Adjusted Debt Securities – The fund invests in inflation-adjusted debt securities issued by the U.S. Treasury. The fund may also invest in inflation-adjusted debt securities issued by U.S. Government agencies and instrumentalities other than the U.S. Treasury and by other entities such as U.S. and foreign corporations and foreign governments. The principal value of these debt securities is adjusted through income according to changes in the Consumer Price Index or another general price or wage index. These debt securities typically pay a fixed rate of interest, but this fixed rate is applied to the inflation-adjusted principal amount. The principal paid at maturity of the debt security is typically equal to the inflation-adjusted principal amount, or the security’s original par value, whichever is greater. Other types of inflation-adjusted securities may use other methods to adjust for other measures of inflation.
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
18
MFS Total Return Portfolio
Notes to Financial Statements (unaudited) – continued
recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted upward or downward to the rate of inflation. Interest is accrued based on the principal value, which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation-indexed bond is generally recorded as an increase or decrease in interest income, respectively, even though the adjusted principal is not received until maturity. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
The fund purchased or sold debt securities on a when-issued or delayed delivery basis, or in a “To Be Announced” (TBA) or “forward commitment” transaction with delivery or payment to occur at a later date beyond the normal settlement period. TBA securities resulting from these transactions are included in the Portfolio of Investments. At the time a fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the security acquired is reflected in the fund’s net asset value. The price of such security and the date that the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the fund until payment takes place. At the time that a fund enters into this type of transaction, the fund is required to have sufficient cash and/or liquid securities to cover its commitments. Losses may arise due to changes in the value of the underlying securities 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. Additionally, losses may arise due to declines in the value of the securities prior to settlement date.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These
19
MFS Total Return Portfolio
Notes to Financial Statements (unaudited) – continued
adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to amortization and accretion of debt securities and wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $33,161,222 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $1,225,019,474 | |
| Gross appreciation | | | 123,161,236 | |
| Gross depreciation | | | (62,168,455 | ) |
| Net unrealized appreciation (depreciation) | | | $60,992,781 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 31,568,753 | |
| Capital loss carryforwards | | | (74,930,729 | ) |
| Other temporary differences | | | (7,335 | ) |
| Net unrealized appreciation (depreciation) | | | 38,408,793 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011 the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/16 | | | $(58,876,411 | ) |
| 12/31/17 | | | (16,054,318 | ) |
| Total | | | $(74,930,729 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $14,376,700 | |
| Service Class | | | — | | | | 18,784,522 | |
| Total | | | $— | | | | $33,161,222 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund.
The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $300 million of average daily net assets | | | 0.75% | |
| Next $700 million of average daily net assets | | | 0.675% | |
| Average daily net assets in excess of $1 billion | | | 0.60% | |
20
MFS Total Return Portfolio
Notes to Financial Statements (unaudited) – continued
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.67% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transactions costs, and investment-related expenses such that total annual operating expenses do not exceed 0.74% of average daily net assets for the Initial Class shares and 0.99% 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, 2014. For the six months ended June 30, 2012, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses, related to this agreement.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0157% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $6,807 and are included in “Miscellaneous” expense on the Statement of Operations MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $3,412, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than purchased option transactions and short-term obligations, were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
| U.S. Government securities | | | $60,966,396 | | | | $62,833,956 | |
| Investments (non-U.S. Government securities) | | | $82,613,605 | | | | $169,010,652 | |
21
MFS Total Return 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 100,967 | | | | $1,746,862 | | | | 217,705 | | | | $3,698,442 | |
Service Class | | | 227,391 | | | | 3,920,043 | | | | 903,326 | | | | 14,964,933 | |
| | | 328,358 | | | | $5,666,905 | | | | 1,121,031 | | | | $18,663,375 | |
| Shares issued in connection with acquisition of Total Return Variable Account | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 5,309,597 | | | | $87,449,070 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 890,750 | | | | $14,376,700 | |
Service Class | | | — | | | | — | | | | 1,174,032 | | | | 18,784,522 | |
| | | — | | | | $— | | | | 2,064,782 | | | | $33,161,222 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (2,388,725 | ) | | | $(41,577,908 | ) | | | (4,791,148 | ) | | | $(80,701,035 | ) |
Service Class | | | (4,032,755 | ) | | | (69,396,085 | ) | | | (7,830,688 | ) | | | (130,904,293 | ) |
| | | (6,421,480 | ) | | | $(110,973,993 | ) | | | (12,621,836 | ) | | | $(211,605,328 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (2,287,758 | ) | | | $(39,831,046 | ) | | | 1,626,904 | | | | $24,823,177 | |
Service Class | | | (3,805,364 | ) | | | (65,476,042 | ) | | | (5,753,330 | ) | | | (97,154,838 | ) |
| | | (6,093,122 | ) | | | $(105,307,088 | ) | | | (4,126,426 | ) | | | $(72,331,661 | ) |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $4,491 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 17,677,046 | | | | 120,294,822 | | | | (117,548,781 | ) | | | 20,423,087 | |
| | | | |
| Underlying Affiliated Funds | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $9,376 | | | | $20,423,087 | |
At the close of business on December 2, 2011, the fund with net assets of $1,241,377,323, acquired all of the investment-related assets and liabilities of Total Return Variable Account. The acquisition was part of a transaction in which the Total Return Variable Account was converted into a unit investment trust (“UIT”) that invests in the fund (the acquisition of the Account’s assets and liabilities and subsequent conversion into a UIT hereinafter referred to as the “Reorganization”). The Reorganization provided the contract owners of the Total Return Variable Account with the opportunity to participate in a larger combined portfolio with an identical investment objective and similar investment policies and strategies. The acquisition was accomplished by a tax-free exchange of 5,309,597 shares of the fund (valued at $87,449,070) for all of the investment-related assets and liabilities of Total Return Variable Account. Total Return Variable Account’s net assets on that date were $87,449,070, including investments valued at
22
MFS Total Return Portfolio
Notes to Financial Statements (unaudited) – continued
$87,136,582 with a cost basis of $78,638,088. For financial reporting purposes, assets received and shares issued by the fund were recorded at fair value; however, the cost basis of the investments received from Total Return Variable Account were carried forward to align ongoing reporting of the fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
23
MFS Total Return Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
24
SEMIANNUAL REPORT
June 30, 2012
MFS® STRATEGIC INCOME PORTFOLIO
MFS® Variable Insurance Trust II
SIS-SEM
MFS® STRATEGIC INCOME PORTFOLIO
CONTENTS
Note to Contract Owners: At a meeting held June 19, 2012, the Board of Trustees of the MFS Strategic Income Portfolio (the fund) approved investing some or all of the fund’s assets currently invested in high income debt instruments in the MFS High Yield Pooled Portfolio, a mutual fund advised by MFS that normally invests at least 80% of its assets in high income debt instruments (the “High Yield Pooled Portfolio”). The High Yield Pooled Portfolio will not charge a management fee, distribution and/or service fees, or sales charges. The investment in the MFS High Yield Pooled Portfolio is anticipated to occur in late 2012 or early 2013.
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Strategic Income Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Strategic Income Portfolio
PORTFOLIO COMPOSITION
Portfolio structure (i)
| | | | |
| Fixed income sectors (i) | | | | |
| High Grade Corporates | | | 43.5% | |
| High Yield Corporates | | | 28.6% | |
| Non-U.S. Government Bonds | | | 11.9% | |
| Emerging Markets Bonds | | | 4.2% | |
| Commercial Mortgage-Backed Securities | | | 1.8% | |
| U.S. Government Agencies | | | 1.3% | |
| Mortgage-Backed Securities | | | 0.5% | |
| Asset-Backed Securities | | | 0.5% | |
| Collateralized Debt Obligations | | | 0.4% | |
| Floating Rate Loans (o) | | | 0.0% | |
| U.S. Treasury Securities | | | (4.0)% | |
| | | | |
| Composition including fixed income credit quality (a)(i) | |
| AAA | | | 5.8% | |
| AA | | | 3.7% | |
| A | | | 18.0% | |
| BBB | | | 31.8% | |
| BB | | | 13.6% | |
| B | | | 13.5% | |
| CCC | | | 4.1% | |
| CC (o) | | | 0.0% | |
| C | | | 0.3% | |
| Federal Agencies | | | 1.8% | |
| Not Rated | | | (3.9)% | |
| Non-Fixed Income | | | 0.5% | |
| Cash & Other | | | 10.8% | |
| |
| Portfolio facts (i) | | | | |
| Average Duration (d) | | | 4.5 | |
| Average Effective Maturity (m) | | | 7.5 yrs. | |
| |
| Issuer country weightings (i)(x) | | | | |
| United States | | | 69.3% | |
| United Kingdom | | | 5.0% | |
| Japan | | | 3.0% | |
| France | | | 2.7% | |
| Canada | | | 2.5% | |
| Germany | | | 2.0% | |
| Netherlands | | | 1.9% | |
| Australia | | | 1.5% | |
| Italy | | | 1.5% | |
| Other Countries | | | 10.6% | |
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities, including fixed income futures contracts, which have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives) and commodities. Cash & Other includes cash, other assets less liabilities, offsets to derivative positions, and short-term securities. The fund may not hold all of these instruments. The fund 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 market 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. The bond component will include any accrued interest amounts. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio. |
| (m) | In determining an instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. |
Percentages are based on net assets as of 6/30/12.
The portfolio is actively managed and current holdings may be different.
2
MFS Strategic Income Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders During the Period,
January 1, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.90% | | | | $1,000.00 | | | | $1,048.26 | | | | $4.58 | |
| | Hypothetical (h) | | | 0.90% | | | | $1,000.00 | | | | $1,020.39 | | | | $4.52 | |
| Service Class | | Actual | | | 1.15% | | | | $1,000.00 | | | | $1,048.60 | | | | $5.86 | |
| | Hypothetical (h) | | | 1.15% | | | | $1,000.00 | | | | $1,019.14 | | | | $5.77 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Strategic Income Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – 91.2% | | | | | |
| Aerospace – 0.7% | | | | | |
| BE Aerospace, Inc., 8.5%, 2018 | | $ | 45,000 | | | $ | 49,185 | |
| Bombardier, Inc., 7.5%, 2018 (n) | | | 85,000 | | | | 93,181 | |
| Bombardier, Inc., 7.75%, 2020 (n) | | | 25,000 | | | | 27,813 | |
| CPI International, Inc., 8%, 2018 | | | 55,000 | | | | 49,569 | |
| Huntington Ingalls Industries, Inc., 7.125%, 2021 | | | 95,000 | | | | 99,275 | |
| Kratos Defense & Security Solutions, Inc., 10%, 2017 | | | 55,000 | | | | 59,263 | |
| | | | | | | | |
| | | | | | $ | 378,286 | |
| | | | | | | | |
| Airlines – 0.3% | | | | | |
| Continental Airlines, Inc., FRN, 0.816%, 2013 | | $ | 151,785 | | | $ | 147,232 | |
| | | | | | | | |
| Apparel Manufacturers – 0.3% | | | | | |
| Hanesbrands, Inc., 8%, 2016 | | $ | 30,000 | | | $ | 33,038 | |
| Hanesbrands, Inc., 6.375%, 2020 | | | 30,000 | | | | 31,575 | |
| Jones Group, Inc., 6.875%, 2019 | | | 35,000 | | | | 33,600 | |
| Levi Strauss & Co., 6.875%, 2022 (n) | | | 5,000 | | | | 5,131 | |
| Phillips-Van Heusen Corp., 7.375%, 2020 | | | 55,000 | | | | 60,913 | |
| | | | | | | | |
| | | | | | $ | 164,257 | |
| | | | | | | | |
| Asset-Backed & Securitized – 2.7% | | | | | |
| Bayview Financial Revolving Mortgage Loan Trust, FRN, 1.845%, 2040 (z) | | $ | 168,323 | | | $ | 109,529 | |
| Capital Trust Realty Ltd., CDO, 5.16%, 2035 (n) | | | 105,495 | | | | 106,286 | |
| Chase Commercial Mortgage Securities Corp., 6.6%, 2029 (z) | | | 53,306 | | | | 53,569 | |
| Crest Ltd., “A1” CDO, FRN, 0.94%, 2018 (z) | | | 74,398 | | | | 66,958 | |
| Crest Ltd., CDO, 7%, 2040 (a)(p) | | | 310,198 | | | | 15,510 | |
| Falcon Franchise Loan LLC, FRN, 5.541%, 2023 (i)(z) | | | 160,190 | | | | 15,250 | |
| Falcon Franchise Loan LLC, FRN, 5.46%, 2025 (i)(z) | | | 172,402 | | | | 27,067 | |
| First Union-Lehman Brothers Bank of America, FRN, 0.606%, 2035 (i) | | | 1,748,712 | | | | 24,290 | |
| GMAC LLC, FRN, 6.02%, 2033 (z) | | | 138,115 | | | | 142,024 | |
| Hertz Global Holdings, Inc., 4.26%, 2014 (n) | | | 150,000 | | | | 152,703 | |
| Morgan Stanley Capital I, Inc., FRN, 1.333%, 2039 (i)(z) | | | 993,298 | | | | 20,859 | |
| Prudential Securities Secured Financing Corp., FRN, 7.266%, 2013 (z) | | | 411,000 | | | | 409,529 | |
| Salomon Brothers Mortgage Securities, Inc., FRN, 7.271%, 2032 (z) | | | 210,122 | | | | 217,220 | |
| | | | | | | | |
| | | | | | $ | 1,360,794 | |
| | | | | | | | |
| Automotive – 1.7% | | | | | |
| Accuride Corp., 9.5%, 2018 | | $ | 100,000 | | | $ | 103,000 | |
| Allison Transmission, Inc., 7.125%, 2019 (n) | | | 75,000 | | | | 78,188 | |
| Ford Motor Co., 7.45%, 2031 | | | 20,000 | | | | 25,050 | |
| Ford Motor Credit Co. LLC, 12%, 2015 | | | 230,000 | | | | 285,775 | |
| General Motors Financial Co., Inc., 6.75%, 2018 | | | 80,000 | | | | 87,450 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Automotive – continued | | | | | |
| Goodyear Tire & Rubber Co., 7%, 2022 | | $ | 25,000 | | | $ | 24,969 | |
| Harley-Davidson Financial Services, 3.875%, 2016 (n) | | | 190,000 | | | | 200,667 | |
| Lear Corp., 8.125%, 2020 | | | 35,000 | | | | 39,200 | |
| | | | | | | | |
| | | | | | $ | 844,299 | |
| | | | | | | | |
| Basic Industry – 0.1% | | | | | |
| Trimas Corp., 9.75%, 2017 | | $ | 44,000 | | | $ | 48,400 | |
| | | | | | | | |
| Broadcasting – 2.8% | | | | | |
| Allbritton Communications Co., 8%, 2018 | | $ | 30,000 | | | $ | 31,350 | |
| AMC Networks, Inc., 7.75%, 2021 (n) | | | 34,000 | | | | 37,485 | |
| CBS Corp., 5.75%, 2020 | | | 40,000 | | | | 46,523 | |
| CBS Corp., 3.375%, 2022 | | | 148,000 | | | | 147,452 | |
| Clear Channel Communications, Inc., 9%, 2021 | | | 49,000 | | | | 42,630 | |
| Clear Channel Worldwide Holdings, Inc., 7.625%, 2020 (n) | | | 25,000 | | | | 24,438 | |
| Clear Channel Worldwide Holdings, Inc., “A”, 7.625%, 2020 (n) | | | 5,000 | | | | 4,788 | |
| Hughes Network Systems LLC, 7.625%, 2021 | | | 30,000 | | | | 32,625 | |
| Intelsat Bermuda Ltd., 11.25%, 2017 | | | 90,000 | | | | 92,700 | |
| Intelsat Bermuda Ltd., 11.5%, 2017 (p) | | | 70,000 | | | | 72,275 | |
| Intelsat Jackson Holdings Ltd., 11.25%, 2016 | | | 15,000 | | | | 15,713 | |
| LBI Media, Inc., 8.5%, 2017 (z) | | | 55,000 | | | | 11,413 | |
| Liberty Media Corp., 8.5%, 2029 | | | 45,000 | | | | 46,350 | |
| Liberty Media Corp., 8.25%, 2030 | | | 25,000 | | | | 25,688 | |
| Local TV Finance LLC, 9.25%, 2015 (p)(z) | | | 41,186 | | | | 41,546 | |
| NBCUniversal Media LLC, 5.95%, 2041 | | | 161,000 | | | | 190,057 | |
| Newport Television LLC, 13%, 2017 (n)(p) | | | 26,671 | | | | 27,604 | |
| Nexstar Broadcasting Group, Inc., 8.875%, 2017 | | | 20,000 | | | | 21,125 | |
| Sinclair Broadcast Group, Inc., 9.25%, 2017 (n) | | | 25,000 | | | | 27,625 | |
| Sinclair Broadcast Group, Inc., 8.375%, 2018 | | | 5,000 | | | | 5,450 | |
| SIRIUS XM Radio, Inc., 13%, 2013 (n) | | | 30,000 | | | | 33,450 | |
| SIRIUS XM Radio, Inc., 8.75%, 2015 (n) | | | 30,000 | | | | 33,750 | |
| SIRIUS XM Radio, Inc., 7.625%, 2018 (n) | | | 75,000 | | | | 80,625 | |
| Townsquare Radio LLC, 9%, 2019 (z) | | | 20,000 | | | | 20,900 | |
| Univision Communications, Inc., 6.875%, 2019 (n) | | | 70,000 | | | | 72,100 | |
| Univision Communications, Inc., 7.875%, 2020 (n) | | | 20,000 | | | | 21,400 | |
| Univision Communications, Inc., 8.5%, 2021 (n) | | | 35,000 | | | | 35,263 | |
| Vivendi S.A., 4.75%, 2022 (n) | | | 160,000 | | | | 157,899 | |
| | | | | | | | |
| | | | | | $ | 1,400,224 | |
| | | | | | | | |
| Brokerage & Asset Managers – 0.7% | | | | | |
| BlackRock, Inc., 3.375%, 2022 | | $ | 55,000 | | | $ | 55,810 | |
| E*TRADE Financial Corp., 7.875%, 2015 | | | 40,000 | | | | 40,600 | |
| E*TRADE Financial Corp., 12.5%, 2017 | | | 45,000 | | | | 51,581 | |
4
MFS Strategic Income Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Brokerage & Asset Managers – continued | | | | | |
| TD AMERITRADE Holding Corp., 5.6%, 2019 | | $ | 175,000 | | | $ | 198,908 | |
| | | | | | | | |
| | | | | | $ | 346,899 | |
| | | | | | | | |
| Building – 0.8% | | | | | |
| Building Materials Holding Corp., 6.875%, 2018 (n) | | $ | 20,000 | | | $ | 21,250 | |
| Building Materials Holding Corp., 7%, 2020 (n) | | | 20,000 | | | | 21,550 | |
| Building Materials Holding Corp., 6.75%, 2021 (n) | | | 20,000 | | | | 21,400 | |
| CRH PLC, 8.125%, 2018 | | | 120,000 | | | | 142,943 | |
| HD Supply, Inc., 8.125%, 2019 (n) | | | 15,000 | | | | 16,200 | |
| Masonite International Corp., 8.25%, 2021 (n) | | | 50,000 | | | | 51,500 | |
| Nortek, Inc., 8.5%, 2021 | | | 80,000 | | | | 78,200 | |
| Roofing Supply Group LLC/Roofing Supply Finance, Inc., 10%, 2020 (z) | | | 15,000 | | | | 15,675 | |
| USG Corp., 7.875%, 2020 (n) | | | 25,000 | | | | 25,875 | |
| | | | | | | | |
| | | | | | $ | 394,593 | |
| | | | | | | | |
| Business Services – 0.5% | | | | | |
| Ceridian Corp., 12.25%, 2015 (p) | | $ | 35,000 | | | $ | 33,950 | |
| Ceridian Corp., 8.875%, 2019 (z) | | | 10,000 | | | | 10,325 | |
| Fidelity National Information Services, Inc., 7.625%, 2017 | | | 20,000 | | | | 22,050 | |
| Fidelity National Information Services, Inc., 5%, 2022 (n) | | | 20,000 | | | | 20,350 | |
| iGate Corp., 9%, 2016 | | | 55,000 | | | | 58,850 | |
| Iron Mountain, Inc., 8.375%, 2021 | | | 60,000 | | | | 65,100 | |
| SunGard Data Systems, Inc., 10.25%, 2015 | | | 10,000 | | | | 10,275 | |
| SunGard Data Systems, Inc., 7.375%, 2018 | | | 20,000 | | | | 21,450 | |
| | | | | | | | |
| | | | | | $ | 242,350 | |
| | | | | | | | |
| Cable TV – 2.4% | | | | | |
| Bresnan Broadband Holdings LLC, 8%, 2018 (n) | | $ | 10,000 | | | $ | 10,450 | |
| CCH II LLC, 13.5%, 2016 | | | 55,000 | | | | 61,325 | |
| CCO Holdings LLC, 7.875%, 2018 | | | 85,000 | | | | 92,438 | |
| CCO Holdings LLC, 8.125%, 2020 | | | 55,000 | | | | 61,325 | |
| Cequel Communications Holdings, 8.625%, 2017 (n) | | | 25,000 | | | | 26,938 | |
| CSC Holdings LLC, 8.5%, 2014 | | | 35,000 | | | | 38,500 | |
| DIRECTV Holdings LLC, 5.875%, 2019 | | | 70,000 | | | | 80,305 | |
| DIRECTV Holdings LLC, 3.8%, 2022 | | | 200,000 | | | | 202,259 | |
| DISH DBS Corp., 6.75%, 2021 | | | 30,000 | | | | 32,400 | |
| EchoStar Corp., 7.125%, 2016 | | | 30,000 | | | | 32,925 | |
| Myriad International Holdings B.V., 6.375%, 2017 (n) | | | 128,000 | | | | 141,050 | |
| Time Warner Cable, Inc., 8.25%, 2019 | | | 190,000 | | | | 248,273 | |
| Videotron Ltee, 5%, 2022 (n) | | | 25,000 | | | | 25,375 | |
| Virgin Media Finance PLC, 8.375%, 2019 | | | 100,000 | | | | 112,375 | |
| Ziggo Bond Co. B.V., 8%, 2018 (n) | | EUR | 50,000 | | | | 68,653 | |
| | | | | | | | |
| | | | | | $ | 1,234,591 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Chemicals – 1.7% | | | | | |
| Celanese U.S. Holdings LLC, 6.625%, 2018 | | $ | 85,000 | | | $ | 92,438 | |
| Dow Chemical Co., 8.55%, 2019 | | | 260,000 | | | | 345,819 | |
| Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, 8.875%, 2018 | | | 60,000 | | | | 61,200 | |
| Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, 9%, 2020 | | | 10,000 | | | | 8,625 | |
| Huntsman International LLC, 8.625%, 2021 | | | 40,000 | | | | 45,100 | |
| Momentive Performance Materials, Inc., 12.5%, 2014 | | | 80,000 | | | | 83,400 | |
| Momentive Performance Materials, Inc., 11.5%, 2016 | | | 49,000 | | | | 36,505 | |
| Polypore International, Inc., 7.5%, 2017 | | | 50,000 | | | | 53,063 | |
| Sociedad Quimica y Minera de Chile S.A., 5.5%, 2020 (n) | | | 100,000 | | | | 108,420 | |
| | | | | | | | |
| | | | | | $ | 834,570 | |
| | | | | | | | |
| Computer Software – 0.6% | | | | | |
| Lawson Software, Inc., 11.5%, 2018 (n) | | $ | 55,000 | | | $ | 62,150 | |
| Lawson Software, Inc., 9.375%, 2019 (n) | | | 15,000 | | | | 16,013 | |
| Oracle Corp., 5.375%, 2040 | | | 103,000 | | | | 126,199 | |
| Syniverse Holdings, Inc., 9.125%, 2019 | | | 60,000 | | | | 65,100 | |
| TransUnion Holding Co., Inc., 9.625%, 2018 (n)(p) | | | 15,000 | | | | 16,200 | |
| TransUnion LLC/TransUnion Financing Corp., 11.375%, 2018 | | | 10,000 | | | | 11,763 | |
| | | | | | | | |
| | | | | | $ | 297,425 | |
| | | | | | | | |
| Computer Software – Systems – 0.3% | | | | | |
| Audatex North America, Inc., 6.75%, 2018 (n) | | $ | 15,000 | | | $ | 15,788 | |
| CDW LLC/CDW Finance Corp., 12.535%, 2017 | | | 15,000 | | | | 16,275 | |
| CDW LLC/CDW Finance Corp., 8.5%, 2019 | | | 75,000 | | | | 79,875 | |
| DuPont Fabros Technology, Inc., REIT, 8.5%, 2017 | | | 45,000 | | | | 49,500 | |
| | | | | | | | |
| | | | | | $ | 161,438 | |
| | | | | | | | |
| Conglomerates – 0.5% | | | | | |
| Amsted Industries, Inc., 8.125%, 2018 (n) | | $ | 85,000 | | | $ | 89,888 | |
| Dynacast International LLC, 9.25%, 2019 (z) | | | 35,000 | | | | 36,313 | |
| Griffon Corp., 7.125%, 2018 | | | 70,000 | | | | 71,050 | |
| Tomkins LLC/Tomkins, Inc., 9%, 2018 | | | 41,000 | | | | 45,613 | |
| | | | | | | | |
| | | | | | $ | 242,864 | |
| | | | | | | | |
| Consumer Products – 0.4% | | | | | |
| ACCO Brands Corp., 6.75%, 2020 | | $ | 5,000 | | | $ | 5,275 | |
| Easton-Bell Sports, Inc., 9.75%, 2016 | | | 45,000 | | | | 49,331 | |
| Elizabeth Arden, Inc., 7.375%, 2021 | | | 50,000 | | | | 54,875 | |
| FGI Operating Co./FGI Finance, Inc., 7.875%, 2020 (z) | | | 5,000 | | | | 5,213 | |
| Libbey Glass, Inc., 6.875%, 2020 (z) | | | 15,000 | | | | 15,413 | |
| Mattel, Inc., 5.45%, 2041 | | | 83,000 | | | | 90,723 | |
| | | | | | | | |
| | | | | | $ | 220,830 | |
| | | | | | | | |
| Consumer Services – 0.7% | | | | | |
| Experian Finance PLC, 2.375%, 2017 (z) | | $ | 200,000 | | | $ | 200,224 | |
| Service Corp. International, 7%, 2017 | | | 135,000 | | | | 150,188 | |
5
MFS Strategic Income Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Consumer Services – continued | | | | | |
| Service Corp. International, 7%, 2019 | | $ | 10,000 | | | $ | 10,750 | |
| | | | | | | | |
| | | | | | $ | 361,162 | |
| | | | | | | | |
| Containers – 0.4% | | | | | |
| Ball Corp., 5%, 2022 | | $ | 25,000 | | | $ | 26,000 | |
| Consolidated Container Co. LLC/Consolidated Container Finance, Inc., 10.125%, 2020 (z) | | | 10,000 | | | | 10,300 | |
| Greif, Inc., 6.75%, 2017 | | | 125,000 | | | | 135,625 | |
| Sealed Air Corp., 8.125%, 2019 (n) | | | 5,000 | | | | 5,575 | |
| Sealed Air Corp., 8.375%, 2021 (n) | | | 5,000 | | | | 5,650 | |
| | | | | | | | |
| | | | | | $ | 183,150 | |
| | | | | | | | |
| Defense Electronics – 0.7% | | | | | |
| BAE Systems Holdings, Inc., 5.2%, 2015 (n) | | $ | 212,000 | | | $ | 230,658 | |
| BAE Systems Holdings, Inc., 6.375%, 2019 (n) | | | 60,000 | | | | 70,173 | |
| ManTech International Corp., 7.25%, 2018 | | | 45,000 | | | | 47,250 | |
| | | | | | | | |
| | | | | | $ | 348,081 | |
| | | | | | | | |
| Electrical Equipment – 0.3% | | | | | |
| Avaya, Inc., 9.75%, 2015 | | $ | 40,000 | | | $ | 33,100 | |
| Avaya, Inc., 7%, 2019 (z) | | | 15,000 | | | | 13,913 | |
| Ericsson, Inc., 4.125%, 2022 | | | 115,000 | | | | 115,318 | |
| | | | | | | | |
| | | | | | $ | 162,331 | |
| | | | | | | | |
| Electronics – 0.4% | | | | | |
| Freescale Semiconductor, Inc., 9.25%, 2018 (n) | | $ | 50,000 | | | $ | 53,500 | |
| Nokia Corp., 5.375%, 2019 | | | 20,000 | | | | 15,750 | |
| Sensata Technologies B.V., 6.5%, 2019 (n) | | | 90,000 | | | | 92,925 | |
| Tyco Electronics Group S.A., 3.5%, 2022 | | | 48,000 | | | | 47,844 | |
| | | | | | | | |
| | | | | | $ | 210,019 | |
| | | | | | | | |
| Emerging Market Quasi-Sovereign – 1.5% | | | | | |
| IIRSA Norte Finance Ltd., 8.75%, 2024 | | $ | 120,976 | | | $ | 144,566 | |
| Petrobras International Finance Co., 7.875%, 2019 | | | 81,000 | | | | 98,524 | |
| Petrobras International Finance Co., 6.75%, 2041 | | | 73,000 | | | | 85,628 | |
| Petroleos Mexicanos, 5.5%, 2021 | | | 116,000 | | | | 131,080 | |
| Petroleos Mexicanos, 4.875%, 2022 (n) | | | 54,000 | | | | 58,320 | |
| Petroleos Mexicanos, 6.5%, 2041 (n) | | | 49,000 | | | | 57,208 | |
| Ras Laffan Liquefied Natural Gas Co. Ltd., 5.832%, 2016 (n) | | | 177,775 | | | | 190,441 | |
| | | | | | | | |
| | | | | | $ | 765,767 | |
| | | | | | | | |
| Emerging Market Sovereign – 0.7% | | | | | |
| Republic of Argentina, FRN, 0.785%, 2012 | | $ | 37,863 | | | $ | 37,066 | |
| Republic of Philippines, 6.375%, 2034 | | | 100,000 | | | | 128,000 | |
| Republic of Poland, 5%, 2022 | | | 67,000 | | | | 73,131 | |
| Republic of South Africa, 5.5%, 2020 | | | 113,000 | | | | 130,233 | |
| United Mexican States, 5.95%, 2019 | | | 6,000 | | | | 7,314 | |
| | | | | | | | |
| | | | | | $ | 375,744 | |
| | | | | | | | |
| Energy – Independent – 3.4% | | | | | |
| ATP Oil & Gas Corp., 11.875%, 2015 | | $ | 20,000 | | | $ | 9,300 | |
| BreitBurn Energy Partners LP, 8.625%, 2020 | | | 25,000 | | | | 26,438 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Energy – Independent – continued | | | | | |
| BreitBurn Energy Partners LP, 7.875%, 2022 (n) | | $ | 25,000 | | | $ | 25,000 | |
| Carrizo Oil & Gas, Inc., 8.625%, 2018 | | | 20,000 | | | | 20,900 | |
| Chaparral Energy, Inc., 7.625%, 2022 (n) | | | 55,000 | | | | 56,100 | |
| Chesapeake Energy Corp., 6.875%, 2020 | | | 35,000 | | | | 34,475 | |
| Concho Resources, Inc., 8.625%, 2017 | | | 35,000 | | | | 38,588 | |
| Concho Resources, Inc., 6.5%, 2022 | | | 60,000 | | | | 62,400 | |
| Continental Resources, Inc., 8.25%, 2019 | | | 45,000 | | | | 50,288 | |
| Denbury Resources, Inc., 8.25%, 2020 | | | 80,000 | | | | 87,600 | |
| Energy XXI Gulf Coast, Inc., 9.25%, 2017 | | | 80,000 | | | | 85,600 | |
| EQT Corp., 4.875%, 2021 | | | 74,000 | | | | 75,586 | |
| Everest Acquisition LLC/Everest Acquisition Finance, Inc., 9.375%, 2020 (n) | | | 115,000 | | | | 119,169 | |
| EXCO Resources, Inc., 7.5%, 2018 | | | 70,000 | | | | 60,550 | |
| Harvest Operations Corp., 6.875%, 2017 (n) | | | 80,000 | | | | 85,000 | |
| Hess Corp., 8.125%, 2019 | | | 60,000 | | | | 77,231 | |
| Hilcorp Energy I/Hilcorp Finance Co., 8%, 2020 (n) | | | 20,000 | | | | 21,550 | |
| Laredo Petroleum, Inc., 9.5%, 2019 | | | 30,000 | | | | 33,450 | |
| LINN Energy LLC, 6.5%, 2019 (n) | | | 15,000 | | | | 14,850 | |
| LINN Energy LLC, 8.625%, 2020 | | | 30,000 | | | | 32,325 | |
| LINN Energy LLC, 7.75%, 2021 | | | 37,000 | | | | 38,665 | |
| Newfield Exploration Co., 6.625%, 2016 | | | 25,000 | | | | 25,625 | |
| Newfield Exploration Co., 6.875%, 2020 | | | 60,000 | | | | 63,900 | |
| Pioneer Natural Resources Co., 7.5%, 2020 | | | 95,000 | | | | 117,543 | |
| Plains Exploration & Production Co., 8.625%, 2019 | | | 35,000 | | | | 38,631 | |
| QEP Resources, Inc., 6.875%, 2021 | | | 95,000 | | | | 105,450 | |
| Range Resources Corp., 8%, 2019 | | | 35,000 | | | | 38,238 | |
| SandRidge Energy, Inc., 8%, 2018 (n) | | | 85,000 | | | | 86,063 | |
| SM Energy Co., 6.5%, 2021 | | | 45,000 | | | | 45,788 | |
| Southwestern Energy Co., 4.1%, 2022 (n) | | | 97,000 | | | | 98,313 | |
| Talisman Energy, Inc., 7.75%, 2019 | | | 20,000 | | | | 24,540 | |
| Whiting Petroleum Corp., 6.5%, 2018 | | | 30,000 | | | | 31,950 | |
| | | | | | | | |
| | | | | | $ | 1,731,106 | |
| | | | | | | | |
| Energy – Integrated – 1.1% | | | | | |
| BP Capital Markets PLC, 4.5%, 2020 | | $ | 46,000 | | | $ | 51,788 | |
| BP Capital Markets PLC, 4.742%, 2021 | | | 130,000 | | | | 148,797 | |
| Cenovus Energy, Inc., 4.5%, 2014 | | | 60,000 | | | | 64,064 | |
| Pacific Rubiales Energy Corp., 7.25%, 2021 (n) | | | 115,000 | | | | 124,775 | |
| Petro-Canada Financial Partnership, 5%, 2014 | | | 170,000 | | | | 183,559 | |
| | | | | | | | |
| | | | | | $ | 572,983 | |
| | | | | | | | |
| Engineering – Construction – 0.1% | | | | | |
| B-Corp. Merger Sub, Inc., 8.25%, 2019 (n) | | $ | 40,000 | | | $ | 39,700 | |
| | | | | | | | |
| Entertainment – 0.5% | | | | | |
| AMC Entertainment, Inc., 8.75%, 2019 | | $ | 80,000 | | | $ | 85,800 | |
| AMC Entertainment, Inc., 9.75%, 2020 | | | 50,000 | | | | 54,000 | |
| Cedar Fair LP, 9.125%, 2018 | | | 35,000 | | | | 38,850 | |
| Cinemark USA, Inc., 8.625%, 2019 | | | 75,000 | | | | 83,063 | |
| | | | | | | | |
| | | | | | $ | 261,713 | |
| | | | | | | | |
6
MFS Strategic Income Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Financial Institutions – 1.8% | | | | | |
| Ally Financial, Inc., 5.5%, 2017 | | $ | 45,000 | | | $ | 45,708 | |
| CIT Group, Inc., 5.25%, 2014 (n) | | | 70,000 | | | | 72,450 | |
| CIT Group, Inc., 7%, 2017 (z) | | | 21,115 | | | | 21,155 | |
| CIT Group, Inc., 5.25%, 2018 | | | 30,000 | | | | 30,975 | |
| CIT Group, Inc., 6.625%, 2018 (n) | | | 53,000 | | | | 57,108 | |
| CIT Group, Inc., 5.5%, 2019 (n) | | | 53,000 | | | | 54,458 | |
| General Electric Capital Corp., 6%, 2019 | | | 50,000 | | | | 58,504 | |
| General Electric Capital Corp., 5.5%, 2020 | | | 110,000 | | | | 125,899 | |
| GMAC, Inc., 8%, 2031 | | | 10,000 | | | | 11,725 | |
| Icahn Enterprises LP, 8%, 2018 | | | 20,000 | | | | 21,250 | |
| International Lease Finance Corp., 4.875%, 2015 | | | 20,000 | | | | 20,099 | |
| International Lease Finance Corp., 8.625%, 2015 | | | 20,000 | | | | 22,100 | |
| International Lease Finance Corp., 7.125%, 2018 (n) | | | 69,000 | | | | 76,073 | |
| Nationstar Mortgage LLC/Capital Corp., 10.875%, 2015 | | | 85,000 | | | | 91,800 | |
| Nationstar Mortgage LLC/Capital Corp., 9.625%, 2019 (n) | | | 20,000 | | | | 21,150 | |
| PHH Corp., 9.25%, 2016 | | | 50,000 | | | | 53,125 | |
| SLM Corp., 8.45%, 2018 | | | 25,000 | | | | 28,000 | |
| SLM Corp., 8%, 2020 | | | 105,000 | | | | 114,975 | |
| SLM Corp., 7.25%, 2022 | | | 5,000 | | | | 5,288 | |
| | | | | | | | |
| | | | | | $ | 931,842 | |
| | | | | | | | |
| Food & Beverages – 3.1% | | | | | |
| Anheuser-Busch InBev S.A., 7.75%, 2019 | | $ | 220,000 | | | $ | 290,566 | |
| ARAMARK Corp., 8.5%, 2015 | | | 50,000 | | | | 51,188 | |
| B&G Foods, Inc., 7.625%, 2018 | | | 80,000 | | | | 86,000 | |
| JBS USA LLC/JBS USA Finance, 8.25%, 2020 (n) | | | 25,000 | | | | 24,313 | |
| Kraft Foods, Inc., 6.125%, 2018 | | | 170,000 | | | | 206,874 | |
| Kraft Foods, Inc., 3.5%, 2022 (n) | | | 130,000 | | | | 133,401 | |
| Pernod-Ricard S.A., 2.95%, 2017 (n) | | | 200,000 | | | | 202,449 | |
| Pinnacle Foods Finance LLC, 9.25%, 2015 | | | 65,000 | | | | 66,788 | |
| Pinnacle Foods Finance LLC, 8.25%, 2017 | | | 15,000 | | | | 15,863 | |
| SABMiller Holdings, Inc., 3.75%, 2022 (n) | | | 205,000 | | | | 218,008 | |
| TreeHouse Foods, Inc., 7.75%, 2018 | | | 45,000 | | | | 48,769 | |
| Tyson Foods, Inc., 6.85%, 2016 | | | 120,000 | | | | 137,250 | |
| Tyson Foods, Inc., 4.5%, 2022 | | | 75,000 | | | | 77,250 | |
| | | | | | | | |
| | | | | | $ | 1,558,719 | |
| | | | | | | | |
| Food & Drug Stores – 0.4% | | | | | |
| CVS Caremark Corp., 5.75%, 2041 | | $ | 180,000 | | | $ | 214,275 | |
| | | | | | | | |
| Forest & Paper Products – 0.6% | | | | | |
| Boise, Inc., 8%, 2020 | | $ | 45,000 | | | $ | 49,725 | |
| Cascades, Inc., 7.75%, 2017 | | | 35,000 | | | | 35,263 | |
| Georgia-Pacific Corp., 8%, 2024 | | | 35,000 | | | | 46,749 | |
| Graphic Packaging Holding Co., 7.875%, 2018 | | | 30,000 | | | | 33,000 | |
| Tembec Industries, Inc., 11.25%, 2018 (n) | | | 20,000 | | | | 19,950 | |
| Votorantim Participacoes S.A., 6.75%, 2021 (n) | | | 100,000 | | | | 109,000 | |
| | | | | | | | |
| | | | | | $ | 293,687 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Gaming & Lodging – 1.9% | | | | | |
| Boyd Gaming Corp., 7.125%, 2016 | | $ | 35,000 | | | $ | 33,775 | |
| Caesars Operating Escrow LLC, 8.5%, 2020 (n) | | | 10,000 | | | | 10,075 | |
| Choice Hotels International, Inc., 5.75%, 2022 | | | 5,000 | | | | 5,228 | |
| Fontainebleau Las Vegas Holdings LLC, 10.25%, 2015 (a)(d)(n) | | | 95,000 | | | | 59 | |
| GWR Operating Partnership LLP, 10.875%, 2017 | | | 25,000 | | | | 28,000 | |
| Harrah’s Operating Co., Inc., 11.25%, 2017 | | | 100,000 | | | | 109,125 | |
| Harrah’s Operating Co., Inc., 10%, 2018 | | | 4,000 | | | | 2,650 | |
| Host Hotels & Resorts, Inc., 5.25%, 2022 (z) | | | 30,000 | | | | 30,750 | |
| Marriott International, Inc., 5.625%, 2013 | | | 120,000 | | | | 123,285 | |
| MGM Mirage, 10.375%, 2014 | | | 5,000 | | | | 5,638 | |
| MGM Mirage, 6.625%, 2015 | | | 20,000 | | | | 20,600 | |
| MGM Mirage, 7.5%, 2016 | | | 10,000 | | | | 10,350 | |
| MGM Resorts International, 11.375%, 2018 | | | 55,000 | | | | 64,763 | |
| MGM Resorts International, 9%, 2020 | | | 45,000 | | | | 49,950 | |
| Penn National Gaming, Inc., 8.75%, 2019 | | | 75,000 | | | | 83,063 | |
| Pinnacle Entertainment, Inc., 8.75%, 2020 | | | 40,000 | | | | 43,800 | |
| Rivers Pittsburgh Borrower LP/Rivers Pittsburgh Finance Corp., 9.5%, 2019 (z) | | | 5,000 | | | | 5,194 | |
| Seven Seas Cruises S. de R.L., 9.125%, 2019 | | | 65,000 | | | | 67,113 | |
| Wyndham Worldwide Corp., 6%, 2016 | | | 1,000 | | | | 1,112 | |
| Wyndham Worldwide Corp., 5.75%, 2018 | | | 140,000 | | | | 155,660 | |
| Wyndham Worldwide Corp., 7.375%, 2020 | | | 30,000 | | | | 35,659 | |
| Wynn Las Vegas LLC, 7.75%, 2020 | | | 50,000 | | | | 55,375 | |
| | | | | | | | |
| | | | | | $ | 941,224 | |
| | | | | | | | |
| Industrial – 0.2% | | | | | |
| Altra Holdings, Inc., 8.125%, 2016 | | $ | 35,000 | | | $ | 37,581 | |
| Mueller Water Products, Inc., 8.75%, 2020 | | | 38,000 | | | | 42,180 | |
| | | | | | | | |
| | | | | | $ | 79,761 | |
| | | | | | | | |
| Insurance – 2.2% | | | | | |
| Allianz AG, 5.5% to 2014, FRN to 2049 | | EUR | 248,000 | | | $ | 307,033 | |
| American International Group, Inc., 3%, 2015 | | $ | 50,000 | | | | 50,253 | |
| American International Group, Inc., 8.175% to 2038, FRN to 2068 | | | 140,000 | | | | 151,900 | |
| Metropolitan Life Global Funding I, 5.125%, 2014 (n) | | | 80,000 | | | | 85,789 | |
| Principal Financial Group, Inc., 8.875%, 2019 | | | 130,000 | | | | 168,504 | |
| Prudential Financial, Inc., 6.2%, 2015 | | | 130,000 | | | | 142,703 | |
| Unum Group, 7.125%, 2016 | | | 160,000 | | | | 184,539 | |
| | | | | | | | |
| | | | | | $ | 1,090,721 | |
| | | | | | | | |
| Insurance – Health – 0.1% | | | | | |
| AMERIGROUP Corp., 7.5%, 2019 | | $ | 30,000 | | | $ | 32,250 | |
| | | | | | | | |
| Insurance – Property & Casualty – 2.6% | | | | | |
| Aon Corp., 3.5%, 2015 | | $ | 140,000 | | | $ | 146,304 | |
| AXIS Capital Holdings Ltd., 5.75%, 2014 | | | 205,000 | | | | 217,219 | |
| AXIS Capital Holdings Ltd., 5.875%, 2020 | | | 50,000 | | | | 54,148 | |
| CNA Financial Corp., 5.875%, 2020 | | | 160,000 | | | | 175,945 | |
7
MFS Strategic Income Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Insurance – Property & Casualty – continued | |
| Liberty Mutual Group, Inc., 4.95%, 2022 (n) | | $ | 114,000 | | | $ | 113,293 | |
| Liberty Mutual Group, Inc., 10.75% to 2038, FRN to 2088 (n) | | | 70,000 | | | | 95,200 | |
| PartnerRe Ltd., 5.5%, 2020 | | | 107,000 | | | | 112,882 | |
| QBE Capital Funding III Ltd., FRN, 7.25%, 2041 (n) | | | 200,000 | | | | 180,485 | |
| Travelers Cos., Inc., 3.9%, 2020 | | | 220,000 | | | | 243,879 | |
| | | | | | | | |
| | | | | | $ | 1,339,355 | |
| | | | | | | | |
| International Market Quasi-Sovereign – 2.2% | | | | | |
| EDF Energies Nouvelles S.A., 6.5%, 2019 (n) | | $ | 230,000 | | | $ | 270,706 | |
| ING Bank N.V., 3.9%, 2014 (n) | | | 190,000 | | | | 199,407 | |
| Irish Life & Permanent PLC, 3.6%, 2013 (e)(n) | | | 400,000 | | | | 387,638 | |
| Vestjysk Bank A/S, FRN, 1.017%, 2013 (n) | | | 130,000 | | | | 130,416 | |
| Westpac Banking Corp., 3.45%, 2014 (n) | | | 100,000 | | | | 105,509 | |
| | | | | | | | |
| | | | | | $ | 1,093,676 | |
| | | | | | | | |
| International Market Sovereign – 9.2% | | | | | |
| Commonwealth of Australia, 5.75%, 2021 | | AUD | 38,000 | | | $ | 47,368 | |
| Federal Republic of Germany, 3.75%, 2015 | | EUR | 239,000 | | | | 329,457 | |
| Federal Republic of Germany, 4.25%, 2018 | | EUR | 97,000 | | | | 146,900 | |
| Federal Republic of Germany, 6.25%, 2030 | | EUR | 81,000 | | | | 160,917 | |
| Government of Canada, 4.5%, 2015 | | CAD | 86,000 | | | | 92,658 | |
| Government of Canada, 4.25%, 2018 | | CAD | 45,000 | | | | 51,388 | |
| Government of Canada, 5.75%, 2033 | | CAD | 17,000 | | | | 26,201 | |
| Government of Japan, 1.7%, 2017 | | JPY | 33,450,000 | | | | 448,012 | |
| Government of Japan, 1.1%, 2020 | | JPY | 17,000,000 | | | | 221,271 | |
| Government of Japan, 2.1%, 2024 | | JPY | 8,000,000 | | | | 111,755 | |
| Government of Japan, 2.2%, 2027 | | JPY | 19,100,000 | | | | 266,081 | |
| Government of Japan, 2.4%, 2037 | | JPY | 20,100,000 | | | | 280,408 | |
| Kingdom of Belgium, 5.5%, 2017 | | EUR | 113,000 | | | | 166,279 | |
| Kingdom of Denmark, 3%, 2021 | | DKK | 218,000 | | | | 42,076 | |
| Kingdom of Spain, 4.6%, 2019 | | EUR | 167,000 | | | | 193,104 | |
| Kingdom of Sweden, 5%, 2020 | | SEK | 155,000 | | | | 28,573 | |
| Kingdom of the Netherlands, 3.75%, 2014 | | EUR | 187,000 | | | | 253,119 | |
| Kingdom of the Netherlands, 5.5%, 2028 | | EUR | 22,000 | | | | 38,430 | |
| Republic of Austria, 4.65%, 2018 | | EUR | 78,000 | | | | 114,256 | |
| Republic of Finland, 3.875%, 2017 | | EUR | 22,000 | | | | 31,608 | |
| Republic of France, 6%, 2025 | | EUR | 53,000 | | | | 87,857 | |
| Republic of France, 4.75%, 2035 | | EUR | 113,000 | | | | 170,378 | |
| Republic of Italy, 4.25%, 2015 | | EUR | 89,000 | | | | 113,252 | |
| Republic of Italy, 5.25%, 2017 | | EUR | 267,000 | | | | 340,560 | |
| Republic of Italy, 3.75%, 2021 | | EUR | 101,000 | | | | 113,362 | |
| State of Israel, 4%, 2022 | | $ | 248,000 | | | | 256,623 | |
| United Kingdom Treasury, 8%, 2015 | | GBP | 107,000 | | | | 211,133 | |
| United Kingdom Treasury, 8%, 2021 | | GBP | 79,000 | | | | 190,226 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| International Market Sovereign – continued | |
| United Kingdom Treasury, 4.25%, 2036 | | GBP | 73,000 | | | $ | 140,956 | |
| | | | | | | | |
| | | | | | $ | 4,674,208 | |
| | | | | | | | |
| Local Authorities – 0.6% | | | | | |
| Louisiana Gas & Fuels Tax Rev. (Build America Bonds), FRN, 3%, 2043 | | $ | 160,000 | | | $ | 160,301 | |
| Province of Ontario, 5.45%, 2016 | | | 145,000 | | | | 168,139 | |
| | | | | | | | |
| | | | | | $ | 328,440 | |
| | | | | | | | |
| Machinery & Tools – 1.1% | | | | | |
| Atlas Copco AB, 5.6%, 2017 (n) | | $ | 214,000 | | | $ | 241,973 | |
| Case Corp., 7.25%, 2016 | | | 25,000 | | | | 27,500 | |
| Case New Holland, Inc., 7.875%, 2017 | | | 130,000 | | | | 150,150 | |
| CNH Capital LLC, 6.25%, 2016 (n) | | | 10,000 | | | | 10,700 | |
| NESCO LLC/NESCO Holdings Corp., 11.75%, 2017 (z) | | | 30,000 | | | | 30,750 | |
| RSC Equipment Rental, Inc., 8.25%, 2021 | | | 55,000 | | | | 58,575 | |
| UR Financing Escrow Corp., 5.75%, 2018 (n) | | | 20,000 | | | | 20,800 | |
| UR Financing Escrow Corp., 7.625%, 2022 (n) | | | 22,000 | | | | 23,045 | |
| | | | | | | | |
| | | | | | $ | 563,493 | |
| | | | | | | | |
| Major Banks – 7.0% | | | | | |
| ABN AMRO Bank N.V., 4.25%, 2017 (n) | | $ | 200,000 | | | $ | 203,630 | |
| Bank of America Corp., 7.375%, 2014 | | | 65,000 | | | | 69,903 | |
| Bank of America Corp., 6.5%, 2016 | | | 325,000 | | | | 356,894 | |
| Barclays Bank PLC, 5.125%, 2020 | | | 130,000 | | | | 141,071 | |
| BNP Paribas, 7.195% to 2037, FRN to 2049 (n) | | | 100,000 | | | | 85,500 | |
| BNP Paribas, FRN, 3.217%, 2014 | | | 78,000 | | | | 78,018 | |
| Commonwealth Bank of Australia, 5%, 2019 (n) | | | 140,000 | | | | 153,808 | |
| Credit Suisse New York, 5.5%, 2014 | | | 130,000 | | | | 137,819 | |
| DBS Bank Ltd., 2.35%, 2017 (n) | | | 200,000 | | | | 200,620 | |
| Goldman Sachs Group, Inc., 6%, 2014 | | | 90,000 | | | | 95,117 | |
| Goldman Sachs Group, Inc., 5.75%, 2022 | | | 201,000 | | | | 212,176 | |
| HSBC Holdings PLC, 4%, 2022 | | | 323,000 | | | | 335,403 | |
| Intesa Sanpaolo S.p.A., FRN, 2.866%, 2014 (n) | | | 100,000 | | | | 93,902 | |
| JPMorgan Chase & Co., 4.625%, 2021 | | | 140,000 | | | | 149,798 | |
| JPMorgan Chase Capital XXII, 6.45%, 2087 | | | 110,000 | | | | 110,000 | |
| JPMorgan Chase Capital XXVII, 7%, 2039 | | | 30,000 | | | | 30,000 | |
| Macquarie Bank Ltd., 5%, 2017 (n) | | | 111,000 | | | | 113,054 | |
| Macquarie Group Ltd., 6%, 2020 (n) | | | 86,000 | | | | 85,555 | |
| Merrill Lynch & Co., Inc., 6.4%, 2017 | | | 90,000 | | | | 97,898 | |
| Morgan Stanley, 6%, 2014 | | | 100,000 | | | | 103,653 | |
| Morgan Stanley, 7.3%, 2019 | | | 100,000 | | | | 108,024 | |
| Morgan Stanley, 5.625%, 2019 | | | 100,000 | | | | 98,970 | |
| Royal Bank of Scotland Group PLC, 7.648% to 2031, FRN to 2049 | | | 80,000 | | | | 64,000 | |
| Standard Chartered PLC, 3.85%, 2015 (n) | | | 150,000 | | | | 156,908 | |
| UFJ Finance Aruba AEC, 6.75%, 2013 | | | 159,000 | | | | 167,668 | |
| Wells Fargo & Co., 7.98% to 2018, FRN to 2049 | | | 78,000 | | | | 85,605 | |
| | | | | | | | |
| | | | | | $ | 3,534,994 | |
| | | | | | | | |
8
MFS Strategic Income Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Medical & Health Technology & Services – 3.4% | | | | | |
| Aristotle Holding, Inc., 3.9%, 2022 (n) | | $ | 75,000 | | | $ | 77,739 | |
| Biomet, Inc., 10%, 2017 | | | 5,000 | | | | 5,341 | |
| Biomet, Inc., 10.375%, 2017 (p) | | | 25,000 | | | | 26,719 | |
| Biomet, Inc., 11.625%, 2017 | | | 65,000 | | | | 70,119 | |
| Cardinal Health, Inc., 5.8%, 2016 | | | 201,000 | | | | 232,687 | |
| Davita, Inc., 6.375%, 2018 | | | 80,000 | | | | 82,600 | |
| Davita, Inc., 6.625%, 2020 | | | 50,000 | | | | 52,125 | |
| Fresenius Medical Care AG & Co. KGaA, 9%, 2015 (n) | | | 35,000 | | | | 40,206 | |
| Fresenius Medical Care Capital Trust III, 5.625%, 2019 (n) | | | 40,000 | | | | 41,700 | |
| HCA, Inc., 8.5%, 2019 | | | 160,000 | | | | 179,200 | |
| HCA, Inc., 7.5%, 2022 | | | 55,000 | | | | 59,950 | |
| HCA, Inc., 5.875%, 2022 | | | 20,000 | | | | 20,900 | |
| HealthSouth Corp., 8.125%, 2020 | | | 105,000 | | | | 114,713 | |
| Hospira, Inc., 6.05%, 2017 | | | 100,000 | | | | 112,797 | |
| IASIS Healthcare LLC/IASIS Capital Corp., 8.375%, 2019 | | | 40,000 | | | | 39,600 | |
| McKesson Corp., 5.7%, 2017 | | | 90,000 | | | | 105,381 | |
| Owens & Minor, Inc., 6.35%, 2016 | | | 170,000 | | | | 185,604 | |
| Physio-Control International, Inc., 9.875%, 2019 (z) | | | 30,000 | | | | 31,950 | |
| Select Medical Corp., 7.625%, 2015 | | | 15,000 | | | | 15,019 | |
| Tenet Healthcare Corp., 9.25%, 2015 | | | 30,000 | | | | 33,375 | |
| Truven Health Analytics, Inc., 10.625%, 2020 (z) | | | 25,000 | | | | 26,000 | |
| Universal Health Services, Inc., 7%, 2018 | | | 35,000 | | | | 37,625 | |
| Universal Hospital Services, Inc., 8.5%, 2015 (p) | | | 55,000 | | | | 56,066 | |
| Universal Hospital Services, Inc., FRN, 4.111%, 2015 | | | 20,000 | | | | 19,000 | |
| Vanguard Health Systems, Inc., 8%, 2018 | | | 35,000 | | | | 35,788 | |
| | | | | | | | |
| | | | | | $ | 1,702,204 | |
| | | | | | | | |
| Metals & Mining – 1.3% | | | | | |
| Arch Coal, Inc., 7.25%, 2020 | | $ | 35,000 | | | $ | 29,575 | |
| Cloud Peak Energy, Inc., 8.25%, 2017 | | | 85,000 | | | | 87,975 | |
| Cloud Peak Energy, Inc., 8.5%, 2019 | | | 70,000 | | | | 72,625 | |
| Consol Energy, Inc., 8%, 2017 | | | 35,000 | | | | 36,313 | |
| Consol Energy, Inc., 8.25%, 2020 | | | 20,000 | | | | 21,000 | |
| Fortescue Metals Group Ltd., 8.25%, 2019 (n) | | | 50,000 | | | | 53,000 | |
| Peabody Energy Corp., 6%, 2018 (n) | | | 20,000 | | | | 19,900 | |
| Peabody Energy Corp., 6.25%, 2021 (n) | | | 20,000 | | | | 19,800 | |
| Southern Copper Corp., 6.75%, 2040 | | | 104,000 | | | | 110,132 | |
| Vale Overseas Ltd., 4.375%, 2022 | | | 139,000 | | | | 141,547 | |
| Vale Overseas Ltd., 6.875%, 2039 | | | 51,000 | | | | 59,587 | |
| | | | | | | | |
| | | | | | $ | 651,454 | |
| | | | | | | | |
| Mortgage-Backed – 0.5% | | | | | |
| Fannie Mae, 6.5%, 2032 | | $ | 88,362 | | | $ | 101,144 | |
| Freddie Mac, 4.224%, 2020 | | | 146,497 | | | | 166,220 | |
| | | | | | | | |
| | | | | | $ | 267,364 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Natural Gas – Distribution – 0.1% | | | | | |
| AmeriGas Finance LLC, 6.75%, 2020 | | $ | 45,000 | | | $ | 45,900 | |
| Ferrellgas LP/Ferrellgas Finance Corp., 6.5%, 2021 | | | 30,000 | | | | 27,375 | |
| | | | | | | | |
| | | | | | $ | 73,275 | |
| | | | | | | | |
| Natural Gas – Pipeline – 2.8% | | | | | |
| Atlas Pipeline Partners LP, 8.75%, 2018 | | $ | 80,000 | | | $ | 85,400 | |
| Crosstex Energy, Inc., 8.875%, 2018 | | | 75,000 | | | | 79,219 | |
| El Paso Corp., 7%, 2017 | | | 75,000 | | | | 85,077 | |
| El Paso Corp., 7.75%, 2032 | | | 80,000 | | | | 89,948 | |
| Enbridge Energy Partners LP, 4.2%, 2021 | | | 200,000 | | | | 211,562 | |
| Energy Transfer Equity LP, 7.5%, 2020 | | | 65,000 | | | | 71,338 | |
| Energy Transfer Partners LP, 6.5%, 2042 | | | 135,000 | | | | 144,671 | |
| Enterprise Products Partners LP, 8.375% to 2016, FRN to 2066 | | | 33,000 | | | | 35,764 | |
| Enterprise Products Partners LP, 7.034% to 2018, FRN to 2068 | | | 20,000 | | | | 21,400 | |
| Kinder Morgan Energy Partners LP, 5.85%, 2012 | | | 143,000 | | | | 144,390 | |
| Kinder Morgan Energy Partners LP, 6.375%, 2041 | | | 190,000 | | | | 216,624 | |
| Rockies Express Pipeline LLC, 5.625%, 2020 (n) | | | 24,000 | | | | 21,840 | |
| Spectra Energy Capital LLC, 8%, 2019 | | | 164,000 | | | | 210,093 | |
| | | | | | | | |
| | | | | | $ | 1,417,326 | |
| | | | | | | | |
| Network & Telecom – 2.3% | | | | | |
| AT&T, Inc., 5.5%, 2018 | | $ | 150,000 | | | $ | 178,238 | |
| AT&T, Inc., 3.875%, 2021 | | | 70,000 | | | | 76,248 | |
| Centurylink, Inc., 7.65%, 2042 | | | 134,000 | | | | 130,055 | |
| Cincinnati Bell, Inc., 8.25%, 2017 | | | 15,000 | | | | 15,600 | |
| Citizens Communications Co., 9%, 2031 | | | 30,000 | | | | 28,650 | |
| France Telecom, 4.375%, 2014 | | | 120,000 | | | | 126,053 | |
| Frontier Communications Corp., 8.125%, 2018 | | | 40,000 | | | | 42,500 | |
| Qwest Communications International, Inc., 7.125%, 2018 (n) | | | 50,000 | | | | 52,750 | |
| Qwest Corp., 7.5%, 2014 | | | 140,000 | | | | 156,064 | |
| Telefonica S.A., 5.877%, 2019 | | | 15,000 | | | | 13,417 | |
| Verizon Communications, Inc., 8.75%, 2018 | | | 140,000 | | | | 192,436 | |
| Windstream Corp., 8.125%, 2018 | | | 10,000 | | | | 10,750 | |
| Windstream Corp., 7.75%, 2020 | | | 95,000 | | | | 100,700 | |
| Windstream Corp., 7.75%, 2021 | | | 15,000 | | | | 15,900 | |
| | | | | | | | |
| | | | | | $ | 1,139,361 | |
| | | | | | | | |
| Oil Services – 0.5% | | | | | |
| Chesapeake Energy Corp., 6.625%, 2019 (n) | | $ | 15,000 | | | $ | 13,500 | |
| Dresser-Rand Group, Inc., 6.5%, 2021 | | | 20,000 | | | | 20,750 | |
| Pioneer Energy Services Corp., 9.875%, 2018 | | | 65,000 | | | | 68,250 | |
| Pioneer Energy Services Corp., 9.875%, 2018 (n) | | | 5,000 | | | | 5,250 | |
| Transocean, Inc., 6%, 2018 | | | 110,000 | | | | 122,871 | |
| Unit Corp., 6.625%, 2021 | | | 25,000 | | | | 24,875 | |
| | | | | | | | |
| | | | | | $ | 255,496 | |
| | | | | | | | |
9
MFS Strategic Income Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Oils – 0.2% | | | | | |
| Phillips 66, 4.3%, 2022 (n) | | $ | 93,000 | | | $ | 97,833 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 2.6% | | | | | |
| Citigroup, Inc., 6.375%, 2014 | | $ | 120,000 | | | $ | 128,453 | |
| Citigroup, Inc., 6.01%, 2015 | | | 100,000 | | | | 107,442 | |
| Citigroup, Inc., 8.5%, 2019 | | | 88,000 | | | | 108,683 | |
| Groupe BPCE S.A., 12.5% to 2019, FRN to 2049 (n) | | | 157,000 | | | | 158,033 | |
| Lloyds TSB Bank PLC, 5.8%, 2020 (n) | | | 100,000 | | | | 106,901 | |
| Rabobank Nederland N.V., 3.375%, 2017 | | | 92,000 | | | | 94,685 | |
| Santander Holdings USA, Inc., 4.625%, 2016 | | | 20,000 | | | | 19,327 | |
| Santander International Debt S.A., 2.991%, 2013 (n) | | | 100,000 | | | | 96,156 | |
| Santander UK PLC, 8.963% to 2030, FRN to 2049 | | | 103,000 | | | | 98,880 | |
| SunTrust Banks, Inc., 3.5%, 2017 | | | 107,000 | | | | 110,769 | |
| Svenska Handelsbanken AB, 4.875%, 2014 (n) | | | 180,000 | | | | 189,997 | |
| UBS Preferred Funding Trust V, 6.243% to 2016, FRN to 2049 | | | 105,000 | | | | 98,700 | |
| | | | | | | | |
| | | | | | $ | 1,318,026 | |
| | | | | | | | |
| Pharmaceuticals – 0.6% | | | | | |
| Celgene Corp., 3.95%, 2020 | | $ | 160,000 | | | $ | 168,065 | |
| Teva Pharmaceutical Finance LLC, 5.55%, 2016 | | | 87,000 | | | | 98,690 | |
| Valeant Pharmaceuticals International, Inc., 6.5%, 2016 (n) | | | 20,000 | | | | 20,900 | |
| Valeant Pharmaceuticals International, Inc., 7%, 2020 (n) | | | 35,000 | | | | 35,350 | |
| | | | | | | | |
| | | | | | $ | 323,005 | |
| | | | | | | | |
| Pollution Control – 0.4% | | | | | |
| Heckmann Corp., 9.875%, 2018 (z) | | $ | 30,000 | | | $ | 28,500 | |
| Republic Services, Inc., 5.25%, 2021 | | | 130,000 | | | | 149,251 | |
| | | | | | | | |
| | | | | | $ | 177,751 | |
| | | | | | | | |
| Printing & Publishing – 0.2% | | | | | |
| American Media, Inc., 13.5%, 2018 (z) | | $ | 6,759 | | | $ | 6,353 | |
| Nielsen Finance LLC, 11.5%, 2016 | | | 26,000 | | | | 29,575 | |
| Nielsen Finance LLC, 7.75%, 2018 | | | 45,000 | | | | 49,838 | |
| | | | | | | | |
| | | | | | $ | 85,766 | |
| | | | | | | | |
| Railroad & Shipping – 0.2% | | | | | |
| Kansas City Southern de Mexico S.A. de C.V., 6.125%, 2021 | | $ | 20,000 | | | $ | 22,000 | |
| Panama Canal Railway Co., 7%, 2026 (n) | | | 90,200 | | | | 86,689 | |
| | | | | | | | |
| | | | | | $ | 108,689 | |
| | | | | | | | |
| Real Estate – 1.9% | | | | | |
| Boston Properties LP, REIT, 3.7%, 2018 | | $ | 73,000 | | | $ | 76,277 | |
| Boston Properties LP, REIT, 3.85%, 2023 | | | 153,000 | | | | 154,437 | |
| CNL Lifestyle Properties, Inc., REIT, 7.25%, 2019 | | | 25,000 | | | | 23,000 | |
| Entertainment Properties Trust, REIT, 7.75%, 2020 | | | 45,000 | | | | 49,477 | |
| HCP, Inc., REIT, 5.375%, 2021 | | | 141,000 | | | | 155,918 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Real Estate – continued | | | | | |
| Kennedy Wilson, Inc., 8.75%, 2019 | | $ | 25,000 | | | $ | 25,750 | |
| Kimco Realty Corp., REIT, 6.875%, 2019 | | | 36,000 | | | | 43,072 | |
| MPT Operating Partnership LP, REIT, 6.875%, 2021 | | | 40,000 | | | | 41,700 | |
| Simon Property Group, Inc., REIT, 6.1%, 2016 | | | 230,000 | | | | 261,750 | |
| WEA Finance LLC, REIT, 6.75%, 2019 (n) | | | 110,000 | | | | 129,786 | |
| | | | | | | | |
| | | | | | $ | 961,167 | |
| | | | | | | | |
| Retailers – 2.8% | | | | | |
| Academy Ltd., 9.25%, 2019 (n) | | $ | 35,000 | | | $ | 37,975 | |
| AutoZone, Inc., 6.5%, 2014 | | | 230,000 | | | | 248,523 | |
| AutoZone, Inc., 3.7%, 2022 | | | 29,000 | | | | 29,870 | |
| Burlington Coat Factory Warehouse Corp., 10%, 2019 | | | 45,000 | | | | 47,700 | |
| Dollar General Corp., 4.125%, 2017 | | | 113,000 | | | | 114,554 | |
| Gap, Inc., 5.95%, 2021 | | | 189,000 | | | | 195,900 | |
| J. Crew Group, Inc., 8.125%, 2019 | | | 35,000 | | | | 36,138 | |
| Limited Brands, Inc., 5.25%, 2014 | | | 59,000 | | | | 61,950 | |
| Limited Brands, Inc., 6.9%, 2017 | | | 40,000 | | | | 44,400 | |
| Limited Brands, Inc., 7%, 2020 | | | 15,000 | | | | 16,650 | |
| Limited Brands, Inc., 6.95%, 2033 | | | 20,000 | | | | 19,400 | |
| Macy’s, Inc., 7.875%, 2015 | | | 200,000 | | | | 234,005 | |
| QVC, Inc., 7.375%, 2020 (n) | | | 35,000 | | | | 38,763 | |
| Rite Aid Corp., 9.25%, 2020 (z) | | | 20,000 | | | | 20,000 | |
| Sally Beauty Holdings, Inc., 6.875%, 2019 | | | 20,000 | | | | 21,750 | |
| Staples, Inc., 9.75%, 2014 | | | 140,000 | | | | 156,479 | |
| Toys “R” Us Property Co. II LLC, 8.5%, 2017 | | | 30,000 | | | | 31,238 | |
| Toys “R” Us, Inc., 10.75%, 2017 | | | 50,000 | | | | 54,625 | |
| YCC Holdings LLC/Yankee Finance, Inc., 10.25%, 2016 (p) | | | 25,000 | | | | 25,438 | |
| | | | | | | | |
| | | | | | $ | 1,435,358 | |
| | | | | | | | |
| Specialty Chemicals – 0.3% | | | | | |
| Ecolab, Inc., 4.35%, 2021 | | $ | 120,000 | | | $ | 133,004 | |
| Koppers, Inc., 7.875%, 2019 | | | 20,000 | | | | 21,550 | |
| | | | | | | | |
| | | | | | $ | 154,554 | |
| | | | | | | | |
| Specialty Stores – 0.1% | | | | | |
| Gymboree Corp., 9.125%, 2018 | | $ | 10,000 | | | $ | 9,275 | |
| Michaels Stores, Inc., 11.375%, 2016 | | | 35,000 | | | | 37,188 | |
| Michaels Stores, Inc., 7.75%, 2018 | | | 25,000 | | | | 26,375 | |
| | | | | | | | |
| | | | | | $ | 72,838 | |
| | | | | | | | |
| Supermarkets – 0.3% | | | | | |
| Delhaize Group, 5.875%, 2014 | | $ | 150,000 | | | $ | 157,954 | |
| | | | | | | | |
| Telecommunications – Wireless – 2.2% | | | | | |
| American Tower Corp., REIT, 4.625%, 2015 | | $ | 80,000 | | | $ | 84,680 | |
| American Tower Corp., REIT, 4.7%, 2022 | | | 126,000 | | | | 129,350 | |
| Clearwire Corp., 12%, 2015 (n) | | | 45,000 | | | | 40,950 | |
| Cricket Communications, Inc., 7.75%, 2020 | | | 60,000 | | | | 57,300 | |
| Crown Castle International Corp., 9%, 2015 | | | 35,000 | | | | 38,194 | |
| Crown Castle International Corp., 7.125%, 2019 | | | 130,000 | | | | 139,425 | |
| Crown Castle Towers LLC, 6.113%, 2020 (n) | | | 157,000 | | | | 181,746 | |
| MetroPCS Wireless, Inc., 7.875%, 2018 | | | 25,000 | | | | 25,938 | |
10
MFS Strategic Income Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Telecommunications – Wireless – continued | | | | | |
| Rogers Cable, Inc., 5.5%, 2014 | | $ | 164,000 | | | $ | 176,032 | |
| Sprint Capital Corp., 6.875%, 2028 | | | 40,000 | | | | 32,200 | |
| Sprint Nextel Corp., 6%, 2016 | | | 60,000 | | | | 57,450 | |
| Sprint Nextel Corp., 8.375%, 2017 | | | 55,000 | | | | 56,375 | |
| Sprint Nextel Corp., 9%, 2018 (n) | | | 10,000 | | | | 11,175 | |
| Wind Acquisition Finance S.A., 11.75%, 2017 (n) | | | 115,000 | | | | 92,863 | |
| | | | | | | | |
| | | | | | $ | 1,123,678 | |
| | | | | | | | |
| Telephone Services – 0.2% | | | | | |
| Cogent Communications Group, Inc., 8.375%, 2018 (n) | | $ | 15,000 | | | $ | 16,013 | |
| Level 3 Financing, Inc., 9.375%, 2019 | | | 45,000 | | | | 48,600 | |
| Level 3 Financing, Inc., 8.625%, 2020 | | | 20,000 | | | | 21,000 | |
| | | | | | | | |
| | | | | | $ | 85,613 | |
| | | | | | | | |
| Tobacco – 2.1% | | | | | |
| Altria Group, Inc., 9.25%, 2019 | | $ | 210,000 | | | $ | 291,750 | |
| B.A.T. International Finance PLC, 3.25%, 2022 (n) | | | 306,000 | | | | 302,410 | |
| Lorillard Tobacco Co., 8.125%, 2019 | | | 63,000 | | | | 78,188 | |
| Lorillard Tobacco Co., 6.875%, 2020 | | | 70,000 | | | | 82,779 | |
| Reynolds American, Inc., 6.75%, 2017 | | | 240,000 | | | | 288,137 | |
| | | | | | | | |
| | | | | | $ | 1,043,264 | |
| | | | | | | | |
| Transportation – 0.1% | | | | | |
| Navios South American Logistics, Inc., 9.25%, 2019 | | $ | 40,000 | | | $ | 36,800 | |
| | | | | | | | |
| Transportation – Services – 1.2% | | | | | |
| ACL I Corp., 10.625%, 2016 (p) | | $ | 49,963 | | | $ | 47,753 | |
| Avis Budget Car Rental LLC, 8.25%, 2019 (n) | | | 5,000 | | | | 5,363 | |
| Avis Budget Car Rental LLC, 8.25%, 2019 | | | 20,000 | | | | 21,450 | |
| Avis Budget Car Rental LLC, 9.75%, 2020 | | | 15,000 | | | | 16,669 | |
| Commercial Barge Line Co., 12.5%, 2017 | | | 100,000 | | | | 113,000 | |
| Erac USA Finance Co., 6.375%, 2017 (n) | | | 180,000 | | | | 210,387 | |
| Navios Maritime Acquisition Corp., 8.625%, 2017 | | | 60,000 | | | | 55,800 | |
| Navios Maritime Holdings, Inc., 8.875%, 2017 | | | 25,000 | | | | 25,188 | |
| Navios Maritime Holdings, Inc., 8.875%, 2017 (z) | | | 25,000 | | | | 25,061 | |
| Swift Services Holdings, Inc., 10%, 2018 | | | 70,000 | | | | 75,950 | |
| | | | | | | | |
| | | | | | $ | 596,621 | |
| | | | | | | | |
| U.S. Government Agencies and Equivalents – 1.2% | |
| National Credit Union Administration Guaranteed Note, 2.9%, 2020 | | $ | 50,000 | | | $ | 53,313 | |
| Small Business Administration, 4.34%, 2024 | | | 174,242 | | | | 191,223 | |
| Small Business Administration, 4.77%, 2024 | | | 135,421 | | | | 150,136 | |
| Small Business Administration, 4.625%, 2025 | | | 107,933 | | | | 119,128 | |
| Small Business Administration, 5.11%, 2025 | | | 99,735 | | | | 111,890 | |
| | | | | | | | |
| | | | | | $ | 625,690 | |
| | | | | | | | |
| Utilities – Electric Power – 4.4% | | | | | |
| AES Corp., 8%, 2017 | | $ | 85,000 | | | $ | 96,688 | |
| Allegheny Energy, Inc., 5.75%, 2019 (n) | | | 150,000 | | | | 161,419 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Utilities – Electric Power – continued | | | | | |
| Atlantic Power Corp., 9%, 2018 (z) | | $ | 25,000 | | | $ | 25,563 | |
| Calpine Corp., 8%, 2016 (n) | | | 55,000 | | | | 59,400 | |
| Calpine Corp., 7.875%, 2020 (n) | | | 65,000 | | | | 71,663 | |
| CMS Energy Corp., 4.25%, 2015 | | | 140,000 | | | | 145,555 | |
| CMS Energy Corp., 5.05%, 2022 | | | 99,000 | | | | 102,687 | |
| Covanta Holding Corp., 7.25%, 2020 | | | 35,000 | | | | 37,919 | |
| Covanta Holding Corp., 6.375%, 2022 | | | 10,000 | | | | 10,570 | |
| Dolphin Subsidiary ll, Inc., 7.25%, 2021 (n) | | | 35,000 | | | | 38,850 | |
| Duke Energy Corp., 3.35%, 2015 | | | 220,000 | | | | 232,374 | |
| Edison Mission Energy, 7%, 2017 | | | 45,000 | | | | 25,200 | |
| EDP Finance B.V., 6%, 2018 (n) | | | 200,000 | | | | 173,984 | |
| Energy Future Holdings Corp., 10%, 2020 | | | 65,000 | | | | 69,388 | |
| Energy Future Holdings Corp., 10%, 2020 | | | 125,000 | | | | 135,938 | |
| Energy Future Holdings Corp., 11.75%, 2022 (n) | | | 30,000 | | | | 30,675 | |
| Exelon Generation Co. LLC, 5.2%, 2019 | | | 70,000 | | | | 76,564 | |
| GenOn Energy, Inc., 9.875%, 2020 | | | 80,000 | | | | 78,000 | |
| NRG Energy, Inc., 7.375%, 2017 | | | 30,000 | | | | 31,200 | |
| NRG Energy, Inc., 8.25%, 2020 | | | 85,000 | | | | 87,975 | |
| Oncor Electric Delivery Co., 4.1%, 2022 (n) | | | 150,000 | | | | 152,932 | |
| PPL WEM Holdings PLC, 3.9%, 2016 (n) | | | 160,000 | | | | 167,689 | |
| Progress Energy, Inc., 3.15%, 2022 | | | 196,000 | | | | 197,797 | |
| Texas Competitive Electric Holdings Co. LLC, 11.5%, 2020 (n) | | | 25,000 | | | | 17,063 | |
| | | | | | | | |
| | | | | | $ | 2,227,093 | |
| | | | | | | | |
Total Bonds
(Identified Cost, $43,968,352) | | | $ | 46,145,633 | |
| | | | | | | | |
| |
| PREFERRED STOCKS – 0.1% | | | | | |
| Other Banks & Diversified Financials – 0.1% | |
| Ally Financial, Inc., 7% (z) | | | 30 | | | $ | 26,727 | |
| GMAC Capital Trust I, 8.125% | | | 1,575 | | | | 37,879 | |
| | | | | | | | |
Total Preferred Stocks (Identified Cost, $68,159) | | | $ | 64,606 | |
| | | | | | | | |
| |
| CONVERTIBLE BONDS – 0.1% | | | | | |
| Network & Telecom – 0.1% | | | | | |
| Nortel Networks Corp., 2.125%, 2014 (Identified Cost, $49,356) (a)(d) | | $ | 50,000 | | | $ | 49,500 | |
| | | | | | | | |
| |
| COMMON STOCKS – 0.1% | | | | | |
| Automotive – 0.0% | | | | | |
| Accuride Corp. (a) | | | 1,188 | | | $ | 7,128 | |
| | | | | | | | |
| Broadcasting – 0.1% | | | | | |
| New Young Broadcasting Holding Co., Inc. (a) | | | 6 | | | $ | 17,400 | |
| | | | | | | | |
| Printing & Publishing – 0.0% | | | | | |
| American Media Operations, Inc. (a) | | | 1,733 | | | $ | 9,618 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $53,211) | | | $ | 34,146 | |
| | | | | | | | |
11
MFS Strategic Income Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | | | | | | | | | |
| Issuer | | Strike
Price | | | First
Exercise | | | Shares/Par | | | Value ($) | |
| | | | | | | | | | | | | | | | |
| WARRANTS – 0.1% | | | | | | | | | | | | | |
| Broadcasting – 0.1% | | | | | | | | | | | | | |
New Young Broadcasting Holding Co., Inc.
(1 share for 1 warrant)
(Identified
Cost, $21,090) (a) | | $ | 0.01 | | | | 7/14/10 | | | | 10 | | | $ | 29,000 | |
| | | | | | | | | | | | | | | | |
|
| CONVERTIBLE PREFERRED STOCKS – 0.1% | |
| Automotive – 0.1% | | | | | |
General Motors Co., 4.75%
(Identified Cost, $40,000) | | | | | | | | 800 | | | $ | 26,560 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| FLOATING RATE LOANS (g)(r) – 0.0% | | | | | |
| Financial Institutions – 0.0% | | | | | |
| Springleaf Finance Corp., Term Loan, 5.5%, 2017 (Identified Cost, $22,447) | | $ | 22,538 | | | $ | 21,182 | |
| | | | | | | | |
| |
| MONEY MARKET FUNDS – 7.1% | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 3,588,639 | | | $ | 3,588,639 | |
| | | | | | | | |
Total Investments
(Identified Cost, $47,811,254) | | | $ | 49,959,266 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 1.2% | | | | 588,256 | |
| | | | | | | | |
| Net Assets – 100.0% | | | $ | 50,547,522 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (d) | | In default. Interest and/or scheduled principal payment(s) have been missed. |
| (e) | | Guaranteed by Minister for Finance of Ireland. |
| (g) | | The rate shown represents a weighted average coupon rate on settled positions at period end, unless otherwise indicated. |
| (i) | | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
| (n) | | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $10,449,498, representing 20.7% of net assets. |
| (p) | | Payment-in-kind security. |
| (r) | | Remaining maturities of floating rate loans may be less than stated maturities shown as a result of contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. These loans may be subject to restrictions on resale. Floating rate loans generally have rates of interest which are determined periodically by reference to a base lending rate plus a premium. |
| (v) | | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted 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 | |
| Ally Financial, Inc., 7% (Preferred Stock) | | 4/13/11-4/14/11 | | | $28,125 | | | | $26,727 | |
| American Media, Inc., 13.5%, 2018 | | 12/22/10 | | | 6,853 | | | | 6,353 | |
| Atlantic Power Corp., 9%, 2018 | | 10/26/11-3/02/12 | | | 24,922 | | | | 25,563 | |
| Avaya, Inc., 7%, 2019 | | 5/24/12 | | | 13,737 | | | | 13,913 | |
| Bayview Financial Revolving Mortgage Loan Trust, FRN, 1.845%, 2040 | | 3/01/06 | | | 168,323 | | | | 109,529 | |
| CIT Group, Inc., 7%, 2017 | | 6/26/12 | | | 21,194 | | | | 21,155 | |
| Ceridian Corp., 8.875%, 2019 | | 6/28/12 | | | 10,000 | | | | 10,325 | |
| Chase Commercial Mortgage Securities Corp., 6.6%, 2029 | | 6/07/00 | | | 46,723 | | | | 53,569 | |
| Consolidated Container Co. LLC/Consolidated Container Finance, Inc., 10.125%, 2020 | | 6/28/12 | | | 10,000 | | | | 10,300 | |
| Crest Ltd., “A1” CDO, FRN, 0.94%, 2018 | | 1/21/10 | | | 59,171 | | | | 66,958 | |
| Dynacast International LLC, 9.25%, 2019 | | 7/12/11-7/15/11 | | | 35,354 | | | | 36,313 | |
| Experian Finance PLC, 2.375%, 2017 | | 6/26/12 | | | 199,102 | | | | 200,224 | |
| FGI Operating Co./FGI Finance, Inc., 7.875%, 2020 | | 4/12/12 | | | 5,000 | | | | 5,213 | |
| Falcon Franchise Loan LLC, FRN, 5.541%, 2023 | | 1/18/02 | | | 6,819 | | | | 15,250 | |
| Falcon Franchise Loan LLC, FRN, 5.46%, 2025 | | 1/29/03 | | | 13,016 | | | | 27,067 | |
| GMAC LLC, FRN, 6.02%, 2033 | | 11/17/00 | | | 136,673 | | | | 142,024 | |
12
MFS Strategic Income Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | | | |
| Restricted Securities – continued | | Acquisition
Date | | Cost | | | Value | |
| Heckmann Corp., 9.875%, 2018 | | 4/04/12 | | | $29,837 | | | | $28,500 | |
| Host Hotels & Resorts, Inc., 5.25%, 2022 | | 6/26/12-6/27/12 | | | 30,956 | | | | 30,750 | |
| LBI Media, Inc., 8.5%, 2017 | | 7/18/07 | | | 54,444 | | | | 11,413 | |
| Libbey Glass, Inc., 6.875%, 2020 | | 5/11/12 | | | 15,000 | | | | 15,413 | |
| Local TV Finance LLC, 9.25%, 2015 | | 12/10/07-11/30/10 | | | 40,863 | | | | 41,546 | |
| Morgan Stanley Capital I, Inc., FRN, 1.333%, 2039 | | 7/20/04 | | | 33,469 | | | | 20,859 | |
| NESCO LLC/NESCO Holdings Corp., 11.75%, 2017 | | 4/05/12-6/15/12 | | | 29,956 | | | | 30,750 | |
| Navios Maritime Holdings, Inc., 8.875%, 2017 | | 6/27/12 | | | 25,000 | | | | 25,061 | |
| Physio-Control International, Inc., 9.875%, 2019 | | 1/13/12-1/30/12 | | | 30,527 | | | | 31,950 | |
| Prudential Securities Secured Financing Corp., FRN, 7.266%, 2013 | | 12/06/04 | | | 416,062 | | | | 409,529 | |
| Rite Aid Corp., 9.25%, 2020 | | 5/03/12-5/21/12 | | | 19,777 | | | | 20,000 | |
| Rivers Pittsburgh Borrower LP/Rivers Pittsburgh Finance Corp., 9.5%, 2019 | | 5/30/12 | | | 5,000 | | | | 5,194 | |
| Roofing Supply Group LLC/Roofing Supply Finance, Inc., 10%, 2020 | | 5/24/12 | | | 15,000 | | | | 15,675 | |
| Salomon Brothers Mortgage Securities, Inc., FRN, 7.271%, 2032 | | 1/07/05 | | | 211,944 | | | | 217,220 | |
| Townsquare Radio LLC, 9%, 2019 | | 3/30/12 | | | 19,805 | | | | 20,900 | |
| Truven Health Analytics, Inc., 10.625%, 2020 | | 5/24/12-6/15/12 | | | 25,416 | | | | 26,000 | |
| Total Restricted Securities | | | | | | | | | $1,721,243 | |
| % of Net Assets | | | | | | | | | 3.4% | |
The following abbreviations are used in this report and are defined:
| CDO | | Collateralized Debt Obligation |
| FRN | | Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end. |
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:
Derivative Contracts at 6/30/12
Forward Foreign Currency Exchange Contracts at 6/30/12
| | | | | | | | | | | | | | | | | | | | | | | | |
| Type | | | | Currency | | | Counterparty | | Contracts to
Deliver/Receive | | Settlement Date
Range | | In Exchange For | | | Contracts
at Value | | | Net Unrealized
Appreciation
(Depreciation) | |
| Asset Derivatives | | | | | | | | | | | | | | | | | | | |
| SELL | | | | | CAD | | | Merrill Lynch International Bank | | 168,695 | | 7/13/12 | | $ | 168,282 | | | $ | 165,660 | | | $ | 2,622 | |
| SELL | | | | | DKK | | | Goldman Sachs International | | 242,054 | | 7/13/12 | | | 42,543 | | | | 41,212 | | | | 1,331 | |
| SELL | | | | | EUR | | | JPMorgan Chase Bank N.A. | | 445,446 | | 7/13/12 | | | 582,412 | | | | 563,756 | | | | 18,656 | |
| SELL | | | | | GBP | | | Barclays Bank PLC | | 161,962 | | 7/13/12 | | | 256,704 | | | | 253,651 | | | | 3,053 | |
| SELL | | | | | GBP | | | Deutsche Bank AG | | 161,962 | | 7/13/12 | | | 256,657 | | | | 253,651 | | | | 3,006 | |
| BUY | | | | | JPY | | | JPMorgan Chase Bank N.A. | | 37,481,519 | | 7/13/12 | | | 462,829 | | | | 468,967 | | | | 6,138 | |
| SELL | | | | | SEK | | | Credit Suisse Group | | 132,906 | | 7/13/12 | | | 19,469 | | | | 19,206 | | | | 263 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | 35,069 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
13
MFS Strategic Income Portfolio
Portfolio of Investments (unaudited) – continued
Forward Foreign Currency Exchange Contracts at 6/30/12 - continued
| | | | | | | | | | | | | | | | | | | | | | | | |
| Type | | | | Currency | | | Counterparty | | Contracts to
Deliver/Receive | | Settlement Date
Range | | In Exchange For | | | Contracts
at Value | | | Net Unrealized
Appreciation
(Depreciation) | |
| Liability Derivatives | | | | | | | | | | | | | | | | | | | |
| SELL | | | | | AUD | | | Westpac Banking Corp. | | 43,432 | | 7/13/12 | | $ | 44,239 | | | $ | 44,410 | | | $ | (171 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Futures Contracts Outstanding at 6/30/12
| | | | | | | | | | | | | | | | | | |
| Description | | Currency | | | Contracts | | | Value | | Expiration
Date | | | Unrealized
Appreciation
(Depreciation) | |
| Liability Derivatives | | | | | | | | | | | | | | | | | | |
| Interest Rate Futures | | | | | | | | | | | | | | | | | | |
| U.S. Treasury Note 10 yr (Short) | | | USD | | | | 15 | | | $2,000,625 | | | September - 2012 | | | | $(5,443 | ) |
| | | | | | | | | | | | | | | | | | |
At June 30, 2012, the fund had cash collateral of $16,500 to cover any commitments for certain derivative contracts. Cash collateral includes “Restricted cash” on the Statement of Assets and Liabilities.
See Notes to Financial Statements
14
MFS Strategic Income Portfolio
FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | | | | | |
At 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $44,222,615) | | | $46,370,627 | | | | | |
Underlying affiliated funds, at cost and value | | | 3,588,639 | | | | | |
Total investments, at value (identified cost, $47,811,254) | | | $49,959,266 | | | | | |
Cash | | | 40,627 | | | | | |
Restricted cash | | | 16,500 | | | | | |
Receivables for | | | | | | | | |
Forward foreign currency exchange contracts | | | 35,069 | | | | | |
Daily variation margin on open futures contracts | | | 8,203 | | | | | |
Investments sold | | | 192,333 | | | | | |
Fund shares sold | | | 206,675 | | | | | |
Interest | | | 705,973 | | | | | |
| Receivable from investment adviser | | | 1,749 | | | | | |
Other assets | | | 497 | | | | | |
Total assets | | | | | | | $51,166,892 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Forward foreign currency exchange contracts | | | $171 | | | | | |
Investments purchased | | | 415,281 | | | | | |
Fund shares reacquired | | | 178,038 | | | | | |
Payable to affiliates | | | | | | | | |
Distribution and/or service fees | | | 197 | | | | | |
Payable for independent Trustees’ compensation | | | 4 | | | | | |
Accrued expenses and other liabilities | | | 25,679 | | | | | |
Total liabilities | | | | | | | $619,370 | |
Net assets | | | | | | | $50,547,522 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $48,857,819 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 2,175,017 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (3,861,419 | ) | | | | |
Undistributed net investment income | | | 3,376,105 | | | | | |
Net assets | | | | | | | $50,547,522 | |
Shares of beneficial interest outstanding | | | | | | | 4,955,819 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $41,051,094 | | | | 4,018,957 | | | | $10.21 | |
Service Class | | | 9,496,428 | | | | 936,862 | | | | 10.14 | |
See Notes to Financial Statements
15
MFS Strategic Income Portfolio
FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| | | | | | | | |
Six months ended 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Interest | | | $1,337,295 | | | | | |
Dividends | | | 7,790 | | | | | |
Dividends from underlying affiliated funds | | | 1,221 | | | | | |
Total investment income | | | | | | | $1,346,306 | |
Expenses | | | | | | | | |
Management fee | | | $172,357 | | | | | |
Distribution and/or service fees | | | 12,128 | | | | | |
Administrative services fee | | | 8,704 | | | | | |
Independent Trustees’ compensation | | | 1,023 | | | | | |
Custodian fee | | | 11,199 | | | | | |
Shareholder communications | | | 4,368 | | | | | |
Audit and tax fees | | | 32,364 | | | | | |
Legal fees | | | 454 | | | | | |
Miscellaneous | | | 7,773 | | | | | |
Total expenses | | | | | | | $250,370 | |
Fees paid indirectly | | | (7 | ) | | | | |
Reduction of expenses by investment adviser | | | (16,581 | ) | | | | |
Net expenses | | | | | | | $233,782 | |
Net investment income | | | | | | | $1,112,524 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $466,357 | | | | | |
Futures contracts | | | (46,863 | ) | | | | |
Swap agreements | | | 4,290 | | | | | |
Foreign currency | | | 218 | | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $424,002 | |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $823,324 | | | | | |
Futures contracts | | | (5,443 | ) | | | | |
Swap agreements | | | (3,538 | ) | | | | |
Translation of assets and liabilities in foreign currencies | | | 3,280 | | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $817,623 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $1,241,625 | |
Change in net assets from operations | | | | | | | $2,354,149 | |
See Notes to Financial Statements
16
MFS Strategic Income Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | | | | | | | |
| |
| Six months ended
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $1,112,524 | | | | $2,378,437 | |
Net realized gain (loss) on investments and foreign currency | | | 424,002 | | | | 263,644 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 817,623 | | | | (378,048 | ) |
Change in net assets from operations | | | $2,354,149 | | | | $2,264,033 | |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(2,837,428 | ) |
Change in net assets from fund share transactions | | | $(736,940 | ) | | | $(2,364,894 | ) |
Total change in net assets | | | $1,617,209 | | | | $(2,938,289 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 48,930,313 | | | | 51,868,602 | |
At end of period (including undistributed net investment income of $3,376,105 and
$2,263,581, respectively) | | | $50,547,522 | | | | $48,930,313 | |
See Notes to Financial Statements
17
MFS Strategic 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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $9.74 | | | | $9.87 | | | | $9.46 | | | | $8.36 | | | | $10.40 | | | | $10.61 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.23 | | | | $0.48 | | | | $0.49 | | | | $0.55 | | | | $0.58 | | | | $0.60 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.24 | | | | (0.02 | ) | | | 0.45 | | | | 1.54 | | | | (1.82 | ) | | | (0.23 | ) |
Total from investment operations | | | $0.47 | | | | $0.46 | | | | $0.94 | | | | $2.09 | | | | $(1.24 | ) | | | $0.37 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.59 | ) | | | $(0.53 | ) | | | $(0.99 | ) | | | $(0.80 | ) | | | $(0.58 | ) |
Net asset value, end of period (x) | | | $10.21 | | | | $9.74 | | | | $9.87 | | | | $9.46 | | | | $8.36 | | | | $10.40 | |
Total return (%) (k)(r)(s)(x) | | | 4.83 | (n) | | | 4.67 | | | | 10.27 | | | | 27.52 | | | | (12.94 | ) | | | 3.49 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.97 | (a) | | | 1.05 | | | | 1.06 | | | | 1.03 | | | | 1.02 | | | | 0.95 | |
Expenses after expense reductions (f) | | | 0.90 | (a) | | | 0.90 | | | | 0.90 | | | | 0.90 | | | | 0.90 | | | | 0.90 | |
Net investment income | | | 4.57 | (a) | | | 4.79 | | | | 5.11 | | | | 6.23 | | | | 6.07 | | | | 5.70 | |
Portfolio turnover | | | 23 | (n) | | | 29 | | | | 48 | | | | 63 | | | | 38 | | | | 49 | |
Net assets at end of period (000 omitted) | | | $41,051 | | | | $38,563 | | | | $40,927 | | | | $40,221 | | | | $31,159 | | | | $49,582 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $9.67 | | | | $9.81 | | | | $9.40 | | | | $8.30 | | | | $10.33 | | | | $10.54 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.21 | | | | $0.45 | | | | $0.47 | | | | $0.52 | | | | $0.55 | | | | $0.57 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.26 | | | | (0.03 | ) | | | 0.45 | | | | 1.54 | | | | (1.80 | ) | | | (0.23 | ) |
Total from investment operations | | | $0.47 | | | | $0.42 | | | | $0.92 | | | | $2.06 | | | | $(1.25 | ) | | | $0.34 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.56 | ) | | | $(0.51 | ) | | | $(0.96 | ) | | | $(0.78 | ) | | | $(0.55 | ) |
Net asset value, end of period (x) | | | $10.14 | | | | $9.67 | | | | $9.81 | | | | $9.40 | | | | $8.30 | | | | $10.33 | |
Total return (%) (k)(r)(s)(x) | | | 4.86 | (n) | | | 4.31 | | | | 10.05 | | | | 27.24 | | | | (13.21 | ) | | | 3.24 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.22 | (a) | | | 1.30 | | | | 1.31 | | | | 1.28 | | | | 1.26 | | | | 1.20 | |
Expenses after expense reductions (f) | | | 1.15 | (a) | | | 1.15 | | | | 1.15 | | | | 1.15 | | | | 1.15 | | | | 1.15 | |
Net investment income | | | 4.32 | (a) | | | 4.54 | | | | 4.87 | | | | 6.02 | | | | 5.82 | | | | 5.45 | |
Portfolio turnover | | | 23 | (n) | | | 29 | | | | 48 | | | | 63 | | | | 38 | | | | 49 | |
Net assets at end of period (000 omitted) | | | $9,496 | | | | $10,368 | | | | $10,942 | | | | $11,644 | | | | $11,192 | | | | $19,232 | |
See Notes to Financial Statements
18
MFS Strategic Income Portfolio
Financial Highlights – continued
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values per share 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
19
MFS Strategic Income Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Strategic Income Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in high-yield securities rated below investment grade. Investments in high-yield securities involve greater degrees of credit and market risk than investments in higher-rated securities and tend to be more sensitive to economic conditions. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price as provided by a third-party pricing service on the market on which they are primarily traded. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation as provided by a third-party pricing service on the market on which such futures contracts are primarily traded. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swap agreements are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is
20
MFS Strategic Income Portfolio
Notes to Financial Statements (unaudited) – continued
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 not reflected in total investments, such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities | | | $71,567 | | | | $73,127 | | | | $9,618 | | | | $154,312 | |
| U.S. Treasury Bonds & U.S. Government Agency & Equivalents | | | — | | | | 625,690 | | | | — | | | | 625,690 | |
| Non-U.S. Sovereign Debt | | | — | | | | 6,909,395 | | | | — | | | | 6,909,395 | |
| Corporate Bonds | | | — | | | | 28,696,242 | | | | — | | | | 28,696,242 | |
| Residential Mortgage-Backed Securities | | | — | | | | 267,364 | | | | — | | | | 267,364 | |
| Commercial Mortgage-Backed Securities | | | — | | | | 909,808 | | | | — | | | | 909,808 | |
| Asset-Backed Securities (including CDOs) | | | — | | | | 450,986 | | | | — | | | | 450,986 | |
| Foreign Bonds | | | — | | | | 8,335,648 | | | | — | | | | 8,335,648 | |
| Floating Rate Loans | | | — | | | | 21,182 | | | | — | | | | 21,182 | |
| Mutual Funds | | | 3,588,639 | | | | — | | | | — | | | | 3,588,639 | |
| Total Investments | | | $3,660,206 | | | | $46,289,442 | | | | $9,618 | | | | $49,959,266 | |
| | | | |
| Other Financial Instruments | | | | | | | | | | | | |
| Futures Contracts | | | $(5,443 | ) | | | $— | | | | $— | | | | $(5,443 | ) |
| Forward Foreign Currency Exchange Contracts | | | — | | | | 34,898 | | | | — | | | | 34,898 | |
For further information regarding security characteristics, see the Portfolio of Investments.
The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period. The table presents the activity of level 3 securities held at the beginning and the end of the period.
| | | | |
| | | Equity Securities | |
| Balance as of 12/31/11 | | | $20,605 | |
Change in unrealized appreciation (depreciation) | | | (10,987 | ) |
| Balance as of 6/30/12 | | | $9,618 | |
The net change in unrealized appreciation (depreciation) from investments still held as level 3 at June 30, 2012 is $(10,987).
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives – The fund uses derivatives for different purposes, 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
21
MFS Strategic Income Portfolio
Notes to Financial Statements (unaudited) – continued
eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund were futures contracts, forward foreign currency exchange contracts, and swap agreements. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract Tables, generally are indicative of the volume of its derivative activity during the period.
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, 2012 as reported in the Statement of Assets and Liabilities:
| | | | | | | | | | |
| | | | | Fair Value (a) | |
| Risk | | Derivative Contracts | | Asset Derivatives | | | Liability Derivatives | |
| Interest Rate | | Interest Rate Futures | | | $— | | | | $(5,443 | ) |
| Foreign Exchange | | Forward Foreign Currency Exchange | | | 35,069 | | | | (171 | ) |
| Total | | | | | $35,069 | | | | $(5,614 | ) |
| (a) | The value of futures contracts outstanding includes cumulative appreciation (depreciation) as reported in the fund’s Portfolio of Investments. Only the current day variation margin for futures contracts is separately reported within the fund’s Statement of Assets and Liabilities. |
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | | | | | | | | | |
| Risk | | Futures Contracts | | | Swap Agreements | | | Foreign Currency | |
| Interest Rate | | | $(46,863 | ) | | | $— | | | | $— | |
| Foreign Exchange | | | — | | | | — | | | | 6,663 | |
| Credit | | | — | | | | 4,290 | | | | — | |
| Total | | | $(46,863 | ) | | | $4,290 | | | | $6,663 | |
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | | | | | | | | | |
| Risk | | Futures Contracts | | | Swap Agreements | | | Translation of
Assets and
Liabilities in
Foreign Currencies | |
| Interest Rate | | | $(5,443 | ) | | | $— | | | | $— | |
| Foreign Exchange | | | — | | | | — | | | | (718 | ) |
| Credit | | | — | | | | (3,538 | ) | | | — | |
| Total | | | $(5,443 | ) | | | $(3,538 | ) | | | $(718 | ) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as “Restricted cash.” Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.
22
MFS Strategic Income Portfolio
Notes to Financial Statements (unaudited) – continued
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 certain percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures 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 foreign currency.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, an industry accepted settlement system. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Swap Agreements – The fund entered into swap agreements. A swap agreement is generally an exchange of cash payments, at specified intervals or upon the occurrence of specified events, between the fund and a counterparty. The net cash payments exchanged are recorded as a realized gain or loss on swap agreements in the Statement of Operations. The value of the swap agreement, which is adjusted daily and includes any related interest accruals to be paid or received by the fund, is recorded on the Statement of Assets and Liabilities. The daily change in value, including any related interest accruals to be paid or received, is recorded as unrealized appreciation or depreciation on swap agreements in the Statement of Operations. Amounts paid or received at the inception of the swap agreement are reflected as premiums paid or received on the Statement of Assets and Liabilities and are amortized using the effective interest method over the term of the agreement. A liquidation payment received or made upon early termination is recorded as a realized gain or loss on swap agreements in the Statement of Operations.
Risks related to swap agreements include the possible lack of a liquid market, unfavorable market and interest rate movements of the underlying instrument and the failure of the counterparty to perform under the terms of the agreements. To address counterparty risk, swap agreements are limited to only highly-rated counterparties. The risk is further mitigated by having an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
The fund entered into credit default 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 based on a fixed percentage applied to the agreement notional amount to the protection seller in exchange for the right to receive a specified return upon the occurrence of a defined credit event on the reference obligation (which may be either a single security or a basket of securities issued by corporate or sovereign issuers) and, with respect to the rare cases where physical settlement applies, the delivery by the buyer to the seller of a defined deliverable obligation. Although 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
23
MFS Strategic Income Portfolio
Notes to Financial Statements (unaudited) – continued
obligation is issued by a North American corporation and obligation acceleration, obligation default, or repudiation/moratorium are generally only applicable when the reference obligation is issued by a sovereign entity or an entity in an emerging country. Upon determination of the final price for the deliverable obligation (or upon delivery of the deliverable obligation in the case of physical settlement), the difference between the value of the deliverable obligation and the swap agreement’s notional amount is recorded as realized gain or loss on swap agreements in the Statement of Operations.
The fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the agreement. This risk is mitigated by having an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Loans and Other Direct Debt Instruments – The fund invests in loans and loan participations or other receivables. These investments may include standby financing commitments, including revolving credit facilities, which obligate the fund to supply additional cash to the borrower on demand. Loan participations involve a risk of insolvency of the lending bank or other financial intermediary.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. The fund earns certain fees in connection with its floating rate loan purchasing activities. These fees are in addition to interest payments earned and may include amendment fees, commitment fees, facility fees, consent fees, and prepayment fees. Commitment fees are recorded on an accrual basis as income in the accompanying financial statements. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date. Debt obligations may be placed on non-accrual status or set to accrue at a rate of interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by the write-off of the related interest receivables when deemed uncollectible.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to amortization and accretion of debt securities, wash sale loss deferrals, straddle loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $2,837,428 | |
24
MFS Strategic Income Portfolio
Notes to Financial Statements (unaudited) – continued
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $48,198,810 | |
| Gross appreciation | | | 3,065,329 | |
| Gross depreciation | | | (1,304,873 | ) |
| Net unrealized appreciation (depreciation) | | | $1,760,456 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 2,688,309 | |
| Capital loss carryforwards | | | (3,843,513 | ) |
| Other temporary differences | | | (415,277 | ) |
| Net unrealized appreciation (depreciation) | | | 906,035 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:
| | | | |
| Pre-enactment losses: | | | | |
| 12/31/15 | | | $(8,256 | ) |
| 12/31/16 | | | (2,156,556 | ) |
| 12/31/17 | | | (1,642,018 | ) |
| Total | | | $(3,806,830 | ) |
| |
| Post-enactment losses: | | | | |
| Long-Term | | | $(36,683 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | |
| | | From net investment
income | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $2,246,632 | |
| Service Class | | | — | | | | 590,796 | |
| Total | | | $— | | | | $2,837,428 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.70% | |
| Average daily net assets in excess of $1 billion | | | 0.65% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.70% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.90% of average daily net assets for the Initial Class shares and 1.15% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2014. For the six months ended June 30, 2012, this reduction amounted to $16,455 and is reflected as a reduction of total expenses in the Statement of Operations.
25
MFS Strategic Income 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, has contracted to provide transfer agent and recordkeeping functions in connection with the issuance, transfer, and redemption of each class of shares of the fund under a Shareholder Servicing Agent Agreement. During the six months ended June 30, 2012, the fund did not pay MFSC a fee for this service.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0353% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $249 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $126, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than purchased option transactions and short-term obligations, were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
| U.S. Government securities | | | $— | | | | $12,114 | |
| Investments (non-U.S. Government securities) | | | $10,851,974 | | | | $11,374,725 | |
| (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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 249,420 | | | | $2,514,449 | | | | 372,136 | | | | $3,704,937 | |
Service Class | | | 42,729 | | | | 425,211 | | | | 167,680 | | | | 1,662,734 | |
| | | 292,149 | | | | $2,939,660 | | | | 539,816 | | | | $5,367,671 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 232,812 | | | | $2,246,632 | |
Service Class | | | — | | | | — | | | | 61,541 | | | | 590,796 | |
| | | — | | | | $— | | | | 294,353 | | | | $2,837,428 | |
26
MFS Strategic Income Portfolio
Notes to Financial Statements (unaudited) – continued
| | | | | | | | | | | | | | | | |
| | | Six months ended 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (191,168 | ) | | | $(1,921,272 | ) | | | (790,674 | ) | | | $(7,873,245 | ) |
Service Class | | | (177,543 | ) | | | (1,755,328 | ) | | | (273,071 | ) | | | (2,696,748 | ) |
| | | (368,711 | ) | | | $(3,676,600 | ) | | | (1,063,745 | ) | | | $(10,569,993 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | 58,252 | | | | $593,177 | | | | (185,726 | ) | | | $(1,921,676 | ) |
Service Class | | | (134,814 | ) | | | (1,330,117 | ) | | | (43,850 | ) | | | (443,218 | ) |
| | | (76,562 | ) | | | $(736,940 | ) | | | (229,576 | ) | | | $(2,364,894 | ) |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $163 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 2,545,148 | | | | 8,205,809 | | | | (7,162,318 | ) | | | 3,588,639 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $1,221 | | | | $3,588,639 | |
27
MFS Strategic Income Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
28
SEMIANNUAL REPORT
June 30, 2012
MFS® GLOBAL TACTICAL ALLOCATION PORTFOLIO
MFS® Variable Insurance Trust II
WTS-SEM
MFS® GLOBAL TACTICAL ALLOCATION PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Tactical Allocation Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Global Tactical Allocation Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | | | | | | | | | | | |
| | | | | Active Security
Selection (a) | | | Tactical
Overlay (b) | | | Net Market
Exposure (c) | |
Fixed Income | | U.S. | | | 22.0% | | | | 0.0% | | | | 22.0% | |
| | Europe ex-U.K. | | | 13.7% | | | | 2.4% | | | | 16.1% | |
| | Japan | | | 7.8% | | | | (0.5)% | | | | 7.3% | |
| | Asia/Pacific ex-Japan | | | 2.2% | | | | 1.3% | | | | 3.5% | |
| | United Kingdom | | | 5.3% | | | | (2.0)% | | | | 3.3% | |
| | Emerging Markets | | | 3.0% | | | | 0.0% | | | | 3.0% | |
| | North America ex-U.S. | | | 2.9% | | | | (7.3)% | | | | (4.4)% | |
| | | Total | | | 56.9% | | | | (6.1)% | | | | 50.8% | |
Equity | | U.S. Large Cap | | | 16.4% | | | | (1.9)% | | | | 14.5% | |
| | Europe ex-U.K. | | | 6.4% | | | | 4.1% | | | | 10.5% | |
| | United Kingdom | | | 5.5% | | | | 3.8% | | | | 9.3% | |
| | Emerging Markets | | | 0.7% | | | | 6.8% | | | | 7.5% | |
| | Japan | | | 4.7% | | | | (0.7)% | | | | 4.0% | |
| | Asia/Pacific ex-Japan | | | 0.2% | | | | 0.3% | | | | 0.5% | |
| | U.S. Small/Mid Cap | | | 0.7% | | | | (2.5)% | | | | (1.8)% | |
| | North America ex-U.S. | | | 0.3% | | | | (4.3)% | | | | (4.0)% | |
| | | Total | | | 34.9% | | | | 5.6% | | | | 40.5% | |
| Real Estate Related | | Non-U.S. | | | 0.5% | | | | 0.0% | | | | 0.5% | |
| | U.S. | | | 0.3% | | | | 0.0% | | | | 0.3% | |
| | | Total | | | 0.8% | | | | 0.0% | | | | 0.8% | |
Cash | | Cash & Equivalents (d) | | | 6.8% | | | | 0.4% | | | | 7.2% | |
| | Derivative Offsets (e) | | | 0.1% | | | | 0.6% | | | | 0.7% | |
| | Total | | | 6.9% | | | | 1.0% | | | | 7.9% | |
| | Total Net Exposure Summary | | | 99.5% | | | | 0.5% | | | | 100.0% | |
| | | | | | | | |
Strategic Allocation Targets & Net Exposure Ranges | |
| Asset Class | | | Target (w) | | | | Ranges (z) | |
Equities | | | 35% | | | | 0 to 70% | |
Fixed Income, Cash and Cash Equivalents | | | 65% | | | | 30 to 100% | |
| | | | |
| Top ten holdings (c) | | | | |
| FTSE 100 Index Future SEP 2012 | | | 3.8% | |
| IBOV 35 Index Future AUG 2012 | | | 3.5% | |
FTSE-JSE Top 40 Index Future SEP 2012 | | | 2.5% | |
German Euro Bund 10 Yr Future SEP 2012 | | | 2.4% | |
Japan Govt Bond, 1.1%, 2020 | | | 2.3% | |
| U.S. Treasury Notes, 4.75%, 2017 | | | 2.2% | |
CAC 40 Index Future JUL 2012 | | | 2.2% | |
| UK Long Gilt Bond 10 Yr Future SEP 2012 | | | (2.0)% | |
| S&P TSE 60 Index Future SEP 2012 | | | (4.3)% | |
| Govt of Canada Bond 10 Yr Future SEP 2012 | | | (7.3)% | |
| (a) | Represents the actively managed portion of the portfolio and for purposes of this presentation, components include the market value of securities, less any securities sold short. The bond component will include any accrued interest amounts. This also reflects the equivalent exposure of certain derivative positions. These amounts may be negative from time to time. |
| (b) | Represents the tactical overlay portion of the portfolio which is how the fund manages its exposure to markets and currencies through use of derivative positions. Percentages reflect the equivalent exposure of those derivative positions. |
| (c) | For purposes of this presentation, the components include the market value of securities, less any securities sold short, and reflect the impact of the equivalent exposure of derivative positions. These amounts may be negative from time to time. The bond component will include any accrued interest amounts. |
| (d) | Cash & Equivalents includes cash, other assets (excluding interest receivables) less liabilities, short term securities, and the unrealized gain or loss in connection with all forward currency exchange contracts. |
| (e) | Derivative Offsets represent the offsetting of the leverage produced by the fund’s derivative positions. |
| (w) | The strategic asset class allocations have been selected for investment over longer time periods. The actual strategic asset class weightings can deviate due to market movements and cash flows. |
| (z) | The fund’s net exposures to the asset classes referenced will normally fall within theses ranges after taking into account the tactical overlay. |
Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. The market value of derivatives may be different.
Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio.
Percentages are based on net assets as of 6/30/12.
The portfolio is actively managed and current holdings may be different.
2
MFS Global Tactical Allocation Portfolio
EXPENSE TABLE
Fund Expenses Borne by the Contract Holders During the Period,
January 1, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 0.76% | | | | $1,000.00 | | | | $1,022.50 | | | | $3.82 | |
| | Hypothetical (h) | | | 0.76% | | | | $1,000.00 | | | | $1,021.08 | | | | $3.82 | |
| Service Class | | Actual | | | 1.01% | | | | $1,000.00 | | | | $1,021.34 | | | | $5.08 | |
| | Hypothetical (h) | | | 1.01% | | | | $1,000.00 | | | | $1,019.84 | | | | $5.07 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Global Tactical Allocation Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 35.4% | | | | | |
| Aerospace – 2.0% | | | | | |
| Cobham PLC | | | 606,358 | | | $ | 2,208,386 | |
| Honeywell International, Inc. | | | 72,370 | | | | 4,041,141 | |
| Lockheed Martin Corp. | | | 96,010 | | | | 8,360,551 | |
| Northrop Grumman Corp. | | | 25,340 | | | | 1,616,439 | |
| United Technologies Corp. | | | 60,100 | | | | 4,539,353 | |
| | | | | | | | |
| | | | | | $ | 20,765,870 | |
| | | | | | | | |
| Alcoholic Beverages – 0.8% | | | | | |
| Heineken N.V. | | | 149,570 | | | $ | 7,812,752 | |
| | | | | | | | |
| Automotive – 0.4% | | | | | |
| Johnson Controls, Inc. | | | 69,950 | | | $ | 1,938,315 | |
| USS Co. Ltd. | | | 16,340 | | | | 1,765,005 | |
| | | | | | | | |
| | | | | | $ | 3,703,320 | |
| | | | | | | | |
| Broadcasting – 1.2% | | | | | |
| Fuji Television Network, Inc. | | | 1,049 | | | $ | 1,804,703 | |
| Nippon Television Network Corp. | | | 11,300 | | | | 1,717,618 | |
| Omnicom Group, Inc. | | | 56,210 | | | | 2,731,806 | |
| Viacom, Inc., “B” | | | 49,530 | | | | 2,328,901 | |
| Walt Disney Co. | | | 88,390 | | | | 4,286,915 | �� |
| | | | | | | | |
| | | | | | $ | 12,869,943 | |
| | | | | | | | |
| Brokerage & Asset Managers – 0.6% | | | | | |
| BlackRock, Inc. | | | 17,828 | | | $ | 3,027,551 | |
| Computershare Ltd. | | | 134,699 | | | | 1,029,700 | |
| Daiwa Securities Group, Inc. | | | 491,000 | | | | 1,848,627 | |
| | | | | | | | |
| | | | | | $ | 5,905,878 | |
| | | | | | | | |
| Business Services – 1.8% | | | | | |
| Accenture PLC, “A” | | | 98,720 | | | $ | 5,932,085 | |
| Amadeus IT Holding S.A. | | | 143,952 | | | | 3,048,486 | |
| Bunzl PLC | | | 165,520 | | | | 2,711,519 | |
| Compass Group PLC | | | 334,230 | | | | 3,505,816 | |
| Dun & Bradstreet Corp. | | | 22,010 | | | | 1,566,452 | |
| Nomura Research, Inc. | | | 81,800 | | | | 1,802,901 | |
| | | | | | | | |
| | | | | | $ | 18,567,259 | |
| | | | | | | | |
| Cable TV – 0.2% | | | | | |
| Comcast Corp., “Special A” | | | 79,890 | | | $ | 2,508,546 | |
| | | | | | | | |
| Chemicals – 0.9% | | | | | |
| 3M Co. | | | 45,190 | | | $ | 4,049,024 | |
| Givaudan S.A. | | | 2,417 | | | | 2,373,925 | |
| PPG Industries, Inc. | | | 26,520 | | | | 2,814,302 | |
| | | | | | | | |
| | | | | | $ | 9,237,251 | |
| | | | | | | | |
| Computer Software – 0.4% | | | | | |
| Oracle Corp. | | | 152,210 | | | $ | 4,520,637 | |
| | | | | | | | |
| Computer Software – Systems – 0.7% | | | | | |
| International Business Machines Corp. | | | 29,360 | | | $ | 5,742,229 | |
| Konica Minolta Holdings, Inc. | | | 242,500 | | | | 1,911,078 | |
| | | | | | | | |
| | | | | | $ | 7,653,307 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Construction – 0.4% | | | | | |
| Geberit AG | | | 8,469 | | | $ | 1,670,541 | |
| Stanley Black & Decker, Inc. | | | 41,360 | | | | 2,661,930 | |
| | | | | | | | |
| | | | | | $ | 4,332,471 | |
| | | | | | | | |
| Consumer Products – 1.6% | | | | | |
| Henkel KGaA, IPS | | | 69,008 | | | $ | 4,582,939 | |
| Kao Corp. | | | 153,700 | | | | 4,239,043 | |
| KOSE Corp. | | | 39,000 | | | | 922,756 | |
| Procter & Gamble Co. | | | 57,130 | | | | 3,499,213 | |
| Reckitt Benckiser Group PLC | | | 65,695 | | | | 3,462,191 | |
| | | | | | | | |
| | | | | | $ | 16,706,142 | |
| | | | | | | | |
| Electrical Equipment – 0.8% | | | | | |
| Danaher Corp. | | | 48,280 | | | $ | 2,514,422 | |
| Legrand S.A. (l) | | | 80,550 | | | | 2,739,512 | |
| Spectris PLC | | | 48,310 | | | | 1,161,909 | |
| Tyco International Ltd. | | | 38,040 | | | | 2,010,414 | |
| | | | | | | | |
| | | | | | $ | 8,426,257 | |
| | | | | | | | |
| Electronics – 0.9% | | | | | |
| Halma PLC | | | 218,123 | | | $ | 1,432,998 | |
| Hirose Electric Co. Ltd. | | | 6,500 | | | | 642,678 | |
| Intel Corp. | | | 55,070 | | | | 1,467,616 | |
| Samsung Electronics Co. Ltd. | | | 2,647 | | | | 2,806,410 | |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | | 217,578 | | | | 3,037,389 | |
| | | | | | | | |
| | | | | | $ | 9,387,091 | |
| | | | | | | | |
| Energy – Independent – 0.6% | | | | | |
| Cairn Energy PLC | | | 362,604 | | | $ | 1,504,348 | |
| Occidental Petroleum Corp. | | | 53,860 | | | | 4,619,572 | |
| | | | | | | | |
| | | | | | $ | 6,123,920 | |
| | | | | | | | |
| Energy – Integrated – 1.9% | | | | | |
| BP PLC | | | 762,857 | | | $ | 5,111,268 | |
| Chevron Corp. | | | 41,000 | | | | 4,325,500 | |
| Exxon Mobil Corp. | | | 55,230 | | | | 4,726,031 | |
| Royal Dutch Shell PLC, “A” | | | 163,647 | | | | 5,512,657 | |
| | | | | | | | |
| | | | | | $ | 19,675,456 | |
| | | | | | | | |
| Food & Beverages – 1.5% | | | | | |
| General Mills, Inc. | | | 72,890 | | | $ | 2,809,181 | |
| Groupe Danone | | | 98,088 | | | | 6,084,246 | |
| Nestle S.A. | | | 114,796 | | | | 6,847,744 | |
| | | | | | | | |
| | | | | | $ | 15,741,171 | |
| | | | | | | | |
| Food & Drug Stores – 0.5% | | | | | |
| CVS Caremark Corp. | | | 57,920 | | | $ | 2,706,602 | |
| Lawson, Inc. | | | 39,900 | | | | 2,791,508 | |
| | | | | | | | |
| | | | | | $ | 5,498,110 | |
| | | | | | | | |
| General Merchandise – 0.4% | | | | | |
| Target Corp. | | | 62,840 | | | $ | 3,656,660 | |
| | | | | | | | |
4
MFS Global Tactical Allocation Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Insurance – 2.0% | | | | | |
| Aon PLC | | | 45,560 | | | $ | 2,131,297 | |
| Hiscox Ltd. | | | 226,322 | | | | 1,516,085 | |
| ING Groep N.V. (a) | | | 291,515 | | | | 1,966,801 | |
| Jardine Lloyd Thompson Group PLC | | | 110,021 | | | | 1,206,167 | |
| MetLife, Inc. | | | 115,330 | | | | 3,557,931 | |
| Prudential Financial, Inc. | | | 41,170 | | | | 1,993,863 | |
| Swiss Re Ltd. | | | 49,548 | | | | 3,112,747 | |
| Travelers Cos., Inc. | | | 46,550 | | | | 2,971,752 | |
| Zurich Insurance Group AG | | | 9,829 | | | | 2,217,616 | |
| | | | | | | | |
| | | | | | $ | 20,674,259 | |
| | | | | | | | |
| Leisure & Toys – 0.2% | | | | | |
| Hasbro, Inc. | | | 69,980 | | | $ | 2,370,223 | |
| | | | | | | | |
| Machinery & Tools – 0.3% | | | | | |
| Glory Ltd. | | | 40,900 | | | $ | 850,529 | |
| Neopost S.A. | | | 25,095 | | | | 1,339,346 | |
| Schindler Holding AG | | | 10,834 | | | | 1,211,565 | |
| | | | | | | | |
| | | | | | $ | 3,401,440 | |
| | | | | | | | |
| Major Banks – 2.4% | | | | | |
| Bank of New York Mellon Corp. | | | 182,131 | | | $ | 3,997,775 | |
| Goldman Sachs Group, Inc. | | | 24,840 | | | | 2,381,162 | |
| HSBC Holdings PLC | | | 517,033 | | | | 4,558,911 | |
| JPMorgan Chase & Co. | | | 150,500 | | | | 5,377,365 | |
| State Street Corp. | | | 46,820 | | | | 2,090,045 | |
| Sumitomo Mitsui Financial Group, Inc. | | | 38,100 | | | | 1,256,876 | |
| Toronto-Dominion Bank | | | 16,804 | | | | 1,315,139 | |
| Wells Fargo & Co. | | | 111,960 | | | | 3,743,942 | |
| | | | | | | | |
| | | | | | $ | 24,721,215 | |
| | | | | | | | |
| Medical & Health Technology & Services – 0.3% | | | | | |
| Kobayashi Pharmaceutical Co. Ltd. | | | 34,900 | | | $ | 1,940,774 | |
| Quest Diagnostics, Inc. | | | 26,460 | | | | 1,584,954 | |
| | | | | | | | |
| | | | | | $ | 3,525,728 | |
| | | | | | | | |
| Medical Equipment – 0.7% | | | | | |
| Becton, Dickinson & Co. | | | 19,620 | | | $ | 1,466,595 | |
| Medtronic, Inc. | | | 80,180 | | | | 3,105,371 | |
| St. Jude Medical, Inc. | | | 55,160 | | | | 2,201,436 | |
| | | | | | | | |
| | | | | | $ | 6,773,402 | |
| | | | | | | | |
| Network & Telecom – 0.4% | | | | | |
| Ericsson, Inc., “B” | | | 424,181 | | | $ | 3,866,253 | |
| | | | | | | | |
| Oil Services – 0.1% | | | | | |
| Transocean, Inc. | | | 15,210 | | | $ | 680,343 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 0.7% | |
| DnB NOR A.S.A. | | | 197,160 | | | $ | 1,961,397 | |
| Hachijuni Bank Ltd. | | | 134,000 | | | | 697,158 | |
| MasterCard, Inc., “A” | | | 4,550 | | | | 1,957,001 | |
| Sapporo Hokuyo Holdings, Inc. | | | 166,100 | | | | 514,436 | |
| Western Union Co. | | | 104,180 | | | | 1,754,391 | |
| | | | | | | | |
| | | | | | $ | 6,884,383 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Pharmaceuticals – 4.0% | | | | | |
| Abbott Laboratories | | | 81,030 | | | $ | 5,224,004 | |
| Bayer AG | | | 84,403 | | | | 6,086,184 | |
| GlaxoSmithKline PLC | | | 292,236 | | | | 6,626,699 | |
| Johnson & Johnson | | | 111,130 | | | | 7,507,943 | |
| Pfizer, Inc. | | | 353,510 | | | | 8,130,730 | |
| Roche Holding AG | | | 37,817 | | | | 6,528,252 | |
| Santen Pharmaceutical Co. Ltd. | | | 39,500 | | | | 1,618,346 | |
| | | | | | | | |
| | | | | | $ | 41,722,158 | |
| | | | | | | | |
| Printing & Publishing – 0.2% | | | | | |
| Pearson PLC | | | 125,270 | | | $ | 2,488,003 | |
| | | | | | | | |
| Railroad & Shipping – 0.2% | | | | | |
| Canadian National Railway Co. | | | 25,810 | | | $ | 2,177,848 | |
| | | | | | | | |
| Real Estate – 0.5% | | | | | |
| Deutsche Wohnen AG | | | 202,531 | | | $ | 3,413,052 | |
| GSW Immobilien AG (l) | | | 56,628 | | | | 1,933,459 | |
| | | | | | | | |
| | | | | | $ | 5,346,511 | |
| | | | | | | | |
| Specialty Chemicals – 0.3% | | | | | |
| Shin-Etsu Chemical Co. Ltd. | | | 46,000 | | | $ | 2,530,762 | |
| | | | | | | | |
| Specialty Stores – 0.1% | | | | | |
| Esprit Holdings Ltd. | | | 658,500 | | | $ | 851,446 | |
| | | | | | | | |
| Telecommunications – Wireless – 1.9% | | | | | |
| KDDI Corp. | | | 1,318 | | | $ | 8,501,551 | |
| NTT DoCoMo, Inc. | | | 1,428 | | | | 2,376,446 | |
| Vodafone Group PLC | | | 3,007,671 | | | | 8,450,460 | |
| | | | | | | | |
| | | | | | $ | 19,328,457 | |
| | | | | | | | |
| Telephone Services – 0.9% | | | | | |
| AT&T, Inc. | | | 145,810 | | | $ | 5,199,585 | |
| China Unicom (Hong Kong) Ltd. | | | 808,000 | | | | 1,016,516 | |
| TDC A.S. | | | 230,167 | | | | 1,599,864 | |
| Telecom Italia S.p.A. | | | 1,488,869 | | | | 1,197,645 | |
| | | | | | | | |
| | | | | | $ | 9,013,610 | |
| | | | | | | | |
| Tobacco – 1.9% | | | | | |
| British American Tobacco PLC | | | 112,703 | | | $ | 5,736,394 | |
| Japan Tobacco, Inc. | | | 174,800 | | | | 5,179,945 | |
| Philip Morris International, Inc. | | | 104,216 | | | | 9,093,888 | |
| | | | | | | | |
| | | | | | $ | 20,010,227 | |
| | | | | | | | |
| Trucking – 0.4% | | | | | |
| Yamato Holdings Co. Ltd. | | | 230,400 | | | $ | 3,709,578 | |
| | | | | | | | |
| Utilities – Electric Power – 0.3% | | | | | |
| PG&E Corp. | | | 70,450 | | | $ | 3,189,272 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $340,665,981) | | | | | | $ | 366,357,159 | |
| | | | | | | | |
| |
| BONDS – 56.6% | | | | | |
| Asset-Backed & Securitized – 2.4% | | | | | |
| Bayview Commercial Asset Trust, FRN, 1.72%, 2023 (z) | | CAD | 170,000 | | | $ | 164,901 | |
| Citigroup/Deutsche Bank Commercial Mortgage Trust, 5.322%, 2049 | | $ | 1,729,018 | | | | 1,920,451 | |
5
MFS Global Tactical Allocation Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Asset-Backed & Securitized – continued | | | | | |
| Commercial Mortgage Pass-Through Certificates, “A3”, 5.293%, 2049 | | $ | 532,759 | | | $ | 562,446 | |
| Commercial Mortgage Pass-Through Certificates, “A4”, 5.306%, 2046 | | | 1,432,759 | | | | 1,609,616 | |
| Credit Suisse Mortgage Capital Certificate, 5.311%, 2039 | | | 2,310,000 | | | | 2,563,017 | |
| CWCapital LLC, 5.223%, 2048 | | | 2,310,000 | | | | 2,551,596 | |
| G-Force LLC, CDO, “A2”, 4.83%, 2036 (z) | | | 496,675 | | | | 474,325 | |
JPMorgan Chase Commercial Mortgage Securities Corp., “A3”, FRN,
6.009%, 2049 | | | 1,230,759 | | | | 1,311,594 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., “A3”, FRN, 6.179%, 2051 | | | 1,808,573 | | | | 1,921,191 | |
| JPMorgan Chase Commercial Mortgage Securities Corp., “A4”, FRN, 6.009%, 2049 | | | 2,310,000 | | | | 2,535,927 | |
| Merrill Lynch Mortgage Trust, FRN, 5.846%, 2050 | | | 3,310,000 | | | | 3,677,658 | |
| Merrill Lynch Mortgage Trust, FRN, “A3”, 6.041%, 2050 | | | 2,373,000 | | | | 2,448,858 | |
| Merrill Lynch/Countrywide Commercial Mortgage Trust, FRN, 5.81%, 2050 | | | 2,460,000 | | | | 2,648,136 | |
| Wachovia Bank Commercial Mortgage Trust, “A3”, FRN, 6.096%, 2051 | | | 620,000 | | | | 652,190 | |
| | | | | | | | |
| | | | | | $ | 25,041,906 | |
| | | | | | | | |
| Automotive – 0.1% | | | | | |
| Volkswagen International Finance N.V., 2.375%, 2017 (n) | | $ | 1,052,000 | | | $ | 1,068,649 | |
| | | | | | | | |
| Biotechnology – 0.3% | | | | | |
| Life Technologies Corp., 6%, 2020 | | $ | 2,750,000 | | | $ | 3,226,209 | |
| | | | | | | | |
| Broadcasting – 0.1% | | | | | |
| NBCUniversal Media LLC, 5.15%, 2020 | | $ | 1,166,000 | | | $ | 1,338,651 | |
| | | | | | | | |
| Building – 0.1% | | | | | |
| Owens Corning, Inc., 6.5%, 2016 | | $ | 1,080,000 | | | $ | 1,200,875 | |
| | | | | | | | |
| Cable TV – 0.3% | | | | | |
| DIRECTV Holdings LLC, 5.2%, 2020 | | $ | 1,656,000 | | | $ | 1,832,604 | |
| Time Warner Cable, Inc., 5%, 2020 | | | 1,020,000 | | | | 1,145,492 | |
| | | | | | | | |
| | | | | | $ | 2,978,096 | |
| | | | | | | | |
| Chemicals – 0.1% | | | | | |
| Dow Chemical Co., 8.55%, 2019 | | $ | 930,000 | | | $ | 1,236,969 | |
| | | | | | | | |
| Electrical Equipment – 0.1% | | | | | |
| Ericsson, Inc., 4.125%, 2022 | | $ | 780,000 | | | $ | 782,157 | |
| | | | | | | | |
| Emerging Market Quasi-Sovereign – 1.4% | | | | | |
| Banco do Brasil (Cayman Branch), 6%, 2020 (n) | | $ | 910,000 | | | $ | 1,028,300 | |
| Banco do Nordeste do Brasil (BNB), 3.625%, 2015 (n) | | | 519,000 | | | | 524,190 | |
| BNDES Participacoes S.A., 6.5%, 2019 (n) | | | 700,000 | | | | 834,750 | |
| Centrais Eletricas Brasileiras S.A., 5.75%, 2021 (n) | | | 2,218,000 | | | | 2,424,274 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Emerging Market Quasi-Sovereign – continued | | | | | |
| CEZ A.S., 4.25%, 2022 (n) | | $ | 1,645,000 | | | $ | 1,685,418 | |
| CNPC (HK) Overseas Capital Ltd., 4.5%, 2021 (n) | | | 669,000 | | | | 715,417 | |
| Comision Federal de Electricidad, 5.75%, 2042 (n) | | | 1,163,000 | | | | 1,221,150 | |
| Corporacion Nacional del Cobre de Chile, 3.75%, 2020 (n) | | | 474,000 | | | | 494,327 | |
| Empresa Nacional del Petroleo, 6.25%, 2019 | | | 619,000 | | | | 702,984 | |
| Pemex Project Funding Master Trust, 5.75%, 2018 | | | 1,003,000 | | | | 1,133,390 | |
| Petrobras International Finance Co., 5.375%, 2021 | | | 2,072,000 | | | | 2,233,142 | |
| Petroleos Mexicanos, 6%, 2020 | | | 600,000 | | | | 693,900 | |
| Petroleos Mexicanos, 5.5%, 2021 | | | 664,000 | | | | 750,320 | |
| | | | | | | | |
| | | | | | $ | 14,441,562 | |
| | | | | | | | |
| Emerging Market Sovereign – 0.8% | | | | | |
| Federative Republic of Brazil, 5.625%, 2041 | | $ | 1,255,000 | | | $ | 1,539,258 | |
| Republic of Colombia, 6.125%, 2041 | | | 1,241,000 | | | | 1,613,300 | |
| Republic of Peru, 7.35%, 2025 | | | 1,400,000 | | | | 1,967,000 | |
| Republic of Peru, 5.625%, 2050 | | | 51,000 | | | | 61,838 | |
| Republic of Poland, 5%, 2022 | | | 431,000 | | | | 470,437 | |
| Republic of South Africa, 5.5%, 2020 | | | 900,000 | | | | 1,037,250 | |
| Republic of South Africa, 6.25%, 2041 | | | 483,000 | | | | 610,995 | |
| Russian Federation, 4.5%, 2022 (n) | | | 400,000 | | | | 419,044 | |
| Russian Federation, 5.625%, 2042 (n) | | | 200,000 | | | | 213,960 | |
| | | | | | | | |
| | | | | | $ | 7,933,082 | |
| | | | | | | | |
| Energy – Independent – 0.3% | | | | | |
| Apache Corp., 4.75%, 2043 | | $ | 526,000 | | | $ | 584,267 | |
| Encana Corp., 3.9%, 2021 | | | 870,000 | | | | 860,550 | |
| Hess Corp., 8.125%, 2019 | | | 980,000 | | | | 1,261,440 | |
| | | | | | | | |
| | | | | | $ | 2,706,257 | |
| | | | | | | | |
| Financial Institutions – 0.1% | | | | | |
| General Electric Capital Corp., 4.625%, 2021 | | $ | 900,000 | | | $ | 989,912 | |
| SLM Corp., 6.25%, 2016 | | | 493,000 | | | | 517,650 | |
| | | | | | | | |
| | | | | | $ | 1,507,562 | |
| | | | | | | | |
| Food & Beverages – 0.9% | | | | | |
| Anheuser-Busch InBev S.A., 5.375%, 2020 | | $ | 1,310,000 | | | $ | 1,561,024 | |
| Grupo Bimbo S.A.B. de C.V., 4.5%, 2022 (n) | | | 1,924,000 | | | | 2,046,745 | |
| Kraft Foods, Inc., 6.125%, 2018 | | | 470,000 | | | | 563,209 | |
| Pernod Ricard S.A., 5.5%, 2042 (n) | | | 227,000 | | | | 232,465 | |
| Pernod-Ricard S.A., 4.45%, 2022 (n) | | | 241,000 | | | | 249,713 | |
| SABMiller Holdings, Inc., 3.75%, 2022 (n) | | | 466,000 | | | | 495,569 | |
| Tyson Foods, Inc., 6.85%, 2016 | | | 3,213,000 | | | | 3,674,869 | |
| | | | | | | | |
| | | | | | $ | 8,823,594 | |
| | | | | | | | |
| Food & Drug Stores – 0.1% | | | | | |
| CVS Caremark Corp., 5.75%, 2017 | | $ | 910,000 | | | $ | 1,074,698 | |
| | | | | | | | |
6
MFS Global Tactical Allocation Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Forest & Paper Products – 0.2% | | | | | |
Georgia-Pacific Corp.,
5.4%, 2020 (n) | | $ | 1,590,000 | | | $ | 1,844,987 | |
| Votorantim Participacoes S.A., 6.75%, 2021 (n) | | | 600,000 | | | | 654,000 | |
| | | | | | | | |
| | | | | | $ | 2,498,987 | |
| | | | | | | | |
| Insurance – 0.5% | | | | | |
| American International Group, Inc., 4.875%, 2016 | | $ | 1,460,000 | | | $ | 1,548,672 | |
| Unum Group, 7.125%, 2016 | | | 800,000 | | | | 922,696 | |
| UnumProvident Corp., 6.85%, 2015 (n) | | | 2,429,000 | | | | 2,713,055 | |
| | | | | | | | |
| | | | | | $ | 5,184,423 | |
| | | | | | | | |
| Insurance – Property & Casualty – 0.7% | | | | | |
| AXIS Capital Holdings Ltd., 5.75%, 2014 | | $ | 320,000 | | | $ | 339,073 | |
Chubb Corp., 6.375% to 2017,
FRN to 2067 | | | 1,010,000 | | | | 1,042,825 | |
| CNA Financial Corp., 5.875%, 2020 | | | 2,000,000 | | | | 2,199,308 | |
| Liberty Mutual Group, Inc., 4.95%, 2022 (n) | | | 677,000 | | | | 672,799 | |
QBE Capital Funding III Ltd.,
FRN, 7.25%, 2041 (n) | | | 1,089,000 | | | | 982,739 | |
ZFS Finance USA Trust II,
6.45% to 2016, FRN to 2065 (n) | | | 2,000,000 | | | | 2,000,000 | |
| | | | | | | | |
| | | | | | $ | 7,236,744 | |
| | | | | | | | |
| International Market Quasi-Sovereign – 0.1% | | | | | |
| Statoil A.S.A., 4.25%, 2041 | | $ | 1,260,000 | | | $ | 1,335,085 | |
| | | | | | | | |
| International Market Sovereign – 29.9% | | | | | |
| Commonwealth of Australia, 5.75%, 2021 | | AUD | 11,710,000 | | | $ | 14,596,870 | |
| Federal Republic of Germany, 3.75%, 2013 | | EUR | 5,547,000 | | | | 7,277,910 | |
| Federal Republic of Germany, 3.75%, 2015 | | EUR | 8,251,000 | | | | 11,373,863 | |
| Federal Republic of Germany, 3.25%, 2021 | | EUR | 8,339,000 | | | | 12,171,195 | |
| Federal Republic of Germany, 6.25%, 2030 | | EUR | 4,664,000 | | | | 9,265,648 | |
| Government of Canada, 4.5%, 2015 | | CAD | 8,181,000 | | | | 8,814,363 | |
| Government of Canada, 4.25%, 2018 | | CAD | 13,100,000 | | | | 14,959,554 | |
| Government of Canada, 3.25%, 2021 | | CAD | 2,318,000 | | | | 2,580,742 | |
| Government of Canada, 5.75%, 2033 | | CAD | 1,478,000 | | | | 2,277,914 | |
| Government of Japan, 1.7%, 2017 | | JPY | 1,509,900,000 | | | | 20,222,838 | |
| Government of Japan, 1.1%, 2020 | | JPY | 1,827,700,000 | | | | 23,789,253 | |
| Government of Japan, 2.1%, 2024 | | JPY | 1,176,200,000 | | | | 16,430,735 | |
| Government of Japan, 2.2%, 2027 | | JPY | 667,450,000 | | | | 9,298,200 | |
| Government of Japan, 2.4%, 2037 | | JPY | 741,200,000 | | | | 10,340,229 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| International Market Sovereign – continued | | | | | |
| Government of New Zealand, 6%, 2021 | | NZD | 5,773,000 | | | $ | 5,556,197 | |
| Government of Norway, 3.75%, 2021 | | NOK | 32,298,000 | | | | 6,241,770 | |
| Kingdom of Belgium, 4.25%, 2021 | | EUR | 3,802,000 | | | | 5,264,183 | |
| Kingdom of Denmark, 3%, 2021 | | DKK | 25,090,000 | | | | 4,842,559 | |
| Kingdom of Sweden, 5%, 2020 | | SEK | 64,200,000 | | | | 11,834,733 | |
| Kingdom of the Netherlands, 3.75%, 2014 | | EUR | 8,345,000 | | | | 11,295,608 | |
| Kingdom of the Netherlands, 5.5%, 2028 | | EUR | 1,387,000 | | | | 2,422,824 | |
| Republic of Austria, 4.65%, 2018 | | EUR | 4,003,000 | | | | 5,863,656 | |
| Republic of Finland, 3.875%, 2017 | | EUR | 1,557,000 | | | | 2,236,955 | |
| Republic of France, 6%, 2025 | | EUR | 3,219,000 | | | | 5,336,064 | |
| Republic of France, 4.75%, 2035 | | EUR | 6,145,000 | | | | 9,265,224 | |
| Republic of Iceland, 4.875%, 2016 (n) | | $ | 1,518,000 | | | | 1,519,983 | |
| Republic of Italy, 4.25%, 2015 | | EUR | 3,341,000 | | | | 4,251,410 | |
| Republic of Italy, 5.25%, 2017 | | EUR | 11,463,000 | | | | 14,621,120 | |
| Republic of Italy, 3.75%, 2021 | | EUR | 2,087,000 | | | | 2,342,442 | |
| United Kingdom Treasury, 8%, 2015 | | GBP | 7,479,000 | | | | 14,757,633 | |
| United Kingdom Treasury, 5%, 2018 | | GBP | 6,369,000 | | | | 12,208,876 | |
| United Kingdom Treasury, 8%, 2021 | | GBP | 4,705,000 | | | | 11,329,292 | |
| United Kingdom Treasury, 4.25%, 2027 | | GBP | 2,843,000 | | | | 5,529,020 | |
| United Kingdom Treasury, 4.25%, 2036 | | GBP | 4,570,000 | | | | 8,824,248 | |
| | | | | | | | |
| | | | | | $ | 308,943,111 | |
| | | | | | | | |
| Major Banks – 2.3% | | | | | |
| ABN AMRO Bank N.V., 4.25%, 2017 (n) | | $ | 835,000 | | | $ | 850,155 | |
| Bank of America Corp., 5.65%, 2018 | | | 1,535,000 | | | | 1,641,365 | |
| Bank of America Corp., 7.625%, 2019 | | | 2,225,000 | | | | 2,616,335 | |
| Goldman Sachs Group, Inc., 5.75%, 2022 | | | 1,056,000 | | | | 1,114,718 | |
| HSBC USA, Inc., 4.875%, 2020 | | | 1,870,000 | | | | 1,923,656 | |
| ING Bank N.V., FRN, 1.867%, 2014 (n) | | | 1,900,000 | | | | 1,874,304 | |
| JPMorgan Chase & Co., 4.25%, 2020 | | | 2,760,000 | | | | 2,899,419 | |
| Macquarie Bank Ltd., 5%, 2017 (n) | | | 1,502,000 | | | | 1,529,792 | |
| Morgan Stanley, 7.3%, 2019 | | | 1,772,000 | | | | 1,914,184 | |
| PNC Financial Services Group, Inc., 5.125%, 2020 | | | 1,670,000 | | | | 1,931,373 | |
| PNC Financial Services Group, Inc., FRN, 6.75%, 2049 | | | 860,000 | | | | 907,042 | |
| Royal Bank of Scotland PLC, 6.125%, 2021 | | | 910,000 | | | | 1,010,933 | |
| Wells Fargo & Co., 2.1%, 2017 | | | 3,160,000 | | | | 3,167,063 | |
| | | | | | | | |
| | | | | | $ | 23,380,339 | |
| | | | | | | | |
| Medical & Health Technology & Services – 0.3% | | | | | |
| Aristotle Holding, Inc., 2.65%, 2017 (n) | | $ | 2,800,000 | | | $ | 2,848,633 | |
| Aristotle Holding, Inc., 3.9%, 2022 (n) | | | 285,000 | | | | 295,406 | |
| | | | | | | | |
| | | | | | $ | 3,144,039 | |
| | | | | | | | |
7
MFS Global Tactical Allocation Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Metals & Mining – 0.4% | | | | | |
| Gold Fields Orogen Holding Ltd., 4.875%, 2020 (n) | | $ | 2,197,000 | | | $ | 2,093,405 | |
| Southern Copper Corp., 6.75%, 2040 | | | 407,000 | | | | 430,996 | |
| Teck Resources Ltd., 10.75%, 2019 | | | 414,000 | | | | 497,835 | |
| Vale Overseas Ltd., 5.625%, 2019 | | | 149,000 | | | | 165,177 | |
| Vale Overseas Ltd., 4.625%, 2020 | | | 410,000 | | | | 428,899 | |
| Vale Overseas Ltd., 4.375%, 2022 | | | 998,000 | | | | 1,016,286 | |
| | | | | | | | |
| | | | | | $ | 4,632,598 | |
| | | | | | | | |
| Mortgage-Backed – 6.6% | | | | | |
| Fannie Mae, 4.757%, 2012 | | $ | 108,731 | | | $ | 108,693 | |
| Fannie Mae, 5.357%, 2013 | | | 130,001 | | | | 129,955 | |
| Fannie Mae, 4.561%, 2014 | | | 66,342 | | | | 69,670 | |
| Fannie Mae, 4.607%, 2014 | | | 112,759 | | | | 117,793 | |
| Fannie Mae, 4.778%, 2014 | | | 420,557 | | | | 437,112 | |
| Fannie Mae, 4.563%, 2015 | | | 645,810 | | | | 682,894 | |
| Fannie Mae, 4.78%, 2015 | | | 90,722 | | | | 98,463 | |
| Fannie Mae, 4.815%, 2015 | | | 238,048 | | | | 257,485 | |
| Fannie Mae, 4.856%, 2015 | | | 72,195 | | | | 78,249 | |
| Fannie Mae, 4.997%, 2015 | | | 285,706 | | | | 315,975 | |
| Fannie Mae, 5.465%, 2015 | | | 143,435 | | | | 158,856 | |
| Fannie Mae, 5.5%, 2015 - 2037 | | | 2,212,813 | | | | 2,413,110 | |
| Fannie Mae, 5.09%, 2016 | | | 99,000 | | | | 110,178 | |
| Fannie Mae, 5.272%, 2016 | | | 547,426 | | | | 614,004 | |
| Fannie Mae, 5.423%, 2016 | | | 95,768 | | | | 108,232 | |
| Fannie Mae, 5.724%, 2016 | | | 683,260 | | | | 778,524 | |
| Fannie Mae, 3.308%, 2017 | | | 1,670,059 | | | | 1,800,023 | |
| Fannie Mae, 4.989%, 2017 | | | 38,723 | | | | 41,689 | |
| Fannie Mae, 5.05%, 2017 | | | 483,863 | | | | 539,664 | |
| Fannie Mae, 2.578%, 2018 | | | 1,800,000 | | | | 1,876,748 | |
| Fannie Mae, 3.84%, 2018 | | | 491,727 | | | | 539,489 | |
| Fannie Mae, 3.849%, 2018 | | | 1,782,127 | | | | 1,963,900 | |
| Fannie Mae, 5.34%, 2018 | | | 605,055 | | | | 698,226 | |
| Fannie Mae, 4.45%, 2019 | | | 434,584 | | | | 491,004 | |
| Fannie Mae, 4.57%, 2019 | | | 239,450 | | | | 270,885 | |
| Fannie Mae, 4.6%, 2019 | | | 615,000 | | | | 705,006 | |
| Fannie Mae, 6.16%, 2019 | | | 62,061 | | | | 71,001 | |
| Fannie Mae, 5%, 2020-2040 | | | 3,890,877 | | | | 4,223,585 | |
| Fannie Mae, 4.5%, 2023 - 2040 | | | 10,511,547 | | | | 11,328,579 | |
| Fannie Mae, 4%, 2025 | | | 351,245 | | | | 381,563 | |
| Fannie Mae, 6%, 2037 - 2038 | | | 2,728,197 | | | | 3,001,802 | |
| Fannie Mae, 5%, 2039 - 2040 (f) | | | 4,971,677 | | | | 5,450,482 | |
| Freddie Mac, 3.882%, 2017 | | | 1,357,000 | | | | 1,504,743 | |
| Freddie Mac, 2.323%, 2018 | | | 447,000 | | | | 461,575 | |
| Freddie Mac, 2.412%, 2018 (n) | | | 2,482,000 | | | | 2,576,470 | |
| Freddie Mac, 2.699%, 2018 | | | 705,000 | | | | 743,133 | |
| Freddie Mac, 4.186%, 2019 | | | 650,000 | | | | 733,151 | |
| Freddie Mac, 5.085%, 2019 | | | 30,000 | | | | 35,180 | |
| Freddie Mac, 2.757%, 2020 | | | 323,736 | | | | 343,686 | |
| Freddie Mac, 3.32%, 2020 | | | 1,818,742 | | | | 1,967,070 | |
| Freddie Mac, 4%, 2025 | | | 920,958 | | | | 973,829 | |
| Freddie Mac, 5.5%, 2034 - 2037 | | | 372,078 | | | | 408,807 | |
| Freddie Mac, 5%, 2036 - 2038 | | | 3,034,119 | | | | 3,263,658 | |
| Freddie Mac, 4.5%, 2040 (f) | | | 9,429,058 | | | | 10,086,197 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| Mortgage-Backed – continued | | | | | |
| Ginnie Mae, 5%, 2040 - 2041 | | $ | 5,174,316 | | | $ | 5,730,336 | |
| | | | | | | | |
| | | | | | $ | 68,690,674 | |
| | | | | | | | |
| Natural Gas – Pipeline – 0.2% | | | | | |
| Energy Transfer Partners LP, 4.65%, 2021 | | $ | 1,664,000 | | | $ | 1,719,097 | |
| | | | | | | | |
| Oil Services – 0.2% | | | | | |
| Transocean, Inc., 6.5%, 2020 | | $ | 2,200,000 | | | $ | 2,495,436 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 0.8% | | | | | |
| Banco Santander U.S. Debt S.A.U., 3.781%, 2015 (n) | | $ | 1,300,000 | | | $ | 1,213,770 | |
| BB&T Corp., 3.95%, 2016 | | | 1,820,000 | | | | 1,981,168 | |
| Capital One Financial Corp., 8.8%, 2019 | | | 815,000 | | | | 1,026,372 | |
| Citigroup, Inc., 6.125%, 2018 | | | 2,375,000 | | | | 2,651,863 | |
| SunTrust Banks, Inc., 3.5%, 2017 | | | 550,000 | | | | 569,375 | |
| Svenska Handelsbanken AB, 2.875%, 2017 | | | 757,000 | | | | 767,394 | |
| | | | | | | | |
| | | | | | $ | 8,209,942 | |
| | | | | | | | |
| Real Estate – 0.3% | | | | | |
| Simon Property Group, Inc., REIT, 5.65%, 2020 | | $ | 2,330,000 | | | $ | 2,717,940 | |
| | | | | | | | |
| Retailers – 0.2% | | | | | |
| Home Depot, Inc., 5.95%, 2041 | | $ | 1,469,000 | | | $ | 1,911,240 | |
| | | | | | | | |
| Telecommunications – Wireless – 0.3% | | | | | |
| American Tower Corp., REIT, 4.7%, 2022 | | $ | 327,000 | | | $ | 335,693 | |
| Crown Castle Towers LLC, 6.113%, 2020 (n) | | | 2,030,000 | | | | 2,349,960 | |
| | | | | | | | |
| | | | | | $ | 2,685,653 | |
| | | | | | | | |
| Telephone Services – 0.2% | | | | | |
| Oi S.A., 5.75%, 2022 (n) | | $ | 1,728,000 | | | $ | 1,760,832 | |
| | | | | | | | |
| Tobacco – 0.2% | | | | | |
| Altria Group, Inc., 9.7%, 2018 | | $ | 1,455,000 | | | $ | 2,013,382 | |
| | | | | | | | |
| Transportation – Services – 0.0% | | | | | |
| ERAC USA Finance Co., 2.75%, 2017 (n) | | $ | 376,000 | | | $ | 381,284 | |
| | | | | | | | |
U.S. Government Agencies and
Equivalents – 0.2% | |
| Aid-Egypt, 4.45%, 2015 | | $ | 649,000 | | | $ | 726,685 | |
| FDIC Structured Sale Guarantee Note, 0%, 2012 (n) | | | 131,000 | | | | 130,910 | |
| Small Business Administration, 5.09%, 2025 | | | 35,473 | | | | 39,886 | |
| Small Business Administration, 5.21%, 2026 | | | 1,249,805 | | | | 1,385,791 | |
| Small Business Administration, 5.31%, 2027 | | | 281,168 | | | | 319,790 | |
| | | | | | | | |
| | | | | | $ | 2,603,062 | |
| | | | | | | | |
| U.S. Treasury Obligations – 5.4% | | | | | |
| U.S. Treasury Bonds, 6.875%, 2025 (f) | | $ | 9,652,000 | | | $ | 15,076,723 | |
| U.S. Treasury Bonds, 5.25%, 2029 | | | 855,000 | | | | 1,206,084 | |
| U.S. Treasury Bonds, 4.5%, 2039 (f) | | | 7,995,000 | | | | 10,848,216 | |
| U.S. Treasury Notes, 4.75%, 2017 (f) | | | 18,705,000 | | | | 22,438,686 | |
8
MFS Global Tactical Allocation Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| BONDS – continued | | | | | |
| U.S. Treasury Obligations – continued | | | | | |
| U.S. Treasury Notes, 3.5%, 2020 (f) | | $ | 5,176,000 | | | $ | 6,047,835 | |
| | | | | | | | |
| | | | | | $ | 55,617,544 | |
| | | | | | | | |
| Utilities – Electric Power – 0.5% | | | | | |
| Enel Finance International S.A., 6%, 2039 (n) | | $ | 894,000 | | | $ | 701,842 | |
| Progress Energy, Inc., 7.05%, 2019 | | | 2,150,000 | | | | 2,702,655 | |
| TECO Energy, Inc., 6.572%, 2017 | | | 1,361,000 | | | | 1,641,465 | |
| | | | | | | | |
| | | | | | $ | 5,045,962 | |
| | | | | | | | |
Total Bonds
(Identified Cost, $567,831,616) | | | $ | 585,567,641 | |
| | | | | | | | |
| Issuer/Expiration Date/ Strike Price | | Number of
Contracts | | | | |
| PUT OPTIONS PURCHASED – 0.1% | | | | | |
| Russell 2000 Index – September 2012 @ $650 (a) | | | 712 | | | $ | 398,720 | |
| Russell 2000 Index – December 2012 @ $650 (a) | | | 310 | | | | 530,100 | |
| | | | | | | | |
Total Put Options Purchased – 0.1% (Premiums Paid, $2,070,239) | | | $ | 928,820 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| MONEY MARKET FUNDS – 6.4% | | | | | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 66,440,957 | | | $ | 66,440,957 | |
| | | | | | | | |
|
| COLLATERAL FOR SECURITIES LOANED – 0.4% | |
| Navigator Securities Lending Prime Portfolio, 0.28%, at Cost and Net Asset Value (j) | | | 3,413,492 | | | $ | 3,413,492 | |
| | | | | | | | |
Total Investments
(Identified Cost, $980,422,285) | | | $ | 1,022,708,069 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 1.1% | | | | 11,881,236 | |
| | | | | | | | |
| Net Assets – 100.0% | | | $ | 1,034,589,305 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (f) | | All or a portion of the security has been segregated as collateral for open futures contracts. |
| (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. |
| (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 $42,648,297, representing 4.1% of net assets. |
| (v) | | Underlying affiliated fund 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 | |
| Bayview Commercial Asset Trust, FRN, 1.72%, 2023 | | 5/25/2006 | | | $170,247 | | | | $164,901 | |
| G-Force LLC, CDO, “A2”, 4.83%, 2036 | | 1/20/2011 | | | 482,405 | | | | 474,325 | |
| Total Restricted Securities | | | | | | | | | $639,226 | |
| % of Net Assets | | | | | | | | | 0.1% | |
The following abbreviations are used in this report and are defined:
| ADR | | American Depositary Receipt |
| CDO | | Collateralized Debt Obligation |
| FRN | | Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end. |
| IPS | | International Preference Stock |
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
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:
9
MFS Global Tactical Allocation Portfolio
Portfolio of Investments (unaudited) – continued
Derivative Contracts at 6/30/12
Forward Foreign Currency Exchange Contracts at 6/30/12
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Type | | Currency | | | Counterparty | | Contracts to
Deliver/Receive | | Settlement Date
Range | | In Exchange For | | | Contracts
at Value | | | Net Unrealized
Appreciation
(Depreciation) | |
| Asset Derivatives | | | | | | | | | | | | | | | | |
| | BUY | | | AUD | | | JPMorgan Chase Bank N.A. | | 19,781,583 | | 8/07/12 | | $ | 19,575,000 | | | $ | 20,179,658 | | | $ | 604,658 | |
| | SELL | | | AUD | | | Barclays Bank PLC | | 324,000 | | 7/13/12 | | | 331,786 | | | | 331,300 | | | | 486 | |
| | SELL | | | AUD | | | Citibank N.A. | | 257,000 | | 7/13/12 | | | 264,195 | | | | 262,790 | | | | 1,405 | |
| | SELL | | | AUD | | | Goldman Sachs International | | 8,505,519 | | 8/07/12 | | | 8,681,838 | | | | 8,676,680 | | | | 5,158 | |
| | SELL | | | AUD | | | JPMorgan Chase Bank N.A. | | 20,328,876 | | 8/07/12 | | | 20,748,627 | | | | 20,737,966 | | | | 10,661 | |
| | BUY | | | CAD | | | Barclays Bank PLC | | 80,000 | | 7/13/12 | | | 77,697 | | | | 78,561 | | | | 864 | |
| | BUY | | | CAD | | | JPMorgan Chase Bank N.A. | | 18,046,322 | | 8/07/12 | | | 17,597,000 | | | | 17,711,899 | | | | 114,899 | |
| | SELL | | | CAD | | | Barclays Bank PLC | | 1,899,733 | | 7/13/12 | | | 1,921,531 | | | | 1,865,551 | | | | 55,980 | |
| | SELL | | | CAD | | | Goldman Sachs International | | 198,658 | | 7/13/12 | | | 198,000 | | | | 195,084 | | | | 2,916 | |
| | SELL | | | CAD | | | JPMorgan Chase Bank N.A. | | 33,987,290 | | 8/07/12 | | | 34,058,170 | | | | 33,357,459 | | | | 700,711 | |
| | SELL | | | CAD | | | Merrill Lynch International Bank | | 9,184,302 | | 7/13/12 | | | 9,161,856 | | | | 9,019,050 | | | | 142,806 | |
| | BUY | | | CHF | | | Deutsche Bank AG | | 140,000 | | 7/13/12 | | | 145,627 | | | | 147,534 | | | | 1,907 | |
| | SELL | | | CHF | | | Credit Suisse Group | | 73,000 | | 7/13/12 | | | 77,705 | | | | 76,928 | | | | 777 | |
| | SELL | | | CHF | | | Goldman Sachs International | | 36,651,381 | | 8/06/12 | | | 40,124,124 | | | | 38,645,323 | | | | 1,478,801 | |
| | SELL | | | CHF | | | JPMorgan Chase Bank N.A. | | 30,056,167 | | 8/06/12 | | | 32,904,586 | | | | 31,691,310 | | | | 1,213,276 | |
| | BUY | | | DKK | | | Barclays Bank PLC | | 889,000 | | 7/13/12 | | | 150,931 | | | | 151,362 | | | | 431 | |
| | SELL | | | DKK | | | Goldman Sachs International | | 10,498,333 | | 8/06/12 | | | 1,855,566 | | | | 1,788,594 | | | | 66,972 | |
| | BUY | | | EUR | | | Deutsche Bank AG | | 463,000 | | 7/13/12 | | | 580,202 | | | | 585,972 | | | | 5,770 | |
| | BUY | | | EUR | | | Goldman Sachs International | | 2,110,138 | | 8/06/12 | | | 2,652,000 | | | | 2,671,117 | | | | 19,117 | |
| | BUY | | | EUR | | | UBS AG | | 12,002,416 | | 9/17/12 | | | 14,987,657 | | | | 15,200,028 | | | | 212,371 | |
| | SELL | | | EUR | | | Barclays Bank PLC | | 1,692,056 | | 7/13/12 | | | 2,195,038 | | | | 2,141,465 | | | | 53,573 | |
| | SELL | | | EUR | | | Citibank N.A. | | 597,121 | | 7/13/12 | | | 758,909 | | | | 755,716 | | | | 3,193 | |
| | SELL | | | EUR | | | Credit Suisse Group | | 46,000 | | 7/13/12 | | | 58,528 | | | | 58,218 | | | | 310 | |
| | SELL | | | EUR | | | Deutsche Bank AG | | 2,567,000 | | 7/13/12 | | | 3,328,571 | | | | 3,248,793 | | | | 79,778 | |
| | SELL | | | EUR | | | Goldman Sachs International | | 77,057,254 | | 7/13/12-8/06/12 | | | 101,323,742 | | | | 97,542,614 | | | | 3,781,128 | |
| | SELL | | | EUR | | | JPMorgan Chase Bank N.A. | | 33,726,182 | | 8/06/12 | | | 44,372,425 | | | | 42,692,271 | | | | 1,680,154 | |
| | BUY | | | GBP | | | Barclays Bank PLC | | 506,000 | | 7/13/12 | | | 786,775 | | | | 792,453 | | | | 5,678 | |
| | BUY | | | GBP | | | Deutsche Bank AG | | 222,000 | | 7/13/12 | | | 341,435 | | | | 347,677 | | | | 6,242 | |
| | BUY | | | GBP | | | JPMorgan Chase Bank N.A. | | 1,667,120 | | 8/06/12 | | | 2,600,000 | | | | 2,610,740 | | | | 10,740 | |
| | SELL | | | GBP | | | Barclays Bank PLC | | 4,573,258 | | 7/13/12 | | | 7,247,114 | | | | 7,162,236 | | | | 84,878 | |
10
MFS Global Tactical Allocation Portfolio
Portfolio of Investments (unaudited) – continued
Forward Foreign Currency Exchange Contracts at 6/30/12 – continued
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Type | | Currency | | | Counterparty | | Contracts to
Deliver/Receive | | Settlement Date
Range | | In Exchange For | | | Contracts
at Value | | | Net Unrealized
Appreciation
(Depreciation) | |
| Asset Derivatives - continued | | | | | | | | | | | | | | | | |
| | SELL | | | GBP | | | Citibank N.A. | | 144,000 | | 7/13/12 | | $ | 227,452 | | | $ | 225,520 | | | $ | 1,932 | |
| | SELL | | | GBP | | | Deutsche Bank AG | | 4,184,258 | | 7/13/12 | | | 6,630,669 | | | | 6,553,019 | | | | 77,650 | |
| | SELL | | | GBP | | | Goldman Sachs International | | 118,000 | | 7/13/12 | | | 187,552 | | | | 184,801 | | | | 2,751 | |
| | BUY | | | JPY | | | Barclays Bank PLC | | 272,699,000 | | 7/13/12 | | | 3,384,293 | | | | 3,411,996 | | | | 27,703 | |
| | BUY | | | JPY | | | Goldman Sachs International | | 2,089,252,450 | | 7/13/12 | | | 25,868,130 | | | | 26,140,621 | | | | 272,491 | |
| | BUY | | | JPY | | | UBS AG | | 2,128,282,450 | | 7/13/12 | | | 26,276,721 | | | | 26,628,962 | | | | 352,241 | |
| | SELL | | | JPY | | | Citibank N.A. | | 6,730,000 | | 7/13/12 | | | 84,862 | | | | 84,205 | | | | 657 | |
| | SELL | | | JPY | | | Credit Suisse Group | | 143,613,522 | | 7/13/12 | | | 1,810,245 | | | | 1,796,885 | | | | 13,360 | |
| | SELL | | | JPY | | | Deutsche Bank AG | | 56,942,000 | | 7/13/12 | | | 727,278 | | | | 712,455 | | | | 14,823 | |
| | SELL | | | JPY | | | Goldman Sachs International | | 1,372,219,748 | | 7/13/12-8/06/12 | | | 17,275,854 | | | | 17,174,878 | | | | 100,976 | |
| | SELL | | | JPY | | | UBS AG | | 244,833,936 | | 7/13/12 | | | 3,069,048 | | | | 3,063,350 | | | | 5,698 | |
| | BUY | | | KRW | | | JPMorgan Chase Bank N.A. | | 6,893,556,000 | | 7/13/12 | | | 5,889,411 | | | | 6,014,583 | | | | 125,172 | |
| | BUY | | | MXN | | | JPMorgan Chase Bank N.A. | | 68,002,588 | | 7/13/12 | | | 4,953,316 | | | | 5,092,772 | | | | 139,456 | |
| | SELL | | | MXN | | | Deutsche Bank AG | | 41,339,000 | | 7/13/12 | | | 3,110,955 | | | | 3,095,913 | | | | 15,042 | |
| | BUY | | | MYR | | | JPMorgan Chase Bank N.A. | | 3,846,756 | | 7/13/12 | | | 1,207,659 | | | | 1,210,562 | | | | 2,903 | |
| | BUY | | | NOK | | | Citibank N.A. | | 860,000 | | 7/13/12 | | | 143,133 | | | | 144,519 | | | | 1,386 | |
| | BUY | | | NOK | | | Goldman Sachs International | | 714,000 | | 7/13/12 | | | 118,415 | | | | 119,984 | | | | 1,569 | |
| | BUY | | | NOK | | | JPMorgan Chase Bank N.A. | | 34,120,115 | | 8/06/12 | | | 5,655,000 | | | | 5,728,796 | | | | 73,796 | |
| | SELL | | | NOK | | | Barclays Bank PLC | | 23,973,097 | | 7/12/12 | | | 4,109,156 | | | | 4,028,709 | | | | 80,447 | |
| | SELL | | | NOK | | | Credit Suisse Group | | 767,000 | | 7/13/12 | | | 131,209 | | | | 128,891 | | | | 2,318 | |
| | SELL | | | NOK | | | Deutsche Bank AG | | 725,000 | | 7/13/12 | | | 123,826 | | | | 121,833 | | | | 1,993 | |
| | SELL | | | NOK | | | JPMorgan Chase Bank N.A. | | 51,302,423 | | 8/06/12 | | | 8,888,780 | | | | 8,613,719 | | | | 275,061 | |
| | SELL | | | NOK | | | UBS AG | | 1,353,000 | | 7/13/12 | | | 234,378 | | | | 227,365 | | | | 7,013 | |
| | BUY | | | NZD | | | JPMorgan Chase Bank N.A. | | 12,875,869 | | 8/06/12 | | | 10,136,000 | | | | 10,283,387 | | | | 147,387 | |
| | SELL | | | NZD | | | Barclays Bank PLC | | 1,255,359 | | 7/12/12 | | | 1,015,138 | | | | 1,004,258 | | | | 10,880 | |
| | SELL | | | PLN | | | Citibank N.A. | | 311,000 | | 7/12/12 | | | 97,322 | | | | 93,244 | | | | 4,078 | |
| | BUY | | | SEK | | | Deutsche Bank AG | | 1,426,000 | | 7/13/12 | | | 201,915 | | | | 206,069 | | | | 4,154 | |
| | BUY | | | SEK | | | JPMorgan Chase Bank N.A. | | 139,309,331 | | 8/06/12 | | | 19,414,000 | | | | 20,113,570 | | | | 699,570 | |
| | SELL | | | SEK | | | Credit Suisse Group | | 46,980,291 | | 7/13/12 | | | 6,881,960 | | | | 6,789,051 | | | | 92,909 | |
| | SELL | | | SEK | | | Deutsche Bank AG | | 923,000 | | 7/13/12 | | | 135,490 | | | | 133,381 | | | | 2,109 | |
| | BUY | | | ZAR | | | Goldman Sachs International | | 13,734,135 | | 7/13/12 | | | 1,640,505 | | | | 1,677,503 | | | | 36,998 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | 12,940,163 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Liability Derivatives | | | | | | | | | | | | | | | | |
| | SELL | | | AUD | | | Citibank N.A. | | 2,853,000 | | 7/13/12 | | $ | 2,834,645 | | | $ | 2,917,278 | | | $ | (82,633 | ) |
| | SELL | | | AUD | | | JPMorgan Chase Bank N.A. | | 18,286,001 | | 8/07/12 | | | 18,340,000 | | | | 18,653,981 | | | | (313,981 | ) |
| | SELL | | | AUD | | | UBS AG | | 508,697 | | 7/13/12 | | | 518,242 | | | | 520,158 | | | | (1,916 | ) |
| | SELL | | | AUD | | | Westpac Banking Corp. | | 4,448,053 | | 7/13/12 | | | 4,530,764 | | | | 4,548,267 | | | | (17,503 | ) |
| | BUY | | | CAD | | | Barclays Bank PLC | | 123,000 | | 7/13/12 | | | 124,211 | | | | 120,787 | | | | (3,424 | ) |
| | SELL | | | CAD | | | Citibank N.A. | | 170,000 | | 7/13/12 | | | 163,310 | | | | 166,941 | | | | (3,631 | ) |
| | SELL | | | CAD | | | JPMorgan Chase Bank N.A. | | 2,686,108 | | 8/07/12 | | | 2,610,000 | | | | 2,636,330 | | | | (26,330 | ) |
| | BUY | | | CHF | | | Goldman Sachs International | | 33,780,494 | | 8/06/12 | | | 36,651,000 | | | | 35,618,251 | | | | (1,032,749 | ) |
| | BUY | | | CHF | | | JPMorgan Chase Bank N.A. | | 29,111,510 | | 8/06/12 | | | 31,584,000 | | | | 30,695,260 | | | | (888,740 | ) |
| | BUY | | | CHF | | | UBS AG | | 4,503,000 | | 7/13/12 | | | 4,917,334 | | | | 4,745,325 | | | | (172,009 | ) |
| | BUY | | | CZK | | | UBS AG | | 14,915,000 | | 7/13/12 | | | 786,877 | | | | 739,577 | | | | (47,300 | ) |
| | BUY | | | DKK | | | Goldman Sachs International | | 2,786,177 | | 7/13/12 | | | 489,705 | | | | 474,376 | | | | (15,329 | ) |
| | SELL | | | DKK | | | Barclays Bank PLC | | 4,597,107 | | 7/13/12 | | | 775,653 | | | | 782,706 | | | | (7,053 | ) |
| | SELL | | | DKK | | | Credit Suisse Group | | 14,136,225 | | 7/13/12 | | | 2,357,248 | | | | 2,406,841 | | | | (49,593 | ) |
| | BUY | | | EUR | | | Barclays Bank PLC | | 2,481,622 | | 7/13/12 | | | 3,219,657 | | | | 3,140,738 | | | | (78,919 | ) |
| | BUY | | | EUR | | | Citibank N.A. | | 5,231,813 | | 7/13/12 | | | 6,754,082 | | | | 6,621,379 | | | | (132,703 | ) |
| | BUY | | | EUR | | | Credit Suisse Group | | 1,744,685 | | 7/13/12 | | | 2,257,837 | | | | 2,208,072 | | | | (49,765 | ) |
| | BUY | | | EUR | | | Deutsche Bank AG | | 1,283,000 | | 7/13/12 | | | 1,701,643 | | | | 1,623,764 | | | | (77,879 | ) |
11
MFS Global Tactical Allocation Portfolio
Portfolio of Investments (unaudited) – continued
Forward Foreign Currency Exchange Contracts at 6/30/12 – continued
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Type | | Currency | | | Counterparty | | Contracts to
Deliver/Receive | | Settlement Date
Range | | In Exchange For | | | Contracts
at Value | | | Net Unrealized
Appreciation
(Depreciation) | |
| Liability Derivatives - continued | | | | | | | | | | | | | | | | |
| | BUY | | | EUR | | | Goldman Sachs International | | 8,277,302 | | 8/06/12 | | $ | 10,784,000 | | | $ | 10,477,818 | | | $ | (306,182 | ) |
| | BUY | | | EUR | | | JPMorgan Chase Bank N.A. | | 9,332,457 | | 7/13/12 | | | 12,202,000 | | | | 11,811,149 | | | | (390,851 | ) |
| | BUY | | | EUR | | | Merrill Lynch International Bank | | 9,332,457 | | 7/13/12 | | | 12,220,553 | | | | 11,811,149 | | | | (409,404 | ) |
| | SELL | | | EUR | | | Barclays Bank PLC | | 664,000 | | 7/13/12 | | | 830,558 | | | | 840,358 | | | | (9,800 | ) |
| | SELL | | | EUR | | | Citibank N.A. | | 1,379,000 | | 7/13/12 | | | 1,706,516 | | | | 1,745,261 | | | | (38,745 | ) |
| | SELL | | | EUR | | | Credit Suisse Group | | 195,000 | | 7/13/12 | | | 241,464 | | | | 246,792 | | | | (5,328 | ) |
| | SELL | | | EUR | | | Goldman Sachs International | | 5,771,589 | | 8/06/12 | | | 7,200,000 | | | | 7,305,964 | | | | (105,964 | ) |
| | SELL | | | EUR | | | Merrill Lynch International Bank | | 591,000 | | 7/13/12 | | | 736,629 | | | | 747,969 | | | | (11,340 | ) |
| | BUY | | | GBP | | | Deutsche Bank AG | | 150,000 | | 7/13/12 | | | 241,780 | | | | 234,917 | | | | (6,863 | ) |
| | BUY | | | GBP | | | JPMorgan Chase Bank N.A. | | 10,614,209 | | 8/06/12 | | | 17,175,052 | | | | 16,622,041 | | | | (553,011 | ) |
| | BUY | | | GBP | | | UBS AG | | 211,000 | | 7/13/12 | | | 340,923 | | | | 330,450 | | | | (10,473 | ) |
| | SELL | | | GBP | | | Barclays Bank PLC | | 137,000 | | 7/13/12 | | | 214,537 | | | | 214,557 | | | | (20 | ) |
| | SELL | | | GBP | | | Credit Suisse Group | | 1,850,824 | | 7/13/12 | | | 2,891,339 | | | | 2,898,599 | | | | (7,260 | ) |
| | SELL | | | GBP | | | JPMorgan Chase Bank N.A. | | 10,532,109 | | 8/06/12 | | | 16,400,000 | | | | 16,493,472 | | | | (93,472 | ) |
| | SELL | | | HUF | | | UBS AG | | 237,000 | | 8/21/12 | | | 1,035 | | | | 1,043 | | | | (8 | ) |
| | BUY | | | JPY | | | Barclays Bank PLC | | 36,784,000 | | 7/13/12 | | | 462,477 | | | | 460,240 | | | | (2,237 | ) |
| | BUY | | | JPY | | | Citibank N.A. | | 50,181,000 | | 7/13/12 | | | 629,194 | | | | 627,862 | | | | (1,332 | ) |
| | BUY | | | JPY | | | Credit Suisse Group | | 76,740,000 | | 7/13/12 | | | 974,137 | | | | 960,167 | | | | (13,970 | ) |
| | BUY | | | JPY | | | JPMorgan Chase Bank N.A. | | 412,378,518 | | 7/13/12-8/06/12 | | | 5,174,995 | | | | 5,161,152 | | | | (13,843 | ) |
| | SELL | | | JPY | | | Barclays Bank PLC | | 24,656,000 | | 7/13/12 | | | 306,267 | | | | 308,495 | | | | (2,228 | ) |
| | SELL | | | JPY | | | Goldman Sachs International | | 2,079,210,833 | | 8/06/12 | | | 25,960,605 | | | | 26,023,799 | | | | (63,194 | ) |
| | SELL | | | JPY | | | JPMorgan Chase Bank N.A. | | 10,717,222,346 | | 7/13/12-8/06/12 | | | 133,806,498 | | | | 134,138,573 | | | | (332,075 | ) |
| | SELL | | | JPY | | | UBS AG | | 36,391,000 | | 7/13/12 | | | 453,649 | | | | 455,322 | | | | (1,673 | ) |
| | SELL | | | KRW | | | JPMorgan Chase Bank N.A. | | 5,601,930,800 | | 7/13/12 | | | 4,785,930 | | | | 4,887,649 | | | | (101,719 | ) |
| | BUY | | | NOK | | | JPMorgan Chase Bank N.A. | | 9,991,366 | | 8/06/12 | | | 1,708,000 | | | | 1,677,559 | | | | (30,441 | ) |
| | SELL | | | NOK | | | Goldman Sachs International | | 6,765,111 | | 7/13/12 | | | 1,122,800 | | | | 1,136,845 | | | | (14,045 | ) |
| | SELL | | | NOK | | | JPMorgan Chase Bank N.A. | | 148,730,430 | | 8/06/12 | | | 24,550,000 | | | | 24,971,962 | | | | (421,962 | ) |
| | BUY | | | NZD | | | JPMorgan Chase Bank N.A. | | 31,100,679 | | 8/06/12 | | | 25,071,190 | | | | 24,838,737 | | | | (232,453 | ) |
| | SELL | | | NZD | | | Citibank N.A. | | 4,653,863 | | 7/13/12 | | | 3,562,250 | | | | 3,722,735 | | | | (160,485 | ) |
| | SELL | | | NZD | | | JPMorgan Chase Bank N.A. | | 80,275,706 | | 8/06/12 | | | 62,479,000 | | | | 64,112,657 | | | | (1,633,657 | ) |
| | SELL | | | NZD | | | UBS AG | | 169,102 | | 7/13/12 | | | 132,000 | | | | 135,269 | | | | (3,269 | ) |
| | BUY | | | PLN | | | Barclays Bank PLC | | 1,251,000 | | 7/12/12 | | | 384,469 | | | | 375,074 | | | | (9,395 | ) |
| | BUY | | | PLN | | | UBS AG | | 4,258,000 | | 7/12/12 | | | 1,295,667 | | | | 1,276,630 | | | | (19,037 | ) |
| | BUY | | | SEK | | | Goldman Sachs International | | 226,065,649 | | 8/06/12 | | | 33,295,136 | | | | 32,639,502 | | | | (655,634 | ) |
| | BUY | | | SEK | | | JPMorgan Chase Bank N.A. | | 15,001,302 | | 8/06/12 | | | 2,182,000 | | | | 2,165,898 | | | | (16,102 | ) |
| | SELL | | | SEK | | | Citibank N.A. | | 8,362,743 | | 7/13/12 | | | 1,163,250 | | | | 1,208,487 | | | | (45,237 | ) |
| | SELL | | | SEK | | | Credit Suisse Group | | 1,504,000 | | 7/13/12 | | | 209,177 | | | | 217,341 | | | | (8,164 | ) |
| | SELL | | | SEK | | | Goldman Sachs International | | 196,559,776 | | 7/13/12-8/06/12 | | | 27,694,110 | | | | 28,379,687 | | | | (685,577 | ) |
| | BUY | | | SGD | | | Deutsche Bank AG | | 1,308,000 | | 7/13/12 | | | 1,036,779 | | | | 1,032,561 | | | | (4,218 | ) |
| | BUY | | | THB | | | HSBC Bank | | 44,082,000 | | 9/20/12 | | | 1,393,897 | | | | 1,390,607 | | | | (3,290 | ) |
| | BUY | | | THB | | | JPMorgan Chase Bank N.A. | | 609,000 | | 7/31/12 | | | 19,613 | | | | 19,261 | | | | (352 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | (9,425,767 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
12
MFS Global Tactical Allocation Portfolio
Portfolio of Investments (unaudited) – continued
Futures Contracts Outstanding at 6/30/12
| | | | | | | | | | | | | | | | | | |
| Description | | Currency | | | Contracts | | | Value | | Expiration
Date | | | Unrealized
Appreciation
(Depreciation) | |
| Asset Derivatives | | | | | | | | | | | | | | | | | | |
| Equity Futures | | | | | | | | | | | | | | | | | | |
| Amsterdam Index (Long) | | | EUR | | | | 80 | | | $6,221,194 | | | July - 2012 | | | | $262,601 | |
| Bovespa Index (Long) | | | BRL | | | | 1,311 | | | 35,745,882 | | | August - 2012 | | | | 205,519 | |
| CAC 40 Index (Long) | | | EUR | | | | 563 | | | 22,742,236 | | | July - 2012 | | | | 1,182,843 | |
| FTSE 100 Index (Long) | | | GBP | | | | 460 | | | 39,789,321 | | | September - 2012 | | | | 898,793 | |
| FTSE MIB Index (Long) | | | EUR | | | | 195 | | | 17,639,287 | | | September - 2012 | | | | 1,907,810 | |
| Hang Seng China ENT Index (Long) | | | HKD | | | | 188 | | | 11,555,604 | | | July - 2012 | | | | 342,446 | |
| IBEX 35 Index (Long) | | | EUR | | | | 197 | | | 17,416,082 | | | July - 2012 | | | | 1,489,553 | |
| MSCI Singapore Index (Long) | | | SGD | | | | 227 | | | 11,902,380 | | | July - 2012 | | | | 458,207 | |
| MSCI Taiwan Index (Long) | | | USD | | | | 248 | | | 6,284,320 | | | July - 2012 | | | | 216,707 | |
| S&P CNX Nifty Index (Long) | | | USD | | | | 97 | | | 1,027,133 | | | July - 2012 | | | | 33,024 | |
| TURKDEK ISE 30 Index (Long) | | | TRY | | | | 2,979 | | | 12,634,189 | | | August - 2012 | | | | 318,879 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 7,316,382 | |
| | | | | | | | | | | | | | | | | | |
| Interest Rate Futures | | | | | | | | | | | | | | | | | | |
| UK Long Gilt Bond 10 Yr (Short) | | | GBP | | | | 110 | | | $20,519,868 | | | September - 2012 | | | | $68,316 | |
| Japan Govt Bond 10 Yr (Short) | | | JPY | | | | 3 | | | 5,392,757 | | | September - 2012 | | | | 2,531 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 70,847 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | $7,387,229 | |
| | | | | | | | | | | | | | | | | | |
| Liability Derivatives | | | | | | | | | | | | | | | | | | |
| Equity Futures | | | | | | | | | | | | | | | | | | |
| AUST SPI 200 Index (Long) | | | AUD | | | | 65 | | | $6,747,549 | | | September - 2012 | | | | $(68,763 | ) |
| DAX Index (Short) | | | EUR | | | | 15 | | | 3,042,656 | | | September - 2012 | | | | (126,479 | ) |
| FTSE JSE Top 40 Index (Long) | | | ZAR | | | | 707 | | | 25,552,477 | | | September - 2012 | | | | (684,914 | ) |
| Hang Seng Index (Short) | | | HKD | | | | 126 | | | 15,793,953 | | | July - 2012 | | | | (617,212 | ) |
| KOSPI 200 Index (Short) | | | KRW | | | | 139 | | | 14,909,111 | | | September - 2012 | | | | (441,495 | ) |
| MexBol Index (Short) | | | MXN | | | | 238 | | | 7,226,157 | | | September - 2012 | | | | (370,043 | ) |
| NIKKEI 225 Index (Short) | | | JPY | | | | 66 | | | 7,439,294 | | | September - 2012 | | | | (366,756 | ) |
| OMX 30 Index (Short) | | | SEK | | | | 1,261 | | | 18,753,352 | | | July - 2012 | | | | (885,470 | ) |
| Russell 2000 Index (Short) | | | USD | | | | 211 | | | 16,782,940 | | | September - 2012 | | | | (1,059,857 | ) |
| S&P 500 E-Mini Index (Short) | | | USD | | | | 295 | | | 20,006,900 | | | September - 2012 | | | | (829,841 | ) |
| S&P TSE 60 Index (Short) | | | CAD | | | | 340 | | | 44,175,621 | | | September - 2012 | | | | (1,116,554 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (6,567,384 | ) |
| | | | | | | | | | | | | | | | | | |
| Interest Rate Futures | | | | | | | | | | | | | | | | | | |
| Australian Treasury Bond 10 Yr (Long) | | | AUD | | | | 105 | | | $13,482,627 | | | September - 2012 | | | | $(26,859 | ) |
| German Euro Bund 10 Yr (Long) | | | EUR | | | | 138 | | | 24,606,620 | | | September - 2012 | | | | (122,597 | ) |
| Govt Of Canada Bond 10 Yr (Short) | | | CAD | | | | 559 | | | 76,017,631 | | | September - 2012 | | | | (544,237 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (693,693 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | $(7,261,077 | ) |
| | | | | | | | | | | | | | | | | | |
At June 30, 2012, the fund had cash collateral of $580,000 and other liquid securities with an aggregate value of $35,203,659 to cover any commitments for certain derivative contracts. Cash collateral includes “Restricted cash” on the Statement of Assets and Liabilities.
See Notes to Financial Statements
13
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $913,981,328) | | | $956,267,112 | | | | | |
Underlying affiliated funds, at cost and value | | | 66,440,957 | | | | | |
Total investments, at value, including $3,403,397 of securities on loan (identified cost, $980,422,285) | | | $1,022,708,069 | | | | | |
Cash | | | 8,038 | | | | | |
Restricted cash | | | 580,000 | | | | | |
Foreign currency, at value (identified cost, $218,321) | | | 218,244 | | | | | |
Receivables for | | | | | | | | |
Forward foreign currency exchange contracts | | | 12,940,163 | | | | | |
Daily variation margin on open futures contracts | | | 3,756,340 | | | | | |
Investments sold | | | 720,501 | | | | | |
Fund shares sold | | | 11,686 | | | | | |
Interest and dividends | | | 7,374,670 | | | | | |
Other assets | | | 5,851 | | | | | |
Total assets | | | | | | | $1,048,323,562 | |
Liabilities | | | | | | | | |
Payables for | | | | | | | | |
Forward foreign currency exchange contracts | | | $9,425,767 | | | | | |
Investments purchased | | | 612,741 | | | | | |
Fund shares reacquired | | | 116,423 | | | | | |
Collateral for securities loaned, at value | | | 3,413,492 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 59,696 | | | | | |
Shareholder servicing costs | | | 822 | | | | | |
Distribution and/or service fees | | | 19,467 | | | | | |
Payable for independent Trustees’ compensation | | | 94 | | | | | |
Accrued expenses and other liabilities | | | 85,755 | | | | | |
Total liabilities | | | | | | | $13,734,257 | |
Net assets | | | | | | | $1,034,589,305 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $1,009,053,897 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 45,844,576 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (35,818,358 | ) | | | | |
Undistributed net investment income | | | 15,509,190 | | | | | |
Net assets | | | | | | | $1,034,589,305 | |
Shares of beneficial interest outstanding | | | | | | | 71,963,241 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $73,523,309 | | | | 5,054,634 | | | | $14.55 | |
Service Class | | | 961,065,996 | | | | 66,908,607 | | | | 14.36 | |
See Notes to Financial Statements
14
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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Interest | | | $9,041,534 | | | | | |
Dividends | | | 6,779,257 | | | | | |
Dividends from underlying affiliated funds | | | 43,088 | | | | | |
Foreign taxes withheld | | | (347,159 | ) | | | | |
Total investment income | | | | | | | $15,516,720 | |
Expenses | | | | | | | | |
Management fee | | | $3,579,630 | | | | | |
Distribution and/or service fees | | | 1,189,245 | | | | | |
Shareholder servicing costs | | | 52,671 | | | | | |
Administrative services fee | | | 81,795 | | | | | |
Independent Trustees’ compensation | | | 14,116 | | | | | |
Custodian fee | | | 95,171 | | | | | |
Shareholder communications | | | 11,655 | | | | | |
Audit and tax fees | | | 29,945 | | | | | |
Legal fees | | | 8,374 | | | | | |
Miscellaneous | | | 32,324 | | | | | |
Total expenses | | | | | | | $5,094,926 | |
Fees paid indirectly | | | (90 | ) | | | | |
Reduction of expenses by investment adviser | | | (2,632 | ) | | | | |
Net expenses | | | | | | | $5,092,204 | |
Net investment income | | | | | | | $10,424,516 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments | | | $(5,711,941 | ) | | | | |
Futures contracts | | | (18,652,971 | ) | | | | |
Foreign currency | | | (1,456,058 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $(25,820,970 | ) |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments | | | $33,232,572 | | | | | |
Futures contracts | | | 2,020,416 | | | | | |
Translation of assets and liabilities in foreign currencies | | | 1,975,504 | | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $37,228,492 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $11,407,522 | |
Change in net assets from operations | | | | | | | $21,832,038 | |
See Notes to Financial Statements
15
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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $10,424,516 | | | | $14,754,429 | |
Net realized gain (loss) on investments and foreign currency | | | (25,820,970 | ) | | | (11,393,785 | ) |
Net unrealized gain (loss) on investments and foreign currency translation | | | 37,228,492 | | | | (1,169,106 | ) |
Change in net assets from operations | | | $21,832,038 | | | | $2,191,538 | |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(7,688,343 | ) |
From net realized gain on investments | | | — | | | | (3,394,452 | ) |
Total distributions declared to shareholders | | | $— | | | | $(11,082,795 | ) |
Change in net assets from fund share transactions | | | $13,059,691 | | | | $521,134,406 | |
Total change in net assets | | | $34,891,729 | | | | $512,243,149 | |
| Net assets | | | | | | | | |
At beginning of period | | | 999,697,576 | | | | 487,454,427 | |
At end of period (including undistributed net investment income of $15,509,190 and
$5,084,674, respectively) | | | $1,034,589,305 | | | | $999,697,576 | |
See Notes to Financial Statements
16
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $14.22 | | | | $14.20 | | | | $13.56 | | | | $12.89 | | | | $17.59 | | | | $18.11 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.16 | | | | $0.32 | | | | $0.24 | | | | $0.27 | | | | $0.37 | | | | $0.40 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.17 | | | | (0.10 | ) | | | 0.51 | | | | 1.44 | | | | (2.68 | ) | | | 1.13 | |
Total from investment operations | | | $0.33 | | | | $0.22 | | | | $0.75 | | | | $1.71 | | | | $(2.31 | ) | | | $1.53 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.14 | ) | | | $(0.11 | ) | | | $(1.04 | ) | | | $(0.86 | ) | | | $(0.40 | ) |
From net realized gain on investments | | | — | | | | (0.06 | ) | | | — | | | | — | | | | (1.53 | ) | | | (1.65 | ) |
Total distributions declared to shareholders | | | $— | | | | $(0.20 | ) | | | $(0.11 | ) | | | $(1.04 | ) | | | $(2.39 | ) | | | $(2.05 | ) |
Net asset value, end of period (x) | | | $14.55 | | | | $14.22 | | | | $14.20 | | | | $13.56 | | | | $12.89 | | | | $17.59 | |
Total return (%) (k)(r)(s)(x) | | | 2.32 | (n) | | | 1.55 | | | | 5.53 | | | | 15.16 | | | | (15.42 | ) | | | 8.87 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 0.76 | (a) | | | 0.80 | | | | 0.93 | | | | 1.06 | | | | 0.98 | | | | 0.95 | |
Expenses after expense reductions (f) | | | 0.76 | (a) | | | 0.80 | | | | 0.90 | | | | 0.90 | | | | 0.90 | | | | 0.93 | |
Net investment income | | | 2.25 | (a) | | | 2.21 | | | | 1.76 | | | | 2.17 | | | | 2.48 | | | | 2.24 | |
Portfolio turnover | | | 22 | (n) | | | 56 | | | | 73 | | | | 66 | | | | 75 | | | | 78 | |
Net assets at end of period (000 omitted) | | | $73,523 | | | | $77,255 | | | | $87,137 | | | | $92,880 | | | | $93,254 | | | | $145,113 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $14.06 | | | | $14.07 | | | | $13.46 | | | | $12.79 | | | | $17.46 | | | | $17.99 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.14 | | | | $0.27 | | | | $0.20 | | | | $0.24 | | | | $0.34 | | | | $0.35 | |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | 0.16 | | | �� | (0.09 | ) | | | 0.51 | | | | 1.42 | | | | (2.66 | ) | | | 1.13 | |
Total from investment operations | | | $0.30 | | | | $0.18 | | | | $0.71 | | | | $1.66 | | | | $(2.32 | ) | | | $1.48 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.13 | ) | | | $(0.10 | ) | | | $(0.99 | ) | | | $(0.82 | ) | | | $(0.36 | ) |
From net realized gain on investments | | | — | | | | (0.06 | ) | | | — | | | | — | | | | (1.53 | ) | | | (1.65 | ) |
Total distributions declared to shareholders | | | $— | | | | $(0.19 | ) | | | $(0.10 | ) | | | $(0.99 | ) | | | $(2.35 | ) | | | $(2.01 | ) |
Net asset value, end of period (x) | | | $14.36 | | | | $14.06 | | | | $14.07 | | | | $13.46 | | | | $12.79 | | | | $17.46 | |
Total return (%) (k)(r)(s)(x) | | | 2.13 | (n) | | | 1.29 | | | | 5.31 | | | | 14.78 | | | | (15.59 | ) | | | 8.62 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.01 | (a) | | | 1.05 | | | | 1.18 | | | | 1.31 | | | | 1.23 | | | | 1.20 | |
Expenses after expense reductions (f) | | | 1.01 | (a) | | | 1.05 | | | | 1.15 | | | | 1.15 | | | | 1.15 | | | | 1.18 | |
Net investment income | | | 2.01 | (a) | | | 1.92 | | | | 1.48 | | | | 1.92 | | | | 2.25 | | | | 1.99 | |
Portfolio turnover | | | 22 | (n) | | | 56 | | | | 73 | | | | 66 | | | | 75 | | | | 78 | |
Net assets at end of period (000 omitted) | | | $961,066 | | | | $922,442 | | | | $400,318 | | | | $11,228 | | | | $12,451 | | | | $20,109 | |
See Notes to Financial Statements
17
MFS Global Tactical Allocation Portfolio
Financial Highlights – continued
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values per share 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
18
MFS Global Tactical Allocation Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Global Tactical Allocation Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund 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. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as provided by a third-party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as provided by a third-party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price as provided by a third-party pricing service on the market on which they are primarily traded. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation as provided by a third-party pricing service on the market on which such futures contracts are primarily traded. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally
19
MFS Global Tactical Allocation 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 halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of June 30, 2012 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
United States | | | $177,641,076 | | | | $— | | | | $— | | | | $177,641,076 | |
United Kingdom | | | 6,172,706 | | | | 51,021,105 | | | | — | | | | 57,193,811 | |
Japan | | | 1,618,346 | | | | 47,003,972 | | | | — | | | | 48,622,318 | |
Switzerland | | | — | | | | 23,962,390 | | | | — | | | | 23,962,390 | |
Germany | | | 1,933,459 | | | | 14,082,175 | | | | — | | | | 16,015,634 | |
France | | | 6,084,246 | | | | 4,078,858 | | | | — | | | | 10,163,104 | |
Netherlands | | | — | | | | 9,779,553 | | | | — | | | | 9,779,553 | |
Sweden | | | 3,866,253 | | | | — | | | | — | | | | 3,866,253 | |
Canada | | | 3,492,987 | | | | — | | | | — | | | | 3,492,987 | |
Other Countries | | | 4,053,905 | | | | 12,494,948 | | | | — | | | | 16,548,853 | |
| U.S. Treasury Bonds & U.S. Government Agency & Equivalents | | | — | | | | 58,220,606 | | | | — | | | | 58,220,606 | |
| Non-U.S. Sovereign Debt | | | — | | | | 332,652,840 | | | | — | | | | 332,652,840 | |
| Corporate Bonds | | | — | | | | 77,247,408 | | | | — | | | | 77,247,408 | |
| Residential Mortgage-Backed Securities | | | — | | | | 68,690,674 | | | | — | | | | 68,690,674 | |
| Commercial Mortgage-Backed Securities | | | — | | | | 24,567,581 | | | | — | | | | 24,567,581 | |
| Asset-Backed Securities (including CDOs) | | | — | | | | 474,325 | | | | — | | | | 474,325 | |
| Foreign Bonds | | | — | | | | 23,714,207 | | | | — | | | | 23,714,207 | |
| Mutual Funds | | | 69,854,449 | | | | — | | | | — | | | | 69,854,449 | |
| Total Investments | | | $274,717,427 | | | | $747,990,642 | | | | $— | | | | $1,022,708,069 | |
| | | | |
| Other Financial Instruments | | | | | | | | | | | | |
| Futures | | | $(3,793,622 | ) | | | $3,919,774 | | | | $— | | | | $126,152 | |
| Forward Currency Contracts | | | — | | | | 3,514,396 | | | | — | | | | 3,514,396 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 2 investments presented above, equity investments amounting to $84,897,697 would have been considered level 1 investments at the beginning of the period. Of the level 1 investments presented above, equity investments amounting to $9,261,904 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.
20
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements (unaudited) – continued
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives – The fund uses derivatives in an attempt to adjust exposure to 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 were purchased options, futures contracts, and forward foreign currency exchange contracts. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract Tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2012 as reported in the Statement of Assets and Liabilities:
| | | | | | | | | | |
| | | | | Fair Value (a) | |
| Risk | | Derivative Contracts | | Asset Derivatives | | | Liability Derivatives | |
| Interest Rate | | Interest Rate Futures | | | $70,847 | | | | $(693,693 | ) |
| Foreign Exchange | | Forward Foreign Currency Exchange | | | 12,940,163 | | | | (9,425,767 | ) |
| Equity | | Equity Futures | | | 7,316,382 | | | | (6,567,384 | ) |
| Equity | | Purchased Equity Options | | | 928,820 | | | | — | |
| Total | | | | | $21,256,212 | | | | $(16,686,844 | ) |
| (a) | The value of purchased options outstanding is included in total investments, at value, within the fund’s Statement of Assets and Liabilities. The value of futures contracts outstanding includes cumulative appreciation (depreciation) as reported in the fund’s Portfolio of Investments. Only the current day variation margin for futures contracts is separately reported within the fund’s Statement of Assets and Liabilities. |
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | | | | | | | | | |
| Risk | | Futures Contracts | | | Foreign Currency | | | Investments
(Purchased Options) | |
| Interest Rate | | | $(3,752,141 | ) | | | $— | | | | $— | |
| Foreign Exchange | | | — | | | | (575,979 | ) | | | — | |
| Equity | | | (14,900,829 | ) | | | — | | | | (1,217,366 | ) |
| Total | | | $(18,652,971 | ) | | | $(575,979 | ) | | | $(1,217,366 | ) |
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2012 as reported in the Statement of Operations:
| | | | | | | | | | | | |
| Risk | | Futures Contracts | | | Translation of
Assets and
Liabilities in
Foreign Currencies | | | Investments
(Purchased Options) | |
| Interest Rate | | | $2,546,534 | | | | $— | | | | $— | |
| Foreign Exchange | | | — | | | | 1,892,677 | | | | — | |
| Equity | | | (526,118 | ) | | | — | | | | 29,002 | |
| Total | | | $2,020,416 | | | | $1,892,677 | | | | $29,002 | |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality
21
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements (unaudited) – continued
of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as “Restricted cash.” Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.
Purchased Options – The fund purchased put options for a premium. Purchased put options entitle the holder to sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing put options may hedge against a decline in the value of portfolio securities or currency.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.
The risk in purchasing an option is that the fund pays a premium whether or not the option is exercised. The fund’s maximum risk of loss due to counterparty credit risk is limited to the market value of the option. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Futures Contracts – The fund entered into futures contracts which may be used to hedge against or obtain broad market 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 certain percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures 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 foreign currency.
22
MFS Global Tactical Allocation 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, an industry accepted settlement system. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Security Loans – State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in a money market fund or short-term securities. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income on the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
The fund purchased or sold debt securities on a when-issued or delayed delivery basis, or in a “To Be Announced” (TBA) or “forward commitment” transaction with delivery or payment to occur at a later date beyond the normal settlement period. TBA securities resulting from these transactions are included in the Portfolio of Investments. At the time a fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the security acquired is reflected in the fund’s net asset value. The price of such security and the date that the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the fund until payment takes place. At the time that a fund enters into this type of transaction, the fund is required to have sufficient cash and/or liquid securities to cover its commitments. Losses may arise due to changes in the value of the underlying securities 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. Additionally, losses may arise due to declines in the value of the securities prior to settlement date.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the
23
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements (unaudited) – continued
future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to amortization and accretion of debt securities, wash sale loss deferrals, straddle loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $10,385,167 | |
| Long-term capital gain | | | 697,628 | |
| Total distributions | | | $11,082,795 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $986,706,172 | |
| Gross appreciation | | | 56,550,183 | |
| Gross depreciation | | | (20,548,286 | ) |
| Net unrealized appreciation (depreciation) | | | $36,001,897 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 13,744,213 | |
| Capital loss carryforwards | | | (4,892,433 | ) |
| Other temporary differences | | | (9,694,445 | ) |
| Net unrealized appreciation (depreciation) | | | 4,546,035 | |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
As of December 31, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses are characterized as follows:
| | | | |
| Short-term losses | | | $(4,892,433 | ) |
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), the above net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | | | | | | | | | |
| | | From net investment
income | | | From net realized gain on
investments | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $791,643 | | | | $— | | | | $331,440 | |
| Service Class | | | — | | | | 6,896,700 | | | | — | | | | 3,063,012 | |
| Total | | | $— | | | | $7,688,343 | | | | $— | | | | $3,394,452 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $300 million of average daily net assets | | | 0.75% | |
| Average daily net assets in excess of $300 million | | | 0.675% | |
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.70% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating
24
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2014. For the six months ended June 30, 2012, 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, 2012, the fee was $52,662, which equated to 0.0102% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2012, these costs amounted to $9.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0159% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $4,990 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $2,632, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than purchased option transactions, and short-term obligations, were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
| U.S. Government securities | | | $69,961,215 | | | | $56,344,738 | |
| Investments (non-U.S. Government securities) | | | $173,933,483 | | | | $152,050,465 | |
25
MFS Global Tactical Allocation 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 63,914 | | | | $939,301 | | | | 110,258 | | | | $1,587,233 | |
Service Class | | | 2,081,919 | | | | 29,864,533 | | | | 36,627,946 | | | | 523,715,652 | |
| | | 2,145,833 | | | | $30,803,834 | | | | 36,738,204 | | | | $525,302,885 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 78,758 | | | | $1,123,083 | |
Service Class | | | — | | | | — | | | | 705,862 | | | | 9,959,712 | |
| | | — | | | | $— | | | | 784,620 | | | | $11,082,795 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (442,496 | ) | | | $(6,458,566 | ) | | | (890,632 | ) | | | $(12,863,612 | ) |
Service Class | | | (786,655 | ) | | | (11,285,577 | ) | | | (166,320 | ) | | | (2,387,662 | ) |
| | | (1,229,151 | ) | | | $(17,744,143 | ) | | | (1,056,952 | ) | | | $(15,251,274 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (378,582 | ) | | | $(5,519,265 | ) | | | (701,616 | ) | | | $(10,153,296 | ) |
Service Class | | | 1,295,264 | | | | 18,578,956 | | | | 37,167,488 | | | | 531,287,702 | |
| | | 916,682 | | | | $13,059,691 | | | | 36,465,872 | | | | $521,134,406 | |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $3,455 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 101,959,847 | | | | 158,255,297 | | | | (193,774,187 | ) | | | 66,440,957 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $43,088 | | | | $66,440,957 | |
26
MFS Global Tactical Allocation Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
27
SEMIANNUAL REPORT
June 30, 2012
MFS® EMERGING MARKETS EQUITY PORTFOLIO
MFS® Variable Insurance Trust II
FCE-SEM
MFS® EMERGING MARKETS EQUITY PORTFOLIO
CONTENTS
The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK OR CREDIT UNION GUARANTEE Ÿ
NOT A DEPOSIT Ÿ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Emerging Markets Equity Portfolio
LETTER FROM THE CHAIRMAN AND CEO
Dear Contract Owners:
World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis. A slowing in the Chinese economy has added another layer of trepidation, as investors worry that the primary engine of global growth may be sputtering.
The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.
Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning of our investment process in all business climates. Real-time collaboration across the globe is vital in periods of heightened volatility and economic uncertainty. At MFS our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.
We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
August 16, 2012
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
MFS Emerging Markets Equity Portfolio
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Samsung Electronics Co. Ltd. | | | 5.0% | |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | | 2.9% | |
| Mr. Price Group Ltd. | | | 2.2% | |
| OAO Gazprom, ADR | | | 1.7% | |
| China Construction Bank | | | 1.7% | |
| Hon Hai Precision Industry Co. Ltd. | | | 1.7% | |
| Vale S.A., ADR | | | 1.6% | |
| Siliconware Precision Industries Co. Ltd. | | | 1.6% | |
| Naspers Ltd. | | | 1.6% | |
| Kia Motors Corp. | | | 1.5% | |
| |
| Equity sectors | | | | |
| Financial Services | | | 23.1% | |
| Technology | | | 14.2% | |
| Retailing | | | 12.7% | |
| Utilities & Communications | | | 9.8% | |
| Energy | | | 8.4% | |
| Basic Materials | | | 7.7% | |
| Autos & Housing | | | 5.3% | |
| Special Products & Services | | | 4.5% | |
| Consumer Staples | | | 3.9% | |
| Leisure | | | 3.6% | |
| Industrial Goods & Services | | | 3.0% | |
| Health Care | | | 1.6% | |
| Transportation | | | 0.9% | |
| | | | |
| Issuer country weightings (x) | | | | |
| Brazil | | | 16.7% | |
| China | | | 11.2% | |
| South Korea | | | 10.7% | |
| India | | | 8.8% | |
| Taiwan | | | 8.6% | |
| South Africa | | | 6.8% | |
| Russia | | | 6.2% | |
| Hong Kong | | | 6.1% | |
| Mexico | | | 5.9% | |
| Other Countries | | | 19.0% | |
| |
| Currency exposure weightings (y) | | | | |
| Hong Kong Dollar | | | 17.9% | |
| Brazilian Real | | | 16.7% | |
| South Korean Won | | | 10.7% | |
| United States Dollar | | | 8.8% | |
| Indian Rupee | | | 8.8% | |
| Taiwan Dollar | | | 8.6% | |
| South African Rand | | | 6.8% | |
| Mexican Peso | | | 5.9% | |
| Indonesian Rupiah | | | 2.6% | |
| Other Currencies | | | 13.2% | |
| (x) | | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. |
| (y) | | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. |
Percentages are based on net assets as of 6/30/12.
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, 2012 through June 30, 2012
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, 2012 through June 30, 2012.
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
1/01/12 | | | Ending
Account Value
6/30/12 | | | Expenses Paid
During Period (p)
1/01/12-6/30/12 | |
| Initial Class | | Actual | | | 1.35% | | | | $1,000.00 | | | | $1,056.36 | | | | $6.90 | |
| | Hypothetical (h) | | | 1.35% | | | | $1,000.00 | | | | $1,018.15 | | | | $6.77 | |
| Service Class | | Actual | | | 1.60% | | | | $1,000.00 | | | | $1,054.99 | | | | $8.18 | |
| | Hypothetical (h) | | | 1.60% | | | | $1,000.00 | | | | $1,016.91 | | | | $8.02 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. |
3
MFS Emerging Markets Equity Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/12 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – 98.7% | | | | | | | | |
| Aerospace – 0.4% | | | | | | | | |
| Embraer S.A., ADR | | | 20,430 | | | $ | 542,008 | |
| | | | | | | | |
| Airlines – 0.9% | | | | | | | | |
| Copa Holdings S.A., “A” | | | 4,547 | | | $ | 375,037 | |
Grupo Aeroportuario del Sureste S.A.
de C.V., ADR | | | 9,670 | | | | 754,937 | |
| | | | | | | | |
| | | | | | $ | 1,129,974 | |
| | | | | | | | |
| Alcoholic Beverages – 1.0% | | | | | | | | |
| Companhia de Bebidas das Americas, ADR | | | 34,735 | | | $ | 1,331,393 | |
| | | | | | | | |
| Apparel Manufacturers – 3.8% | | | | | |
| Arezzo Industria e Comercio S.A. | | | 44,840 | | | $ | 667,521 | |
| Cia.Hering S.A. | | | 18,100 | | | | 343,346 | |
| Li & Fung Ltd. | | | 784,000 | | | | 1,521,312 | |
| Stella International Holdings | | | 672,500 | | | | 1,668,757 | |
| Top Glove Corp. | | | 444,200 | | | | 727,394 | |
| | | | | | | | |
| | | | | | $ | 4,928,330 | |
| | | | | | | | |
| Automotive – 3.7% | | | | | | | | |
| Exide Industries Ltd. | | | 128,735 | | | $ | 316,799 | |
| Geely Automobile Holdings Ltd. | | | 2,250,000 | | | | 796,213 | |
| Guangzhou Automobile Group Co. Ltd., “H” | | | 898,000 | | | | 755,754 | |
| Kia Motors Corp. | | | 29,730 | | | | 1,958,234 | |
| Mando Corp. | | | 6,811 | | | | 1,014,506 | |
| | | | | | | | |
| | | | | | $ | 4,841,506 | |
| | | | | | | | |
| Brokerage & Asset Managers – 2.1% | | | | | |
| BM&F Bovespa S.A. | | | 237,100 | | | $ | 1,209,995 | |
| Bolsa Mexicana de Valores S.A. de C.V. | | | 428,600 | | | | 845,331 | |
CETIP S.A. – Balcao Organizado de
Ativos e Derivativos | | | 48,927 | | | | 611,435 | |
| | | | | | | | |
| | | | | | $ | 2,666,761 | |
| | | | | | | | |
| Business Services – 2.5% | | | | | | | | |
| Cielo S.A. | | | 13,595 | | | $ | 399,897 | |
| Infosys Technologies Ltd., ADR | | | 37,819 | | | | 1,704,124 | |
| LPS Brasil – Consultoria de Imoveis S.A. | | | 44,200 | | | | 737,217 | |
| Multiplus S.A. | | | 18,980 | | | | 445,749 | |
| | | | | | | | |
| | | | | | $ | 3,286,987 | |
| | | | | | | | |
| Cable TV – 2.4% | | | | | | | | |
| Dish TV India Ltd. (a) | | | 949,358 | | | $ | 1,091,191 | |
| Naspers Ltd. | | | 38,216 | | | | 2,043,653 | |
| | | | | | | | |
| | | | | | $ | 3,134,844 | |
| | | | | | | | |
| Computer Software – 0.3% | | | | | | | | |
| Totvs S.A. | | | 17,200 | | | $ | 331,412 | |
| | | | | | | | |
| Computer Software – Systems – 2.8% | | | | | |
| Asustek Computer, Inc. | | | 137,000 | | | $ | 1,267,274 | |
| Hon Hai Precision Industry Co. Ltd. | | | 712,256 | | | | 2,147,702 | |
| NICE Systems Ltd., ADR (a) | | | 4,800 | | | | 175,680 | |
| | | | | | | | |
| | | | | | $ | 3,590,656 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Conglomerates – 0.8% | | | | | | | | |
| Alfa S.A de C.V., “A” | | | 18,390 | | | $ | 293,985 | |
| First Pacific Co. Ltd. | | | 708,800 | | | | 736,638 | |
| | | | | | | | |
| | | | | | $ | 1,030,623 | |
| | | | | | | | |
| Construction – 1.6% | | | | | | | | |
| Anhui Conch Cement Co. Ltd. | | | 249,000 | | | $ | 682,984 | |
| Corporacion GEO S.A.B. de C.V., “B” (a) | | | 187,170 | | | | 211,588 | |
| Corporacion Moctezuma S.A. de C.V. | | | 155,000 | | | | 354,393 | |
| PDG Realty S.A. | | | 204,800 | | | | 357,903 | |
| Urbi Desarrollos Urbanos S.A. de C.V. (a) | | | 436,579 | | | | 419,570 | |
| | | | | | | | |
| | | | | | $ | 2,026,438 | |
| | | | | | | | |
| Consumer Products – 1.9% | | | | | | | | |
| Dabur India Ltd. | | | 727,117 | | | $ | 1,495,501 | |
| Hengan International Group Co. Ltd. | | | 55,000 | | | | 534,774 | |
| Kimberly-Clark de Mexico S.A. de C.V., “A” | | | 187,110 | | | | 367,636 | |
| | | | | | | | |
| | | | | | $ | 2,397,911 | |
| | | | | | | | |
| Consumer Services – 1.2% | | | | | | | | |
| Abril Educacao S.A., IEU | | | 26,070 | | | $ | 363,306 | |
| Anhanguera Educacional Participacoes S.A. | | | 36,700 | | | | 467,772 | |
| Estacio Participacoes S.A. | | | 31,040 | | | | 375,540 | |
| Kroton Educacional S.A., IEU (a) | | | 27,458 | | | | 397,140 | |
| | | | | | | | |
| | | | | | $ | 1,603,758 | |
| | | | | | | | |
| Electrical Equipment – 0.2% | | | | | | | | |
| Crompton Greaves Ltd. | | | 141,845 | | | $ | 310,303 | |
| | | | | | | | |
| Electronics – 10.3% | | | | | | | | |
| Samsung Electronics Co. Ltd. | | | 6,175 | | | $ | 6,546,876 | |
| Seoul Semiconductor Co. Ltd. | | | 24,711 | | | | 538,501 | |
| Siliconware Precision Industries Co. Ltd. | | | 1,988,000 | | | | 2,067,238 | |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | | 1,363,258 | | | | 3,731,420 | |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | | 31,491 | | | | 439,614 | |
| | | | | | | | |
| | | | | | $ | 13,323,649 | |
| | | | | | | | |
| Energy – Independent – 3.9% | | | | | | | | |
| China Shenhua Energy Co. Ltd. | | | 278,500 | | | $ | 983,970 | |
| CNOOC Ltd. | | | 637,000 | | | | 1,285,014 | |
| INPEX Corp. | | | 174 | | | | 975,500 | |
| Reliance Industries Ltd. | | | 137,927 | | | | 1,834,376 | |
| | | | | | | | |
| | | | | | $ | 5,078,860 | |
| | | | | | | | |
| Energy – Integrated – 3.0% | | | | | | | | |
| OAO Gazprom, ADR | | | 231,824 | | | $ | 2,194,473 | |
| OAO NOVATEK, GDR | | | 3,700 | | | | 392,200 | |
| Petroleo Brasileiro S.A., ADR | | | 72,032 | | | | 1,352,041 | |
| | | | | | | | |
| | | | | | $ | 3,938,714 | |
| | | | | | | | |
| Food & Beverages – 1.0% | | | | | | | | |
| Arca Continental S.A.B de C.V. | | | 65,776 | | | $ | 382,338 | |
M. Dias Branco S.A. Industria e
Comercio de Alimentos | | | 33,200 | | | | 975,255 | |
| | | | | | | | |
| | | | | | $ | 1,357,593 | |
| | | | | | | | |
4
MFS Emerging Markets Equity Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Food & Drug Stores – 4.0% | | | | | | | | |
| Brazil Pharma S.A. | | | 64,000 | | | $ | 342,544 | |
| CP All PLC | | | 621,100 | | | | 694,240 | |
| Dairy Farm International Holdings Ltd. | | | 77,400 | | | | 825,067 | |
| E-Mart Co. Ltd. | | | 6,305 | | | | 1,384,861 | |
| O’Key Group S.A., GDR | | | 198,580 | | | | 1,538,995 | |
| Raia Drogasil S.A. | | | 38,300 | | | | 386,146 | |
| | | | | | | | |
| | | | | | $ | 5,171,853 | |
| | | | | | | | |
| Gaming & Lodging – 1.0% | | | | | | | | |
| Minor International PLC | | | 1,032,030 | | | $ | 464,673 | |
| Sands China Ltd. | | | 101,200 | | | | 324,179 | |
| Shangri-La Asia Ltd. | | | 248,000 | | | | 475,634 | |
| | | | | | | | |
| | | | | | $ | 1,264,486 | |
| | | | | | | | |
| General Merchandise – 4.0% | | | | | | | | |
| Bim Birlesik Magazalar A.S. | | | 9,993 | | | $ | 412,514 | |
| Clicks Group Ltd. | | | 254,580 | | | | 1,677,935 | |
| Lojas Renner S.A. | | | 11,800 | | | | 331,058 | |
| Mr. Price Group Ltd. | | | 203,899 | | | | 2,791,500 | |
| | | | | | | | |
| | | | | | $ | 5,213,007 | |
| | | | | | | | |
| Health Maintenance Organizations – 0.3% | | | | | |
| OdontoPrev S.A. | | | 63,600 | | | $ | 322,987 | |
| | | | | | | | |
| Insurance – 1.9% | | | | | | | | |
| Brazil Insurance Participacoes e Administracao S.A. | | | 105,500 | | | $ | 937,603 | |
| China Pacific Insurance Co. Ltd. | | | 481,800 | | | | 1,570,692 | |
| | | | | | | | |
| | | | | | $ | 2,508,295 | |
| | | | | | | | |
| Machinery & Tools – 2.4% | | | | | | | | |
| BEML Ltd. | | | 19,899 | | | $ | 136,138 | |
| Glory Ltd. | | | 38,200 | | | | 794,382 | |
| Sinotruk Hong Kong Ltd. | | | 1,333,000 | | | | 800,384 | |
| Thermax Ltd. | | | 40,849 | | | | 352,084 | |
| TK Corp. (a) | | | 48,469 | | | | 1,029,938 | |
| | | | | | | | |
| | | | | | $ | 3,112,926 | |
| | | | | | | | |
| Major Banks – 2.6% | | | | | | | | |
| Bank of China Ltd. | | | 4,908,000 | | | $ | 1,878,002 | |
| Standard Chartered PLC | | | 68,743 | | | | 1,530,023 | |
| | | | | | | | |
| | | | | | $ | 3,408,025 | |
| | | | | | | | |
| Medical & Health Technology & Services – 0.8% | | | | | |
| Diagnosticos da America S.A. | | | 62,500 | | | $ | 411,065 | |
| Fleury S.A. | | | 54,000 | | | | 685,586 | |
| | | | | | | | |
| | | | | | $ | 1,096,651 | |
| | | | | | | | |
| Metals & Mining – 6.0% | | | | | | | | |
| Companhia Siderurgica Nacional S.A., ADR | | | 42,050 | | | $ | 238,424 | |
| Gerdau S.A., ADR | | | 116,760 | | | | 1,022,818 | |
| Grupo Mexico S.A.B. de C.V., “B” | | | 186,417 | | | | 553,255 | |
| Iluka Resources Ltd. | | | 64,081 | | | | 750,907 | |
| Maanshan Iron & Steel Co. Ltd. (a) | | | 944,000 | | | | 217,931 | |
Mining & Metallurgical Co. Norilsk
Nickel, ADR | | | 47,036 | | | | 779,333 | |
| MOIL Ltd. | | | 111,404 | | | | 566,244 | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Metals & Mining – continued | | | | | | | | |
| Steel Authority of India Ltd. | | | 692,883 | | | $ | 1,135,836 | |
| Ternium S.A., ADR | | | 22,170 | | | | 433,867 | |
| Vale S.A., ADR | | | 104,488 | | | | 2,074,087 | |
| | | | | | | | |
| | | | | | $ | 7,772,702 | |
| | | | | | | | |
| Network & Telecom – 0.8% | | | | | | | | |
| VTech Holdings Ltd. | | | 88,300 | | | $ | 1,052,722 | |
| | | | | | | | |
| Oil Services – 1.5% | | | | | | | | |
| Global Ports Investments PLC, GDR | | | 45,750 | | | $ | 624,488 | |
| Lamprell PLC | | | 312,580 | | | | 494,441 | |
| Tenaris S.A., ADR | | | 22,019 | | | | 770,004 | |
| | | | | | | | |
| | | | | | $ | 1,888,933 | |
| | | | | | | | |
| Other Banks & Diversified Financials – 14.5% | | | | | |
| Akbank T.A.S. | | | 143,390 | | | $ | 526,493 | |
| Banco De Oro Unibank, Inc. | | | 57,696 | | | | 86,814 | |
| Banco Santander Chile, ADR | | | 3,680 | | | | 285,163 | |
| Banco Santander S.A., IEU | | | 104,700 | | | | 802,778 | |
| Bancolombia S.A., ADR | | | 4,751 | | | | 293,802 | |
| Bangkok Bank Public Co. Ltd. | | | 270,200 | | | | 1,767,584 | |
| Bank Negara Indonesia PT | | | 2,926,000 | | | | 1,203,016 | |
| Bank Polska Kasa Opieki S.A. | | | 18,000 | | | | 820,884 | |
| China Construction Bank | | | 3,132,670 | | | | 2,159,894 | |
| Chinatrust Financial Holding Co. Ltd. | | | 1,539,088 | | | | 885,903 | |
| CIMB Group Holdings Berhad | | | 240,800 | | | | 576,265 | |
| Credicorp Ltd. | | | 8,940 | | | | 1,125,457 | |
| Grupo Financiero Banorte S.A. de C.V. | | | 88,600 | | | | 459,282 | |
| Hana Financial Group, Inc. | | | 45,740 | | | | 1,460,093 | |
| Housing Development Finance Corp. Ltd. | | | 66,964 | | | | 788,013 | |
| ICICI Bank Ltd. | | | 100,387 | | | | 1,632,687 | |
| Itau Unibanco Holding S.A., ADR | | | 29,322 | | | | 408,162 | |
| Komercni Banka A.S. | | | 7,161 | | | | 1,242,862 | |
| Sberbank of Russia | | | 489,620 | | | | 1,319,690 | |
| Turkiye Garanti Bankasi A.S. | | | 236,841 | | | | 933,756 | |
| | | | | | | | |
| | | | | | $ | 18,778,598 | |
| | | | | | | | |
| Pharmaceuticals – 0.5% | | | | | | | | |
| Genomma Lab Internacional S.A., “B” (a) | | | 311,800 | | | $ | 616,602 | |
| | | | | | | | |
| Precious Metals & Minerals – 0.5% | | | | | | | | |
| Gold Fields Ltd. | | | 54,893 | | | $ | 701,005 | |
| | | | | | | | |
| Real Estate – 2.0% | | | | | | | | |
| Asian Property Development PLC | | | 2,184,000 | | | $ | 508,867 | |
| Brasil Brokers Participacoes | | | 223,400 | | | | 726,314 | |
| Hang Lung Properties Ltd. | | | 379,000 | | | | 1,290,128 | |
| | | | | | | | |
| | | | | | $ | 2,525,309 | |
| | | | | | | | |
| Restaurants – 0.2% | | | | | | | | |
| Ajisen China Holdings Ltd. | | | 420,000 | | | $ | 291,618 | |
| | | | | | | | |
| Specialty Chemicals – 1.2% | | | | | | | | |
| Chugoku Marine Paints Ltd. | | | 123,000 | | | $ | 594,967 | |
| Formosa Plastics Corp. | | | 212,000 | | | | 570,089 | |
| Mexichem S.A.B de C.V. | | | 93,600 | | | | 402,265 | |
| | | | | | | | |
| | | | | | $ | 1,567,321 | |
| | | | | | | | |
5
MFS Emerging Markets Equity Portfolio
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| COMMON STOCKS – continued | | | | | |
| Specialty Stores – 0.9% | | | | | | | | |
| GOME Electrical Appliances Holdings Ltd. | | | 1,967,000 | | | $ | 262,093 | |
| M.Video | | | 78,730 | | | | 539,821 | |
| PT Mitra Adiperkasa Tbk | | | 527,500 | | | | 404,268 | |
| | | | | | | | |
| | | | | | $ | 1,206,182 | |
| | | | | | | | |
| Telecommunications – Wireless – 4.8% | | | | | |
| America Movil S.A.B. de C.V., “L”, ADR | | | 75,114 | | | $ | 1,957,471 | |
| China Mobile Ltd. | | | 72,500 | | | | 796,812 | |
| Mobile TeleSystems OJSC, ADR | | | 38,512 | | | | 662,406 | |
| MTN Group Ltd. | | | 92,878 | | | | 1,605,467 | |
| TIM Participacoes S.A., ADR | | | 16,937 | | | | 465,090 | |
| Turkcell Iletisim Hizmetleri A.S. (a) | | | 135,390 | | | | 684,158 | |
| | | | | | | | |
| | | | | | $ | 6,171,404 | |
| | | | | | | | |
| Telephone Services – 2.8% | | | | | | | | |
| China Unicom (Hong Kong) Ltd. | | | 286,000 | | | $ | 359,806 | |
| China Unicom (Hong Kong) Ltd., ADR | | | 94,490 | | | | 1,185,850 | |
| Empresa Nacional de Telecomunicaciones S.A. | | | 13,952 | | | | 264,691 | |
| PT XL Axiata Tbk | | | 2,752,000 | | | | 1,801,948 | |
| | | | | | | | |
| | | | | | $ | 3,612,295 | |
| | | | | | | | |
| Utilities – Electric Power – 2.2% | | | | | | | | |
| Aguas Andinas S.A. | | | 885,728 | | | $ | 548,329 | |
| Companhia Energetica de Minas Gerais, IPS | | | 23,900 | | | | 446,586 | |
| Energias do Brasil S.A. | | | 94,400 | | | | 605,832 | |
| Enersis S.A., ADR | | | 23,342 | | | | 436,495 | |
| Manila Water Co., Inc. | | | 644,000 | | | | 375,227 | |
| Tractebel Energia S.A. | | | 26,680 | | | | 493,484 | |
| | | | | | | | |
| | | | | | $ | 2,905,953 | |
| | | | | | | | |
Total Common Stocks
(Identified Cost, $121,658,229) | | | | | | $ | 128,040,594 | |
| | | | | | | | |
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| | | | | | | | |
| MONEY MARKET FUNDS – 0.6% | |
| MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v) | | | 787,557 | | | $ | 787,557 | |
| | | | | | | | |
Total Investments
(Identified Cost, $122,445,786) | | | | | | $ | 128,828,151 | |
| | | | | | | | |
OTHER ASSETS, LESS
LIABILITIES – 0.7% | | | | | | | 878,305 | |
| | | | | | | | |
| Net Assets – 100.0% | | | | | | $ | 129,706,456 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (v) | | Underlying affiliated fund 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 |
| GDR | | Global Depositary Receipt |
| IEU | | International Equity Unit |
| IPS | | International Preference Stock |
| PLC | | Public Limited Company |
See Notes to Financial Statements
6
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 6/30/12 | | | | | | | | |
Assets | | | | | | | | |
Investments – | | | | | | | | |
Non-affiliated issuers, at value (identified cost, $121,658,229) | | | $128,040,594 | | | | | |
Underlying affiliated funds, at cost and value | | | 787,557 | | | | | |
Total investments, at value (identified cost, $122,445,786) | | | $128,828,151 | | | | | |
Foreign currency, at value (identified cost, $74,066) | | | 74,659 | | | | | |
Receivables for | | | | | | | | |
Investments sold | | | 1,775,629 | | | | | |
Fund shares sold | | | 151,442 | | | | | |
Interest and dividends | | | 385,069 | | | | | |
Other assets | | | 1,069 | | | | | |
Total assets | | | | | | | $131,216,019 | |
Liabilities | | | | | | | | |
Payable to custodian | | | $98,276 | | | | | |
Payables for | | | | | | | | |
Investments purchased | | | 1,129,731 | | | | | |
Fund shares reacquired | | | 64,676 | | | | | |
Payable to affiliates | | | | | | | | |
Investment adviser | | | 11,001 | | | | | |
Shareholder servicing costs | | | 101 | | | | | |
Distribution and/or service fees | | | 749 | | | | | |
Payable for independent Trustees’ compensation | | | 14 | | | | | |
Deferred country tax expense payable | | | 121,032 | | | | | |
Accrued expenses and other liabilities | | | 83,983 | | | | | |
Total liabilities | | | | | | | $1,509,563 | |
Net assets | | | | | | | $129,706,456 | |
Net assets consist of | | | | | | | | |
Paid-in capital | | | $118,917,816 | | | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies
(net of $121,032 deferred country tax) | | | 6,259,585 | | | | | |
Accumulated net realized gain (loss) on investments and foreign currency | | | 2,051,805 | | | | | |
Undistributed net investment income | | | 2,477,250 | | | | | |
Net assets | | | | | | | $129,706,456 | |
Shares of beneficial interest outstanding | | | | | | | 8,914,788 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share | |
Initial Class | | | $91,836,619 | | | | 6,282,293 | | | | $14.62 | |
Service Class | �� | | 37,869,837 | | | | 2,632,495 | | | | 14.39 | |
See Notes to Financial Statements
7
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 6/30/12 | | | | | | | | |
Net investment income | | | | | | | | |
Income | | | | | | | | |
Dividends | | | $2,198,363 | | | | | |
Interest | | | 79 | | | | | |
Dividends from underlying affiliated funds | | | 561 | | | | | |
Foreign taxes withheld | | | (157,600 | ) | | | | |
Total investment income | | | | | | | $2,041,403 | |
Expenses | | | | | | | | |
Management fee | | | $701,022 | | | | | |
Distribution and/or service fees | | | 49,192 | | | | | |
Shareholder servicing costs | | | 6,864 | | | | | |
Administrative services fee | | | 14,980 | | | | | |
Independent Trustees’ compensation | | | 3,366 | | | | | |
Custodian fee | | | 119,618 | | | | | |
Shareholder communications | | | 4,686 | | | | | |
Audit and tax fees | | | 33,585 | | | | | |
Legal fees | | | 1,110 | | | | | |
Miscellaneous | | | 13,587 | | | | | |
Total expenses | | | | | | | $948,010 | |
Fees paid indirectly | | | (4 | ) | | | | |
Reduction of expenses by investment adviser | | | (343 | ) | | | | |
Net expenses | | | | | | | $947,663 | |
Net investment income | | | | | | | $1,093,740 | |
Realized and unrealized gain (loss) on investments and foreign currency | | | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | | | |
Investments (net of $9,892 country tax) | | | $(3,131,098 | ) | | | | |
Foreign currency | | | (72,601 | ) | | | | |
Net realized gain (loss) on investments and foreign currency | | | | | | | $(3,203,699 | ) |
Change in unrealized appreciation (depreciation) | | | | | | | | |
Investments (net of $99,140 increase in deferred country tax) | | | $9,604,269 | | | | | |
Translation of assets and liabilities in foreign currencies | | | 1 | | | | | |
Net unrealized gain (loss) on investments and foreign currency translation | | | | | | | $9,604,270 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | | | | | $6,400,571 | |
Change in net assets from operations | | | | | | | $7,494,311 | |
See Notes to Financial Statements
8
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
6/30/12
(unaudited |
) | |
| Year ended
12/31/11 |
|
Change in net assets | | | | | | | | |
| From operations | | | | | | | | |
Net investment income | | | $1,093,740 | | | | $1,617,721 | |
Net realized gain (loss) on investments and foreign currency | | | (3,203,699 | ) | | | 5,196,364 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | 9,604,270 | | | | (33,420,397 | ) |
Change in net assets from operations | | | $7,494,311 | | | | $(26,606,312 | ) |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $— | | | | $(662,107 | ) |
From net realized gain on investments | | | — | | | | (5,626,393 | ) |
Total distributions declared to shareholders | | | $— | | | | $(6,288,500 | ) |
Change in net assets from fund share transactions | | | $(3,334,085 | ) | | | $21,979,094 | |
Total change in net assets | | | $4,160,226 | | | | $(10,915,718 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 125,546,230 | | | | 136,461,948 | |
At end of period (including undistributed net investment income of $2,477,250 and
$1,383,510, respectively) | | | $129,706,456 | | | | $125,546,230 | |
See Notes to Financial Statements
9
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Initial Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $13.84 | | | | $17.88 | | | | $14.54 | | | | $8.88 | | | | $26.15 | | | | $24.52 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.13 | | | | $0.21 | | | | $0.13 | | | | $0.14 | | | | $0.33 | | | | $0.30 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.65 | | | | (3.46 | ) | | | 3.31 | | | | 5.80 | | | | (11.19 | ) | | | 7.13 | |
Total from investment operations | | | $0.78 | | | | $(3.25 | ) | | | $3.44 | | | | $5.94 | | | | $(10.86 | ) | | | $7.43 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.09 | ) | | | $(0.10 | ) | | | $(0.28 | ) | | | $(0.27 | ) | | | $(0.55 | ) |
From net realized gain on investments | | | — | | | | (0.70 | ) | | | — | | | | — | | | | (6.14 | ) | | | (5.25 | ) |
Total distributions declared to shareholders | | | $— | | | | $(0.79 | ) | | | $(0.10 | ) | | | $(0.28 | ) | | | $(6.41 | ) | | | $(5.80 | ) |
Net asset value, end of period (x) | | | $14.62 | | | | $13.84 | | | | $17.88 | | | | $14.54 | | | | $8.88 | | | | $26.15 | |
Total return (%) (k)(r)(s)(x) | | | 5.64 | (n) | | | (18.58 | ) | | | 23.82 | | | | 68.58 | | | | (55.11 | ) | | | 35.71 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.35 | (a) | | | 1.36 | | | | 1.55 | | | | 1.71 | | | | 1.85 | | | | 1.55 | |
Expenses after expense reductions (f) | | | 1.35 | (a) | | | 1.36 | | | | 1.40 | | | | 1.40 | | | | 1.61 | | | | N/A | |
Net investment income | | | 1.72 | (a) | | | 1.28 | | | | 0.86 | | | | 1.24 | | | | 1.94 | | | | 1.22 | |
Portfolio turnover | | | 19 | (n) | | | 34 | | | | 39 | | | | 66 | | | | 93 | | | | 96 | |
Net assets at end of period (000 omitted) | | | $91,837 | | | | $88,928 | | | | $99,316 | | | | $71,026 | | | | $33,411 | | | | $94,193 | |
| | |
| Service Class | | Six months
ended
6/30/12 | | | Years ended 12/31 | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (unaudited) | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $13.64 | | | | $17.64 | | | | $14.36 | | | | $8.76 | | | | $25.88 | | | | $24.33 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (d) | | | $0.11 | | | | $0.16 | | | | $0.09 | | | | $0.11 | | | | $0.29 | | | | $0.23 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.64 | | | | (3.40 | ) | | | 3.28 | | | | 5.73 | | | | (11.06 | ) | | | 7.07 | |
Total from investment operations | | | $0.75 | | | | $(3.24 | ) | | | $3.37 | | | | $5.84 | | | | $(10.77 | ) | | | $7.30 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | | | | | | | | | | |
From net investment income | | | $— | | | | $(0.06 | ) | | | $(0.09 | ) | | | $(0.24 | ) | | | $(0.21 | ) | | | $(0.50 | ) |
From net realized gain on investments | | | — | | | | (0.70 | ) | | | — | | | | — | | | | (6.14 | ) | | | (5.25 | ) |
Total distributions declared to shareholders | | | $— | | | | $(0.76 | ) | | | $(0.09 | ) | | | $(0.24 | ) | | | $(6.35 | ) | | | $(5.75 | ) |
Net asset value, end of period (x) | | | $14.39 | | | | $13.64 | | | | $17.64 | | | | $14.36 | | | | $8.76 | | | | $25.88 | |
Total return (%) (k)(r)(s)(x) | | | 5.50 | (n) | | | (18.77 | ) | | | 23.54 | | | | 68.13 | | | | (55.23 | ) | | | 35.38 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 1.60 | (a) | | | 1.61 | | | | 1.80 | | | | 1.95 | | | | 2.10 | | | | 1.81 | |
Expenses after expense reductions (f) | | | 1.60 | (a) | | | 1.61 | | | | 1.65 | | | | 1.65 | | | | 1.86 | | | | N/A | |
Net investment income | | | 1.45 | (a) | | | 1.02 | | | | 0.62 | | | | 0.93 | | | | 1.70 | | | | 0.96 | |
Portfolio turnover | | | 19 | (n) | | | 34 | | | | 39 | | | | 66 | | | | 93 | | | | 96 | |
Net assets at end of period (000 omitted) | | | $37,870 | | | | $36,618 | | | | $37,146 | | | | $25,363 | | | | $9,342 | | | | $23,614 | |
See Notes to Financial Statements
10
MFS Emerging Markets Equity Portfolio
Financial Highlights – continued
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values per share 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 Emerging Markets Equity Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
| (1) | | Business and Organization |
MFS Emerging Markets Equity Portfolio (the fund) is a series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries.
In this reporting period the fund adopted FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 seeks to improve the comparability of fair value measurements as presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) by providing common requirements for fair value measurement and disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities ("ASU 2011-11"). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund's adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to
12
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2012 in valuing the fund's assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
Brazil | | | $21,609,493 | | | | $— | | | | $— | | | | $21,609,493 | |
China | | | 1,545,657 | | | | 13,016,134 | | | | — | | | | 14,561,791 | |
South Korea | | | — | | | | 13,933,010 | | | | — | | | | 13,933,010 | |
India | | | 1,704,124 | | | | 9,659,172 | | | | — | | | | 11,363,296 | |
Taiwan | | | 439,614 | | | | 10,669,628 | | | | — | | | | 11,109,242 | |
South Africa | | | 2,791,500 | | | | 6,028,060 | | | | — | | | | 8,819,560 | |
Russia | | | 3,218,089 | | | | 4,833,317 | | | | — | | | | 8,051,406 | |
Hong Kong | | | — | | | | 7,894,438 | | | | — | | | | 7,894,438 | |
Mexico | | | 7,618,653 | | | | — | | | | — | | | | 7,618,653 | |
Other Countries | | | 9,916,311 | | | | 13,163,394 | | | | — | | | | 23,079,705 | |
| Mutual Funds | | | 787,557 | | | | — | | | | — | | | | 787,557 | |
| Total Investments | | | $49,630,998 | | | | $79,197,153 | | | | $— | | | | $128,828,151 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 2 investments presented above, equity investments amounting to $64,336,068 would have been considered level 1 investments at the beginning of the period. Of the level 1 investments presented above, equity investments amounting to $1,327,933 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
13
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements (unaudited) – continued
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended June 30, 2012, is shown as a reduction of total expenses on the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 12/31/11 | |
| Ordinary income (including any short-term capital gains) | | | $810,319 | |
| Long-term capital gains | | | 5,478,181 | |
| Total distributions | | | $6,288,500 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 6/30/12 | | | | |
| Cost of investments | | | $122,811,564 | |
| Gross appreciation | | | 19,271,838 | |
| Gross depreciation | | | (13,255,251 | ) |
| Net unrealized appreciation (depreciation) | | | $6,016,587 | |
| |
| As of 12/31/11 | | | | |
| Undistributed ordinary income | | | 2,230,466 | |
| Undistributed long-term capital gain | | | 4,785,127 | |
| Other temporary differences | | | (34,442 | ) |
| Net unrealized appreciation (depreciation) | | | (3,686,822 | ) |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported on the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | | | | | | | | | |
| | | From net investment
income | | | From net realized gain on
investments | |
| | | Six months ended
6/30/12 | | | Year ended
12/31/11 | | | Six months ended
6/30/12 | | | Year ended
12/31/11 | |
| Initial Class | | | $— | | | | $526,690 | | | | $— | | | | $4,031,341 | |
| Service Class | | | — | | | | 135,417 | | | | — | | | | 1,595,052 | |
| Total | | | $— | | | | $662,107 | | | | $— | | | | $5,626,393 | |
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $500 million of average daily net assets | | | 1.05% | |
| Average daily net assets in excess of $500 million | | | 1.00% | |
14
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements (unaudited) – continued
The management fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 1.05% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 1.40% of average daily net assets for the Initial Class shares and 1.65% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2014. For the six months ended June 30, 2012, 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, 2012, the fee was $6,851, which equated to 0.0103% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2012, these costs amounted to $13.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2012 was equivalent to an annual effective rate of 0.0224% 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 for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended June 30, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $683 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $343, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $24,915,811 and $27,548,111, respectively.
15
MFS Emerging Markets Equity 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 6/30/12 | | | Year ended 12/31/11 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Initial Class | | | 401,281 | | | | $5,919,444 | | | | 1,330,112 | | | | $21,129,082 | |
Service Class | | | 401,583 | | | | 6,012,294 | | | | 1,005,433 | | | | 15,977,133 | |
| | | 802,864 | | | | $11,931,738 | | | | 2,335,545 | | | | $37,106,215 | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Initial Class | | | — | | | | $— | | | | 300,463 | | | | $4,558,031 | |
Service Class | | | — | | | | — | | | | 115,673 | | | | 1,730,469 | |
| | | — | | | | $— | | | | 416,136 | | | | $6,288,500 | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Initial Class | | | (542,149 | ) | | | $(8,363,612 | ) | | | (762,765 | ) | | | $(12,544,649 | ) |
Service Class | | | (453,481 | ) | | | (6,902,211 | ) | | | (542,955 | ) | | | (8,870,972 | ) |
| | | (995,630 | ) | | | $(15,265,823 | ) | | | (1,305,720 | ) | | | $(21,415,621 | ) |
| Net change | | | | | | | | | | | | | | | | |
Initial Class | | | (140,868 | ) | | | $(2,444,168 | ) | | | 867,810 | | | | $13,142,464 | |
Service Class | | | (51,898 | ) | | | (889,917 | ) | | | 578,151 | | | | 8,836,630 | |
| | | (192,766 | ) | | | $(3,334,085 | ) | | | 1,445,961 | | | | $21,979,094 | |
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2012, the fund’s commitment fee and interest expense were $457 and $0, respectively, and are included in “Miscellaneous” expense on the Statement of Operations.
| (7) | | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 1,374,005 | | | | 18,944,874 | | | | (19,531,322 | ) | | | 787,557 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $561 | | | | $787,557 | |
16
MFS Emerging Markets Equity Portfolio
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS will be available on or about November 1, 2012 by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Variable Insurance Portfolios — VIT II” in the “Products and Performance” section of mfs.com.
17
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.
A schedule of investments for each series of the Registrant is included as part of the report to shareholders of such series under Item 1 of this Form N-CSR.
| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable to the Registrant.
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.
| ITEM 11. | CONTROLS AND PROCEDURES. |
| (a) | Based upon their evaluation of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this report on Form N-CSR, the registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. |
| (b) | There were no changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by the report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| (a) | File the exhibits listed below as part of this form. Letter or number the exhibits in the sequence indicated. |
| | (1) | Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit. |
| | (2) | A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto. |
| (b) | If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: Attached hereto. |
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)* | | JOHN M. CORCORAN |
| | John M. Corcoran, President |
Date: August 16, 2012
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)* | | JOHN M. CORCORAN |
| | John M. Corcoran, President (Principal Executive Officer) |
Date: August 16, 2012
| | |
| By (Signature and Title)* | | DAVID L. DILORENZO |
| | David L. DiLorenzo, Treasurer (Principal Financial Officer and Accounting Officer) |
Date: August 16, 2012
| * | Print name and title of each signing officer under his or her signature. |
