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 811-03732
MFS VARIABLE INSURANCE TRUST II
(Exact name of registrant as specified in charter)
111 Huntington Avenue, Boston, Massachusetts 02199 (Address of principal executive offices) (Zip code)
Christopher R. Bohane
Massachusetts Financial Services Company
111Huntington Avenue Boston, Massachusetts 02199
(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
Date of fiscal year end: December 31
Date of reporting period: December 31, 2022
ITEM 1. REPORTS TO STOCKHOLDERS.
Item 1(a):
Annual Report
December 31, 2022
MFS® Global Tactical
Allocation Portfolio
MFS® Variable Insurance Trust II
MFS® Global Tactical Allocation Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Tactical Allocation Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Global Tactical Allocation Portfolio
| | | Tactical Overlay (b) |
| | | Active Security
Selection (a) | Long | Short | Net Market
Exposure (c) |
| Fixed Income | U.S. | 20.5% | 48.1% | (20.5)% | 48.1% |
| | Emerging Markets | 14.8% | 0.0% | 0.0% | 14.8% |
| | Japan | 3.7% | 5.4% | 0.0% | 9.1% |
| | Asia/Pacific ex-Japan | 1.7% | 7.1% | 0.0% | 8.8% |
| | United Kingdom | 5.7% | 1.3% | 0.0% | 7.0% |
| | Supranational | 1.7% | 0.0% | 0.0% | 1.7% |
| | Europe ex-U.K. | 4.3% | 0.0% | (3.0)% | 1.3% |
| | Developed - Middle East/Africa | 0.2% | 0.0% | 0.0% | 0.2% |
| | North America ex-U.S. | 3.8% | 0.0% | (6.9)% | (3.1)% |
| | Total | 56.4% | 61.9% | (30.4)% | 87.9% |
| Equity | Europe ex-U.K. | 6.6% | 9.7% | (4.1)% | 12.2% |
| | U.S. Large Cap | 13.7% | 0.0% | (2.6)% | 11.1% |
| | Emerging Markets | 2.0% | 8.7% | (3.9)% | 6.8% |
| | United Kingdom | 2.3% | 4.5% | 0.0% | 6.8% |
| | Japan | 2.1% | 1.6% | 0.0% | 3.7% |
| | U.S. Small/Mid Cap | 5.0% | 0.0% | (3.1)% | 1.9% |
| | North America ex-U.S. | 1.2% | 0.0% | 0.0% | 1.2% |
| | Asia/Pacific ex-Japan | 0.5% | 0.7% | (5.3)% | (4.1)% |
| | Total | 33.4% | 25.2% | (19.0)% | 39.6% |
| Real Estate-related | U.S. | 1.1% | 0.0% | 0.0% | 1.1% |
| | Non-U.S. | 0.3% | 0.0% | 0.0% | 0.3% |
| | Total | 1.4% | 0.0% | 0.0% | 1.4% |
| Cash | Cash & Cash Equivalents (d) | | | | 4.0% |
| | Other (e) | | | | (32.9)% |
| | Total | | | | (28.9)% |
| | Total Net Exposure Summary | | | | 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)
| USD Interest Rate Swap, Receive 4.5% - MAR 2025 | 34.3% |
| USD Interest Rate Swap, Receive 4.0% - MAR 2028 | 13.8% |
| Australian Bond 10 yr Future - MAR 2023 | 7.1% |
| Japan Government Bond 10 yr Future - MAR 2023 | 5.4% |
| Euro-Schatz 2 yr Future - MAR 2023 | (4.6)% |
| U.S. Treasury Note 5 yr Future - MAR 2023 | (4.7)% |
| Canadian Treasury Bond 10 yr Future - MAR 2023 | (5.2)% |
| Euro-Bobl 5 yr Future - MAR 2023 | (5.6)% |
| USD Interest Rate Swap, Pay 3.75% - MAR 2033 | (7.3)% |
| U.S. Treasury Note 10 yr Future - MAR 2023 | (8.6)% |
| (a) | Represents the actively managed portion of the portfolio and for purposes of this presentation, components include the value of securities, less any securities sold short. The bond component will include any accrued interest amounts. This also reflects the equivalent exposure of certain derivative positions. These amounts may be negative from time to time. |
| (b) | Represents the tactical overlay portion of the portfolio which is how the fund manages its exposure to markets and currencies through the use of derivative positions. Percentages reflect the equivalent exposure of those derivative positions. |
MFS Global Tactical Allocation Portfolio
Portfolio Composition - continued
| (c) | For purposes of this presentation, the components include the value of securities, less any securities sold short, and reflect the impact of the equivalent exposure of all derivative positions. These amounts may be negative from time to time. The bond component will include any accrued interest amounts. |
| (d) | Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities. |
| (e) | Other includes currency derivatives and/or the offsetting of the leverage produced by the fund’s derivative positions, including payables and/or receivables of the finance leg of interest rate swaps and the unrealized gain or loss in connection with forward currency exchange contracts. |
| (w) | The strategic asset class allocations have been selected for investment over longer time periods. The actual strategic asset class weightings can deviate due to market movements and cash flows. |
| (z) | The fund’s net exposures to the asset classes referenced will normally fall within these ranges after taking into account the tactical overlay. |
Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The value of derivatives may be different.
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS Global Tactical Allocation Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Global Tactical Allocation Portfolio (fund) provided a total return of -7.20%, while Service Class shares of the fund provided a total return of -7.44%. These compare with a return of -16.25% over the same period for the fund’s benchmark, the Bloomberg Global Aggregate Index. The fund’s other benchmarks, the MSCI World Index (net div) and the MFS Global Tactical Allocation Blended Index (Blended Index), generated total returns of -18.14% and -13.98%, respectively. The Blended Index reflects the blended returns of equity and fixed income indices, with percentage allocations to each index designed to resemble the strategic allocations of the fund. The market indices and related percentage allocations used to compile the Blended Index are set forth in the Performance Summary.
The fund’s investment objective is to seek total return. MFS seeks to achieve the fund’s objective by generating returns from a combination of (1) individual security selection of a combination of debt instruments and equity securities and (2) a tactical asset allocation overlay primarily using derivative instruments to manage the fund’s exposure to asset classes (e.g. equity and fixed income), markets (e.g. U.S. and foreign countries), and currencies (e.g. U.S. dollar and Japanese yen). Derivatives include futures, forward contracts, options and swaps.
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Contributors to Performance
Within the equity portion of the fund, an underweight position and, to a lesser extent, stock selection within the information technology sector contributed to the fund’s performance relative to the MSCI World Index. Within this sector, not owning shares of weak-performing computer and personal electronics maker Apple benefited relative returns. The stock price of Apple came under pressure due to concerns over supply chain disruptions and slowing iPhone volumes.
Stock selection within the communication services sector also strengthened relative performance. Here, not owning shares of social networking service provider Meta Platforms contributed to relative returns as the stock underperformed the benchmark. Although Meta Platforms reported in-line revenue results, its forward-looking guidance for higher-than-expected expenses and capital expenditures weighed on its stock price. The timing of the fund’s ownership in shares of technology company Alphabet, and its overweight position in telecommunications company KDDI (Japan), further boosted relative performance.
Elsewhere, the fund’s overweight positions in pharmaceutical company Merck, oil and gas company ConocoPhillips, global health services provider Cigna and diversified medical products maker Johnson & Johnson helped relative returns. The share price of Merck rose as the company’s earnings and sales results exceeded expectations due to favorable impacts from the COVID-19 recovery. Management also raised its forward-looking sales guidance, which further supported the stock. The fund’s avoidance of weak-performing internet retailer Amazon.com and electric vehicle manufacturer Tesla also benefited relative performance.
MFS Global Tactical Allocation Portfolio
Management Review - continued
Within the fixed income portion of the fund, yield curve(y) positioning, particularly along the United States, Canadian and United Kingdom curves, strengthened the fund’s performance relative to the Bloomberg Global Aggregate Index. A shorter-than-benchmark duration(d) stance to both the US and Canadian dollar yield curves further supported relative performance as interest rates rose during the reporting period.
Within the fund’s tactical overlay, a long exposure to emerging equity markets, via holdings of equity index futures, most notably Turkey and Brazil, helped relative performance. A short exposure to the fixed income markets of the United Kingdom, via fixed income index futures, also contributed to relative results.
Detractors from Performance
Within the equity portion of the fund, an underweight allocation and stock selection within the energy sector detracted from performance relative to the MSCI World Index. Here, not owning shares of integrated oil and gas company ExxonMobil and integrated energy company Chevron hurt relative results. The stock price of ExxonMobil rose as the company posted robust earnings and revenue results, driven by the strong energy price environment, and increased its return to shareholders through stock repurchases and dividends.
Elsewhere, the fund’s overweight positions in power and hand tools manufacturer Stanley Black & Decker and Schneider Electric held back relative returns. Stanley Black & Decker reported below-consensus earnings results, driven by weaker margins in its tools and storage segments. The company also lowered its revenue guidance for the remainder of the year due to weaker-than-expected consumer demand, which further pressured the stock. Also among the fund’s top relative detractors were its holdings of commercial banking firm Sberbank Russia(b) (Russia), semiconductor manufacturer Taiwan Semiconductor Manufacturing(b) (Taiwan) and microchip and electronics manufacturer Samsung Electronics(b) (South Korea). Not owning shares of strong-performing pharmaceutical company Eli Lilly, health insurance and Medicare/Medicaid provider UnitedHealth Group and pharmaceutical company AbbVie also held back relative performance.
Within the fixed income portion of the fund, the fund’s overweight exposures to both the financial institutions and government-related agencies sectors hurt performance relative to the Bloomberg Global Aggregate Index. From a credit quality perspective, the fund's underweight exposure to “A” rated(r) bonds held back relative returns. Unfavorable bond selection within the financial institutions sector further weakened the fund’s relative performance.
Within the fund’s tactical overlay, short exposures to both the Indian and Australian equity markets, both via holdings of equity index futures, and long exposure to Hong Kong equity markets, via equity index futures, detracted from relative performance. Additionally, the fund’s US yield curve steepening trades (2 yr vs. 10 yr and 5 yr vs. 30 yr), which is a strategy that uses derivatives to benefit from escalating yield differences that occur as a result of increases in the yield curve between two Treasury bonds of different maturities, further detracted from relative performance.
Respectfully,
Portfolio Manager(s)
Pilar Gomez-Bravo, Steven Gorham, Andy Li, Johnathan Munko, Benjamin Nastou, Henry Peabody, Jonathan Sage, Natalie Shapiro, Erich Shigley, David Shindler, Robert Spector, and Erik Weisman
Note to Shareholders: Effective January 3, 2022, David Shindler was added as a Portfolio Manager of the fund. Effective September 30, 2022, Vipin Narula is no longer a Portfolio Manager of the fund. Effective January 20, 2023, John Mitchell was added as a Portfolio Manager and Henry Peabody is no longer a Portfolio Manager of the fund.
| (b) | Security is not a benchmark constituent. |
| (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. |
| (r) | Securities rated “BBB”, “Baa”, or higher are considered investment grade; securities rated “BB”, “Ba”, or below are considered non-investment grade. Ratings are assigned to underlying securities utilizing ratings from Moody's, Fitch, and Standard & Poor's and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). For securities that are not rated by any of the rating agencies, the security is considered Not Rated. |
| (y) | A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Global Tactical Allocation Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 11/07/94 | (7.20)% | 2.09% | 3.79% |
| Service Class | 8/24/01 | (7.44)% | 1.83% | 3.54% |
Comparative benchmark(s)
| Bloomberg Global Aggregate Index (f) | (16.25)% | (1.66)% | (0.44)% |
| MFS Global Tactical Allocation Blended Index (f)(w) | (13.98)% | 2.44% | 4.13% |
| Bloomberg Global Aggregate Index (USD Hedged) (f) | (11.22)% | 0.36% | 1.70% |
| MSCI World Index (net div) (f) | (18.14)% | 6.14% | 8.85% |
| (f) | Source: FactSet Research Systems Inc. |
| (w) | The MFS Global Tactical Allocation Blended Index (a custom index) was comprised of the following at the beginning and at the end of the reporting period: |
| | 12/31/22 |
| MSCI World Index (net div) | 35% |
| Bloomberg Global Aggregate Index (USD Hedged) | 54% |
| Bloomberg Global Aggregate Index | 11% |
Benchmark Definition(s)
Bloomberg Global Aggregate Index(a) – provides a broad-based measure of the global investment-grade fixed income markets. The three major components of this index are the U.S. Aggregate, the Pan-European Aggregate, and the Asian-Pacific Aggregate Indices. The index also includes Eurodollar and Euro-Yen corporate bonds, Canadian government, agency and corporate securities, and USD investment grade 144A securities.
MFS Global Tactical Allocation Portfolio
Performance Summary – continued
Bloomberg Global Aggregate Index(a) (USD Hedged) – provides a broad-based measure of the currency-hedged performance of global investment-grade fixed income markets. The three major components of this index are the U.S. Aggregate, the Pan-European Aggregate, and the Asian-Pacific Aggregate Indices. The index also includes Eurodollar and Euro-Yen corporate bonds, Canadian government, agency and corporate securities, and USD investment grade 144A securities.
MSCI World Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance in the global developed markets.
It is not possible to invest directly in an index.
| (a) | Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Global Tactical Allocation Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.78% | $1,000.00 | $1,035.24 | $4.00 |
| Hypothetical (h) | 0.78% | $1,000.00 | $1,021.27 | $3.97 |
| Service Class | Actual | 1.03% | $1,000.00 | $1,034.13 | $5.28 |
| Hypothetical (h) | 1.03% | $1,000.00 | $1,020.01 | $5.24 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Notes to Expense Table
Expense ratios include 0.02% of interest expense on uncovered collateral or margin obligations with the broker (See Note 2 of the Notes to Financial Statements) that are outside of the expense limitation arrangement (See Note 3 of the Notes to Financial Statements).
MFS Global Tactical Allocation Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 62.7% |
| Aerospace & Defense – 0.3% |
| Boeing Co., 5.805%, 5/01/2050 | | $ | 625,000 | $ 579,485 |
| Raytheon Technologies Corp., 2.82%, 9/01/2051 | | | 745,000 | 482,584 |
| | | | | $1,062,069 |
| Airlines – 0.1% |
| EasyJet Finco B.V., 1.875%, 3/03/2028 | | EUR | 560,000 | $ 481,450 |
| Alcoholic Beverages – 0.0% |
| Pernod Ricard S.A., 3.75%, 11/02/2032 | | EUR | 100,000 | $ 106,296 |
| Apparel Manufacturers – 0.1% |
| Tapestry, Inc., 3.05%, 3/15/2032 | | $ | 516,000 | $ 401,605 |
| Asset-Backed & Securitized – 5.7% |
| AA Bond Co. Ltd., 3.25%, 7/31/2028 | | GBP | 560,000 | $ 503,647 |
| ACRES 2021-FL2 Issuer Ltd., “AS”, FLR, 6.076% (LIBOR - 1mo. + 1.75%), 1/15/2037 (n) | | $ | 370,000 | 347,624 |
| ACRES 2021-FL2 Issuer Ltd., “B”, FLR, 6.576% (LIBOR - 1mo. + 2.25%), 1/15/2037 (n) | | | 604,000 | 569,795 |
| Arbor Realty Trust, Inc., CLO, 2019-FL2, “AS”, FLR, 5.9% (LIBOR - 1mo. + 1.45%), 9/15/2034 (n) | | | 600,000 | 590,618 |
| Arbor Realty Trust, Inc., CLO, 2021-FL1, “B”, FLR, 5.77% (LIBOR - 1mo. + 1.5%), 12/15/2035 (n) | | | 214,500 | 197,890 |
| Arbor Realty Trust, Inc., CLO, 2021-FL2, “B”, FLR, 5.917% (LIBOR - 1mo. + 1.6%), 5/15/2036 (n) | | | 143,000 | 134,738 |
| Arbor Realty Trust, Inc., CLO, 2021-FL2, “C”, FLR, 6.268% (LIBOR - 1mo. + 1.95%), 5/15/2036 (n) | | | 426,500 | 395,682 |
| Arbor Realty Trust, Inc., CLO, 2022-FL1, “B”, FLR, 5.907% (SOFR - 30 day + 2.1%), 1/15/2037 (n) | | | 794,500 | 759,559 |
| Arbor Realty Trust, Inc., CLO, 2022-FL1, “C”, FLR, 6.107% (SOFR - 30 day + 2.3%), 1/15/2037 (n) | | | 765,000 | 712,895 |
| AREIT 2022-CRE6 Trust, “B”, FLR, 5.675% (SOFR - 30 day + 1.85%), 1/16/2037 (n) | | | 289,000 | 265,499 |
| AREIT 2022-CRE6 Trust, “C”, FLR, 5.975% (SOFR - 30 day + 2.15%), 1/16/2037 (n) | | | 119,000 | 110,609 |
| AREIT 2022-CRE6 Trust, “D”, FLR, 6.676% (SOFR - 30 day + 2.85%), 1/16/2037 (n) | | | 100,000 | 92,382 |
| BBCMS Mortgage Trust, 2020-C7, “XA”, 1.622%, 4/15/2053 (i) | | | 990,628 | 71,718 |
| BBCMS Mortgage Trust, 2021-C10, “XA”, 1.297%, 7/15/2054 (i) | | | 2,922,163 | 211,536 |
| BBCMS Mortgage Trust, 2021-C9, “XA”, 1.626%, 2/15/2054 (i) | | | 6,648,561 | 601,680 |
| BBCMS Mortgage Trust, 2022-C18, “AS”, 6.148%, 12/15/2055 | | | 265,075 | 276,803 |
| Benchmark 2021-B24 Mortgage Trust, “XA”, 1.151%, 3/15/2054 (i) | | | 2,024,817 | 123,360 |
| Benchmark 2021-B26 Mortgage Trust, “XA”, 0.886%, 6/15/2054 (i) | | | 5,580,124 | 273,857 |
| Benchmark 2021-B27 Mortgage Trust, “XA”, 1.266%, 7/15/2054 (i) | | | 6,755,480 | 476,042 |
| Benchmark 2021-B28 Mortgage Trust, “XA”, 1.282%, 8/15/2054 (i) | | | 5,280,191 | 372,120 |
| Benchmark 2022-B37 Mortgage Trust, “AS”, 5.751%, 11/15/2055 | | | 105,000 | 104,908 |
| Brazos Securitization LLC, 5.413%, 9/01/2052 (n) | | | 246,000 | 232,109 |
| BSPRT 2021-FL7 Issuer Ltd., “B”, FLR, 6.368% (LIBOR - 1mo. + 2.05%), 12/15/2038 (n) | | | 177,500 | 164,773 |
| BSPRT 2021-FL7 Issuer Ltd., “C”, FLR, 6.617% (LIBOR - 1mo. + 2.3%), 12/15/2038 (n) | | | 161,000 | 148,310 |
| Business Jet Securities LLC, 2020-1A, “A”, 2.981%, 11/15/2035 (n) | | | 142,402 | 129,705 |
| Business Jet Securities LLC, 2021-1A, “A”, 2.162%, 4/15/2036 (n) | | | 177,605 | 155,946 |
| BXMT 2021-FL4 Ltd., “AS”, FLR, 5.617% (LIBOR - 1mo. + 1.3%), 5/15/2038 (n) | | | 900,000 | 858,630 |
| BXMT 2021-FL4 Ltd., “B”, FLR, 5.867% (LIBOR - 1mo. + 1.55%), 5/15/2038 (n) | | | 1,797,000 | 1,657,950 |
| Capital Automotive, 2020-1A, “A4”, REIT, 3.19%, 2/15/2050 (n) | | | 259,939 | 242,867 |
| CarMax Auto Owner Trust, 2022-2, “A4”, 3.62%, 9/15/2027 | | | 355,000 | 341,593 |
| CF Hippolyta Issuer LLC, 2020-1, “A1”, 1.69%, 7/15/2060 (n) | | | 199,186 | 177,792 |
| Commercial Mortgage Pass-Through Certificates, 2021-BN32, “XA”, 0.779%, 4/15/2054 (i) | | | 1,238,191 | 53,724 |
| Commercial Mortgage Pass-Through Certificates, 2021-BN34, “XA”, 0.976%, 6/15/2063 (i) | | | 2,967,767 | 164,638 |
| Commercial Mortgage Pass-Through Certificates, 2021-BN35, “XA”, 1.046%, 6/15/2064 (i) | | | 2,937,807 | 174,896 |
| Commercial Mortgage Pass-Through Certificates, 2022-BNK41, “AS”, 3.79%, 4/15/2065 | | | 592,000 | 504,870 |
| Credit Acceptance Auto Loan Trust, 2021-3A, “A”, 1%, 5/15/2030 (n) | | | 738,000 | 704,909 |
| Fortress CBO Investments Ltd., 2022-FL3, “AS”, FLR, 6.16% (SOFR - 30 day + 2.25%), 2/23/2039 (n) | | | 269,500 | 257,919 |
| FS Rialto 2021-FL2 Issuer Ltd., “AS”, FLR, 5.876% (LIBOR - 1mo. + 1.6%), 5/16/2038 (n) | | | 701,500 | 668,650 |
| LoanCore 2021-CRE5 Ltd., “AS”, FLR, 6.067% (LIBOR - 1mo. + 1.75%), 7/15/2036 (n) | | | 865,000 | 813,095 |
| LoanCore 2021-CRE5 Ltd., “B”, FLR, 6.317% (LIBOR - 1mo. + 2%), 7/15/2036 (n) | | | 367,000 | 343,668 |
| MF1 2021-FL5 Ltd., “AS”, FLR, 5.65% (LIBOR - 1mo. + 1.2%), 7/15/2036 (n) | | | 677,000 | 652,764 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Asset-Backed & Securitized – continued |
| MF1 2021-FL5 Ltd., “B”, FLR, 5.9% (LIBOR - 1mo. + 1.45%), 7/15/2036 (n) | | $ | 847,500 | $ 809,871 |
| MF1 2021-FL5 Ltd., “C”, FLR, 6.15% (LIBOR - 1mo. + 1.7%), 7/15/2036 (n) | | | 200,000 | 186,306 |
| MF1 2021-FL6 Ltd., “AS”, FLR, 5.776% (LIBOR - 1mo. + 1.45%), 7/16/2036 (n) | | | 1,050,000 | 989,549 |
| MF1 2021-FL6 Ltd., “B”, FLR, 5.976% (LIBOR - 1mo. + 1.65%), 7/16/2036 (n) | | | 1,000,000 | 938,131 |
| MF1 2022-FL8 Ltd., “A”, FLR, 5.175% (SOFR - 1mo. + 1.35%), 2/19/2037 (n) | | | 250,000 | 239,713 |
| MF1 2022-FL8 Ltd., “B”, FLR, 5.775% (SOFR - 30 day + 1.95%), 2/19/2037 (n) | | | 281,312 | 265,823 |
| Morgan Stanley Capital I Trust, 2021-L5, “XA”, 1.296%, 5/15/2054 (i) | | | 2,258,751 | 155,867 |
| Morgan Stanley Capital I Trust, 2021-L6, “XA”, 1.228%, 6/15/2054 (i) | | | 4,854,569 | 307,425 |
| Navistar Financial Dealer Note Master Owner Trust, 2022-1, “A”, FLR, 5.128% (SOFR - 30 day + 1.25%), 5/25/2027 (n) | | | 236,000 | 236,616 |
| PFP III 2021-7 Ltd., “AS”, FLR, 5.467% (LIBOR - 1mo. + 1.15%), 4/14/2038 (n) | | | 612,469 | 576,675 |
| PFP III 2021-7 Ltd., “B”, FLR, 5.726% (LIBOR - 1mo. + 1.4%), 4/14/2038 (n) | | | 239,988 | 224,316 |
| PFP III 2021-8 Ltd., “B”, FLR, 5.826% (LIBOR - 1mo. + 1.5%), 8/09/2037 (n) | | | 238,000 | 214,452 |
| RAC Bond Co. PLC, 4.87%, 5/06/2026 | | GBP | 310,000 | 339,302 |
| Starwood Commercial Mortgage, 2021-FL2, “AS”, FLR, 5.776% (LIBOR - 1mo. + 1.45%), 4/18/2038 (n) | | $ | 700,000 | 662,108 |
| Starwood Commercial Mortgage, 2021-FL2, “B”, FLR, 6.126% (LIBOR - 1mo. + 1.8%), 4/18/2038 (n) | | | 534,500 | 500,213 |
| TPG Real Estate Finance, 2021-FL4, “A”, FLR, 5.526% (LIBOR - 1mo. + 1.2%), 3/15/2038 (n) | | | 325,500 | 314,554 |
| TPG Real Estate Finance, 2021-FL4, “AS”, FLR, 5.726% (LIBOR - 1mo. + 1.4%), 3/15/2038 (n) | | | 350,000 | 329,602 |
| Wells Fargo Commercial Mortgage Trust, 2021-C60, “XA”, 1.546%, 8/15/2054 (i) | | | 4,959,625 | 437,429 |
| | | | | $23,369,722 |
| Automotive – 0.6% |
| Hyundai Capital America, 2%, 6/15/2028 (n) | | $ | 400,000 | $ 325,819 |
| Hyundai Capital America, 6.375%, 4/08/2030 (n) | | | 574,000 | 581,634 |
| Mercedes-Benz Financial Services (Canada), 3%, 2/23/2027 | | EUR | 280,000 | 293,273 |
| RENK AG, 5.75%, 7/15/2025 | | | 470,000 | 466,661 |
| Stellantis N.V., 2.75%, 4/01/2032 | | | 390,000 | 353,713 |
| Volkswagen International Finance N.V., 4.375% to 3/28/2031, FLR (EUR Swap Rate - 9yr. + 3.36%) to 3/28/2032, FLR (EUR Swap Rate - 9yr. + 3.61%) to 3/28/2051, FLR (EUR Swap Rate - 9yr. + 4.11%) to 3/28/2168 | | | 500,000 | 435,523 |
| | | | | $2,456,623 |
| Broadcasting – 0.5% |
| Discovery, Inc., 4.125%, 5/15/2029 | | $ | 458,000 | $ 396,887 |
| Prosus N.V., 2.085%, 1/19/2030 | | EUR | 380,000 | 315,619 |
| Prosus N.V., 3.68%, 1/21/2030 (n) | | $ | 440,000 | 365,837 |
| Prosus N.V., 3.832%, 2/08/2051 (n) | | | 360,000 | 217,500 |
| Ubisoft Entertainment S.A., 0.878%, 11/24/2027 | | EUR | 400,000 | 328,607 |
| Warnermedia Holdings, Inc., 4.279%, 3/15/2032 (n) | | $ | 725,000 | 597,229 |
| | | | | $2,221,679 |
| Brokerage & Asset Managers – 0.2% |
| Ameriprise Financial, Inc., 4.5%, 5/13/2032 | | $ | 240,000 | $ 232,418 |
| Low Income Investment Fund, 3.386%, 7/01/2026 | | | 150,000 | 141,476 |
| Low Income Investment Fund, 3.711%, 7/01/2029 | | | 400,000 | 375,238 |
| | | | | $749,132 |
| Building – 0.2% |
| Holcim Sterling Finance (Netherlands) B.V., 2.25%, 4/04/2034 | | GBP | 470,000 | $ 387,944 |
| Vulcan Materials Co., 3.5%, 6/01/2030 | | $ | 453,000 | 399,019 |
| | | | | $786,963 |
| Business Services – 0.3% |
| Euronet Worldwide, Inc., 1.375%, 5/22/2026 | | EUR | 480,000 | $ 454,229 |
| Fiserv, Inc., 4.4%, 7/01/2049 | | $ | 356,000 | 288,820 |
| Mastercard, Inc., 3.85%, 3/26/2050 | | | 310,000 | 258,675 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Business Services – continued |
| Visa, Inc., 3.65%, 9/15/2047 | | $ | 372,000 | $ 304,669 |
| | | | | $1,306,393 |
| Cable TV – 0.4% |
| Charter Communications Operating LLC/Charter Communications Operating Capital Corp., 6.384%, 10/23/2035 | | $ | 262,000 | $ 255,394 |
| Charter Communications Operating LLC/Charter Communications Operating Capital Corp., 4.8%, 3/01/2050 | | | 267,000 | 193,828 |
| Comcast Corp., 3.75%, 4/01/2040 | | | 685,000 | 564,937 |
| SES S.A., 3.5%, 1/14/2029 | | EUR | 320,000 | 310,887 |
| Time Warner Cable, Inc., 4.5%, 9/15/2042 | | $ | 388,000 | 284,057 |
| | | | | $1,609,103 |
| Chemicals – 0.0% |
| Alpek SAB de C.V., 3.25%, 2/25/2031 (n) | | $ | 219,000 | $ 182,482 |
| Computer Software – 0.2% |
| Microsoft Corp., 2.525%, 6/01/2050 (f) | | $ | 523,000 | $ 344,160 |
| Microsoft Corp., 2.921%, 3/17/2052 (f) | | | 455,000 | 321,913 |
| Microsoft Corp., 2.675%, 6/01/2060 | | | 228,000 | 144,646 |
| VeriSign, Inc., 4.75%, 7/15/2027 | | | 121,000 | 116,793 |
| | | | | $927,512 |
| Computer Software - Systems – 0.1% |
| Apple, Inc., 4.5%, 2/23/2036 (f) | | $ | 536,000 | $ 531,726 |
| Conglomerates – 0.4% |
| Grupo KUO S.A.B. de C.V., 5.75%, 7/07/2027 (n) | | $ | 706,000 | $ 660,110 |
| Westinghouse Air Brake Technologies Corp., 4.95%, 9/15/2028 | | | 1,170,000 | 1,123,263 |
| | | | | $1,783,373 |
| Consumer Products – 0.1% |
| Reckitt Benckiser Treasury Services PLC, 3%, 6/26/2027 (n) | | $ | 425,000 | $ 394,282 |
| Consumer Services – 0.0% |
| Booking Holdings, Inc., 4.75%, 11/15/2034 | | EUR | 153,000 | $ 166,479 |
| Electrical Equipment – 0.3% |
| Telefonaktiebolaget LM Ericsson, 1.125%, 2/08/2027 | | EUR | 640,000 | $ 584,781 |
| Telefonaktiebolaget LM Ericsson, 1%, 5/26/2029 | | | 780,000 | 627,950 |
| | | | | $1,212,731 |
| Electronics – 0.1% |
| Broadcom, Inc., 4.15%, 11/15/2030 | | $ | 97,000 | $ 86,927 |
| Broadcom, Inc., 3.469%, 4/15/2034 (n) | | | 240,000 | 191,456 |
| Broadcom, Inc., 3.137%, 11/15/2035 (n) | | | 174,000 | 127,936 |
| Broadcom, Inc., 3.187%, 11/15/2036 (n) | | | 12,000 | 8,619 |
| Broadcom, Inc., 4.926%, 5/15/2037 (n) | | | 130,000 | 113,408 |
| | | | | $528,346 |
| Emerging Market Quasi-Sovereign – 1.7% |
| Airport Authority Hong Kong, 3.25%, 1/12/2052 (n) | | $ | 453,000 | $ 320,326 |
| Ceske Drahy A.S. (Czech Republic), 5.625%, 10/12/2027 | | EUR | 600,000 | 638,584 |
| CEZ A.S. (Czech Republic), 2.375%, 4/06/2027 | | | 433,000 | 418,590 |
| Export-Import Bank of India, 3.375%, 8/05/2026 | | $ | 600,000 | 561,150 |
| Export-Import Bank of India, 3.875%, 2/01/2028 | | | 600,000 | 555,960 |
| First Abu Dhabi Bank PJSC, 0.125%, 2/16/2026 | | EUR | 600,000 | 573,121 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Emerging Market Quasi-Sovereign – continued |
| Huarong Finance 2017 Co. Ltd. (People's Republic of China), 4.95%, 11/07/2047 | | $ | 470,000 | $ 320,753 |
| Korea Hydro & Nuclear Power Co. Ltd., 4.25%, 7/27/2027 (n) | | | 428,000 | 411,543 |
| MDGH - GMTN RSC Ltd. (United Arab Emirates), 2.5%, 11/07/2024 | | | 398,000 | 379,971 |
| MDGH - GMTN RSC Ltd. (United Arab Emirates), 2.5%, 6/03/2031 | | | 830,000 | 706,579 |
| MDGH - GMTN RSC Ltd. (United Arab Emirates), 1%, 3/10/2034 | | EUR | 500,000 | 398,154 |
| Ooredoo International Finance Ltd. (State of Qatar), 2.625%, 4/08/2031 | | $ | 470,000 | 403,429 |
| PT Pertamina (Persero) (Republic of Indonesia), 3.65%, 7/30/2029 | | | 550,000 | 503,313 |
| Qatar Petroleum, 2.25%, 7/12/2031 | | | 664,000 | 549,435 |
| Qatar Petroleum, 3.125%, 7/12/2041 | | | 436,000 | 335,028 |
| | | | | $7,075,936 |
| Emerging Market Sovereign – 10.4% |
| Dominican Republic, 4.875%, 9/23/2032 | | $ | 750,000 | $ 622,546 |
| Hellenic Republic (Republic of Greece), 0%, 2/12/2026 | | EUR | 1,004,000 | 950,664 |
| Hellenic Republic (Republic of Greece), 2%, 4/22/2027 (n) | | | 1,734,000 | 1,736,474 |
| Hellenic Republic (Republic of Greece), 1.75%, 6/18/2032 (n) | | | 2,021,000 | 1,702,248 |
| Hellenic Republic (Republic of Greece), 1.875%, 1/24/2052 | | | 600,000 | 369,709 |
| Oriental Republic of Uruguay, 4.375%, 1/23/2031 | | $ | 1,309,000 | 1,300,204 |
| Oriental Republic of Uruguay, 8.25%, 5/21/2031 | | UYU | 103,512,000 | 2,235,963 |
| People's Republic of China, 3.03%, 3/11/2026 | | CNY | 73,910,000 | 10,793,218 |
| People's Republic of China, 3.13%, 11/21/2029 | | | 16,920,000 | 2,484,640 |
| Republic of Cote d'Ivoire, 6.875%, 10/17/2040 | | EUR | 600,000 | 481,119 |
| Republic of Croatia, 2.875%, 4/22/2032 | | | 621,000 | 609,790 |
| Republic of Croatia, 1.125%, 3/04/2033 | | | 637,000 | 521,871 |
| Republic of Guatemala, 3.7%, 10/07/2033 | | $ | 227,000 | 186,867 |
| Republic of Hungary, 5.5%, 6/16/2034 (n) | | | 294,000 | 275,419 |
| Republic of Indonesia, 3.55%, 3/31/2032 | | | 440,000 | 396,669 |
| Republic of Korea, 2.125%, 6/10/2027 | | KRW | 2,483,000,000 | 1,829,847 |
| Republic of Korea, 1.875%, 6/10/2029 | | | 9,635,190,000 | 6,797,366 |
| Republic of Korea, 1.375%, 6/10/2030 | | | 6,590,400,000 | 4,399,836 |
| Republic of Philippines, 3.556%, 9/29/2032 | | $ | 325,000 | 295,037 |
| Republic of South Africa, 5.875%, 4/20/2032 | | | 429,000 | 386,100 |
| State of Qatar, 4%, 3/14/2029 (n) | | | 462,000 | 454,026 |
| State of Qatar, 4.4%, 4/16/2050 | | | 200,000 | 182,951 |
| United Mexican States, 7.5%, 6/03/2027 | | MXN | 51,100,000 | 2,471,649 |
| United Mexican States, 2.659%, 5/24/2031 | | $ | 1,246,000 | 1,004,935 |
| United Mexican States, 3.771%, 5/24/2061 | | | 534,000 | 337,237 |
| | | | | $42,826,385 |
| Energy - Independent – 0.3% |
| Energean Israel Finance Ltd., 4.875%, 3/30/2026 | | $ | 325,000 | $ 299,942 |
| Tengizchevroil Finance Co. International Ltd., 4%, 8/15/2026 (n) | | | 1,200,000 | 1,024,560 |
| | | | | $1,324,502 |
| Energy - Integrated – 0.4% |
| BP Capital Markets PLC, 3.625% to 6/22/2029, FLR (EUR Swap Rate - 5yr. + 4.12%) to 6/22/2034, FLR (EUR Swap Rate - 5yr. + 4.37%) to 6/22/2049, FLR (EUR Swap Rate - 5yr. + 5.12%) to 6/22/2170 | | EUR | 290,000 | $ 266,180 |
| Eni S.p.A., 4.25%, 5/09/2029 (n) | | $ | 578,000 | 534,310 |
| Galp Energia SGPS S.A., 2%, 1/15/2026 | | EUR | 400,000 | 392,924 |
| MOL PLC, 1.5%, 10/08/2027 | | | 280,000 | 246,439 |
| | | | | $1,439,853 |
| Engineering - Construction – 0.1% |
| Bouygues S.A., 4.625%, 6/07/2032 | | EUR | 200,000 | $ 218,380 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Entertainment – 0.1% |
| Carnival Corp., 7.625%, 3/01/2026 | | EUR | 190,000 | $ 163,318 |
| Royal Caribbean Cruises Ltd., 4.25%, 7/01/2026 (n) | | $ | 322,000 | 260,288 |
| | | | | $423,606 |
| Financial Institutions – 1.6% |
| AerCap Ireland Capital DAC/AerCap Global Aviation Trust, 3.65%, 7/21/2027 | | $ | 1,173,000 | $ 1,060,381 |
| AerCap Ireland Capital DAC/AerCap Global Aviation Trust, 3.3%, 1/30/2032 | | | 209,000 | 163,388 |
| AerCap Ireland Capital DAC/AerCap Global Aviation Trust, 3.85%, 10/29/2041 | | | 166,000 | 117,358 |
| Atrium European Real Estate Ltd., 3.625% to 11/04/2026, FLR (EUR Swap Rate - 5yr. + 3.625%) to 11/04/2031, FLR (EUR Swap Rate - 5yr. + 4.625%) to 5/04/2170 | | EUR | 225,000 | �� 92,535 |
| Avolon Holdings Funding Ltd., 4.25%, 4/15/2026 (n) | | $ | 263,000 | 238,423 |
| Avolon Holdings Funding Ltd., 4.375%, 5/01/2026 (n) | | | 266,000 | 242,365 |
| Avolon Holdings Funding Ltd., 2.75%, 2/21/2028 (n) | | | 335,000 | 268,916 |
| Crédit Logement S.A., 1.081%, 2/15/2034 | | EUR | 400,000 | 339,928 |
| CTP N.V., 0.875%, 1/20/2026 | | | 460,000 | 399,476 |
| CTP N.V., 1.5%, 9/27/2031 | | | 570,000 | 364,446 |
| EXOR N.V., 0.875%, 1/19/2031 | | | 275,000 | 220,421 |
| Grand City Properties S.A., 2.5% to 10/24/2023, FLR (EUR Swap Rate - 5yr. + 2.432%) to 10/24/2028, FLR (EUR Swap Rate - 5yr. + 2.682%) to 10/24/2043, FLR (EUR Swap Rate - 5yr. + 3.432%) to 10/24/2069 | | | 600,000 | 275,534 |
| Logicor Financing S.à r.l., 1.625%, 1/17/2030 | | | 480,000 | 373,505 |
| Logicor Financing S.à r.l., 0.875%, 1/14/2031 | | | 200,000 | 138,533 |
| P3 Group S.à r.l., 0.875%, 1/26/2026 | | | 610,000 | 542,813 |
| Samhallsbyggnadsbolaget i Norden AB, 1.75%, 1/14/2025 | | | 670,000 | 611,070 |
| Samhallsbyggnadsbolaget i Norden AB, 2.875%, 1/30/2171 | | | 1,360,000 | 545,638 |
| VGP N.V., 1.5%, 4/08/2029 | | | 300,000 | 209,742 |
| Vonovia SE, REIT, 1.625%, 9/01/2051 | | | 400,000 | 195,511 |
| | | | | $6,399,983 |
| Food & Beverages – 0.9% |
| Anheuser-Busch InBev Worldwide, Inc., 4.375%, 4/15/2038 | | $ | 206,000 | $ 184,146 |
| Anheuser-Busch InBev Worldwide, Inc., 5.55%, 1/23/2049 | | | 314,000 | 310,420 |
| Bacardi Ltd., 5.15%, 5/15/2038 (n) | | | 335,000 | 302,661 |
| Constellation Brands, Inc., 3.15%, 8/01/2029 | | | 776,000 | 680,052 |
| Constellation Brands, Inc., 2.25%, 8/01/2031 | | | 478,000 | 379,721 |
| JBS USA Lux S.A./JBS USA Food Co./JBS USA Finance, Inc., 3%, 2/02/2029 (n) | | | 341,000 | 282,227 |
| Kraft Heinz Foods Co., 3.875%, 5/15/2027 | | | 586,000 | 559,862 |
| PT Indofood CBP Sukses Makmur Tbk, 3.398%, 6/09/2031 | | | 950,000 | 781,604 |
| | | | | $3,480,693 |
| Gaming & Lodging – 0.3% |
| Marriott International, Inc., 2.85%, 4/15/2031 | | $ | 499,000 | $ 404,082 |
| VICI Properties LP, REIT, 4.95%, 2/15/2030 | | | 831,000 | 791,043 |
| | | | | $1,195,125 |
| Industrial – 0.1% |
| CPI Property Group S.A., 3.75% to 7/27/2028, FLR (EUR Swap Rate - 5yr. + 4.338%) to 7/27/2033, FLR (EUR Swap Rate - 5yr. + 4.588%) to 7/27/2048, FLR (EUR Swap Rate - 5yr. + 5.338%) to 1/27/2170 | | EUR | 510,000 | $ 273,374 |
| Trustees of the University of Pennsylvania, 2.396%, 10/01/2050 | | $ | 409,000 | 255,637 |
| | | | | $529,011 |
| Insurance – 0.6% |
| AIA Group Ltd., 0.88% to 9/09/2028, FLR (EUR Swap Rate - 5yr. + 1.1%) to 9/09/2033 | | EUR | 850,000 | $ 704,465 |
| Allianz SE, 3.5% to 4/30/2026, FLR (CMT - 5yr. + 2.973%) to 4/30/2171 (n) | | $ | 400,000 | 335,071 |
| Argentum Netherlands B.V., 5.125%, 6/01/2048 | | | 360,000 | 324,648 |
| ASR Nederland N.V., 7% to 12/07/2033, FLR (EUR Swap Rate - 5yr. + 5.3%) to 12/07/2043 | | EUR | 430,000 | 460,432 |
| Aviva PLC, 4% to 6/03/2035, FLR (GBP Government Yield - 5yr. + 4.7%) to 6/03/2055 | | GBP | 475,000 | 439,364 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Insurance – continued |
| Corebridge Financial, Inc., 4.35%, 4/05/2042 (n) | | $ | 297,000 | $ 243,644 |
| | | | | $2,507,624 |
| Insurance - Health – 0.1% |
| UnitedHealth Group, Inc., 4.625%, 7/15/2035 | | $ | 591,000 | $ 572,965 |
| Insurance - Property & Casualty – 0.2% |
| Aon Corp./Aon Global Holdings PLC, 2.6%, 12/02/2031 | | $ | 420,000 | $ 342,807 |
| Marsh & McLennan Cos., Inc., 2.25%, 11/15/2030 | | | 340,000 | 278,349 |
| QBE Insurance Group Ltd., 2.5% to 9/13/2028, FLR (GBP Government Yield - 5yr. + 2.061%) to 9/13/2038 | | GBP | 408,000 | 373,261 |
| | | | | $994,417 |
| International Market Quasi-Sovereign – 0.8% |
| Caixa Geral de Depositos S.A. (Republic of Portugal), 5.75%, 10/31/2028 | | EUR | 200,000 | $ 216,581 |
| Electricite de France S.A., 2.875% to 3/15/2027, FLR (EUR Swap Rate - 5yr. + 3.373%) to 3/15/2031, FLR (EUR Swap Rate - 5yr. + 3.623%) to 3/15/2047, FLR (EUR Swap Rate - 5yr. + 4.373%) to 3/15/2070 | | | 600,000 | 524,362 |
| EnBW International Finance B.V., 4.049%, 11/22/2029 | | | 120,000 | 127,842 |
| Islandsbanki, 0.75%, 3/25/2025 | | | 430,000 | 396,112 |
| KFW German Government Development Bank, 1.125%, 3/31/2037 | | | 1,547,000 | 1,267,661 |
| Ontario Teachers' Cadillac Fairview Properties, 2.5%, 10/15/2031 (n) | | $ | 517,000 | 394,103 |
| RTE Reseau de Transport d'Electricite, 0.75%, 1/12/2034 | | EUR | 200,000 | 153,881 |
| | | | | $3,080,542 |
| International Market Sovereign – 11.7% |
| Commonwealth of Australia, 3.25%, 6/21/2039 | | AUD | 4,361,000 | $ 2,592,219 |
| Federal Republic of Germany, 1.7%, 8/15/2032 | | EUR | 1,130,000 | 1,127,597 |
| Government of Bermuda, 2.375%, 8/20/2030 (n) | | $ | 220,000 | 185,578 |
| Government of Bermuda, 5%, 7/15/2032 (n) | | | 716,000 | 711,098 |
| Government of Canada, 1.25%, 3/01/2027 | | CAD | 4,644,000 | 3,135,249 |
| Government of Japan, 1.7%, 3/20/2032 | | JPY | 223,250,000 | 1,882,707 |
| Government of Japan, 1.7%, 6/20/2033 | | | 229,000,000 | 1,938,334 |
| Government of Japan, 2.3%, 3/20/2040 | | | 147,100,000 | 1,312,949 |
| Government of Japan, 1.7%, 6/20/2044 | | | 843,850,000 | 6,852,005 |
| Government of Japan, 0.3%, 6/20/2046 | | | 425,450,000 | 2,521,222 |
| Kingdom of Belgium, 0.4%, 6/22/2040 | | EUR | 2,981,000 | 1,945,661 |
| Kingdom of Spain, 1.25%, 10/31/2030 | | | 1,338,000 | 1,229,376 |
| Kingdom of Spain, 2.55%, 10/31/2032 | | | 3,801,000 | 3,723,933 |
| Kingdom of Spain, 1%, 10/31/2050 | | | 1,449,000 | 807,927 |
| Republic of Cyprus, 0%, 2/09/2026 | | | 879,000 | 840,698 |
| Republic of Cyprus, 0.625%, 1/21/2030 | | | 1,061,000 | 889,344 |
| Republic of Cyprus, 0.95%, 1/20/2032 | | | 808,000 | 644,679 |
| Republic of France, 0%, 5/25/2032 | | | 1,612,000 | 1,305,769 |
| Republic of France, 0.75%, 5/25/2053 | | | 598,000 | 334,096 |
| United Kingdom Treasury, 1.25%, 7/22/2027 | | GBP | 11,076,000 | 12,062,546 |
| United Kingdom Treasury, 1.25%, 10/22/2041 | | | 1,179,000 | 903,586 |
| United Kingdom Treasury, 1.25%, 7/31/2051 | | | 1,530,000 | 999,020 |
| | | | | $47,945,593 |
| Local Authorities – 0.5% |
| Oslo kommune, 2.17%, 5/18/2029 | | NOK | 7,000,000 | $ 644,796 |
| Province of Alberta, 4.5%, 12/01/2040 | | CAD | 665,000 | 500,150 |
| Province of British Columbia, 2.95%, 6/18/2050 | | | 300,000 | 174,807 |
| Province of Ontario, 1.9%, 12/02/2051 | | | 1,463,000 | 658,490 |
| | | | | $1,978,243 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Machinery & Tools – 0.2% |
| CNH Industrial Capital LLC, 1.875%, 1/15/2026 | | $ | 611,000 | $ 554,051 |
| Sarens Finance Co. N.V., 5.75%, 2/21/2027 | | EUR | 570,000 | 461,888 |
| | | | | $1,015,939 |
| Major Banks – 4.1% |
| Australia and New Zealand Banking Group Ltd., 2.57% to 11/25/2030, FLR (CMT - 5yr. + 1.7%) to 11/25/2035 (n) | | $ | 528,000 | $ 387,408 |
| Banco de Sabadell S.A., 5% to 11/19/2027, FLR (EUR Swap Rate - 5yr. + 5.171%) to 2/19/2170 | | EUR | 200,000 | 166,365 |
| Bank of America Corp., 3.5%, 4/19/2026 | | $ | 579,000 | 552,564 |
| Bank of America Corp., 2.687% to 4/22/2031, FLR (SOFR - 1 day + 1.32%) to 4/22/2032 | | | 1,648,000 | 1,319,033 |
| Barclays Bank PLC, 8.407% to 11/14/2027, FLR (GBP Swap Rate - 5yr. + 4.75%) to 11/14/2032 | | GBP | 350,000 | 436,419 |
| Commonwealth Bank of Australia, 2.688%, 3/11/2031 (n) | | $ | 735,000 | 566,304 |
| Crédit Agricole Group, 3.875%, 11/28/2034 | | EUR | 200,000 | 205,479 |
| Credit Suisse AG (London), 2.125%, 5/31/2024 | | | 420,000 | 426,547 |
| Credit Suisse Group AG, 7.75% to 3/01/2028, FLR (EUR ICE Swap Rate - 1yr. + 4.95%) to 3/01/2029 | | | 265,000 | 281,672 |
| Goldman Sachs Group, Inc., 2.383% to 7/21/2031, FLR (SOFR - 1 day + 1.248%) to 7/21/2032 | | $ | 1,050,000 | 814,704 |
| Goldman Sachs Group, Inc., 3.436% to 2/24/2042, FLR (SOFR - 1 day + 1.632%) to 2/24/2043 | | | 503,000 | 369,592 |
| HSBC Holdings PLC, 2.099% to 6/04/2025, FLR (SOFR - 1 day + 1.929%) to 6/04/2026 | | | 726,000 | 660,658 |
| HSBC Holdings PLC, 6.364% to 11/16/2027, FLR (EUR Swap Rate - 5yr. + 3.3%) to 11/16/2032 | | EUR | 360,000 | 390,926 |
| JPMorgan Chase & Co., 1.953% to 2/04/2031, FLR (SOFR - 1 day + 1.065%) to 2/04/2032 | | $ | 730,000 | 558,395 |
| JPMorgan Chase & Co., 3.109% to 4/22/2050, FLR (SOFR + 2.44%) to 4/22/2051 | | | 1,629,000 | 1,067,296 |
| Mitsubishi UFJ Financial Group, Inc., 2.494% to 10/13/2031, FLR (CMT - 1yr. + 0.97%) to 10/13/2032 | | | 735,000 | 572,680 |
| Morgan Stanley, 3.125%, 7/27/2026 | | | 555,000 | 517,688 |
| Morgan Stanley, 3.622% to 4/01/2030, FLR (SOFR - 1 day + 3.12%) to 4/01/2031 | | | 675,000 | 589,277 |
| Morgan Stanley, 5.789%, 11/18/2033 | | GBP | 195,000 | 236,017 |
| National Bank of Greece S.A., 7.25% to 11/22/2026, FLR (EUR ICE Swap Rate - 1yr. + 4.74%) to 11/22/2027 | | EUR | 320,000 | 345,113 |
| Nationwide Building Society, 6.178% to 12/07/2026, FLR (SONIA + 2.213%) to 12/07/2027 | | GBP | 120,000 | 145,384 |
| NatWest Group PLC, 7.416%, 6/06/2033 | | | 300,000 | 365,249 |
| NatWest Markets PLC, 6.375%, 11/08/2027 | | | 172,000 | 212,691 |
| Société Générale S.A., 4.25%, 12/06/2030 | | EUR | 300,000 | 308,801 |
| Standard Chartered PLC, 0.8% to 11/17/2028, FLR (EUR Swap Rate - 1yr. + 0.85%) to 11/17/2029 | | | 340,000 | 288,872 |
| Toronto-Dominion Bank, 4.108%, 6/08/2027 | | $ | 801,000 | 774,287 |
| UBS Group AG, 2.746% to 2/11/2032, FLR (CMT - 1yr. + 1.1%) to 2/11/2033 (n) | | | 900,000 | 695,564 |
| Unicaja Banco S.A., 1% to 12/01/2025, FLR (EUR ICE Swap Rate - 1yr. + 1.15%) to 12/01/2026 | | EUR | 500,000 | 469,388 |
| Unicaja Banco S.A., 7.25% to 11/15/2026, FLR (EUR Swap Rate - 1yr. + 4.25%) to 11/15/2027 | | | 500,000 | 534,739 |
| UniCredit S.p.A., 2.569% to 9/22/2025, FLR (CMT - 1yr. + 2.3%) to 9/22/2026 (n) | | $ | 590,000 | 522,459 |
| UniCredit S.p.A., 0.925% to 1/28/2027, FLR (EURIBOR - 3mo. + 0.85%) to 1/18/2028 | | EUR | 480,000 | 440,253 |
| Wells Fargo & Co., 3.35% to 3/02/2032, FLR (SOFR - 1 day + 1.5%) to 3/02/2033 | | $ | 1,682,000 | 1,416,913 |
| | | | | $16,638,737 |
| Medical & Health Technology & Services – 0.7% |
| Alcon Finance B.V., 2.375%, 5/31/2028 | | EUR | 270,000 | $ 264,591 |
| Alcon Finance Corp., 3.8%, 9/23/2049 (n) | | $ | 626,000 | 475,127 |
| Becton, Dickinson and Co., 4.298%, 8/22/2032 | | | 186,000 | 174,100 |
| HCA, Inc., 5.25%, 6/15/2026 | | | 470,000 | 464,327 |
| HCA, Inc., 5.125%, 6/15/2039 | | | 195,000 | 174,483 |
| New York Society for the Relief of the Ruptured & Crippled, 2.667%, 10/01/2050 | | | 650,000 | 399,368 |
| ProMedica Toledo Hospital, “B”, AGM, 6.015%, 11/15/2048 | | | 309,000 | 287,647 |
| Thermo Fisher Scientific (Finance I) Co., 2%, 10/18/2051 | | EUR | 360,000 | 241,899 |
| Thermo Fisher Scientific, Inc., 1.75%, 10/15/2028 | | $ | 409,000 | 346,383 |
| | | | | $2,827,925 |
| Medical Equipment – 0.2% |
| Boston Scientific Corp., 0.625%, 12/01/2027 | | EUR | 380,000 | $ 349,859 |
| DH Europe Finance II S.à r.l., 0.45%, 3/18/2028 | | | 380,000 | 346,837 |
| | | | | $696,696 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Metals & Mining – 0.4% |
| Anglo American Capital PLC, 5.625%, 4/01/2030 (n) | | $ | 326,000 | $ 323,632 |
| Anglo American Capital PLC, 4.75%, 9/21/2032 | | EUR | 220,000 | 231,427 |
| Glencore Capital Finance DAC, 1.125%, 3/10/2028 | | | 610,000 | 537,398 |
| Glencore Funding LLC, 2.85%, 4/27/2031 (n) | | $ | 590,000 | 482,812 |
| | | | | $1,575,269 |
| Midstream – 0.7% |
| Enbridge, Inc., 5.375%, 9/27/2077 | | CAD | 680,000 | $ 458,071 |
| Energy Transfer LP, 5.55%, 2/15/2028 | | $ | 258,000 | 255,918 |
| Galaxy Pipeline Assets Bidco Ltd., 2.16%, 3/31/2034 (n) | | | 506,714 | 430,510 |
| Plains All American Pipeline LP/PAA Finance Corp., 3.55%, 12/15/2029 | | | 1,023,000 | 887,008 |
| Sabine Pass Liquefaction LLC, 5%, 3/15/2027 | | | 356,000 | 349,067 |
| Sabine Pass Liquefaction LLC, 4.5%, 5/15/2030 | | | 335,000 | 310,517 |
| Targa Resources Corp., 4.2%, 2/01/2033 | | | 56,000 | 48,180 |
| Targa Resources Corp., 4.95%, 4/15/2052 | | | 341,000 | 269,767 |
| | | | | $3,009,038 |
| Mortgage-Backed – 5.6% | |
| Fannie Mae, 4.5%, 7/01/2023 - 2/01/2046 | | $ | 2,612,624 | $ 2,573,443 |
| Fannie Mae, 5%, 3/01/2036 - 8/01/2040 | | | 851,346 | 860,586 |
| Fannie Mae, 5.5%, 11/01/2036 - 4/01/2037 | | | 72,035 | 74,556 |
| Fannie Mae, 6%, 9/01/2037 - 6/01/2038 | | | 114,719 | 118,548 |
| Fannie Mae, 4%, 11/01/2040 - 12/01/2040 | | | 609,194 | 581,918 |
| Fannie Mae, 3.5%, 5/01/2043 - 12/01/2046 | | | 1,377,153 | 1,276,295 |
| Fannie Mae, UMBS, 2.5%, 6/01/2050 - 5/01/2052 | | | 2,826,415 | 2,398,666 |
| Fannie Mae, UMBS, 2%, 1/01/2051 - 4/01/2052 | | | 1,528,199 | 1,248,284 |
| Fannie Mae, UMBS, 3%, 12/01/2051 - 2/01/2052 | | | 499,594 | 439,759 |
| Fannie Mae, UMBS, 3.5%, 6/01/2052 | | | 40,603 | 37,161 |
| Fannie Mae, UMBS, 5.5%, 11/01/2052 - 12/01/2052 | | | 1,324,997 | 1,328,853 |
| Fannie Mae, UMBS, 6%, 12/01/2052 | | | 125,000 | 126,926 |
| Freddie Mac, 4%, 7/01/2025 | | | 19,054 | 18,701 |
| Freddie Mac, 1.367%, 3/25/2027 (i) | | | 809,000 | 39,681 |
| Freddie Mac, 3.286%, 11/25/2027 | | | 1,303,000 | 1,237,333 |
| Freddie Mac, 3.9%, 4/25/2028 | | | 400,000 | 389,859 |
| Freddie Mac, 1.8%, 4/25/2030 (i) | | | 1,420,926 | 149,608 |
| Freddie Mac, 1.868%, 4/25/2030 (i) | | | 1,365,340 | 145,464 |
| Freddie Mac, 1.665%, 5/25/2030 (i) | | | 1,747,943 | 172,204 |
| Freddie Mac, 1.797%, 5/25/2030 (i) | | | 3,920,368 | 418,440 |
| Freddie Mac, 1.341%, 6/25/2030 (i) | | | 1,615,349 | 130,583 |
| Freddie Mac, 1.599%, 8/25/2030 (i) | | | 1,436,842 | 140,635 |
| Freddie Mac, 1.169%, 9/25/2030 (i) | | | 905,456 | 65,192 |
| Freddie Mac, 1.08%, 11/25/2030 (i) | | | 1,823,916 | 123,937 |
| Freddie Mac, 0.329%, 1/25/2031 (i) | | | 6,720,825 | 134,107 |
| Freddie Mac, 0.516%, 3/25/2031 (i) | | | 8,140,507 | 261,987 |
| Freddie Mac, 0.937%, 7/25/2031 (i) | | | 1,499,257 | 94,923 |
| Freddie Mac, 0.536%, 9/25/2031 (i) | | | 6,201,367 | 235,915 |
| Freddie Mac, 0.855%, 9/25/2031 (i) | | | 1,902,494 | 111,695 |
| Freddie Mac, 0.567%, 12/25/2031 (i) | | | 1,517,361 | 59,904 |
| Freddie Mac, 5.5%, 5/01/2034 - 7/01/2037 | | | 17,091 | 17,588 |
| Freddie Mac, 5%, 10/01/2036 - 7/01/2041 | | | 252,573 | 257,142 |
| Freddie Mac, 4.5%, 12/01/2039 - 5/01/2042 | | | 493,609 | 489,882 |
| Freddie Mac, UMBS, 3.5%, 1/01/2047 - 11/01/2049 | | | 777,739 | 716,814 |
| Freddie Mac, UMBS, 3%, 6/01/2050 - 6/01/2052 | | | 515,479 | 453,174 |
| Freddie Mac, UMBS, 2.5%, 10/01/2051 - 9/01/2052 | | | 1,733,879 | 1,469,345 |
| Freddie Mac, UMBS, 2%, 3/01/2052 - 4/01/2052 | | | 1,037,268 | 844,585 |
| Freddie Mac, UMBS, 4%, 5/01/2052 | | | 48,337 | 45,654 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Mortgage-Backed – continued | |
| Freddie Mac, UMBS, 6%, 11/01/2052 | | $ | 249,975 | $ 253,788 |
| Ginnie Mae, 5%, 5/15/2040 - 11/20/2052 | | | 256,007 | 254,771 |
| Ginnie Mae, 3.5%, 6/20/2043 | | | 448,426 | 422,492 |
| Ginnie Mae, 2.5%, 8/20/2051 - 5/20/2052 | | | 810,841 | 703,157 |
| Ginnie Mae, 2%, 1/20/2052 | | | 376,775 | 315,735 |
| Ginnie Mae, 3%, 2/20/2052 - 11/20/2052 | | | 445,028 | 396,465 |
| Ginnie Mae, 4%, 9/20/2052 - 10/20/2052 | | | 472,416 | 447,067 |
| Ginnie Mae, 4.5%, 9/20/2052 | | | 521,300 | 505,781 |
| Ginnie Mae, TBA, 5.5%, 1/23/2053 | | | 250,000 | 251,398 |
| UMBS, TBA, 2%, 1/12/2053 | | | 400,000 | 325,384 |
| | | | | $23,165,385 |
| Municipals – 0.8% |
| Iowa Student Loan Liquidity Corp. Rev., Taxable, “A”, 5.08%, 12/01/2039 | | $ | 475,000 | $ 425,964 |
| Massachusetts Educational Financing Authority, Education Loan Rev., Taxable, “A”, 4.949%, 7/01/2038 | | | 685,000 | 659,409 |
| Massachusetts Educational Financing Authority, Education Loan Subordinate Rev., Taxable, “A”, 2.641%, 7/01/2037 | | | 695,000 | 627,065 |
| Massachusetts Housing Finance Agency, Single Family Housing Rev., Taxable, “226”, 5.562%, 12/01/2052 | | | 515,000 | 513,647 |
| Michigan Finance Authority Hospital Rev., Taxable (Trinity Health Credit Group), 3.384%, 12/01/2040 | | | 480,000 | 384,630 |
| Minnesota Housing Finance Agency, Residential Housing, Taxable, “G”, 4.337%, 1/01/2047 | | | 455,000 | 433,065 |
| Oklahoma Development Finance Authority, Health System Rev., Taxable (OU Medicine Project), “C”, 5.45%, 8/15/2028 | | | 275,000 | 220,646 |
| | | | | $3,264,426 |
| Natural Gas - Pipeline – 0.2% |
| APT Pipelines Ltd., 0.75%, 3/15/2029 | | EUR | 440,000 | $ 377,943 |
| APT Pipelines Ltd., 2.5%, 3/15/2036 | | GBP | 470,000 | 367,547 |
| | | | | $745,490 |
| Network & Telecom – 0.4% |
| AT&T, Inc., 3.5%, 9/15/2053 | | $ | 229,000 | $ 154,560 |
| Orange S.A., 3.625%, 11/16/2031 | | EUR | 500,000 | 526,592 |
| Verizon Communications, Inc., 2.1%, 3/22/2028 | | $ | 291,000 | 252,553 |
| Verizon Communications, Inc., 2.55%, 3/21/2031 | | | 876,000 | 720,386 |
| | | | | $1,654,091 |
| Oils – 0.2% |
| Neste Oyj, 0.75%, 3/25/2028 | | EUR | 400,000 | $ 362,642 |
| Puma International Financing S.A., 5%, 1/24/2026 | | $ | 475,000 | 413,607 |
| | | | | $776,249 |
| Other Banks & Diversified Financials – 1.5% |
| AIB Group PLC, 5.75% to 2/16/2028, FLR (EUR Swap Rate - 1yr. + 2.85%) to 2/16/2029 | | EUR | 300,000 | $ 328,749 |
| Alpha Bank, 4.25%, 2/13/2030 | | | 590,000 | 511,497 |
| Arion Banki HF, 4.875%, 12/21/2024 | | | 620,000 | 638,346 |
| Bank Hapoalim B.M., 3.255% to 1/21/2027, FLR (CMT - 5yr. + 2.155%) to 1/21/2032 (n) | | $ | 397,000 | 341,610 |
| Bank of Cyprus PCL, 2.5% to 6/24/2026, FLR (EUR Swap Rate - 5yr. + 2.785%) to 6/24/2027 | | EUR | 670,000 | 587,302 |
| Belfius Bank S.A., 3.625% to 4/16/2025, FLR (EUR Swap Rate - 5yr. + 2.938%) to 4/16/2068 | | | 200,000 | 168,168 |
| BPCE S.A., 2.277% to 1/20/2031, FLR (SOFR - 1 day + 1.312%) to 1/20/2032 (n) | | $ | 550,000 | 411,178 |
| Caixabank S.A., 3.625% to 3/14/2029, FLR (EUR Swap Rate - 5yr. + 3.857%) to 12/14/2170 | | EUR | 200,000 | 150,130 |
| CaixaBank S.A., 5.375% to 11/14/2029, FLR (EURIBOR - 3mo. + 2.4%) to 11/14/2030 | | | 200,000 | 218,385 |
| Deutsche Bank AG, 4% to 6/24/2027, FLR (EUR ICE Swap Rate - 5yr. + 3.3%) to 6/24/2032 | | | 300,000 | 284,123 |
| Deutsche Bank AG, 10% to 4/30/2028, FLR (EUR ICE Swap Rate - 1yr. + 6.94%) to 11/14/2171 | | | 200,000 | 221,254 |
| Groupe BPCE S.A., 4.5%, 3/15/2025 (n) | | $ | 584,000 | 560,942 |
| Groupe des Assurances du Credit Mutuel, 1.85% to 4/21/2032, FLR (EURIBOR - 3mo. + 2.65%) to 4/21/2042 | | EUR | 400,000 | 307,426 |
| Intesa Sanpaolo S.p.A., 2.625%, 3/11/2036 | | GBP | 690,000 | 532,725 |
| Macquarie Group Ltd., 4.08%, 5/31/2029 | | | 540,000 | 583,049 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Other Banks & Diversified Financials – continued |
| Virgin Money UK PLC, 5.125% to 12/11/2025, FLR (GBP Government Yield - 5yr. + 5.25%) to 12/11/2030 | | GBP | 335,000 | $ 374,647 |
| | | | | $6,219,531 |
| Pollution Control – 0.2% |
| Waste Connections, Inc., 4.2%, 1/15/2033 | | $ | 899,000 | $ 834,941 |
| Printing & Publishing – 0.1% |
| Informa PLC, 3.125%, 7/05/2026 | | GBP | 242,000 | $ 264,110 |
| Railroad & Shipping – 0.1% |
| Canadian Pacific Railway Co., 2.45%, 12/02/2031 | | $ | 487,000 | $ 403,338 |
| Real Estate - Office – 0.2% |
| Corporate Office Property LP, REIT, 2.25%, 3/15/2026 | | $ | 356,000 | $ 312,113 |
| Corporate Office Property LP, REIT, 2%, 1/15/2029 | | | 237,000 | 181,755 |
| Corporate Office Property LP, REIT, 2.75%, 4/15/2031 | | | 490,000 | 366,717 |
| | | | | $860,585 |
| Real Estate - Other – 0.3% |
| EPR Properties, REIT, 3.6%, 11/15/2031 | | $ | 405,000 | $ 293,423 |
| Lexington Realty Trust Co., 2.7%, 9/15/2030 | | | 466,000 | 371,193 |
| W.P. Carey, Inc., REIT, 2.4%, 2/01/2031 | | | 681,000 | 542,600 |
| | | | | $1,207,216 |
| Real Estate - Retail – 0.4% |
| Brixmor Operating Partnership LP, REIT, 4.05%, 7/01/2030 | | $ | 445,000 | $ 389,288 |
| Hammerson Ireland Finance DAC, 1.75%, 6/03/2027 | | EUR | 337,000 | 279,487 |
| Regency Centers Corp., 3.7%, 6/15/2030 | | $ | 165,000 | 143,934 |
| STORE Capital Corp., REIT, 2.75%, 11/18/2030 | | | 786,000 | 603,244 |
| WEA Finance LLC, 2.875%, 1/15/2027 (n) | | | 470,000 | 402,277 |
| | | | | $1,818,230 |
| Retailers – 0.2% |
| AutoZone, Inc., 4.75%, 8/01/2032 | | $ | 582,000 | $ 564,066 |
| Home Depot, Inc., 4.875%, 2/15/2044 | | | 453,000 | 433,138 |
| | | | | $997,204 |
| Specialty Chemicals – 0.2% |
| Covestro AG, 4.75%, 11/15/2028 | | EUR | 400,000 | $ 429,167 |
| International Flavors & Fragrances, Inc., 1.832%, 10/15/2027 (n) | | $ | 399,000 | 334,868 |
| | | | | $764,035 |
| Specialty Stores – 0.2% |
| DICK'S Sporting Goods, 3.15%, 1/15/2032 | | $ | 852,000 | $ 664,976 |
| Supermarkets – 0.3% |
| ELO SACA, 4.875%, 12/08/2028 | | EUR | 500,000 | $ 503,486 |
| Iceland Bondco PLC, 4.375%, 5/15/2028 | | GBP | 710,000 | 613,723 |
| | | | | $1,117,209 |
| Supranational – 1.7% |
| Corporacion Andina de Fomento, 1.625%, 9/23/2025 | | $ | 530,000 | $ ���480,292 |
| European Stability Mechanism, 1%, 6/23/2027 | | EUR | 1,170,000 | 1,147,728 |
| European Stability Mechanism, 0%, 10/15/2031 | | | 4,260,000 | 3,491,680 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Supranational – continued |
| European Stability Mechanism, 3.375%, 4/03/2037 | | EUR | 369,000 | $ 400,125 |
| International Bank for Reconstruction and Development, 4.25%, 6/24/2025 | | AUD | 465,000 | 317,662 |
| West African Development Bank, 4.7%, 10/22/2031 | | $ | 525,000 | 446,040 |
| West African Development Bank, 2.75%, 1/22/2033 | | EUR | 680,000 | 546,512 |
| | | | | $6,830,039 |
| Telecommunications - Wireless – 0.5% |
| Cellnex Telecom S.A., 1.75%, 10/23/2030 | | EUR | 600,000 | $ 497,309 |
| Crown Castle, Inc., REIT, 3.7%, 6/15/2026 | | $ | 275,000 | 261,480 |
| Rogers Communications, Inc., 3.8%, 3/15/2032 (n) | | | 413,000 | 356,400 |
| Rogers Communications, Inc., 3.7%, 11/15/2049 | | | 316,000 | 214,009 |
| T-Mobile USA, Inc., 3.875%, 4/15/2030 | | | 817,000 | 740,051 |
| | | | | $2,069,249 |
| Telephone Services – 0.3% |
| Deutsche Telekom AG, 1.375%, 7/05/2034 | | EUR | 540,000 | $ 444,868 |
| TELUS Corp., 2.85%, 11/13/2031 | | CAD | 1,000,000 | 614,106 |
| | | | | $1,058,974 |
| Tobacco – 0.2% |
| B.A.T. Capital Corp., 2.125%, 8/15/2025 | | GBP | 500,000 | $ 552,097 |
| Philip Morris International, Inc., 5.125%, 11/17/2027 | | $ | 241,000 | 242,760 |
| | | | | $794,857 |
| Transportation - Services – 0.4% |
| ERAC USA Finance LLC, 7%, 10/15/2037 (n) | | $ | 494,000 | $ 536,688 |
| Holding d'Infrastructures de Transport, 1.475%, 1/18/2031 | | EUR | 600,000 | 499,993 |
| Transurban Finance Co., 1.45%, 5/16/2029 | | | 350,000 | 317,589 |
| Triton International Ltd., 3.15%, 6/15/2031 (n) | | $ | 440,000 | 342,523 |
| | | | | $1,696,793 |
| U.S. Government Agencies and Equivalents – 0.1% |
| Small Business Administration, 5.31%, 5/01/2027 | | $ | 11,075 | $ 10,912 |
| Small Business Administration, 2.22%, 3/01/2033 | | | 473,080 | 427,966 |
| | | | | $438,878 |
| U.S. Treasury Obligations – 0.8% |
| U.S. Treasury Bill, 0%, 8/10/2023 (f) | | $ | 1,350,000 | $ 1,313,587 |
| U.S. Treasury Bonds, 1.125%, 8/15/2040 (f) | | | 3,001,000 | 1,863,668 |
| U.S. Treasury Bonds, 2.375%, 11/15/2049 (f) | | | 109,000 | 78,778 |
| | | | | $3,256,033 |
| Utilities - Electric Power – 2.0% |
| American Transmission Systems, Inc., 2.65%, 1/15/2032 (n) | | $ | 104,000 | $ 85,349 |
| Bruce Power LP, 2.68%, 12/21/2028 | | CAD | 915,000 | 599,379 |
| Enel Americas S.A., 4%, 10/25/2026 | | $ | 1,891,000 | 1,799,041 |
| Enel Finance International N.V., 2.25%, 7/12/2031 (n) | | | 830,000 | 603,914 |
| Enel Finance International N.V., 4.75%, 5/25/2047 (n) | | | 543,000 | 425,876 |
| Enel S.p.A., 2.25% to 3/10/2027, FLR (EUR Swap Rate - 5yr. + 2.679%) to 3/10/2032, FLR (EUR Swap Rate - 5yr. + 2.929%) to 3/10/2047, FLR (EUR Swap Rate - 5yr. + 3.679%) to 3/10/2070 | | EUR | 325,000 | 297,451 |
| Enel S.p.A., 8.75% to 9/24/2023, FLR (Swap Rate - 5yr. + 5.88%) to 9/24/2043, FLR (Swap Rate - 5yr. + 6.63%) to 9/24/2073 (n) | | $ | 638,000 | 638,528 |
| Enel S.p.A., 1.875% to 9/08/2030, FLR (EUR Swap Rate - 5yr. + 2.011%) to 9/08/2035, FLR (EUR Swap Rate - 5yr. + 2.261%) to 9/08/2050, FLR (EUR Swap Rate - 5yr. + 3.011%) to 3/08/2170 | | EUR | 385,000 | 293,521 |
| ENGIE Energía Chile S.A., 4.5%, 1/29/2025 (n) | | $ | 1,180,000 | 1,156,400 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Utilities - Electric Power – continued |
| Evergy, Inc., 2.9%, 9/15/2029 | | $ | 527,000 | $ 455,085 |
| Jersey Central Power & Light Co., 2.75%, 3/01/2032 (n) | | | 427,000 | 344,818 |
| National Grid Electricity Transmission PLC, 2%, 4/17/2040 | | GBP | 470,000 | 343,164 |
| Southern California Edison Co., 3.65%, 2/01/2050 | | $ | 252,000 | 184,042 |
| Virginia Electric & Power Co., 3.5%, 3/15/2027 | | | 330,000 | 311,862 |
| Virginia Electric & Power Co., 2.875%, 7/15/2029 | | | 581,000 | 511,524 |
| Xcel Energy, Inc., 4.6%, 6/01/2032 | | | 184,000 | 175,726 |
| | | | | $8,225,680 |
| Utilities - Gas – 0.1% |
| EP Infrastructure, 1.698%, 7/30/2026 | | EUR | 530,000 | $ 444,887 |
| Total Bonds (Identified Cost, $284,816,306) | | $257,606,834 |
| Common Stocks – 33.1% |
| Aerospace & Defense – 0.9% | |
| General Dynamics Corp. | | 5,963 | $ 1,479,480 |
| Honeywell International, Inc. (f) | | 3,557 | 762,265 |
| Huntington Ingalls Industries, Inc. | | 1,103 | 254,440 |
| L3Harris Technologies, Inc. | | 3,251 | 676,891 |
| Northrop Grumman Corp. | | 1,050 | 572,890 |
| Thales S.A. | | 1,083 | 138,447 |
| | | | | $3,884,413 |
| Alcoholic Beverages – 0.6% | |
| Diageo PLC | | 17,324 | $ 764,450 |
| Heineken N.V. | | 5,636 | 530,185 |
| Kirin Holdings Co. Ltd. | | 23,400 | 358,560 |
| Pernod Ricard S.A. | | 3,073 | 604,444 |
| | | | | $2,257,639 |
| Apparel Manufacturers – 0.3% | |
| Compagnie Financiere Richemont S.A. | | 9,803 | $ 1,268,564 |
| Automotive – 0.8% | |
| Aptiv PLC (a) | | 8,331 | $ 775,866 |
| Lear Corp. | | 5,381 | 667,352 |
| LKQ Corp. | | 20,101 | 1,073,594 |
| Magna International, Inc. | | 8,693 | 488,323 |
| Mercedes-Benz Group AG | | 2,858 | 187,844 |
| Stellantis N.V. | | 17,095 | 242,722 |
| | | | | $3,435,701 |
| Biotechnology – 0.2% | |
| Biogen, Inc. (a) | | 467 | $ 129,322 |
| Gilead Sciences, Inc. | | 7,023 | 602,924 |
| | | | | $732,246 |
| Broadcasting – 0.2% | |
| Omnicom Group, Inc. | | 8,828 | $ 720,100 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Brokerage & Asset Managers – 0.9% | |
| Cboe Global Markets, Inc. | | 6,081 | $ 762,983 |
| Charles Schwab Corp. (f) | | 23,467 | 1,953,863 |
| NASDAQ, Inc. | | 13,072 | 801,967 |
| | | | | $3,518,813 |
| Business Services – 1.4% | |
| Accenture PLC, “A” | | 2,892 | $ 771,701 |
| Amdocs Ltd. | | 7,713 | 701,112 |
| CGI, Inc. (a) | | 11,503 | 991,518 |
| Equifax, Inc. | | 2,365 | 459,661 |
| Experian PLC | | 19,392 | 659,479 |
| Fidelity National Information Services, Inc. | | 7,159 | 485,738 |
| Fiserv, Inc. (a)(f) | | 7,342 | 742,056 |
| Nomura Research Institute Ltd. | | 12,700 | 301,436 |
| Secom Co. Ltd. | | 10,200 | 581,863 |
| | | | | $5,694,564 |
| Cable TV – 0.5% | |
| Comcast Corp., “A” (f) | | 52,798 | $ 1,846,346 |
| Chemicals – 0.3% | |
| Nutrien Ltd. | | 1,587 | $ 115,860 |
| PPG Industries, Inc. | | 9,159 | 1,151,653 |
| | | | | $1,267,513 |
| Computer Software – 0.4% | |
| Microsoft Corp. (f) | | 7,681 | $ 1,842,057 |
| Computer Software - Systems – 1.3% | |
| Amadeus IT Group S.A. (a) | | 12,386 | $ 638,747 |
| Cap Gemini S.A. | | 1,657 | 277,902 |
| Fujitsu Ltd. | | 6,900 | 913,753 |
| Hitachi Ltd. | | 25,700 | 1,293,348 |
| Hon Hai Precision Industry Co. Ltd. | | 147,000 | 477,796 |
| Lenovo Group Ltd. | | 288,000 | 236,512 |
| Samsung Electronics Co. Ltd. | | 28,193 | 1,243,257 |
| Seagate Technology Holdings PLC | | 2,265 | 119,162 |
| | | | | $5,200,477 |
| Construction – 0.6% | |
| Anhui Conch Cement Co. Ltd. | | 66,500 | $ 230,592 |
| Masco Corp. | | 21,771 | 1,016,053 |
| Stanley Black & Decker, Inc. | | 7,056 | 530,047 |
| Techtronic Industries Co. Ltd. | | 15,500 | 172,962 |
| Vulcan Materials Co. | | 3,498 | 612,535 |
| | | | | $2,562,189 |
| Consumer Products – 0.7% | |
| Colgate-Palmolive Co. (f) | | 11,254 | $ 886,703 |
| Kimberly-Clark Corp. (f) | | 9,275 | 1,259,081 |
| Reckitt Benckiser Group PLC | | 12,795 | 890,058 |
| | | | | $3,035,842 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Electrical Equipment – 0.8% | |
| Johnson Controls International PLC | | 20,418 | $ 1,306,752 |
| Legrand S.A. | | 6,572 | 529,160 |
| Schneider Electric SE | | 11,197 | 1,574,740 |
| | | | | $3,410,652 |
| Electronics – 1.3% | |
| Intel Corp. | | 18,316 | $ 484,092 |
| Kyocera Corp. | | 17,900 | 893,636 |
| NXP Semiconductors N.V. | | 5,964 | 942,491 |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | 12,904 | 961,219 |
| Texas Instruments, Inc. (f) | | 11,560 | 1,909,943 |
| | | | | $5,191,381 |
| Energy - Independent – 0.8% | |
| ConocoPhillips (f) | | 15,475 | $ 1,826,050 |
| Hess Corp. (f) | | 8,872 | 1,258,227 |
| Pioneer Natural Resources Co. | | 1,032 | 235,699 |
| | | | | $3,319,976 |
| Energy - Integrated – 0.8% | |
| China Petroleum & Chemical Corp. | | 1,574,000 | $ 760,236 |
| Eni S.p.A. | | 109,703 | 1,560,195 |
| LUKOIL PJSC (u) | | 1,414 | 0 |
| Petroleo Brasileiro S.A., ADR | | 21,218 | 197,115 |
| Suncor Energy, Inc. | | 25,001 | 793,052 |
| | | | | $3,310,598 |
| Food & Beverages – 1.2% | |
| Archer Daniels Midland Co. | | 5,647 | $ 524,324 |
| Coca-Cola FEMSA S.A.B. de C.V. | | 2,732 | 185,448 |
| Danone S.A. | | 16,589 | 874,211 |
| General Mills, Inc. (f) | | 18,070 | 1,515,170 |
| J.M. Smucker Co. | | 4,600 | 728,916 |
| Nestle S.A. | | 8,116 | 937,280 |
| | | | | $4,765,349 |
| Food & Drug Stores – 0.5% | |
| Albertsons Cos., Inc., “A” | | 12,628 | $ 261,905 |
| BIM Birlesik Magazalar A.S. | | 51,156 | 374,461 |
| Tesco PLC | | 487,900 | 1,322,436 |
| | | | | $1,958,802 |
| Health Maintenance Organizations – 0.5% | |
| Cigna Corp. (f) | | 5,598 | $ 1,854,841 |
| Insurance – 2.3% | |
| Aon PLC (s) | | 7,495 | $ 2,249,549 |
| Chubb Ltd. | | 6,914 | 1,525,228 |
| Equitable Holdings, Inc. | | 24,135 | 692,674 |
| Everest Re Group Ltd. | | 713 | 236,196 |
| Hartford Financial Services Group, Inc. | | 5,444 | 412,819 |
| Manulife Financial Corp. | | 60,451 | 1,078,207 |
| MetLife, Inc. | | 9,609 | 695,403 |
| Samsung Fire & Marine Insurance Co. Ltd. (a) | | 2,670 | 423,280 |
| Travelers Cos., Inc. | | 2,217 | 415,665 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Insurance – continued | |
| Willis Towers Watson PLC | | 5,017 | $ 1,227,058 |
| Zurich Insurance Group AG | | 968 | 462,583 |
| | | | | $9,418,662 |
| Internet – 0.3% | |
| Alphabet, Inc., “A” (a)(f) | | 11,901 | $ 1,050,025 |
| Leisure & Toys – 0.1% | |
| Brunswick Corp. | | 2,432 | $ 175,298 |
| Nintendo Co. Ltd. | | 4,400 | 184,253 |
| Polaris, Inc. | | 1,632 | 164,832 |
| | | | | $524,383 |
| Machinery & Tools – 1.2% | |
| Eaton Corp. PLC | | 8,440 | $ 1,324,658 |
| GEA Group AG | | 3,988 | 163,074 |
| Ingersoll Rand, Inc. | | 22,565 | 1,179,021 |
| Kubota Corp. | | 41,400 | 570,299 |
| PACCAR, Inc. | | 1,726 | 170,822 |
| Regal Rexnord Corp. | | 7,153 | 858,217 |
| Timken Co. | | 1,523 | 107,631 |
| Volvo Group | | 23,532 | 426,086 |
| | | | | $4,799,808 |
| Major Banks – 3.5% | |
| ABN AMRO Group N.V., GDR | | 30,142 | $ 417,031 |
| Bank of America Corp. | | 42,840 | 1,418,861 |
| BNP Paribas | | 40,031 | 2,278,057 |
| DBS Group Holdings Ltd. | | 57,900 | 1,466,304 |
| Erste Group Bank AG | | 4,890 | 156,511 |
| Goldman Sachs Group, Inc. | | 5,192 | 1,782,829 |
| JPMorgan Chase & Co. | | 15,308 | 2,052,803 |
| Mitsubishi UFJ Financial Group, Inc. | | 163,500 | 1,102,976 |
| National Australia Bank Ltd. | | 8,159 | 165,335 |
| NatWest Group PLC | | 398,620 | 1,278,030 |
| Regions Financial Corp. | | 13,243 | 285,519 |
| UBS Group AG | | 107,607 | 2,005,750 |
| | | | | $14,410,006 |
| Medical & Health Technology & Services – 0.4% | |
| ICON PLC (a) | | 2,442 | $ 474,359 |
| McKesson Corp. | | 2,669 | 1,001,195 |
| | | | | $1,475,554 |
| Medical Equipment – 0.9% | |
| Becton, Dickinson and Co. | | 3,569 | $ 907,597 |
| Boston Scientific Corp. (a) | | 21,266 | 983,978 |
| Danaher Corp. (f) | | 1,479 | 392,556 |
| Medtronic PLC | | 12,891 | 1,001,889 |
| Thermo Fisher Scientific, Inc. | | 689 | 379,425 |
| | | | | $3,665,445 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Metals & Mining – 0.8% | |
| Fortescue Metals Group Ltd. | | 4,848 | $ 67,699 |
| Glencore PLC | | 127,484 | 851,369 |
| Rio Tinto PLC | | 27,223 | 1,908,194 |
| Vale S.A. | | 35,700 | 600,978 |
| | | | | $3,428,240 |
| Natural Gas - Pipeline – 0.0% | |
| Plains GP Holdings LP | | 9,205 | $ 114,510 |
| Other Banks & Diversified Financials – 0.8% | |
| China Construction Bank Corp. | | 575,000 | $ 360,229 |
| Julius Baer Group Ltd. | | 9,214 | 535,573 |
| KB Financial Group, Inc. | | 3,286 | 125,160 |
| Northern Trust Corp. | | 7,270 | 643,322 |
| Sberbank of Russia PJSC (a)(u) | | 137,348 | 0 |
| SLM Corp. | | 20,474 | 339,868 |
| Tisco Financial Group PCL | | 62,600 | 179,387 |
| Truist Financial Corp. | | 26,519 | 1,141,113 |
| | | | | $3,324,652 |
| Pharmaceuticals – 3.5% | |
| Bayer AG | | 30,486 | $ 1,577,024 |
| Johnson & Johnson | | 21,040 | 3,716,716 |
| Merck & Co., Inc. | | 31,064 | 3,446,551 |
| Organon & Co. (f) | | 31,087 | 868,260 |
| Pfizer, Inc. | | 21,096 | 1,080,959 |
| Roche Holding AG | | 10,662 | 3,349,712 |
| Sanofi | | 3,459 | 334,695 |
| | | | | $14,373,917 |
| Printing & Publishing – 0.3% | |
| RELX PLC | | 16,536 | $ 457,393 |
| Wolters Kluwer N.V. | | 8,788 | 919,639 |
| | | | | $1,377,032 |
| Railroad & Shipping – 0.5% | |
| A.P. Moller-Maersk A/S | | 44 | $ 98,935 |
| Canadian Pacific Railway Ltd. | | 11,508 | 858,000 |
| Nippon Yusen KK | | 9,300 | 220,383 |
| Orient Overseas International Ltd. | | 4,500 | 81,289 |
| Union Pacific Corp. | | 3,938 | 815,442 |
| | | | | $2,074,049 |
| Real Estate – 0.3% | |
| Extra Space Storage, Inc., REIT | | 2,088 | $ 307,312 |
| National Retail Properties, Inc., REIT | | 5,095 | 233,147 |
| Phillips Edison & Co., REIT | | 3,337 | 106,250 |
| Simon Property Group, Inc., REIT | | 2,408 | 282,892 |
| W.P. Carey, Inc., REIT | | 3,206 | 250,549 |
| | | | | $1,180,150 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Restaurants – 0.2% | |
| Cracker Barrel Old Country Store, Inc. | | 1,280 | $ 121,267 |
| Texas Roadhouse, Inc. | | 1,939 | 176,352 |
| Yum China Holdings, Inc. | | 11,681 | 638,367 |
| | | | | $935,986 |
| Specialty Chemicals – 0.2% | |
| Akzo Nobel N.V. | | 6,921 | $ 463,481 |
| Axalta Coating Systems Ltd. (a) | | 16,631 | 423,592 |
| Chemours Co. | | 4,368 | 133,748 |
| | | | | $1,020,821 |
| Telecommunications - Wireless – 0.8% | |
| KDDI Corp. | | 59,900 | $ 1,810,425 |
| PT Telekom Indonesia | | 694,800 | 167,368 |
| T-Mobile US, Inc. (a)(f) | | 8,355 | 1,169,700 |
| Vodafone Group PLC | | 213,435 | 217,366 |
| | | | | $3,364,859 |
| Telephone Services – 0.3% | |
| AT&T, Inc. | | 12,910 | $ 237,673 |
| Hellenic Telecommunications Organization S.A. | | 21,301 | 332,676 |
| Orange S.A. | | 15,767 | 156,777 |
| Quebecor, Inc., “B” | | 17,946 | 400,273 |
| | | | | $1,127,399 |
| Tobacco – 0.7% | |
| British American Tobacco PLC | | 24,687 | $ 979,375 |
| Japan Tobacco, Inc. | | 20,800 | 420,578 |
| Philip Morris International, Inc. (f) | | 13,937 | 1,410,564 |
| | | | | $2,810,517 |
| Utilities - Electric Power – 1.0% | |
| American Electric Power Co., Inc. | | 2,403 | $ 228,165 |
| Duke Energy Corp. (f) | | 5,197 | 535,239 |
| E.ON SE | | 116,610 | 1,165,118 |
| Edison International | | 8,644 | 549,931 |
| Exelon Corp. (f) | | 9,146 | 395,381 |
| Iberdrola S.A. | | 75,987 | 889,049 |
| PG&E Corp. (a) | | 11,604 | 188,681 |
| Transmissora Alianca de Energia Eletrica S.A., IEU | | 15,541 | 102,051 |
| Vistra Corp. | | 5,088 | 118,042 |
| | | | | $4,171,657 |
| Total Common Stocks (Identified Cost, $94,367,957) | | $135,725,735 |
| Preferred Stocks – 0.4% |
| Computer Software - Systems – 0.0% | | | | |
| Samsung Electronics Co. Ltd. | | 3,751 | $ 150,932 |
| Consumer Products – 0.3% | | | | |
| Henkel AG & Co. KGaA | | 18,037 | $ 1,255,387 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Preferred Stocks – continued |
| Metals & Mining – 0.1% | | | �� | |
| Gerdau S.A. | | 69,500 | $ 386,612 |
| Total Preferred Stocks (Identified Cost, $1,617,084) | | $1,792,931 |
| Convertible Preferred Stocks – 0.1% |
| Medical Equipment – 0.1% | |
| Boston Scientific Corp., 5.5% (Identified Cost, $263,212) | | 2,435 | $ 279,587 |
| Investment Companies (h) – 2.1% |
| Money Market Funds – 2.1% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $8,529,988) | | | 8,528,148 | $ 8,530,707 |
| Underlying/Expiration Date/Exercise Price | Put/Call | Counterparty | Notional
Amount | Par Amount/
Number of
Contracts | |
| Purchased Options – 0.1% | |
| Market Index Securities – 0.1% | |
| iTraxx Europe Crossover Series 38 Index Credit Default Swap-Fund pays 5%, Fund receives notional amount upon a defined credit event of an index constituent – February 2023 @ EUR 90 | Call | Merrill Lynch International | $ 26,261,287 | EUR 24,420,000 | $66,647 |
| iTraxx Europe Crossover Series 38 Index Credit Default Swap-Fund pays 5%, Fund receives notional amount upon a defined credit event of an index constituent – March 2023 @ EUR 475 | Call | Merrill Lynch International | 3,714,412 | EUR 3,430,000 | 45,907 |
| iTraxx Europe Crossover Series 38 Index Credit Default Swap-Fund pays 5%, Fund receives notional amount upon a defined credit event of an index constituent – March 2023 @ EUR 475 | Call | Merrill Lynch International | 3,725,241 | EUR 3,440,000 | 46,040 |
| iTraxx Europe Crossover Series 38 Index Credit Default Swap-Fund pays 5%, Fund receives notional amount upon a defined credit event of an index constituent – March 2023 @ EUR 475 | Call | Merrill Lynch International | 3,725,241 | EUR 3,440,000 | 46,041 |
| S&P 500 Index – September 2023 @ $2,950 | Put | Goldman Sachs International | 24,572,800 | 64 | 356,480 |
Total Purchased Options
(Premiums Paid, $793,555) | | $561,115 |
| Other Assets, Less Liabilities – 1.5% | 6,290,388 |
| Net Assets – 100.0% | $410,787,297 |
| (a) | Non-income producing security. | | | |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts and cleared swap agreements. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $8,530,707 and $395,966,202, respectively. | | | |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. | | | |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $41,989,086, representing 10.2% of net assets. | | | |
| (s) | Security or a portion of the security was pledged to cover collateral requirements for certain derivative transactions. | | | |
| (u) | The security was valued using significant unobservable inputs and is considered level 3 under the fair value hierarchy. For further information about the fund’s level 3 holdings, please see Note 2 in the Notes to Financial Statements. | | | |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| AGM | Assured Guaranty Municipal |
| CLO | Collateralized Loan Obligation |
| CMT | Constant Maturity Treasury |
| EURIBOR | Euro Interbank Offered Rate |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| GDR | Global Depositary Receipt |
| ICE | Intercontinental Exchange |
| IEU | International Equity Unit |
| LIBOR | London Interbank Offered Rate |
| PCL | Public Company Limited |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| SONIA | Sterling Overnight Index Average |
| TBA | To Be Announced |
| UMBS | Uniform Mortgage-Backed Security |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| AUD | Australian Dollar |
| BRL | Brazilian Real |
| CAD | Canadian Dollar |
| CHF | Swiss Franc |
| CLP | Chilean Peso |
| CNH | Chinese Yuan Renminbi (Offshore) |
| CNY | China Yuan Renminbi |
| COP | Colombian Peso |
| CZK | Czech Koruna |
| DKK | Danish Krone |
| EUR | Euro |
| GBP | British Pound |
| HKD | Hong Kong Dollar |
| HUF | Hungarian Forint |
| IDR | Indonesian Rupiah |
| ILS | Israeli Shekel |
| JPY | Japanese Yen |
| KRW | South Korean Won |
| MXN | Mexican Peso |
| NOK | Norwegian Krone |
| NZD | New Zealand Dollar |
| PLN | Polish Zloty |
| SEK | Swedish Krona |
| SGD | Singapore Dollar |
| THB | Thai Baht |
| TRY | Turkish Lira |
| TWD | Taiwan Dollar |
| UYU | Uruguayan Peso |
| ZAR | South African Rand |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Derivative Contracts at 12/31/22 |
| Forward Foreign Currency Exchange Contracts |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| AUD | 1,209,807 | USD | 792,768 | Goldman Sachs International | 1/20/2023 | $31,460 |
| AUD | 1,889,010 | USD | 1,225,840 | Merrill Lynch International | 1/20/2023 | 61,122 |
| AUD | 4,530,050 | USD | 2,854,265 | State Street Bank Corp. | 1/20/2023 | 232,009 |
| BRL | 3,940,111 | USD | 728,652 | JPMorgan Chase Bank N.A. | 2/02/2023 | 13,551 |
| CAD | 3,747,468 | USD | 2,749,918 | BNP Paribas S.A. | 1/20/2023 | 18,011 |
| CAD | 15,396,391 | USD | 11,208,852 | HSBC Bank | 1/20/2023 | 163,124 |
| CAD | 838,343 | USD | 617,433 | State Street Bank Corp. | 1/20/2023 | 1,778 |
| CHF | 150,067 | USD | 162,341 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | 233 |
| CHF | 1,095,368 | USD | 1,111,521 | NatWest Markets PLC | 1/20/2023 | 75,137 |
| CLP | 98,837,007 | USD | 103,367 | Goldman Sachs International | 3/06/2023 | 12,288 |
| CNH | 3,677,542 | USD | 514,957 | Brown Brothers Harriman | 1/20/2023 | 17,102 |
| CNH | 8,249,000 | USD | 1,150,488 | Citibank N.A. | 1/20/2023 | 42,960 |
| CNH | 5,406,920 | USD | 754,867 | HSBC Bank | 1/20/2023 | 27,395 |
| CNH | 14,764,100 | USD | 2,104,682 | JPMorgan Chase Bank N.A. | 1/20/2023 | 31,356 |
| CNH | 14,223,743 | USD | 2,041,916 | State Street Bank Corp. | 1/20/2023 | 15,944 |
| COP | 618,229,197 | USD | 122,524 | Goldman Sachs International | 1/23/2023 | 4,561 |
| CZK | 34,921,845 | USD | 1,428,657 | Goldman Sachs International | 1/20/2023 | 115,158 |
| CZK | 30,424,254 | USD | 1,289,900 | JPMorgan Chase Bank N.A. | 1/20/2023 | 55,088 |
| DKK | 4,719,079 | USD | 621,774 | Deutsche Bank AG | 1/20/2023 | 58,366 |
| EUR | 556,088 | USD | 585,325 | Citibank N.A. | 1/20/2023 | 10,582 |
| EUR | 3,234,374 | USD | 3,327,342 | Deutsche Bank AG | 1/20/2023 | 138,629 |
| EUR | 13,638,908 | USD | 13,861,461 | HSBC Bank | 1/20/2023 | 754,064 |
| EUR | 1,123,918 | USD | 1,115,912 | HSBC Bank | 1/30/2023 | 89,265 |
| EUR | 1,464,097 | USD | 1,497,089 | JPMorgan Chase Bank N.A. | 1/20/2023 | 71,846 |
| EUR | 3,274,830 | USD | 3,280,970 | Merrill Lynch International | 1/20/2023 | 228,356 |
| EUR | 2,968,951 | USD | 2,964,149 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | 217,394 |
| EUR | 13,025,000 | USD | 13,959,557 | Morgan Stanley Capital Services, Inc. | 2/24/2023 | 31,012 |
| EUR | 1,169,240 | USD | 1,237,821 | NatWest Markets PLC | 1/20/2023 | 15,143 |
| EUR | 6,809,322 | USD | 7,068,270 | State Street Bank Corp. | 1/20/2023 | 228,638 |
| EUR | 3,534,908 | USD | 3,726,674 | UBS AG | 1/20/2023 | 61,352 |
| GBP | 3,411,768 | USD | 3,880,489 | Goldman Sachs International | 1/20/2023 | 245,902 |
| GBP | 858,499 | USD | 1,026,016 | HSBC Bank | 1/20/2023 | 12,302 |
| GBP | 3,662,916 | USD | 4,123,749 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | 306,395 |
| GBP | 599,252 | USD | 674,493 | NatWest Markets PLC | 1/20/2023 | 50,277 |
| GBP | 1,301,900 | USD | 1,540,673 | State Street Bank Corp. | 1/20/2023 | 33,921 |
| GBP | 101,068 | USD | 121,920 | UBS AG | 1/20/2023 | 317 |
| HUF | 74,886,000 | USD | 173,564 | UBS AG | 1/20/2023 | 26,231 |
| IDR | 19,199,936,460 | USD | 1,210,551 | Citibank N.A. | 2/09/2023 | 22,289 |
| JPY | 349,869,614 | USD | 2,614,221 | Brown Brothers Harriman | 1/20/2023 | 56,947 |
| JPY | 71,506,600 | USD | 493,034 | Citibank N.A. | 1/20/2023 | 52,901 |
| JPY | 101,635,800 | USD | 687,032 | Deutsche Bank AG | 1/20/2023 | 88,932 |
| JPY | 2,070,264,356 | USD | 14,045,612 | HSBC Bank | 1/20/2023 | 1,760,351 |
| JPY | 186,111,772 | USD | 1,324,166 | JPMorgan Chase Bank N.A. | 1/20/2023 | 96,752 |
| JPY | 33,500,118 | USD | 235,237 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | 20,528 |
| JPY | 223,227,859 | USD | 1,544,331 | State Street Bank Corp. | 1/20/2023 | 159,959 |
| JPY | 32,667,135 | USD | 225,681 | UBS AG | 1/20/2023 | 23,725 |
| KRW | 2,579,274,226 | USD | 1,961,425 | Citibank N.A. | 1/13/2023 | 78,587 |
| KRW | 878,447,928 | USD | 643,826 | Goldman Sachs International | 1/13/2023 | 50,961 |
| MXN | 9,912,646 | USD | 484,719 | HSBC Bank | 1/20/2023 | 22,523 |
| MXN | 4,917,237 | USD | 238,591 | JPMorgan Chase Bank N.A. | 3/15/2023 | 10,546 |
| NOK | 2,006,680 | USD | 195,400 | Brown Brothers Harriman | 1/20/2023 | 9,563 |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Forward Foreign Currency Exchange Contracts - continued |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives - continued |
| NOK | 123,746,623 | USD | 12,421,212 | Brown Brothers Harriman | 2/24/2023 | $236,789 |
| NZD | 8,752,429 | USD | 4,964,216 | BNP Paribas S.A. | 1/20/2023 | 593,873 |
| NZD | 1,049,222 | USD | 609,686 | Brown Brothers Harriman | 1/20/2023 | 56,605 |
| NZD | 2,305,493 | USD | 1,430,611 | Citibank N.A. | 1/20/2023 | 33,455 |
| NZD | 4,582,218 | USD | 2,677,029 | HSBC Bank | 1/20/2023 | 232,834 |
| NZD | 3,119,655 | USD | 1,802,543 | NatWest Markets PLC | 1/20/2023 | 178,544 |
| NZD | 7,894,229 | USD | 4,489,488 | State Street Bank Corp. | 1/20/2023 | 523,616 |
| PLN | 2,454,931 | USD | 491,891 | HSBC Bank | 1/20/2023 | 67,740 |
| SEK | 10,678,621 | USD | 958,454 | Deutsche Bank AG | 1/20/2023 | 65,847 |
| SEK | 95,605,497 | USD | 9,103,073 | UBS AG | 2/24/2023 | 85,393 |
| SGD | 356,901 | USD | 252,562 | Goldman Sachs International | 1/30/2023 | 14,028 |
| SGD | 3,882,903 | USD | 2,824,891 | Merrill Lynch International | 1/20/2023 | 75,071 |
| SGD | 10,131,341 | USD | 7,115,504 | State Street Bank Corp. | 1/20/2023 | 451,128 |
| THB | 68,848,934 | USD | 1,949,001 | Barclays Bank PLC | 2/21/2023 | 48,099 |
| THB | 29,469,000 | USD | 777,025 | JPMorgan Chase Bank N.A. | 1/17/2023 | 74,888 |
| USD | 158,071 | CAD | 212,856 | HSBC Bank | 1/20/2023 | 853 |
| USD | 713,778 | CAD | 953,177 | State Street Bank Corp. | 1/20/2023 | 9,749 |
| USD | 3,285,989 | CHF | 3,013,000 | Morgan Stanley Capital Services, Inc. | 2/24/2023 | 9,437 |
| USD | 235,322 | COP | 1,149,784,960 | JPMorgan Chase Bank N.A. | 2/24/2023 | 440 |
| USD | 3,861,400 | GBP | 3,155,611 | HSBC Bank | 1/20/2023 | 44,821 |
| USD | 391,546 | ILS | 1,321,342 | Barclays Bank PLC | 2/24/2023 | 14,697 |
| USD | 607,706 | MXN | 11,854,487 | UBS AG | 2/24/2023 | 4,948 |
| USD | 1,433,328 | NOK | 13,926,000 | Citibank N.A. | 2/24/2023 | 8,842 |
| USD | 135,762 | NZD | 213,439 | HSBC Bank | 1/20/2023 | 221 |
| USD | 5,483,973 | NZD | 8,499,227 | JPMorgan Chase Bank N.A. | 1/20/2023 | 86,675 |
| USD | 6,347,518 | SEK | 64,388,000 | NatWest Markets PLC | 2/24/2023 | 159,307 |
| USD | 819,089 | TWD | 24,933,081 | Merrill Lynch International | 3/01/2023 | 3,268 |
| | | | | | | $9,034,001 |
| Liability Derivatives |
| AUD | 2,164,555 | USD | 1,488,129 | JPMorgan Chase Bank N.A. | 1/20/2023 | $(13,440) |
| AUD | 6,717,000 | USD | 4,624,090 | JPMorgan Chase Bank N.A. | 2/24/2023 | (41,497) |
| CAD | 1,819,683 | USD | 1,344,882 | Brown Brothers Harriman | 1/20/2023 | (841) |
| CAD | 1,533,533 | USD | 1,150,430 | State Street Bank Corp. | 1/20/2023 | (17,743) |
| CAD | 7,841,170 | USD | 5,796,801 | UBS AG | 2/24/2023 | (3,574) |
| CNY | 4,733,000 | USD | 685,664 | JPMorgan Chase Bank N.A. | 2/24/2023 | (2,130) |
| GBP | 4,119,000 | USD | 5,126,254 | Barclays Bank PLC | 2/24/2023 | (140,190) |
| GBP | 302,461 | USD | 370,106 | State Street Bank Corp. | 1/20/2023 | (4,292) |
| ILS | 1,799,000 | USD | 512,433 | Brown Brothers Harriman | 1/19/2023 | (355) |
| NZD | 14,847,000 | USD | 9,583,085 | Brown Brothers Harriman | 2/24/2023 | (150,447) |
| USD | 1,311,768 | AUD | 1,964,383 | Citibank N.A. | 1/20/2023 | (26,545) |
| USD | 133,701 | AUD | 200,880 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | (3,156) |
| USD | 13,872,407 | AUD | 20,546,767 | Morgan Stanley Capital Services, Inc. | 2/24/2023 | (145,382) |
| USD | 4,168,034 | AUD | 6,580,245 | State Street Bank Corp. | 1/20/2023 | (315,016) |
| USD | 712,258 | BRL | 3,883,943 | Citibank N.A. | 2/02/2023 | (19,364) |
| USD | 355,388 | CAD | 483,646 | Citibank N.A. | 1/20/2023 | (1,839) |
| USD | 133,482 | CAD | 182,866 | Deutsche Bank AG | 1/20/2023 | (1,585) |
| USD | 2,967,743 | CAD | 4,018,592 | Goldman Sachs International | 1/20/2023 | (442) |
| USD | 208,666 | CAD | 286,587 | HSBC Bank | 1/20/2023 | (3,011) |
| USD | 7,143,367 | CAD | 9,847,234 | JPMorgan Chase Bank N.A. | 1/20/2023 | (129,929) |
| USD | 288,676 | CAD | 397,911 | State Street Bank Corp. | 1/30/2023 | (5,240) |
| USD | 4,215,701 | CAD | 5,709,000 | State Street Bank Corp. | 2/24/2023 | (2,232) |
| USD | 14,332,618 | CHF | 13,499,692 | Citibank N.A. | 2/24/2023 | (347,916) |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Forward Foreign Currency Exchange Contracts - continued |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Liability Derivatives - continued |
| USD | 244,506 | CNH | 1,771,598 | HSBC Bank | 1/20/2023 | $(11,805) |
| USD | 19,764,461 | CNY | 140,327,674 | JPMorgan Chase Bank N.A. | 2/24/2023 | (501,491) |
| USD | 332,150 | CZK | 7,843,822 | Barclays Bank PLC | 2/24/2023 | (13,967) |
| USD | 2,290,785 | CZK | 57,521,606 | Deutsche Bank AG | 1/20/2023 | (252,115) |
| USD | 462,648 | DKK | 3,297,301 | Deutsche Bank AG | 2/24/2023 | (13,848) |
| USD | 396,368 | EUR | 382,155 | Barclays Bank PLC | 1/20/2023 | (13,151) |
| USD | 5,749,802 | EUR | 5,649,269 | Brown Brothers Harriman | 1/20/2023 | (303,983) |
| USD | 1,095,236 | EUR | 1,066,973 | Deutsche Bank AG | 1/20/2023 | (48,137) |
| USD | 58,747,613 | EUR | 56,245,800 | Goldman Sachs International | 2/24/2023 | (1,667,799) |
| USD | 11,914,167 | EUR | 11,999,761 | HSBC Bank | 1/20/2023 | (944,841) |
| USD | 1,848,357 | EUR | 1,808,612 | JPMorgan Chase Bank N.A. | 1/20/2023 | (89,763) |
| USD | 10,010,522 | EUR | 10,046,624 | State Street Bank Corp. | 1/20/2023 | (755,494) |
| USD | 4,626,891 | EUR | 4,499,765 | UBS AG | 1/20/2023 | (195,081) |
| USD | 530,587 | GBP | 449,949 | Brown Brothers Harriman | 1/20/2023 | (13,607) |
| USD | 161,898 | GBP | 136,636 | Deutsche Bank AG | 1/20/2023 | (3,357) |
| USD | 107,882 | GBP | 96,479 | Deutsche Bank AG | 1/30/2023 | (8,837) |
| USD | 6,655,328 | GBP | 5,817,260 | HSBC Bank | 1/20/2023 | (380,406) |
| USD | 119,118 | GBP | 100,000 | JPMorgan Chase Bank N.A. | 1/20/2023 | (1,827) |
| USD | 14,935,882 | GBP | 12,426,346 | JPMorgan Chase Bank N.A. | 2/24/2023 | (106,253) |
| USD | 1,632,167 | GBP | 1,420,224 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | (85,534) |
| USD | 13,249,283 | GBP | 11,775,750 | State Street Bank Corp. | 1/20/2023 | (992,993) |
| USD | 1,208,535 | GBP | 1,052,752 | State Street Bank Corp. | 1/30/2023 | (65,057) |
| USD | 603,916 | GBP | 522,548 | UBS AG | 1/20/2023 | (28,085) |
| USD | 79,549 | IDR | 1,244,358,899 | Citibank N.A. | 2/09/2023 | (352) |
| USD | 1,015,652 | IDR | 16,018,869,000 | JPMorgan Chase Bank N.A. | 2/24/2023 | (12,681) |
| USD | 478,673 | JPY | 70,019,466 | Brown Brothers Harriman | 1/20/2023 | (55,909) |
| USD | 30,834,875 | JPY | 4,214,464,490 | Brown Brothers Harriman | 2/24/2023 | (1,492,484) |
| USD | 2,653,761 | JPY | 364,873,274 | Citibank N.A. | 1/20/2023 | (131,957) |
| USD | 146,521 | JPY | 21,396,458 | Deutsche Bank AG | 1/20/2023 | (16,836) |
| USD | 360,675 | JPY | 53,417,564 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | (47,155) |
| USD | 724,883 | JPY | 105,107,161 | NatWest Markets PLC | 1/20/2023 | (77,585) |
| USD | 901,081 | KRW | 1,265,970,000 | Barclays Bank PLC | 1/13/2023 | (100,205) |
| USD | 263,950 | KRW | 351,284,762 | Citibank N.A. | 1/13/2023 | (13,890) |
| USD | 6,136,765 | KRW | 8,739,796,945 | Citibank N.A. | 2/02/2023 | (778,915) |
| USD | 2,383,013 | KRW | 3,156,538,970 | JPMorgan Chase Bank N.A. | 2/24/2023 | (116,276) |
| USD | 3,395,434 | KRW | 4,820,395,209 | Merrill Lynch International | 1/25/2023 | (418,182) |
| USD | 552,422 | NOK | 5,850,062 | Citibank N.A. | 1/20/2023 | (45,105) |
| USD | 2,668,268 | NZD | 4,268,081 | Brown Brothers Harriman | 1/20/2023 | (42,109) |
| USD | 1,336,106 | NZD | 2,114,085 | Citibank N.A. | 1/20/2023 | (6,410) |
| USD | 10,401,399 | NZD | 18,301,314 | State Street Bank Corp. | 1/20/2023 | (1,220,555) |
| USD | 2,750,454 | NZD | 4,431,032 | State Street Bank Corp. | 2/24/2023 | (64,682) |
| USD | 520,195 | PLN | 2,384,778 | Morgan Stanley Capital Services, Inc. | 2/24/2023 | (21,810) |
| USD | 6,724,127 | SGD | 9,245,641 | Brown Brothers Harriman | 1/20/2023 | (181,016) |
| USD | 501,388 | SGD | 686,438 | State Street Bank Corp. | 1/20/2023 | (11,281) |
| USD | 552,387 | SGD | 758,722 | State Street Bank Corp. | 2/24/2023 | (14,536) |
| USD | 1,025,508 | TWD | 32,118,897 | Barclays Bank PLC | 1/13/2023 | (20,418) |
| USD | 1,465,529 | TWD | 46,894,000 | Merrill Lynch International | 2/03/2023 | (64,635) |
| | | | | | | $(12,828,581) |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| Equity Futures | | |
| AEX 25 Index | Short | EUR | 93 | $13,731,180 | January – 2023 | $643,060 |
| BIST 30 Index | Long | TRY | 4,511 | 15,025,283 | February – 2023 | 197,437 |
| DAX Index | Short | EUR | 8 | 2,994,689 | March – 2023 | 89,506 |
| FTSE/JSE Top 40 Index | Short | ZAR | 156 | 6,217,506 | March – 2023 | 190,844 |
| IBOV Index | Long | BRL | 3,172 | 13,349,510 | February – 2023 | 380,329 |
| Mexbol Index | Short | MXN | 386 | 9,674,117 | March – 2023 | 478,594 |
| MSCI Singapore Index | Short | SGD | 638 | 13,778,882 | January – 2023 | 1,366 |
| NIFTY Index | Long | USD | 93 | 3,389,478 | January – 2023 | 13,379 |
| Russell 2000 Index | Short | USD | 145 | 12,839,025 | March – 2023 | 456,825 |
| S&P 500 E-Mini Index | Short | USD | 43 | 8,301,150 | March – 2023 | 293,516 |
| S&P/ASX 200 Index | Short | AUD | 67 | 7,968,199 | March – 2023 | 190,061 |
| | | | | | | $2,934,917 |
| Interest Rate Futures | | |
| Canadian Treasury Bond 10 yr | Short | CAD | 238 | $21,541,285 | March – 2023 | $561,876 |
| Canadian Treasury Bond 5 yr | Short | CAD | 14 | 1,152,570 | March – 2023 | 5,861 |
| Euro-Bobl 5 yr | Short | EUR | 185 | 22,922,338 | March – 2023 | 712,948 |
| Euro-BTP 10yr | Short | EUR | 53 | 6,179,448 | March – 2023 | 450,245 |
| Euro-Bund 10 yr | Short | EUR | 68 | 9,676,050 | March – 2023 | 555,158 |
| Euro-Schatz 2 yr | Short | EUR | 166 | 18,732,566 | March – 2023 | 205,767 |
| U.S. Treasury Note 10 yr | Short | USD | 316 | 35,485,812 | March – 2023 | 258,774 |
| U.S. Treasury Note 2 yr | Long | USD | 50 | 10,253,906 | March – 2023 | 12,627 |
| U.S. Treasury Note 5 yr | Short | USD | 179 | 19,319,414 | March – 2023 | 53,264 |
| U.S. Treasury Ultra Note 10 yr | Short | USD | 115 | 13,602,344 | March – 2023 | 134,894 |
| | | | | | | $2,951,414 |
| | | | | | | $5,886,331 |
| Liability Derivatives |
| Equity Futures | | |
| CAC 40 Index | Long | EUR | 205 | $14,190,201 | January – 2023 | $(427,933) |
| FTSE 100 Index | Long | GBP | 205 | 18,503,344 | March – 2023 | (31,364) |
| FTSE MIB Index | Long | EUR | 111 | 14,084,910 | March – 2023 | (385,962) |
| FTSE Taiwan Index | Long | USD | 50 | 2,483,500 | January – 2023 | (31,150) |
| Hang Seng Index | Long | HKD | 23 | 2,910,862 | January – 2023 | (1,405) |
| IBEX 35 Index | Long | EUR | 96 | 8,408,797 | January – 2023 | (34,959) |
| KOSPI 200 Index | Long | KRW | 29 | 1,664,888 | March – 2023 | (91,560) |
| OMX 30 Index | Long | SEK | 159 | 3,106,583 | January – 2023 | (126,509) |
| S&P/TSX 60 Index | Long | CAD | 1 | 172,807 | March – 2023 | (5,946) |
| Topix Index | Long | JPY | 47 | 6,714,311 | March – 2023 | (213,963) |
| | | | | | | $(1,350,751) |
| Interest Rate Futures | | |
| Australian Bond 10 yr | Long | AUD | 371 | $29,220,602 | March – 2023 | $(1,690,591) |
| Euro-Buxl 30 yr | Long | EUR | 32 | 4,632,563 | March – 2023 | (892,053) |
| Japan Government Bond 10 yr | Long | JPY | 20 | 22,167,022 | March – 2023 | (415,834) |
| Long Gilt 10 yr | Long | GBP | 59 | 7,125,673 | March – 2023 | (350,221) |
| U.S. Treasury Bond | Long | USD | 53 | 6,643,219 | March – 2023 | (62,305) |
| U.S. Treasury Ultra Bond | Long | USD | 32 | 4,298,000 | March – 2023 | (60,241) |
| | | | | | | $(3,471,245) |
| | | | | | | $(4,821,996) |
MFS Global Tactical Allocation Portfolio
Portfolio of Investments – continued
| Cleared Swap Agreements |
Maturity
Date | Notional
Amount | Counterparty | Cash Flows
to Receive/
Frequency | Cash Flows
to Pay/
Frequency | Unrealized
Appreciation
(Depreciation) | | Net Unamortized
Upfront Payments
(Receipts) | | Value |
| Asset Derivatives | | | | | |
| Interest Rate Swaps | | | | | |
| 3/15/25 | USD | 140,300,000 | centrally cleared | 4.5%/Annually | (SOFR - 1 day)/Annually | $(860,229) | | $1,289,258 | | $429,029 |
| 3/15/28 | USD | 56,000,000 | centrally cleared | 4.0%/Annually | (SOFR - 1 day)/Annually | (1,012,971) | | 1,774,779 | | 761,808 |
| | | | | | | $(1,873,200) | | $3,064,037 | | $1,190,837 |
| Liability Derivatives | | | | | |
| Interest Rate Swaps | | | | | |
| 3/15/33 | USD | (29,900,000) | centrally cleared | (SOFR - 1 day)/Annually | 3.75%/Annually | $991,901 | | $(1,531,158) | | $(539,257) |
| 3/15/53 | USD | (13,000,000) | centrally cleared | (SOFR - 1 day)/Annually | 3.25%/Annually | 908,423 | | (1,058,131) | | (149,708) |
| | | | | | | $1,900,324 | | $(2,589,289) | | $(688,965) |
| Uncleared Swap Agreements |
Maturity
Date | Notional
Amount | Counterparty | Cash Flows
to Receive/
Frequency | Cash Flows
to Pay/
Frequency | Unrealized
Appreciation
(Depreciation) | | Net Unamortized
Upfront Payments
(Receipts) | | Value |
| Liability Derivatives | | | | | |
| Credit Default Swaps | | | | | |
| 12/20/31 | EUR | 640,000 | Barclays Bank PLC | 1.00%/Quarterly | (1) | $(18,064) | | $6,381 | | $(11,683) |
(1) Fund, as protection seller, to pay notional amount upon a defined credit event by Daimler Finance North America LLC, 1.4%, 1/12/24, an A- 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 swap 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. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, than the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). The ratings for a credit default swap 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 December 31, 2022, the fund had cash collateral of $8,939,435 and other liquid securities with an aggregate value of $27,617,223 to cover any collateral or margin obligations for certain derivative contracts. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised of cash collateral.
See Notes to Financial Statements
MFS Global Tactical Allocation Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $381,858,114) | $395,966,202 |
| Investments in affiliated issuers, at value (identified cost, $8,529,988) | 8,530,707 |
| Foreign currency, at value (identified cost, $3) | 3 |
| Restricted cash for | |
| Forward foreign currency exchange contracts | 2,420,000 |
| Deposits with brokers for | |
| Cleared swaps | 1,344,465 |
| Futures contracts | 5,154,547 |
| Cleared options | 20,423 |
| Receivables for | |
| Forward foreign currency exchange contracts | 9,034,001 |
| Net daily variation margin on open futures contracts | 146,864 |
| Investments sold | 501,891 |
| Fund shares sold | 43,394 |
| Interest and dividends | 2,940,081 |
| Receivable from investment adviser | 19,727 |
| Other assets | 2,525 |
| Total assets | $426,124,830 |
| Liabilities | |
| Payable to custodian | $1,079,857 |
| Payables for | |
| Net daily variation margin on open cleared swap agreements | 102,118 |
| Forward foreign currency exchange contracts | 12,828,581 |
| Investments purchased | 316,998 |
| TBA purchase commitments | 585,835 |
| Fund shares reacquired | 178,276 |
| Uncleared swaps, at value (net of unamortized premiums paid, $6,381) | 11,683 |
| Payable to affiliates | |
| Administrative services fee | 553 |
| Shareholder servicing costs | 45 |
| Distribution and/or service fees | 7,772 |
| Deferred country tax expense payable | 2,829 |
| Accrued expenses and other liabilities | 222,986 |
| Total liabilities | $15,337,533 |
| Net assets | $410,787,297 |
| Net assets consist of | |
| Paid-in capital | $384,747,540 |
| Total distributable earnings (loss) | 26,039,757 |
| Net assets | $410,787,297 |
| Shares of beneficial interest outstanding | 32,266,577 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $32,846,139 | 2,529,924 | $12.98 |
| Service Class | 377,941,158 | 29,736,653 | 12.71 |
See Notes to Financial Statements
MFS Global Tactical Allocation Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Interest | $7,570,035 |
| Dividends | 4,934,788 |
| Dividends from affiliated issuers | 235,996 |
| Other | 17,578 |
| Income on securities loaned | 3,283 |
| Foreign taxes withheld | (263,100) |
| Total investment income | $12,498,580 |
| Expenses | |
| Management fee | $3,262,035 |
| Distribution and/or service fees | 1,038,135 |
| Shareholder servicing costs | 11,172 |
| Administrative services fee | 78,897 |
| Independent Trustees' compensation | 8,247 |
| Custodian fee | 117,277 |
| Shareholder communications | 74,659 |
| Audit and tax fees | 86,553 |
| Legal fees | 1,954 |
| Miscellaneous | 155,753 |
| Total expenses | $4,834,682 |
| Reduction of expenses by investment adviser | (317,589) |
| Net expenses | $4,517,093 |
| Net investment income (loss) | $7,981,487 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $3,366 country tax) | $(20,603,130) |
| Affiliated issuers | (3,769) |
| Written options | 121,987 |
| Futures contracts | 25,757,748 |
| Swap agreements | (5,763,998) |
| Forward foreign currency exchange contracts | 11,066,117 |
| Foreign currency | (346,828) |
| Net realized gain (loss) | $10,228,127 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $2,143 decrease in deferred country tax) | $(56,983,892) |
| Affiliated issuers | 719 |
| Futures contracts | 796,714 |
| Swap agreements | 2,058,649 |
| Forward foreign currency exchange contracts | (2,980,478) |
| Translation of assets and liabilities in foreign currencies | 255,523 |
| Net unrealized gain (loss) | $(56,852,765) |
| Net realized and unrealized gain (loss) | $(46,624,638) |
| Change in net assets from operations | $(38,643,151) |
See Notes to Financial Statements
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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $7,981,487 | $7,531,017 |
| Net realized gain (loss) | 10,228,127 | 33,418,862 |
| Net unrealized gain (loss) | (56,852,765) | (26,565,856) |
| Change in net assets from operations | $(38,643,151) | $14,384,023 |
| Total distributions to shareholders | $(38,142,282) | $(29,054,748) |
| Change in net assets from fund share transactions | $(35,170,498) | $(36,801,795) |
| Total change in net assets | $(111,955,931) | $(51,472,520) |
| Net assets | | |
| At beginning of period | 522,743,228 | 574,215,748 |
| At end of period | $410,787,297 | $522,743,228 |
See Notes to Financial Statements
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 past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $15.35 | $15.79 | $15.86 | $14.58 | $16.11 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.28 | $0.25 | $0.22 | $0.29 | $0.29 |
| Net realized and unrealized gain (loss) | (1.40) | 0.19 | 0.71 | 1.80 | (0.99) |
| Total from investment operations | $(1.12) | $0.44 | $0.93 | $2.09 | $(0.70) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.31) | $(0.16) | $(0.28) | $(0.45) | $(0.13) |
| From net realized gain | (0.94) | (0.72) | (0.72) | (0.36) | (0.70) |
| Total distributions declared to shareholders | $(1.25) | $(0.88) | $(1.00) | $(0.81) | $(0.83) |
| Net asset value, end of period (x) | $12.98 | $15.35 | $15.79 | $15.86 | $14.58 |
| Total return (%) (k)(r)(s)(x) | (7.20) | 2.79 | 6.23 | 14.58 | (4.50) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.84 | 0.82 | 0.83 | 0.81 | 0.81 |
| Expenses after expense reductions | 0.77 | 0.78 | 0.82 | 0.80 | 0.80 |
| Net investment income (loss) | 2.01 | 1.59 | 1.45 | 1.85 | 1.83 |
| Portfolio turnover | 90 | 132 | 120 | 82 | 86 |
| Net assets at end of period (000 omitted) | $32,846 | $39,123 | $43,513 | $46,175 | $47,517 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $15.05 | $15.49 | $15.57 | $14.32 | $15.84 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.24 | $0.21 | $0.18 | $0.24 | $0.24 |
| Net realized and unrealized gain (loss) | (1.37) | 0.19 | 0.70 | 1.77 | (0.98) |
| Total from investment operations | $(1.13) | $0.40 | $0.88 | $2.01 | $(0.74) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.27) | $(0.12) | $(0.24) | $(0.40) | $(0.08) |
| From net realized gain | (0.94) | (0.72) | (0.72) | (0.36) | (0.70) |
| Total distributions declared to shareholders | $(1.21) | $(0.84) | $(0.96) | $(0.76) | $(0.78) |
| Net asset value, end of period (x) | $12.71 | $15.05 | $15.49 | $15.57 | $14.32 |
| Total return (%) (k)(r)(s)(x) | (7.44) | 2.58 | 5.99 | 14.30 | (4.80) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.09 | 1.07 | 1.08 | 1.06 | 1.06 |
| Expenses after expense reductions | 1.02 | 1.03 | 1.07 | 1.05 | 1.05 |
| Net investment income (loss) | 1.75 | 1.34 | 1.19 | 1.60 | 1.58 |
| Portfolio turnover | 90 | 132 | 120 | 82 | 86 |
| Net assets at end of period (000 omitted) | $377,941 | $483,621 | $530,703 | $552,698 | $559,478 |
See Notes to Financial Statements
MFS Global Tactical Allocation Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Global Tactical Allocation Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in derivatives as part of its principal investment strategy. Derivatives can be highly volatile and involve risks in addition to the risks of the underlying indicators on which the derivative is based. Derivatives can involve leverage. The fund invests in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, accounting, and auditing systems, greater government involvement in the economy, greater risk of new or inconsistent government treatment of or restrictions on issuers and instruments, and greater political, social, and economic instability than developed markets.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swap agreements are generally valued using valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts, forward foreign currency exchange contracts, and swap agreements. The following is a summary of the levels used as of December 31, 2022 in valuing the fund's assets and liabilities:
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| United States | $78,987,172 | $356,480 | $— | $79,343,652 |
| United Kingdom | 9,328,150 | — | — | 9,328,150 |
| Japan | 1,774,015 | 6,877,495 | — | 8,651,510 |
| Switzerland | 3,349,712 | 5,209,750 | — | 8,559,462 |
| France | 1,478,655 | 5,289,778 | — | 6,768,433 |
| Canada | 4,725,233 | — | — | 4,725,233 |
| Germany | 4,348,447 | — | — | 4,348,447 |
| Netherlands | 2,330,336 | — | — | 2,330,336 |
| China | 2,076,633 | 230,592 | — | 2,307,225 |
| Other Countries | 8,440,101 | 3,352,184 | 0 | 11,792,285 |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | — | 3,694,911 | — | 3,694,911 |
| Non - U.S. Sovereign Debt | — | 107,758,495 | — | 107,758,495 |
| Municipal Bonds | — | 3,264,426 | — | 3,264,426 |
| U.S. Corporate Bonds | — | 39,877,067 | — | 39,877,067 |
| Residential Mortgage-Backed Securities | — | 23,165,385 | — | 23,165,385 |
| Commercial Mortgage-Backed Securities | — | 9,468,149 | — | 9,468,149 |
| Asset-Backed Securities (including CDOs) | — | 13,901,573 | — | 13,901,573 |
| Foreign Bonds | — | 56,681,463 | — | 56,681,463 |
| Mutual Funds | 8,530,707 | — | — | 8,530,707 |
| Total | $125,369,161 | $279,127,748 | $0 | $404,496,909 |
| Other Financial Instruments | | | | |
| Futures Contracts – Assets | $5,497,467 | $388,864 | $— | $5,886,331 |
| Futures Contracts – Liabilities | (3,925,667) | (896,329) | — | (4,821,996) |
| Forward Foreign Currency Exchange Contracts – Assets | — | 9,034,001 | — | 9,034,001 |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (12,828,581) | — | (12,828,581) |
| Swap Agreements – Assets | — | 1,190,837 | — | 1,190,837 |
| Swap Agreements – Liabilities | — | (700,648) | — | (700,648) |
For further information regarding security characteristics, see the Portfolio of Investments.
The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The table presents the activity of level 3 securities held at the beginning and the end of the period.
| | Equity
Securities |
| Balance as of 12/31/21 | $— |
| Transfers into level 3 | 0 |
| Balance as of 12/31/22 | $0 |
At December 31, 2022, the fund held two level 3 securities.
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.
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
The derivative instruments used by the fund during the period were written options, purchased options, futures contracts, forward foreign currency exchange contracts, and swap agreements. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
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 December 31, 2022 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Credit | Purchased Option Contracts | $204,635 | $— |
| Equity | Purchased Option Contracts | 356,480 | — |
| Equity | Futures Contracts | 2,934,917 | (1,350,751) |
| Interest Rate | Futures Contracts | 2,951,414 | (3,471,245) |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | 9,034,001 | (12,828,581) |
| Interest Rate | Cleared Swap Agreements | 1,190,837 | (688,965) |
| Credit | Uncleared Swap Agreements | — | (11,683) |
| Total | | $16,672,284 | $(18,351,225) |
(a) The value of purchased options outstanding is included in investments in unaffiliated issuers, at value, within the Statement of Assets and Liabilities. Values presented in this table for futures contracts and cleared swap agreements correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts and cleared swap agreements is reported separately within the Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Swap
Agreements | Forward Foreign
Currency
Exchange
Contracts | Unaffiliated Issuers
(Purchased
Options) | Written
Options |
| Interest Rate | $9,033,678 | $(5,759,681) | $— | $946,725 | $— |
| Foreign Exchange | — | — | 11,066,117 | (97,374) | — |
| Credit | — | (4,317) | — | 132,045 | 121,987 |
| Equity | 16,724,070 | — | — | 62,039 | — |
| Total | $25,757,748 | $(5,763,998) | $11,066,117 | $1,043,435 | $121,987 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Swap
Agreements | Forward Foreign
Currency
Exchange
Contracts | Unaffiliated Issuers
(Purchased
Options) |
| Interest Rate | $(1,223,766) | $2,074,978 | $— | $(505,254) |
| Foreign Exchange | — | — | (2,980,478) | — |
| Equity | 2,020,480 | — | — | (194,357) |
| Credit | — | (16,329) | — | 47,688 |
| Total | $796,714 | $2,058,649 | $(2,980,478) | $(651,923) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
The following table presents the fund's derivative assets and liabilities (by type) on a gross basis as of December 31, 2022:
| Gross Amounts of: | Derivative Assets | Derivative Liabilities |
| Futures Contracts (a) | $146,864 | $— |
| Uncleared Swaps, at value | — | (11,683) |
| Cleared Swap Agreements (a) | — | (102,118) |
| Forward Foreign Currency Exchange Contracts | 9,034,001 | (12,828,581) |
| Purchased Options | 561,115 | — |
Total Gross Amount of Derivative Assets
and Liabilities Presented in the
Statement of Assets & Liabilities | $9,741,980 | $(12,942,382) |
Less: Derivatives Assets and Liabilities Not Subject
to a Master Netting Agreement or
Similar Arrangement | 5,659,473 | (5,215,627) |
Total Gross Amount of Derivative Assets and
Liabilities Subject to a Master Netting Agreement or
Similar Arrangement | $4,082,507 | $(7,726,755) |
(a) The amount presented here represents the fund's current day net variation margin for futures contracts and for cleared swap agreements. This amount, which is recognized within the Statement of Assets and Liabilities, differs from the fair value of the futures contracts and cleared swap agreements which is presented in the tables that follow the Portfolio of Investments.
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
The following table presents (by counterparty) the fund's derivative assets net of amounts available for offset under Master Netting Agreements (or similar arrangements) and net of the related collateral held by the fund at December 31, 2022:
| | | Amounts Not Offset in the
Statement of Assets & Liabilities |
| | Gross Amount
of Derivative
Assets Subject
to a Master
Netting
Agreement (or
Similar
Arrangement)
by Counterparty | Financial
Instruments
Available
for Offset | Financial
Instruments
Collateral
Received (b) | Cash
Collateral
Received (b) | Net Amount
of Derivative
Assets by
Counterparty |
| Barclays Bank PLC | $62,796 | $(62,796) | $— | $— | $— |
| BNP Paribas S.A. | 611,884 | — | (404,294) | — | 207,590 |
| Brown Brothers Harriman | 377,006 | (377,006) | — | — | — |
| Citibank N.A. | 249,616 | (249,616) | — | — | — |
| Deutsche Bank AG | 351,774 | (344,715) | — | — | 7,059 |
| Goldman Sachs International | 830,838 | (830,838) | — | — | — |
| JPMorgan Chase Bank N.A. | 441,142 | (441,142) | — | — | — |
| Merrill Lynch International | 572,452 | (482,817) | — | — | 89,635 |
| Morgan Stanley Capital Services, Inc. | 584,999 | (303,037) | — | (250,000) | 31,962 |
| Total | $4,082,507 | $(3,091,967) | $(404,294) | $(250,000) | $336,246 |
The following table presents (by counterparty) the fund's derivative liabilities net of amounts available for offset under Master Netting Agreements (or similar arrangements) and net of the related collateral pledged by the fund at December 31, 2022:
| | | Amounts Not Offset in the
Statement of Assets & Liabilities |
| | Gross Amount
of Derivative
Liabilities Subject
to a Master
Netting
Agreement (or
Similar
Arrangement)
by Counterparty | Financial
Instruments
Available
for Offset | Financial
Instruments
Collateral
Pledged (b) | Cash
Collateral
Pledged (b) | Net Amount
of Derivative
Liabilities by
Counterparty |
| Barclays Bank PLC | $(299,614) | $62,796 | $— | $— | $(236,818) |
| Brown Brothers Harriman | (2,240,751) | 377,006 | — | — | (1,863,745) |
| Citibank N.A. | (1,372,293) | 249,616 | — | 1,110,000 | (12,677) |
| Deutsche Bank AG | (344,715) | 344,715 | — | — | — |
| Goldman Sachs International | (1,668,241) | 830,838 | — | 837,403 | — |
| JPMorgan Chase Bank N.A. | (1,015,287) | 441,142 | — | 470,000 | (104,145) |
| Merrill Lynch International | (482,817) | 482,817 | — | — | — |
| Morgan Stanley Capital Services, Inc. | (303,037) | 303,037 | — | — | — |
| Total | $(7,726,755) | $3,091,967 | $— | $2,417,403 | $(2,217,385) |
(b) The amount presented here may be less than the total amount of collateral (received)/pledged as the excess collateral (received)/pledged is not shown for purposes of this presentation.
Written Options — In exchange for a premium, the fund wrote put options on securities for which it anticipated the price would increase. At the time the option was written, the fund believed the premium received exceeded the potential loss that could result from adverse price changes in the options’ underlying securities. In a written option, the fund as the option writer grants the buyer the right to purchase from, or sell to, the fund a specified number of shares or units of a particular security, currency or index at a specified price within a specified period of time.
The premium received is initially recorded as a liability in the Statement of Assets and Liabilities. The option is subsequently marked-to-market daily with the difference between the premium received and the market value of the written option being
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
recorded as unrealized appreciation or depreciation. When a written option expires, the fund realizes a gain equal to the amount of the premium received. The difference between the premium received and the amount paid on effecting a closing transaction is considered a realized gain or loss. When a written put option is exercised, the premium reduces the cost basis of the security purchased by the fund.
At the initiation of the written option contract, for exchange traded options, the fund is required to deposit securities or cash as collateral with the custodian for the benefit of the broker or directly with the clearing broker, based on the type of option. For uncleared options, the fund may post collateral subject to the terms of an ISDA Master Agreement as generally described above if the market value of the options contract moves against it. The fund, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities underlying the written option. Losses from writing options can exceed the premium received and can exceed the potential loss from an ordinary buy and sell transaction. Although the fund’s market risk may be significant, the maximum counterparty credit risk to the fund is equal to the market value of any collateral posted to the broker. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above.
Purchased Options — The fund purchased call and put options for a premium. Purchased call and put options entitle the holder to buy and sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing call options may hedge against an anticipated increase in the dollar cost of securities or currency to be acquired or increase the fund’s exposure to an underlying instrument. Purchasing put options may hedge against an anticipated decline in the value of portfolio securities or currency or decrease the fund's exposure to an underlying instrument.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased call and put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased call option, the premium paid is added to the cost of the security or financial instrument purchased. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.
Whether or not the option is exercised, the fund's maximum risk of loss from purchasing an option is the amount of premium paid. All option contracts involve credit risk if the counterparty to the option contract fails to perform. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Swap Agreements — The fund entered into swap agreements which generally involve a periodic exchange of cash payments on a net basis, at specified intervals or upon the occurrence of specified events, between the fund and a counterparty. Certain swap agreements may be entered into as a bilateral contract (“uncleared swaps”) while others are required to be centrally cleared (“cleared swaps”).
Both cleared and uncleared swap agreements are marked to market daily. The value of uncleared swap agreements is reported in the Statement of Assets and Liabilities as “Uncleared swaps, at value” which includes any related interest accruals to be paid or received by the fund. For cleared swaps, payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the cleared swap, such that only the current day net receivable or payable for variation margin is reported in the Statement of Assets and Liabilities.
For both cleared and uncleared swaps, premiums paid or received at the inception of the agreements are amortized over the term of the agreement as realized gain or loss on swap agreements in the Statement of Operations. The periodic exchange of net cash payments, as well as any liquidation payment received or made upon early termination, are recorded as a realized gain or loss on swap agreements in the Statement of Operations. The change in unrealized appreciation or depreciation on swap agreements in the Statement of Operations reflects the aggregate change over the reporting period in the value of swaps net of any unamortized premiums paid or received.
Risks related to swap agreements include the possible lack of a liquid market, unfavorable market and interest rate movements of the underlying instrument and the failure of the counterparty to perform under the terms of the agreements. The fund's maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from/paid to the counterparty over the contract's remaining life, to the extent that the amount is positive. To address counterparty risk, uncleared swap agreements are limited to only highly-rated counterparties. Risk is further reduced by having an ISDA Master Agreement (“ISDA”) between the fund and the counterparty and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA. The fund's counterparty risk due to cleared swaps is mitigated by the fact that the clearinghouse is the true counterparty to the transaction and the regulatory requirement safeguards in the event of a clearing broker bankruptcy.
The fund entered into interest rate swap agreements in order to manage its exposure to interest rate fluctuations. Interest rate swap agreements involve the periodic exchange of cash flows, between the fund and a counterparty, based on the difference between two interest rates applied to a notional principal amount. The two interest rates exchanged may either be a fixed rate and a floating rate or two floating rates based on different indices.
The fund entered into credit default swap agreements in order to manage its exposure to the market or certain sectors of the market, to reduce its credit risk exposure to defaults of corporate and sovereign issuers or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. A credit default swap’s reference obligation may be either a single security or a basket of securities issued by corporate or sovereign issuers. At the inception of the agreement, the protection buyer may make an upfront payment to or receive an upfront payment from the protection seller. Over the term of the agreement, the protection buyer will make a series of periodic payments to the protection seller based on a fixed percentage applied to the agreement’s notional amount in exchange for a promise from the protection seller to make a specific payment should a defined credit event occur with respect to the reference 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. If a defined credit event occurs, the protection buyer will either (i) receive from the protection seller an amount equal to the agreement’s notional amount and deliver the reference obligation (i.e., physical settlement) or (ii) receive from the protection seller a net settlement of cash equal to the agreement’s notional amount less the recovery value of the reference obligation. Upon determination of the final price for the reference obligation (or upon delivery of the reference obligation in the case of physical settlement), the difference between the recovery value of the reference obligation and the agreement’s notional amount is recorded as realized gain or loss on swap agreements in the Statement of Operations.
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
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 December 31, 2022 is disclosed in the footnotes to the Portfolio of Investments. 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 December 31, 2022, 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 EUR 640,000 less the value of the agreements’ related deliverable obligations as 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.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At December 31, 2022, there were no securities on loan or collateral outstanding.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Some securities may be purchased or sold on an extended settlement basis, which means that the receipt or delivery of the securities by the fund and related payments occur at a future date, usually beyond the customary settlement period. Interest income is recorded on the accrual basis.
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. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
The fund may purchase or sell mortgage-backed securities on a “To Be Announced” (TBA) basis. A TBA transaction is subject to extended settlement and typically does not designate the actual security to be delivered, but instead includes an approximate principal amount. The price of the TBA security and the date that it will be settled are fixed at the time the transaction is negotiated. The value of the security varies with market fluctuations and no interest accrues to the fund until settlement takes place. TBA purchase and sale commitments are held at carrying amount, which approximates fair value and are categorized as level 2 within the fair value hierarchy and included in TBA purchase commitments in the Statement of Assets and Liabilities. Losses may arise as a result of changes in the value of the TBA investment prior to settlement date or due to counterparty non-performance.
The fund may also enter into mortgage dollar rolls, typically TBA dollar rolls, in which the fund sells TBA mortgage-backed securities to financial institutions and simultaneously agrees to repurchase similar (same issuer, type and coupon) securities at a later date at an agreed-upon price. During the period between the sale and repurchase, the fund will not be entitled to receive interest and principal payments on the securities sold. The fund accounts for dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. Dollar roll transactions involve the risk that the market value of the securities that the fund is required to purchase may decline below the agreed upon repurchase price of those securities.
To mitigate the counterparty credit risk on TBA transactions, mortgage dollar rolls, and other types of forward settling mortgage-backed and asset-backed security transactions, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the MSFTA could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
For mortgage-backed and asset-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund's collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to amortization and accretion of debt securities, wash sale loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $8,555,099 | $10,579,419 |
| Long-term capital gains | 29,587,183 | 18,475,329 |
| Total distributions | $38,142,282 | $29,054,748 |
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/22 | |
| Cost of investments | $391,695,212 |
| Gross appreciation | 48,868,683 |
| Gross depreciation | (38,307,042) |
| Net unrealized appreciation (depreciation) | $10,561,641 |
| Undistributed ordinary income | 658,191 |
| Undistributed long-term capital gain | 14,804,383 |
| Other temporary differences | 15,542 |
| Total distributable earnings (loss) | $26,039,757 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $3,004,045 | | $2,213,951 |
| Service Class | 35,138,237 | | 26,840,797 |
| Total | $38,142,282 | | $29,054,748 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $300 million | 0.75% |
| In excess of $300 million and up to $2.5 billion | 0.675% |
| In excess of $2.5 billion | 0.65% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $62,542, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.71% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.76% of average daily net assets for the Initial Class shares and 1.01% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this reduction amounted to $255,047, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
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 year ended December 31, 2022, the fee was $10,878, which equated to 0.0024% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $294.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0175% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended December 31, 2022, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $31,592 and $10,775, respectively. The sales transactions resulted in net realized gains (losses) of $4,739.
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than purchased options with an expiration date of less than one year from the time of purchase and short-term obligations, were as follows:
| | Purchases | Sales |
| U.S. Government securities | $60,259,271 | $60,175,292 |
| Non-U.S. Government securities | 325,764,620 | 362,971,893 |
(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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 55,962 | $768,600 | | 69,401 | $1,081,967 |
| Service Class | 281,584 | 3,761,654 | | 734,621 | 11,362,268 |
| | 337,546 | $4,530,254 | | 804,022 | $12,444,235 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 232,691 | $3,004,045 | | 143,205 | $2,213,951 |
| Service Class | 2,777,726 | 35,138,237 | | 1,770,501 | 26,840,797 |
| | 3,010,417 | $38,142,282 | | 1,913,706 | $29,054,748 |
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares reacquired | | | | | |
| Initial Class | (306,796) | $(4,248,931) | | (419,823) | $(6,649,980) |
| Service Class | (5,462,051) | (73,594,103) | | (4,618,366) | (71,650,798) |
| | (5,768,847) | $(77,843,034) | | (5,038,189) | $(78,300,778) |
| Net change | | | | | |
| Initial Class | (18,143) | $(476,286) | | (207,217) | $(3,354,062) |
| Service Class | (2,402,741) | (34,694,212) | | (2,113,244) | (33,447,733) |
| | (2,420,884) | $(35,170,498) | | (2,320,461) | $(36,801,795) |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $2,263 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $12,950,052 | $342,940,927 | $347,357,222 | $(3,769) | $719 | $8,530,707 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $235,996 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a
MFS Global Tactical Allocation Portfolio
Notes to Financial Statements - continued
result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The fund invests in securities and/or derivative instruments that are economically tied to Russia and/or Ukraine. Escalation of the conflict between Russia and Ukraine in late February 2022 caused market volatility and disruption in the tradability of Russian securities, including closure of the local securities market, temporary restriction on securities sales by non-residents, and disruptions to clearance and payment systems. To the extent that the fund is unable to sell securities, whether due to market constraints or to the sanctions imposed on Russia by the United States and other countries, those securities are considered illiquid and the value of those securities reflects their illiquid classification. Management continues to monitor these events and to evaluate the related impacts on fund performance.
MFS Global Tactical Allocation Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Global Tactical Allocation Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Global Tactical Allocation Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Global Tactical Allocation Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS Global Tactical Allocation Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS Global Tactical Allocation Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Pilar Gomez-Bravo
Steven Gorham
Andy Li
Johnathan Munko
Benjamin Nastou
Henry Peabody
Jonathan Sage
Natalie Shapiro
Erich Shigley
David Shindler
Robert Spector
Erik Weisman | |
MFS Global Tactical Allocation Portfolio
Board Review of Investment Advisory Agreement
MFS Global Tactical Allocation Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 5th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 5th quintile for each of the one- and three-year periods ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
The Trustees expressed continued concern to MFS about the substandard investment performance of the Fund. In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year, as to MFS’ efforts to improve the Fund’s performance. In addition, the Trustees requested that they receive a separate update on the Fund’s performance at each of their regular meetings. After reviewing these and related factors, the Trustees concluded, within the context
MFS Global Tactical Allocation Portfolio
Board Review of Investment Advisory Agreement - continued
of their overall conclusions regarding the investment advisory agreement, that MFS’ responses and efforts and plans to improve investment performance were sufficient to support approval of the continuance of the investment advisory agreement for an additional one-year period, but that they would continue to closely monitor the performance of the Fund.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was higher than the Broadridge expense group median and the Fund’s total expense ratio was approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $300 million and $2.5 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS Global Tactical Allocation Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $32,546,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 20.83% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® Variable Insurance Trust II
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
Portfolio structure at value (v)
Portfolio structure reflecting equivalent exposure of derivative positions (i)
Fixed income sectors (i)
| U.S. Treasury Securities | 43.1% |
| Investment Grade Corporates | 34.9% |
| Collateralized Debt Obligations | 16.6% |
| High Yield Corporates | 7.6% |
| Emerging Markets Bonds | 4.7% |
| Municipal Bonds | 4.3% |
| Commercial Mortgage-Backed Securities | 3.1% |
| Asset-Backed Securities | 1.1% |
| U.S. Government Agencies | 0.1% |
| Mortgage-Backed Securities | 0.1% |
Composition including fixed income credit quality (a)(i)
| AAA | 2.5% |
| AA | 4.3% |
| A | 17.1% |
| BBB | 35.2% |
| BB | 8.2% |
| B | 2.4% |
| CCC | 1.1% |
| D (o) | 0.0% |
| U.S. Government | 27.1% |
| Federal Agencies | 0.1% |
| Not Rated | 17.6% |
| Non-Fixed Income (o) | 0.0% |
| Cash & Cash Equivalents | 0.5% |
| Other (q) | (16.1)% |
Portfolio facts
| Average Duration (d) | 6.1 |
| Average Effective Maturity (m) | 7.6 yrs. |
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. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives), ETFs, and/or commodity-linked derivatives. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. The Average Duration calculation reflects the impact of the equivalent exposure of derivative positions, if any. |
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (p) | For purposes of the presentation of Portfolio structure at value, Other includes the direct and indirect equivalent exposure from currency derivatives and may be negative. |
| (q) | For purposes of this presentation, Other includes the direct and indirect equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative. |
| (v) | For purposes of this presentation, market value of fixed income and/or equity derivatives, if any, is included in Cash & Cash Equivalents. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
The fund invests a portion of its assets in the MFS High Yield Pooled Portfolio. Percentages include the indirect exposure to the underlying holdings, including investments in money market funds and Other, of the MFS High Yield Pooled Portfolio and not the direct exposure from investing in the MFS High Yield Pooled Portfolio itself.
Cash & Cash Equivalents includes any direct exposure to cash, direct and indirect exposure to investments in money market funds, cash equivalents, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s direct cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Income Portfolio (fund) provided a total return of -13.71%, while Service Class shares of the fund provided a total return of -13.85%. These compare with a return of -13.01% over the same period for the fund’s benchmark, the Bloomberg U.S. Aggregate Bond Index.
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Factors Affecting Performance
Relative to the Bloomberg U.S. Aggregate Bond Index, the combination of the fund’s allocation to the collateralized mortgage obligation (CMO) and municipal bond sectors, for which the benchmark has no exposure, its underweight allocation to the treasury sector, and overweight allocation to the industrials sector, hindered relative returns.
Security selection further detracted from the fund’s relative performance over the reporting period. From a sector perspective, bond selection within the industrials sector held back relative returns. From a credit quality perspective, selection within the 'BBB' rated(r) quality segment also weakened relative returns.
Conversely, from a sector perspective, the fund’s underweight allocation to the mortgage-backed securities (MBS) agency fixed rate sector supported relative performance. From a credit quality perspective, the fund’s allocation to “BB” rated bonds, for which the benchmark has no exposure, also helped relative returns. The fund's shorter duration(d) stance was another contributor to relative performance as interest rates rose during the reporting period.
Respectfully,
Portfolio Manager(s)
Neeraj Arora, Philipp Burgener, David Cole, Alexander Mackey, Joshua Marston, and Michael Skatrud
| (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. |
| (r) | Securities rated “BBB”, “Baa”, or higher are considered investment grade; securities rated “BB”, “Ba”, or below are considered non-investment grade. Ratings are assigned to underlying securities utilizing ratings from Moody's, Fitch, and Standard & Poor's 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 |
Management Review - continued
lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). For securities that are not rated by any of the rating agencies, the security is considered Not Rated.
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 5/06/98 | (13.71)% | 0.73% | 2.06% |
| Service Class | 8/24/01 | (13.85)% | 0.50% | 1.80% |
Comparative benchmark(s)
| Bloomberg U.S. Aggregate Bond Index (f) | (13.01)% | 0.02% | 1.06% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Bloomberg U.S. Aggregate Bond Index(a) – a market capitalization-weighted index that measures the performance of the U.S. investment-grade, fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities with at least one year to final maturity.
It is not possible to invest directly in an index.
| (a) | Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
Performance Summary – continued
Notes to Performance Summary
Performance information prior to December 2, 2019 reflects time periods when the fund had (i) a policy permitting the fund to invest up to 100% of its assets in below investment grade quality debt instruments and (ii) a policy permitting the fund to invest in equity securities as a principal investment strategy. The fund’s investment policies and strategies changed effective December 2, 2019.
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the MFS High Yield Pooled Portfolio, an underlying MFS Pooled Portfolio in which the fund invests. MFS Pooled Portfolios are mutual funds advised by MFS that do not pay management fees to MFS but do incur investment and operating costs. If these transactional and indirect costs were included, your costs would have been higher.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.75% | $1,000.00 | $976.39 | $3.74 |
| Hypothetical (h) | 0.75% | $1,000.00 | $1,021.42 | $3.82 |
| Service Class | Actual | 1.00% | $1,000.00 | $976.00 | $4.98 |
| Hypothetical (h) | 1.00% | $1,000.00 | $1,020.16 | $5.09 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 93.7% |
| Aerospace & Defense – 0.6% |
| Boeing Co., 2.95%, 2/01/2030 | | $ | 43,000 | $ 36,418 |
| Boeing Co., 5.705%, 5/01/2040 | | | 34,000 | 32,421 |
| Boeing Co., 5.805%, 5/01/2050 | | | 121,000 | 112,188 |
| | | | | $181,027 |
| Asset-Backed & Securitized – 20.7% |
| Allegro CLO Ltd., 2014-1RA, “C”, FLR, 7.277% (LIBOR - 3mo. + 3%), 10/21/2028 (n) | | $ | 250,000 | $ 232,610 |
| Arbor Realty Trust, Inc., CLO, 2020-FL1, “D”, FLR, 6.9% (LIBOR - 1mo. + 2.45%), 2/15/2035 (n) | | | 232,000 | 214,321 |
| Arbor Realty Trust, Inc., CLO, 2021-FL1, “D”, FLR, 7.22% (LIBOR - 1mo. + 2.95%), 12/15/2035 (n) | | | 100,000 | 92,545 |
| Arbor Realty Trust, Inc., CLO, 2021-FL3, “C”, FLR, 6.168% (LIBOR - 1mo. + 1.85%), 8/15/2034 (n) | | | 200,000 | 180,507 |
| Arbor Realty Trust, Inc., CLO, 2021-FL3, “D”, FLR, 6.517% (LIBOR - 1mo. + 2.2%), 8/15/2034 (n) | | | 100,000 | 92,893 |
| Arbor Realty Trust, Inc., CLO, 2021-FL4, “D”, FLR, 7.217% (LIBOR - 1mo. + 2.9%), 11/15/2036 (n) | | | 256,500 | 237,093 |
| AREIT 2019-CRE3 Trust, “D”, FLR, 7.09% (LIBOR - 1mo. + 2.65%), 9/14/2036 (n) | | | 271,000 | 251,415 |
| Babson CLO Ltd., 2013-IIA, “BR”, FLR, 5.492% (LIBOR - 3mo. + 1.25%), 1/20/2028 (n) | | | 250,000 | 243,873 |
| Bayview Financial Revolving Mortgage Loan Trust, FLR, 5.988% (LIBOR - 1mo. + 1.6%), 12/28/2040 (n) | | | 55,329 | 68,001 |
| BSPRT 2019-FL5 Issuer Ltd., “C”, FLR, 6.317% (LIBOR - 1mo. + 2%), 5/15/2029 (n) | | | 245,000 | 238,101 |
| Business Jet Securities LLC, 2020-1A, “A”, 2.981%, 11/15/2035 (n) | | | 42,763 | 38,950 |
| Capital Automotive, 2020-1A, “B1”, REIT, 4.17%, 2/15/2050 (n) | | | 110,227 | 100,494 |
| CHCP 2021-FL1 Ltd., “B”, FLR, 6.09% (LIBOR - 1mo. + 1.65%), 2/15/2038 (n) | | | 250,000 | 236,451 |
| CHCP 2021-FL1 Ltd., “C”, FLR, 6.54% (LIBOR - 1mo. + 2.1%), 2/15/2038 (n) | | | 100,000 | 92,535 |
| CLNC 2019-FL1 Ltd., “C”, FLR, 6.839% (LIBOR - 1mo. + 2.4%), 8/20/2035 (n) | | | 265,000 | 246,856 |
| Commercial Equipment Finance 2021-A, LLC, “A”, 2.05%, 2/16/2027 (n) | | | 91,128 | 87,759 |
| Commercial Mortgage Trust, 2015-PC1, “A5”, 3.902%, 7/10/2050 | | | 346,107 | 331,573 |
| Crest Ltd., CDO, 7%, (0.001% cash or 7% PIK) 1/28/2040 (a)(p) | | | 880,123 | 9 |
| Cutwater 2015-1A Ltd., “BR”, FLR, 5.879% (LIBOR - 3mo. + 1.8%), 1/15/2029 (n) | | | 250,000 | 244,922 |
| DT Auto Owner Trust, 2020-1A, “C”, 2.29%, 11/17/2025 (n) | | | 41,835 | 41,667 |
| KREF 2021-FL2 Ltd., “D”, FLR, 6.526% (LIBOR - 1mo. + 2.2%), 2/15/2039 (n) | | | 163,000 | 151,382 |
| LCCM 2021-FL2 Trust, “C”, FLR, 6.467% (LIBOR - 1mo. + 2.15%), 12/13/2038 (n) | | | 100,000 | 94,958 |
| Lehman Brothers Commercial Conduit Mortgage Trust, 0.764%, 2/18/2030 (i) | | | 745 | 0 |
| LoanCore 2018-CRE1 Ltd., “C”, FLR, 6.867% (LIBOR - 1mo. + 2.55%), 5/15/2028 (n) | | | 260,000 | 249,619 |
| LoanCore 2018-CRE1 Ltd., “C”, FLR, 6.267% (LIBOR - 1mo. + 1.95%), 4/15/2034 (n) | | | 219,150 | 214,973 |
| LoanCore 2019-CRE2 Ltd., “D”, FLR, 6.767% (LIBOR - 1mo. + 2.45%), 5/15/2036 (n) | | | 209,000 | 203,669 |
| MF1 2020-FL4 Ltd., “B”, FLR, 7.2% (LIBOR - 1mo. + 2.75%), 11/15/2035 (n) | | | 250,000 | 241,285 |
| MF1 2021-FL6 Ltd., “C”, FLR, 6.176% (LIBOR - 1mo. + 1.85%), 7/16/2036 (n) | | | 247,581 | 231,732 |
| Neuberger Berman CLO Ltd., 2013-15A, “CR2”, FLR, 5.929% (LIBOR - 3mo. + 1.85%), 10/15/2029 (n) | | | 250,000 | 236,161 |
| Oaktree CLO 2019-1A Ltd., “CR”, FLR, 6.674% (LIBOR - 3mo. + 2.35%), 4/22/2030 (n) | | | 263,644 | 246,426 |
| Palmer Square Loan Funding 2020-1A Ltd., “B”, FLR, 6.575% (LIBOR - 3mo. + 1.9%), 2/20/2028 (n) | | | 250,000 | 245,749 |
| Parallel 2015-1A Ltd., “DR”, FLR, 6.792% (LIBOR - 3mo. + 2.55%), 7/20/2027 (n) | | | 250,000 | 248,751 |
| Race Point CLO Ltd., 2013-8A, “CR2”, FLR, 6.725% (LIBOR - 3mo. + 2.05%), 2/20/2030 (n) | | | 250,000 | 236,605 |
| ReadyCap Commercial Mortgage Trust, 2021-FL7, “D”, FLR, 7.338% (LIBOR - 1mo. + 2.95%), 11/25/2036 (n) | | | 120,000 | 110,590 |
| Securitized Term Auto Receivable Trust, 2019-CRTA, “C”, 2.849%, 3/25/2026 (n) | | | 18,315 | 18,201 |
| UBS Commercial Mortgage Trust, 2017-C7, “A4”, 3.679%, 12/15/2050 | | | 155,000 | 142,935 |
| Voya CLO 2012-4A Ltd., “C1R3”, FLR, 7.379% (LIBOR - 3mo. + 3.3%), 10/15/2030 (n) | | | 250,000 | 222,680 |
| | | | | $6,368,291 |
| Broadcasting – 0.6% |
| Discovery, Inc., 4.65%, 5/15/2050 | | $ | 95,000 | $ 65,333 |
| Warnermedia Holdings, Inc., 5.141%, 3/15/2052 (n) | | | 157,000 | 114,134 |
| | | | | $179,467 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Brokerage & Asset Managers – 1.4% |
| Charles Schwab Corp., 5% to 6/01/2027, FLR (CMT - 5yr. + 3.256%) to 6/01/2170 | | $ | 86,000 | $ 78,518 |
| Morgan Stanley Domestic Holdings, Inc., 4.5%, 6/20/2028 | | | 217,000 | 211,010 |
| Raymond James Financial, Inc., 4.65%, 4/01/2030 | | | 134,000 | 129,020 |
| | | | | $418,548 |
| Business Services – 0.5% |
| Global Payments, Inc., 2.9%, 5/15/2030 | | $ | 120,000 | $ 98,324 |
| RELX Capital, Inc., 3%, 5/22/2030 | | | 76,000 | 64,763 |
| | | | | $163,087 |
| Cable TV – 0.5% |
| Charter Communications Operating LLC/Charter Communications Operating Capital Corp., 3.9%, 6/01/2052 | | $ | 176,000 | $ 110,498 |
| Time Warner Cable, Inc., 4.5%, 9/15/2042 | | | 77,000 | 56,372 |
| | | | | $166,870 |
| Computer Software – 0.6% |
| Dell International LLC/EMC Corp., 5.3%, 10/01/2029 | | $ | 149,000 | $ 145,723 |
| Oracle Corp., 6.15%, 11/09/2029 | | | 51,000 | 52,936 |
| | | | | $198,659 |
| Conglomerates – 1.0% |
| Westinghouse Air Brake Technologies Corp., 4.95%, 9/15/2028 | | $ | 304,000 | $ 291,856 |
| Consumer Services – 1.0% |
| Expedia Group, Inc., 3.25%, 2/15/2030 | | $ | 175,000 | $ 148,452 |
| Toll Road Investors Partnership II LP, Capital Appreciation, NPFG, 0%, 2/15/2026 (n) | | | 46,000 | 36,625 |
| Toll Road Investors Partnership II LP, Capital Appreciation, NPFG, 0%, 2/15/2029 (n) | | | 132,000 | 83,924 |
| Toll Road Investors Partnership II LP, Capital Appreciation, NPFG, 0%, 2/15/2031 (n) | | | 46,000 | 25,219 |
| | | | | $294,220 |
| Electronics – 0.9% |
| Broadcom, Inc., 4.3%, 11/15/2032 | | $ | 96,000 | $ 84,609 |
| Broadcom, Inc., 3.187%, 11/15/2036 (n) | | | 245,000 | 175,980 |
| NXP B.V./NXP Funding LLC/NXP USA, Inc., 3.4%, 5/01/2030 | | | 35,000 | 30,245 |
| | | | | $290,834 |
| Emerging Market Quasi-Sovereign – 1.3% |
| Huarong Finance 2019 Co. Ltd. (People's Republic of China), 3.375%, 2/24/2030 | | $ | 200,000 | $ 151,895 |
| Ipoteka Bank (Republic of Uzbekistan), 5.5%, 11/19/2025 | | | 200,000 | 173,400 |
| Petroleos Mexicanos, 5.95%, 1/28/2031 | | | 108,000 | 81,739 |
| | | | | $407,034 |
| Emerging Market Sovereign – 1.2% |
| Dominican Republic, 4.875%, 9/23/2032 (n) | | $ | 150,000 | $ 124,509 |
| Hashemite Kingdom of Jordan, 7.375%, 10/10/2047 | | | 200,000 | 171,241 |
| Republic of Cote d'Ivoire, 4.875%, 1/30/2032 (n) | | EUR | 100,000 | 84,264 |
| | | | | $380,014 |
| Energy - Independent – 1.1% |
| EQT Corp., 5%, 1/15/2029 | | $ | 190,000 | $ 178,364 |
| Leviathan Bond Ltd., 6.75%, 6/30/2030 (n) | | | 175,000 | 164,712 |
| | | | | $343,076 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Energy - Integrated – 0.1% |
| Cenovus Energy, Inc., 3.75%, 2/15/2052 | | $ | 50,000 | $ 35,110 |
| Financial Institutions – 4.0% |
| AerCap Ireland Capital DAC/AerCap Global Aviation Trust, 6.5%, 7/15/2025 | | $ | 150,000 | $ 151,992 |
| AerCap Ireland Capital DAC/AerCap Global Aviation Trust, 3.65%, 7/21/2027 | | | 195,000 | 176,278 |
| Air Lease Corp., 5.85%, 12/15/2027 | | | 232,000 | 231,736 |
| Air Lease Corp., 2.875%, 1/15/2032 | | | 200,000 | 158,886 |
| Avolon Holdings Funding Ltd., 3.25%, 2/15/2027 (n) | | | 195,000 | 166,878 |
| Avolon Holdings Funding Ltd., 2.75%, 2/21/2028 (n) | | | 194,000 | 155,730 |
| Shriram Transport Finance Co. Ltd., 4.4%, 3/13/2024 (n) | | | 200,000 | 192,384 |
| | | | | $1,233,884 |
| Food & Beverages – 1.5% |
| Bacardi Ltd., 5.15%, 5/15/2038 (n) | | $ | 115,000 | $ 103,899 |
| Central America Bottling Co., 5.25%, 4/27/2029 (n) | | | 199,000 | 185,512 |
| PT Indofood CBP Sukses Makmur Tbk, 3.541%, 4/27/2032 | | | 200,000 | 163,063 |
| | | | | $452,474 |
| Gaming & Lodging – 0.8% |
| GLP Capital LP/GLP Financing II, Inc., 4%, 1/15/2030 | | $ | 118,000 | $ 103,346 |
| GLP Capital LP/GLP Financing II, Inc., 4%, 1/15/2031 | | | 45,000 | 38,601 |
| Marriott International, Inc., 4.625%, 6/15/2030 | | | 63,000 | 58,786 |
| Marriott International, Inc., 2.85%, 4/15/2031 | | | 61,000 | 49,397 |
| | | | | $250,130 |
| Insurance – 0.7% |
| Corebridge Financial, Inc., 4.35%, 4/05/2042 (n) | | $ | 20,000 | $ 16,407 |
| Corebridge Financial, Inc., 4.4%, 4/05/2052 (n) | | | 60,000 | 47,555 |
| Corebridge Financial, Inc., 6.875% to 12/15/2027, FLR (CMT - 5yr. + 3.846%) to 12/15/2052 (n) | | | 150,000 | 138,605 |
| | | | | $202,567 |
| Insurance - Health – 0.7% |
| Humana, Inc., 5.875%, 3/01/2033 | | $ | 196,000 | $ 202,331 |
| Insurance - Property & Casualty – 1.9% |
| Allied World Assurance Co. Holdings Ltd., 4.35%, 10/29/2025 | | $ | 191,000 | $ 182,894 |
| Aon Corp., 4.5%, 12/15/2028 | | | 115,000 | 110,919 |
| Fairfax Financial Holdings Ltd., 4.85%, 4/17/2028 | | | 283,000 | 267,461 |
| Fairfax Financial Holdings Ltd., 3.375%, 3/03/2031 | | | 15,000 | 12,290 |
| | | | | $573,564 |
| Machinery & Tools – 0.6% |
| Ashtead Capital, Inc., 5.5%, 8/11/2032 (n) | | $ | 200,000 | $ 191,294 |
| Major Banks – 6.7% |
| Bank of America Corp., 4.271% to 7/23/2028, FLR (LIBOR - 3mo. + 1.31%) to 7/23/2029 | | $ | 61,000 | $ 56,882 |
| Bank of America Corp., 2.572% to 10/20/2031, FLR (SOFR + 1.21%) to 10/20/2032 | | | 415,000 | 325,029 |
| Bank of America Corp., 3.846% to 3/08/2032, FLR (CMT - 1yr. + 2%) to 3/08/2037 | | | 215,000 | 178,033 |
| Bank of New York Mellon Corp., 4.7% to 9/20/2025, FLR (CMT - 5yr. + 4.358%) to 9/20/2070 | | | 200,000 | 192,026 |
| Barclays PLC, 7.437% to 11/02/2032, FLR (CMT - 1yr. + 3.5%) to 11/02/2033 | | | 200,000 | 209,560 |
| Goldman Sachs Group, Inc., 3.102% to 2/24/2032, FLR (SOFR - 1 day + 1.41%) to 2/24/2033 | | | 148,000 | 120,173 |
| HSBC Holdings PLC, 4.7% to 9/09/2031, FLR (CMT - 1yr. + 3.25%) to 9/09/2169 | | | 200,000 | 158,479 |
| JPMorgan Chase & Co., 2.956% to 5/13/2030, FLR (SOFR - 1 day + 2.515%) to 5/13/2031 | | | 81,000 | 66,740 |
| JPMorgan Chase & Co., 3.882% to 7/24/2037, FLR (LIBOR - 3mo. + 1.36%) to 7/24/2038 | | | 83,000 | 68,890 |
| UBS Group AG, 4.375% to 2/10/2031, FLR (CMT - 1yr. + 3.313%) to 8/10/2171 (n) | | | 200,000 | 151,952 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Major Banks – continued |
| Wells Fargo & Co., 3.35% to 3/02/2032, FLR (SOFR - 1 day + 1.5%) to 3/02/2033 | | $ | 429,000 | $ 361,389 |
| Wells Fargo & Co., 3.9% to 3/15/2026, FLR (CMT - 1yr. + 3.453%) to 3/15/2071 | | | 215,000 | 188,182 |
| | | | | $2,077,335 |
| Medical & Health Technology & Services – 2.8% |
| Alcon Finance Corp., 5.75%, 12/06/2052 (n) | | $ | 200,000 | $ 200,360 |
| HCA Healthcare, Inc., 4.625%, 3/15/2052 (n) | | | 343,000 | 266,956 |
| ProMedica Toledo Hospital, “B”, 5.325%, 11/15/2028 | | | 239,000 | 186,683 |
| ProMedica Toledo Hospital, “B”, AGM, 5.75%, 11/15/2038 | | | 89,000 | 83,695 |
| Tower Health, 4.451%, 2/01/2050 | | | 270,000 | 129,751 |
| | | | | $867,445 |
| Metals & Mining – 0.2% |
| Glencore Funding LLC, 2.85%, 4/27/2031 (n) | | $ | 88,000 | $ 72,013 |
| Midstream – 2.9% |
| Cheniere Corpus Christi Holdings LLC, 2.742%, 12/31/2039 | | $ | 81,000 | $ 62,634 |
| Enbridge, Inc., 3.125%, 11/15/2029 | | | 150,000 | 130,778 |
| Enbridge, Inc., 2.5%, 8/01/2033 | | | 170,000 | 130,752 |
| Energy Transfer LP, 5.75%, 2/15/2033 | | | 188,000 | 183,932 |
| MPLX LP, 4.5%, 4/15/2038 | | | 199,000 | 167,631 |
| Plains All American Pipeline LP, 3.8%, 9/15/2030 | | | 135,000 | 117,326 |
| Sabine Pass Liquefaction LLC, 4.5%, 5/15/2030 | | | 53,000 | 49,127 |
| Targa Resources Corp., 4.95%, 4/15/2052 | | | 82,000 | 64,871 |
| | | | | $907,051 |
| Mortgage-Backed – 0.1% | |
| Fannie Mae, 6.5%, 4/01/2032 | | $ | 8,584 | $ 8,886 |
| Fannie Mae, 3%, 2/25/2033 (i) | | | 33,755 | 3,114 |
| Fannie Mae, 5.5%, 9/01/2034 | | | 3,739 | 3,847 |
| | | | | $15,847 |
| Municipals – 4.3% |
| Bridgeview, IL, Stadium and Redevelopment Projects, Taxable, AAC, 5.14%, 12/01/2036 | | $ | 195,000 | $ 173,025 |
| Escambia County, FL, Health Facilities Authority Rev., Taxable (Baptist Health Care Corp.), “B”, AGM, 3.607%, 8/15/2040 | | | 270,000 | 203,683 |
| New Jersey Economic Development Authority State Pension Funding Rev., Capital Appreciation, Taxable, “B”, AGM, 0%, 2/15/2023 | | | 350,000 | 348,087 |
| New Jersey Economic Development Authority State Pension Funding Rev., Taxable, “A”, NPFG, 7.425%, 2/15/2029 | | | 177,000 | 190,541 |
| Port Beaumont, TX, Industrial Development Authority Facility Rev., Taxable (Jefferson Gulf Coast Energy Project), “B”, 4.1%, 1/01/2028 (n) | | | 245,000 | 199,243 |
| Puerto Rico Electric Power Authority Rev., “A”, 5%, 7/01/2042 (a)(d) | | | 5,000 | 3,650 |
| Puerto Rico Electric Power Authority Rev., “ZZ”, 5%, 7/01/2018 (a)(d) | | | 75,000 | 54,000 |
| Puerto Rico Sales Tax Financing Corp., Restructured Sales Tax Rev., Capital Appreciation, Taxable, “2019A-1”, 4.55%, 7/01/2040 | | | 174,000 | 137,029 |
| | | | | $1,309,258 |
| Other Banks & Diversified Financials – 1.6% |
| Discover Financial Services, 6.7%, 11/29/2032 | | $ | 161,000 | $ 163,653 |
| Macquarie Group Ltd., 4.442% to 6/21/2032, FLR (SOFR - 1 day + 2.405%) to 6/21/2033 (n) | | | 376,000 | 326,328 |
| | | | | $489,981 |
| Real Estate - Apartment – 0.2% |
| Mid-America Apartments LP, 2.75%, 3/15/2030 | | $ | 82,000 | $ 69,725 |
| Real Estate - Office – 0.5% |
| Boston Properties Ltd. LP, REIT, 2.55%, 4/01/2032 | | $ | 209,000 | $ 158,893 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Retailers – 0.3% |
| Alimentation Couche-Tard, Inc., 2.95%, 1/25/2030 (n) | | $ | 65,000 | $ 55,085 |
| Nordstrom, Inc., 2.3%, 4/08/2024 | | | 51,000 | 47,695 |
| | | | | $102,780 |
| Specialty Stores – 0.7% |
| DICK'S Sporting Goods, 3.15%, 1/15/2032 | | $ | 274,000 | $ 213,854 |
| Telecommunications - Wireless – 1.5% |
| American Tower Corp., REIT, 3.55%, 7/15/2027 | | $ | 60,000 | $ 55,560 |
| Cellnex Finance Co. S.A., 3.875%, 7/07/2041 (n) | | | 200,000 | 136,800 |
| Crown Castle, Inc., REIT, 4.15%, 7/01/2050 | | | 75,000 | 58,129 |
| Rogers Communications, Inc., 4.35%, 5/01/2049 | | | 223,000 | 170,494 |
| Rogers Communications, Inc., 4.55%, 3/15/2052 (n) | | | 58,000 | 44,967 |
| | | | | $465,950 |
| Tobacco – 1.2% |
| B.A.T. Capital Corp., 3.215%, 9/06/2026 | | $ | 231,000 | $ 213,104 |
| Philip Morris International, Inc., 5.75%, 11/17/2032 | | | 146,000 | 148,836 |
| | | | | $361,940 |
| U.S. Government Agencies and Equivalents – 0.1% |
| Small Business Administration, 4.77%, 4/01/2024 | | $ | 3,002 | $ 2,958 |
| Small Business Administration, 4.99%, 9/01/2024 | | | 2,614 | 2,569 |
| Small Business Administration, 4.86%, 1/01/2025 | | | 3,584 | 3,581 |
| Small Business Administration, 4.625%, 2/01/2025 | | | 6,293 | 6,157 |
| Small Business Administration, 5.11%, 8/01/2025 | | | 4,643 | 4,599 |
| | | | | $19,864 |
| U.S. Treasury Obligations – 26.9% |
| U.S. Treasury Bonds, 1.375%, 11/15/2040 | | $ | 1,000,000 | $ 650,117 |
| U.S. Treasury Bonds, 2.375%, 2/15/2042 | | | 1,200,000 | 916,219 |
| U.S. Treasury Bonds, 2.25%, 2/15/2052 | | | 175,000 | 121,693 |
| U.S. Treasury Notes, 0.375%, 10/31/2023 (f) | | | 625,000 | 602,710 |
| U.S. Treasury Notes, 2.25%, 3/31/2024 | | | 700,000 | 679,164 |
| U.S. Treasury Notes, 4.25%, 9/30/2024 | | | 1,000,000 | 994,883 |
| U.S. Treasury Notes, 0.25%, 9/30/2025 | | | 500,000 | 448,945 |
| U.S. Treasury Notes, 0.875%, 6/30/2026 | | | 2,650,000 | 2,369,680 |
| U.S. Treasury Notes, 2.5%, 3/31/2027 | | | 1,625,000 | 1,524,898 |
| | | | | $8,308,309 |
| Utilities - Electric Power – 2.0% |
| American Electric Power Co., Inc., 5.95%, 11/01/2032 | | $ | 98,000 | $ 102,324 |
| Enel Finance International N.V., 7.5%, 10/14/2032 (n) | | | 200,000 | 211,353 |
| FirstEnergy Corp., 5.35%, 7/15/2047 | | | 92,000 | 82,137 |
| Jersey Central Power & Light Co., 2.75%, 3/01/2032 (n) | | | 34,000 | 27,456 |
| Pacific Gas & Electric Co., 3%, 6/15/2028 | | | 44,000 | 38,038 |
| Pacific Gas & Electric Co., 3.5%, 8/01/2050 | | | 250,000 | 155,279 |
| | | | | $616,587 |
| Total Bonds (Identified Cost, $32,348,694) | | $28,881,169 |
| Investment Companies (h) – 5.7% |
| Bond Funds – 5.0% |
| MFS High Yield Pooled Portfolio (v) | | | 200,393 | $ 1,563,069 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Investment Companies (h) – continued |
| Money Market Funds – 0.7% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) | | | 212,752 | $ 212,816 |
| Total Investment Companies (Identified Cost, $1,950,903) | $1,775,885 |
| Other Assets, Less Liabilities – 0.6% | | 177,640 |
| Net Assets – 100.0% | $30,834,694 |
| (a) | Non-income producing security. | | | |
| (d) | In default. | | | |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $1,775,885 and $28,881,169, respectively. | | | |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. | | | |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $9,593,918, representing 31.1% of net assets. | | | |
| (p) | Payment-in-kind (PIK) security for which interest income may be received in additional securities and/or cash. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| AAC | Ambac Assurance Corp. |
| AGM | Assured Guaranty Municipal |
| CDO | Collateralized Debt Obligation |
| CLO | Collateralized Loan Obligation |
| CMT | Constant Maturity Treasury |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| LIBOR | London Interbank Offered Rate |
| NPFG | National Public Finance Guarantee Corp. |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| EUR | Euro |
| Derivative Contracts at 12/31/22 |
| Forward Foreign Currency Exchange Contracts |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Liability Derivatives |
| USD | 79,909 | EUR | 81,101 | Barclays Bank PLC | 1/20/2023 | $(6,999) |
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Note 2 yr | Long | USD | 9 | $1,845,703 | March – 2023 | $1,333 |
Portfolio of Investments – continued
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives - continued |
| Interest Rate Futures - continued |
| U.S. Treasury Ultra Note 10 yr | Short | USD | 6 | $709,687 | March – 2023 | $9,018 |
| | | | | | | $10,351 |
| Liability Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Note 5 yr | Long | USD | 17 | $1,834,805 | March – 2023 | $(1,919) |
| U.S. Treasury Ultra Bond | Long | USD | 15 | 2,014,687 | March – 2023 | (35,029) |
| | | | | | | $(36,948) |
At December 31, 2022, the fund had liquid securities with an aggregate value of $124,400 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $32,348,694) | $28,881,169 |
| Investments in affiliated issuers, at value (identified cost, $1,950,903) | 1,775,885 |
| Receivables for | |
| Investments sold | 412 |
| Fund shares sold | 84 |
| Interest | 274,389 |
| Receivable from investment adviser | 6,677 |
| Other assets | 399 |
| Total assets | $30,939,015 |
| Liabilities | |
| Payables for | |
| Forward foreign currency exchange contracts | $6,999 |
| Net daily variation margin on open futures contracts | 9,947 |
| Fund shares reacquired | 2,251 |
| Payable to affiliates | |
| Administrative services fee | 142 |
| Shareholder servicing costs | 31 |
| Distribution and/or service fees | 56 |
| Payable for independent Trustees' compensation | 48 |
| Accrued expenses and other liabilities | 84,847 |
| Total liabilities | $104,321 |
| Net assets | $30,834,694 |
| Net assets consist of | |
| Paid-in capital | $37,013,055 |
| Total distributable earnings (loss) | (6,178,361) |
| Net assets | $30,834,694 |
| Shares of beneficial interest outstanding | 3,819,066 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $28,129,375 | 3,482,035 | $8.08 |
| Service Class | 2,705,319 | 337,031 | 8.03 |
See Notes to Financial Statements
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Interest | $1,123,701 |
| Dividends from affiliated issuers | 146,774 |
| Other | 2,013 |
| Total investment income | $1,272,488 |
| Expenses | |
| Management fee | $172,050 |
| Distribution and/or service fees | 8,945 |
| Shareholder servicing costs | 8,746 |
| Administrative services fee | 17,500 |
| Independent Trustees' compensation | 3,000 |
| Custodian fee | 12,799 |
| Shareholder communications | 7,855 |
| Audit and tax fees | 86,828 |
| Legal fees | 181 |
| Miscellaneous | 34,778 |
| Total expenses | $352,682 |
| Reduction of expenses by investment adviser | (85,290) |
| Net expenses | $267,392 |
| Net investment income (loss) | $1,005,096 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(1,020,491) |
| Affiliated issuers | (418,063) |
| Futures contracts | (1,075,895) |
| Forward foreign currency exchange contracts | 51,184 |
| Foreign currency | (123) |
| Net realized gain (loss) | $(2,463,388) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(3,741,127) |
| Affiliated issuers | (86,218) |
| Futures contracts | (101,003) |
| Forward foreign currency exchange contracts | (66,071) |
| Translation of assets and liabilities in foreign currencies | 33,158 |
| Net unrealized gain (loss) | $(3,961,261) |
| Net realized and unrealized gain (loss) | $(6,424,649) |
| Change in net assets from operations | $(5,419,553) |
See Notes to Financial Statements
| 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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $1,005,096 | $983,716 |
| Net realized gain (loss) | (2,463,388) | (49,687) |
| Net unrealized gain (loss) | (3,961,261) | (784,544) |
| Change in net assets from operations | $(5,419,553) | $149,485 |
| Total distributions to shareholders | $(1,473,035) | $(3,069,012) |
| Change in net assets from fund share transactions | $(3,982,593) | $(2,634,018) |
| Total change in net assets | $(10,875,181) | $(5,553,545) |
| Net assets | | |
| At beginning of period | 41,709,875 | 47,263,420 |
| At end of period | $30,834,694 | $41,709,875 |
See Notes to Financial Statements
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $9.81 | $10.51 | $9.98 | $9.26 | $9.84 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.26 | $0.23 | $0.29 | $0.33 | $0.33 |
| Net realized and unrealized gain (loss) | (1.59) | (0.17) | 0.63 | 0.74 | (0.52) |
| Total from investment operations | $(1.33) | $0.06 | $0.92 | $1.07 | $(0.19) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.31) | $(0.33) | $(0.39) | $(0.35) | $(0.39) |
| From net realized gain | (0.09) | (0.43) | — | — | — |
| Total distributions declared to shareholders | $(0.40) | $(0.76) | $(0.39) | $(0.35) | $(0.39) |
| Net asset value, end of period (x) | $8.08 | $9.81 | $10.51 | $9.98 | $9.26 |
| Total return (%) (k)(r)(s)(x) | (13.71) | 0.47 | 9.35 | 11.60 | (1.99) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (h) | 1.00 | 0.89 | 0.89 | 1.01 | 1.03 |
| Expenses after expense reductions (h) | 0.75 | 0.75 | 0.75 | 0.78 | 0.80 |
| Net investment income (loss) | 2.97 | 2.28 | 2.83 | 3.32 | 3.42 |
| Portfolio turnover | 58 | 72 | 112 | 104 | 59 |
| Net assets at end of period (000 omitted) | $28,129 | $36,163 | $41,438 | $38,670 | $38,111 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $9.72 | $10.43 | $9.90 | $9.19 | $9.75 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.22 | $0.21 | $0.26 | $0.30 | $0.30 |
| Net realized and unrealized gain (loss) | (1.55) | (0.19) | 0.63 | 0.74 | (0.50) |
| Total from investment operations | $(1.33) | $0.02 | $0.89 | $1.04 | $(0.20) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.27) | $(0.30) | $(0.36) | $(0.33) | $(0.36) |
| From net realized gain | (0.09) | (0.43) | — | — | — |
| Total distributions declared to shareholders | $(0.36) | $(0.73) | $(0.36) | $(0.33) | $(0.36) |
| Net asset value, end of period (x) | $8.03 | $9.72 | $10.43 | $9.90 | $9.19 |
| Total return (%) (k)(r)(s)(x) | (13.85) | 0.10 | 9.11 | 11.29 | (2.11) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions (h) | 1.24 | 1.14 | 1.14 | 1.26 | 1.28 |
| Expenses after expense reductions (h) | 1.00 | 1.00 | 1.00 | 1.03 | 1.05 |
| Net investment income (loss) | 2.54 | 2.03 | 2.59 | 3.07 | 3.17 |
| Portfolio turnover | 58 | 72 | 112 | 104 | 59 |
| Net assets at end of period (000 omitted) | $2,705 | $5,547 | $5,825 | $6,371 | $6,614 |
See Notes to Financial Statements
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (h) | In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying affiliated funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund. Because the underlying affiliated funds have varied expense and fee levels and the fund may own different proportions of the underlying affiliated funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
Notes to Financial Statements
(1) Business and Organization
MFS Income Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in the MFS High Yield Pooled Portfolio (“High Yield Pooled Portfolio”). MFS does not receive a management fee from the High Yield Pooled Portfolio. The High Yield Pooled Portfolio’s investment objective is to seek total return with an emphasis on high current income, but also considering capital appreciation. The accounting policies of the High Yield Pooled Portfolio are outlined in its shareholder report, which is available without charge by calling 1-800-225-2606 and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov. The accounting policies detailed in the Significant Accounting Policies note cover both the fund and the High Yield Pooled Portfolio. For purposes of this policy disclosure, “fund” refers to both the fund and the High Yield Pooled Portfolio in which the fund invests. The High Yield Pooled Portfolio's shareholder report is not covered by this report. The fund and the High Yield Pooled Portfolio invest in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. The fund and the High Yield Pooled Portfolio invest in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — The investments of the fund and the High Yield Pooled Portfolio are valued as described below.
Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities and equity securities sold short, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities sold short, for which there were no sales reported that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options
Notes to Financial Statements - continued
are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swap agreements are generally valued using valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $8,328,173 | $— | $8,328,173 |
| Non - U.S. Sovereign Debt | — | 787,048 | — | 787,048 |
| Municipal Bonds | — | 1,309,258 | — | 1,309,258 |
| U.S. Corporate Bonds | — | 7,798,916 | — | 7,798,916 |
| Residential Mortgage-Backed Securities | — | 15,847 | — | 15,847 |
| Commercial Mortgage-Backed Securities | — | 940,896 | — | 940,896 |
| Asset-Backed Securities (including CDOs) | — | 5,427,395 | — | 5,427,395 |
| Foreign Bonds | — | 4,273,636 | — | 4,273,636 |
| Mutual Funds | 1,775,885 | — | — | 1,775,885 |
| Total | $1,775,885 | $28,881,169 | $— | $30,657,054 |
Notes to Financial Statements - continued
| Other Financial Instruments | | | | |
| Futures Contracts – Assets | $10,351 | $— | $— | $10,351 |
| Futures Contracts – Liabilities | (36,948) | — | — | (36,948) |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (6,999) | — | (6,999) |
For further information regarding security characteristics, see the Portfolio of Investments. Please refer to the High Yield Pooled Portfolio's shareholder report for further information regarding the levels used in valuing its assets and liabilities.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were futures contracts and forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at December 31, 2022 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Futures Contracts | $10,351 | $(36,948) |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | — | (6,999) |
| Total | | $10,351 | $(43,947) |
(a) Values presented in this table for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is reported separately within the Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $(1,075,895) | $— |
| Foreign Exchange | — | 51,184 |
| Total | $(1,075,895) | $51,184 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
Notes to Financial Statements - continued
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $(101,003) | $— |
| Foreign Exchange | — | (66,071) |
| Total | $(101,003) | $(66,071) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Notes to Financial Statements - 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 forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. 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.
To mitigate the counterparty credit risk on TBA transactions, mortgage dollar rolls, and other types of forward settling mortgage-backed and asset-backed security transactions, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the MSFTA could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
For mortgage-backed and asset-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund's collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Notes to Financial Statements - continued
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to defaulted bonds, amortization and accretion of debt securities, wash sale loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $1,147,664 | $2,283,010 |
| Long-term capital gains | 325,371 | 786,002 |
| Total distributions | $1,473,035 | $3,069,012 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/22 | |
| Cost of investments | $35,049,543 |
| Gross appreciation | 78,009 |
| Gross depreciation | (4,504,094) |
| Net unrealized appreciation (depreciation) | $(4,426,085) |
| Undistributed ordinary income | 1,128,130 |
| Capital loss carryforwards | (2,880,510) |
| Other temporary differences | 104 |
| Total distributable earnings (loss) | $(6,178,361) |
As of December 31, 2022, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(1,011,158) |
| Long-Term | (1,869,352) |
| Total | $(2,880,510) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $1,353,079 | | $2,672,197 |
| Service Class | 119,956 | | 396,815 |
| Total | $1,473,035 | | $3,069,012 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.50% |
| In excess of $1 billion | 0.45% |
Notes to Financial Statements - continued
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $4,784, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.49% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses (such as fees and expenses associated with investments in investment companies and other similar investment vehicles), such that total annual operating expenses do not exceed 0.75% of average daily net assets for the Initial Class shares and 1.00% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this reduction amounted to $80,506, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2022, the fee was $8,170, which equated to 0.0238% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $576.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0509% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund invests in the MFS High Yield Pooled Portfolio, which is a mutual fund advised by MFS that does not pay management fees to MFS and does not pay distribution and/or service fees to MFD but does incur investment and operating costs. The fund invests in MFS High Yield Pooled Portfolio to gain exposure to high income debt instruments, rather than investing in high income debt instruments directly. Income earned on this investment is included in “Dividends from affiliated issuers” in the Statement of Operations.
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than short-term obligations, were as follows:
| | Purchases | Sales |
| U.S. Government securities | $11,647,491 | $10,395,408 |
| Non-U.S. Government securities | 7,936,778 | 12,476,710 |
Notes to Financial Statements - 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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 190,052 | $1,645,984 | | 267,640 | $2,743,079 |
| Service Class | 22,625 | 194,519 | | 64,759 | 661,621 |
| | 212,677 | $1,840,503 | | 332,399 | $3,404,700 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 162,630 | $1,353,079 | | 271,288 | $2,672,197 |
| Service Class | 14,505 | 119,956 | | 40,574 | 396,815 |
| | 177,135 | $1,473,035 | | 311,862 | $3,069,012 |
| Shares reacquired | | | | | |
| Initial Class | (558,344) | $(4,896,032) | | (792,450) | $(8,158,937) |
| Service Class | (270,642) | (2,400,099) | | (93,346) | (948,793) |
| | (828,986) | $(7,296,131) | | (885,796) | $(9,107,730) |
| Net change | | | | | |
| Initial Class | (205,662) | $(1,896,969) | | (253,522) | $(2,743,661) |
| Service Class | (233,512) | (2,085,624) | | 11,987 | 109,643 |
| | (439,174) | $(3,982,593) | | (241,535) | $(2,634,018) |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $173 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS High Yield Pooled Portfolio | $5,165,690 | $373,801 | $3,471,915 | $(418,221) | $(86,286) | $1,563,069 |
| MFS Institutional Money Market Portfolio | 201,300 | 31,629,614 | 31,618,324 | 158 | 68 | 212,816 |
| | $5,366,990 | $32,003,415 | $35,090,239 | $(418,063) | $(86,218) | $1,775,885 |
Notes to Financial Statements - continued
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS High Yield Pooled Portfolio | $138,455 | $— |
| MFS Institutional Money Market Portfolio | 8,319 | — |
| | $146,774 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Income Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Income Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Neeraj Arora
Philipp Burgener
David Cole
Alexander Mackey
Joshua Marston
Michael Skatrud | |
Board Review of Investment Advisory Agreement
MFS Income Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for each of the one- and three-year periods ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was approximately at the Broadridge expense group median and the Fund’s total expense ratio was higher than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $358,000 as capital gain dividends paid during the fiscal year.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® U.S. Government
Money Market Portfolio
MFS® Variable Insurance Trust II
MFS® U.S. Government Money Market Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS U.S. Government Money Market Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS U.S. Government Money Market Portfolio
Portfolio structure (u)
Composition including fixed income credit quality (a)(u)
| A-1+ | 45.3% |
| A-1 | 54.7% |
| Other Assets Less Liabilities (o) | 0.0% |
Maturity breakdown (u)
| 0 - 7 days | 50.2% |
| 8 - 29 days | 39.5% |
| 30 - 59 days | 10.3% |
| 60 - 89 days | 0.0% |
| 90 - 365 days | 0.0% |
| Other Assets Less Liabilities (o) | 0.0% |
| (a) | Ratings are assigned to portfolio securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P scale. All ratings are subject to change. The fund is not rated by these agencies. |
| (u) | For purposes of this presentation, accrued interest, where applicable, is included. |
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS U.S. Government Money Market Portfolio
Performance Summary Through 12/31/22
Total returns as well as the current 7-day yield have been provided for the applicable time periods. Performance results reflect the percentage change in net asset value, including the reinvestment of any dividends and capital gains distributions. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. You could lose money by investing in the portfolio. Although the portfolio seeks to preserve the value of your investment at $1.00 per unit, it cannot guarantee it will do so. An investment in the portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. The portfolio’s sponsor has no legal obligation to provide financial support to the portfolio, and you should not expect the sponsor will provide financial support to the portfolio at any time. The performance shown does not reflect the deduction of taxes, if any, that a contract holder would pay on portfolio distributions or the redemption of contract units. The returns for the portfolio shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
| Share Class | Inception | 1-Year Total Return | Current 7-day yield |
| Initial Class | 7/19/85 | 1.17% | 3.60% |
| Service Class | 8/24/01 | 1.17% | 3.60% |
Notes to Performance Summary
Yields quoted are based on the latest seven days ended as of December 31, 2022, with dividends annualized. The yield quotations more closely reflect the current earnings of the portfolio than the total return quotations.
Performance results reflect any applicable expense subsidies, waivers and adjustments in effect during the periods shown. Without such subsidies and waivers the portfolio's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gain distributions.
MFS U.S. Government Money Market Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.45% | $1,000.00 | $1,011.28 | $2.28 |
| Hypothetical (h) | 0.45% | $1,000.00 | $1,022.94 | $2.29 |
| Service Class | Actual | 0.45% | $1,000.00 | $1,011.27 | $2.28 |
| Hypothetical (h) | 0.45% | $1,000.00 | $1,022.94 | $2.29 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS U.S. Government Money Market Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| U.S. Government Agencies and Equivalents (y) – 69.8% |
| Fannie Mae, 3.954%, due 1/04/2023 | | $7,000,000 | $ 6,997,725 |
| Fannie Mae, 3.954%, due 1/18/2023 | | 17,100,000 | 17,068,507 |
| Federal Farm Credit Bank, 4.198%, due 2/02/2023 | | 15,500,000 | 15,442,960 |
| Freddie Mac, 3.751%, due 1/04/2023 | | 15,500,000 | 15,495,221 |
| Freddie Mac, 3.954%, due 1/06/2023 | | 8,600,000 | 8,595,342 |
| U.S. Treasury Bill, 3.66%, due 1/05/2023 | | 20,875,000 | 20,866,627 |
| U.S. Treasury Bill, 3.974%, due 1/10/2023 | | 12,000,000 | 11,988,240 |
| U.S. Treasury Bill, 3.843%, due 1/12/2023 | | 22,000,000 | 21,974,523 |
| U.S. Treasury Bill, 4.035%, due 1/17/2023 | | 19,000,000 | 18,966,391 |
| U.S. Treasury Bill, 4.035%, due 1/24/2023 | | 16,000,000 | 15,959,315 |
| U.S. Treasury Bill, 3.812%, due 1/26/2023 | | 16,500,000 | 16,456,917 |
| U.S. Treasury Bill, 4.005%, due 2/02/2023 | | 11,333,000 | 11,293,209 |
| Total U.S. Government Agencies and Equivalents, at Amortized Cost and Value | | | $181,104,977 |
| Repurchase Agreements – 30.2% | |
| Bank of America Corp. Repurchase Agreement, 4.24%, dated 12/30/2022, due 1/03/2023, total to be received $41,384,488 (secured by U.S. Treasury and/or U.S. Government Agency Securities valued at $42,281,544) | | $41,365,000 | $ 41,365,000 |
| JPMorgan Chase & Co. Repurchase Agreement, 4.25%, dated 12/30/2022, due 1/03/2023, total to be received $37,058,492 (secured by U.S. Treasury and/or U.S. Government Agency Securities valued at $37,799,662) | | 37,041,000 | 37,041,000 |
| Total Repurchase Agreements, at Cost and Value | | | | $78,406,000 |
| Other Assets, Less Liabilities – 0.0% | | | 105,156 |
| Net Assets – 100.0% | | | $259,616,133 |
| (y) | The rate shown represents an annualized yield at time of purchase. |
See Notes to Financial Statements
MFS U.S. Government Money Market Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at cost and value | $181,104,977 |
| Investments in unaffiliated repurchase agreements, at cost and value | 78,406,000 |
| Cash | 229 |
| Receivables for | |
| Fund shares sold | 368,895 |
| Interest | 18,489 |
| Other assets | 2,382 |
| Total assets | $259,900,972 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $203,043 |
| Payable to affiliates | |
| Investment adviser | 8,221 |
| Administrative services fee | 380 |
| Shareholder servicing costs | 21 |
| Accrued expenses and other liabilities | 73,174 |
| Total liabilities | $284,839 |
| Net assets | $259,616,133 |
| Net assets consist of | |
| Paid-in capital | $259,616,133 |
| Net assets | $259,616,133 |
| Shares of beneficial interest outstanding | 259,810,664 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $159,394,694 | 159,514,283 | $1.00 |
| Service Class | 100,221,439 | 100,296,381 | 1.00 |
See Notes to Financial Statements
MFS U.S. Government Money Market Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Interest | $3,829,205 |
| Other | 5,889 |
| Total investment income | $3,835,094 |
| Expenses | |
| Management fee | $1,028,548 |
| Distribution and/or service fees | 252,062 |
| Shareholder servicing costs | 5,888 |
| Administrative services fee | 49,401 |
| Independent Trustees' compensation | 5,273 |
| Custodian fee | 13,708 |
| Shareholder communications | 7,439 |
| Audit and tax fees | 40,263 |
| Legal fees | 1,310 |
| Miscellaneous | 34,391 |
| Total expenses | $1,438,283 |
| Reduction of expenses by investment adviser and distributor | (587,509) |
| Net expenses | $850,774 |
| Net investment income (loss) | $2,984,320 |
| Change in net assets from operations | $2,984,320 |
See Notes to Financial Statements
MFS U.S. Government Money Market Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $2,984,320 | $0 |
| Net realized gain (loss) | 0 | 25,200 |
| Change in net assets from operations | $2,984,320 | $25,200 |
| Total distributions to shareholders | $(2,984,320) | $— |
| Change in net assets from fund share transactions | $4,603,128 | $(15,934,157) |
| Total change in net assets | $4,603,128 | $(15,908,957) |
| Net assets | | |
| At beginning of period | 255,013,005 | 270,921,962 |
| At end of period | $259,616,133 | $255,013,005 |
See Notes to Financial Statements
MFS U.S. Government Money Market Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.01 | $0.00 | $0.00(w) | $0.02 | $0.01 |
| Net realized and unrealized gain (loss) | 0.00 | 0.00(w) | 0.00(w) | 0.00(w) | — |
| Total from investment operations | $0.01 | $0.00(w) | $0.00(w) | $0.02 | $0.01 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.01) | $— | $(0.00)(w) | $(0.02) | $(0.01) |
| Net asset value, end of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Total return (%) (k)(r) | 1.17 | 0.00 | 0.22 | 1.63 | 1.26 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.46 | 0.46 | 0.52 | 0.56 | 0.56 |
| Expenses after expense reductions | 0.33 | 0.04 | 0.24 | 0.55 | 0.55 |
| Net investment income (loss) | 1.17 | 0.00 | 0.20 | 1.63 | 1.25 |
| Net assets at end of period (000 omitted) | $159,395 | $149,896 | $155,937 | $149,689 | $160,304 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.01 | $0.00 | $0.00(w) | $0.02 | $0.01 |
| Net realized and unrealized gain (loss) | 0.00 | 0.00(w) | 0.00(w) | 0.00(w) | — |
| Total from investment operations | $0.01 | $0.00(w) | $0.00(w) | $0.02 | $0.01 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.01) | $— | $(0.00)(w) | $(0.02) | $(0.01) |
| Net asset value, end of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 |
| Total return (%) (k)(r) | 1.17 | 0.00 | 0.22 | 1.63 | 1.26 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.71 | 0.71 | 0.77 | 0.81 | 0.81 |
| Expenses after expense reductions | 0.33 | 0.04 | 0.25 | 0.55 | 0.55 |
| Net investment income (loss) | 1.15 | 0.00 | 0.21 | 1.64 | 1.24 |
| Net assets at end of period (000 omitted) | $100,221 | $105,117 | $114,985 | $114,543 | $128,156 |
| (d) | Per share data is based on average shares outstanding. |
| (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. |
| (w) | Per share amount was less than $0.01. |
See Notes to Financial Statements
MFS U.S. Government Money Market Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS U.S. Government Money Market Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund’s Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund’s adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policies and procedures, market quotations are not considered to be readily available for debt instruments. Debt instruments 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 significant 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 December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Short-Term Securities | $— | $259,510,977 | $— | $259,510,977 |
For further information regarding security characteristics, see the Portfolio of Investments.
Repurchase Agreements — The fund enters into repurchase agreements under the terms of Master Repurchase Agreements with approved counterparties. Each repurchase agreement is recorded at cost. The fund requires that the securities collateral in a repurchase transaction be transferred to a custodian. The fund monitors, on a daily basis, the value of the collateral to ensure that its value, including accrued interest, is greater than amounts owed to the fund under each such repurchase agreement. Upon an event of default under a Master Repurchase Agreement, the non-defaulting party may close out all transactions traded under such
MFS U.S. Government Money Market Portfolio
Notes to Financial Statements - continued
agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the Master Repurchase Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. At December 31, 2022, the fund had investments in repurchase agreements with a gross value of $78,406,000 in the Statement of Assets and Liabilities. The value of the related collateral exceeded the value of the repurchase agreements at period end.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
During the year ended December 31, 2022, there were no significant adjustments due to differences between book and tax accounting.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $2,984,320 | $— |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/22 | |
| Cost of investments | $259,510,977 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income and common expenses are allocated to shareholders based on the value of settled shares outstanding of each class. The fund's realized and unrealized gain (loss) are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| Initial Class | $1,825,805 | | $— |
| Service Class | 1,158,515 | | — |
| Total | $2,984,320 | | $— |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
MFS U.S. Government Money Market Portfolio
Notes to Financial Statements - continued
| Up to $1 billion | 0.40% |
| In excess of $1 billion | 0.35% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $35,704, which is included in the reduction of total expenses in the Statement of Operations. MFS has also agreed to voluntarily waive receipt of the fund's management fee in order to avoid a negative yield. For the year ended December 31, 2022, this voluntary waiver amounted to $291,686 and had the effect of reducing the management fee by 0.12% of average daily net assets on an annualized basis. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.27% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.45% of average daily net assets for each of the Initial Class and Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, the fund’s actual operating expenses did not exceed the limits described above and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement. MFS has also agreed to voluntarily reimburse the fund’s operating expenses in order to avoid a negative yield. For the year ended December 31, 2022, this voluntary reimbursement amounted to $8,057 and had the effect of reducing operating expenses by 0.01% of average daily net assets on an annualized basis.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. MFD has agreed in writing to waive the entire 0.25% distribution and/or service fee. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this waiver amounted to $252,062, which is included in the reduction of total expenses in the Statement of Operations. The distribution and/or service fees incurred for the year ended December 31, 2022 were equivalent to an annual effective rate of 0.00% of the average daily net assets attributable to Service Class shares.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2022, the fee was $5,542, which equated to 0.0022% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $346.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 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 from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
MFS U.S. Government Money Market Portfolio
Notes to Financial Statements - continued
(4) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. The number of shares sold, reinvested and reacquired corresponds to the net proceeds from the sale of shares, reinvestment of distributions and cost of shares reacquired, respectively, since shares are sold and reacquired at $1.00 per share. Transactions in fund shares were as follows:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| Shares sold | | | |
| Initial Class | 38,073,538 | | 41,542,048 |
| Service Class | 27,134,670 | | 26,866,611 |
| | 65,208,208 | | 68,408,659 |
Shares issued to shareholders in
reinvestment of distributions | | | |
| Initial Class | 1,825,805 | | — |
| Service Class | 1,158,515 | | — |
| | 2,984,320 | | — |
| Shares reacquired | | | |
| Initial Class | (30,394,757) | | (47,603,051) |
| Service Class | (33,194,643) | | (36,739,765) |
| | (63,589,400) | | (84,342,816) |
| Net change | | | |
| Initial Class | 9,504,586 | | (6,061,003) |
| Service Class | (4,901,458) | | (9,873,154) |
| | 4,603,128 | | (15,934,157) |
(5) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $1,265 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(6) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
MFS U.S. Government Money Market Portfolio
Notes to Financial Statements - continued
(7) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
MFS U.S. Government Money Market Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of
MFS U.S. Government Money Market Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS U.S. Government Money Market Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS U.S. Government Money Market Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS U.S. Government Money Market Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS U.S. Government Money Market Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
MFS U.S. Government Money Market Portfolio
Board Review of Investment Advisory Agreement
MFS U.S. Government Money Market Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 4th quintile for each of the one- and three-year periods ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. In addition, the Trustees noted the market conditions affecting all money market funds, in particular the low interest rate environment during portions of the one-, three- and five-year periods, and MFS’ voluntary
MFS U.S. Government Money Market Portfolio
Board Review of Investment Advisory Agreement - continued
waiver of all or a portion of its fees to ensure that the Fund avoided a negative yield during certain periods. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each lower than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS U.S. Government Money Market Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Portfolio Holdings Information
The fund files monthly portfolio information with the SEC on Form N-MFP. The fund’s Form N-MFP reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can also access the fund’s portfolio holdings as of each month end and the fund’s Form N-MFP reports at mfs.com/vit2 after choosing “Click here for access to Money Market fund reports”.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® Blended Research®
Core Equity Portfolio
MFS® Variable Insurance Trust II
MFS® Blended Research® Core Equity Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Blended Research Core Equity Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Blended Research Core Equity Portfolio
Top ten holdings
| Microsoft Corp. | 6.3% |
| Apple, Inc. | 5.7% |
| Merck & Co., Inc. | 2.6% |
| Johnson & Johnson | 2.4% |
| JPMorgan Chase & Co. | 2.3% |
| Alphabet, Inc., “C” | 2.3% |
| Amazon.com, Inc. | 2.1% |
| Alphabet, Inc., “A” | 2.1% |
| Cigna Corp. | 2.0% |
| Archer Daniels Midland Co. | 1.8% |
GICS equity sectors (g)
| Information Technology | 25.9% |
| Health Care | 16.5% |
| Financials | 12.3% |
| Consumer Discretionary | 10.7% |
| Industrials | 7.8% |
| Communication Services | 7.4% |
| Consumer Staples | 6.4% |
| Energy | 4.4% |
| Real Estate | 3.4% |
| Utilities | 2.4% |
| Materials | 2.0% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS Blended Research Core Equity Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Blended Research Core Equity Portfolio (fund) provided a total return of -16.00%, while Service Class shares of the fund provided a total return of -16.20%. These compare with a return of -18.11% over the same period for the fund's benchmark, the Standard & Poor’s 500 Stock Index (S&P 500 Index).
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Contributors to Performance
Stock selection in the health care sector benefited performance relative to the S&P 500 Index, led by the fund’s overweight positions in health services company McKesson, pharmaceutical company Merck and global health services provider Cigna. The stock price of Merck rose as the company’s earnings and sales results exceeded expectations due to favorable impacts from the COVID-19 recovery. Management also raised its forward-looking sales guidance, which further supported the stock.
Security selection in both the financials and consumer discretionary sectors also aided relative performance. Within the financials sector, the fund’s overweight positions in insurance company MetLife and reinsurer Everest Reinsurance benefited relative returns. The stock price of MetLife advanced as the company reported strong U.S. profits due to lower mortality rates and solid underwriting revenue. Within the consumer discretionary sector, an underweight position in shares of electric vehicle manufacturer Tesla contributed to relative performance as the stock price declined due to uncertainty surrounding production shutdowns at the company's Shanghai manufacturing plant, reduced vehicle deliveries, increased competitive concerns and questions regarding Tesla CEO Elon Musk’s acquisition of social media platform Twitter.
Elsewhere, the fund’s overweight positions in independent oil refiner Valero Energy and oilseeds, corn and wheat processor Archer Daniels Midland, and its holdings of natural gas services provider Cheniere Energy(b), strengthened relative returns. The stock price of Cheniere Energy climbed as the company reported revenue results that surpassed expectations, primarily driven by strength in global gas prices. The fund’s underweight position in computer graphics processor maker NVIDIA, which underperformed the benchmark, also bolstered relative performance.
Detractors from Performance
During the reporting period, security selection within both the information technology and communication services sectors held back the fund’s relative performance. Within the information technology sector, holding shares of software development company Atlassian(b) hindered relative returns. Although the company reported in-line revenue results, the stock price of Atlassian declined on lower-than-expected billings growth. Management also lowered its cloud growth guidance, which further weighed on the stock. The fund’s overweight positions in semiconductor chips and electronics engineering solutions provider Applied Materials and consulting and information technology services provider Accenture also detracted from relative returns. Within the communication services sector, the fund’s overweight positions in cable services provider Charter Communications, technology company Alphabet and
MFS Blended Research Core Equity Portfolio
Management Review - continued
integrated communications provider Lumen Technologies were also among the fund’s top relative detractors. The stock price of Alphabet declined as the company reported financial results below expectations, driven by lower-than-expected revenue growth and weak performance in its search, YouTube and ad network segments.
An underweight allocation to the energy sector weighed on relative performance, led by the fund’s underweight position and timing of ownership in shares of integrated oil and gas company ExxonMobil. The stock price of ExxonMobil advanced as the company posted higher-than-consensus earnings, particularly in its downstream segment, and increased its return to shareholders through stock repurchases and dividends. Not owning shares of integrated energy company Chevron further weakened the fund’s relative returns.
Stocks in other sectors that detracted from relative performance included the fund’s underweight position in health insurance and Medicare/Medicaid provider UnitedHealth Group and not owning shares of pharmaceutical company AbbVie.
Respectfully,
Portfolio Manager(s)
Jim Fallon, Matt Krummell, Jonathan Sage, and Jed Stocks
| (b) | Security is not a benchmark constituent. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Blended Research Core Equity Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual with sales charge
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 11/14/86 | (16.00)% | 8.38% | 11.76% |
| Service Class | 8/24/01 | (16.20)% | 8.11% | 11.48% |
Comparative benchmark(s)
| Standard & Poor's 500 Stock Index (f) | (18.11)% | 9.42% | 12.56% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Standard & Poor's 500 Stock Index(g) – a market capitalization-weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance.
It is not possible to invest directly in an index.
| (g) | “Standard & Poor's®” and “S&P®” are registered trademarks of Standard & Poor's Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by MFS. The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS's product(s) is not sponsored, endorsed, sold, or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, nor their respective affiliates make any representation regarding the advisability of investing in such product(s). |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Blended Research Core Equity Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Blended Research Core Equity Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.44% | $1,000.00 | $1,022.42 | $2.24 |
| Hypothetical (h) | 0.44% | $1,000.00 | $1,022.99 | $2.24 |
| Service Class | Actual | 0.69% | $1,000.00 | $1,021.21 | $3.52 |
| Hypothetical (h) | 0.69% | $1,000.00 | $1,021.73 | $3.52 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Blended Research Core Equity Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 99.2% |
| Aerospace & Defense – 2.1% | |
| General Dynamics Corp. | | 23,891 | $ 5,927,596 |
| Honeywell International, Inc. | | 6,428 | 1,377,520 |
| Textron, Inc. | | 6,916 | 489,653 |
| | | | | $7,794,769 |
| Airlines – 0.2% | |
| United Airlines Holdings, Inc. (a) | | 17,512 | $ 660,202 |
| Alcoholic Beverages – 0.1% | |
| Constellation Brands, Inc., “A” | | 1,532 | $ 355,041 |
| Apparel Manufacturers – 0.2% | |
| NIKE, Inc., “B” | | 4,983 | $ 583,061 |
| Automotive – 1.7% | |
| Aptiv PLC (a) | | 10,780 | $ 1,003,941 |
| General Motors Co. | | 20,320 | 683,565 |
| Lear Corp. | | 13,823 | 1,714,328 |
| LKQ Corp. | | 21,411 | 1,143,562 |
| Tesla, Inc. (a) | | 14,218 | 1,751,373 |
| | | | | $6,296,769 |
| Biotechnology – 1.4% | |
| Biogen, Inc. (a) | | 15,115 | $ 4,185,646 |
| Gilead Sciences, Inc. | | 12,693 | 1,089,694 |
| | | | | $5,275,340 |
| Broadcasting – 0.5% | |
| Walt Disney Co. (a) | | 22,667 | $ 1,969,309 |
| Brokerage & Asset Managers – 1.4% | |
| Charles Schwab Corp. | | 12,658 | $ 1,053,905 |
| Raymond James Financial, Inc. | | 36,770 | 3,928,875 |
| | | | | $4,982,780 |
| Business Services – 2.7% | |
| Accenture PLC, “A” | | 19,841 | $ 5,294,373 |
| GoDaddy, Inc. (a) | | 54,388 | 4,069,310 |
| PayPal Holdings, Inc. (a) | | 5,592 | 398,262 |
| | | | | $9,761,945 |
| Cable TV – 1.0% | |
| Charter Communications, Inc., “A” (a) | | 11,273 | $ 3,822,674 |
| Computer Software – 8.7% | |
| Adobe Systems, Inc. (a) | | 17,422 | $ 5,863,026 |
| Atlassian Corp. (a) | | 14,744 | 1,897,258 |
| Microsoft Corp. | | 94,689 | 22,708,316 |
| Palo Alto Networks, Inc. (a) | | 7,154 | 998,269 |
| | | | | $31,466,869 |
MFS Blended Research Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Computer Software - Systems – 6.2% | |
| Apple, Inc. | | 159,846 | $ 20,768,791 |
| Seagate Technology Holdings PLC | | 12,750 | 670,778 |
| ServiceNow, Inc. (a) | | 2,468 | 958,250 |
| | | | | $22,397,819 |
| Construction – 0.3% | |
| Sherwin-Williams Co. | | 4,039 | $ 958,576 |
| Consumer Products – 1.4% | |
| Colgate-Palmolive Co. | | 59,933 | $ 4,722,121 |
| Procter & Gamble Co. | | 2,745 | 416,032 |
| | | | | $5,138,153 |
| Consumer Services – 2.3% | |
| Airbnb, Inc., “A” (a) | | 4,378 | $ 374,319 |
| Booking Holdings, Inc. (a) | | 2,864 | 5,771,762 |
| Expedia Group, Inc. (a) | | 23,373 | 2,047,475 |
| | | | | $8,193,556 |
| Electrical Equipment – 0.5% | |
| TE Connectivity Ltd. | | 17,500 | $ 2,009,000 |
| Electronics – 5.8% | |
| Applied Materials, Inc. | | 59,169 | $ 5,761,877 |
| Corning, Inc. | | 45,498 | 1,453,206 |
| Intel Corp. | | 15,170 | 400,943 |
| Lam Research Corp. | | 5,626 | 2,364,608 |
| Micron Technology, Inc. | | 12,379 | 618,702 |
| NVIDIA Corp. | | 2,649 | 387,125 |
| NXP Semiconductors N.V. | | 23,187 | 3,664,242 |
| Texas Instruments, Inc. | | 38,559 | 6,370,718 |
| | | | | $21,021,421 |
| Energy - Independent – 2.6% | |
| Marathon Petroleum Corp. | | 26,058 | $ 3,032,891 |
| Valero Energy Corp. | | 51,958 | 6,591,392 |
| | | | | $9,624,283 |
| Energy - Integrated – 0.2% | |
| Exxon Mobil Corp. | | 7,102 | $ 783,351 |
| Engineering - Construction – 0.2% | |
| EMCOR Group, Inc. | | 4,760 | $ 705,004 |
| Entertainment – 0.2% | |
| Live Nation Entertainment, Inc. (a) | | 8,193 | $ 571,380 |
| Food & Beverages – 3.1% | |
| Archer Daniels Midland Co. | | 71,300 | $ 6,620,205 |
| Mondelez International, Inc. | | 18,323 | 1,221,228 |
| PepsiCo, Inc. | | 12,267 | 2,216,156 |
| Tyson Foods, Inc., “A” | | 17,093 | 1,064,039 |
| | | | | $11,121,628 |
MFS Blended Research Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Food & Drug Stores – 0.3% | |
| Albertsons Cos., Inc., “A” | | 51,849 | $ 1,075,348 |
| Gaming & Lodging – 0.5% | |
| Marriott International, Inc., “A” | | 11,137 | $ 1,658,188 |
| Health Maintenance Organizations – 3.8% | |
| Cigna Corp. | | 21,549 | $ 7,140,046 |
| Humana, Inc. | | 9,777 | 5,007,681 |
| UnitedHealth Group, Inc. | | 2,900 | 1,537,522 |
| | | | | $13,685,249 |
| Insurance – 5.4% | |
| Ameriprise Financial, Inc. | | 11,253 | $ 3,503,847 |
| Berkshire Hathaway, Inc., “B” (a) | | 6,801 | 2,100,829 |
| Equitable Holdings, Inc. | | 98,219 | 2,818,885 |
| Everest Re Group Ltd. | | 11,357 | 3,762,233 |
| Hartford Financial Services Group, Inc. | | 5,834 | 442,392 |
| MetLife, Inc. | | 89,902 | 6,506,208 |
| Reinsurance Group of America, Inc. | | 3,767 | 535,253 |
| | | | | $19,669,647 |
| Internet – 5.1% | |
| Alphabet, Inc., “A” (a) | | 85,041 | $ 7,503,167 |
| Alphabet, Inc., “C” (a) | | 92,548 | 8,211,784 |
| Gartner, Inc. (a) | | 1,441 | 484,378 |
| Meta Platforms, Inc., “A” (a) | | 20,530 | 2,470,580 |
| | | | | $18,669,909 |
| Leisure & Toys – 1.3% | |
| Brunswick Corp. | | 36,354 | $ 2,620,396 |
| Electronic Arts, Inc. | | 5,354 | 654,152 |
| Polaris, Inc. | | 12,975 | 1,310,475 |
| | | | | $4,585,023 |
| Machinery & Tools – 2.2% | |
| Carrier Global Corp. | | 9,549 | $ 393,896 |
| Eaton Corp. PLC | | 14,976 | 2,350,483 |
| Ingersoll Rand, Inc. | | 9,749 | 509,385 |
| PACCAR, Inc. | | 20,440 | 2,022,947 |
| Timken Co. | | 26,077 | 1,842,862 |
| Wabtec Corp. | | 9,150 | 913,262 |
| | | | | $8,032,835 |
| Major Banks – 4.3% | |
| Bank of America Corp. | | 74,606 | $ 2,470,951 |
| JPMorgan Chase & Co. | | 63,568 | 8,524,469 |
| Wells Fargo & Co. | | 112,261 | 4,635,256 |
| | | | | $15,630,676 |
| Medical & Health Technology & Services – 1.6% | |
| McKesson Corp. | | 13,594 | $ 5,099,381 |
| Veeva Systems, Inc. (a) | | 3,968 | 640,356 |
| | | | | $5,739,737 |
MFS Blended Research Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Medical Equipment – 2.1% | |
| Abbott Laboratories | | 7,364 | $ 808,494 |
| Boston Scientific Corp. (a) | | 13,334 | 616,964 |
| Hologic, Inc. (a) | | 5,950 | 445,120 |
| Medtronic PLC | | 37,295 | 2,898,567 |
| Thermo Fisher Scientific, Inc. | | 5,526 | 3,043,113 |
| | | | | $7,812,258 |
| Natural Gas - Pipeline – 1.4% | |
| Cheniere Energy, Inc. | | 22,805 | $ 3,419,838 |
| Targa Resources Corp. | | 21,767 | 1,599,874 |
| | | | | $5,019,712 |
| Network & Telecom – 0.5% | |
| Equinix, Inc., REIT | | 2,701 | $ 1,769,236 |
| Oil Services – 0.1% | |
| NOV, Inc. | | 22,187 | $ 463,486 |
| Other Banks & Diversified Financials – 3.1% | |
| Mastercard, Inc., “A” | | 2,423 | $ 842,550 |
| SLM Corp. | | 267,335 | 4,437,761 |
| Visa, Inc., “A” | | 29,143 | 6,054,750 |
| | | | | $11,335,061 |
| Pharmaceuticals – 7.6% | |
| Eli Lilly & Co. | | 10,012 | $ 3,662,790 |
| Johnson & Johnson | | 50,161 | 8,860,941 |
| Merck & Co., Inc. | | 84,509 | 9,376,274 |
| Pfizer, Inc. | | 31,222 | 1,599,815 |
| Vertex Pharmaceuticals, Inc. (a) | | 14,166 | 4,090,857 |
| | | | | $27,590,677 |
| Railroad & Shipping – 1.6% | |
| CSX Corp. | | 183,402 | $ 5,681,794 |
| Real Estate – 2.9% | |
| Extra Space Storage, Inc., REIT | | 17,631 | $ 2,594,930 |
| Host Hotels & Resorts, Inc., REIT | | 109,399 | 1,755,854 |
| Life Storage, Inc., REIT | | 8,248 | 812,428 |
| Simon Property Group, Inc., REIT | | 19,712 | 2,315,766 |
| VICI Properties, Inc., REIT | | 90,962 | 2,947,169 |
| | | | | $10,426,147 |
| Restaurants – 0.2% | |
| Texas Roadhouse, Inc. | | 8,375 | $ 761,706 |
| Specialty Chemicals – 2.0% | |
| Chemours Co. | | 114,403 | $ 3,503,020 |
| Linde PLC | | 8,162 | 2,662,281 |
| Univar Solutions, Inc. (a) | | 38,392 | 1,220,866 |
| | | | | $7,386,167 |
MFS Blended Research Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Specialty Stores – 6.6% | |
| Amazon.com, Inc. (a) | | 90,955 | $ 7,640,220 |
| Builders FirstSource, Inc. (a) | | 13,580 | 881,070 |
| Home Depot, Inc. | | 13,936 | 4,401,825 |
| O'Reilly Automotive, Inc. (a) | | 6,623 | 5,590,011 |
| Wal-Mart Stores, Inc. | | 39,395 | 5,585,817 |
| | | | | $24,098,943 |
| Telecommunications - Wireless – 0.1% | |
| T-Mobile US, Inc. (a) | | 3,998 | $ 559,720 |
| Telephone Services – 0.3% | |
| Lumen Technologies, Inc. | | 201,324 | $ 1,050,911 |
| Trucking – 1.0% | |
| United Parcel Service, Inc., “B” | | 19,972 | $ 3,471,933 |
| Utilities - Electric Power – 2.4% | |
| American Electric Power Co., Inc. | | 15,933 | $ 1,512,838 |
| Exelon Corp. | | 71,127 | 3,074,820 |
| PG&E Corp. (a) | | 26,924 | 437,784 |
| Vistra Corp. | | 157,687 | 3,658,339 |
| | | | | $8,683,781 |
| Total Common Stocks (Identified Cost, $265,869,224) | | $360,351,074 |
| Investment Companies (h) – 0.7% |
| Money Market Funds – 0.7% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $2,600,968) | | | 2,600,706 | $ 2,601,486 |
| Other Assets, Less Liabilities – 0.1% | | 379,063 |
| Net Assets – 100.0% | $363,331,623 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $2,601,486 and $360,351,074, respectively. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| REIT | Real Estate Investment Trust |
See Notes to Financial Statements
MFS Blended Research Core Equity Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $265,869,224) | $360,351,074 |
| Investments in affiliated issuers, at value (identified cost, $2,600,968) | 2,601,486 |
| Receivables for | |
| Fund shares sold | 1,811 |
| Dividends | 737,824 |
| Other assets | 2,455 |
| Total assets | $363,694,650 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $261,022 |
| Payable to affiliates | |
| Investment adviser | 11,525 |
| Administrative services fee | 497 |
| Shareholder servicing costs | 52 |
| Distribution and/or service fees | 2,724 |
| Accrued expenses and other liabilities | 87,207 |
| Total liabilities | $363,027 |
| Net assets | $363,331,623 |
| Net assets consist of | |
| Paid-in capital | $235,302,394 |
| Total distributable earnings (loss) | 128,029,229 |
| Net assets | $363,331,623 |
| Shares of beneficial interest outstanding | 7,691,470 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $230,412,892 | 4,852,618 | $47.48 |
| Service Class | 132,918,731 | 2,838,852 | 46.82 |
See Notes to Financial Statements
MFS Blended Research Core Equity Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $7,264,270 |
| Dividends from affiliated issuers | 35,472 |
| Other | 20,807 |
| Foreign taxes withheld | (12,282) |
| Total investment income | $7,308,267 |
| Expenses | |
| Management fee | $1,784,927 |
| Distribution and/or service fees | 466,471 |
| Shareholder servicing costs | 14,933 |
| Administrative services fee | 78,408 |
| Independent Trustees' compensation | 8,521 |
| Custodian fee | 24,048 |
| Shareholder communications | 8,030 |
| Audit and tax fees | 59,569 |
| Legal fees | 2,033 |
| Miscellaneous | 29,506 |
| Total expenses | $2,476,446 |
| Reduction of expenses by investment adviser | (62,049) |
| Net expenses | $2,414,397 |
| Net investment income (loss) | $4,893,870 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $29,166,970 |
| Affiliated issuers | 296 |
| Net realized gain (loss) | $29,167,266 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(116,586,267) |
| Affiliated issuers | 518 |
| Net unrealized gain (loss) | $(116,585,749) |
| Net realized and unrealized gain (loss) | $(87,418,483) |
| Change in net assets from operations | $(82,524,613) |
See Notes to Financial Statements
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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $4,893,870 | $4,503,703 |
| Net realized gain (loss) | 29,167,266 | 75,588,447 |
| Net unrealized gain (loss) | (116,585,749) | 50,895,083 |
| Change in net assets from operations | $(82,524,613) | $130,987,233 |
| Total distributions to shareholders | $(80,090,203) | $(40,220,081) |
| Change in net assets from fund share transactions | $(9,140,433) | $(28,019,737) |
| Total change in net assets | $(171,755,249) | $62,747,415 |
| Net assets | | |
| At beginning of period | 535,086,872 | 472,339,457 |
| At end of period | $363,331,623 | $535,086,872 |
See Notes to Financial Statements
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 past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $68.53 | $57.28 | $53.06 | $45.29 | $54.23 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.68 | $0.63 | $0.67 | $0.80 | $0.74 |
| Net realized and unrealized gain (loss) | (10.77) | 15.96 | 7.21 | 11.74 | (4.12) |
| Total from investment operations | $(10.09) | $16.59 | $7.88 | $12.54 | $(3.38) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.68) | $(0.74) | $(0.88) | $(0.79) | $(0.77) |
| From net realized gain | (10.28) | (4.60) | (2.78) | (3.98) | (4.79) |
| Total distributions declared to shareholders | $(10.96) | $(5.34) | $(3.66) | $(4.77) | $(5.56) |
| Net asset value, end of period (x) | $47.48 | $68.53 | $57.28 | $53.06 | $45.29 |
| Total return (%) (k)(r)(s)(x) | (16.00) | 29.53 | 15.34 | 29.17 | (7.74) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.45 | 0.45 | 0.45 | 0.45 | 0.45 |
| Expenses after expense reductions | 0.44 | 0.43 | 0.44 | 0.44 | 0.44 |
| Net investment income (loss) | 1.20 | 0.98 | 1.30 | 1.58 | 1.39 |
| Portfolio turnover | 43 | 51 | 56 | 46 | 54 |
| Net assets at end of period (000 omitted) | $230,413 | $313,788 | $280,679 | $285,654 | $256,439 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $67.71 | $56.68 | $52.54 | $44.87 | $53.79 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.53 | $0.47 | $0.54 | $0.67 | $0.61 |
| Net realized and unrealized gain (loss) | (10.62) | 15.76 | 7.12 | 11.64 | (4.11) |
| Total from investment operations | $(10.09) | $16.23 | $7.66 | $12.31 | $(3.50) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.52) | $(0.60) | $(0.74) | $(0.66) | $(0.63) |
| From net realized gain | (10.28) | (4.60) | (2.78) | (3.98) | (4.79) |
| Total distributions declared to shareholders | $(10.80) | $(5.20) | $(3.52) | $(4.64) | $(5.42) |
| Net asset value, end of period (x) | $46.82 | $67.71 | $56.68 | $52.54 | $44.87 |
| Total return (%) (k)(r)(s)(x) | (16.20) | 29.18 | 15.06 | 28.87 | (7.99) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.70 | 0.70 | 0.70 | 0.70 | 0.70 |
| Expenses after expense reductions | 0.69 | 0.68 | 0.69 | 0.69 | 0.69 |
| Net investment income (loss) | 0.96 | 0.73 | 1.05 | 1.33 | 1.14 |
| Portfolio turnover | 43 | 51 | 56 | 46 | 54 |
| Net assets at end of period (000 omitted) | $132,919 | $221,299 | $191,661 | $186,380 | $157,522 |
See Notes to Financial Statements
MFS Blended Research Core Equity Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Blended Research Core Equity Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements - continued
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 significant 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 December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $360,351,074 | $— | $— | $360,351,074 |
| Mutual Funds | 2,601,486 | — | — | 2,601,486 |
| Total | $362,952,560 | $— | $— | $362,952,560 |
For further information regarding security characteristics, see the Portfolio of Investments.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $22,880,184 | $8,025,024 |
| Long-term capital gains | 57,210,019 | 32,195,057 |
| Total distributions | $80,090,203 | $40,220,081 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/22 | |
| Cost of investments | $269,493,154 |
| Gross appreciation | 110,105,997 |
| Gross depreciation | (16,646,591) |
| Net unrealized appreciation (depreciation) | $93,459,406 |
| Undistributed ordinary income | 4,890,956 |
| Undistributed long-term capital gain | 29,678,867 |
| Total distributable earnings (loss) | $128,029,229 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $46,246,614 | | $23,828,611 |
| Service Class | 33,843,589 | | 16,391,470 |
| Total | $80,090,203 | | $40,220,081 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.40% |
| In excess of $1 billion and up to $2.5 billion | 0.375% |
| In excess of $2.5 billion | 0.35% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $62,049, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.39% of the fund's average daily net assets.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements - continued
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2022, the fee was $14,148, which equated to 0.0032% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $785.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0176% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended December 31, 2022, this reimbursement amounted to $19,205, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than short-term obligations, aggregated $190,976,086 and $276,474,440, 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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 117,071 | $6,383,215 | | 87,937 | $5,655,805 |
| Service Class | 964,845 | 57,159,649 | | 205,265 | 13,181,638 |
| | 1,081,916 | $63,542,864 | | 293,202 | $18,837,443 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 881,825 | $45,519,812 | | 363,572 | $23,508,544 |
| Service Class | 664,251 | 33,843,589 | | 256,317 | 16,391,470 |
| | 1,546,076 | $79,363,401 | | 619,889 | $39,900,014 |
| Shares reacquired | | | | | |
| Initial Class | (725,440) | $(40,687,292) | | (772,417) | $(49,707,987) |
| Service Class | (2,058,508) | (111,359,406) | | (574,966) | (37,049,207) |
| | (2,783,948) | $(152,046,698) | | (1,347,383) | $(86,757,194) |
| Net change | | | | | |
| Initial Class | 273,456 | $11,215,735 | | (320,908) | $(20,543,638) |
| Service Class | (429,412) | (20,356,168) | | (113,384) | (7,476,099) |
| | (155,956) | $(9,140,433) | | (434,292) | $(28,019,737) |
MFS Blended Research Core Equity Portfolio
Notes to Financial Statements - continued
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $2,184 and $1,536, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $1,708,524 | $56,551,537 | $55,659,389 | $296 | $518 | $2,601,486 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $35,472 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
MFS Blended Research Core Equity Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Blended Research Core Equity Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Blended Research Core Equity Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Blended Research Core Equity Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS Blended Research Core Equity Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS Blended Research Core Equity Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Jim Fallon
Matt Krummell
Jonathan Sage
Jed Stocks | |
MFS Blended Research Core Equity Portfolio
Board Review of Investment Advisory Agreement
MFS Blended Research Core Equity Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for the one-year period and the 3rd quintile for the three-year period ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. The Trustees noted that the total return performance (Class I shares) of the Fund’s retail counterpart, MFS Blended Research Core Equity Fund, which has substantially similar investment strategies, was in the 3rd
MFS Blended Research Core Equity Portfolio
Board Review of Investment Advisory Agreement - continued
quintile relative to the other funds in its Broadridge performance universe for the five-year period ended December 31, 2021. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each lower than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2.5 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS Blended Research Core Equity Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $62,932,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 27.06% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
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Annual Report
December 31, 2022
MFS® Core Equity Portfolio
MFS® Variable Insurance Trust II
MFS® Core Equity Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Core Equity Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Core Equity Portfolio
Portfolio structure
Top ten holdings
| Apple, Inc. | 5.6% |
| Microsoft Corp. | 5.6% |
| Alphabet, Inc., “A” | 3.1% |
| Amazon.com, Inc. | 2.3% |
| Exxon Mobil Corp. | 2.3% |
| Visa, Inc., “A” | 1.7% |
| JPMorgan Chase & Co. | 1.6% |
| Johnson & Johnson | 1.6% |
| Cigna Corp. | 1.5% |
| Pfizer, Inc. | 1.3% |
Global equity sectors (k)
| Technology | 26.8% |
| Health Care (s) | 15.6% |
| Financial Services | 14.7% |
| Capital Goods | 14.5% |
| Consumer Cyclicals | 11.1% |
| Energy | 8.7% |
| Consumer Staples | 5.2% |
| Telecommunications and Cable Television (s) | 2.0% |
| (k) | The sectors set forth above and the associated portfolio composition are based on MFS’ own custom sector classification methodology. |
| (s) | Includes securities sold short. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS Core Equity Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Core Equity Portfolio (fund) provided a total return of -17.27%, while Service Class shares of the fund provided a total return of -17.48%. These compare with a return of -19.21% over the same period for the fund’s benchmark, the Russell 3000® Index.
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Contributors to Performance
During the reporting period, favorable stock selection within the capital goods, health care and technology sectors contributed to the fund’s performance relative to the Russell 3000 Index. Within the capital goods sector, not owning shares of electric vehicle manufacturer Tesla strengthened relative results as the stock underperformed the benchmark. The stock price of Tesla declined due to uncertainty surrounding production shutdowns at the company's Shanghai manufacturing plant, reduced vehicle deliveries, increased competitive concerns and questions regarding Tesla CEO Elon Musk’s acquisition of social media platform Twitter. Within the health care sector, the fund’s overweight positions in global health services provider Cigna, pharmaceutical company Merck, health services company McKesson, biotechnology company Vertex Pharmaceuticals and medical devices maker Boston Scientific aided relative returns. The stock price of Merck rose as the company’s earnings and sales results exceeded expectations due to favorable impacts from the COVID-19 recovery. Management also raised its forward-looking sales guidance, which further supported the stock. Within the technology sector, the fund’s underweight position in social networking service provider Meta Platforms(h), and not owning shares of weak-performing computer graphics processor maker NVIDIA, benefited relative returns. The stock price of NVIDIA declined as the company reported lower revenue derived from its gaming segment as demand in crypto mining subsided and inventory levels swelled.
Elsewhere, the fund's overweight position in wireless communications services provider T-Mobile US, and the timing of its ownership in shares of integrated energy company Chevron(h), strengthened relative returns. The stock price of Chevron climbed as the company posted above-consensus earnings due to strength in global liquified natural gas demand and better-than-expected upstream earnings.
Detractors from Performance
The fund’s overweight positions in life sciences consumables provider Maravai Lifesciences Holdings, software development company Atlassian, analytics services provider Clarivate (United Kingdom), international cable company Liberty Broadband (United Kingdom), customer information software manager Salesforce, technology company Alphabet and security risk intelligence solutions provider Rapid7 detracted from relative performance. The stock price of Alphabet declined as the company reported financial results below
MFS Core Equity Portfolio
Management Review - continued
expectations, driven by lower-than-expected revenue growth and weak performance in its search, YouTube and ad network segments. Additionally, not owning shares of health insurance and Medicare/Medicaid provider UnitedHealth Group, insurance and investment firm Berkshire Hathaway and pharmaceutical company AbbVie weakened the fund’s relative returns as all three stocks outperformed the benchmark.
Respectfully,
Portfolio Manager(s)
Joseph MacDougall
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Core Equity Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 5/12/97 | (17.27)% | 9.53% | 12.61% |
| Service Class | 8/24/01 | (17.48)% | 9.26% | 12.33% |
Comparative benchmark(s)
| Russell 3000® Index (f) | (19.21)% | 8.79% | 12.13% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Russell 3000® Index(h) – constructed to provide a comprehensive barometer for the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.
It is not possible to invest directly in an index.
| (h) | Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this document. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor, or endorse the content of this document. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Core Equity Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Core Equity Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.83% | $1,000.00 | $1,022.82 | $4.23 |
| Hypothetical (h) | 0.83% | $1,000.00 | $1,021.02 | $4.23 |
| Service Class | Actual | 1.08% | $1,000.00 | $1,021.50 | $5.50 |
| Hypothetical (h) | 1.08% | $1,000.00 | $1,019.76 | $5.50 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Notes to Expense Table
Expense ratios include 0.02% of investment related expenses from short sales (See Note 2 of the Notes to Financial Statements) that are outside of the expense limitation arrangement (See Note 3 of the Notes to Financial Statements).
MFS Core Equity Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 98.9% |
| Aerospace & Defense – 2.8% | |
| Curtiss-Wright Corp. | | 3,208 | $ 535,704 |
| General Dynamics Corp. | | 2,982 | 739,864 |
| Honeywell International, Inc. | | 7,183 | 1,539,317 |
| Howmet Aerospace, Inc. | | 21,750 | 857,168 |
| Leidos Holdings, Inc. | | 3,317 | 348,915 |
| Northrop Grumman Corp. | | 1,167 | 636,727 |
| Raytheon Technologies Corp. | | 16,410 | 1,656,097 |
| | | | | $6,313,792 |
| Alcoholic Beverages – 0.4% | |
| Constellation Brands, Inc., “A” | | 3,440 | $ 797,220 |
| Apparel Manufacturers – 0.5% | |
| NIKE, Inc., “B” | | 4,677 | $ 547,256 |
| On Holding AG (a) | | 12,403 | 212,836 |
| Skechers USA, Inc., “A” (a) | | 6,293 | 263,991 |
| | | | | $1,024,083 |
| Automotive – 1.1% | |
| Aptiv PLC (a) | | 12,405 | $ 1,155,278 |
| LKQ Corp. | | 24,747 | 1,321,737 |
| | | | | $2,477,015 |
| Biotechnology – 0.0% | |
| Oxford Nanopore Technologies PLC (a) | | 39,129 | $ 116,607 |
| Broadcasting – 0.9% | |
| Omnicom Group, Inc. | | 5,303 | $ 432,566 |
| Walt Disney Co. (a) | | 14,222 | 1,235,607 |
| Warner Bros. Discovery, Inc. (a) | | 34,662 | 328,596 |
| | | | | $1,996,769 |
| Brokerage & Asset Managers – 1.9% | |
| Charles Schwab Corp. | | 16,930 | $ 1,409,592 |
| CME Group, Inc. | | 4,616 | 776,226 |
| Invesco Ltd. | | 4,106 | 73,867 |
| KKR & Co., Inc. | | 8,266 | 383,708 |
| LPL Financial Holdings, Inc. | | 1,139 | 246,218 |
| Raymond James Financial, Inc. | | 12,577 | 1,343,852 |
| | | | | $4,233,463 |
| Business Services – 2.7% | |
| Accenture PLC, “A” | | 7,031 | $ 1,876,152 |
| Amdocs Ltd. | | 12,563 | 1,141,977 |
| Clarivate PLC (a) | | 72,650 | 605,901 |
| Equifax, Inc. | | 1,255 | 243,922 |
| Fidelity National Information Services, Inc. | | 10,380 | 704,283 |
| Paya, Inc. (a) | | 69,729 | 548,767 |
| PayPal Holdings, Inc. (a) | | 9,372 | 667,474 |
| Thoughtworks Holding, Inc. (a) | | 26,518 | 270,218 |
| | | | | $6,058,694 |
MFS Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Cable TV – 0.3% | |
| Cable One, Inc. | | 993 | $ 706,877 |
| Chemicals – 0.2% | |
| Element Solutions, Inc. | | 22,557 | $ 410,312 |
| Computer Software – 8.9% | |
| Adobe Systems, Inc. (a) | | 4,451 | $ 1,497,895 |
| Atlassian Corp. (a) | | 5,511 | 709,155 |
| Black Knight, Inc. (a) | | 6,579 | 406,253 |
| Cadence Design Systems, Inc. (a) | | 6,855 | 1,101,187 |
| Check Point Software Technologies Ltd. (a) | | 2,696 | 340,127 |
| Dun & Bradstreet Holdings, Inc. | | 21,510 | 263,713 |
| Elastic N.V. (a) | | 4,177 | 215,116 |
| Intuit, Inc. | | 2,291 | 891,703 |
| Microsoft Corp. (s) | | 52,236 | 12,527,238 |
| NICE Systems Ltd., ADR (a) | | 3,230 | 621,129 |
| Salesforce, Inc. (a) | | 9,284 | 1,230,966 |
| | | | | $19,804,482 |
| Computer Software - Systems – 7.1% | |
| Apple, Inc. (s) | | 96,505 | $ 12,538,895 |
| Block, Inc., “A” (a) | | 12,013 | 754,897 |
| Five9, Inc. (a) | | 3,303 | 224,142 |
| Rapid7, Inc. (a) | | 6,881 | 233,816 |
| ServiceNow, Inc. (a) | | 3,867 | 1,501,440 |
| Zebra Technologies Corp., “A” (a) | | 1,867 | 478,717 |
| | | | | $15,731,907 |
| Construction – 1.3% | |
| AvalonBay Communities, Inc., REIT | | 4,183 | $ 675,638 |
| AZEK Co., Inc. (a) | | 20,005 | 406,502 |
| Masco Corp. | | 11,786 | 550,053 |
| Sherwin-Williams Co. | | 2,559 | 607,327 |
| Vulcan Materials Co. | | 3,309 | 579,439 |
| | | | | $2,818,959 |
| Consumer Products – 1.5% | |
| Colgate-Palmolive Co. | | 12,654 | $ 997,008 |
| International Flavors & Fragrances, Inc. | | 4,533 | 475,240 |
| Kimberly-Clark Corp. | | 5,968 | 810,156 |
| Procter & Gamble Co. | | 7,618 | 1,154,584 |
| | | | | $3,436,988 |
| Consumer Services – 0.6% | |
| Booking Holdings, Inc. (a) | | 352 | $ 709,378 |
| Bright Horizons Family Solutions, Inc. (a) | | 6,629 | 418,290 |
| Grand Canyon Education, Inc. (a) | | 2,944 | 311,063 |
| | | | | $1,438,731 |
| Containers – 0.2% | |
| Ball Corp. | | 6,739 | $ 344,632 |
MFS Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Electrical Equipment – 2.0% | |
| AMETEK, Inc. | | 9,714 | $ 1,357,240 |
| Amphenol Corp., “A” | | 6,321 | 481,281 |
| Johnson Controls International PLC | | 20,091 | 1,285,824 |
| Sensata Technologies Holding PLC | | 29,030 | 1,172,231 |
| TE Connectivity Ltd. | | 2,072 | 237,866 |
| | | | | $4,534,442 |
| Electronics – 4.2% | |
| Advanced Micro Devices (a) | | 10,494 | $ 679,696 |
| Analog Devices, Inc. | | 7,195 | 1,180,196 |
| Applied Materials, Inc. | | 12,694 | 1,236,142 |
| Broadcom, Inc. | | 4,116 | 2,301,379 |
| Lam Research Corp. | | 2,300 | 966,690 |
| Marvell Technology, Inc. | | 8,340 | 308,914 |
| Monolithic Power Systems, Inc. | | 1,395 | 493,286 |
| NXP Semiconductors N.V. | | 6,643 | 1,049,793 |
| Texas Instruments, Inc. | | 7,363 | 1,216,515 |
| | | | | $9,432,611 |
| Energy - Independent – 2.0% | |
| ConocoPhillips | | 13,950 | $ 1,646,100 |
| Diamondback Energy, Inc. | | 7,373 | 1,008,479 |
| Hess Corp. | | 5,203 | 737,889 |
| Valero Energy Corp. | | 7,823 | 992,426 |
| | | | | $4,384,894 |
| Energy - Integrated – 2.3% | |
| Exxon Mobil Corp. | | 46,259 | $ 5,102,368 |
| Energy - Renewables – 0.3% | |
| Enphase Energy, Inc. (a) | | 1,924 | $ 509,783 |
| Generac Holdings, Inc. (a) | | 831 | 83,648 |
| | | | | $593,431 |
| Engineering - Construction – 0.3% | |
| APi Group, Inc. (a) | | 15,280 | $ 287,417 |
| Jacobs Solutions, Inc. | | 3,390 | 407,037 |
| | | | | $694,454 |
| Entertainment – 0.1% | |
| Vivid Seats, Inc., “A” (a)(l) | | 28,408 | $ 207,378 |
| Food & Beverages – 2.8% | |
| Archer Daniels Midland Co. | | 8,388 | $ 778,826 |
| Coca-Cola Co. | | 6,681 | 424,979 |
| Coca-Cola Europacific Partners PLC | | 9,006 | 498,212 |
| J.M. Smucker Co. | | 2,746 | 435,131 |
| Mondelez International, Inc. | | 23,571 | 1,571,007 |
| Oatly Group AB, ADR (a)(l) | | 96,272 | 167,513 |
| PepsiCo, Inc. | | 13,153 | 2,376,221 |
| | | | | $6,251,889 |
| Forest & Paper Products – 0.4% | |
| Rayonier, Inc., REIT | | 27,401 | $ 903,137 |
MFS Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Gaming & Lodging – 0.5% | |
| International Game Technology PLC | | 18,741 | $ 425,046 |
| Las Vegas Sands Corp. (a) | | 3,378 | 162,380 |
| Marriott International, Inc., “A” | | 3,974 | 591,689 |
| | | | | $1,179,115 |
| General Merchandise – 1.0% | |
| Dollar General Corp. | | 5,937 | $ 1,461,986 |
| Dollar Tree, Inc. (a) | | 5,993 | 847,650 |
| | | | | $2,309,636 |
| Health Maintenance Organizations – 2.1% | |
| Cigna Corp. | | 10,179 | $ 3,372,710 |
| Humana, Inc. | | 2,466 | 1,263,060 |
| | | | | $4,635,770 |
| Insurance – 4.0% | |
| Aon PLC | | 7,310 | $ 2,194,023 |
| Arthur J. Gallagher & Co. | | 6,846 | 1,290,745 |
| Assurant, Inc. | | 2,816 | 352,169 |
| Chubb Ltd. | | 7,298 | 1,609,939 |
| Hartford Financial Services Group, Inc. | | 9,898 | 750,565 |
| MetLife, Inc. | | 10,179 | 736,654 |
| Reinsurance Group of America, Inc. | | 3,105 | 441,190 |
| Voya Financial, Inc. | | 11,143 | 685,183 |
| Willis Towers Watson PLC | | 3,710 | 907,392 |
| | | | | $8,967,860 |
| Internet – 3.3% | |
| Alphabet, Inc., “A” (a)(s) | | 78,179 | $ 6,897,733 |
| Gartner, Inc. (a) | | 1,082 | 363,704 |
| | | | | $7,261,437 |
| Leisure & Toys – 0.8% | |
| Electronic Arts, Inc. | | 8,421 | $ 1,028,877 |
| Funko, Inc., “A” (a) | | 27,680 | 301,989 |
| Take-Two Interactive Software, Inc. (a) | | 3,506 | 365,080 |
| | | | | $1,695,946 |
| Machinery & Tools – 2.8% | |
| Dover Corp. | | 5,262 | $ 712,527 |
| Eaton Corp. PLC | | 8,759 | 1,374,725 |
| Flowserve Corp. | | 19,773 | 606,636 |
| Ingersoll Rand, Inc. | | 21,387 | 1,117,471 |
| PACCAR, Inc. | | 7,100 | 702,687 |
| Regal Rexnord Corp. | | 7,751 | 929,965 |
| Wabtec Corp. | | 7,798 | 778,318 |
| | | | | $6,222,329 |
| Major Banks – 3.7% | |
| JPMorgan Chase & Co. (s) | | 26,810 | $ 3,595,221 |
| Morgan Stanley | | 19,699 | 1,674,809 |
| PNC Financial Services Group, Inc. | | 6,850 | 1,081,889 |
| Regions Financial Corp. | | 22,752 | 490,533 |
| Wells Fargo & Co. | | 32,707 | 1,350,472 |
| | | | | $8,192,924 |
MFS Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Medical & Health Technology & Services – 1.6% | |
| ICON PLC (a) | | 6,706 | $ 1,302,641 |
| IDEXX Laboratories, Inc. (a) | | 788 | 321,472 |
| McKesson Corp. | | 3,981 | 1,493,353 |
| Veeva Systems, Inc. (a) | | 2,774 | 447,668 |
| | | | | $3,565,134 |
| Medical Equipment – 4.8% | |
| Agilent Technologies, Inc. | | 5,800 | $ 867,970 |
| Align Technology, Inc. (a) | | 722 | 152,270 |
| Becton, Dickinson and Co. | | 7,013 | 1,783,406 |
| Boston Scientific Corp. (a) | | 50,823 | 2,351,580 |
| Envista Holdings Corp. (a) | | 13,521 | 455,252 |
| Maravai Lifesciences Holdings, Inc., “A” (a) | | 83,238 | 1,191,136 |
| Medtronic PLC | | 23,674 | 1,839,943 |
| Quidel Corp. (a) | | 12,047 | 1,032,067 |
| STERIS PLC | | 5,080 | 938,225 |
| | | | | $10,611,849 |
| Natural Gas - Pipeline – 0.2% | |
| Cheniere Energy, Inc. | | 3,530 | $ 529,359 |
| Network & Telecom – 0.6% | |
| Equinix, Inc., REIT | | 1,140 | $ 746,734 |
| Motorola Solutions, Inc. | | 2,646 | 681,901 |
| | | | | $1,428,635 |
| Oil Services – 0.6% | |
| Cactus, Inc., “A” | | 12,396 | $ 623,023 |
| Schlumberger Ltd. | | 15,371 | 821,734 |
| | | | | $1,444,757 |
| Other Banks & Diversified Financials – 3.6% | |
| First Interstate BancSystem, Inc. | | 10,588 | $ 409,226 |
| First Republic Bank | | 3,367 | 410,404 |
| M&T Bank Corp. | | 8,011 | 1,162,076 |
| Moody's Corp. | | 3,502 | 975,727 |
| Northern Trust Corp. | | 3,625 | 320,776 |
| SLM Corp. | | 27,737 | 460,434 |
| SVB Financial Group (a) | | 822 | 189,175 |
| United Community Bank, Inc. | | 9,939 | 335,938 |
| Visa, Inc., “A” | | 18,390 | 3,820,707 |
| | | | | $8,084,463 |
| Pharmaceuticals – 7.3% | |
| Eli Lilly & Co. | | 6,644 | $ 2,430,641 |
| Johnson & Johnson | | 19,611 | 3,464,283 |
| Merck & Co., Inc. | | 24,418 | 2,709,177 |
| Organon & Co. | | 27,434 | 766,232 |
| Pfizer, Inc. | | 57,590 | 2,950,911 |
| Vertex Pharmaceuticals, Inc. (a) | | 7,323 | 2,114,736 |
| Zoetis, Inc. | | 12,071 | 1,769,005 |
| | | | | $16,204,985 |
| Pollution Control – 0.5% | |
| GFL Environmental, Inc. | | 38,435 | $ 1,123,455 |
MFS Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Printing & Publishing – 0.1% | |
| Warner Music Group Corp. | | 6,241 | $ 218,560 |
| Railroad & Shipping – 1.0% | |
| Canadian Pacific Railway Ltd. | | 18,876 | $ 1,407,961 |
| CSX Corp. | | 25,823 | 799,996 |
| | | | | $2,207,957 |
| Real Estate – 1.5% | |
| Broadstone Net Lease, Inc., REIT | | 39,596 | $ 641,851 |
| Empire State Realty Trust, REIT, “A” | | 57,511 | 387,624 |
| Extra Space Storage, Inc., REIT | | 4,727 | 695,720 |
| Jones Lang LaSalle, Inc. (a) | | 1,967 | 313,481 |
| STORE Capital Corp., REIT | | 20,877 | 669,317 |
| Sun Communities, Inc., REIT | | 4,018 | 574,574 |
| | | | | $3,282,567 |
| Restaurants – 1.6% | |
| Starbucks Corp. | | 23,805 | $ 2,361,456 |
| Wendy's Co. | | 51,346 | 1,161,960 |
| | | | | $3,523,416 |
| Specialty Chemicals – 1.7% | |
| Air Products & Chemicals, Inc. | | 2,497 | $ 769,725 |
| Axalta Coating Systems Ltd. (a) | | 17,611 | 448,552 |
| Chemours Co. | | 7,763 | 237,703 |
| Diversey Holdings Ltd. (a) | | 67,122 | 285,940 |
| DuPont de Nemours, Inc. | | 10,194 | 699,614 |
| Linde PLC | | 2,979 | 971,690 |
| Univar Solutions, Inc. (a) | | 8,847 | 281,335 |
| | | | | $3,694,559 |
| Specialty Stores – 5.0% | |
| Amazon.com, Inc. (a)(s) | | 61,795 | $ 5,190,780 |
| Home Depot, Inc. | | 9,300 | 2,937,498 |
| Lululemon Athletica, Inc. (a) | | 1,962 | 628,585 |
| Ross Stores, Inc. | | 9,686 | 1,124,254 |
| Target Corp. | | 8,543 | 1,273,249 |
| | | | | $11,154,366 |
| Telecommunications - Wireless – 1.7% | |
| Liberty Broadband Corp. (a) | | 11,192 | $ 853,614 |
| SBA Communications Corp., REIT | | 4,925 | 1,380,527 |
| T-Mobile US, Inc. (a) | | 11,626 | 1,627,640 |
| | | | | $3,861,781 |
| Telephone Services – 0.1% | |
| Altice USA, Inc., “A” (a) | | 34,525 | $ 158,815 |
| Tobacco – 0.5% | |
| Philip Morris International, Inc. | | 10,283 | $ 1,040,742 |
| Trucking – 0.3% | |
| Saia, Inc. (a) | | 2,832 | $ 593,814 |
MFS Core Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Utilities - Electric Power – 3.2% | |
| American Electric Power Co., Inc. | | 4,190 | $ 397,841 |
| CenterPoint Energy, Inc. | | 27,832 | 834,682 |
| Constellation Energy | | 4,082 | 351,909 |
| Dominion Energy, Inc. | | 4,493 | 275,511 |
| Duke Energy Corp. | | 6,938 | 714,545 |
| Evergy, Inc. | | 3,630 | 228,436 |
| Exelon Corp. | | 12,247 | 529,438 |
| NextEra Energy, Inc. | | 17,579 | 1,469,604 |
| PG&E Corp. (a) | | 56,458 | 918,007 |
| PPL Corp. | | 9,034 | 263,973 |
| Sempra Energy | | 2,762 | 426,839 |
| Xcel Energy, Inc. | | 11,947 | 837,604 |
| | | | | $7,248,389 |
| Total Common Stocks (Identified Cost, $163,614,613) | | $220,257,755 |
| Investment Companies (h) – 1.5% |
| Money Market Funds – 1.5% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $3,265,395) | | | 3,265,374 | $ 3,266,354 |
| Collateral for Securities Loaned – 0.0% |
| State Street Navigator Securities Lending Government Money Market Portfolio, 4.33% (j) (Identified Cost, $116,228) | | | 116,228 | $ 116,228 |
| Securities Sold Short – (0.3)% |
| Medical & Health Technology & Services – (0.2)% |
| Healthcare Services Group, Inc. | | | (26,385) | $ (316,620) |
| Telecommunications - Wireless – (0.1)% |
| Crown Castle, Inc., REIT | | | (2,286) | $ (310,073) |
| Total Securities Sold Short (Proceeds Received, $1,087,989) | $(626,693) |
| Other Assets, Less Liabilities – (0.1)% | | (241,847) |
| Net Assets – 100.0% | $222,771,797 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $3,266,354 and $220,373,983, respectively. | | | |
| (j) | The rate quoted is the annualized seven-day yield of the fund at period end. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (s) | Security or a portion of the security was pledged to cover collateral requirements for securities sold short. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| REIT | Real Estate Investment Trust |
At December 31, 2022, the fund had cash collateral of $6,995 and other liquid securities with an aggregate value of $2,565,394 to cover any collateral or margin obligations for securities sold short. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised of cash collateral.
See Notes to Financial Statements
MFS Core Equity Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value, including $102,554 of securities on loan (identified cost, $163,730,841) | $220,373,983 |
| Investments in affiliated issuers, at value (identified cost, $3,265,395) | 3,266,354 |
| Deposits with brokers for | |
| Securities sold short | 6,995 |
| Receivables for | |
| Investments sold | 439,147 |
| Fund shares sold | 97,458 |
| Interest and dividends | 244,791 |
| Other assets | 1,452 |
| Total assets | $224,430,180 |
| Liabilities | |
| Payable to custodian | $40,000 |
| Payables for | |
| Securities sold short, at value (proceeds received, $1,087,989) | 626,693 |
| Investments purchased | 460,948 |
| Fund shares reacquired | 318,169 |
| Collateral for securities loaned, at value | 116,228 |
| Payable to affiliates | |
| Investment adviser | 10,483 |
| Administrative services fee | 339 |
| Shareholder servicing costs | 60 |
| Distribution and/or service fees | 1,438 |
| Accrued expenses and other liabilities | 84,025 |
| Total liabilities | $1,658,383 |
| Net assets | $222,771,797 |
| Net assets consist of | |
| Paid-in capital | $153,221,790 |
| Total distributable earnings (loss) | 69,550,007 |
| Net assets | $222,771,797 |
| Shares of beneficial interest outstanding | 9,438,985 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $152,478,697 | 6,424,863 | $23.73 |
| Service Class | 70,293,100 | 3,014,122 | 23.32 |
See Notes to Financial Statements
MFS Core Equity Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $3,278,175 |
| Dividends from affiliated issuers | 50,611 |
| Other | 7,122 |
| Income on securities loaned | 627 |
| Foreign taxes withheld | (6,700) |
| Total investment income | $3,329,835 |
| Expenses | |
| Management fee | $1,795,082 |
| Distribution and/or service fees | 174,231 |
| Shareholder servicing costs | 15,101 |
| Administrative services fee | 46,596 |
| Independent Trustees' compensation | 5,749 |
| Custodian fee | 13,444 |
| Shareholder communications | 19,700 |
| Audit and tax fees | 62,280 |
| Legal fees | 1,115 |
| Dividend and interest expense on securities sold short | 57,334 |
| Interest expense and fees | 1,177 |
| Miscellaneous | 32,537 |
| Total expenses | $2,224,346 |
| Reduction of expenses by investment adviser | (54,582) |
| Net expenses | $2,169,764 |
| Net investment income (loss) | $1,160,071 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $11,420,821 |
| Affiliated issuers | 298 |
| Securities sold short | 202,043 |
| Foreign currency | 62 |
| Net realized gain (loss) | $11,623,224 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(61,182,589) |
| Affiliated issuers | 959 |
| Securities sold short | 208,647 |
| Translation of assets and liabilities in foreign currencies | (35) |
| Net unrealized gain (loss) | $(60,973,018) |
| Net realized and unrealized gain (loss) | $(49,349,794) |
| Change in net assets from operations | $(48,189,723) |
See Notes to Financial Statements
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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $1,160,071 | $619,698 |
| Net realized gain (loss) | 11,623,224 | 26,925,636 |
| Net unrealized gain (loss) | (60,973,018) | 30,895,347 |
| Change in net assets from operations | $(48,189,723) | $58,440,681 |
| Total distributions to shareholders | $(27,561,170) | $(20,746,234) |
| Change in net assets from fund share transactions | $15,779,075 | $12,660,144 |
| Total change in net assets | $(59,971,818) | $50,354,591 |
| Net assets | | |
| At beginning of period | 282,743,615 | 232,389,024 |
| At end of period | $222,771,797 | $282,743,615 |
See Notes to Financial Statements
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 past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $32.33 | $27.88 | $24.81 | $21.68 | $25.21 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.15 | $0.09 | $0.14 | $0.18 | $0.20 |
| Net realized and unrealized gain (loss) | (5.50) | 6.85 | 4.38 | 6.59 | (0.78) |
| Total from investment operations | $(5.35) | $6.94 | $4.52 | $6.77 | $(0.58) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.09) | $(0.14) | $(0.18) | $(0.21) | $(0.18) |
| From net realized gain | (3.16) | (2.35) | (1.27) | (3.43) | (2.77) |
| Total distributions declared to shareholders | $(3.25) | $(2.49) | $(1.45) | $(3.64) | $(2.95) |
| Net asset value, end of period (x) | $23.73 | $32.33 | $27.88 | $24.81 | $21.68 |
| Total return (%) (k)(r)(s)(x) | (17.27) | 25.31 | 18.71 | 33.19 | (3.83) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.86 | 0.85 | 0.87 | 0.88 | 0.87 |
| Expenses after expense reductions | 0.83 | 0.83 | 0.86 | 0.87 | 0.86 |
| Net investment income (loss) | 0.55 | 0.29 | 0.56 | 0.75 | 0.79 |
| Portfolio turnover | 28 | 35 | 46 | 37 | 40 |
| Net assets at end of period (000 omitted) | $152,479 | $206,060 | $177,571 | $167,488 | $144,991 |
| Supplemental Ratios (%): | | | | | |
| Ratios of expenses to average net assets after expense reductions excluding short sale expenses and interest expense and fees | 0.81 | 0.81 | 0.83 | 0.83 | 0.83 |
See Notes to Financial Statements
MFS Core Equity Portfolio
Financial Highlights - continued
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $31.84 | $27.50 | $24.50 | $21.44 | $24.96 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.08 | $0.02 | $0.08 | $0.12 | $0.14 |
| Net realized and unrealized gain (loss) | (5.42) | 6.76 | 4.31 | 6.51 | (0.78) |
| Total from investment operations | $(5.34) | $6.78 | $4.39 | $6.63 | $(0.64) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.02) | $(0.09) | $(0.12) | $(0.14) | $(0.11) |
| From net realized gain | (3.16) | (2.35) | (1.27) | (3.43) | (2.77) |
| Total distributions declared to shareholders | $(3.18) | $(2.44) | $(1.39) | $(3.57) | $(2.88) |
| Net asset value, end of period (x) | $23.32 | $31.84 | $27.50 | $24.50 | $21.44 |
| Total return (%) (k)(r)(s)(x) | (17.48) | 25.05 | 18.39 | 32.87 | (4.07) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.11 | 1.10 | 1.12 | 1.13 | 1.12 |
| Expenses after expense reductions | 1.08 | 1.08 | 1.11 | 1.12 | 1.11 |
| Net investment income (loss) | 0.32 | 0.07 | 0.32 | 0.50 | 0.54 |
| Portfolio turnover | 28 | 35 | 46 | 37 | 40 |
| Net assets at end of period (000 omitted) | $70,293 | $76,684 | $54,818 | $46,744 | $41,195 |
| Supplemental Ratios (%): | | | | | |
| Ratios of expenses to average net assets after expense reductions excluding short sale expenses and interest expense and fees | 1.06 | 1.06 | 1.08 | 1.08 | 1.08 |
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS Core Equity Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Core Equity Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities and equity securities sold short, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities sold short, for which there were no sales reported that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party
MFS Core Equity Portfolio
Notes to Financial Statements - continued
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 significant 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 December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities | $220,257,755 | $— | $— | $220,257,755 |
| Mutual Funds | 3,382,582 | — | — | 3,382,582 |
| Total | $223,640,337 | $— | $— | $223,640,337 |
| Securities Sold Short | $(626,693) | $— | $— | $(626,693) |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Short Sales — The fund entered into short sales whereby it sells a security it does not own in anticipation of a decline in the value of that security. The fund will realize a gain if the security price decreases and a loss if the security price increases between the date of the short sale and the date on which the fund replaces the borrowed security. Losses from short sales can exceed the proceeds of the security sold; and they can also exceed the potential loss from an ordinary buy and sell transaction. The amount of any premium, dividends, or interest the fund may be required to pay in connection with a short sale will be recognized as a fund expense. During the year ended December 31, 2022, this expense amounted to $57,334.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund's Portfolio of Investments, with a fair value of $102,554. The fair value of the fund's investment securities on loan and a related liability of $116,228 for cash collateral received on securities loaned are both presented gross in the Statement of Assets and Liabilities. The collateral on securities loaned exceeded the value of securities on loan at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder
MFS Core Equity Portfolio
Notes to Financial Statements - continued
is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $8,251,087 | $2,074,180 |
| Long-term capital gains | 19,310,083 | 18,672,054 |
| Total distributions | $27,561,170 | $20,746,234 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/22 | |
| Cost of investments | $166,351,785 |
| Gross appreciation | 69,767,228 |
| Gross depreciation | (13,105,369) |
| Net unrealized appreciation (depreciation) | $56,661,859 |
| Undistributed ordinary income | 913,023 |
| Undistributed long-term capital gain | 11,975,120 |
| Other temporary differences | 5 |
| Total distributable earnings (loss) | $69,550,007 |
MFS Core Equity Portfolio
Notes to Financial Statements - continued
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $19,378,556 | | $15,244,249 |
| Service Class | 8,182,614 | | 5,501,985 |
| Total | $27,561,170 | | $20,746,234 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.75% |
| In excess of $1 billion and up to $2.5 billion | 0.65% |
| In excess of $2.5 billion | 0.60% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $33,275, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.74% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses (such as short sale dividend and interest expenses incurred in connection with the fund's investment activity), such that total annual operating expenses do not exceed 0.81% of average daily net assets for the Initial Class shares and 1.06% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this reduction amounted to $21,307, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2022, the fee was $14,356, which equated to 0.0060% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $745.
MFS Core Equity Portfolio
Notes to Financial Statements - continued
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0195% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended December 31, 2022, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $159,031 and $261,941, respectively. The sales transactions resulted in net realized gains (losses) of $119,906.
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended December 31, 2022, this reimbursement amounted to $7,122, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than short sales and short-term obligations, aggregated $66,665,000 and $78,030,957, 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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 282,734 | $7,431,003 | | 625,283 | $19,234,200 |
| Service Class | 567,647 | 14,808,466 | | 752,461 | 22,860,413 |
| | 850,381 | $22,239,469 | | 1,377,744 | $42,094,613 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 757,271 | $19,378,556 | | 493,821 | $15,244,249 |
| Service Class | 325,094 | 8,182,614 | | 180,808 | 5,501,985 |
| | 1,082,365 | $27,561,170 | | 674,629 | $20,746,234 |
| Shares reacquired | | | | | |
| Initial Class | (987,891) | $(26,358,332) | | (1,116,226) | $(34,482,616) |
| Service Class | (287,076) | (7,663,232) | | (517,854) | (15,698,087) |
| | (1,274,967) | $(34,021,564) | | (1,634,080) | $(50,180,703) |
| Net change | | | | | |
| Initial Class | 52,114 | $451,227 | | 2,878 | $(4,167) |
| Service Class | 605,665 | 15,327,848 | | 415,415 | 12,664,311 |
| | 657,779 | $15,779,075 | | 418,293 | $12,660,144 |
MFS Core Equity Portfolio
Notes to Financial Statements - continued
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $1,137 and $0, respectively, and are included in “Interest expense and fees” in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $2,418,811 | $33,915,660 | $33,069,374 | $298 | $959 | $3,266,354 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $50,611 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
MFS Core Equity Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Core Equity Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Core Equity Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Core Equity Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS Core Equity Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS Core Equity Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
| Joseph MacDougall | |
MFS Core Equity Portfolio
Board Review of Investment Advisory Agreement
MFS Core Equity Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 4th quintile for the one-year period and the 2nd quintile for the three-year period ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Core Equity Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2.5 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS Core Equity Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $21,242,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 30.79% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® Corporate Bond Portfolio
MFS® Variable Insurance Trust II
MFS® Corporate Bond Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Corporate Bond Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Corporate Bond Portfolio
Portfolio structure (i)
Fixed income sectors (i)
| Investment Grade Corporates | 74.7% |
| High Yield Corporates | 8.1% |
| Emerging Markets Bonds | 4.9% |
| U.S. Treasury Securities | 2.0% |
| Commercial Mortgage-Backed Securities | 1.8% |
| Collateralized Debt Obligations | 1.3% |
| Non-U.S. Government Bonds | 1.0% |
| Municipal Bonds | 0.4% |
| Asset-Backed Securities (o) | 0.0% |
Issuer country weightings (x)
| United States | 72.6% |
| Canada | 5.2% |
| United Kingdom | 3.5% |
| Australia | 3.0% |
| Italy | 2.6% |
| Ireland | 2.2% |
| Switzerland | 1.6% |
| United Arab Emirates | 1.1% |
| Japan | 1.1% |
| Other Countries | 7.1% |
Portfolio facts
| Average Duration (d) | 7.0 |
| Average Effective Maturity (m) | 10.8 yrs. |
Composition including fixed income credit quality (a)(i)
| AAA | 3.5% |
| AA | 6.1% |
| A | 26.3% |
| BBB | 47.3% |
| BB | 7.8% |
| B | 2.0% |
| CCC | 0.2% |
| C (o) | 0.0% |
| U.S. Government | 4.1% |
| Not Rated | (3.1)% |
| Cash & Cash Equivalents | 2.6% |
| Other | 3.2% |
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. The Average Duration calculation reflects the impact of the equivalent exposure of derivative positions, if any. |
MFS Corporate Bond Portfolio
Portfolio Composition - continued
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS Corporate Bond Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Corporate Bond Portfolio (fund) provided a total return of -16.36%, while Service Class shares of the fund provided a total return of -16.62%. These compare with a return of -15.26% over the same period for the fund’s benchmark, the Bloomberg U.S. Credit Index.
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Factors Affecting Performance
During the reporting period, the fund’s overweight allocation to both the “BBB” and “BB” rated(r) credit quality segments detracted from performance relative to the Bloomberg U.S. Credit Index. From a sector perspective, the fund’s underweight exposure to both the institutional banking and sovereign sectors, and overweight exposure to the consumer cyclicals sector, also weakened relative returns. Security selection within “BBB” rated securities was another detractor from the fund’s relative performance. Conversely, the fund’s shorter duration(d) stance contributed to relative returns as interest rates rose during the reporting period.
Respectfully,
Portfolio Manager(s)
Alexander Mackey and Henry Peabody
Note to Shareholders: Effective January 20, 2023, John Mitchell was added as a Portfolio Manager and Henry Peabody is no longer a Portfolio Manager of the fund.
| (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. |
| (r) | Securities rated “BBB”, “Baa”, or higher are considered investment grade; securities rated “BB”, “Ba”, or below are considered non-investment grade. Ratings are assigned to underlying securities utilizing ratings from Moody's, Fitch, and Standard & Poor's and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). For securities that are not rated by any of the rating agencies, the security is considered Not Rated. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Corporate Bond Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 5/06/98 | (16.36)% | 0.28% | 1.89% |
| Service Class | 8/24/01 | (16.62)% | 0.03% | 1.63% |
Comparative benchmark(s)
| Bloomberg U.S. Credit Index (f) | (15.26)% | 0.42% | 1.82% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Bloomberg U.S. Credit Index(a) – a market capitalization-weighted index that measures the performance of publicly issued, SEC-registered, U.S. corporate and specified foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements.
It is not possible to invest directly in an index.
| (a) | Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
MFS Corporate Bond Portfolio
Performance Summary – continued
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Corporate Bond Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.63% | $1,000.00 | $987.01 | $3.16 |
| Hypothetical (h) | 0.63% | $1,000.00 | $1,022.03 | $3.21 |
| Service Class | Actual | 0.88% | $1,000.00 | $985.45 | $4.40 |
| Hypothetical (h) | 0.88% | $1,000.00 | $1,020.77 | $4.48 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Corporate Bond Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 96.4% |
| Aerospace & Defense – 2.5% |
| Boeing Co., 5.15%, 5/01/2030 | | $ | 1,171,000 | $ 1,142,474 |
| Boeing Co., 5.805%, 5/01/2050 | | | 958,000 | 888,234 |
| General Dynamics Corp., 3.625%, 4/01/2030 | | | 488,000 | 453,514 |
| Raytheon Technologies Corp., 1.9%, 9/01/2031 | | | 293,000 | 230,037 |
| Raytheon Technologies Corp., 2.375%, 3/15/2032 | | | 434,000 | 351,460 |
| Raytheon Technologies Corp., 3.03%, 3/15/2052 | | | 434,000 | 294,230 |
| | | | | $3,359,949 |
| Apparel Manufacturers – 0.5% |
| Tapestry, Inc., 4.125%, 7/15/2027 | | $ | 95,000 | $ 88,478 |
| Tapestry, Inc., 3.05%, 3/15/2032 | | | 690,000 | 537,030 |
| | | | | $625,508 |
| Asset-Backed & Securitized – 3.2% |
| 3650R Commercial Mortgage Trust, 2021-PF1, “XA”, 1.028%, 11/15/2054 (i) | | $ | 3,861,767 | $ 227,516 |
| ACREC 2021-FL1 Ltd., “A”, FLR, 5.476% (LIBOR - 1mo. + 1.15%), 10/16/2036 (n) | | | 656,500 | 624,794 |
| Arbor Realty Trust, Inc., CLO, 2021-FL4, “AS”, FLR, 6.017% (LIBOR - 1mo. + 1.7%), 11/15/2036 (n) | | | 175,000 | 164,741 |
| Bayview Financial Revolving Mortgage Loan Trust, FLR, 5.988% (LIBOR - 1mo. + 1.6%), 12/28/2040 (n) | | | 52,009 | 63,921 |
| BDS 2021-FL7 Ltd., “B”, FLR, 5.839% (LIBOR - 1mo. + 1.5%), 6/16/2036 (n) | | | 163,500 | 153,396 |
| Benchmark 2021-B27 Mortgage Trust, “XA”, 1.266%, 7/15/2054 (i) | | | 7,037,876 | 495,942 |
| JPMorgan Chase Commercial Mortgage Securities Corp., 5.639%, 7/15/2042 (n) | | | 79,526 | 64,711 |
| KREF 2018-FT1 Ltd., “A”, FLR, 5.396% (LIBOR - 1mo. + 1.1%), 2/15/2039 (n) | | | 288,000 | 278,249 |
| KREF 2018-FT1 Ltd., “AS”, FLR, 5.626% (LIBOR - 1mo. + 1.3%), 2/15/2039 (n) | | | 316,500 | 295,508 |
| Lehman Brothers Commercial Conduit Mortgage Trust, 0.764%, 2/18/2030 (i) | | | 3,499 | 0 |
| MF1 2022-FL8 Ltd., “A”, FLR, 5.175% (SOFR - 1mo. + 1.35%), 2/19/2037 (n) | | | 496,852 | 476,408 |
| PFP III 2021-8 Ltd., “A”, FLR, 5.326% (LIBOR - 1mo. + 1%), 8/09/2037 (n) | | | 479,854 | 460,762 |
| PFP III 2021-8 Ltd., “AS”, FLR, 5.576% (LIBOR - 1mo. + 1.25%), 8/09/2037 (n) | | | 603,000 | 566,453 |
| ReadyCap Commercial Mortgage Trust, 2021-FL5, “A”, FLR, 5.389% (LIBOR - 1mo. + 1%), 4/25/2038 (n) | | | 387,745 | 376,425 |
| | | | | $4,248,826 |
| Automotive – 0.6% |
| Hyundai Capital America, 2%, 6/15/2028 (n) | | $ | 771,000 | $ 628,017 |
| Hyundai Capital America, 6.375%, 4/08/2030 (n) | | | 119,000 | 120,583 |
| | | | | $748,600 |
| Broadcasting – 2.2% |
| Activision Blizzard, Inc., 2.5%, 9/15/2050 | | $ | 487,000 | $ 299,067 |
| Discovery, Inc., 5.3%, 5/15/2049 | | | 600,000 | 453,653 |
| Prosus N.V., 3.832%, 2/08/2051 (n) | | | 637,000 | 384,855 |
| Walt Disney Co., 3.5%, 5/13/2040 | | | 961,000 | 773,614 |
| Walt Disney Co., 3.6%, 1/13/2051 | | | 430,000 | 327,417 |
| Warnermedia Holdings, Inc., 4.279%, 3/15/2032 (n) | | | 442,000 | 364,104 |
| Warnermedia Holdings, Inc., 5.391%, 3/15/2062 (n) | | | 498,000 | 363,547 |
| | | | | $2,966,257 |
| Brokerage & Asset Managers – 2.0% |
| Brookfield Finance, Inc., 2.34%, 1/30/2032 | | $ | 1,076,000 | $ 819,147 |
| Intercontinental Exchange, Inc., 2.1%, 6/15/2030 | | | 929,000 | 757,553 |
| Intercontinental Exchange, Inc., 1.85%, 9/15/2032 | | | 412,000 | 309,917 |
| Intercontinental Exchange, Inc., 3%, 9/15/2060 | | | 265,000 | 166,460 |
| Intercontinental Exchange, Inc., 5.2%, 6/15/2062 | | | 132,000 | 124,353 |
| LPL Holdings, Inc., 4.625%, 11/15/2027 (n) | | | 146,000 | 136,376 |
| LPL Holdings, Inc., 4%, 3/15/2029 (n) | | | 291,000 | 253,199 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Brokerage & Asset Managers – continued |
| LPL Holdings, Inc., 4.375%, 5/15/2031 (n) | | $ | 146,000 | $ 124,122 |
| | | | | $2,691,127 |
| Building – 0.6% |
| Vulcan Materials Co., 3.5%, 6/01/2030 | | $ | 610,000 | $ 537,310 |
| Vulcan Materials Co., 4.5%, 6/15/2047 | | | 299,000 | 248,360 |
| | | | | $785,670 |
| Business Services – 3.3% |
| Equifax, Inc., 3.1%, 5/15/2030 | | $ | 347,000 | $ 291,947 |
| Equifax, Inc., 2.35%, 9/15/2031 | | | 436,000 | 338,315 |
| Equinix, Inc., 2.625%, 11/18/2024 | | | 838,000 | 798,022 |
| Equinix, Inc., 2.5%, 5/15/2031 | | | 934,000 | 750,461 |
| Equinix, Inc., 3%, 7/15/2050 | | | 33,000 | 20,719 |
| Fiserv, Inc., 2.25%, 6/01/2027 | | | 746,000 | 665,793 |
| Fiserv, Inc., 4.4%, 7/01/2049 | | | 364,000 | 295,311 |
| Iron Mountain, Inc., 4.5%, 2/15/2031 (n) | | | 104,000 | 85,482 |
| Visa, Inc., 2.05%, 4/15/2030 | | | 468,000 | 395,460 |
| Visa, Inc., 3.65%, 9/15/2047 | | | 865,000 | 708,437 |
| | | | | $4,349,947 |
| Cable TV – 1.7% |
| Charter Communications Operating LLC/Charter Communications Operating Capital Corp., 6.384%, 10/23/2035 | | $ | 162,000 | $ 157,915 |
| Charter Communications Operating LLC/Charter Communications Operating Capital Corp., 5.375%, 5/01/2047 | | | 896,000 | 702,861 |
| Comcast Corp., 1.95%, 1/15/2031 | | | 371,000 | 299,873 |
| Comcast Corp., 1.5%, 2/15/2031 | | | 184,000 | 143,263 |
| Comcast Corp., 2.8%, 1/15/2051 | | | 931,000 | 587,558 |
| Time Warner Cable, Inc., 4.5%, 9/15/2042 | | | 492,000 | 360,195 |
| | | | | $2,251,665 |
| Chemicals – 0.1% |
| RPM International, Inc., 4.55%, 3/01/2029 | | $ | 131,000 | $ 121,261 |
| RPM International, Inc., 4.25%, 1/15/2048 | | | 67,000 | 49,975 |
| | | | | $171,236 |
| Computer Software – 0.9% |
| Cisco Systems, Inc., 5.5%, 1/15/2040 | | $ | 262,000 | $ 272,639 |
| Microsoft Corp., 2.525%, 6/01/2050 | | | 1,047,000 | 688,977 |
| VeriSign, Inc., 4.75%, 7/15/2027 | | | 248,000 | 239,378 |
| | | | | $1,200,994 |
| Computer Software - Systems – 0.9% |
| Apple, Inc., 1.7%, 8/05/2031 (f) | | $ | 830,000 | $ 663,566 |
| Apple, Inc., 2.7%, 8/05/2051 | | | 727,000 | 479,268 |
| | | | | $1,142,834 |
| Conglomerates – 1.0% |
| Otis Worldwide Corp., 2.565%, 2/15/2030 | | $ | 632,000 | $ 531,006 |
| Westinghouse Air Brake Technologies Corp., 3.2%, 6/15/2025 | | | 467,000 | 439,656 |
| Westinghouse Air Brake Technologies Corp., 4.95%, 9/15/2028 | | | 337,000 | 323,538 |
| | | | | $1,294,200 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Consumer Products – 1.1% |
| Hasbro, Inc., 3.9%, 11/19/2029 | | $ | 783,000 | $ 695,840 |
| Mattel, Inc., 3.75%, 4/01/2029 (n) | | | 938,000 | 823,869 |
| | | | | $1,519,709 |
| Consumer Services – 1.3% |
| Booking Holdings, Inc., 3.6%, 6/01/2026 | | $ | 1,761,000 | $ 1,684,573 |
| Electrical Equipment – 2.2% |
| Arrow Electronics, Inc., 3.875%, 1/12/2028 | | $ | 1,261,000 | $ 1,145,529 |
| Ciena Corp., 4%, 1/31/2030 (n) | | | 1,123,000 | 988,363 |
| Commscope, Inc., 4.75%, 9/01/2029 (n) | | | 1,018,000 | 820,712 |
| | | | | $2,954,604 |
| Electronics – 2.9% |
| Broadcom, Inc., 4.3%, 11/15/2032 | | $ | 437,000 | $ 385,146 |
| Broadcom, Inc., 3.187%, 11/15/2036 (n) | | | 414,000 | 297,371 |
| Lam Research Corp., 1.9%, 6/15/2030 | | | 151,000 | 123,035 |
| Lam Research Corp., 4.875%, 3/15/2049 | | | 283,000 | 267,928 |
| NXP B.V./NXP Funding LLC/NXP USA, Inc., 2.5%, 5/11/2031 | | | 687,000 | 547,182 |
| NXP B.V./NXP Funding LLC/NXP USA, Inc., 3.25%, 5/11/2041 | | | 646,000 | 450,741 |
| Qualcomm, Inc., 3.25%, 5/20/2027 | | | 308,000 | 292,893 |
| Sensata Technologies, Inc., 4.375%, 2/15/2030 (n) | | | 823,000 | 716,425 |
| Sensata Technologies, Inc., 3.75%, 2/15/2031 (n) | | | 105,000 | 86,377 |
| TSMC Arizona Corp., 3.875%, 4/22/2027 | | | 296,000 | 284,549 |
| TSMC Arizona Corp., 3.125%, 10/25/2041 | | | 589,000 | 457,180 |
| | | | | $3,908,827 |
| Emerging Market Quasi-Sovereign – 1.0% |
| Korea Hydro & Nuclear Power Co. Ltd., 4.25%, 7/27/2027 (n) | | $ | 807,000 | $ 775,971 |
| Qatar Petroleum, 3.125%, 7/12/2041 (n) | | | 781,000 | 600,130 |
| | | | | $1,376,101 |
| Emerging Market Sovereign – 0.3% |
| United Mexican States, 4.28%, 8/14/2041 | | $ | 576,000 | $ 444,109 |
| Energy - Independent – 0.4% |
| EQT Corp., 3.625%, 5/15/2031 (n) | | $ | 300,000 | $ 254,231 |
| Hess Corp., 5.8%, 4/01/2047 | | | 315,000 | 300,719 |
| | | | | $554,950 |
| Energy - Integrated – 1.6% |
| BP Capital Markets America, Inc., 1.749%, 8/10/2030 | | $ | 297,000 | $ 236,767 |
| BP Capital Markets America, Inc., 3.001%, 3/17/2052 | | | 427,000 | 281,469 |
| Eni S.p.A., 4.75%, 9/12/2028 (n) | | | 761,000 | 736,471 |
| Eni S.p.A., 4.25%, 5/09/2029 (n) | | | 940,000 | 868,946 |
| | | | | $2,123,653 |
| Entertainment – 0.5% |
| Royal Caribbean Cruises Ltd., 4.25%, 7/01/2026 (n) | | $ | 751,000 | $ 607,069 |
| Financial Institutions – 2.6% |
| AerCap Ireland Capital DAC/AerCap Global Aviation Trust, 3.65%, 7/21/2027 | | $ | 1,410,000 | $ 1,274,626 |
| AerCap Ireland Capital DAC/AerCap Global Aviation Trust, 3.3%, 1/30/2032 | | | 260,000 | 203,258 |
| AerCap Ireland Capital DAC/AerCap Global Aviation Trust, 3.85%, 10/29/2041 | | | 207,000 | 146,344 |
| Air Lease Corp., 2.875%, 1/15/2032 | | | 678,000 | 538,624 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Financial Institutions – continued |
| Avolon Holdings Funding Ltd., 4.375%, 5/01/2026 (n) | | $ | 624,000 | $ 568,555 |
| Avolon Holdings Funding Ltd., 2.75%, 2/21/2028 (n) | | | 841,000 | 675,099 |
| | | | | $3,406,506 |
| Food & Beverages – 3.1% |
| Anheuser-Busch InBev Worldwide, Inc., 4.375%, 4/15/2038 | | $ | 177,000 | $ 158,222 |
| Anheuser-Busch InBev Worldwide, Inc., 4.75%, 4/15/2058 | | | 444,000 | 389,740 |
| Constellation Brands, Inc., 2.25%, 8/01/2031 | | | 761,000 | 604,534 |
| Constellation Brands, Inc., 4.75%, 5/09/2032 | | | 437,000 | 420,488 |
| Constellation Brands, Inc., 3.75%, 5/01/2050 | | | 242,000 | 181,104 |
| Diageo Capital PLC, 2.375%, 10/24/2029 | | | 564,000 | 481,146 |
| JBS USA Lux S.A./JBS USA Finance, Inc., 5.5%, 1/15/2030 (n) | | | 308,000 | 293,068 |
| JBS USA Lux S.A./JBS USA Finance, Inc., 3.75%, 12/01/2031 (n) | | | 308,000 | 251,606 |
| Kraft Heinz Foods Co., 4.875%, 10/01/2049 | | | 149,000 | 129,338 |
| Kraft Heinz Foods Co., 5.5%, 6/01/2050 | | | 648,000 | 619,291 |
| SYSCO Corp., 2.4%, 2/15/2030 | | | 148,000 | 123,016 |
| SYSCO Corp., 2.45%, 12/14/2031 | | | 284,000 | 228,107 |
| SYSCO Corp., 4.45%, 3/15/2048 | | | 320,000 | 262,354 |
| | | | | $4,142,014 |
| Gaming & Lodging – 2.4% |
| Hilton Domestic Operating Co., Inc., 3.625%, 2/15/2032 (n) | | $ | 1,132,000 | $ 906,506 |
| Marriott International, Inc., 4%, 4/15/2028 | | | 449,000 | 416,979 |
| Marriott International, Inc., 2.85%, 4/15/2031 | | | 984,000 | 796,826 |
| VICI Properties LP / VICI Note Co., Inc., 4.25%, 12/01/2026 (n) | | | 150,000 | 139,939 |
| VICI Properties LP / VICI Note Co., Inc., 4.125%, 8/15/2030 (n) | | | 300,000 | 262,549 |
| VICI Properties LP, REIT, 4.75%, 2/15/2028 | | | 748,000 | 709,603 |
| | | | | $3,232,402 |
| Insurance – 0.5% |
| Corebridge Financial, Inc., 3.9%, 4/05/2032 (n) | | $ | 591,000 | $ 516,160 |
| Corebridge Financial, Inc., 4.35%, 4/05/2042 (n) | | | 96,000 | 78,754 |
| | | | | $594,914 |
| Insurance - Health – 1.8% |
| Humana, Inc., 2.15%, 2/03/2032 | | $ | 299,000 | $ 233,319 |
| Humana, Inc., 4.95%, 10/01/2044 | | | 485,000 | 437,916 |
| UnitedHealth Group, Inc., 5.3%, 2/15/2030 | | | 432,000 | 445,151 |
| UnitedHealth Group, Inc., 4.625%, 7/15/2035 | | | 833,000 | 807,581 |
| UnitedHealth Group, Inc., 5.875%, 2/15/2053 | | | 455,000 | 491,293 |
| | | | | $2,415,260 |
| Insurance - Property & Casualty – 1.4% |
| Aon Corp., 3.75%, 5/02/2029 | | $ | 717,000 | $ 661,392 |
| Aon Corp./Aon Global Holdings PLC, 2.05%, 8/23/2031 | | | 455,000 | 359,758 |
| Aon Corp./Aon Global Holdings PLC, 2.6%, 12/02/2031 | | | 111,000 | 90,599 |
| Fairfax Financial Holdings Ltd., 5.625%, 8/16/2032 (n) | | | 804,000 | 754,645 |
| | | | | $1,866,394 |
| International Market Quasi-Sovereign – 0.4% |
| Ontario Teachers' Cadillac Fairview Properties, 2.5%, 10/15/2031 (n) | | $ | 699,000 | $ 532,839 |
| International Market Sovereign – 0.6% |
| Government of Bermuda, 5%, 7/15/2032 (n) | | $ | 783,000 | $ 777,639 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Machinery & Tools – 0.6% |
| CNH Industrial Capital LLC, 3.85%, 11/15/2027 | | $ | 905,000 | $ 847,666 |
| Major Banks – 15.1% |
| Bank of America Corp., 3.419% to 12/20/2027, FLR (LIBOR - 3mo. + 1.04%) to 12/20/2028 | | $ | 351,000 | $ 317,841 |
| Bank of America Corp., 2.676% to 6/19/2040, FLR (SOFR - 1 day + 1.93%) to 6/19/2041 | | | 721,000 | 485,017 |
| Bank of America Corp., 3.311% to 4/22/2041, FLR (SOFR - 1 day + 1.58%) to 4/22/2042 | | | 501,000 | 367,301 |
| Bank of New York Mellon Corp., 5.802% to 10/25/2027, FLR (SOFR - 1 day + 1.802%) to 10/25/2028 | | | 605,000 | 625,597 |
| Bank of New York Mellon Corp., 5.834% to 10/25/2032, FLR (SOFR - 1 day + 2.074%) to 10/25/2033 | | | 454,000 | 470,614 |
| Barclays PLC, 2.894% to 11/24/2031, FLR (CMT - 1yr. + 1.3%) to 11/24/2032 | | | 501,000 | 381,553 |
| Commonwealth Bank of Australia, 3.61% to 9/12/2029, FLR (CMT - 1yr. + 2.05%) to 9/12/2034 (n) | | | 431,000 | 356,747 |
| Commonwealth Bank of Australia, 3.305%, 3/11/2041 (n) | | | 280,000 | 190,015 |
| Credit Agricole S.A., 1.247% to 1/26/2026, FLR (SOFR - 1 day + 0.89162%) to 1/26/2027 (n) | | | 447,000 | 390,920 |
| Goldman Sachs Group, Inc., 2.64% to 2/24/2027, FLR (SOFR - 1 day + 1.114%) to 2/24/2028 | | | 430,000 | 382,866 |
| Goldman Sachs Group, Inc., 2.6%, 2/07/2030 | | | 339,000 | 282,902 |
| Goldman Sachs Group, Inc., 2.65% to 10/21/2031, FLR (SOFR - 1 day + 1.264%) to 10/21/2032 | | | 1,036,000 | 817,994 |
| Goldman Sachs Group, Inc., 3.102% to 2/24/2032, FLR (SOFR - 1 day + 1.41%) to 2/24/2033 | | | 426,000 | 345,904 |
| HSBC Holdings PLC, 2.871% to 11/22/2031, FLR (SOFR - 1 day + 1.41%) to 11/22/2032 | | | 1,193,000 | 911,738 |
| JPMorgan Chase & Co., 2.545% to 11/08/2031, FLR (SOFR - 1 day + 1.18%) to 11/08/2032 | | | 1,112,000 | 878,959 |
| JPMorgan Chase & Co., 3.897% to 1/23/2048, FLR (LIBOR - 3mo. + 1.22%) to 1/23/2049 | | | 1,111,000 | 851,223 |
| Mitsubishi UFJ Financial Group, Inc., 1.64% to 10/13/2026, FLR (CMT - 1yr. + 0.67%) to 10/13/2027 | | | 223,000 | 193,132 |
| Mitsubishi UFJ Financial Group, Inc., 2.494% to 10/13/2031, FLR (CMT - 1yr. + 0.97%) to 10/13/2032 | | | 532,000 | 414,512 |
| Morgan Stanley, 0.985% to 12/10/2025, FLR (SOFR - 1 day + 0.72%) to 12/10/2026 | | | 935,000 | 819,262 |
| Morgan Stanley, 4.431% to 1/23/2029, FLR (LIBOR - 3mo. + 1.63%) to 1/23/2030 | | | 439,000 | 408,579 |
| Morgan Stanley, 2.699% to 1/22/2030, FLR (SOFR - 1 day + 1.143%) to 1/22/2031 | | | 832,000 | 687,520 |
| Morgan Stanley, 3.622% to 4/01/2030, FLR (SOFR - 1 day + 3.12%) to 4/01/2031 | | | 869,000 | 758,640 |
| Morgan Stanley, 3.217% to 4/22/2041, FLR (SOFR - 1 day + 1.485%) to 4/22/2042 | | | 503,000 | 372,207 |
| National Australia Bank Ltd., 3.347% to 1/12/2032, FLR (CMT - 5yr. + 1.7%) to 1/12/2037 (n) | | | 1,037,000 | 788,594 |
| Nordea Bank Abp, 1.5%, 9/30/2026 (n) | | | 921,000 | 795,282 |
| Royal Bank of Canada, 2.3%, 11/03/2031 | | | 827,000 | 665,161 |
| Société Générale S.A., 2.797% to 1/19/2027, FLR (CMT - 1yr. + 1.3%) to 1/19/2028 (n) | | | 302,000 | 264,222 |
| Sumitomo Mitsui Financial Group, Inc., 1.71%, 1/12/2031 | | | 1,054,000 | 791,901 |
| Toronto-Dominion Bank, 4.108%, 6/08/2027 | | | 513,000 | 495,892 |
| Toronto-Dominion Bank, 4.693%, 9/15/2027 | | | 597,000 | 590,177 |
| Toronto-Dominion Bank, 2%, 9/10/2031 | | | 378,000 | 297,632 |
| Toronto-Dominion Bank, 4.456%, 6/08/2032 | | | 211,000 | 201,119 |
| UBS Group AG, 3.126% to 8/13/2029, FLR (LIBOR - 3mo. + 1.468%) to 8/13/2030 (n) | | | 454,000 | 384,870 |
| UBS Group AG, 4.375% to 2/10/2031, FLR (CMT - 1yr. + 3.313%) to 8/10/2171 (n) | | | 900,000 | 683,783 |
| UniCredit S.p.A., 2.569% to 9/22/2025, FLR (CMT - 1yr. + 2.3%) to 9/22/2026 (n) | | | 700,000 | 619,867 |
| UniCredit S.p.A., 1.982% to 6/03/2026, FLR (CMT - 1yr. + 1.2%) to 6/03/2027 (n) | | | 201,000 | 171,356 |
| Wells Fargo & Co., 3.908% to 4/25/2025, FLR (SOFR - 1 day + 1.32%) to 4/25/2026 | | | 691,000 | 671,588 |
| Wells Fargo & Co., 3.35% to 3/02/2032, FLR (SOFR - 1 day + 1.5%) to 3/02/2033 | | | 1,128,000 | 950,225 |
| | | | | $20,082,712 |
| Medical & Health Technology & Services – 1.5% |
| Alcon Finance Corp., 2.6%, 5/27/2030 (n) | | $ | 793,000 | $ 673,507 |
| Alcon Finance Corp., 5.375%, 12/06/2032 (n) | | | 200,000 | 201,016 |
| Alcon Finance Corp., 3.8%, 9/23/2049 (n) | | | 230,000 | 174,567 |
| Becton, Dickinson and Co., 2.823%, 5/20/2030 | | | 139,000 | 119,298 |
| Becton, Dickinson and Co., 4.298%, 8/22/2032 | | | 126,000 | 117,939 |
| Becton, Dickinson and Co., 4.685%, 12/15/2044 | | | 286,000 | 255,620 |
| Becton, Dickinson and Co., 4.669%, 6/06/2047 | | | 42,000 | 36,958 |
| Thermo Fisher Scientific, Inc., 2%, 10/15/2031 | | | 293,000 | 237,292 |
| Thermo Fisher Scientific, Inc., 2.8%, 10/15/2041 | | | 243,000 | 178,837 |
| | | | | $1,995,034 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Medical Equipment – 0.5% |
| Boston Scientific Corp., 2.65%, 6/01/2030 | | $ | 339,000 | $ 289,570 |
| Danaher Corp., 2.6%, 10/01/2050 | | | 596,000 | 380,081 |
| | | | | $669,651 |
| Metals & Mining – 2.9% |
| Anglo American Capital PLC, 2.25%, 3/17/2028 (n) | | $ | 389,000 | $ 327,130 |
| Anglo American Capital PLC, 2.625%, 9/10/2030 (n) | | | 827,000 | 672,091 |
| Coeur Mining, Inc., 5.125%, 2/15/2029 (n) | | | 321,000 | 250,517 |
| First Quantum Minerals Ltd., 6.875%, 10/15/2027 (n) | | | 655,000 | 614,536 |
| FMG Resources Ltd., 4.375%, 4/01/2031 (n) | | | 904,000 | 751,842 |
| Glencore Funding LLC, 2.85%, 4/27/2031 (n) | | | 745,000 | 609,652 |
| Novelis Corp., 4.75%, 1/30/2030 (n) | | | 727,000 | 644,533 |
| | | | | $3,870,301 |
| Midstream – 4.6% |
| Cheniere Corpus Christi Holdings LLC, 3.7%, 11/15/2029 | | $ | 512,000 | $ 462,808 |
| Enbridge, Inc., 3.4%, 8/01/2051 | | | 605,000 | 410,635 |
| Energy Transfer LP, 4%, 10/01/2027 | | | 285,000 | 265,984 |
| Energy Transfer LP, 5.55%, 2/15/2028 | | | 218,000 | 216,241 |
| Energy Transfer LP, 3.75%, 5/15/2030 | | | 493,000 | 434,671 |
| Energy Transfer LP, 5.75%, 2/15/2033 | | | 251,000 | 245,568 |
| Energy Transfer LP, 7.125% to 5/15/2030, FLR (CMT - 5yr. + 5.306%) to 5/15/2171 | | | 377,000 | 314,795 |
| EQM Midstream Partners LP, 4.5%, 1/15/2029 (n) | | | 799,000 | 671,102 |
| Galaxy Pipeline Assets Bidco Ltd., 1.75%, 9/30/2027 (n) | | | 1,108,366 | 1,025,355 |
| Galaxy Pipeline Assets Bidco Ltd., 2.16%, 3/31/2034 (n) | | | 452,159 | 384,160 |
| Plains All American Pipeline LP/PAA Finance Corp., 4.65%, 10/15/2025 | | | 301,000 | 294,536 |
| Plains All American Pipeline LP/PAA Finance Corp., 3.55%, 12/15/2029 | | | 354,000 | 306,941 |
| Sabine Pass Liquefaction LLC, 4.2%, 3/15/2028 | | | 442,000 | 415,467 |
| Sabine Pass Liquefaction LLC, 4.5%, 5/15/2030 | | | 203,000 | 188,164 |
| Targa Resources Corp., 4.2%, 2/01/2033 | | | 186,000 | 160,028 |
| Targa Resources Corp., 4.95%, 4/15/2052 | | | 414,000 | 327,517 |
| | | | | $6,123,972 |
| Municipals – 0.4% |
| Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Taxable, “B”, 2.746%, 6/01/2034 | | $ | 340,000 | $ 272,845 |
| Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Taxable, “B”, 3%, 6/01/2046 | | | 290,000 | 268,421 |
| | | | | $541,266 |
| Natural Gas - Distribution – 0.2% |
| NiSource, Inc., 5.65%, 2/01/2045 | | $ | 223,000 | $ 217,582 |
| Natural Gas - Pipeline – 0.9% |
| APA Infrastructure Ltd., 5%, 3/23/2035 (n) | | $ | 1,375,000 | $ 1,225,196 |
| Network & Telecom – 0.5% |
| AT&T, Inc., 2.75%, 6/01/2031 | | $ | 612,000 | $ 507,173 |
| Verizon Communications, Inc., 2.1%, 3/22/2028 | | | 177,000 | 153,614 |
| | | | | $660,787 |
| Oils – 0.4% |
| Puma International Financing S.A., 5%, 1/24/2026 | | $ | 604,000 | $ 525,934 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Other Banks & Diversified Financials – 0.8% |
| American Express Co., 4.989% to 5/26/2032, FLR (SOFR - 1 day + 2.255%) to 5/26/2033 | | $ | 772,000 | $ 742,054 |
| Mizrahi Tefahot Bank Ltd., 3.077% to 4/07/2026, FLR (CMT - 5yr. + 2.25%) to 4/07/2031 (n) | | | 416,000 | 364,520 |
| | | | | $1,106,574 |
| Pharmaceuticals – 0.5% |
| AstraZeneca PLC, 1.375%, 8/06/2030 | | $ | 328,000 | $ 259,129 |
| Merck & Co., Inc., 2.75%, 12/10/2051 | | | 296,000 | 197,769 |
| Pfizer, Inc., 2.55%, 5/28/2040 | | | 296,000 | 214,031 |
| | | | | $670,929 |
| Pollution Control – 0.4% |
| Waste Connections, Inc., 4.2%, 1/15/2033 | | $ | 512,000 | $ 475,517 |
| Railroad & Shipping – 0.5% |
| Canadian Pacific Railway Co., 3%, 12/02/2041 | | $ | 417,000 | $ 314,375 |
| Canadian Pacific Railway Co., 3.1%, 12/02/2051 | | | 558,000 | 375,139 |
| | | | | $689,514 |
| Real Estate - Apartment – 0.5% |
| American Homes 4 Rent LP, REIT, 2.375%, 7/15/2031 | | $ | 607,000 | $ 468,196 |
| American Homes 4 Rent LP, REIT, 3.375%, 7/15/2051 | | | 209,000 | 130,058 |
| | | | | $598,254 |
| Real Estate - Office – 0.7% |
| Corporate Office Property LP, REIT, 2%, 1/15/2029 | | $ | 628,000 | $ 481,613 |
| Corporate Office Property LP, REIT, 2.75%, 4/15/2031 | | | 531,000 | 397,401 |
| | | | | $879,014 |
| Real Estate - Other – 1.1% |
| EPR Properties, REIT, 3.6%, 11/15/2031 | | $ | 447,000 | $ 323,852 |
| Lexington Realty Trust Co., 2.375%, 10/01/2031 | | | 865,000 | 655,766 |
| W.P. Carey, Inc., REIT, 2.45%, 2/01/2032 | | | 581,000 | 453,999 |
| | | | | $1,433,617 |
| Real Estate - Retail – 1.2% |
| Brixmor Operating Partnership LP, REIT, 4.125%, 5/15/2029 | | $ | 114,000 | $ 101,923 |
| Brixmor Operating Partnership LP, REIT, 2.5%, 8/16/2031 | | | 586,000 | 448,197 |
| Spirit Realty, LP, REIT, 4.45%, 9/15/2026 | | | 303,000 | 289,339 |
| Spirit Realty, LP, REIT, 3.2%, 2/15/2031 | | | 368,000 | 293,804 |
| STORE Capital Corp., REIT, 2.7%, 12/01/2031 | | | 709,000 | 520,503 |
| | | | | $1,653,766 |
| Retailers – 2.0% |
| Alimentation Couche-Tard, Inc., 3.8%, 1/25/2050 (n) | | $ | 775,000 | $ 544,228 |
| Amazon.com, Inc., 3.6%, 4/13/2032 | | | 747,000 | 683,599 |
| AutoZone, Inc., 4.75%, 8/01/2032 | | | 370,000 | 358,598 |
| Home Depot, Inc., 3.3%, 4/15/2040 | | | 918,000 | 730,914 |
| Nordstrom, Inc., 4.25%, 8/01/2031 | | | 492,000 | 351,829 |
| | | | | $2,669,168 |
| Specialty Chemicals – 0.5% |
| International Flavors & Fragrances, Inc., 2.3%, 11/01/2030 (n) | | $ | 436,000 | $ 345,911 |
| International Flavors & Fragrances, Inc., 3.268%, 11/15/2040 (n) | | | 436,000 | 311,009 |
| | | | | $656,920 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Specialty Stores – 0.5% |
| DICK'S Sporting Goods, 3.15%, 1/15/2032 | | $ | 530,000 | $ 413,659 |
| DICK'S Sporting Goods, 4.1%, 1/15/2052 | | | 461,000 | 297,196 |
| | | | | $710,855 |
| Telecommunications - Wireless – 3.5% |
| Cellnex Finance Co. S.A., 3.875%, 7/07/2041 (n) | | $ | 1,009,000 | $ 690,156 |
| Crown Castle, Inc., REIT, 4.45%, 2/15/2026 | | | 656,000 | 641,078 |
| Millicom International Cellular S.A., 4.5%, 4/27/2031 (n) | | | 556,000 | 467,662 |
| Rogers Communications, Inc., 3.8%, 3/15/2032 (n) | | | 425,000 | 366,755 |
| Rogers Communications, Inc., 4.5%, 3/15/2042 (n) | | | 422,000 | 343,958 |
| Rogers Communications, Inc., 4.55%, 3/15/2052 (n) | | | 188,000 | 145,754 |
| T-Mobile USA, Inc., 2.05%, 2/15/2028 | | | 795,000 | 682,772 |
| T-Mobile USA, Inc., 3%, 2/15/2041 | | | 850,000 | 599,780 |
| Vodafone Group PLC, 4.125% to 6/04/2031, FLR (CMT - 1yr. + 2.767%) to 6/04/2051, FLR (CMT - 1yr. + 3.517%) to 6/04/2081 | | | 1,010,000 | 749,633 |
| | | | | $4,687,548 |
| Tobacco – 0.2% |
| Philip Morris International, Inc., 5.625%, 11/17/2029 | | $ | 211,000 | $ 214,055 |
| Transportation - Services – 0.3% |
| ERAC USA Finance LLC, 7%, 10/15/2037 (n) | | $ | 421,000 | $ 457,380 |
| U.S. Treasury Obligations – 4.0% |
| U.S. Treasury Bonds, 1.375%, 11/15/2040 (f) | | $ | 1,000,000 | $ 650,117 |
| U.S. Treasury Bonds, 2.375%, 2/15/2042 | | | 1,836,000 | 1,401,815 |
| U.S. Treasury Bonds, 2.875%, 5/15/2052 | | | 608,000 | 487,160 |
| U.S. Treasury Note, 4.125%, 11/15/2032 | | | 527,000 | 537,787 |
| U.S. Treasury Notes, 2.625%, 4/15/2025 | | | 702,000 | 675,620 |
| U.S. Treasury Notes, 4.125%, 9/30/2027 | | | 372,000 | 373,395 |
| U.S. Treasury Notes, 3.875%, 9/30/2029 | | | 1,267,000 | 1,258,042 |
| | | | | $5,383,936 |
| Utilities - Electric Power – 8.5% |
| American Transmission Systems, Inc., 2.65%, 1/15/2032 (n) | | $ | 181,000 | $ 148,540 |
| CenterPoint Energy, Inc., 2.65%, 6/01/2031 | | | 613,000 | 505,944 |
| Duke Energy Carolinas LLC, 2.45%, 2/01/2030 | | | 957,000 | 817,407 |
| Duke Energy Corp., 3.3%, 6/15/2041 | | | 240,000 | 174,602 |
| Duke Energy Corp., 3.75%, 9/01/2046 | | | 743,000 | 551,282 |
| Enel Finance International N.V., 4.625%, 6/15/2027 (n) | | | 600,000 | 567,623 |
| Enel Finance International N.V., 2.25%, 7/12/2031 (n) | | | 294,000 | 213,916 |
| Enel Finance International N.V., 7.75%, 10/14/2052 (n) | | | 296,000 | 316,213 |
| Evergy, Inc., 2.9%, 9/15/2029 | | | 1,439,000 | 1,242,632 |
| FirstEnergy Corp., 4.4%, 7/15/2027 | | | 707,000 | 657,686 |
| FirstEnergy Corp., 2.65%, 3/01/2030 | | | 373,000 | 304,122 |
| FirstEnergy Corp., 3.4%, 3/01/2050 | | | 837,000 | 552,253 |
| Florida Power & Light Co., 2.85%, 4/01/2025 | | | 287,000 | 274,796 |
| Florida Power & Light Co., 2.45%, 2/03/2032 | | | 393,000 | 327,413 |
| Florida Power & Light Co., 3.95%, 3/01/2048 | | | 287,000 | 236,858 |
| Georgia Power Co., 4.7%, 5/15/2032 | | | 397,000 | 382,732 |
| Georgia Power Co., 5.125%, 5/15/2052 | | | 466,000 | 436,834 |
| Jersey Central Power & Light Co., 2.75%, 3/01/2032 (n) | | | 645,000 | 520,861 |
| NextEra Energy Capital Holdings, Inc., 2.44%, 1/15/2032 | | | 73,000 | 58,904 |
| NextEra Energy Capital Holdings, Inc., 3.8% to 3/15/2027, FLR (CMT - 5yr. + 2.547%) to 3/15/2082 | | | 551,000 | 448,980 |
| Pacific Gas & Electric Co., 5.45%, 6/15/2027 | | | 350,000 | 345,138 |
| Pacific Gas & Electric Co., 2.5%, 2/01/2031 | | | 970,000 | 752,610 |
| Southern California Edison Co., 4.5%, 9/01/2040 | | | 273,000 | 233,117 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Utilities - Electric Power – continued |
| Southern California Edison Co., 3.65%, 2/01/2050 | | $ | 451,000 | $ 329,376 |
| Southern Co., 3.7%, 4/30/2030 | | | 241,000 | 217,508 |
| Virginia Electric & Power Co., 2.875%, 7/15/2029 | | | 579,000 | 509,763 |
| Xcel Energy, Inc., 4.6%, 6/01/2032 | | | 215,000 | 205,332 |
| | | | | $11,332,442 |
| Total Bonds (Identified Cost, $150,355,833) | | $128,357,966 |
| Investment Companies (h) – 2.7% |
| Money Market Funds – 2.7% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $3,561,521) | | | 3,561,163 | $ 3,562,231 |
| Underlying/Expiration Date/Exercise Price | Put/Call | Counterparty | Notional
Amount | Par Amount/
Number of
Contracts | | |
| Purchased Options – 0.0% | | |
| Market Index Securities – 0.0% | | |
| Markit CDX North America High Yield Series 39 Index Credit Default Swap - Fund pays 5%, Fund receives notional amount upon a defined credit event of an Index constituent – January 2023 @ $98 | Put | JPMorgan Chase Bank | $ 4,029,963 | $4,000,000 | $10,387 | |
| Markit CDX North America High Yield Series 39 Index Credit Default Swap - Fund pays 5%, Fund receives notional amount upon a defined credit event of an Index constituent – March 2023 @ $98 | Put | Merrill Lynch International | 3,022,472 | 3,000,000 | 37,924 | |
Total Purchased Options
(Premiums Paid, $86,880) | | $48,311 | |
| Written Options (see table below) – (0.0)% | |
| (Premiums Received, $22,960) | $(12,931) | |
| Other Assets, Less Liabilities – 0.9% | 1,264,664 | |
| Net Assets – 100.0% | $133,220,241 | |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $3,562,231 and $128,406,277, respectively. | | | |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. | | | |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $37,994,293, representing 28.5% of net assets. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| The following abbreviations are used in this report and are defined: |
| CLO | Collateralized Loan Obligation |
| CMT | Constant Maturity Treasury |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| LIBOR | London Interbank Offered Rate |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| EUR | Euro |
| Derivative Contracts at 12/31/22 |
| Written Options |
| Underlying | Put/
Call | Counterparty | Par Amount/
Number of
Contracts | Notional
Amount | Exercise
Price | Expiration
Date | Value |
| Liability Derivatives |
| Market Index Securities | | | |
| Markit CDX North America High Yield Series 39 Index Credit Default Swap - Fund pays 5%, Fund receives notional amount upon a defined credit event of an Index constituent | Put | JPMorgan Chase Bank | $(4,000,000) | $(4,029,963) | $91.00 | January – 2023 | $(2,222) |
| Markit CDX North America High Yield Series 39 Index Credit Default Swap - Fund pays 5%, Fund receives notional amount upon a defined credit event of an Index constituent | Put | Merrill Lynch International | (3,000,000) | (3,022,472) | 91.00 | March – 2023 | (10,709) |
| | | | | | | | $(12,931) |
| Forward Foreign Currency Exchange Contracts |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| EUR | 91,144 | USD | 95,270 | Brown Brothers Harriman | 1/20/2023 | $2,400 |
| EUR | 176,904 | USD | 184,331 | HSBC Bank | 1/20/2023 | 5,240 |
| EUR | 138,979 | USD | 143,845 | State Street Bank Corp. | 1/20/2023 | 5,086 |
| | | | | | | $12,726 |
| Liability Derivatives |
| USD | 376,884 | EUR | 382,752 | Citibank N.A. | 1/20/2023 | $(33,275) |
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Note 2 yr | Long | USD | 58 | $11,894,531 | March – 2023 | $8,588 |
| U.S. Treasury Note 5 yr | Short | USD | 34 | 3,669,609 | March – 2023 | 3,362 |
| U.S. Treasury Ultra Note 10 yr | Short | USD | 143 | 16,914,219 | March – 2023 | 167,737 |
| | | | | | | $179,687 |
MFS Corporate Bond Portfolio
Portfolio of Investments – continued
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Liability Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Bond | Long | USD | 10 | $1,253,438 | March – 2023 | $(11,755) |
| U.S. Treasury Ultra Bond | Long | USD | 35 | 4,700,937 | March – 2023 | (47,978) |
| | | | | | | $(59,733) |
At December 31, 2022, the fund had liquid securities with an aggregate value of $382,063 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
MFS Corporate Bond Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $150,442,713) | $128,406,277 |
| Investments in affiliated issuers, at value (identified cost, $3,561,521) | 3,562,231 |
| Receivables for | |
| Forward foreign currency exchange contracts | 12,726 |
| Fund shares sold | 15,130 |
| Interest | 1,400,500 |
| Receivable from investment adviser | 4,179 |
| Other assets | 1,154 |
| Total assets | $133,402,197 |
| Liabilities | |
| Payables for | |
| Forward foreign currency exchange contracts | $33,275 |
| Net daily variation margin on open futures contracts | 16,235 |
| Fund shares reacquired | 29,218 |
| Written options (premiums received, $22,960) | 12,931 |
| Payable to affiliates | |
| Administrative services fee | 238 |
| Shareholder servicing costs | 22 |
| Distribution and/or service fees | 1,940 |
| Payable for independent Trustees' compensation | 182 |
| Accrued expenses and other liabilities | 87,915 |
| Total liabilities | $181,956 |
| Net assets | $133,220,241 |
| Net assets consist of | |
| Paid-in capital | $161,968,021 |
| Total distributable earnings (loss) | (28,747,780) |
| Net assets | $133,220,241 |
| Shares of beneficial interest outstanding | 14,827,316 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $39,065,502 | 4,300,988 | $9.08 |
| Service Class | 94,154,739 | 10,526,328 | 8.94 |
See Notes to Financial Statements
MFS Corporate Bond Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Interest | $6,114,287 |
| Dividends from affiliated issuers | 84,810 |
| Other | 73,011 |
| Total investment income | $6,272,108 |
| Expenses | |
| Management fee | $1,030,001 |
| Distribution and/or service fees | 318,332 |
| Shareholder servicing costs | 6,718 |
| Administrative services fee | 36,115 |
| Independent Trustees' compensation | 4,750 |
| Custodian fee | 15,772 |
| Shareholder communications | 4,061 |
| Audit and tax fees | 82,473 |
| Legal fees | 775 |
| Miscellaneous | 34,999 |
| Total expenses | $1,533,996 |
| Reduction of expenses by investment adviser | (134,118) |
| Net expenses | $1,399,878 |
| Net investment income (loss) | $4,872,230 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(12,662,822) |
| Affiliated issuers | 861 |
| Futures contracts | 889,252 |
| Forward foreign currency exchange contracts | 28,473 |
| Foreign currency | (1,674) |
| Net realized gain (loss) | $(11,745,910) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(28,136,504) |
| Affiliated issuers | 710 |
| Written options | 10,029 |
| Futures contracts | 533,371 |
| Forward foreign currency exchange contracts | (20,549) |
| Net unrealized gain (loss) | $(27,612,943) |
| Net realized and unrealized gain (loss) | $(39,358,853) |
| Change in net assets from operations | $(34,486,623) |
See Notes to Financial Statements
MFS Corporate Bond Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $4,872,230 | $5,010,658 |
| Net realized gain (loss) | (11,745,910) | 9,730,496 |
| Net unrealized gain (loss) | (27,612,943) | (18,238,744) |
| Change in net assets from operations | $(34,486,623) | $(3,497,590) |
| Total distributions to shareholders | $(14,438,293) | $(10,100,201) |
| Change in net assets from fund share transactions | $(24,640,963) | $(7,988,584) |
| Total change in net assets | $(73,565,879) | $(21,586,375) |
| Net assets | | |
| At beginning of period | 206,786,120 | 228,372,495 |
| At end of period | $133,220,241 | $206,786,120 |
See Notes to Financial Statements
MFS Corporate Bond Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $11.93 | $12.71 | $11.94 | $10.81 | $11.64 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.31 | $0.31 | $0.36 | $0.39 | $0.38 |
| Net realized and unrealized gain (loss) | (2.23) | (0.49) | 0.89 | 1.19 | (0.72) |
| Total from investment operations | $(1.92) | $(0.18) | $1.25 | $1.58 | $(0.34) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.36) | $(0.36) | $(0.44) | $(0.45) | $(0.44) |
| From net realized gain | (0.57) | (0.24) | (0.04) | — | (0.05) |
| Total distributions declared to shareholders | $(0.93) | $(0.60) | $(0.48) | $(0.45) | $(0.49) |
| Net asset value, end of period (x) | $9.08 | $11.93 | $12.71 | $11.94 | $10.81 |
| Total return (%) (k)(r)(s)(x) | (16.36) | (1.40) | 10.57 | 14.65 | (3.00) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.71 | 0.69 | 0.70 | 0.69 | 0.68 |
| Expenses after expense reductions | 0.63 | 0.63 | 0.63 | 0.63 | 0.63 |
| Net investment income (loss) | 3.04 | 2.51 | 2.90 | 3.33 | 3.44 |
| Portfolio turnover | 62 | 55 | 41 | 34 | 32 |
| Net assets at end of period (000 omitted) | $39,066 | $53,206 | $59,133 | $57,714 | $56,506 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $11.76 | $12.54 | $11.78 | $10.66 | $11.49 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.28 | $0.27 | $0.32 | $0.35 | $0.35 |
| Net realized and unrealized gain (loss) | (2.20) | (0.48) | 0.89 | 1.19 | (0.72) |
| Total from investment operations | $(1.92) | $(0.21) | $1.21 | $1.54 | $(0.37) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.33) | $(0.33) | $(0.41) | $(0.42) | $(0.41) |
| From net realized gain | (0.57) | (0.24) | (0.04) | — | (0.05) |
| Total distributions declared to shareholders | $(0.90) | $(0.57) | $(0.45) | $(0.42) | $(0.46) |
| Net asset value, end of period (x) | $8.94 | $11.76 | $12.54 | $11.78 | $10.66 |
| Total return (%) (k)(r)(s)(x) | (16.62) | (1.66) | 10.34 | 14.46 | (3.31) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.96 | 0.94 | 0.95 | 0.94 | 0.93 |
| Expenses after expense reductions | 0.88 | 0.88 | 0.88 | 0.88 | 0.88 |
| Net investment income (loss) | 2.77 | 2.26 | 2.65 | 3.08 | 3.18 |
| Portfolio turnover | 62 | 55 | 41 | 34 | 32 |
| Net assets at end of period (000 omitted) | $94,155 | $153,580 | $169,239 | $161,833 | $154,370 |
See Notes to Financial Statements
MFS Corporate Bond Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS Corporate Bond Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Corporate Bond Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. 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.
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts, forward foreign currency exchange contracts, and written options. The following is a summary of the levels used as of December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $5,383,936 | $— | $5,383,936 |
| Non - U.S. Sovereign Debt | — | 3,130,688 | — | 3,130,688 |
| Municipal Bonds | — | 541,266 | — | 541,266 |
| U.S. Corporate Bonds | — | 82,150,034 | — | 82,150,034 |
| Commercial Mortgage-Backed Securities | — | 2,440,178 | — | 2,440,178 |
| Asset-Backed Securities (including CDOs) | — | 1,808,648 | — | 1,808,648 |
| Foreign Bonds | — | 32,951,527 | — | 32,951,527 |
| Mutual Funds | 3,562,231 | — | — | 3,562,231 |
| Total | $3,562,231 | $128,406,277 | $— | $131,968,508 |
| Other Financial Instruments | | | | |
| Futures Contracts – Assets | $179,687 | $— | $— | $179,687 |
| Futures Contracts – Liabilities | (59,733) | — | — | (59,733) |
| Forward Foreign Currency Exchange Contracts – Assets | — | 12,726 | — | 12,726 |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (33,275) | — | (33,275) |
| Written Options - Liabilities | — | (12,931) | — | (12,931) |
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.
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were written options, purchased options, futures contracts, and forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at December 31, 2022 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Credit | Written Option Contracts | $— | $(12,931) |
| Credit | Purchased Option Contracts | 48,311 | — |
| Interest Rate | Futures Contracts | 179,687 | (59,733) |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | 12,726 | (33,275) |
| Total | | $240,724 | $(105,939) |
(a) The value of purchased options outstanding is included in investments in unaffiliated issuers, at value, within the Statement of Assets and Liabilities. Values presented in this table for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is reported separately within the Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $889,252 | $— |
| Foreign Exchange | — | 28,473 |
| Total | $889,252 | $28,473 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts | Unaffiliated Issuers
(Purchased
Options) | Written
Options |
| Interest Rate | $533,371 | $— | $— | $— |
| Foreign Exchange | — | (20,549) | — | — |
| Credit | — | — | (38,569) | 10,029 |
| Total | $533,371 | $(20,549) | $(38,569) | $10,029 |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Written Options — In exchange for a premium, the fund wrote put options on securities for which it anticipated the price would increase. At the time the option was written, the fund believed the premium received exceeded the potential loss that could result from adverse price changes in the options’ underlying securities. In a written option, the fund as the option writer grants the buyer the right to purchase from, or sell to, the fund a specified number of shares or units of a particular security, currency or index at a specified price within a specified period of time.
The premium received is initially recorded as a liability in the Statement of Assets and Liabilities. The option is subsequently marked-to-market daily with the difference between the premium received and the market value of the written option being recorded as unrealized appreciation or depreciation. When a written option expires, the fund realizes a gain equal to the amount of the premium received. The difference between the premium received and the amount paid on effecting a closing transaction is considered a realized gain or loss. When a written put option is exercised, the premium reduces the cost basis of the security purchased by the fund.
At the initiation of the written option contract, for exchange traded options, the fund is required to deposit securities or cash as collateral with the custodian for the benefit of the broker or directly with the clearing broker, based on the type of option. For uncleared options, the fund may post collateral subject to the terms of an ISDA Master Agreement as generally described above if the market value of the options contract moves against it. The fund, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities underlying the written option. Losses from writing options can exceed the premium received and can exceed the potential loss from an ordinary buy and sell transaction. Although the fund’s market risk may be significant, the maximum counterparty credit risk to the fund is equal to the market value of any collateral posted to the broker. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above.
Purchased Options — The fund purchased 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 an anticipated decline in the value of portfolio securities or currency or decrease the fund's exposure to an underlying instrument.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased 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.
Whether or not the option is exercised, the fund's maximum risk of loss from purchasing an option is the amount of premium paid. All option contracts involve credit risk if the counterparty to the option contract fails to perform. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
MFS Corporate Bond Portfolio
Notes to Financial Statements - 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 specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
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.
To mitigate the counterparty credit risk on TBA transactions, mortgage dollar rolls, and other types of forward settling mortgage-backed and asset-backed security transactions, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the MSFTA could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
For mortgage-backed and asset-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund's collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to amortization and accretion of debt securities, wash sale loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $5,480,909 | $5,901,029 |
| Long-term capital gains | 8,957,384 | 4,199,172 |
| Total distributions | $14,438,293 | $10,100,201 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/22 | |
| Cost of investments | $154,577,597 |
| Gross appreciation | 258,597 |
| Gross depreciation | (22,781,212) |
| Net unrealized appreciation (depreciation) | $(22,522,615) |
| Undistributed ordinary income | 5,099,066 |
| Capital loss carryforwards | (11,324,231) |
| Total distributable earnings (loss) | $(28,747,780) |
As of December 31, 2022, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(5,231,253) |
| Long-Term | (6,092,978) |
| Total | $(11,324,231) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $3,863,350 | | $2,631,294 |
| Service Class | 10,574,943 | | 7,468,907 |
| Total | $14,438,293 | | $10,100,201 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.60% |
| In excess of $1 billion | 0.50% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $23,880, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.59% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.63% of average daily net assets for the Initial Class shares and 0.88% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this reduction amounted to $110,238, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2022, the fee was $6,373, which equated to 0.0037% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $345.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0211% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
During the year ended December 31, 2022, pursuant to a policy adopted by the Board of Trustees and designed to comply with Rule 17a-7 under the Investment Company Act of 1940 (the “Act”), the fund engaged in sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) which amounted to $45,195. The sales transactions resulted in net realized gains (losses) of $(805).
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than purchased options with an expiration date of less than one year from the time of purchase and short-term obligations, were as follows:
| | Purchases | Sales |
| U.S. Government securities | $9,017,437 | $3,068,011 |
| Non-U.S. Government securities | 93,954,285 | 132,532,125 |
(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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 154,018 | $1,628,859 | | 353,381 | $4,334,640 |
| Service Class | 4,514,529 | 50,204,109 | | 1,492,051 | 17,814,591 |
| | 4,668,547 | $51,832,968 | | 1,845,432 | $22,149,231 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 412,311 | $3,863,350 | | 218,910 | $2,631,294 |
| Service Class | 1,145,714 | 10,574,943 | | 630,288 | 7,468,907 |
| | 1,558,025 | $14,438,293 | | 849,198 | $10,100,201 |
| Shares reacquired | | | | | |
| Initial Class | (723,799) | $(7,198,182) | | (764,833) | $(9,381,834) |
| Service Class | (8,195,309) | (83,714,042) | | (2,560,611) | (30,856,182) |
| | (8,919,108) | $(90,912,224) | | (3,325,444) | $(40,238,016) |
| Net change | | | | | |
| Initial Class | (157,470) | $(1,705,973) | | (192,542) | $(2,415,900) |
| Service Class | (2,535,066) | (22,934,990) | | (438,272) | (5,572,684) |
| | (2,692,536) | $(24,640,963) | | (630,814) | $(7,988,584) |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $861 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
MFS Corporate Bond Portfolio
Notes to Financial Statements - continued
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $2,827,617 | $109,090,354 | $108,357,311 | $861 | $710 | $3,562,231 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $84,810 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
MFS Corporate Bond Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Corporate Bond Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Corporate Bond Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Corporate Bond Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS Corporate Bond Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS Corporate Bond Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Alexander Mackey
Henry Peabody | |
MFS Corporate Bond Portfolio
Board Review of Investment Advisory Agreement
MFS Corporate Bond Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 3rd quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 4th quintile for each of the one- and three-year periods ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Corporate Bond Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was higher than the Broadridge expense group median and the Fund’s total expense ratio was approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS Corporate Bond Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $9,854,000 as capital gain dividends paid during the fiscal year.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® Emerging Markets
Equity Portfolio
MFS® Variable Insurance Trust II
MFS® Emerging Markets Equity Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Emerging Markets Equity Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Emerging Markets Equity Portfolio
Portfolio structure
Top ten holdings
| Taiwan Semiconductor Manufacturing Co. Ltd. | 7.4% |
| Tencent Holdings Ltd. | 6.0% |
| Samsung Electronics Co. Ltd. | 5.6% |
| Alibaba Group Holding Ltd. | 3.7% |
| Yum China Holdings, Inc. | 2.6% |
| HDFC Bank Ltd. | 2.1% |
| Tata Consultancy Services Ltd. | 2.0% |
| Ping An Insurance Co. of China Ltd., “H” | 2.0% |
| Galp Energia SGPS S.A., “B” | 1.8% |
| AIA Group Ltd. | 1.8% |
GICS equity sectors (g)
| Information Technology | 20.1% |
| Financials | 19.7% |
| Consumer Discretionary | 14.5% |
| Communication Services | 12.6% |
| Consumer Staples | 11.2% |
| Energy | 6.1% |
| Materials | 5.5% |
| Industrials | 2.9% |
| Real Estate | 2.5% |
| Health Care | 1.8% |
| Utilities | 1.3% |
Issuer country weightings (x)
| China | 31.8% |
| South Korea | 13.6% |
| India | 11.8% |
| Taiwan | 9.9% |
| Brazil | 7.0% |
| Hong Kong | 4.5% |
| United States | 3.0% |
| Mexico | 2.9% |
| South Africa | 2.5% |
| Other Countries | 13.0% |
Currency exposure weightings (y)
| Hong Kong Dollar | 26.0% |
| South Korean Won | 13.6% |
| Indian Rupee | 11.2% |
| Taiwan Dollar | 9.9% |
| Chinese Renminbi | 7.8% |
| United States Dollar | 7.5% |
| Brazilian Real | 7.0% |
| Euro | 3.6% |
| Mexican Peso | 2.9% |
| Other Currencies | 10.5% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS Emerging Markets Equity Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Emerging Markets Equity Portfolio (fund) provided a total return of -19.72%, while Service Class shares of the fund provided a total return of -19.94%. These compare with a return of -20.09% for the fund’s benchmark, the MSCI Emerging Markets Index (net div).
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Contributors to Performance
Stock selection in the consumer discretionary sector contributed to the fund’s performance relative to the MSCI Emerging Markets Index. Within this sector, the fund's overweight positions in fast food restaurant operator Yum China (China), automotive vehicle manufacturer Mahindra & Mahindra (India) and online apparel sales company Vipshop Holdings (China) benefited relative results.
An overweight position and stock selection in the consumer staples sector, coupled with favorable stock selection in the information technology sector, also strengthened relative returns. There were no individual stocks within either sector, either in the fund or in the benchmark, that were among the fund's largest relative contributors during the period.
Stocks in other sectors that contributed to relative performance included the fund’s holdings of oil and gas company Galp Energia(b) (Portugal), insurance company AIA Group(b) (Hong Kong) and banking firm HDFC Bank(b) (India). The stock price of Galp Energia appreciated as the company reported financial results in line with consensus estimates, driven by strong earnings in its Upstream business segments and strong liquid fuel realizations in Brazil. The stock price of AIA Group rose as the company benefited from more concrete signs of the economy re-opening due to the easing of COVID-19 lockdown policies and the addition of new insurance underwriting revenue. Additionally, not holding shares of global energy company Gazprom (Russia), and the fund's overweight positions in heavy equipment retailer United Tractors (Indonesia), financial services company Credicorp (Peru) and trading services provider B3 Sa - Brasil Bolsa Balcao (Brazil), helped relative results.
During the reporting period, the fund's relative currency exposure, resulting primarily from differences between the fund's and the benchmark's exposures to holdings of securities denominated in foreign currencies, contributed to relative performance. All of MFS' investment decisions are driven by the fundamentals of each individual opportunity and as such, it is common for our funds to have different currency exposure than the benchmark.
MFS Emerging Markets Equity Portfolio
Management Review - continued
Detractors from Performance
Security selection in both the financials and materials sectors detracted from the fund’s relative performance. Within the financials sector, the fund's overweight positions in commercial banking firm Sberbank Russia (Russia) and integrated exchange platform Moscow Exchange (Russia) hindered relative results. The share price of Sberbank Russia fell sharply, and subsequently lost all of its value, following the Russian invasion of Ukraine and the numerous sanctions imposed on Russia and Russian entities. Within the materials sector, the fund’s overweight position in gold and silver miner Polymetal International (United Kingdom) also held back relative returns.
Elsewhere, the fund's overweight positions in integrated oil company LUKOIL (Russia), internet search engine and online computer games provider NAVER (South Korea), semiconductor manufacturer Taiwan Semiconductor Manufacturing (Taiwan) and microchip and electronics manufacturer Samsung Electronics (South Korea), and the timing of the fund's ownership in shares of oil and gas exploration and production company Petroleo Brasileiro (Brazil), weighed on relative returns. The share price of LUKOIL fell sharply, and subsequently lost all of its value, following the Russian invasion of Ukraine and the numerous sanctions imposed on Russia and Russian entities. Additionally, holding shares of electronic power tools manufacturer Techtronic Industries(b) (Hong Kong) and not holding shares of strong performing e-commerce platform developer Pinduoduo (China) further weakened the fund’s relative returns.
Respectfully,
Portfolio Manager(s)
Jose Luis Garcia, Rajesh Nair, and Harry Purcell
Note to Shareholders: Effective April 15, 2023, Jose Luis Garcia will no longer be a Portfolio Manager of the fund.
| (b) | Security is not a benchmark constituent. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Emerging Markets Equity Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 6/05/96 | (19.72)% | (3.00)% | (0.02)% |
| Service Class | 8/24/01 | (19.94)% | (3.26)% | (0.27)% |
Comparative benchmark(s)
| MSCI Emerging Markets Index (net div) (f) | (20.09)% | (1.40)% | 1.44% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
MSCI Emerging Markets Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets.
It is not possible to invest directly in an index.
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
MFS Emerging Markets Equity Portfolio
Performance Summary – continued
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Emerging Markets Equity Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 1.23% | $1,000.00 | $985.39 | $6.16 |
| Hypothetical (h) | 1.23% | $1,000.00 | $1,019.00 | $6.26 |
| Service Class | Actual | 1.48% | $1,000.00 | $983.38 | $7.40 |
| Hypothetical (h) | 1.48% | $1,000.00 | $1,017.74 | $7.53 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Emerging Markets Equity Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 98.2% |
| Alcoholic Beverages – 4.7% | |
| Ambev S.A., ADR | | 146,365 | $ 398,113 |
| China Resources Beer Holdings Co. Ltd. | | 62,000 | 433,300 |
| Jiangsu Yanghe Brewery JSC Ltd., “A” | | 4,300 | 98,988 |
| Kweichow Moutai Co. Ltd., “A” | | 2,000 | 494,910 |
| Wuliangye Yibin Co. Ltd. | | 7,700 | 199,373 |
| | | | | $1,624,684 |
| Automotive – 2.4% | |
| BYD Co. Ltd. | | 5,000 | $ 122,957 |
| Hero MotoCorp Ltd. | | 8,909 | 294,940 |
| Mahindra & Mahindra Ltd. | | 27,644 | 416,043 |
| | | | | $833,940 |
| Biotechnology – 1.2% | |
| Hugel, Inc. (a) | | 3,742 | $ 401,954 |
| Brokerage & Asset Managers – 1.3% | |
| B3 Brasil Bolsa Balcao S.A. | | 176,900 | $ 442,606 |
| Moscow Exchange MICEX-RTS PJSC (a)(u) | | 369,124 | 0 |
| | | | | $442,606 |
| Business Services – 4.4% | |
| Cognizant Technology Solutions Corp., “A” | | 6,866 | $ 392,667 |
| Kingsoft Cloud Holdings, ADR (a) | | 16,275 | 62,333 |
| Tata Consultancy Services Ltd. | | 17,857 | 702,948 |
| Tech Mahindra Ltd. | | 29,726 | 363,225 |
| | | | | $1,521,173 |
| Chemicals – 1.7% | |
| UPL Ltd. | | 66,813 | $ 578,365 |
| Computer Software – 2.9% | |
| NAVER Corp. | | 3,531 | $ 501,503 |
| NetEase.com, Inc., ADR | | 7,160 | 520,031 |
| | | | | $1,021,534 |
| Computer Software - Systems – 7.1% | |
| Hon Hai Precision Industry Co. Ltd. | | 157,000 | $ 510,299 |
| Samsung Electronics Co. Ltd. | | 44,311 | 1,954,030 |
| | | | | $2,464,329 |
| Conglomerates – 0.5% | |
| LG Corp. (a) | | 2,690 | $ 167,062 |
| Construction – 4.4% | |
| Anhui Conch Cement Co. Ltd. | | 78,000 | $ 270,469 |
| Gree Electric Appliances, Inc., “A” | | 64,400 | 298,790 |
| Midea Group Co. Ltd., “A” | | 34,300 | 254,781 |
| Techtronic Industries Co. Ltd. | | 44,500 | 496,570 |
| Zhejiang Supor Co. Ltd., “A” | | 26,600 | 189,254 |
| | | | | $1,509,864 |
MFS Emerging Markets Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Consumer Products – 0.6% | |
| AmorePacific Corp. (a) | | 1,862 | $ 204,180 |
| Electronics – 8.1% | |
| Delta Electronics, Inc. | | 27,000 | $ 251,680 |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | 176,258 | 2,572,000 |
| | | | | $2,823,680 |
| Energy - Independent – 1.6% | |
| PT United Tractors Tbk | | 254,800 | $ 426,781 |
| PTT Global Chemical PLC | | 105,600 | 144,062 |
| | | | | $570,843 |
| Energy - Integrated – 4.9% | |
| China Petroleum & Chemical Corp. | | 1,072,000 | $ 517,772 |
| Galp Energia SGPS S.A., “B” | | 45,365 | 613,854 |
| LUKOIL PJSC (u) | | 6,698 | 0 |
| Petroleo Brasileiro S.A., ADR | | 53,077 | 565,270 |
| | | | | $1,696,896 |
| Engineering - Construction – 0.7% | |
| Doosan Bobcat, Inc. | | 9,079 | $ 250,341 |
| Food & Beverages – 4.2% | |
| Gruma S.A.B. de C.V. | | 29,952 | $ 400,774 |
| Inner Mongolia Yili Industrial Group Co. Ltd., “A” | | 115,541 | 513,766 |
| Orion Corp. (a) | | 3,690 | 374,796 |
| Tingyi (Cayman Islands) Holding Corp. | | 98,000 | 172,597 |
| | | | | $1,461,933 |
| Food & Drug Stores – 0.6% | |
| BIM Birlesik Magazalar A.S. | | 19,864 | $ 145,404 |
| Raia Drogasil S.A. | | 17,609 | 79,111 |
| | | | | $224,515 |
| Forest & Paper Products – 0.1% | |
| Suzano S.A. | | 5,600 | $ 51,166 |
| Insurance – 6.3% | |
| AIA Group Ltd. | | 55,600 | $ 612,545 |
| Discovery Ltd. (a) | | 38,683 | 280,824 |
| Ping An Insurance Co. of China Ltd., “H” | | 105,500 | 698,112 |
| Samsung Fire & Marine Insurance Co. Ltd. (a) | | 3,791 | 600,994 |
| | | | | $2,192,475 |
| Internet – 7.0% | |
| Baidu, Inc., ADR (a) | | 1,142 | $ 130,622 |
| MakeMyTrip Ltd. (a) | | 7,783 | 214,577 |
| Tencent Holdings Ltd. | | 48,700 | 2,069,858 |
| | | | | $2,415,057 |
| Leisure & Toys – 0.6% | |
| NCsoft Corp. (a) | | 274 | $ 97,976 |
| VTech Holdings Ltd. | | 15,600 | 100,234 |
| | | | | $198,210 |
MFS Emerging Markets Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Machinery & Tools – 0.3% | |
| AirTAC International Group | | 3,000 | $ 90,872 |
| Major Banks – 2.2% | |
| Bandhan Bank Ltd. (a) | | 68,950 | $ 194,445 |
| Erste Group Bank AG | | 9,904 | 316,992 |
| Nedbank Group Ltd. | | 20,475 | 256,166 |
| | | | | $767,603 |
| Medical & Health Technology & Services – 0.1% | |
| Burning Rock Biotech Ltd., ADR (a)(l) | | 20,192 | $ 45,432 |
| Metals & Mining – 1.0% | |
| Vale S.A., ADR | | 20,112 | $ 341,301 |
| Natural Gas - Distribution – 1.3% | |
| China Resources Gas Group Ltd. | | 121,700 | $ 453,243 |
| Network & Telecom – 0.2% | |
| GDS Holdings Ltd., “A” (a) | | 24,000 | $ 62,170 |
| Other Banks & Diversified Financials – 9.9% | |
| China Construction Bank Corp. | | 673,670 | $ 422,044 |
| China Merchants Bank Co Ltd. “A” | | 31,000 | 166,155 |
| Credicorp Ltd. | | 3,682 | 499,500 |
| Emirates NBD PJSC | | 69,269 | 245,193 |
| Grupo Financiero Inbursa S.A. de C.V. (a) | | 39,000 | 65,726 |
| HDFC Bank Ltd. | | 36,747 | 723,192 |
| Housing Development Finance Corp. Ltd. | | 16,178 | 515,122 |
| KB Financial Group, Inc. | | 4,358 | 165,992 |
| Komercní banka A.S. | | 5,209 | 150,976 |
| Muthoot Finance Ltd. | | 7,276 | 93,279 |
| Sberbank of Russia PJSC (a)(u) | | 286,804 | 0 |
| Tisco Financial Group PCL | | 135,100 | 387,142 |
| | | | | $3,434,321 |
| Pharmaceuticals – 0.5% | |
| Genomma Lab Internacional S.A., “B” | | 188,080 | $ 163,502 |
| Precious Metals & Minerals – 1.2% | |
| Gold Fields Ltd., ADR | | 31,811 | $ 329,244 |
| Polymetal International PLC (a) | | 35,382 | 105,013 |
| | | | | $434,257 |
| Real Estate – 2.1% | |
| Emaar Properties PJSC | | 222,045 | $ 353,441 |
| ESR Group Ltd. | | 103,000 | 216,149 |
| Hang Lung Properties Ltd. | | 78,000 | 151,443 |
| | | | | $721,033 |
| Restaurants – 2.6% | |
| Yum China Holdings, Inc. | | 16,204 | $ 885,549 |
| Specialty Chemicals – 0.2% | |
| Saudi Basic Industries Corp. | | 3,202 | $ 76,173 |
MFS Emerging Markets Equity Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Specialty Stores – 8.3% | |
| Alibaba Group Holding Ltd. (a) | | 116,448 | $ 1,286,747 |
| JD.com, Inc., “A” | | 6,180 | 173,722 |
| JD.com, Inc., ADR | | 632 | 35,474 |
| Lojas Renner S.A. | | 105,517 | 409,297 |
| Meituan, “B” (a) | | 4,100 | 90,657 |
| Multiplan Empreendimentos Imobiliarios S.A. | | 33,291 | 138,088 |
| Vipshop Holdings Ltd., ADR (a) | | 27,548 | 375,755 |
| Walmart de Mexico S.A.B. de C.V. | | 105,981 | 373,040 |
| | | | | $2,882,780 |
| Telecommunications - Wireless – 2.1% | |
| Advanced Info Service Public Co. Ltd. | | 32,300 | $ 181,854 |
| Etihad Etisalat Co. | | 30,338 | 280,930 |
| PT Telekom Indonesia | | 1,131,900 | 272,659 |
| | | | | $735,443 |
| Telephone Services – 0.9% | |
| Hellenic Telecommunications Organization S.A. | | 20,034 | $ 312,888 |
| Total Common Stocks (Identified Cost, $30,738,576) | | $34,061,374 |
| Investment Companies (h) – 2.0% |
| Money Market Funds – 2.0% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $693,213) | | | 693,237 | $ 693,445 |
| Collateral for Securities Loaned – 0.0% |
| State Street Navigator Securities Lending Government Money Market Portfolio, 4.33% (j) (Identified Cost, $2,556) | | | 2,556 | $ 2,556 |
| Other Assets, Less Liabilities – (0.2)% | | (75,695) |
| Net Assets – 100.0% | $34,681,680 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $693,445 and $34,063,930, respectively. | | | |
| (j) | The rate quoted is the annualized seven-day yield of the fund at period end. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (u) | The security was valued using significant unobservable inputs and is considered level 3 under the fair value hierarchy. For further information about the fund’s level 3 holdings, please see Note 2 in the Notes to Financial Statements. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| PCL | Public Company Limited |
See Notes to Financial Statements
MFS Emerging Markets Equity Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value, including $2,556 of securities on loan (identified cost, $30,741,132) | $34,063,930 |
| Investments in affiliated issuers, at value (identified cost, $693,213) | 693,445 |
| Cash | 19,013 |
| Foreign currency, at value (identified cost, $16,167) | 16,156 |
| Receivables for | |
| Investments sold | 33,495 |
| Fund shares sold | 20,359 |
| Interest and dividends | 65,885 |
| Receivable from investment adviser | 22,923 |
| Other assets | 396 |
| Total assets | $34,935,602 |
| Liabilities | |
| Payables for | |
| Investments purchased | $15,344 |
| Fund shares reacquired | 7,803 |
| Collateral for securities loaned, at value | 2,556 |
| Payable to affiliates | |
| Administrative services fee | 142 |
| Shareholder servicing costs | 25 |
| Distribution and/or service fees | 397 |
| Payable for independent Trustees' compensation | 49 |
| Deferred country tax expense payable | 71,169 |
| Accrued expenses and other liabilities | 156,437 |
| Total liabilities | $253,922 |
| Net assets | $34,681,680 |
| Net assets consist of | |
| Paid-in capital | $33,313,517 |
| Total distributable earnings (loss) | 1,368,163 |
| Net assets | $34,681,680 |
| Shares of beneficial interest outstanding | 3,074,617 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $15,451,902 | 1,356,186 | $11.39 |
| Service Class | 19,229,778 | 1,718,431 | 11.19 |
See Notes to Financial Statements
MFS Emerging Markets Equity Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $1,202,998 |
| Dividends from affiliated issuers | 10,559 |
| Other | 8,700 |
| Income on securities loaned | 19 |
| Foreign taxes withheld | (110,915) |
| Total investment income | $1,111,361 |
| Expenses | |
| Management fee | $389,078 |
| Distribution and/or service fees | 51,561 |
| Shareholder servicing costs | 6,196 |
| Administrative services fee | 17,500 |
| Independent Trustees' compensation | 3,000 |
| Custodian fee | 106,663 |
| Shareholder communications | 32,650 |
| Audit and tax fees | 86,832 |
| Legal fees | 193 |
| Miscellaneous | 33,161 |
| Total expenses | $726,834 |
| Reduction of expenses by investment adviser | (219,496) |
| Net expenses | $507,338 |
| Net investment income (loss) | $604,023 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $54,208 country tax) | $(1,116,779) |
| Affiliated issuers | (82) |
| Foreign currency | (12,870) |
| Net realized gain (loss) | $(1,129,731) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $44,648 decrease in deferred country tax) | $(8,271,835) |
| Affiliated issuers | 232 |
| Translation of assets and liabilities in foreign currencies | 202 |
| Net unrealized gain (loss) | $(8,271,401) |
| Net realized and unrealized gain (loss) | $(9,401,132) |
| Change in net assets from operations | $(8,797,109) |
See Notes to Financial Statements
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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $604,023 | $470,822 |
| Net realized gain (loss) | (1,129,731) | 3,006,119 |
| Net unrealized gain (loss) | (8,271,401) | (6,672,606) |
| Change in net assets from operations | $(8,797,109) | $(3,195,665) |
| Total distributions to shareholders | $(4,082,042) | $(177,020) |
| Change in net assets from fund share transactions | $3,214,089 | $1,741,105 |
| Total change in net assets | $(9,665,062) | $(1,631,580) |
| Net assets | | |
| At beginning of period | 44,346,742 | 45,978,322 |
| At end of period | $34,681,680 | $44,346,742 |
See Notes to Financial Statements
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 past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $16.03 | $17.28 | $17.04 | $14.75 | $17.19 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.23 | $0.20 | $0.14 | $0.28 | $0.11 |
| Net realized and unrealized gain (loss) | (3.36) | (1.36) | 1.47 | 2.63 | (2.49) |
| Total from investment operations | $(3.13) | $(1.16) | $1.61 | $2.91 | $(2.38) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.57) | $(0.09) | $(0.50) | $(0.11) | $(0.06) |
| From net realized gain | (0.94) | (0.00)(w) | (0.87) | (0.51) | — |
| Total distributions declared to shareholders | $(1.51) | $(0.09) | $(1.37) | $(0.62) | $(0.06) |
| Net asset value, end of period (x) | $11.39 | $16.03 | $17.28 | $17.04 | $14.75 |
| Total return (%) (k)(r)(s)(x) | (19.79) | (6.75) | 10.63 | 20.45 | (13.89) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.82 | 1.62 | 1.73 | 1.55 | 1.50 |
| Expenses after expense reductions | 1.23 | 1.23 | 1.23 | 1.29 | 1.37 |
| Net investment income (loss) | 1.78 | 1.16 | 0.94 | 1.76 | 0.65 |
| Portfolio turnover | 37 | 41 | 48 | 21 | 31 |
| Net assets at end of period (000 omitted) | $15,452 | $19,498 | $20,335 | $21,065 | $20,887 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $15.76 | $16.99 | $16.78 | $14.53 | $16.94 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.19 | $0.15 | $0.11 | $0.24 | $0.07 |
| Net realized and unrealized gain (loss) | (3.30) | (1.33) | 1.43 | 2.58 | (2.46) |
| Total from investment operations | $(3.11) | $(1.18) | $1.54 | $2.82 | $(2.39) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.52) | $(0.05) | $(0.46) | $(0.06) | $(0.02) |
| From net realized gain | (0.94) | (0.00)(w) | (0.87) | (0.51) | — |
| Total distributions declared to shareholders | $(1.46) | $(0.05) | $(1.33) | $(0.57) | $(0.02) |
| Net asset value, end of period (x) | $11.19 | $15.76 | $16.99 | $16.78 | $14.53 |
| Total return (%) (k)(r)(s)(x) | (19.94) | (6.97) | 10.33 | 20.11 | (14.13) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 2.07 | 1.87 | 1.98 | 1.80 | 1.75 |
| Expenses after expense reductions | 1.48 | 1.48 | 1.48 | 1.54 | 1.62 |
| Net investment income (loss) | 1.51 | 0.90 | 0.71 | 1.52 | 0.40 |
| Portfolio turnover | 37 | 41 | 48 | 21 | 31 |
| Net assets at end of period (000 omitted) | $19,230 | $24,849 | $25,643 | $25,616 | $23,973 |
See Notes to Financial Statements
MFS Emerging Markets Equity Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Emerging Markets Equity Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, accounting, and auditing systems, greater government involvement in the economy, greater risk of new or inconsistent government treatment of or restrictions on issuers and instruments, and greater political, social, and economic instability than developed markets.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the 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
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements - continued
market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant 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 December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| China | $5,768,580 | $5,276,281 | $— | $11,044,861 |
| South Korea | — | 4,718,828 | — | 4,718,828 |
| India | 2,514,022 | 1,582,114 | — | 4,096,136 |
| Taiwan | 3,424,851 | — | — | 3,424,851 |
| Brazil | 2,424,952 | — | — | 2,424,952 |
| Hong Kong | 712,719 | 864,222 | — | 1,576,941 |
| Mexico | 1,003,042 | — | — | 1,003,042 |
| South Africa | 866,234 | — | — | 866,234 |
| Thailand | — | 713,058 | — | 713,058 |
| Other Countries | 2,944,246 | 1,248,225 | 0 | 4,192,471 |
| Mutual Funds | 696,001 | — | — | 696,001 |
| Total | $20,354,647 | $14,402,728 | $0 | $34,757,375 |
For further information regarding security characteristics, see the Portfolio of Investments.
The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The table presents the activity of level 3 securities held at the beginning and the end of the period.
| | Equity
Securities |
| Balance as of 12/31/21 | $— |
| Transfers into level 3 | 0 |
| Balance as of 12/31/22 | $0 |
At December 31, 2022, the fund held three level 3 securities.
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.
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements - continued
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund's Portfolio of Investments, with a fair value of $2,556. The fair value of the fund's investment securities on loan and a related liability of $2,556 for cash collateral received on securities loaned are both presented gross in the Statement of Assets and Liabilities. The value of the fund’s securities on loan is marked to market daily and daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. The value of the fund's securities on loan was equal to the related collateral at period end. Additional collateral was delivered the following business day. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to passive foreign investment companies and wash sale loss deferrals.
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements - continued
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $1,898,969 | $177,020 |
| Long-term capital gains | 2,183,073 | — |
| Total distributions | $4,082,042 | $177,020 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/22 | |
| Cost of investments | $32,631,450 |
| Gross appreciation | 7,856,697 |
| Gross depreciation | (5,730,772) |
| Net unrealized appreciation (depreciation) | $2,125,925 |
| Undistributed ordinary income | 449,252 |
| Capital loss carryforwards | (1,130,849) |
| Other temporary differences | (76,165) |
| Total distributable earnings (loss) | $1,368,163 |
As of December 31, 2022, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(449,011) |
| Long-Term | (681,838) |
| Total | $(1,130,849) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $1,838,043 | | $106,466 |
| Service Class | 2,243,999 | | 70,554 |
| Total | $4,082,042 | | $177,020 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $500 million | 1.05% |
| In excess of $500 million | 1.00% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $5,154, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 1.04% of the fund's average daily net assets.
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements - continued
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 1.23% of average daily net assets for the Initial Class shares and 1.48% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this reduction amounted to $214,342, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2022, the fee was $5,809, which equated to 0.0157% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $387.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0472% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended December 31, 2022, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $24,007 and $2,836, respectively. The sales transactions resulted in net realized gains (losses) of $(501).
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended December 31, 2022, this reimbursement amounted to $8,687, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than short-term obligations, aggregated $13,525,695 and $13,855,262, 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:
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 136,399 | $1,835,586 | | 233,978 | $4,138,929 |
| Service Class | 199,460 | 2,545,499 | | 290,742 | 4,858,335 |
| | 335,859 | $4,381,085 | | 524,720 | $8,997,264 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 157,772 | $1,838,043 | | 6,356 | $106,466 |
| Service Class | 195,982 | 2,243,999 | | 4,281 | 70,554 |
| | 353,754 | $4,082,042 | | 10,637 | $177,020 |
| Shares reacquired | | | | | |
| Initial Class | (154,707) | $(2,042,596) | | (200,577) | $(3,532,147) |
| Service Class | (253,766) | (3,206,442) | | (227,204) | (3,901,032) |
| | (408,473) | $(5,249,038) | | (427,781) | $(7,433,179) |
| Net change | | | | | |
| Initial Class | 139,464 | $1,631,033 | | 39,757 | $713,248 |
| Service Class | 141,676 | 1,583,056 | | 67,819 | 1,027,857 |
| | 281,140 | $3,214,089 | | 107,576 | $1,741,105 |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Growth Allocation Portfolio was the owner of record of approximately 8% of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $187 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $801,674 | $8,895,477 | $9,003,856 | $(82) | $232 | $693,445 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $10,559 | $— |
MFS Emerging Markets Equity Portfolio
Notes to Financial Statements - continued
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The fund invests in securities and/or derivative instruments that are economically tied to Russia and/or Ukraine. Escalation of the conflict between Russia and Ukraine in late February 2022 caused market volatility and disruption in the tradability of Russian securities, including closure of the local securities market, temporary restriction on securities sales by non-residents, and disruptions to clearance and payment systems. To the extent that the fund is unable to sell securities, whether due to market constraints or to the sanctions imposed on Russia by the United States and other countries, those securities are considered illiquid and the value of those securities reflects their illiquid classification. Management continues to monitor these events and to evaluate the related impacts on fund performance.
MFS Emerging Markets Equity Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Emerging Markets Equity Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Emerging Markets Equity Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Emerging Markets Equity Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS Emerging Markets Equity Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS Emerging Markets Equity Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Jose Luis Garcia
Rajesh Nair
Harry Purcell | |
MFS Emerging Markets Equity Portfolio
Board Review of Investment Advisory Agreement
MFS Emerging Markets Equity Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 4th quintile for the one-year period and the 5th quintile for the three-year period ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
The Trustees expressed concern to MFS about the substandard investment performance of the Fund and the Fund’s retail counterpart, MFS Emerging Markets Equity Fund, which has substantially similar investment strategies and experienced substantially similar investment performance as the Fund. In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year as to MFS’ efforts to improve the performance of the Fund and the Fund’s
MFS Emerging Markets Equity Portfolio
Board Review of Investment Advisory Agreement - continued
retail counterpart. In addition, the Trustees requested that they receive a separate update on the Fund’s retail counterpart at each of their regular meetings. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that MFS’ responses and efforts and plans to improve investment performance were sufficient to support approval of the continuance of the investment advisory agreement for an additional one-year period, but that they would continue to closely monitor the performance of the Fund’s retail counterpart.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was lower than the Broadridge expense group median and the Fund’s total expense ratio was approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $500 million. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
MFS Emerging Markets Equity Portfolio
Board Review of Investment Advisory Agreement - continued
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS Emerging Markets Equity Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $2,402,000 as capital gain dividends paid during the fiscal year.
Income derived from foreign sources was $1,188,146. The fund intends to pass through foreign tax credits of $114,935 for the fiscal year.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® Global
Governments Portfolio
MFS® Variable Insurance Trust II
MFS® Global Governments Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Governments Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Global Governments Portfolio
Portfolio structure (i)
Fixed income sectors (i)
| U.S. Treasury Securities | 43.1% |
| Non-U.S. Government Bonds | 40.6% |
| Emerging Markets Bonds | 6.3% |
| Mortgage-Backed Securities | 0.4% |
| Municipal Bonds | 0.3% |
| Investment Grade Corporates | 0.2% |
| Commercial Mortgage-Backed Securities | 0.2% |
| U.S. Government Agencies | 0.2% |
Composition including fixed income credit quality (a)(i)
| AAA | 9.2% |
| AA | 15.7% |
| A | 11.8% |
| BBB | 7.9% |
| BB | 3.8% |
| U.S. Government | 37.3% |
| Federal Agencies | 0.6% |
| Not Rated | 5.0% |
| Cash & Cash Equivalents | 8.7% |
| Other (o) | 0.0% |
Portfolio facts
| Average Duration (d) | 7.0 |
| Average Effective Maturity (m) | 9.4 yrs. |
Issuer country weightings (i)(x)
| United States | 53.2% |
| Japan | 14.0% |
| United Kingdom | 7.9% |
| Spain | 5.9% |
| Canada | 5.0% |
| Greece | 3.6% |
| Belgium | 2.3% |
| Italy | 2.1% |
| Germany | (3.3)% |
| Other Countries | 9.3% |
Currency exposure weightings (i)(y)
| United States Dollar | 48.3% |
| Euro | 24.6% |
| Japanese Yen | 19.3% |
| British Pound Sterling | 3.3% |
| Canadian Dollar | 2.9% |
| Australian Dollar | 1.7% |
| Uruguay Peso | 0.4% |
| Danish Krone | 0.3% |
| New Zealand Dollar | (1.0)% |
| Other Currencies | 0.2% |
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. The Average Duration calculation reflects the impact of the equivalent exposure of derivative positions, if any. |
MFS Global Governments Portfolio
Portfolio Composition - continued
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS Global Governments Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Global Governments Portfolio (fund) provided a total return of -17.23%, while Service Class shares of the fund provided a total return of -17.38%. These compare with a return of -17.22% for the fund’s benchmark, the JPMorgan Global Government Bond Index (Unhedged).
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Factors Affecting Performance
Relative to the JPMorgan Global Government Bond Index (Unhedged), the fund's foreign currency exposure to both the Norwegian krone and Swedish krona detracted from performance as these currencies depreciated against the US dollar. The fund's allocation to Italian-issued debt and its positioning along the New Zealand yield curve also held back relative performance.
Conversely, yield curve(y) positioning, particularly the fund's underweight exposure to shifts in the short end of the United States yield curve (centered around maturities of 2 years), contributed to relative performance. Positioning along the Canadian yield curve was another positive factor for the fund's relative returns. Foreign currency exposure to the British pound, New Zealand dollar and euro was also a substantial contributor to the fund's relative performance as these currencies appreciated against the US dollar over the reporting period.
Respectfully,
Portfolio Manager(s)
Robert Spector and Erik Weisman
| (y) | A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Global Governments Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 5/16/88 | (17.23)% | (2.33)% | (1.30)% |
| Service Class | 8/24/01 | (17.38)% | (2.56)% | (1.54)% |
Comparative benchmark(s)
| JPMorgan Global Government Bond Index (Unhedged) (f) | (17.22)% | (2.21)% | (0.96)% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
JPMorgan Global Government Bond Index (Unhedged) – measures developed government bond markets around the world.
It is not possible to invest directly in an index.
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Global Governments Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.76% | $1,000.00 | $961.37 | $3.76 |
| Hypothetical (h) | 0.76% | $1,000.00 | $1,021.37 | $3.87 |
| Service Class | Actual | 1.01% | $1,000.00 | $960.78 | $4.99 |
| Hypothetical (h) | 1.01% | $1,000.00 | $1,020.11 | $5.14 |
| (h) | 5% fund return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Global Governments Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 90.7% |
| Foreign Bonds – 52.3% |
| Australia – 1.2% |
| Commonwealth of Australia, 5.5%, 4/21/2023 | | AUD | 750,000 | $ 513,977 |
| Commonwealth of Australia, 3.25%, 6/21/2039 | | | 960,000 | 570,633 |
| Commonwealth of Australia, 1.75%, 6/21/2051 | | | 125,000 | 49,320 |
| | | | | $1,133,930 |
| Belgium – 2.3% |
| Kingdom of Belgium, 1%, 6/22/2031 | | EUR | 400,000 | $ 364,426 |
| Kingdom of Belgium, 0.4%, 6/22/2040 | | | 1,325,000 | 864,811 |
| Kingdom of Belgium, 1.6%, 6/22/2047 | | | 970,000 | 740,059 |
| Kingdom of Belgium, 2.15%, 6/22/2066 | | | 200,000 | 166,143 |
| | | | | $2,135,439 |
| Canada – 5.0% |
| Government of Canada, 0.25%, 2/01/2023 | | CAD | 1,700,000 | $ 1,251,546 |
| Government of Canada, 2%, 6/01/2032 | | | 2,800,000 | 1,851,598 |
| Government of Canada, 5%, 6/01/2037 | | | 1,310,000 | 1,146,850 |
| Government of Canada, 2%, 12/01/2051 | | | 671,000 | 376,474 |
| | | | | $4,626,468 |
| France – 1.5% |
| Republic of France, 0%, 11/25/2031 | | EUR | 395,000 | $ 326,555 |
| Republic of France, 0.75%, 5/25/2052 | | | 535,000 | 307,269 |
| Republic of France, 4%, 4/25/2055 (n) | | | 590,000 | 718,854 |
| | | | | $1,352,678 |
| Germany – 2.4% |
| Federal Republic of Germany, 0%, 8/15/2026 | | EUR | 900,000 | $ 882,012 |
| Federal Republic of Germany, 0.5%, 2/15/2028 | | | 400,000 | 387,987 |
| Federal Republic of Germany, 0%, 8/15/2052 | | | 1,340,000 | 716,561 |
| Landwirtschaftliche Rentenbank (Federal Republic of Germany), 0.5%, 5/27/2025 | | $ | 300,000 | 273,222 |
| | | | | $2,259,782 |
| Greece – 3.6% |
| Hellenic Republic (Republic of Greece), 2%, 4/22/2027 (n) | | EUR | 1,000,000 | $ 1,001,427 |
| Hellenic Republic (Republic of Greece), 0.75%, 6/18/2031 (n) | | | 2,960,000 | 2,335,270 |
| | | | | $3,336,697 |
| Italy – 2.1% |
| Republic of Italy, 0.95%, 3/15/2023 | | EUR | 1,500,000 | $ 1,601,804 |
| Republic of Italy, 0.6%, 8/01/2031 (n) | | | 425,000 | 333,254 |
| | | | | $1,935,058 |
| Japan – 14.0% |
| Government of Japan, 0.8%, 6/20/2023 | | JPY | 60,000,000 | $ 458,979 |
| Government of Japan, 2.1%, 12/20/2027 | | | 220,000,000 | 1,827,807 |
| Government of Japan, 0.1%, 6/20/2029 | | | 85,000,000 | 635,751 |
| Government of Japan, 1.7%, 12/20/2031 | | | 285,000,000 | 2,397,093 |
| Government of Japan, 1.4%, 9/20/2034 | | | 163,000,000 | 1,332,616 |
| Government of Japan, 0.4%, 9/20/2040 | | | 320,000,000 | 2,119,305 |
| Government of Japan, 1.5%, 12/20/2044 | | | 288,000,000 | 2,250,170 |
| Government of Japan, 0.6%, 9/20/2050 | | | 121,000,000 | 725,594 |
| Government of Japan, 0.9%, 3/20/2057 | | | 56,000,000 | 346,531 |
MFS Global Governments Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Foreign Bonds – continued |
| Japan – continued |
| Japan Bank for International Cooperation, 0.625%, 7/15/2025 | | $ | 300,000 | $ 270,660 |
| Japan Finance Organization for Municipalities, 0.625%, 9/02/2025 (n) | | | 250,000 | 223,935 |
| Japan International Cooperation Agency, 1%, 7/22/2030 | | | 250,000 | 191,440 |
| Tokyo Metropolitan Government , 0.75%, 7/16/2025 (n) | | | 250,000 | 224,974 |
| | | | | $13,004,855 |
| New Zealand – 1.4% |
| Government of New Zealand, 5.5%, 4/15/2023 | | NZD | 1,600,000 | $ 1,018,136 |
| Government of New Zealand, 1.5%, 5/15/2031 | | | 650,000 | 328,374 |
| | | | | $1,346,510 |
| Norway – 1.6% |
| Kingdom of Norway, 2%, 5/24/2023 (n) | | NOK | 15,000,000 | $ 1,524,363 |
| Serbia – 0.2% |
| Republic of Serbia, 2.125%, 12/01/2030 (n) | | $ | 200,000 | $ 143,440 |
| South Korea – 1.8% |
| Republic of Korea, 0.875%, 12/10/2023 | | KRW | 750,000,000 | $ 577,264 |
| Republic of Korea, 2.125%, 6/10/2027 | | | 1,500,000,000 | 1,105,425 |
| | | | | $1,682,689 |
| Spain – 5.9% |
| Kingdom of Spain, 0.35%, 7/30/2023 | | EUR | 2,600,000 | $ 2,749,826 |
| Kingdom of Spain, 3.8%, 4/30/2024 | | | 1,000,000 | 1,083,378 |
| Kingdom of Spain, 2.55%, 10/31/2032 | | | 230,000 | 225,337 |
| Kingdom of Spain, 4.7%, 7/30/2041 | | | 615,000 | 734,604 |
| Kingdom of Spain, 5.15%, 10/31/2044 | | | 330,000 | 420,424 |
| Kingdom of Spain, 1%, 10/31/2050 | | | 425,000 | 236,970 |
| | | | | $5,450,539 |
| Supranational – 0.5% |
| Corporacion Andina de Fomento, 1.625%, 9/23/2025 | | $ | 300,000 | $ 271,864 |
| Inter-American Development Bank, 0.625%, 7/15/2025 | | | 250,000 | 227,582 |
| | | | | $499,446 |
| Sweden – 0.6% |
| Kommuninvest I Sverige AB, 0.375%, 2/16/2024 (n) | | $ | 300,000 | $ 285,202 |
| Swedish Export Credit Corp., 0.625%, 5/14/2025 | | | 300,000 | 273,843 |
| | | | | $559,045 |
| United Kingdom – 7.8% |
| United Kingdom Treasury, 0.75%, 7/22/2023 | | GBP | 1,000,000 | $ 1,192,255 |
| United Kingdom Treasury, 0.125%, 1/31/2028 | | | 1,375,000 | 1,393,877 |
| United Kingdom Treasury, 0.875%, 7/31/2033 | | | 2,850,000 | 2,571,762 |
| United Kingdom Treasury, 1.75%, 9/07/2037 | | | 792,000 | 720,252 |
| United Kingdom Treasury, 3.75%, 7/22/2052 | | | 819,000 | 953,655 |
| United Kingdom Treasury, 4%, 1/22/2060 | | | 195,000 | 246,707 |
| United Kingdom Treasury, 3.5%, 7/22/2068 | | | 165,000 | 190,879 |
| | | | | $7,269,387 |
MFS Global Governments Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Foreign Bonds – continued |
| Uruguay – 0.4% |
| Oriental Republic of Uruguay, 8.25%, 5/21/2031 | | UYU | 15,991,000 | $ 345,422 |
| Total Foreign Bonds | | | $48,605,748 |
| U.S. Bonds – 38.4% |
| Asset-Backed & Securitized – 0.2% |
| 3650R Commercial Mortgage Trust, 2021-PF1, “XA”, 1.028%, 11/15/2054 (i) | | $ | 1,032,813 | $ 60,848 |
| Arbor Multi-Family Mortgage Securities Trust, 2021-MF3, “XA”, 0.742%, 10/15/2054 (i)(n) | | | 3,165,353 | 131,437 |
| | | | | $192,285 |
| Consumer Services – 0.2% |
| Conservation Fund, 3.474%, 12/15/2029 | | $ | 158,000 | $ 135,846 |
| Industrial – 0.1% |
| Howard University, Washington D.C., AGM, 2.416%, 10/01/2024 | | $ | 33,000 | $ 31,161 |
| Howard University, Washington D.C., AGM, 2.516%, 10/01/2025 | | | 42,000 | 39,227 |
| | | | | $70,388 |
| Mortgage-Backed – 0.4% |
| Freddie Mac, 1.169%, 9/25/2030 (i) | | $ | 329,805 | $ 23,746 |
| Freddie Mac, 0.536%, 9/25/2031 (i) | | | 2,295,212 | 87,315 |
| Freddie Mac, 0.855%, 9/25/2031 (i) | | | 706,831 | 41,498 |
| Freddie Mac, 0.349%, 11/25/2031 (i) | | | 3,422,551 | 87,900 |
| Freddie Mac, 0.497%, 12/25/2031 (i) | | | 3,444,413 | 122,097 |
| Freddie Mac, 0.567%, 12/25/2031 (i) | | | 568,544 | 22,445 |
| | | | | $385,001 |
| Municipals – 0.3% |
| California Earthquake Authority Rev., Taxable, “B”, 1.477%, 7/01/2023 | | $ | 60,000 | $ 58,988 |
| Massachusetts Educational Financing Authority, Education Loan Rev., Taxable, “A”, 2.682%, 7/01/2027 | | | 100,000 | 89,461 |
| West Virginia Tobacco Settlement Financing Authority Asset-Backed Refunding, Taxable, “A-1”, 1.497%, 6/01/2024 | | | 80,000 | 75,872 |
| West Virginia Tobacco Settlement Financing Authority Asset-Backed Refunding, Taxable, “A-1”, 1.647%, 6/01/2025 | | | 65,000 | 59,454 |
| | | | | $283,775 |
| U.S. Government Agencies and Equivalents – 0.2% |
| Small Business Administration, 4.57%, 6/01/2025 | | $ | 1,015 | $ 1,008 |
| Small Business Administration, 5.09%, 10/01/2025 | | | 912 | 891 |
| Small Business Administration, 5.21%, 1/01/2026 | | | 14,399 | 14,217 |
| Small Business Administration, 2.22%, 3/01/2033 | | | 213,569 | 193,203 |
| | | | | $209,319 |
| U.S. Treasury Obligations – 37.0% |
| U.S. Treasury Bill, 0%, 8/10/2023 | | $ | 2,000,000 | $ 1,946,055 |
| U.S. Treasury Bonds, 0.25%, 6/15/2024 | | | 4,350,000 | 4,082,543 |
| U.S. Treasury Bonds, 4.5%, 8/15/2039 | | | 3,981,400 | 4,221,684 |
| U.S. Treasury Bonds, 2.75%, 11/15/2042 | | | 1,976,000 | 1,583,887 |
| U.S. Treasury Bonds, 2.5%, 2/15/2045 | | | 800,000 | 602,281 |
| U.S. Treasury Bonds, 3%, 2/15/2049 | | | 3,515,000 | 2,894,657 |
| U.S. Treasury Bonds, 1.875%, 11/15/2051 | | | 530,000 | 335,680 |
| U.S. Treasury Notes, 1.625%, 4/30/2023 | | | 5,350,000 | 5,300,262 |
| U.S. Treasury Notes, 2.125%, 5/15/2025 | | | 2,420,700 | 2,300,327 |
| U.S. Treasury Notes, 2.375%, 5/15/2027 | | | 2,560,000 | 2,386,700 |
| U.S. Treasury Notes, 2.875%, 8/15/2028 (f) | | | 6,710,000 | 6,318,671 |
MFS Global Governments Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| U.S. Bonds – continued |
| U.S. Treasury Obligations – continued |
| U.S. Treasury Notes, 1.25%, 8/15/2031 | | $ | 3,025,000 | $ 2,452,850 |
| | | | | $34,425,597 |
| Total U.S. Bonds | | | | $35,702,211 |
| Total Bonds (Identified Cost, $93,915,406) | | $84,307,959 |
| Investment Companies (h) – 8.7% |
| Money Market Funds – 8.7% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $8,087,353) | | | 8,086,773 | $ 8,089,199 |
| Other Assets, Less Liabilities – 0.6% | | 598,658 |
| Net Assets – 100.0% | | $92,995,816 |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $8,089,199 and $84,307,959, respectively. |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $6,922,156, representing 7.4% of net assets. |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| The following abbreviations are used in this report and are defined: |
| AGM | Assured Guaranty Municipal |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| AUD | Australian Dollar |
| CAD | Canadian Dollar |
| CNY | China Yuan Renminbi |
| DKK | Danish Krone |
| EUR | Euro |
| GBP | British Pound |
| JPY | Japanese Yen |
| KRW | South Korean Won |
| NOK | Norwegian Krone |
| NZD | New Zealand Dollar |
| SEK | Swedish Krona |
| TWD | Taiwan Dollar |
| UYU | Uruguayan Peso |
| Derivative Contracts at 12/31/22 |
| Forward Foreign Currency Exchange Contracts |
Currency
Purchased | Currency
Sold | Counterparty | Settlement Date | Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| AUD | 717,141 | USD | 483,454 | HSBC Bank | 1/20/2023 | $5,126 |
| AUD | 830,830 | USD | 528,673 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | 37,362 |
| CAD | 995,176 | USD | 731,121 | Barclays Bank PLC | 1/20/2023 | 3,928 |
| CAD | 652,693 | USD | 478,615 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | 3,473 |
MFS Global Governments Portfolio
Portfolio of Investments – continued
| Forward Foreign Currency Exchange Contracts - continued |
Currency
Purchased | Currency
Sold | Counterparty | Settlement Date | Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives - continued |
| CAD | 321,595 | USD | 235,254 | State Street Bank Corp. | 1/20/2023 | $2,281 |
| CAD | 1,305,983 | USD | 958,480 | UBS AG | 1/20/2023 | 6,136 |
| DKK | 1,795,991 | USD | 236,636 | Deutsche Bank AG | 1/20/2023 | 22,213 |
| EUR | 782,574 | USD | 832,752 | Barclays Bank PLC | 1/20/2023 | 5,859 |
| EUR | 183,315 | USD | 193,606 | BNP Paribas S.A. | 1/20/2023 | 2,835 |
| EUR | 663,122 | USD | 698,891 | Brown Brothers Harriman | 1/20/2023 | 11,712 |
| EUR | 347,918 | USD | 370,386 | Citibank N.A. | 1/20/2023 | 2,444 |
| EUR | 2,305,567 | USD | 2,389,409 | JPMorgan Chase Bank N.A. | 1/20/2023 | 81,249 |
| EUR | 464,773 | USD | 483,495 | Merrill Lynch International | 1/20/2023 | 14,557 |
| EUR | 3,643,913 | USD | 3,723,307 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | 181,530 |
| EUR | 228,520 | USD | 239,779 | NatWest Markets PLC | 1/20/2023 | 5,104 |
| EUR | 284,080 | USD | 290,920 | State Street Bank Corp. | 1/20/2023 | 13,503 |
| GBP | 198,899 | USD | 239,216 | Brown Brothers Harriman | 1/20/2023 | 1,345 |
| GBP | 1,004,919 | USD | 1,142,978 | Goldman Sachs International | 1/20/2023 | 72,429 |
| GBP | 396,692 | USD | 456,366 | JPMorgan Chase Bank N.A. | 1/20/2023 | 23,417 |
| GBP | 802,311 | USD | 929,511 | Merrill Lynch International | 1/20/2023 | 40,850 |
| GBP | 449,777 | USD | 521,367 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | 22,620 |
| GBP | 65,227 | USD | 73,707 | State Street Bank Corp. | 1/20/2023 | 5,182 |
| JPY | 17,499,730 | USD | 120,160 | Brown Brothers Harriman | 1/20/2023 | 13,446 |
| JPY | 686,789,763 | USD | 4,642,526 | Deutsche Bank AG | 1/20/2023 | 600,946 |
| JPY | 176,906,961 | USD | 1,291,476 | JPMorgan Chase Bank N.A. | 1/20/2023 | 59,167 |
| JPY | 74,562,693 | USD | 564,991 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | 4,277 |
| JPY | 33,353,971 | USD | 238,290 | UBS AG | 1/20/2023 | 16,359 |
| NZD | 1,153,278 | USD | 661,573 | Brown Brothers Harriman | 1/20/2023 | 70,798 |
| NZD | 615,166 | USD | 350,405 | HSBC Bank | 1/20/2023 | 40,246 |
| NZD | 1,131,813 | USD | 673,410 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | 45,329 |
| NZD | 1,976,761 | USD | 1,142,177 | NatWest Markets PLC | 1/20/2023 | 113,134 |
| NZD | 1,762,901 | USD | 1,001,155 | State Street Bank Corp. | 1/20/2023 | 118,347 |
| SEK | 1,927,301 | USD | 172,984 | Deutsche Bank AG | 1/20/2023 | 11,884 |
| USD | 690,777 | CAD | 926,659 | Barclays Bank PLC | 1/20/2023 | 6,334 |
| USD | 96,381 | CAD | 129,696 | JPMorgan Chase Bank N.A. | 1/20/2023 | 586 |
| USD | 56,280 | CAD | 74,679 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | 1,121 |
| USD | 477,526 | GBP | 387,568 | Brown Brothers Harriman | 1/20/2023 | 8,780 |
| USD | 2,172,427 | GBP | 1,775,349 | HSBC Bank | 1/20/2023 | 25,216 |
| USD | 1,952,968 | NZD | 3,057,551 | Goldman Sachs International | 1/20/2023 | 11,319 |
| | | | | | | $1,712,444 |
| Liability Derivatives |
| CAD | 86,246 | USD | 64,755 | Citibank N.A. | 1/20/2023 | $(1,052) |
| CAD | 1,020,460 | USD | 760,673 | JPMorgan Chase Bank N.A. | 1/20/2023 | (6,948) |
| EUR | 451,001 | USD | 483,765 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | (470) |
| GBP | 310,119 | USD | 378,045 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | (2,969) |
| GBP | 31,549 | USD | 38,574 | NatWest Markets PLC | 1/20/2023 | (417) |
| JPY | 132,513,153 | USD | 1,015,133 | HSBC Bank | 1/20/2023 | (3,428) |
| NZD | 754,732 | USD | 481,256 | State Street Bank Corp. | 1/20/2023 | (1,975) |
| USD | 481,637 | AUD | 717,155 | JPMorgan Chase Bank N.A. | 1/20/2023 | (6,953) |
| USD | 98,472 | AUD | 157,957 | State Street Bank Corp. | 1/20/2023 | (9,143) |
| USD | 480,268 | CAD | 655,100 | Brown Brothers Harriman | 1/20/2023 | (3,597) |
| USD | 227,241 | CAD | 307,829 | Citibank N.A. | 1/20/2023 | (126) |
| USD | 233,498 | CAD | 316,177 | Goldman Sachs International | 1/20/2023 | (35) |
| USD | 2,982,799 | CAD | 4,095,815 | HSBC Bank | 1/20/2023 | (42,425) |
| USD | 327,058 | CAD | 445,626 | Merrill Lynch International | 1/20/2023 | (2,087) |
| USD | 11,127 | CNY | 79,000 | JPMorgan Chase Bank N.A. | 2/24/2023 | (282) |
MFS Global Governments Portfolio
Portfolio of Investments – continued
| Forward Foreign Currency Exchange Contracts - continued |
Currency
Purchased | Currency
Sold | Counterparty | Settlement Date | Unrealized
Appreciation
(Depreciation) |
| Liability Derivatives - continued |
| USD | 2,116,942 | EUR | 2,148,526 | Barclays Bank PLC | 1/20/2023 | $(185,429) |
| USD | 149,409 | EUR | 151,236 | Deutsche Bank AG | 1/20/2023 | (12,656) |
| USD | 632,738 | EUR | 619,604 | HSBC Bank | 1/20/2023 | (31,233) |
| USD | 303,117 | EUR | 302,475 | JPMorgan Chase Bank N.A. | 1/20/2023 | (21,016) |
| USD | 181,010 | EUR | 184,471 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | (16,670) |
| USD | 537,100 | GBP | 477,144 | HSBC Bank | 1/20/2023 | (39,986) |
| USD | 874,381 | GBP | 746,092 | JPMorgan Chase Bank N.A. | 1/20/2023 | (27,985) |
| USD | 3,872,108 | GBP | 3,347,837 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | (176,959) |
| USD | 7,574 | GBP | 6,748 | State Street Bank Corp. | 1/20/2023 | (588) |
| USD | 673,268 | JPY | 97,024,990 | Citibank N.A. | 1/20/2023 | (67,495) |
| USD | 534,785 | JPY | 73,258,275 | HSBC Bank | 1/20/2023 | (24,524) |
| USD | 631,680 | JPY | 83,548,226 | JPMorgan Chase Bank N.A. | 1/20/2023 | (6,191) |
| USD | 235,215 | JPY | 33,007,617 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | (16,790) |
| USD | 45,425 | JPY | 6,676,511 | State Street Bank Corp. | 1/20/2023 | (5,549) |
| USD | 451,347 | JPY | 66,450,144 | UBS AG | 1/20/2023 | (55,983) |
| USD | 1,488,203 | KRW | 2,112,756,439 | Merrill Lynch International | 1/25/2023 | (183,287) |
| USD | 1,414,547 | NOK | 14,979,827 | Citibank N.A. | 1/20/2023 | (115,496) |
| USD | 940,666 | NZD | 1,490,608 | Morgan Stanley Capital Services, Inc. | 1/20/2023 | (5,921) |
| USD | 3,688,311 | NZD | 6,497,050 | State Street Bank Corp. | 1/20/2023 | (437,537) |
| USD | 906 | TWD | 29,000 | Merrill Lynch International | 2/03/2023 | (40) |
| | | | | | | $(1,513,242) |
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| Interest Rate Futures | | |
| Euro-Bobl 5 yr | Short | EUR | 43 | $5,327,895 | March - 2023 | $162,295 |
| Liability Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Note 10 yr | Long | USD | 39 | $4,379,578 | March - 2023 | $(44,181) |
| U.S. Treasury Ultra Note 10 yr | Long | USD | 9 | 1,064,532 | March - 2023 | (18,677) |
| | | | | | | $(62,858) |
At December 31, 2022, the fund had liquid securities with an aggregate value of $261,787 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
MFS Global Governments Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $93,915,406) | $84,307,959 |
| Investments in affiliated issuers, at value (identified cost, $8,087,353) | 8,089,199 |
| Cash | 50,000 |
| Receivables for | |
| Forward foreign currency exchange contracts | 1,712,444 |
| Net daily variation margin on open futures contracts | 14,294 |
| Interest | 493,891 |
| Receivable from investment adviser | 8,761 |
| Other assets | 787 |
| Total assets | $94,677,335 |
| Liabilities | |
| Payables for | |
| Forward foreign currency exchange contracts | $1,513,242 |
| Fund shares reacquired | 86,815 |
| Payable to affiliates | |
| Administrative services fee | 192 |
| Shareholder servicing costs | 6 |
| Distribution and/or service fees | 11 |
| Payable for independent Trustees' compensation | 138 |
| Accrued expenses and other liabilities | 81,115 |
| Total liabilities | $1,681,519 |
| Net assets | $92,995,816 |
| Net assets consist of | |
| Paid-in capital | $112,392,217 |
| Total distributable earnings (loss) | (19,396,401) |
| Net assets | $92,995,816 |
| Shares of beneficial interest outstanding | 10,797,493 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $92,463,635 | 10,734,462 | $8.61 |
| Service Class | 532,181 | 63,031 | 8.44 |
See Notes to Financial Statements
MFS Global Governments Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Interest | $1,247,145 |
| Dividends from affiliated issuers | 94,163 |
| Other | 62 |
| Foreign taxes withheld | (304) |
| Total investment income | $1,341,066 |
| Expenses | |
| Management fee | $776,483 |
| Distribution and/or service fees | 1,613 |
| Shareholder servicing costs | 1,626 |
| Administrative services fee | 25,702 |
| Independent Trustees' compensation | 3,840 |
| Custodian fee | 29,044 |
| Shareholder communications | 4,260 |
| Audit and tax fees | 83,667 |
| Legal fees | 486 |
| Miscellaneous | 36,345 |
| Total expenses | $963,066 |
| Reduction of expenses by investment adviser | (172,333) |
| Net expenses | $790,733 |
| Net investment income (loss) | $550,333 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $229 country tax) | $(12,657,893) |
| Affiliated issuers | 355 |
| Futures contracts | 476,599 |
| Forward foreign currency exchange contracts | 27,434 |
| Foreign currency | 258,131 |
| Net realized gain (loss) | $(11,895,374) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(9,447,831) |
| Affiliated issuers | 1,846 |
| Futures contracts | 99,437 |
| Forward foreign currency exchange contracts | 126,491 |
| Translation of assets and liabilities in foreign currencies | 14,468 |
| Net unrealized gain (loss) | $(9,205,589) |
| Net realized and unrealized gain (loss) | $(21,100,963) |
| Change in net assets from operations | $(20,550,630) |
See Notes to Financial Statements
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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $550,333 | $389,021 |
| Net realized gain (loss) | (11,895,374) | 1,420,563 |
| Net unrealized gain (loss) | (9,205,589) | (11,722,453) |
| Change in net assets from operations | $(20,550,630) | $(9,912,869) |
| Total distributions to shareholders | $(1,547,064) | $(2,960,087) |
| Change in net assets from fund share transactions | $(8,328,600) | $6,053,242 |
| Total change in net assets | $(30,426,294) | $(6,819,714) |
| Net assets | | |
| At beginning of period | 123,422,110 | 130,241,824 |
| At end of period | $92,995,816 | $123,422,110 |
See Notes to Financial Statements
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 past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $10.57 | $11.69 | $10.71 | $10.34 | $10.56 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.05 | $0.03 | $0.05 | $0.11 | $0.11 |
| Net realized and unrealized gain (loss) | (1.87) | (0.89) | 1.08 | 0.53 | (0.23) |
| Total from investment operations | $(1.82) | $(0.86) | $1.13 | $0.64 | $(0.12) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.14) | $(0.26) | $(0.15) | $(0.27) | $(0.10) |
| Net asset value, end of period (x) | $8.61 | $10.57 | $11.69 | $10.71 | $10.34 |
| Total return (%) (k)(r)(s)(x) | (17.23) | (7.43) | 10.60 | 6.08 | (1.11) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.93 | 0.89 | 0.90 | 0.88 | 0.87 |
| Expenses after expense reductions | 0.76 | 0.76 | 0.83 | 0.87 | 0.86 |
| Net investment income (loss) | 0.53 | 0.31 | 0.46 | 1.01 | 1.05 |
| Portfolio turnover | 116 | 132 | 98 | 107 | 79 |
| Net assets at end of period (000 omitted) | $92,464 | $122,646 | $129,401 | $129,565 | $135,008 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $10.35 | $11.46 | $10.50 | $10.14 | $10.34 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.02 | $0.01 | $0.02 | $0.08 | $0.08 |
| Net realized and unrealized gain (loss) | (1.82) | (0.89) | 1.06 | 0.51 | (0.22) |
| Total from investment operations | $(1.80) | $(0.88) | $1.08 | $0.59 | $(0.14) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.11) | $(0.23) | $(0.12) | $(0.23) | $(0.06) |
| Net asset value, end of period (x) | $8.44 | $10.35 | $11.46 | $10.50 | $10.14 |
| Total return (%) (k)(r)(s)(x) | (17.38) | (7.72) | 10.35 | 5.79 | (1.32) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.18 | 1.14 | 1.15 | 1.13 | 1.12 |
| Expenses after expense reductions | 1.01 | 1.01 | 1.08 | 1.12 | 1.11 |
| Net investment income (loss) | 0.28 | 0.06 | 0.20 | 0.76 | 0.80 |
| Portfolio turnover | 116 | 132 | 98 | 107 | 79 |
| Net assets at end of period (000 omitted) | $532 | $777 | $841 | $806 | $826 |
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS Global Governments Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Global Governments Portfolio (the fund) is a non-diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading
MFS Global Governments Portfolio
Notes to Financial Statements - continued
does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $34,634,916 | $— | $34,634,916 |
| Non - U.S. Sovereign Debt | — | 48,095,572 | — | 48,095,572 |
| Municipal Bonds | — | 283,775 | — | 283,775 |
| U.S. Corporate Bonds | — | 206,234 | — | 206,234 |
| Residential Mortgage-Backed Securities | — | 385,001 | — | 385,001 |
| Commercial Mortgage-Backed Securities | — | 192,285 | — | 192,285 |
| Foreign Bonds | — | 510,176 | — | 510,176 |
| Mutual Funds | 8,089,199 | — | — | 8,089,199 |
| Total | $8,089,199 | $84,307,959 | $— | $92,397,158 |
| Other Financial Instruments | | | | |
| Futures Contracts – Assets | $162,295 | $— | $— | $162,295 |
| Futures Contracts – Liabilities | (62,858) | — | — | (62,858) |
| Forward Foreign Currency Exchange Contracts – Assets | — | 1,712,444 | — | 1,712,444 |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (1,513,242) | — | (1,513,242) |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were futures contracts and forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
MFS Global Governments Portfolio
Notes to Financial Statements - 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 December 31, 2022 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Futures Contracts | $162,295 | $(62,858) |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | 1,712,444 | (1,513,242) |
| Total | | $1,874,739 | $(1,576,100) |
(a) Values presented in this table for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is reported separately within the Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $476,599 | $— |
| Foreign Exchange | — | 27,434 |
| Total | $476,599 | $27,434 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $99,437 | $— |
| Foreign Exchange | — | 126,491 |
| Total | $99,437 | $126,491 |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
MFS Global Governments Portfolio
Notes to Financial Statements - continued
The following table presents the fund's derivative assets and liabilities (by type) on a gross basis as of December 31, 2022:
| Gross Amounts of: | Derivative Assets | Derivative Liabilities |
| Futures Contracts (a) | $14,294 | $— |
| Forward Foreign Currency Exchange Contracts | 1,712,444 | 1,513,242 |
Total Gross Amount of Derivative Assets
and Liabilities Presented in the
Statement of Assets & Liabilities | $1,726,738 | $1,513,242 |
Less: Derivatives Assets and Liabilities Not Subject
to a Master Netting Agreement or
Similar Arrangement | 364,928 | 652,788 |
Total Gross Amount of Derivative Assets and
Liabilities Subject to a Master Netting Agreement or
Similar Arrangement | $1,361,810 | $860,454 |
(a) The amount presented here represents the fund's current day net variation margin for futures contracts. This amount, which is recognized within the Statement of Assets and Liabilities, differs from the fair value of the futures contracts which is presented in the tables that follow the Portfolio of Investments.
The following table presents (by counterparty) the fund's derivative assets net of amounts available for offset under Master Netting Agreements (or similar arrangements) and net of the related collateral held by the fund at December 31, 2022:
| | | Amounts Not Offset in the
Statement of Assets & Liabilities |
| | Gross Amount
of Derivative
Assets Subject
to a Master
Netting
Agreement (or
Similar
Arrangement)
by Counterparty | Financial
Instruments
Available
for Offset | Financial
Instruments
Collateral
Received (b) | Cash
Collateral
Received (b) | Net Amount
of Derivative
Assets by
Counterparty |
| Barclays Bank PLC | $16,121 | $(16,121) | $— | $— | $— |
| BNP Paribas S.A. | 2,835 | — | — | — | 2,835 |
| Brown Brothers Harriman | 106,081 | (3,597) | — | — | 102,484 |
| Citibank N.A. | 2,444 | (2,444) | — | — | — |
| Deutsche Bank AG | 635,043 | (12,656) | — | (400,000) | 222,387 |
| Goldman Sachs International | 83,748 | (35) | — | — | 83,713 |
| JPMorgan Chase Bank N.A. | 164,419 | (69,375) | — | — | 95,044 |
| Merrill Lynch International | 55,407 | (55,407) | — | — | — |
| Morgan Stanley Capital Services, Inc. | 295,712 | (219,779) | — | (20,000) | 55,933 |
| Total | $1,361,810 | $(379,414) | $— | $(420,000) | $562,396 |
The following table presents (by counterparty) the fund's derivative liabilities net of amounts available for offset under Master Netting Agreements (or similar arrangements) and net of the related collateral pledged by the fund at December 31, 2022:
MFS Global Governments Portfolio
Notes to Financial Statements - continued
| | | Amounts Not Offset in the
Statement of Assets & Liabilities |
| | Gross Amount
of Derivative
Liabilities Subject
to a Master
Netting
Agreement (or
Similar
Arrangement)
by Counterparty | Financial
Instruments
Available
for Offset | Financial
Instruments
Collateral
Pledged (b) | Cash
Collateral
Pledged (b) | Net Amount
of Derivative
Liabilities by
Counterparty |
| Barclays Bank PLC | $(185,429) | $16,121 | $— | $— | $(169,308) |
| Brown Brothers Harriman | (3,597) | 3,597 | — | — | — |
| Citibank N.A. | (184,169) | 2,444 | — | — | (181,725) |
| Deutsche Bank AG | (12,656) | 12,656 | — | — | — |
| Goldman Sachs International | (35) | 35 | — | — | — |
| JPMorgan Chase Bank N.A. | (69,375) | 69,375 | — | — | — |
| Merrill Lynch International | (185,414) | 55,407 | — | — | (130,007) |
| Morgan Stanley Capital Services, Inc. | (219,779) | 219,779 | — | — | — |
| Total | $(860,454) | $379,414 | $— | $— | $(481,040) |
(b) The amount presented here may be less than the total amount of collateral (received)/pledged as the excess collateral (received)/pledged is not shown for purposes of this presentation.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
MFS Global Governments Portfolio
Notes to Financial Statements - 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. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to net operating losses, amortization and accretion of debt securities, wash sale loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $1,547,064 | $2,960,087 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/22 | |
| Cost of investments | $104,709,344 |
| Gross appreciation | 715,955 |
| Gross depreciation | (12,729,502) |
| Net unrealized appreciation (depreciation) | $(12,013,547) |
| Capital loss carryforwards | (7,392,277) |
| Other temporary differences | 9,423 |
| Total distributable earnings (loss) | $(19,396,401) |
As of December 31, 2022, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(4,416,810) |
| Long-Term | (2,975,467) |
| Total | $(7,392,277) |
MFS Global Governments Portfolio
Notes to Financial Statements - continued
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| Initial Class | $1,539,050 | | $2,943,258 |
| Service Class | 8,014 | | 16,829 |
| Total | $1,547,064 | | $2,960,087 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $300 million | 0.75% |
| In excess of $300 million and up to $1 billion | 0.675% |
| In excess of $1 billion | 0.625% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $14,405, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.74% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.76% of average daily net assets for the Initial Class shares and 1.01% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this reduction amounted to $157,928, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2022, the fee was $1,461, which equated to 0.0014% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $165.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0248% of the fund's average daily net assets.
MFS Global Governments Portfolio
Notes to Financial Statements - continued
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than short-term obligations, were as follows:
| | Purchases | Sales |
| U.S. Government securities | $28,362,195 | $29,739,242 |
| Non-U.S. Government securities | 84,842,381 | 95,550,440 |
(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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 177,774 | $1,574,699 | | 537,565 | $6,073,303 |
| Service Class | 4,809 | 40,685 | | 7,112 | 77,014 |
| | 182,583 | $1,615,384 | | 544,677 | $6,150,317 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 175,091 | $1,539,050 | | 269,529 | $2,943,258 |
| Service Class | 929 | 8,014 | | 1,573 | 16,829 |
| | 176,020 | $1,547,064 | | 271,102 | $2,960,087 |
| Shares reacquired | | | | | |
| Initial Class | (1,224,784) | $(11,337,673) | | (268,769) | $(2,979,729) |
| Service Class | (17,709) | (153,375) | | (7,050) | (77,433) |
| | (1,242,493) | $(11,491,048) | | (275,819) | $(3,057,162) |
| Net change | | | | | |
| Initial Class | (871,919) | $(8,223,924) | | 538,325 | $6,036,832 |
| Service Class | (11,971) | (104,676) | | 1,635 | 16,410 |
| | (883,890) | $(8,328,600) | | 539,960 | $6,053,242 |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Conservative Allocation Portfolio, and the MFS Growth Allocation Portfolio were the owners of record of approximately 54%, 26%, and 11%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured
MFS Global Governments Portfolio
Notes to Financial Statements - continued
uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $515 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $5,318,456 | $78,506,011 | $75,737,469 | $355 | $1,846 | $8,089,199 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $94,163 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
MFS Global Governments Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Global Governments Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Global Governments Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Global Governments Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | �� | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS Global Governments Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS Global Governments Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Robert Spector
Erik Weisman | |
MFS Global Governments Portfolio
Board Review of Investment Advisory Agreement
MFS Global Governments Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 5th quintile for the one-year period and the 4th quintile for the three-year period ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
The Trustees expressed continued concern to MFS about the substandard investment performance of the Fund. In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year, as to MFS’ efforts to improve the Fund’s performance. In addition, the Trustees requested that they receive a separate update on the Fund’s performance at each of their regular meetings. After reviewing these and related factors, the Trustees concluded, within the context
MFS Global Governments Portfolio
Board Review of Investment Advisory Agreement - continued
of their overall conclusions regarding the investment advisory agreement, that MFS’ responses and efforts and plans to improve investment performance were sufficient to support approval of the continuance of the investment advisory agreement for an additional one-year period, but that they would continue to closely monitor the performance of the Fund.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $300 million and $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS Global Governments Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® Global Growth Portfolio
MFS® Variable Insurance Trust II
MFS® Global Growth Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Growth Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Global Growth Portfolio
Portfolio structure
Top ten holdings
| Microsoft Corp. | 4.6% |
| Alphabet, Inc., “A” | 4.5% |
| Visa, Inc., “A” | 2.9% |
| Canadian Pacific Railway Ltd. | 2.7% |
| Accenture PLC, “A” | 2.4% |
| Tencent Holdings Ltd. | 2.2% |
| Church & Dwight Co., Inc. | 2.1% |
| NIKE, Inc., “B” | 2.1% |
| Apple, Inc. | 2.1% |
| Boston Scientific Corp. | 2.1% |
GICS equity sectors (g)
| Information Technology | 27.4% |
| Consumer Discretionary | 13.8% |
| Health Care | 13.2% |
| Consumer Staples | 11.0% |
| Communication Services | 10.9% |
| Industrials | 10.6% |
| Financials | 8.6% |
| Materials | 1.7% |
| Real Estate | 1.2% |
| Utilities | 0.8% |
Issuer country weightings (x)
| United States | 67.8% |
| United Kingdom | 4.8% |
| Canada | 4.7% |
| China | 4.4% |
| Switzerland | 4.4% |
| France | 2.4% |
| Japan | 2.2% |
| South Korea | 1.9% |
| India | 1.8% |
| Other Countries | 5.6% |
Currency exposure weightings (y)
| United States Dollar | 71.4% |
| Euro | 5.3% |
| British Pound Sterling | 5.3% |
| Swiss Franc | 4.4% |
| Hong Kong Dollar | 3.3% |
| Japanese Yen | 2.2% |
| Canadian Dollar | 1.9% |
| South Korean Won | 1.9% |
| Indian Rupee | 1.8% |
| Other Currencies | 2.5% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS Global Growth Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Global Growth Portfolio (fund) provided a total return of -19.11%, while Service Class shares of the fund provided a total return of -19.32%. These compare with a return of -28.61% over the same period for the fund’s benchmark, the MSCI All Country World Growth Index (net div).
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Contributors to Performance
Security selection within both the consumer discretionary and information technology sectors contributed to the fund's performance relative to the MSCI All Country World Growth Index. Within the consumer discretionary sector, not holding shares of electric vehicle manufacturer Tesla and internet retailer Amazon.com supported relative results. The stock price of Tesla declined due to uncertainty surrounding production shutdowns at the company's Shanghai manufacturing plant, reduced vehicle deliveries, increased competitive concerns and questions regarding Tesla CEO Elon Musk’s acquisition of social media platform Twitter. The stock price of Amazon depreciated during the period as the company reported softer-than-expected revenue and operating profits, driven by weaker-than-expected performance in Amazon Web Services (AWS) and a softening in consumer demand. Additionally, the fund's overweight positions in dollar store operator Dollarama (Canada) and discount store retailer Ross Stores further aided relative results. Within the information technology sector, not owning shares of computer graphics processor maker NVIDIA benefited relative performance as the stock underperformed the benchmark.
Elsewhere, not holding shares of social networking service provider Meta Platforms, and the fund's overweight positions in transcontinental railway operator Canadian Pacific Railway (Canada) and medical devices maker Boston Scientific, aided relative returns. In addition, holding shares of financial services provider Charles Schwab(b) and banking firm HDFC Bank(b) (India) further benefited relative returns.
During the reporting period, the fund’s relative currency exposure, resulting primarily from differences between the fund’s and the benchmark's exposures to holdings of securities denominated in foreign currencies, was another contributor to relative performance. All of MFS’ investment decisions are driven by the fundamentals of each individual opportunity and as such, it is common for our funds to have different currency exposure than the benchmark.
Detractors from Performance
Not holding any stocks in the energy sector, which outperformed the benchmark, detracted from the fund’s relative results. There were no individual stocks within this sector, either in the fund or in the benchmark, that were among the fund's largest relative detractors for the reporting period.
MFS Global Growth Portfolio
Management Review - continued
Stocks in other sectors that held back relative returns included the fund's overweight positions in internet search engine and online computer games provider NAVER (South Korea), sportswear and sports equipment manufacturer Adidas (Germany) and IT services firm Accenture. The stock price of NAVER came under pressure, driven by weaker-than-expected operating profit results owing to margin pressure and higher labor and marketing costs. NAVER’s management also reported a weak earnings outlook, which further weighed on the stock. The stock price of Adidas depreciated as the company reported a significant decline in sales in China due to both supply chain disruptions and COVID-19 restrictions. Additionally, investor concerns about weaker consumer spending appeared to have weighed on the stock. Not owning shares of pharmaceutical companies, Eli Lilly and Novo Nordisk (Denmark), biopharmaceutical company AstraZeneca (United Kingdom), agricultural machinery manufacturer John Deere, insurance company AIA Group (Hong Kong) and building materials and home improvements retailer Home Depot detracted from relative returns. The fund’s holdings of clinical research provider ICON(b) (Ireland) also weakened relative performance.
Respectfully,
Portfolio Manager(s)
Jeffrey Constantino and Joseph Skorski
| (b) | Security is not a benchmark constituent. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Global Growth Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 11/16/93 | (19.11)% | 8.43% | 10.09% |
| Service Class | 8/24/01 | (19.32)% | 8.16% | 9.82% |
Comparative benchmark(s)
| MSCI All Country World Growth Index (net div) (f) | (28.61)% | 6.37% | 9.20% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
MSCI All Country World Growth Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance for growth securities in the global developed and emerging markets.
It is not possible to invest directly in an index.
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
MFS Global Growth Portfolio
Performance Summary – continued
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Global Growth Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 1.00% | $1,000.00 | $1,015.00 | $5.08 |
| Hypothetical (h) | 1.00% | $1,000.00 | $1,020.16 | $5.09 |
| Service Class | Actual | 1.25% | $1,000.00 | $1,013.44 | $6.34 |
| Hypothetical (h) | 1.25% | $1,000.00 | $1,018.90 | $6.36 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Global Growth Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 99.2% |
| Alcoholic Beverages – 2.6% | |
| Diageo PLC | | 15,384 | $ 678,845 |
| Kweichow Moutai Co. Ltd., “A” | | 2,200 | 544,402 |
| | | | | $1,223,247 |
| Apparel Manufacturers – 6.1% | |
| Adidas AG | | 3,541 | $ 483,132 |
| Burberry Group PLC | | 22,473 | 551,525 |
| LVMH Moet Hennessy Louis Vuitton SE | | 1,159 | 841,950 |
| NIKE, Inc., “B” | | 8,429 | 986,277 |
| | | | | $2,862,884 |
| Automotive – 1.4% | |
| Aptiv PLC (a) | | 6,975 | $ 649,582 |
| Brokerage & Asset Managers – 1.6% | |
| Blackstone, Inc. | | 1,530 | $ 113,511 |
| Charles Schwab Corp. | | 7,497 | 624,200 |
| | | | | $737,711 |
| Business Services – 8.9% | |
| Accenture PLC, “A” | | 4,191 | $ 1,118,326 |
| CGI, Inc. (a) | | 6,262 | 539,762 |
| Cognizant Technology Solutions Corp., “A” | | 5,478 | 313,287 |
| Equifax, Inc. | | 3,374 | 655,771 |
| Fidelity National Information Services, Inc. | | 6,130 | 415,920 |
| Fiserv, Inc. (a) | | 6,152 | 621,783 |
| Thomson Reuters Corp. | | 1,749 | 199,520 |
| Verisk Analytics, Inc., “A” | | 1,764 | 311,205 |
| | | | | $4,175,574 |
| Computer Software – 9.0% | |
| Adobe Systems, Inc. (a) | | 2,458 | $ 827,191 |
| Black Knight, Inc. (a) | | 9,708 | 599,469 |
| Microsoft Corp. | | 9,079 | 2,177,326 |
| NAVER Corp. | | 4,388 | 623,222 |
| | | | | $4,227,208 |
| Computer Software - Systems – 2.6% | |
| Apple, Inc. | | 7,452 | $ 968,239 |
| Samsung Electronics Co. Ltd. | | 5,845 | 257,753 |
| | | | | $1,225,992 |
| Construction – 2.0% | |
| Otis Worldwide Corp. | | 6,749 | $ 528,514 |
| Sherwin-Williams Co. | | 1,807 | 428,855 |
| | | | | $957,369 |
| Consumer Products – 5.7% | |
| Church & Dwight Co., Inc. | | 12,237 | $ 986,425 |
| Estee Lauder Cos., Inc., “A” | | 1,669 | 414,096 |
| KOSE Corp. | | 6,600 | 717,011 |
| Reckitt Benckiser Group PLC | | 8,203 | 570,625 |
| | | | | $2,688,157 |
MFS Global Growth Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Electrical Equipment – 5.1% | |
| Amphenol Corp., “A” | | 12,112 | $ 922,207 |
| Fortive Corp. | | 11,316 | 727,053 |
| Schneider Electric SE | | 1,967 | 276,638 |
| TE Connectivity Ltd. | | 4,045 | 464,366 |
| | | | | $2,390,264 |
| Electronics – 3.3% | |
| Analog Devices, Inc. | | 2,972 | $ 487,497 |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | 8,567 | 638,156 |
| Texas Instruments, Inc. | | 2,648 | 437,503 |
| | | | | $1,563,156 |
| Food & Beverages – 2.7% | |
| McCormick & Co., Inc. | | 6,886 | $ 570,781 |
| Nestle S.A. | | 4,934 | 569,805 |
| PepsiCo, Inc. | | 559 | 100,989 |
| | | | | $1,241,575 |
| Gaming & Lodging – 0.5% | |
| Flutter Entertainment PLC (a) | | 1,718 | $ 234,491 |
| General Merchandise – 1.3% | |
| B&M European Value Retail S.A. | | 91,708 | $ 456,010 |
| Dollarama, Inc. | | 2,631 | 153,876 |
| | | | | $609,886 |
| Insurance – 2.7% | |
| Aon PLC | | 2,791 | $ 837,691 |
| Marsh & McLennan Cos., Inc. | | 2,525 | 417,837 |
| | | | | $1,255,528 |
| Internet – 7.4% | |
| Alphabet, Inc., “A” (a) | | 23,709 | $ 2,091,845 |
| Gartner, Inc. (a) | | 954 | 320,677 |
| Tencent Holdings Ltd. | | 24,300 | 1,032,804 |
| | | | | $3,445,326 |
| Leisure & Toys – 1.9% | |
| Electronic Arts, Inc. | | 7,120 | $ 869,922 |
| Machinery & Tools – 1.3% | |
| Daikin Industries Ltd. | | 2,100 | $ 323,225 |
| Schindler Holding AG | | 1,461 | 274,330 |
| | | | | $597,555 |
| Medical & Health Technology & Services – 2.0% | |
| ICON PLC (a) | | 4,799 | $ 932,206 |
| Medical Equipment – 9.9% | |
| Abbott Laboratories | | 2,483 | $ 272,609 |
| Agilent Technologies, Inc. | | 2,311 | 345,841 |
| Becton, Dickinson and Co. | | 1,991 | 506,311 |
| Boston Scientific Corp. (a) | | 20,795 | 962,185 |
| Danaher Corp. | | 2,693 | 714,776 |
MFS Global Growth Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Medical Equipment – continued | |
| STERIS PLC | | 3,398 | $ 627,577 |
| Stryker Corp. | | 1,866 | 456,218 |
| Thermo Fisher Scientific, Inc. | | 1,399 | 770,415 |
| | | | | $4,655,932 |
| Other Banks & Diversified Financials – 8.0% | |
| Credicorp Ltd. | | 2,830 | $ 383,918 |
| HDFC Bank Ltd. | | 42,555 | 837,494 |
| Julius Baer Group Ltd. | | 4,691 | 272,669 |
| Mastercard, Inc., “A” | | 1,008 | 350,512 |
| Moody's Corp. | | 1,909 | 531,886 |
| Visa, Inc., “A” | | 6,563 | 1,363,529 |
| | | | | $3,740,008 |
| Pharmaceuticals – 1.2% | |
| Roche Holding AG | | 1,832 | $ 575,565 |
| Printing & Publishing – 0.9% | |
| Wolters Kluwer N.V. | | 3,872 | $ 405,194 |
| Railroad & Shipping – 2.7% | |
| Canadian Pacific Railway Ltd. | | 17,165 | $ 1,280,337 |
| Restaurants – 0.7% | |
| Starbucks Corp. | | 3,502 | $ 347,398 |
| Specialty Chemicals – 0.8% | |
| Sika AG | | 1,522 | $ 367,242 |
| Specialty Stores – 3.8% | |
| Alibaba Group Holding Ltd. (a) | | 44,112 | $ 487,436 |
| Ross Stores, Inc. | | 6,262 | 726,830 |
| TJX Cos., Inc. | | 6,888 | 548,285 |
| | | | | $1,762,551 |
| Telecommunications - Wireless – 2.2% | |
| American Tower Corp., REIT | | 2,638 | $ 558,887 |
| Cellnex Telecom S.A. | | 14,765 | 491,019 |
| | | | | $1,049,906 |
| Utilities - Electric Power – 0.9% | |
| Xcel Energy, Inc. | | 5,707 | $ 400,118 |
| Total Common Stocks (Identified Cost, $30,224,160) | | $46,471,884 |
| Investment Companies (h) – 0.8% |
| Money Market Funds – 0.8% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $374,298) | | | 374,296 | $ 374,408 |
| Other Assets, Less Liabilities – (0.0)% | | (2,023) |
| Net Assets – 100.0% | $46,844,269 |
MFS Global Growth Portfolio
Portfolio of Investments – continued
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $374,408 and $46,471,884, respectively. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| REIT | Real Estate Investment Trust |
See Notes to Financial Statements
MFS Global Growth Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $30,224,160) | $46,471,884 |
| Investments in affiliated issuers, at value (identified cost, $374,298) | 374,408 |
| Receivables for | |
| Fund shares sold | 9,341 |
| Dividends | 85,972 |
| Receivable from investment adviser | 5,616 |
| Other assets | 500 |
| Total assets | $46,947,721 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $10,143 |
| Payable to affiliates | |
| Administrative services fee | 144 |
| Shareholder servicing costs | 12 |
| Distribution and/or service fees | 133 |
| Payable for independent Trustees' compensation | 167 |
| Deferred country tax expense payable | 33,992 |
| Accrued expenses and other liabilities | 58,861 |
| Total liabilities | $103,452 |
| Net assets | $46,844,269 |
| Net assets consist of | |
| Paid-in capital | $28,376,388 |
| Total distributable earnings (loss) | 18,467,881 |
| Net assets | $46,844,269 |
| Shares of beneficial interest outstanding | 1,993,730 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $40,379,913 | 1,717,005 | $23.52 |
| Service Class | 6,464,356 | 276,725 | 23.36 |
See Notes to Financial Statements
MFS Global Growth Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $611,854 |
| Dividends from affiliated issuers | 5,995 |
| Other | 41 |
| Income on securities loaned | 35 |
| Foreign taxes withheld | (26,479) |
| Total investment income | $591,446 |
| Expenses | |
| Management fee | $459,654 |
| Distribution and/or service fees | 15,989 |
| Shareholder servicing costs | 2,922 |
| Administrative services fee | 17,869 |
| Independent Trustees' compensation | 3,155 |
| Custodian fee | 8,538 |
| Shareholder communications | 2,950 |
| Audit and tax fees | 78,513 |
| Legal fees | 261 |
| Miscellaneous | 28,801 |
| Total expenses | $618,652 |
| Reduction of expenses by investment adviser | (92,147) |
| Net expenses | $526,505 |
| Net investment income (loss) | $64,941 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $1,895 country tax) | $2,328,639 |
| Affiliated issuers | 26 |
| Foreign currency | (3,988) |
| Net realized gain (loss) | $2,324,677 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $2,640 increase in deferred country tax) | $(14,198,042) |
| Affiliated issuers | 110 |
| Translation of assets and liabilities in foreign currencies | (1,713) |
| Net unrealized gain (loss) | $(14,199,645) |
| Net realized and unrealized gain (loss) | $(11,874,968) |
| Change in net assets from operations | $(11,810,027) |
See Notes to Financial Statements
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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $64,941 | $87,058 |
| Net realized gain (loss) | 2,324,677 | 5,885,982 |
| Net unrealized gain (loss) | (14,199,645) | 4,179,764 |
| Change in net assets from operations | $(11,810,027) | $10,152,804 |
| Total distributions to shareholders | $(5,877,121) | $(7,022,050) |
| Change in net assets from fund share transactions | $1,921,038 | $2,938,411 |
| Total change in net assets | $(15,766,110) | $6,069,165 |
| Net assets | | |
| At beginning of period | 62,610,379 | 56,541,214 |
| At end of period | $46,844,269 | $62,610,379 |
See Notes to Financial Statements
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 past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $32.85 | $31.23 | $28.60 | $23.72 | $26.53 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.04 | $0.06 | $0.03 | $0.14 | $0.15 |
| Net realized and unrealized gain (loss) | (6.13) | 5.57 | 5.57 | 8.00 | (1.23) |
| Total from investment operations | $(6.09) | $5.63 | $5.60 | $8.14 | $(1.08) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.05) | $(0.03) | $(0.14) | $(0.16) | $(0.14) |
| From net realized gain | (3.19) | (3.98) | (2.83) | (3.10) | (1.59) |
| Total distributions declared to shareholders | $(3.24) | $(4.01) | $(2.97) | $(3.26) | $(1.73) |
| Net asset value, end of period (x) | $23.52 | $32.85 | $31.23 | $28.60 | $23.72 |
| Total return (%) (k)(r)(s)(x) | (19.11) | 18.52 | 20.76 | 36.01 | (4.83) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.18 | 1.15 | 1.21 | 1.21 | 1.17 |
| Expenses after expense reductions | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
| Net investment income (loss) | 0.16 | 0.17 | 0.10 | 0.53 | 0.56 |
| Portfolio turnover | 18 | 19 | 34 | 22 | 22 |
| Net assets at end of period (000 omitted) | $40,380 | $55,501 | $53,591 | $50,911 | $43,919 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $32.67 | $31.13 | $28.52 | $23.65 | $26.44 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $(0.02) | $(0.03) | $(0.04) | $0.07 | $0.09 |
| Net realized and unrealized gain (loss) | (6.10) | 5.55 | 5.56 | 7.98 | (1.24) |
| Total from investment operations | $(6.12) | $5.52 | $5.52 | $8.05 | $(1.15) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $— | $— | $(0.08) | $(0.08) | $(0.05) |
| From net realized gain | (3.19) | (3.98) | (2.83) | (3.10) | (1.59) |
| Total distributions declared to shareholders | $(3.19) | $(3.98) | $(2.91) | $(3.18) | $(1.64) |
| Net asset value, end of period (x) | $23.36 | $32.67 | $31.13 | $28.52 | $23.65 |
| Total return (%) (k)(r)(s)(x) | (19.32) | 18.21 | 20.49 | 35.66 | (5.06) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.43 | 1.39 | 1.46 | 1.46 | 1.42 |
| Expenses after expense reductions | 1.25 | 1.25 | 1.25 | 1.25 | 1.25 |
| Net investment income (loss) | (0.09) | (0.10) | (0.16) | 0.26 | 0.34 |
| Portfolio turnover | 18 | 19 | 34 | 22 | 22 |
| Net assets at end of period (000 omitted) | $6,464 | $7,110 | $2,950 | $2,109 | $1,754 |
See Notes to Financial Statements
MFS Global Growth Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS Global Growth Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Global Growth Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, accounting, and auditing systems, greater government involvement in the economy, greater risk of new or inconsistent government treatment of or restrictions on issuers and instruments, and greater political, social, and economic instability than developed markets.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the 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
MFS Global Growth Portfolio
Notes to Financial Statements - continued
market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant 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 December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| United States | $31,403,928 | $— | $— | $31,403,928 |
| United Kingdom | 2,257,005 | — | — | 2,257,005 |
| Canada | 2,173,495 | — | — | 2,173,495 |
| China | 487,436 | 1,577,206 | — | 2,064,642 |
| Switzerland | 575,565 | 1,484,046 | — | 2,059,611 |
| France | — | 1,118,588 | — | 1,118,588 |
| Japan | 323,225 | 717,011 | — | 1,040,236 |
| South Korea | — | 880,975 | — | 880,975 |
| India | 837,494 | — | — | 837,494 |
| Other Countries | 2,144,891 | 491,019 | — | 2,635,910 |
| Mutual Funds | 374,408 | — | — | 374,408 |
| Total | $40,577,447 | $6,268,845 | $— | $46,846,292 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from
MFS Global Growth Portfolio
Notes to Financial Statements - continued
collateral reinvestment for which the fund bears the risk of loss. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At December 31, 2022, there were no securities on loan or collateral outstanding.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $703,075 | $274,048 |
| Long-term capital gains | 5,174,046 | 6,748,002 |
| Total distributions | $5,877,121 | $7,022,050 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
MFS Global Growth Portfolio
Notes to Financial Statements - continued
| As of 12/31/22 | |
| Cost of investments | $30,802,564 |
| Gross appreciation | 17,988,063 |
| Gross depreciation | (1,944,335) |
| Net unrealized appreciation (depreciation) | $16,043,728 |
| Undistributed ordinary income | 56,118 |
| Undistributed long-term capital gain | 2,368,570 |
| Other temporary differences | (535) |
| Total distributable earnings (loss) | $18,467,881 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $5,124,683 | | $6,286,826 |
| Service Class | 752,438 | | 735,224 |
| Total | $5,877,121 | | $7,022,050 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2 billion | 0.75% |
| In excess of $2 billion | 0.65% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $7,103, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.89% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 1.00% of average daily net assets for the Initial Class shares and 1.25% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this reduction amounted to $85,044, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and
MFS Global Growth Portfolio
Notes to Financial Statements - continued
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 year ended December 31, 2022, the fee was $2,738, which equated to 0.0054% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $184.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0350% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended December 31, 2022, the fund engaged in sale transactions pursuant to this policy, which amounted to $54,776. The sales transactions resulted in net realized gains (losses) of $(9,632).
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than short-term obligations, aggregated $8,972,605 and $13,041,617, 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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 31,265 | $836,344 | | 45,404 | $1,488,071 |
| Service Class | 47,729 | 1,278,209 | | 112,594 | 3,745,462 |
| | 78,994 | $2,114,553 | | 157,998 | $5,233,533 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 204,987 | $5,124,683 | | 198,762 | $6,286,826 |
| Service Class | 30,267 | 752,438 | | 23,348 | 735,224 |
| | 235,254 | $5,877,121 | | 222,110 | $7,022,050 |
| Shares reacquired | | | | | |
| Initial Class | (209,020) | $(5,543,223) | | (270,459) | $(8,881,980) |
| Service Class | (18,910) | (527,413) | | (13,091) | (435,192) |
| | (227,930) | $(6,070,636) | | (283,550) | $(9,317,172) |
MFS Global Growth Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Net change | | | | | |
| Initial Class | 27,232 | $417,804 | | (26,293) | $(1,107,083) |
| Service Class | 59,086 | 1,503,234 | | 122,851 | 4,045,494 |
| | 86,318 | $1,921,038 | | 96,558 | $2,938,411 |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $249 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $263,435 | $8,220,836 | $8,109,999 | $26 | $110 | $374,408 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $5,995 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
MFS Global Growth Portfolio
Notes to Financial Statements - continued
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
MFS Global Growth Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Global Growth Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Global Growth Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Global Growth Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS Global Growth Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS Global Growth Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Jeffrey Constantino
Joseph Skorski | |
MFS Global Growth Portfolio
Board Review of Investment Advisory Agreement
MFS Global Growth Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 1st quintile for the one-year period and the 3rd quintile for the three-year period ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Global Growth Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS Global Growth Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $5,692,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 51.47% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® Global Research Portfolio
MFS® Variable Insurance Trust II
MFS® Global Research Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Global Research Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Global Research Portfolio
Portfolio structure
Top ten holdings
| Microsoft Corp. | 4.4% |
| Alphabet, Inc., “A” | 2.8% |
| Visa, Inc., “A” | 2.0% |
| Amazon.com, Inc. | 1.8% |
| ConocoPhillips | 1.7% |
| Roche Holding AG | 1.7% |
| Cigna Corp. | 1.5% |
| Taiwan Semiconductor Manufacturing Co. Ltd. | 1.3% |
| Galp Energia SGPS S.A., “B” | 1.3% |
| LVMH Moet Hennessy Louis Vuitton SE | 1.3% |
Global equity sectors (k)
| Technology | 23.0% |
| Financial Services | 18.0% |
| Capital Goods | 16.9% |
| Health Care | 13.4% |
| Consumer Cyclicals | 10.7% |
| Energy | 8.7% |
| Consumer Staples | 6.3% |
| Telecommunications/Cable Television | 2.5% |
Issuer country weightings (x)
| United States | 63.4% |
| Switzerland | 5.4% |
| France | 5.2% |
| United Kingdom | 4.0% |
| China | 3.5% |
| Japan | 3.0% |
| Hong Kong | 2.0% |
| Canada | 2.0% |
| Australia | 2.0% |
| Other Countries | 9.5% |
Currency exposure weightings (y)
| United States Dollar | 64.2% |
| Euro | 11.4% |
| Swiss Franc | 5.4% |
| Hong Kong Dollar | 4.5% |
| British Pound Sterling | 4.0% |
| Japanese Yen | 3.0% |
| Australian Dollar | 2.0% |
| Taiwan Dollar | 1.3% |
| Canadian Dollar | 1.3% |
| Other Currencies | 2.9% |
| (k) | The sectors set forth above and the associated portfolio composition are based on MFS’ own custom sector classification methodology. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS Global Research Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Global Research Portfolio (fund) provided a total return of -17.67%, while Service Class shares of the fund provided a total return of -17.88%. These compare with a return of -18.36% over the same period for the fund’s benchmark, the MSCI All Country World Index (net div).
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Contributors to Performance
Stock selection in the technology sector contributed to the fund’s performance relative to the MSCI All Country World Index. Within this sector, the timing of the fund's ownership in shares of social networking service provider Meta Platforms(h) and not owning shares of computer graphics processor maker NVIDIA benefited relative returns. The stock price of Meta Platforms declined as management's softer-than-expected outlook appeared to have weighed on the stock price, reflecting uncertain macroeconomic conditions and the further weakening of online advertisement demand.
Stock selection in the capital goods sector also supported the fund’s relative results. Within this sector, not owning shares of electric vehicle manufacturer Tesla and an overweight position in global security company Northrop Grumman aided relative performance. The stock price of Tesla declined due to uncertainty surrounding production shutdowns at the company's Shanghai manufacturing plant, reduced vehicle deliveries, increased competitive concerns and questions regarding Tesla CEO Elon Musk’s acquisition of social media platform Twitter.
Elsewhere, the fund's overweight positions in oil and gas company ConocoPhillips, global health services provider Cigna, oil and gas company Galp Energia (Portugal), petroleum refineries company Valero Energy, pharmaceutical company Merck & Co. and insurance services provider Chubb strengthened relative returns.
During the reporting period, the fund's relative currency exposure, resulting primarily from differences between the fund's and the benchmark's exposures to holdings of securities denominated in foreign currencies, contributed to relative performance. All of MFS' investment decisions are driven by the fundamentals of each individual opportunity and as such, it is common for our funds to have different currency exposure than the benchmark.
Detractors from Performance
Stock selection in the health care sector detracted from relative performance, led by the fund’s holdings of clinical research provider ICON(b) (Ireland). The share price of ICON declined over several macroeconomic headwinds, including higher interest rates, the negative impact of COVID lockdowns in China and an adverse foreign exchange impact.
MFS Global Research Portfolio
Management Review - continued
Stocks in other sectors that detracted from the fund's relative returns included not owning shares of strong-performing integrated oil and gas company ExxonMobil and integrated energy company Chevron. The stock price of ExxonMobil rose as the company posted robust earnings and revenue results, driven by the strong energy price environment, and increased its return to shareholders through stock repurchases and dividends. The fund's overweight positions in technology company Alphabet, customer information software manager Salesforce, Inc., internet search engine and online computer games provider NAVER (South Korea), sportswear and sports equipment manufacturer Adidas(h) (Germany), real estate company LEG Immobilien (Germany) and software company Adobe Systems, and the fund’s holdings of software development company Atlassian(b), further hindered relative performance.
Respectfully,
Portfolio Manager(s)
Akira Fuse and James Keating
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Global Research Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 11/07/94 | (17.67)% | 6.46% | 8.59% |
| Service Class | 8/24/01 | (17.88)% | 6.19% | 8.31% |
Comparative benchmark(s)
| MSCI All Country World Index (net div) (f) | (18.36)% | 5.23% | 7.98% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
MSCI All Country World Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance in the global developed and emerging markets.
It is not possible to invest directly in an index.
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
MFS Global Research Portfolio
Performance Summary – continued
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Global Research Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.85% | $1,000.00 | $1,025.88 | $4.34 |
| Hypothetical (h) | 0.85% | $1,000.00 | $1,020.92 | $4.33 |
| Service Class | Actual | 1.10% | $1,000.00 | $1,024.32 | $5.61 |
| Hypothetical (h) | 1.10% | $1,000.00 | $1,019.66 | $5.60 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Global Research Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 99.5% |
| Aerospace & Defense – 4.4% | |
| General Dynamics Corp. | | 2,517 | $ 624,493 |
| Honeywell International, Inc. | | 4,118 | 882,488 |
| Howmet Aerospace, Inc. | | 13,268 | 522,892 |
| Northrop Grumman Corp. | | 969 | 528,696 |
| Raytheon Technologies Corp. | | 7,022 | 708,660 |
| | | | | $3,267,229 |
| Alcoholic Beverages – 1.9% | |
| China Resources Beer Holdings Co. Ltd. | | 40,000 | $ 279,548 |
| Constellation Brands, Inc., “A” | | 1,737 | 402,550 |
| Diageo PLC | | 12,026 | 530,667 |
| Kweichow Moutai Co. Ltd., “A” | | 900 | 222,710 |
| | | | | $1,435,475 |
| Apparel Manufacturers – 3.0% | |
| Compagnie Financiere Richemont S.A. | | 4,872 | $ 630,464 |
| LVMH Moet Hennessy Louis Vuitton SE | | 1,332 | 967,625 |
| NIKE, Inc., “B” | | 5,251 | 614,419 |
| | | | | $2,212,508 |
| Brokerage & Asset Managers – 4.1% | |
| Charles Schwab Corp. | | 11,223 | $ 934,427 |
| CME Group, Inc. | | 2,660 | 447,305 |
| Euronext N.V. | | 10,599 | 785,647 |
| London Stock Exchange Group PLC | | 10,506 | 906,360 |
| | | | | $3,073,739 |
| Business Services – 2.3% | |
| Accenture PLC, “A” | | 3,322 | $ 886,442 |
| Fidelity National Information Services, Inc. | | 8,810 | 597,759 |
| Fiserv, Inc. (a) | | 2,262 | 228,620 |
| | | | | $1,712,821 |
| Computer Software – 8.6% | |
| Adobe Systems, Inc. (a) | | 1,463 | $ 492,343 |
| Atlassian Corp. (a) | | 1,346 | 173,203 |
| Cadence Design Systems, Inc. (a) | | 3,191 | 512,602 |
| Microsoft Corp. (s) | | 13,551 | 3,249,801 |
| NAVER Corp. | | 2,914 | 413,872 |
| NetEase.com, Inc., ADR | | 4,263 | 309,622 |
| NICE Systems Ltd., ADR (a) | | 1,742 | 334,987 |
| Palo Alto Networks, Inc. (a) | | 1,441 | 201,077 |
| Salesforce, Inc. (a) | | 5,207 | 690,396 |
| | | | | $6,377,903 |
| Computer Software - Systems – 3.9% | |
| Apple, Inc. (s) | | 7,187 | $ 933,807 |
| Cap Gemini S.A. | | 3,562 | 597,397 |
| Constellation Software, Inc. | | 426 | 665,101 |
| Hitachi Ltd. | | 13,900 | 699,515 |
| | | | | $2,895,820 |
MFS Global Research Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Construction – 2.1% | |
| Masco Corp. | | 8,009 | $ 373,780 |
| Sherwin-Williams Co. | | 1,905 | 452,114 |
| Techtronic Industries Co. Ltd. | | 23,000 | 256,654 |
| Vulcan Materials Co. | | 2,878 | 503,966 |
| | | | | $1,586,514 |
| Consumer Products – 1.0% | |
| Colgate-Palmolive Co. | | 4,124 | $ 324,930 |
| Kao Corp. | | 4,800 | 192,198 |
| Reckitt Benckiser Group PLC | | 3,391 | 235,888 |
| | | | | $753,016 |
| Electrical Equipment – 2.7% | |
| Johnson Controls International PLC | | 10,975 | $ 702,400 |
| Schneider Electric SE | | 5,571 | 783,502 |
| TE Connectivity Ltd. | | 3,230 | 370,804 |
| Vertiv Holdings Co. | | 10,203 | 139,373 |
| | | | | $1,996,079 |
| Electronics – 3.2% | |
| Applied Materials, Inc. | | 4,760 | $ 463,529 |
| ASML Holding N.V. | | 647 | 348,922 |
| NXP Semiconductors N.V. | | 3,863 | 610,470 |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | 67,000 | 977,680 |
| | | | | $2,400,601 |
| Energy - Independent – 3.5% | |
| ConocoPhillips | | 10,897 | $ 1,285,846 |
| Valero Energy Corp. | | 5,197 | 659,291 |
| Woodside Energy Group Ltd. | | 25,754 | 623,121 |
| | | | | $2,568,258 |
| Energy - Integrated – 1.3% | |
| Galp Energia SGPS S.A., “B” | | 72,198 | $ 976,944 |
| Energy - Renewables – 0.4% | |
| Orsted A/S | | 2,971 | $ 269,994 |
| Food & Beverages – 2.6% | |
| Mondelez International, Inc. | | 7,905 | $ 526,868 |
| Nestle S.A. | | 6,461 | 746,152 |
| PepsiCo, Inc. | | 3,709 | 670,068 |
| | | | | $1,943,088 |
| Gaming & Lodging – 0.7% | |
| Aristocrat Leisure Ltd. | | 12,164 | $ 251,202 |
| Whitbread PLC | | 8,171 | 253,873 |
| | | | | $505,075 |
| General Merchandise – 0.7% | |
| Dollar General Corp. | | 1,977 | $ 486,836 |
| Health Maintenance Organizations – 1.5% | |
| Cigna Corp. | | 3,258 | $ 1,079,506 |
MFS Global Research Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Insurance – 3.6% | |
| AIA Group Ltd. | | 80,800 | $ 890,174 |
| Aon PLC | | 2,969 | 891,116 |
| Chubb Ltd. | | 4,124 | 909,754 |
| | | | | $2,691,044 |
| Internet – 4.2% | |
| Alphabet, Inc., “A” (a)(s) | | 23,928 | $ 2,111,168 |
| Gartner, Inc. (a) | | 781 | 262,525 |
| Tencent Holdings Ltd. | | 17,700 | 752,289 |
| | | | | $3,125,982 |
| Leisure & Toys – 0.6% | |
| Electronic Arts, Inc. | | 3,540 | $ 432,517 |
| Machinery & Tools – 2.8% | |
| GEA Group AG | | 7,651 | $ 312,858 |
| Ingersoll Rand, Inc. | | 5,082 | 265,535 |
| Regal Rexnord Corp. | | 2,481 | 297,670 |
| Schindler Holding AG | | 1,299 | 243,912 |
| SMC Corp. | | 1,100 | 465,849 |
| Wabtec Corp. | | 5,235 | 522,505 |
| | | | | $2,108,329 |
| Major Banks – 3.9% | |
| BNP Paribas | | 12,403 | $ 705,821 |
| Goldman Sachs Group, Inc. | | 1,976 | 678,519 |
| Mitsubishi UFJ Financial Group, Inc. | | 47,600 | 321,111 |
| NatWest Group PLC | | 130,626 | 418,805 |
| Wells Fargo & Co. | | 17,693 | 730,544 |
| | | | | $2,854,800 |
| Medical & Health Technology & Services – 0.9% | |
| ICON PLC (a) | | 3,587 | $ 696,775 |
| Medical Equipment – 5.3% | |
| Becton, Dickinson and Co. | | 2,405 | $ 611,591 |
| Boston Scientific Corp. (a)(s) | | 17,892 | 827,863 |
| Danaher Corp. | | 1,725 | 457,849 |
| Medtronic PLC | | 7,715 | 599,610 |
| QIAGEN N.V. (a) | | 8,046 | 401,254 |
| STERIS PLC | | 2,014 | 371,966 |
| Thermo Fisher Scientific, Inc. | | 1,142 | 628,888 |
| | | | | $3,899,021 |
| Natural Gas - Distribution – 0.4% | |
| China Resources Gas Group Ltd. | | 87,000 | $ 324,011 |
| Natural Gas - Pipeline – 0.4% | |
| TC Energy Corp. | | 7,638 | $ 304,505 |
| Network & Telecom – 0.7% | |
| Equinix, Inc., REIT | | 822 | $ 538,435 |
MFS Global Research Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Other Banks & Diversified Financials – 5.3% | |
| HDFC Bank Ltd. | | 27,171 | $ 534,733 |
| Julius Baer Group Ltd. | | 13,957 | 811,264 |
| Macquarie Group Ltd. | | 5,140 | 583,520 |
| Moody's Corp. | | 1,867 | 520,184 |
| Visa, Inc., “A” | | 7,101 | 1,475,304 |
| | | | | $3,925,005 |
| Pharmaceuticals – 5.7% | |
| Johnson & Johnson | | 4,621 | $ 816,300 |
| Merck & Co., Inc. | | 8,015 | 889,264 |
| Roche Holding AG | | 3,923 | 1,232,500 |
| Santen Pharmaceutical Co. Ltd. | | 35,400 | 289,695 |
| Vertex Pharmaceuticals, Inc. (a) | | 1,970 | 568,897 |
| Zoetis, Inc. | | 3,187 | 467,055 |
| | | | | $4,263,711 |
| Printing & Publishing – 0.6% | |
| Wolters Kluwer N.V. | | 4,097 | $ 428,739 |
| Railroad & Shipping – 0.7% | |
| Canadian Pacific Railway Ltd. | | 6,670 | $ 497,515 |
| Real Estate – 1.1% | |
| LEG Immobilien SE | | 5,559 | $ 362,155 |
| STORE Capital Corp., REIT | | 13,546 | 434,285 |
| | | | | $796,440 |
| Restaurants – 1.4% | |
| Starbucks Corp. | | 4,756 | $ 471,795 |
| Yum China Holdings, Inc. | | 10,165 | 555,518 |
| | | | | $1,027,313 |
| Specialty Chemicals – 4.2% | |
| Air Products & Chemicals, Inc. | | 1,787 | $ 550,861 |
| Akzo Nobel N.V. | | 3,466 | 232,109 |
| Axalta Coating Systems Ltd. (a) | | 10,904 | 277,725 |
| Croda International PLC | | 4,627 | 369,415 |
| DuPont de Nemours, Inc. | | 7,934 | 544,510 |
| Linde PLC | | 2,539 | 830,174 |
| Sika AG | | 1,299 | 313,435 |
| | | | | $3,118,229 |
| Specialty Stores – 3.9% | |
| Alibaba Group Holding Ltd. (a) | | 15,900 | $ 175,695 |
| Amazon.com, Inc. (a)(s) | | 16,020 | 1,345,680 |
| Home Depot, Inc. | | 2,825 | 892,304 |
| Target Corp. | | 2,977 | 443,692 |
| | | | | $2,857,371 |
| Telecommunications - Wireless – 2.2% | |
| Advanced Info Service Public Co. Ltd. | | 63,000 | $ 354,699 |
| Cellnex Telecom S.A. | | 9,855 | 327,734 |
| KDDI Corp. | | 10,000 | 302,241 |
| Liberty Broadband Corp. (a) | | 4,112 | 313,623 |
MFS Global Research Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Telecommunications - Wireless – continued | |
| T-Mobile US, Inc. (a) | | 2,458 | $ 344,120 |
| | | | | $1,642,417 |
| Telephone Services – 0.3% | |
| Hellenic Telecommunications Organization S.A. | | 15,875 | $ 247,934 |
| Tobacco – 0.7% | |
| British American Tobacco PLC | | 6,398 | $ 253,819 |
| Philip Morris International, Inc. | | 2,860 | 289,461 |
| | | | | $543,280 |
| Utilities - Electric Power – 2.7% | |
| CLP Holdings Ltd. | | 44,500 | $ 324,680 |
| Iberdrola S.A. | | 48,124 | 563,051 |
| NextEra Energy, Inc. | | 6,427 | 537,297 |
| Southern Co. | | 7,967 | 568,924 |
| | | | | $1,993,952 |
| Total Common Stocks (Identified Cost, $56,482,677) | | $73,858,731 |
| Investment Companies (h) – 0.4% |
| Money Market Funds – 0.4% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $269,526) | | | 269,517 | $ 269,598 |
| Other Assets, Less Liabilities – 0.1% | | 68,196 |
| Net Assets – 100.0% | $74,196,525 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $269,598 and $73,858,731, respectively. | | | |
| (s) | Security or a portion of the security was pledged to cover collateral requirements for certain derivative transactions. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| REIT | Real Estate Investment Trust |
At December 31, 2022, the fund had cash collateral of $2,624 and other liquid securities with an aggregate value of $541,830 to cover any collateral or
margin obligations for certain derivative contracts. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised of cash collateral.
See Notes to Financial Statements
MFS Global Research Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $56,482,677) | $73,858,731 |
| Investments in affiliated issuers, at value (identified cost, $269,526) | 269,598 |
| Deposits with brokers | 2,624 |
| Receivables for | |
| Fund shares sold | 1,979 |
| Dividends | 165,161 |
| Receivable from investment adviser | 4,819 |
| Other assets | 663 |
| Total assets | $74,303,575 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $5,564 |
| Payable to affiliates | |
| Administrative services fee | 171 |
| Shareholder servicing costs | 10 |
| Distribution and/or service fees | 130 |
| Payable for independent Trustees' compensation | 189 |
| Deferred country tax expense payable | 19,263 |
| Accrued expenses and other liabilities | 81,723 |
| Total liabilities | $107,050 |
| Net assets | $74,196,525 |
| Net assets consist of | |
| Paid-in capital | $52,408,045 |
| Total distributable earnings (loss) | 21,788,480 |
| Net assets | $74,196,525 |
| Shares of beneficial interest outstanding | 2,614,822 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $67,890,521 | 2,391,447 | $28.39 |
| Service Class | 6,306,004 | 223,375 | 28.23 |
See Notes to Financial Statements
MFS Global Research Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $1,485,950 |
| Dividends from affiliated issuers | 7,006 |
| Income on securities loaned | 728 |
| Other | 58 |
| Interest | 16 |
| Foreign taxes withheld | (66,208) |
| Total investment income | $1,427,550 |
| Expenses | |
| Management fee | $611,944 |
| Distribution and/or service fees | 16,788 |
| Shareholder servicing costs | 2,371 |
| Administrative services fee | 22,334 |
| Independent Trustees' compensation | 3,567 |
| Custodian fee | 33,979 |
| Shareholder communications | 4,826 |
| Audit and tax fees | 68,721 |
| Legal fees | 393 |
| Miscellaneous | 35,810 |
| Total expenses | $800,733 |
| Reduction of expenses by investment adviser | (90,189) |
| Net expenses | $710,544 |
| Net investment income (loss) | $717,006 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $24,153 country tax) | $3,767,748 |
| Affiliated issuers | (171) |
| Foreign currency | (109) |
| Net realized gain (loss) | $3,767,468 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $29,373 decrease in deferred country tax) | $(21,973,858) |
| Affiliated issuers | 72 |
| Translation of assets and liabilities in foreign currencies | (3,596) |
| Net unrealized gain (loss) | $(21,977,382) |
| Net realized and unrealized gain (loss) | $(18,209,914) |
| Change in net assets from operations | $(17,492,908) |
See Notes to Financial Statements
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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $717,006 | $463,141 |
| Net realized gain (loss) | 3,767,468 | 7,022,651 |
| Net unrealized gain (loss) | (21,977,382) | 9,327,166 |
| Change in net assets from operations | $(17,492,908) | $16,812,958 |
| Total distributions to shareholders | $(7,517,106) | $(7,696,062) |
| Change in net assets from fund share transactions | $(1,463,920) | $(4,826,833) |
| Total change in net assets | $(26,473,934) | $4,290,063 |
| Net assets | | |
| At beginning of period | 100,670,459 | 96,380,396 |
| At end of period | $74,196,525 | $100,670,459 |
See Notes to Financial Statements
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 past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $38.03 | $34.70 | $32.19 | $27.00 | $31.74 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.28 | $0.18 | $0.22 | $0.40 | $0.32 |
| Net realized and unrealized gain (loss) | (6.86) | 6.17 | 4.87 | 7.88 | (2.82) |
| Total from investment operations | $(6.58) | $6.35 | $5.09 | $8.28 | $(2.50) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.19) | $(0.22) | $(0.42) | $(0.34) | $(0.33) |
| From net realized gain | (2.87) | (2.80) | (2.16) | (2.75) | (1.91) |
| Total distributions declared to shareholders | $(3.06) | $(3.02) | $(2.58) | $(3.09) | $(2.24) |
| Net asset value, end of period (x) | $28.39 | $38.03 | $34.70 | $32.19 | $27.00 |
| Total return (%) (k)(r)(s)(x) | (17.67) | 18.51 | 16.49 | 31.96 | (8.83) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.96 | 0.91 | 0.95 | 0.94 | 0.93 |
| Expenses after expense reductions | 0.85 | 0.85 | 0.85 | 0.85 | 0.88 |
| Net investment income (loss) | 0.90 | 0.49 | 0.69 | 1.29 | 1.01 |
| Portfolio turnover | 19 | 15 | 32 | 27 | 22 |
| Net assets at end of period (000 omitted) | $67,891 | $92,642 | $88,676 | $87,138 | $77,345 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $37.82 | $34.54 | $32.06 | $26.89 | $31.61 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.20 | $0.09 | $0.13 | $0.32 | $0.24 |
| Net realized and unrealized gain (loss) | (6.82) | 6.13 | 4.87 | 7.85 | (2.82) |
| Total from investment operations | $(6.62) | $6.22 | $5.00 | $8.17 | $(2.58) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.10) | $(0.14) | $(0.36) | $(0.25) | $(0.23) |
| From net realized gain | (2.87) | (2.80) | (2.16) | (2.75) | (1.91) |
| Total distributions declared to shareholders | $(2.97) | $(2.94) | $(2.52) | $(3.00) | $(2.14) |
| Net asset value, end of period (x) | $28.23 | $37.82 | $34.54 | $32.06 | $26.89 |
| Total return (%) (k)(r)(s)(x) | (17.88) | 18.20 | 16.24 | 31.62 | (9.06) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.21 | 1.16 | 1.21 | 1.19 | 1.18 |
| Expenses after expense reductions | 1.10 | 1.10 | 1.10 | 1.10 | 1.13 |
| Net investment income (loss) | 0.65 | 0.24 | 0.40 | 1.06 | 0.76 |
| Portfolio turnover | 19 | 15 | 32 | 27 | 22 |
| Net assets at end of period (000 omitted) | $6,306 | $8,028 | $7,705 | $6,034 | $5,519 |
See Notes to Financial Statements
MFS Global Research Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS Global Research Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Global Research Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign
MFS Global Research Portfolio
Notes to Financial Statements - continued
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 significant 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 December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| United States | $46,698,046 | $— | $— | $46,698,046 |
| Switzerland | 1,232,500 | 2,745,227 | — | 3,977,727 |
| France | — | 3,839,992 | — | 3,839,992 |
| United Kingdom | 2,968,827 | — | — | 2,968,827 |
| China | 1,320,383 | 1,299,010 | — | 2,619,393 |
| Japan | 947,742 | 1,322,867 | — | 2,270,609 |
| Hong Kong | 581,334 | 890,174 | — | 1,471,508 |
| Canada | 1,467,121 | — | — | 1,467,121 |
| Australia | — | 1,457,843 | — | 1,457,843 |
| Other Countries | 5,014,416 | 2,073,249 | — | 7,087,665 |
| Mutual Funds | 269,598 | — | — | 269,598 |
| Total | $60,499,967 | $13,628,362 | $— | $74,128,329 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. 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
MFS Global Research Portfolio
Notes to Financial Statements - continued
U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At December 31, 2022, there were no securities on loan or collateral outstanding.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. 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. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $1,611,095 | $1,290,016 |
| Long-term capital gains | 5,906,011 | 6,406,046 |
| Total distributions | $7,517,106 | $7,696,062 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/22 | |
| Cost of investments | $56,878,394 |
| Gross appreciation | 21,096,323 |
| Gross depreciation | (3,846,388) |
| Net unrealized appreciation (depreciation) | $17,249,935 |
| Undistributed ordinary income | 690,905 |
| Undistributed long-term capital gain | 3,867,694 |
| Other temporary differences | (20,054) |
| Total distributable earnings (loss) | $21,788,480 |
MFS Global Research Portfolio
Notes to Financial Statements - continued
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $6,902,278 | | $7,108,197 |
| Service Class | 614,828 | | 587,865 |
| Total | $7,517,106 | | $7,696,062 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $300 million | 0.75% |
| In excess of $300 million | 0.675% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $11,352, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.74% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.85% of average daily net assets for the Initial Class shares and 1.10% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this reduction amounted to $78,837, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2022, the fee was $2,248, which equated to 0.0028% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $123.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0274% of the fund's average daily net assets.
MFS Global Research Portfolio
Notes to Financial Statements - continued
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended December 31, 2022, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $110,602 and $64,793, respectively. The sales transactions resulted in net realized gains (losses) of $4,026.
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than short-term obligations, aggregated $15,707,847 and $23,958,835, 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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 17,285 | $559,151 | | 32,311 | $1,189,874 |
| Service Class | 24,828 | 797,057 | | 3,188 | 114,787 |
| | 42,113 | $1,356,208 | | 35,499 | $1,304,661 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 231,698 | $6,902,278 | | 191,286 | $7,108,197 |
| Service Class | 20,736 | 614,828 | | 15,897 | 587,865 |
| | 252,434 | $7,517,106 | | 207,183 | $7,696,062 |
| Shares reacquired | | | | | |
| Initial Class | (293,461) | $(9,234,294) | | (343,195) | $(12,731,621) |
| Service Class | (34,451) | (1,102,940) | | (29,917) | (1,095,935) |
| | (327,912) | $(10,337,234) | | (373,112) | $(13,827,556) |
| Net change | | | | | |
| Initial Class | (44,478) | $(1,772,865) | | (119,598) | $(4,433,550) |
| Service Class | 11,113 | 308,945 | | (10,832) | (393,283) |
| | (33,365) | $(1,463,920) | | (130,430) | $(4,826,833) |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured
MFS Global Research Portfolio
Notes to Financial Statements - continued
uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $401 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $496,235 | $12,283,108 | $12,509,646 | $(171) | $72 | $269,598 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $7,006 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR��). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
MFS Global Research Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Global Research Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Global Research Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Global Research Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS Global Research Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS Global Research Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Akira Fuse
James Keating | |
MFS Global Research Portfolio
Board Review of Investment Advisory Agreement
MFS Global Research Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 3rd quintile for the one-year period and the 1st quintile for the three-year period ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Global Research Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $300 million. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS Global Research Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $6,497,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 34.17% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® Government
Securities Portfolio
MFS® Variable Insurance Trust II
MFS® Government Securities Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Government Securities Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Government Securities Portfolio
Portfolio structure at value (v)
Portfolio structure reflecting equivalent exposure of derivative positions (i)
Fixed income sectors (i)
| U.S. Treasury Securities | 54.5% |
| Mortgage-Backed Securities | 51.8% |
| Commercial Mortgage-Backed Securities | 3.6% |
| Collateralized Debt Obligations | 2.1% |
| Municipal Bonds | 1.9% |
| Investment Grade Corporates | 0.7% |
| U.S. Government Agencies | 0.6% |
| Asset-Backed Securities | 0.1% |
Composition including fixed income credit quality (a)(i)
| AAA | 4.2% |
| AA | 1.9% |
| A | 2.2% |
| BBB | 0.2% |
| U.S. Government | 36.7% |
| Federal Agencies | 52.4% |
| Not Rated | 17.7% |
| Cash & Cash Equivalents | 2.4% |
| Other (q) | (17.7)% |
Portfolio facts
| Average Duration (d) | 6.0 |
| Average Effective Maturity (m) | 7.4 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. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. The Average Duration calculation reflects the impact of the equivalent exposure of derivative positions, if any. |
MFS Government Securities Portfolio
Portfolio Composition - continued
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (q) | For purposes of this presentation, Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative. |
| (v) | For purposes of this presentation, market value of fixed income and/or equity derivatives, if any, is included in Cash & Cash Equivalents. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS Government Securities Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Government Securities Portfolio (fund) provided a total return of -12.26%, while Service Class shares of the fund provided a total return of -12.45%. These compare with a return of -12.12% over the same period for the fund’s benchmark, the Bloomberg U.S. Government/Mortgage Index.
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Factors Affecting Performance
Relative to the Bloomberg U.S. Government/Mortgage Index, a combination of the fund's underweight exposure and weak bond selection within the treasury sector detracted from performance.
Conversely, the fund's shorter duration(d) stance benefited relative performance as interest rates rose during the reporting period. Additionally, yield curve(y) positioning, particularly the fund's underweight exposure to shifts in the short end of the yield curve (centered around maturities of 2 years), and overweight exposure to shifts in the long end of the yield curve (centered around maturities of 20 years), strengthened relative returns.
Respectfully,
Portfolio Manager(s)
Geoffrey Schechter and Jake Stone
| (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. |
| (y) | A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Government Securities Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 6/12/85 | (12.26)% | (0.40)% | 0.38% |
| Service Class | 8/24/01 | (12.45)% | (0.64)% | 0.14% |
Comparative benchmark(s)
| Bloomberg U.S. Government/Mortgage Index (f) | (12.12)% | (0.24)% | 0.67% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Bloomberg U.S. Government/Mortgage Index(a) – measures the performance of debt issued by the U.S. Government, and its agencies, as well as mortgage-backed pass-through securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
It is not possible to invest directly in an index.
| (a) | Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
MFS Government Securities Portfolio
Performance Summary – continued
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Government Securities Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.58% | $1,000.00 | $960.74 | $2.87 |
| Hypothetical (h) | 0.58% | $1,000.00 | $1,022.28 | $2.96 |
| Service Class | Actual | 0.83% | $1,000.00 | $960.02 | $4.10 |
| Hypothetical (h) | 0.83% | $1,000.00 | $1,021.02 | $4.23 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Government Securities Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 97.1% |
| Asset-Backed & Securitized – 5.8% |
| 3650R Commercial Mortgage Trust, 2021-PF1, “XA”, 1.028%, 11/15/2054 (i) | | $ | 3,597,775 | $ 211,963 |
| ACREC 2021-FL1 Ltd., “AS”, FLR, 5.826% (LIBOR - 1mo. + 1.5%), 10/16/2036 (n) | | | 1,293,000 | 1,217,022 |
| Arbor Realty Trust, Inc., CLO, 2021-FL1, “B”, FLR, 5.77% (LIBOR - 1mo. + 1.5%), 12/15/2035 (n) | | | 671,500 | 619,500 |
| Arbor Realty Trust, Inc., CLO, 2021-FL3, “AS”, FLR, 5.717% (LIBOR - 1mo. + 1.4%), 8/15/2034 (n) | | | 1,107,000 | 1,042,934 |
| AREIT 2022-CRE6 Trust, “AS”, FLR, 5.475% (SOFR - 30 day + 1.65%), 1/16/2037 (n) | | | 1,405,000 | 1,321,306 |
| BBCMS Mortgage Trust, 2021-C10, “XA”, 1.297%, 7/15/2054 (i) | | | 3,643,746 | 263,771 |
| BBCMS Mortgage Trust, 2021-C9, “XA”, 1.626%, 2/15/2054 (i) | | | 2,380,682 | 215,446 |
| BBCMS Mortgage Trust, 2022-C18, “XA”, 0.46%, 12/15/2055 | | | 3,508,842 | 136,480 |
| Benchmark 2021-B23 Mortgage Trust, “XA”, 1.271%, 2/15/2054 (i) | | | 7,617,390 | 513,657 |
| Benchmark 2021-B24 Mortgage Trust, “XA”, 1.151%, 3/15/2054 (i) | | | 4,506,222 | 274,538 |
| Benchmark 2021-B26 Mortgage Trust, “XA”, 0.886%, 6/15/2054 (i) | | | 6,476,751 | 317,861 |
| Benchmark 2021-B27 Mortgage Trust, “XA”, 1.266%, 7/15/2054 (i) | | | 5,796,736 | 408,482 |
| Benchmark 2021-B28 Mortgage Trust, “XA”, 1.282%, 8/15/2054 (i) | | | 6,773,268 | 477,344 |
| Benchmark 2021-B29 Mortgage Trust, “XA”, 1.042%, 9/15/2054 (i) | | | 7,572,799 | 421,323 |
| BSPDF 2021-FL1 Issuer Ltd., “A”, FLR, 5.517% (LIBOR - 1mo. + 1.2%), 10/15/2036 (n) | | | 614,500 | 585,240 |
| BSPDF 2021-FL1 Issuer Ltd., “AS”, FLR, 5.797% (LIBOR - 1mo. + 1.48%), 10/15/2036 (n) | | | 777,500 | 752,818 |
| BXMT 2021-FL4 Ltd., “AS”, FLR, 5.617% (LIBOR - 1mo. + 1.3%), 5/15/2038 (n) | | | 1,344,000 | 1,282,220 |
| Capital Automotive, 2020-1A, “A4”, REIT, 3.19%, 2/15/2050 (n) | | | 267,164 | 249,617 |
| Citigroup Commercial Mortgage Trust, 2019-XA, “C7”, 0.867%, 12/15/2072 (i)(n) | | | 4,406,548 | 194,604 |
| Commercial Mortgage Pass-Through Certificates, 2021-BN31, “XA”, 1.325%, 2/15/2054 (i) | | | 5,853,071 | 439,653 |
| Commercial Mortgage Pass-Through Certificates, 2021-BN32, “XA”, 0.779%, 4/15/2054 (i) | | | 3,306,364 | 143,461 |
| LAD Auto Receivables Trust, 2022-1A, “A”, 5.21%, 6/15/2027 (n) | | | 197,053 | 193,897 |
| LoanCore 2021-CRE5 Ltd., “AS”, FLR, 6.067% (LIBOR - 1mo. + 1.75%), 7/15/2036 (n) | | | 1,110,500 | 1,043,864 |
| Madison Park Funding Ltd., 2014-13A, “BR2”, FLR, 5.726% (LIBOR - 3mo. + 1.5%), 4/19/2030 (n) | | | 1,572,067 | 1,537,351 |
| MF1 2021-FL5 Ltd., “AS”, FLR, 5.65% (LIBOR - 1mo. + 1.2%), 7/15/2036 (n) | | | 664,500 | 640,712 |
| MF1 2021-FL5 Ltd., “B”, FLR, 5.9% (LIBOR - 1mo. + 1.45%), 7/15/2036 (n) | | | 836,500 | 799,359 |
| Morgan Stanley Capital I Trust, 2018-H4, “XA”, 0.831%, 12/15/2051 (i) | | | 6,029,902 | 219,757 |
| Morgan Stanley Capital I Trust, 2021-L5, “XA”, 1.296%, 5/15/2054 (i) | | | 2,874,854 | 198,382 |
| Morgan Stanley Capital I Trust, 2021-L6, “XA”, 1.228%, 6/15/2054 (i) | | | 3,526,466 | 223,320 |
| Morgan Stanley Capital I Trust, 2021-L7, “XA”, 1.1%, 10/15/2054 (i) | | | 13,399,357 | 796,502 |
| PFP III 2021-7 Ltd., “AS”, FLR, 5.467% (LIBOR - 1mo. + 1.15%), 4/14/2038 (n) | | | 932,953 | 878,430 |
| ReadyCap Commercial Mortgage Trust, 2021-FL7, “A”, FLR, 5.588% (LIBOR - 1mo. + 1.2%), 11/25/2036 (n) | | | 658,272 | 627,756 |
| ReadyCap Commercial Mortgage Trust, 2021-FL7, “AS”, FLR, 5.888% (LIBOR - 1mo. + 1.5%), 11/25/2036 (n) | | | 206,000 | 193,895 |
| Wells Fargo Commercial Mortgage Trust, 2018-C48, “XA”, 0.883%, 1/15/2052 (i)(n) | | | 3,388,141 | 142,728 |
| Wells Fargo Commercial Mortgage Trust, 2021-C60, “XA”, 1.546%, 8/15/2054 (i) | | | 1,323,038 | 116,689 |
| | | | | $18,701,882 |
| Automotive – 0.1% |
| Hyundai Capital America, 2.375%, 2/10/2023 (n) | | $ | 405,000 | $ 404,087 |
| Consumer Services – 0.2% |
| Conservation Fund, 3.474%, 12/15/2029 | | $ | 563,000 | $ 484,058 |
| Industrial – 0.1% |
| Howard University, Washington D.C., AGM, 2.416%, 10/01/2024 | | $ | 119,000 | $ 112,370 |
| Howard University, Washington D.C., AGM, 2.516%, 10/01/2025 | | | 147,000 | 137,294 |
| | | | | $249,664 |
| Medical & Health Technology & Services – 0.3% |
| ProMedica Toledo Hospital, “B”, AGM, 5.325%, 11/15/2028 | | $ | 879,000 | $ 867,844 |
| ProMedica Toledo Hospital, “B”, AGM, 5.75%, 11/15/2038 | | | 246,000 | 231,337 |
| | | | | $1,099,181 |
MFS Government Securities Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Mortgage-Backed – 51.6% | |
| Fannie Mae, 2.73%, 4/01/2023 | | $ | 443,314 | $ 439,623 |
| Fannie Mae, 2.41%, 5/01/2023 | | | 559,652 | 553,255 |
| Fannie Mae, 4.5%, 5/01/2025 - 4/01/2041 | | | 2,107,909 | 2,084,753 |
| Fannie Mae, 4%, 3/25/2028 - 2/01/2045 | | | 7,251,268 | 6,965,552 |
| Fannie Mae, 3%, 11/01/2028 - 5/25/2053 | | | 4,630,800 | 4,362,162 |
| Fannie Mae, 6.5%, 9/01/2031 - 10/01/2037 | | | 296,791 | 309,262 |
| Fannie Mae, 2.5%, 11/01/2031 - 10/01/2046 | | | 769,734 | 690,370 |
| Fannie Mae, 3.5%, 12/25/2031 - 2/25/2036 (i) | | | 282,143 | 27,465 |
| Fannie Mae, 3%, 2/25/2033 (i) | | | 347,376 | 32,046 |
| Fannie Mae, 5.5%, 10/01/2033 - 3/01/2038 | | | 2,970,182 | 3,066,871 |
| Fannie Mae, 5%, 11/01/2033 - 3/01/2041 | | | 2,054,056 | 2,084,358 |
| Fannie Mae, 6%, 8/01/2034 - 7/01/2037 | | | 340,856 | 350,862 |
| Fannie Mae, 3.5%, 4/01/2038 - 7/01/2046 | | | 3,522,268 | 3,294,287 |
| Fannie Mae, 2%, 10/25/2040 - 4/25/2046 | | | 392,784 | 359,524 |
| Fannie Mae, 1.75%, 10/25/2041 | | | 654,898 | 595,322 |
| Fannie Mae, 2.75%, 9/25/2042 | | | 294,681 | 274,128 |
| Fannie Mae, UMBS, 2.5%, 7/01/2037 - 8/01/2052 | | | 24,728,789 | 21,053,357 |
| Fannie Mae, UMBS, 1.5%, 2/01/2042 | | | 67,038 | 54,177 |
| Fannie Mae, UMBS, 2%, 2/01/2042 - 4/01/2052 | | | 13,368,385 | 11,015,136 |
| Fannie Mae, UMBS, 3%, 6/01/2051 - 7/01/2052 | | | 5,332,894 | 4,700,714 |
| Fannie Mae, UMBS, 3.5%, 5/01/2052 - 7/01/2052 | | | 775,637 | 704,938 |
| Fannie Mae, UMBS, 5%, 6/01/2052 - 9/01/2052 | | | 624,999 | 616,373 |
| Fannie Mae, UMBS, 4.5%, 8/01/2052 - 9/01/2052 | | | 669,501 | 645,455 |
| Fannie Mae, UMBS, 4%, 9/01/2052 | | | 643,179 | 603,325 |
| Fannie Mae, UMBS, 5.5%, 11/01/2052 | | | 1,049,998 | 1,052,816 |
| Fannie Mae, UMBS, 6%, 12/01/2052 | | | 325,000 | 330,007 |
| Freddie Mac, 5%, 4/01/2023 - 12/01/2044 | | | 1,221,956 | 1,235,010 |
| Freddie Mac, 6%, 6/01/2023 - 10/01/2038 | | | 887,972 | 912,594 |
| Freddie Mac, 3.06%, 7/25/2023 | | | 326,000 | 322,793 |
| Freddie Mac, 0.903%, 4/25/2024 (i) | | | 10,946,753 | 102,516 |
| Freddie Mac, 0.6%, 7/25/2024 (i) | | | 14,494,852 | 97,460 |
| Freddie Mac, 3.064%, 8/25/2024 (i) | | | 1,659,858 | 1,614,264 |
| Freddie Mac, 4.5%, 9/01/2024 - 5/01/2042 | | | 861,875 | 855,130 |
| Freddie Mac, 2.67%, 12/25/2024 | | | 3,924,000 | 3,762,642 |
| Freddie Mac, 2.811%, 1/25/2025 | | | 2,507,701 | 2,412,454 |
| Freddie Mac, 4%, 7/01/2025 - 4/01/2044 | | | 784,895 | 755,833 |
| Freddie Mac, 3.5%, 1/15/2027 - 10/25/2058 | | | 9,548,968 | 8,960,780 |
| Freddie Mac, 1.367%, 3/25/2027 (i) | | | 1,030,000 | 50,521 |
| Freddie Mac, 0.574%, 7/25/2027 (i) | | | 29,315,575 | 634,263 |
| Freddie Mac, 0.424%, 8/25/2027 (i) | | | 24,175,051 | 403,752 |
| Freddie Mac, 0.293%, 1/25/2028 (i) | | | 40,489,221 | 553,496 |
| Freddie Mac, 0.304%, 1/25/2028 (i) | | | 17,408,060 | 245,034 |
| Freddie Mac, 0.135%, 2/25/2028 (i) | | | 49,149,610 | 353,022 |
| Freddie Mac, 2.5%, 3/15/2028 | | | 66,686 | 66,072 |
| Freddie Mac, 0.121%, 4/25/2028 (i) | | | 31,754,979 | 216,083 |
| Freddie Mac, 3%, 6/15/2028 - 2/25/2059 | | | 7,212,608 | 6,574,710 |
| Freddie Mac, 1.09%, 7/25/2029 (i) | | | 4,419,393 | 251,613 |
| Freddie Mac, 1.143%, 8/25/2029 (i) | | | 7,660,430 | 456,234 |
| Freddie Mac, 1.8%, 4/25/2030 (i) | | | 1,602,831 | 168,760 |
| Freddie Mac, 1.868%, 4/25/2030 (i) | | | 4,034,514 | 429,840 |
| Freddie Mac, 1.665%, 5/25/2030 (i) | | | 2,174,913 | 214,268 |
| Freddie Mac, 1.797%, 5/25/2030 (i) | | | 4,905,689 | 523,609 |
| Freddie Mac, 1.341%, 6/25/2030 (i) | | | 1,983,331 | 160,331 |
| Freddie Mac, 1.599%, 8/25/2030 (i) | | | 1,814,781 | 177,627 |
| Freddie Mac, 1.169%, 9/25/2030 (i) | | | 1,149,690 | 82,777 |
| Freddie Mac, 1.08%, 11/25/2030 (i) | | | 2,249,951 | 152,886 |
| Freddie Mac, 0.329%, 1/25/2031 (i) | | | 8,727,018 | 174,138 |
MFS Government Securities Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Mortgage-Backed – continued | |
| Freddie Mac, 0.781%, 1/25/2031 (i) | | $ | 3,359,280 | $ 167,643 |
| Freddie Mac, 0.936%, 1/25/2031 (i) | | | 2,545,825 | 152,183 |
| Freddie Mac, 0.516%, 3/25/2031 (i) | | | 6,929,048 | 222,998 |
| Freddie Mac, 0.732%, 3/25/2031 (i) | | | 2,967,667 | 143,275 |
| Freddie Mac, 1.22%, 5/25/2031 (i) | | | 1,210,235 | 96,244 |
| Freddie Mac, 0.937%, 7/25/2031 (i) | | | 1,944,368 | 123,104 |
| Freddie Mac, 0.508%, 8/25/2031 (i) | | | 2,464,144 | 84,687 |
| Freddie Mac, 0.536%, 9/25/2031 (i) | | | 8,016,720 | 304,975 |
| Freddie Mac, 0.855%, 9/25/2031 (i) | | | 2,478,687 | 145,524 |
| Freddie Mac, 0.349%, 11/25/2031 (i) | | | 11,978,818 | 307,646 |
| Freddie Mac, 0.497%, 12/25/2031 (i) | | | 11,887,771 | 421,395 |
| Freddie Mac, 0.567%, 12/25/2031 (i) | | | 1,981,491 | 78,227 |
| Freddie Mac, 2.92%, 6/25/2032 (i) | | | 1,800,000 | 1,581,920 |
| Freddie Mac, 6.5%, 8/01/2032 - 5/01/2037 | | | 175,581 | 182,902 |
| Freddie Mac, 5.5%, 8/01/2035 - 6/01/2041 | | | 756,576 | 784,319 |
| Freddie Mac, 5.5%, 2/15/2036 (i) | | | 84,738 | 13,927 |
| Freddie Mac, 4.5%, 12/15/2040 (i) | | | 26,591 | 2,370 |
| Freddie Mac, 1.75%, 8/15/2041 | | | 233,220 | 212,363 |
| Freddie Mac, 3.25%, 11/25/2061 | | | 2,114,700 | 1,898,768 |
| Freddie Mac, UMBS, 6.5%, 8/01/2032 | | | 15,969 | 16,487 |
| Freddie Mac, UMBS, 2%, 6/01/2037 - 5/01/2052 | | | 6,015,214 | 5,223,951 |
| Freddie Mac, UMBS, 2.5%, 9/01/2037 - 4/01/2052 | | | 6,418,207 | 5,480,497 |
| Freddie Mac, UMBS, 3.5%, 12/01/2046 - 5/01/2052 | | | 353,361 | 325,112 |
| Freddie Mac, UMBS, 3%, 7/01/2050 - 4/01/2052 | | | 1,539,940 | 1,353,803 |
| Freddie Mac, UMBS, 1.5%, 5/01/2051 - 10/01/2051 | | | 1,274,999 | 983,796 |
| Freddie Mac, UMBS, 4%, 5/01/2052 - 8/01/2052 | | | 806,038 | 760,943 |
| Freddie Mac, UMBS, 5%, 10/01/2052 | | | 338,702 | 334,018 |
| Ginnie Mae, 5.5%, 7/15/2033 - 1/20/2042 | | | 656,110 | 685,737 |
| Ginnie Mae, 5.683%, 8/20/2034 | | | 239,481 | 244,771 |
| Ginnie Mae, 4%, 5/16/2039 - 9/20/2052 | | | 1,220,375 | 1,173,456 |
| Ginnie Mae, 4.5%, 8/15/2039 - 10/20/2052 | | | 5,899,264 | 5,759,265 |
| Ginnie Mae, 3.5%, 10/20/2041 (i) | | | 112,018 | 5,849 |
| Ginnie Mae, 3.5%, 12/15/2041 - 11/20/2052 | | | 4,164,445 | 3,876,386 |
| Ginnie Mae, 2.5%, 6/20/2042 - 6/20/2052 | | | 6,372,276 | 5,524,609 |
| Ginnie Mae, 4%, 8/16/2042 (i) | | | 152,142 | 22,697 |
| Ginnie Mae, 2.25%, 9/20/2043 | | | 104,001 | 98,914 |
| Ginnie Mae, 3%, 4/20/2045 - 10/20/2052 | | | 7,057,217 | 6,327,648 |
| Ginnie Mae, 2%, 1/20/2052 | | | 3,320,330 | 2,782,417 |
| Ginnie Mae, 5%, 9/20/2052 - 11/20/2052 | | | 2,044,250 | 2,026,136 |
| Ginnie Mae, 0.586%, 2/16/2059 (i) | | | 745,002 | 25,912 |
| Ginnie Mae, TBA, 6%, 1/15/2053 | | | 1,250,000 | 1,269,861 |
| Ginnie Mae, TBA, 2%, 1/23/2053 | | | 2,400,000 | 2,010,805 |
| Ginnie Mae, TBA, 5.5%, 1/23/2053 | | | 1,875,000 | 1,885,484 |
| UMBS, TBA, 2%, 1/12/2053 | | | 14,000,000 | 11,388,444 |
| | | | | $165,698,118 |
| Municipals – 1.9% |
| California Earthquake Authority Rev., Taxable, “B”, 1.477%, 7/01/2023 | | $ | 210,000 | $ 206,456 |
| Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Taxable, “B”, 3%, 6/01/2046 | | | 690,000 | 638,658 |
| Massachusetts Educational Financing Authority, Education Loan Rev., Taxable, “A”, 2.682%, 7/01/2027 | | | 335,000 | 299,693 |
| Michigan Finance Authority Tobacco Settlement Asset-Backed Rev., Taxable (2006 Sold Tobacco Receipts), “A-1”, 2.326%, 6/01/2030 | | | 204,092 | 184,333 |
| New Jersey Economic Development Authority State Pension Funding Rev., Capital Appreciation, Taxable, “B”, AGM, 0%, 2/15/2023 | | | 2,991,000 | 2,974,655 |
| Philadelphia, PA, School District, Taxable, “A”, AGM, 5.995%, 9/01/2030 | | | 960,000 | 1,004,710 |
| Port of Oakland, CA, Senior Lien Refunding Rev., Taxable, “R”, 1.517%, 5/01/2026 | | | 295,000 | 263,961 |
| West Virginia Tobacco Settlement Financing Authority Asset-Backed Refunding, Taxable, “A-1”, 1.497%, 6/01/2024 | | | 280,000 | 265,554 |
MFS Government Securities Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Municipals – continued |
| West Virginia Tobacco Settlement Financing Authority Asset-Backed Refunding, Taxable, “A-1”, 1.647%, 6/01/2025 | | $ | 225,000 | $ 205,802 |
| | | | | $6,043,822 |
| U.S. Government Agencies and Equivalents – 0.6% |
| Small Business Administration, 4.98%, 11/01/2023 | | $ | 9,883 | $ 9,799 |
| Small Business Administration, 4.77%, 4/01/2024 | | | 39,118 | 38,544 |
| Small Business Administration, 5.52%, 6/01/2024 | | | 14,661 | 14,667 |
| Small Business Administration, 4.99%, 9/01/2024 | | | 3,544 | 3,482 |
| Small Business Administration, 5.11%, 4/01/2025 | | | 30,215 | 29,604 |
| Small Business Administration, 2.21%, 2/01/2033 | | | 353,906 | 320,684 |
| Small Business Administration, 2.22%, 3/01/2033 | | | 539,096 | 487,687 |
| Small Business Administration, 3.15%, 7/01/2033 | | | 527,834 | 498,497 |
| Small Business Administration, 3.16%, 8/01/2033 | | | 319,495 | 302,776 |
| Small Business Administration, 3.62%, 9/01/2033 | | | 183,227 | 175,939 |
| | | | | $1,881,679 |
| U.S. Treasury Obligations – 36.5% |
| U.S. Treasury Bonds, 6.25%, 8/15/2023 | | $ | 2,891,000 | $ 2,915,844 |
| U.S. Treasury Bonds, 6%, 2/15/2026 | | | 2,699,000 | 2,837,640 |
| U.S. Treasury Bonds, 6.75%, 8/15/2026 | | | 1,862,000 | 2,021,870 |
| U.S. Treasury Bonds, 6.375%, 8/15/2027 | | | 326,000 | 356,843 |
| U.S. Treasury Bonds, 1.625%, 5/15/2031 | | | 6,239,000 | 5,246,853 |
| U.S. Treasury Bonds, 4.5%, 8/15/2039 | | | 1,287,500 | 1,365,203 |
| U.S. Treasury Bonds, 3.125%, 2/15/2043 | | | 8,176,700 | 6,975,747 |
| U.S. Treasury Bonds, 2.875%, 5/15/2043 | | | 13,519,500 | 11,034,764 |
| U.S. Treasury Bonds, 2.5%, 2/15/2045 (f) | | | 21,059,000 | 15,854,301 |
| U.S. Treasury Bonds, 2.875%, 11/15/2046 | | | 2,917,000 | 2,337,360 |
| U.S. Treasury Notes, 0.125%, 2/28/2023 | | | 13,476,800 | 13,386,900 |
| U.S. Treasury Notes, 2.5%, 3/31/2023 | | | 9,000,000 | 8,957,792 |
| U.S. Treasury Notes, 0.125%, 5/31/2023 | | | 8,057,000 | 7,913,170 |
| U.S. Treasury Notes, 0.125%, 6/30/2023 | | | 7,893,000 | 7,717,874 |
| U.S. Treasury Notes, 0.125%, 7/15/2023 | | | 1,762,000 | 1,719,189 |
| U.S. Treasury Notes, 0.375%, 10/31/2023 | | | 1,062,900 | 1,024,993 |
| U.S. Treasury Notes, 0.75%, 12/31/2023 | | | 12,875,300 | 12,376,565 |
| U.S. Treasury Notes, 2.5%, 5/15/2024 | | | 5,385,000 | 5,226,815 |
| U.S. Treasury Notes, 2%, 8/15/2025 | | | 438,000 | 413,585 |
| U.S. Treasury Notes, 2.625%, 12/31/2025 | | | 2,800,000 | 2,677,500 |
| U.S. Treasury Notes, 1.5%, 2/15/2030 | | | 3,800,000 | 3,238,312 |
| U.S. Treasury Notes, 1.375%, 11/15/2031 | | | 2,119,500 | 1,725,074 |
| | | | | $117,324,194 |
| Total Bonds (Identified Cost, $337,510,645) | | $311,886,685 |
| Investment Companies (h) – 4.8% |
| Money Market Funds – 4.8% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $15,355,750) | | | 15,354,995 | $ 15,359,601 |
| Other Assets, Less Liabilities – (1.9)% | | (6,041,627) |
| Net Assets – 100.0% | $321,204,659 |
MFS Government Securities Portfolio
Portfolio of Investments – continued
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $15,359,601 and $311,886,685, respectively. | | | |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. | | | |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $13,727,340, representing 4.3% of net assets. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| AGM | Assured Guaranty Municipal |
| CLO | Collateralized Loan Obligation |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| LIBOR | London Interbank Offered Rate |
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| TBA | To Be Announced |
| UMBS | Uniform Mortgage-Backed Security |
| Derivative Contracts at 12/31/22 |
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Bond | Short | USD | 6 | $752,063 | March – 2023 | $6,775 |
| U.S. Treasury Ultra Bond | Short | USD | 14 | 1,880,375 | March – 2023 | 36,686 |
| U.S. Treasury Ultra Note 10 yr | Short | USD | 5 | 591,406 | March – 2023 | 5,763 |
| | | | | | | $49,224 |
| Liability Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Note 10 yr | Long | USD | 463 | $51,993,453 | March – 2023 | $(388,335) |
| U.S. Treasury Note 2 yr | Long | USD | 40 | 8,203,125 | March – 2023 | (3,293) |
| | | | | | | $(391,628) |
At December 31, 2022, the fund had liquid securities with an aggregate value of $1,020,865 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
MFS Government Securities Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $337,510,645) | $311,886,685 |
| Investments in affiliated issuers, at value (identified cost, $15,355,750) | 15,359,601 |
| Cash | 99,179 |
| Receivables for | |
| Investments sold | 9,383,542 |
| Fund shares sold | 43 |
| Interest | 1,554,565 |
| Other assets | 2,037 |
| Total assets | $338,285,652 |
| Liabilities | |
| Payables for | |
| Net daily variation margin on open futures contracts | $63,609 |
| TBA purchase commitments | 16,854,835 |
| Fund shares reacquired | 42,152 |
| Payable to affiliates | |
| Investment adviser | 7,046 |
| Administrative services fee | 452 |
| Shareholder servicing costs | 30 |
| Distribution and/or service fees | 2,326 |
| Accrued expenses and other liabilities | 110,543 |
| Total liabilities | $17,080,993 |
| Net assets | $321,204,659 |
| Net assets consist of | |
| Paid-in capital | $384,764,083 |
| Total distributable earnings (loss) | (63,559,424) |
| Net assets | $321,204,659 |
| Shares of beneficial interest outstanding | 30,353,469 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $208,331,521 | 19,651,541 | $10.60 |
| Service Class | 112,873,138 | 10,701,928 | 10.55 |
See Notes to Financial Statements
MFS Government Securities Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Interest | $6,052,750 |
| Dividends from affiliated issuers | 322,861 |
| Other | 1,697 |
| Total investment income | $6,377,308 |
| Expenses | |
| Management fee | $1,984,996 |
| Distribution and/or service fees | 317,649 |
| Shareholder servicing costs | 7,854 |
| Administrative services fee | 65,212 |
| Independent Trustees' compensation | 7,271 |
| Custodian fee | 28,498 |
| Shareholder communications | 7,880 |
| Audit and tax fees | 69,410 |
| Legal fees | 1,591 |
| Miscellaneous | 52,524 |
| Total expenses | $2,542,885 |
| Reduction of expenses by investment adviser | (124,375) |
| Net expenses | $2,418,510 |
| Net investment income (loss) | $3,958,798 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(10,854,600) |
| Affiliated issuers | (958) |
| Futures contracts | (3,033,502) |
| Forward foreign currency exchange contracts | 170,435 |
| Foreign currency | (48) |
| Net realized gain (loss) | $(13,718,673) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(39,244,405) |
| Affiliated issuers | 3,851 |
| Futures contracts | (664,266) |
| Forward foreign currency exchange contracts | (480,797) |
| Translation of assets and liabilities in foreign currencies | 310,364 |
| Net unrealized gain (loss) | $(40,075,253) |
| Net realized and unrealized gain (loss) | $(53,793,926) |
| Change in net assets from operations | $(49,835,128) |
See Notes to Financial Statements
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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $3,958,798 | $5,367,041 |
| Net realized gain (loss) | (13,718,673) | 1,633,434 |
| Net unrealized gain (loss) | (40,075,253) | (15,922,369) |
| Change in net assets from operations | $(49,835,128) | $(8,921,894) |
| Total distributions to shareholders | $(6,872,092) | $(9,420,124) |
| Change in net assets from fund share transactions | $(51,340,602) | $(3,014,218) |
| Total change in net assets | $(108,047,822) | $(21,356,236) |
| Net assets | | |
| At beginning of period | 429,252,481 | 450,608,717 |
| At end of period | $321,204,659 | $429,252,481 |
See Notes to Financial Statements
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 past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $12.34 | $12.86 | $12.45 | $12.04 | $12.39 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.13 | $0.16 | $0.27 | $0.31 | $0.30 |
| Net realized and unrealized gain (loss) | (1.63) | (0.40) | 0.52 | 0.48 | (0.25) |
| Total from investment operations | $(1.50) | $(0.24) | $0.79 | $0.79 | $0.05 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.24) | $(0.28) | $(0.38) | $(0.38) | $(0.40) |
| Net asset value, end of period (x) | $10.60 | $12.34 | $12.86 | $12.45 | $12.04 |
| Total return (%) (k)(r)(s)(x) | (12.26) | (1.89) | 6.38 | 6.53 | 0.47 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.62 | 0.61 | 0.61 | 0.60 | 0.60 |
| Expenses after expense reductions | 0.58 | 0.58 | 0.58 | 0.58 | 0.59 |
| Net investment income (loss) | 1.19 | 1.29 | 2.11 | 2.53 | 2.45 |
| Portfolio turnover | 200 | 314 | 154 | 47 | 35 |
| Net assets at end of period (000 omitted) | $208,332 | $276,951 | $290,413 | $298,414 | $310,387 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $12.27 | $12.79 | $12.38 | $11.96 | $12.31 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.10 | $0.13 | $0.24 | $0.28 | $0.26 |
| Net realized and unrealized gain (loss) | (1.62) | (0.40) | 0.52 | 0.48 | (0.24) |
| Total from investment operations | $(1.52) | $(0.27) | $0.76 | $0.76 | $0.02 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.20) | $(0.25) | $(0.35) | $(0.34) | $(0.37) |
| Net asset value, end of period (x) | $10.55 | $12.27 | $12.79 | $12.38 | $11.96 |
| Total return (%) (k)(r)(s)(x) | (12.45) | (2.14) | 6.12 | 6.35 | 0.17 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.87 | 0.86 | 0.86 | 0.85 | 0.85 |
| Expenses after expense reductions | 0.83 | 0.83 | 0.83 | 0.83 | 0.84 |
| Net investment income (loss) | 0.94 | 1.04 | 1.86 | 2.27 | 2.20 |
| Portfolio turnover | 200 | 314 | 154 | 47 | 35 |
| Net assets at end of period (000 omitted) | $112,873 | $152,301 | $160,196 | $164,201 | $171,938 |
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS Government Securities Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Government Securities Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to
MFS Government Securities Portfolio
Notes to Financial Statements - continued
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 significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts. The following is a summary of the levels used as of December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $119,205,873 | $— | $119,205,873 |
| Municipal Bonds | — | 6,043,822 | — | 6,043,822 |
| U.S. Corporate Bonds | — | 2,236,990 | — | 2,236,990 |
| Residential Mortgage-Backed Securities | — | 165,698,118 | — | 165,698,118 |
| Commercial Mortgage-Backed Securities | — | 11,458,803 | — | 11,458,803 |
| Asset-Backed Securities (including CDOs) | — | 7,243,079 | — | 7,243,079 |
| Mutual Funds | 15,359,601 | — | — | 15,359,601 |
| Total | $15,359,601 | $311,886,685 | $— | $327,246,286 |
| Other Financial Instruments | | | | |
| Futures Contracts – Assets | $49,224 | $— | $— | $49,224 |
| Futures Contracts – Liabilities | (391,628) | — | — | (391,628) |
For further information regarding security characteristics, see the Portfolio of Investments.
Inflation-Adjusted Debt Securities — The fund invests in inflation-adjusted debt securities issued by the U.S. Treasury. The principal value of these debt securities is adjusted through income according to changes in the Consumer Price Index. These debt securities typically pay a fixed rate of interest, but this fixed rate is applied to the inflation-adjusted principal amount. The principal paid at maturity of the debt security is typically equal to the inflation-adjusted principal amount, or the security’s original par value, whichever is greater. Other types of inflation-adjusted securities may use other methods to adjust for other measures of inflation.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were futures contracts and forward foreign currency exchange contracts . Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at December 31, 2022 as reported in the Statement of Assets and Liabilities:
MFS Government Securities Portfolio
Notes to Financial Statements - continued
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Futures Contracts | $49,224 | $(391,628) |
(a) Values presented in this table for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is reported separately within the Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $(3,033,502) | $— |
| Foreign Exchange | — | 170,435 |
| Total | $(3,033,502) | $170,435 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $(664,266) | $— |
| Foreign Exchange | — | (480,797) |
| Total | $(664,266) | $(480,797) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
MFS Government Securities Portfolio
Notes to Financial Statements - continued
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund's maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Stripped Mortgage-Backed Securities — The fund may invest in stripped mortgage-backed securities which are typically issued by the U.S. Government, its agencies and instrumentalities. Stripped mortgage-backed securities result when a mortgaged-backed security is stripped into two distinct classes, one which receives the principal cash flows only (POs) and one which receives the interest cash flows only (IOs) on a pool of mortgage assets. A faster than anticipated rate of prepayments on the underlying pool of mortgage assets, which is more likely to occur in a declining interest rate environment, increases the risk of loss on the IO.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Some securities may be purchased or sold on an extended settlement basis, which means that the receipt or delivery of the securities by the fund and related payments occur at a future date, usually beyond the customary settlement period. Interest income is recorded on the accrual basis.
All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be
MFS Government Securities Portfolio
Notes to Financial Statements - continued
difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
The fund may purchase or sell mortgage-backed securities on a “To Be Announced” (TBA) basis. A TBA transaction is subject to extended settlement and typically does not designate the actual security to be delivered, but instead includes an approximate principal amount. The price of the TBA security and the date that it will be settled are fixed at the time the transaction is negotiated. The value of the security varies with market fluctuations and no interest accrues to the fund until settlement takes place. TBA purchase and sale commitments are held at carrying amount, which approximates fair value and are categorized as level 2 within the fair value hierarchy and included in TBA purchase and TBA sale commitments in the Statement of Assets and Liabilities. Losses may arise as a result of changes in the value of the TBA investment prior to settlement date or due to counterparty non-performance.
The fund may also enter into mortgage dollar rolls, typically TBA dollar rolls, in which the fund sells TBA mortgage-backed securities to financial institutions and simultaneously agrees to repurchase similar (same issuer, type and coupon) securities at a later date at an agreed-upon price. During the period between the sale and repurchase, the fund will not be entitled to receive interest and principal payments on the securities sold. The fund accounts for dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. Dollar roll transactions involve the risk that the market value of the securities that the fund is required to purchase may decline below the agreed upon repurchase price of those securities.
To mitigate the counterparty credit risk on TBA transactions, mortgage dollar rolls, and other types of forward settling mortgage-backed and asset-backed security transactions, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the MSFTA could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
For mortgage-backed and asset-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund's collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to amortization and accretion of debt securities, wash sale loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $6,872,092 | $9,420,124 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
MFS Government Securities Portfolio
Notes to Financial Statements - continued
| As of 12/31/22 | |
| Cost of investments | $355,739,686 |
| Gross appreciation | 394,036 |
| Gross depreciation | (29,229,840) |
| Net unrealized appreciation (depreciation) | $(28,835,804) |
| Undistributed ordinary income | 4,380,430 |
| Capital loss carryforwards | (39,104,050) |
| Total distributable earnings (loss) | $(63,559,424) |
As of December 31, 2022, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(15,429,517) |
| Long-Term | (23,674,533) |
| Total | $(39,104,050) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| Initial Class | $4,703,417 | | $6,321,329 |
| Service Class | 2,168,675 | | 3,098,795 |
| Total | $6,872,092 | | $9,420,124 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.55% |
| In excess of $1 billion | 0.50% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $50,179, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.54% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.58% of average daily net assets for the Initial Class shares and 0.83% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this reduction amounted to $74,196, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
MFS Government Securities Portfolio
Notes to Financial Statements - 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 year ended December 31, 2022, the fee was $7,372, which equated to 0.0020% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $482.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0181% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
During the year ended December 31, 2022, pursuant to a policy adopted by the Board of Trustees and designed to comply with Rule 17a-7 under the Investment Company Act of 1940 (the “Act”), the fund engaged in sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) which amounted to $869,528. The sales transactions resulted in net realized gains (losses) of $(38,518).
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than short-term obligations, were as follows:
| | Purchases | Sales |
| U.S. Government securities | $707,313,186 | $741,748,000 |
| Non-U.S. Government securities | 1,788,342 | 13,506,218 |
(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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 357,915 | $3,946,483 | | 1,560,415 | $19,830,990 |
| Service Class | 435,133 | 4,773,024 | | 1,405,435 | 17,566,861 |
| | 793,048 | $8,719,507 | | 2,965,850 | $37,397,851 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 426,420 | $4,703,417 | | 508,145 | $6,321,329 |
| Service Class | 197,511 | 2,168,675 | | 250,307 | 3,098,795 |
| | 623,931 | $6,872,092 | | 758,452 | $9,420,124 |
MFS Government Securities Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares reacquired | | | | | |
| Initial Class | (3,568,112) | $(40,477,052) | | (2,207,397) | $(27,733,951) |
| Service Class | (2,340,014) | (26,455,149) | | (1,768,881) | (22,098,242) |
| | (5,908,126) | $(66,932,201) | | (3,976,278) | $(49,832,193) |
| Net change | | | | | |
| Initial Class | (2,783,777) | $(31,827,152) | | (138,837) | $(1,581,632) |
| Service Class | (1,707,370) | (19,513,450) | | (113,139) | (1,432,586) |
| | (4,491,147) | $(51,340,602) | | (251,976) | $(3,014,218) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio and the MFS Conservative Allocation Portfolio were the owners of record of approximately 31% and 9%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $1,803 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $102,834,176 | $215,224,164 | $302,701,632 | $(958) | $3,851 | $15,359,601 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $322,861 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as
MFS Government Securities Portfolio
Notes to Financial Statements - continued
borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
MFS Government Securities Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Government Securities Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Government Securities Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Government Securities Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS Government Securities Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS Government Securities Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Geoffrey Schechter
Jake Stone | |
MFS Government Securities Portfolio
Board Review of Investment Advisory Agreement
MFS Government Securities Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 2nd quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund's Initial Class shares was in the 3rd quintile for each of the one- and three-year periods ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Government Securities Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS Government Securities Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® High Yield Portfolio
MFS® Variable Insurance Trust II
MFS® High Yield Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
Portfolio structure (i)
Top five industries (i)
| Cable TV | 8.3% |
| Medical & Health Technology & Services | 6.6% |
| Gaming & Lodging | 5.6% |
| Midstream | 5.2% |
| Building | 4.4% |
Composition including fixed income credit quality (a)(i)
| BBB | 2.8% |
| BB | 46.5% |
| B | 36.3% |
| CCC | 13.2% |
| C (o) | 0.0% |
| Not Rated | (0.9)% |
| Non-Fixed Income | 0.3% |
| Cash & Cash Equivalents | 0.8% |
| Other | 1.0% |
Portfolio facts
| Average Duration (d) | 4.1 |
| Average Effective Maturity (m) | 5.6 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. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. Not Rated includes fixed income securities and fixed income derivatives that have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives), ETFs, and/or commodity-linked derivatives. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. The Average Duration calculation reflects the impact of the equivalent exposure of derivative positions, if any. |
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS High Yield Portfolio (fund) provided a total return of -10.51%, while Service Class shares of the fund provided a total return of -10.78%. These compare with a return of -11.18% over the same period for the fund’s benchmark, the Bloomberg U.S. Corporate High-Yield 2% Issuer Capped Index.
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Contributors to Performance
During the reporting period, favorable security selection within “B”, “BB” and “CCC” rated(r) bonds contributed to the fund’s performance relative to the Bloomberg U.S. Corporate High-Yield 2% Issuer Capped Index. From a sector perspective, security selection within the consumer non-cyclical, communications and technology sectors also benefited relative returns. Additionally, the fund’s underweight allocation to the communications sector, and overweight allocation to the capital goods sector, strengthened relative performance.
The fund's top relative contributors for the reporting period included its overweight holdings of petroleum refiner PBF Holdings (energy) and technology, research, clearing and compliance services provider LPL Financial Holdings (Brokerage).
Detractors from Performance
The fund’s underweight exposure to “BB” rated bonds, coupled with its underweight allocation to the strong-performing energy sector, weakened relative performance.
Top relative detractors for the reporting period included the fund’s overweight holdings of dialysis services provider US Renal Care(h) (Consumer Non-Cyclical) and aftermarket wheels, performance tires and accessories distributor Wheel Pros(h) (Consumer Cyclicals).
Respectfully,
Portfolio Manager(s)
David Cole and Michael Skatrud
| (r) | Securities rated “BBB”, “Baa”, or higher are considered investment grade; securities rated “BB”, “Ba”, or below are considered non-investment grade. Ratings are assigned to underlying securities utilizing ratings from Moody's, Fitch, and Standard & Poor's 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 |
Management Review - continued
lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). For securities that are not rated by any of the rating agencies, the security is considered Not Rated.
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 6/12/85 | (10.51)% | 1.60% | 3.26% |
| Service Class | 8/24/01 | (10.78)% | 1.32% | 2.98% |
Comparative benchmark(s)
| Bloomberg U.S. Corporate High-Yield 2% Issuer Capped Index (f) | (11.18)% | 2.30% | 4.03% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Bloomberg U.S. Corporate High-Yield 2% Issuer Capped Index(a) – a component of the Bloomberg U.S. Corporate High-Yield Bond Index, which measures performance of non-investment grade, fixed rate debt. The index limits the maximum exposure to any one issuer to 2%.
It is not possible to invest directly in an index.
| (a) | Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
Performance Summary – continued
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.72% | $1,000.00 | $1,039.97 | $3.70 |
| Hypothetical (h) | 0.72% | $1,000.00 | $1,021.58 | $3.67 |
| Service Class | Actual | 0.97% | $1,000.00 | $1,037.12 | $4.98 |
| Hypothetical (h) | 0.97% | $1,000.00 | $1,020.32 | $4.94 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Bonds – 97.3% |
| Aerospace & Defense – 2.4% |
| Bombardier, Inc., 7.5%, 3/15/2025 (n) | | $ | 440,000 | $ 435,738 |
| Bombardier, Inc., 7.125%, 6/15/2026 (n) | | | 547,000 | 530,707 |
| F-Brasile S.p.A./F-Brasile U.S. LLC, 7.375%, 8/15/2026 (n) | | | 1,070,000 | 874,725 |
| Moog, Inc., 4.25%, 12/15/2027 (n) | | | 1,336,000 | 1,235,800 |
| TransDigm, Inc., 6.25%, 3/15/2026 (n) | | | 900,000 | 887,571 |
| TransDigm, Inc., 6.375%, 6/15/2026 | | | 875,000 | 851,336 |
| TransDigm, Inc., 5.5%, 11/15/2027 | | | 725,000 | 680,811 |
| TransDigm, Inc., 4.625%, 1/15/2029 | | | 614,000 | 539,872 |
| | | | | $6,036,560 |
| Asset-Backed & Securitized – 0.0% |
| COBALT CMBS Commercial Mortgage Trust, 2006-2A, “F”, CDO, FLR, 0%, (0% cash or 2.291% PIK), (LIBOR - 3mo. + 1.3%), 4/26/2050 (a)(n)(p) | | $ | 1,320,157 | $ 132 |
| Automotive – 2.4% |
| Clarios Global LP/Clarios U.S. Finance Co., 8.5%, 5/15/2027 (n) | | $ | 1,060,000 | $ 1,035,086 |
| Dana, Inc., 5.375%, 11/15/2027 | | | 706,000 | 654,897 |
| Dana, Inc., 4.25%, 9/01/2030 | | | 480,000 | 386,698 |
| Dornoch Debt Merger Sub, Inc., 6.625%, 10/15/2029 (n) | | | 934,000 | 655,253 |
| Ford Motor Co., 5.113%, 5/03/2029 | | | 1,220,000 | 1,104,765 |
| Ford Motor Credit Co. LLC, 4.134%, 8/04/2025 | | | 1,950,000 | 1,825,181 |
| Real Hero Merger Sub 2, Inc., 6.25%, 2/01/2029 (n) | | | 700,000 | 479,850 |
| | | | | $6,141,730 |
| Broadcasting – 2.5% |
| Advantage Sales & Marketing, Inc., 6.5%, 11/15/2028 (n) | | $ | 785,000 | $ 598,445 |
| Gray Escrow II, Inc., 5.375%, 11/15/2031 (n) | | | 1,697,000 | 1,222,943 |
| iHeartCommunications, Inc., 8.375%, 5/01/2027 | | | 1,040,000 | 884,445 |
| Scripps Escrow II, Inc., 5.875%, 7/15/2027 (n) | | | 829,000 | 739,882 |
| Summer (BC) Bidco B LLC, 5.5%, 10/31/2026 (n) | | | 810,000 | 657,266 |
| Summer (BC) Holdco S.à r.l., “A”, 9.25%, 10/31/2027 | | EUR | 297,347 | 239,848 |
| Univision Communications, Inc., 4.5%, 5/01/2029 (n) | | $ | 675,000 | 564,476 |
| WMG Acquisition Corp., 3.875%, 7/15/2030 (n) | | | 1,560,000 | 1,343,705 |
| | | | | $6,251,010 |
| Brokerage & Asset Managers – 2.0% |
| AG TTMT Escrow Issuer LLC, 8.625%, 9/30/2027 (n) | | $ | 925,000 | $ 929,625 |
| Aretec Escrow Issuer, Inc., 7.5%, 4/01/2029 (n) | | | 865,000 | 713,827 |
| LPL Holdings, Inc., 4.625%, 11/15/2027 (n) | | | 1,145,000 | 1,069,523 |
| LPL Holdings, Inc., 4%, 3/15/2029 (n) | | | 742,000 | 645,614 |
| LPL Holdings, Inc., 4.375%, 5/15/2031 (n) | | | 345,000 | 293,301 |
| NFP Corp., 4.875%, 8/15/2028 (n) | | | 815,000 | 693,806 |
| NFP Corp., 6.875%, 8/15/2028 (n) | | | 881,000 | 726,190 |
| | | | | $5,071,886 |
| Building – 4.3% |
| ABC Supply Co., Inc., 4%, 1/15/2028 (n) | | $ | 1,830,000 | $ 1,632,726 |
| Foundation Building Materials LLC, 6%, 3/01/2029 (n) | | | 784,000 | 586,984 |
| GYP Holding III Corp., 4.625%, 5/01/2029 (n) | | | 1,300,000 | 1,061,408 |
| Interface, Inc., 5.5%, 12/01/2028 (n) | | | 1,340,000 | 1,106,427 |
| MIWD Holdco II LLC/MIWD Finance Co., 5.5%, 2/01/2030 (n) | | | 670,000 | 533,421 |
| New Enterprise Stone & Lime Co., Inc., 9.75%, 7/15/2028 (n) | | | 799,000 | 738,228 |
| Patrick Industries, Inc., 7.5%, 10/15/2027 (n) | | | 1,110,000 | 1,076,732 |
| SRM Escrow Issuer LLC, 6%, 11/01/2028 (n) | | | 745,000 | 666,551 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Building – continued |
| SRS Distribution, Inc., 6.125%, 7/01/2029 (n) | | $ | 925,000 | $ 747,881 |
| Standard Industries, Inc., 2.25%, 11/21/2026 | | EUR | 235,000 | 213,824 |
| Standard Industries, Inc., 4.75%, 1/15/2028 (n) | | $ | 698,000 | 628,123 |
| Standard Industries, Inc., 4.375%, 7/15/2030 (n) | | | 1,227,000 | 999,912 |
| Standard Industries, Inc., 3.375%, 1/15/2031 (n) | | | 240,000 | 180,601 |
| White Cap Buyer LLC, 6.875%, 10/15/2028 (n) | | | 835,000 | 722,282 |
| | | | | $10,895,100 |
| Business Services – 1.3% |
| Entegris Escrow Corp., 5.95%, 6/15/2030 (n) | | $ | 418,000 | $ 385,480 |
| HealthEquity, Inc., 4.5%, 10/01/2029 (n) | | | 845,000 | 738,445 |
| Iron Mountain, Inc., 4.875%, 9/15/2027 (n) | | | 760,000 | 698,896 |
| Iron Mountain, Inc., 5.25%, 3/15/2028 (n) | | | 515,000 | 473,733 |
| Verscend Escrow Corp., 9.75%, 8/15/2026 (n) | | | 930,000 | 911,130 |
| | | | | $3,207,684 |
| Cable TV – 8.0% |
| Cable One, Inc., 4%, 11/15/2030 (n) | | $ | 911,000 | $ 714,876 |
| CCO Holdings LLC/CCO Holdings Capital Corp., 5.125%, 5/01/2027 (n) | | | 665,000 | 619,827 |
| CCO Holdings LLC/CCO Holdings Capital Corp., 4.75%, 3/01/2030 (n) | | | 2,810,000 | 2,423,386 |
| CCO Holdings LLC/CCO Holdings Capital Corp., 4.5%, 8/15/2030 (n) | | | 1,375,000 | 1,135,963 |
| CCO Holdings LLC/CCO Holdings Capital Corp., 4.25%, 2/01/2031 (n) | | | 760,000 | 609,607 |
| CCO Holdings LLC/CCO Holdings Capital Corp., 4.25%, 1/15/2034 (n) | | | 760,000 | 560,914 |
| CSC Holdings LLC, 5.375%, 2/01/2028 (n) | | | 650,000 | 524,062 |
| CSC Holdings LLC, 5.75%, 1/15/2030 (n) | | | 1,395,000 | 786,766 |
| CSC Holdings LLC, 4.125%, 12/01/2030 (n) | | | 840,000 | 592,897 |
| DISH DBS Corp., 7.75%, 7/01/2026 | | | 505,000 | 407,227 |
| DISH DBS Corp., 5.25%, 12/01/2026 (n) | | | 800,000 | 673,868 |
| DISH DBS Corp., 5.125%, 6/01/2029 | | | 675,000 | 435,449 |
| LCPR Senior Secured Financing DAC, 6.75%, 10/15/2027 (n) | | | 1,082,000 | 1,011,670 |
| LCPR Senior Secured Financing DAC, 5.125%, 7/15/2029 (n) | | | 325,000 | 269,233 |
| Sirius XM Holdings, Inc., 3.875%, 9/01/2031 (n) | | | 1,100,000 | 858,186 |
| Sirius XM Radio, Inc., 4%, 7/15/2028 (n) | | | 793,000 | 690,148 |
| Sirius XM Radio, Inc., 5.5%, 7/01/2029 (n) | | | 1,920,000 | 1,752,538 |
| Telenet Finance Luxembourg S.A., 5.5%, 3/01/2028 (n) | | | 1,600,000 | 1,440,000 |
| Videotron Ltd., 5.125%, 4/15/2027 (n) | | | 635,000 | 599,777 |
| Videotron Ltd., 3.625%, 6/15/2029 (n) | | | 391,000 | 329,418 |
| Virgin Media Finance PLC, 5%, 7/15/2030 (n) | | | 1,200,000 | 962,472 |
| Virgin Media Vendor Financing Notes IV DAC, 5%, 7/15/2028 (n) | | | 1,665,000 | 1,455,389 |
| Ziggo Bond Finance B.V., 5.125%, 2/28/2030 (n) | | | 1,715,000 | 1,384,862 |
| | | | | $20,238,535 |
| Chemicals – 2.7% |
| Axalta Coating Systems Ltd., 4.75%, 6/15/2027 (n) | | $ | 834,000 | $ 770,950 |
| Axalta Coating Systems Ltd., 3.375%, 2/15/2029 (n) | | | 1,410,000 | 1,163,483 |
| Consolidated Energy Finance S.A., 5.625%, 10/15/2028 (n) | | | 758,000 | 644,055 |
| Element Solutions, Inc., 3.875%, 9/01/2028 (n) | | | 1,262,000 | 1,072,700 |
| Herens Holdco S.à r.l., 4.75%, 5/15/2028 (n) | | | 690,000 | 515,713 |
| Ingevity Corp., 3.875%, 11/01/2028 (n) | | | 1,140,000 | 980,246 |
| LSF11 A5 HoldCo LLC, 6.625%, 10/15/2029 (n) | | | 899,000 | 742,674 |
| S.P.C.M. S.A., 3.375%, 3/15/2030 (n) | | | 1,051,000 | 846,055 |
| | | | | $6,735,876 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Computer Software – 1.3% |
| Camelot Finance S.A., 4.5%, 11/01/2026 (n) | | $ | 600,000 | $ 562,350 |
| Clarivate Science Holdings Corp., 3.875%, 7/01/2028 (n) | | | 245,000 | 212,267 |
| Clarivate Science Holdings Corp., 4.875%, 7/01/2029 (n) | | | 900,000 | 765,315 |
| Dun & Bradstreet Corp., 5%, 12/15/2029 (n) | | | 940,000 | 804,417 |
| Neptune Bidco U.S., Inc., 9.29%, 4/15/2029 (n) | | | 620,000 | 584,350 |
| PTC, Inc., 3.625%, 2/15/2025 (n) | | | 405,000 | 385,735 |
| | | | | $3,314,434 |
| Computer Software - Systems – 2.1% |
| Fair Isaac Corp., 5.25%, 5/15/2026 (n) | | $ | 1,810,000 | $ 1,771,863 |
| Fair Isaac Corp., 4%, 6/15/2028 (n) | | | 250,000 | 226,877 |
| Sabre GLBL, Inc., 11.25%, 12/15/2027 (n) | | | 387,000 | 398,504 |
| SS&C Technologies Holdings, Inc., 5.5%, 9/30/2027 (n) | | | 1,310,000 | 1,226,679 |
| Viavi Solutions, Inc., 3.75%, 10/01/2029 (n) | | | 1,250,000 | 1,050,568 |
| Virtusa Corp., 7.125%, 12/15/2028 (n) | | | 740,000 | 561,910 |
| | | | | $5,236,401 |
| Conglomerates – 3.0% |
| BWX Technologies, Inc., 4.125%, 6/30/2028 (n) | | $ | 663,000 | $ 595,871 |
| BWX Technologies, Inc., 4.125%, 4/15/2029 (n) | | | 1,615,000 | 1,413,443 |
| Chart Industries, Inc., 9.5%, 1/01/2031 (n) | | | 389,000 | 398,962 |
| Gates Global LLC, 6.25%, 1/15/2026 (n) | | | 1,105,000 | 1,066,325 |
| Griffon Corp., 5.75%, 3/01/2028 | | | 999,000 | 914,085 |
| Madison IAQ LLC, 5.875%, 6/30/2029 (n) | | | 1,176,000 | 806,029 |
| Stevens Holding Co., Inc., 6.125%, 10/01/2026 (n) | | | 715,000 | 716,788 |
| TriMas Corp., 4.125%, 4/15/2029 (n) | | | 2,023,000 | 1,765,068 |
| | | | | $7,676,571 |
| Construction – 1.6% |
| Empire Communities Corp., 7%, 12/15/2025 (n) | | $ | 780,000 | $ 705,246 |
| Mattamy Group Corp., 5.25%, 12/15/2027 (n) | | | 510,000 | 452,285 |
| Mattamy Group Corp., 4.625%, 3/01/2030 (n) | | | 705,000 | 571,377 |
| Meritage Homes Corp., 3.875%, 4/15/2029 (n) | | | 835,000 | 708,126 |
| Taylor Morrison Communities, Inc., 5.75%, 1/15/2028 (n) | | | 1,089,000 | 1,019,688 |
| Weekley Homes LLC/Weekley Finance Corp., 4.875%, 9/15/2028 (n) | | | 729,000 | 612,536 |
| | | | | $4,069,258 |
| Consumer Products – 2.2% |
| Energizer Gamma Acquisition B.V., 3.5%, 6/30/2029 | | EUR | 465,000 | $ 395,264 |
| Energizer Holdings, Inc., 4.375%, 3/31/2029 (n) | | $ | 619,000 | 524,944 |
| Mattel, Inc., 3.375%, 4/01/2026 (n) | | | 783,000 | 719,894 |
| Mattel, Inc., 5.875%, 12/15/2027 (n) | | | 431,000 | 422,768 |
| Mattel, Inc., 6.2%, 10/01/2040 | | | 140,000 | 120,843 |
| Mattel, Inc., 5.45%, 11/01/2041 | | | 315,000 | 256,407 |
| Newell Brands, Inc., 6.375%, 9/15/2027 | | | 545,000 | 540,913 |
| Newell Brands, Inc., 6.625%, 9/15/2029 | | | 609,000 | 601,911 |
| Prestige Consumer Healthcare, Inc., 5.125%, 1/15/2028 (n) | | | 845,000 | 793,228 |
| Prestige Consumer Healthcare, Inc., 3.75%, 4/01/2031 (n) | | | 420,000 | 346,361 |
| Spectrum Brands, Inc., 3.875%, 3/15/2031 (n) | | | 620,000 | 482,211 |
| SWF Escrow Issuer Corp., 6.5%, 10/01/2029 (n) | | | 815,000 | 472,252 |
| | | | | $5,676,996 |
| Consumer Services – 3.9% |
| Allied Universal Holdco LLC, 6.625%, 7/15/2026 (n) | | $ | 170,000 | $ 155,550 |
| Allied Universal Holdco LLC, 9.75%, 7/15/2027 (n) | | | 915,000 | 796,050 |
| Allied Universal Holdco LLC, 6%, 6/01/2029 (n) | | | 465,000 | 337,478 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Consumer Services – continued |
| ANGI Group LLC, 3.875%, 8/15/2028 (n) | | $ | 1,184,000 | $ 878,629 |
| Arches Buyer, Inc., 6.125%, 12/01/2028 (n) | | | 1,010,000 | 810,525 |
| GoDaddy, Inc., 3.5%, 3/01/2029 (n) | | | 1,743,000 | 1,459,226 |
| GW B-CR Security Corp., 9.5%, 11/01/2027 (n) | | | 703,000 | 677,071 |
| Match Group Holdings II LLC, 5%, 12/15/2027 (n) | | | 685,000 | 630,200 |
| Match Group Holdings II LLC, 4.625%, 6/01/2028 (n) | | | 1,205,000 | 1,074,209 |
| Match Group Holdings II LLC, 4.125%, 8/01/2030 (n) | | | 365,000 | 297,974 |
| Match Group Holdings II LLC, 3.625%, 10/01/2031 (n) | | | 80,000 | 61,349 |
| Realogy Group LLC/Realogy Co-Issuer Corp., 5.75%, 1/15/2029 (n) | | | 665,000 | 502,999 |
| Realogy Group LLC/Realogy Co-Issuer Corp., 5.25%, 4/15/2030 (n) | | | 675,000 | 492,419 |
| TriNet Group, Inc., 3.5%, 3/01/2029 (n) | | | 1,464,000 | 1,203,701 |
| WASH Multi-Family Acquisition, Inc., 5.75%, 4/15/2026 (n) | | | 611,000 | 575,868 |
| | | | | $9,953,248 |
| Containers – 3.0% |
| ARD Finance S.A., 6.5% (6.5% cash or 7.25% PIK), 6/30/2027 (n)(p) | | $ | 610,000 | $ 424,275 |
| Ardagh Metal Packaging Finance USA LLC, 3.25%, 9/01/2028 (n) | | | 550,000 | 467,195 |
| Ardagh Metal Packaging Finance USA LLC, 4%, 9/01/2029 (n) | | | 950,000 | 752,901 |
| Ardagh Packaging Finance PLC/Ardagh MP Holdings USA, Inc., 5.25%, 8/15/2027 (n) | | | 1,105,000 | 826,255 |
| Ball Corp., 3.125%, 9/15/2031 | | | 825,000 | 662,582 |
| Can-Pack S.A./Eastern PA Land Investment Holding LLC, 3.875%, 11/15/2029 (n) | | | 1,428,000 | 1,125,349 |
| Crown Americas LLC, 5.25%, 4/01/2030 (n) | | | 800,000 | 756,416 |
| Crown Americas LLC/Crown Americas Capital Corp. V, 4.25%, 9/30/2026 | | | 1,315,000 | 1,253,958 |
| Crown Americas LLC/Crown Americas Capital Corp. VI, 4.75%, 2/01/2026 | | | 485,000 | 470,814 |
| Trivium Packaging Finance B.V., 8.5%, 8/15/2027 (n) | | | 835,000 | 766,133 |
| | | | | $7,505,878 |
| Electrical Equipment – 0.3% |
| CommScope Technologies LLC, 5%, 3/15/2027 (n) | | $ | 1,243,000 | $ 844,248 |
| Electronics – 1.8% |
| Entegris, Inc., 4.375%, 4/15/2028 (n) | | $ | 425,000 | $ 375,800 |
| Entegris, Inc., 3.625%, 5/01/2029 (n) | | | 570,000 | 464,122 |
| Sensata Technologies B.V., 5.625%, 11/01/2024 (n) | | | 400,000 | 396,152 |
| Sensata Technologies B.V., 5%, 10/01/2025 (n) | | | 1,365,000 | 1,333,074 |
| Sensata Technologies B.V., 5.875%, 9/01/2030 (n) | | | 580,000 | 549,681 |
| Sensata Technologies, Inc., 4.375%, 2/15/2030 (n) | | | 740,000 | 644,173 |
| Synaptics, Inc., 4%, 6/15/2029 (n) | | | 1,015,000 | 855,187 |
| | | | | $4,618,189 |
| Energy - Independent – 2.7% |
| Antero Resources Corp., 7.625%, 2/01/2029 (n) | | $ | 730,000 | $ 734,020 |
| CNX Resources Corp., 6%, 1/15/2029 (n) | | | 835,000 | 768,320 |
| CNX Resources Corp., 7.375%, 1/15/2031 (n) | | | 179,000 | 171,570 |
| Colgate Energy Partners III LLC, 7.75%, 2/15/2026 (n) | | | 155,000 | 150,356 |
| Colgate Energy Partners III LLC, 5.875%, 7/01/2029 (n) | | | 770,000 | 661,323 |
| Comstock Resources, Inc., 6.75%, 3/01/2029 (n) | | | 1,105,000 | 997,262 |
| CrownRock LP/CrownRock Finance, Inc., “F”, 5%, 5/01/2029 (n) | | | 840,000 | 754,753 |
| Encino Acquisition Partners Holdings LLC, 8.5%, 5/01/2028 (n) | | | 625,000 | 571,244 |
| Moss Creek Resources Holdings, Inc., 7.5%, 1/15/2026 (n) | | | 550,000 | 495,869 |
| SM Energy Co., 6.5%, 7/15/2028 | | | 545,000 | 522,530 |
| Southwestern Energy Co., 5.7%, 1/23/2025 | | | 65,400 | 64,255 |
| Southwestern Energy Co., 8.375%, 9/15/2028 | | | 455,000 | 469,078 |
| Southwestern Energy Co., 5.375%, 3/15/2030 | | | 650,000 | 592,812 |
| | | | | $6,953,392 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Entertainment – 2.2% |
| Carnival Corp. PLC, 7.625%, 3/01/2026 (n) | | $ | 1,379,000 | $ 1,092,988 |
| Carnival Corp. PLC, 5.75%, 3/01/2027 (n) | | | 550,000 | 392,722 |
| Carnival Corp. PLC, 9.875%, 8/01/2027 (n) | | | 270,000 | 255,150 |
| Life Time, Inc., 5.75%, 1/15/2026 (n) | | | 745,000 | 693,223 |
| Life Time, Inc., 8%, 4/15/2026 (n) | | | 245,000 | 220,500 |
| Motion Bondco DAC, 6.625%, 11/15/2027 (n) | | | 855,000 | 734,913 |
| NCL Corp. Ltd., 5.875%, 3/15/2026 (n) | | | 723,000 | 567,895 |
| Royal Caribbean Cruises Ltd., 5.375%, 7/15/2027 (n) | | | 475,000 | 384,608 |
| Royal Caribbean Cruises Ltd., 5.5%, 4/01/2028 (n) | | | 960,000 | 766,123 |
| SeaWorld Parks & Entertainment, 5.25%, 8/15/2029 (n) | | | 670,000 | 583,368 |
| | | | | $5,691,490 |
| Financial Institutions – 3.2% |
| Avation Capital S.A., 8.25% (8.25% cash or 9% PIK), 10/31/2026 (n)(p) | | $ | 653,233 | $ 512,788 |
| Credit Acceptance Corp., 5.125%, 12/31/2024 (n) | | | 935,000 | 878,694 |
| Global Aircraft Leasing Co. Ltd., 6.5% (6.5% cash or 7.25% PIK), 9/15/2024 (n)(p) | | | 2,506,562 | 2,130,578 |
| Howard Hughes Corp., 4.125%, 2/01/2029 (n) | | | 1,188,000 | 994,950 |
| Nationstar Mortgage Holdings, Inc., 6%, 1/15/2027 (n) | | | 1,312,000 | 1,174,240 |
| OneMain Finance Corp., 6.875%, 3/15/2025 | | | 540,000 | 518,764 |
| OneMain Finance Corp., 7.125%, 3/15/2026 | | | 815,000 | 774,967 |
| Rocket Mortgage Co-Issuer, Inc., 3.625%, 3/01/2029 (n) | | | 1,246,000 | 987,378 |
| | | | | $7,972,359 |
| Food & Beverages – 3.3% |
| B&G Foods, Inc., 5.25%, 4/01/2025 | | $ | 620,000 | $ 543,683 |
| B&G Foods, Inc., 5.25%, 9/15/2027 | | | 235,000 | 180,219 |
| BellRing Brands, Inc., 7%, 3/15/2030 (n) | | | 1,020,000 | 981,495 |
| Lamb Weston Holdings, Inc., 4.125%, 1/31/2030 (n) | | | 1,490,000 | 1,315,968 |
| Performance Food Group Co., 5.5%, 10/15/2027 (n) | | | 1,230,000 | 1,160,093 |
| Post Holdings, Inc., 5.625%, 1/15/2028 (n) | | | 854,000 | 803,909 |
| Post Holdings, Inc., 4.625%, 4/15/2030 (n) | | | 1,300,000 | 1,121,562 |
| Primo Water Holding, Inc., 4.375%, 4/30/2029 (n) | | | 1,314,000 | 1,134,759 |
| U.S. Foods Holding Corp., 4.75%, 2/15/2029 (n) | | | 1,205,000 | 1,069,943 |
| | | | | $8,311,631 |
| Gaming & Lodging – 5.5% |
| Boyd Gaming Corp., 4.75%, 12/01/2027 | | $ | 470,000 | $ 437,749 |
| Boyd Gaming Corp., 4.75%, 6/15/2031 (n) | | | 405,000 | 352,350 |
| Caesars Entertainment, Inc., 4.625%, 10/15/2029 (n) | | | 560,000 | 455,734 |
| Caesars Resort Collection LLC/CRC Finco, Inc., 8.125%, 7/01/2027 (n) | | | 917,000 | 900,998 |
| CCM Merger, Inc., 6.375%, 5/01/2026 (n) | | | 832,000 | 784,010 |
| Hilton Domestic Operating Co., Inc., 3.75%, 5/01/2029 (n) | | | 1,200,000 | 1,038,000 |
| Hilton Domestic Operating Co., Inc., 3.625%, 2/15/2032 (n) | | | 1,140,000 | 912,912 |
| International Game Technology PLC, 4.125%, 4/15/2026 (n) | | | 1,305,000 | 1,217,114 |
| International Game Technology PLC, 6.25%, 1/15/2027 (n) | | | 330,000 | 327,525 |
| Marriott Ownership Resorts, Inc., 4.5%, 6/15/2029 (n) | | | 495,000 | 410,665 |
| Sands China Ltd., 4.3%, 1/08/2026 | | | 770,000 | 710,549 |
| Sands China Ltd., 4.875%, 6/18/2030 | | | 685,000 | 601,964 |
| Scientific Games Holdings LP/Scientific Games US Finco, Inc., 6.625%, 3/01/2030 (n) | | | 797,000 | 673,226 |
| VICI Properties LP / VICI Note Co., Inc., 4.25%, 12/01/2026 (n) | | | 800,000 | 746,339 |
| VICI Properties LP / VICI Note Co., Inc., 5.75%, 2/01/2027 (n) | | | 415,000 | 404,526 |
| VICI Properties LP / VICI Note Co., Inc., 3.875%, 2/15/2029 (n) | | | 474,000 | 415,430 |
| VICI Properties LP, REIT, 3.75%, 2/15/2027 (n) | | | 925,000 | 839,664 |
| Wyndham Hotels & Resorts, Inc., 4.375%, 8/15/2028 (n) | | | 1,145,000 | 1,027,294 |
| Wynn Macau Ltd., 5.5%, 1/15/2026 (n) | | | 375,000 | 344,002 |
| Wynn Macau Ltd., 5.625%, 8/26/2028 (n) | | | 493,000 | 421,066 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Gaming & Lodging – continued |
| Wynn Resorts Finance LLC/Wynn Resorts Capital Corp., 5.125%, 10/01/2029 (n) | | $ | 1,105,000 | $ 947,129 |
| | | | | $13,968,246 |
| Industrial – 1.2% |
| Albion Financing 1 S.à r.l., 6.125%, 10/15/2026 (n) | | $ | 400,000 | $ 356,724 |
| Albion Financing 2 S.à r.l., 8.75%, 4/15/2027 (n) | | | 540,000 | 459,833 |
| APi Escrow Corp., 4.75%, 10/15/2029 (n) | | | 1,345,000 | 1,165,921 |
| Williams Scotsman International, Inc., 4.625%, 8/15/2028 (n) | | | 1,206,000 | 1,088,415 |
| | | | | $3,070,893 |
| Insurance - Property & Casualty – 1.2% |
| Alliant Holdings Intermediate LLC, 6.75%, 10/15/2027 (n) | | $ | 385,000 | $ 346,061 |
| AssuredPartners, Inc., 5.625%, 1/15/2029 (n) | | | 740,000 | 609,046 |
| GTCR (AP) Finance, Inc., 8%, 5/15/2027 (n) | | | 350,000 | 335,258 |
| Hub International Ltd., 5.625%, 12/01/2029 (n) | | | 1,585,000 | 1,384,311 |
| Ryan Specialty Group, 4.375%, 2/01/2030 (n) | | | 486,000 | 420,825 |
| | | | | $3,095,501 |
| Machinery & Tools – 0.5% |
| Terex Corp., 5%, 5/15/2029 (n) | | $ | 1,265,000 | $ 1,136,919 |
| Major Banks – 0.3% |
| Toronto Dominion Bank, 8.125% to 10/31/2027, FLR (CMT - 5yr. + 4.075%) to 10/31/2082 | | $ | 780,000 | $ 811,200 |
| Medical & Health Technology & Services – 6.5% |
| 180 Medical, Inc., 3.875%, 10/15/2029 (n) | | $ | 1,120,000 | $ 962,864 |
| Avantor Funding, Inc., 4.625%, 7/15/2028 (n) | | | 1,300,000 | 1,181,232 |
| Catalent Pharma Solutions, Inc., 2.375%, 3/01/2028 | | EUR | 310,000 | 268,313 |
| Catalent, Inc., 3.125%, 2/15/2029 (n) | | $ | 2,174,000 | 1,730,993 |
| Charles River Laboratories International, Inc., 3.75%, 3/15/2029 (n) | | | 1,836,000 | 1,623,758 |
| CHS/Community Health Systems, Inc., 8%, 12/15/2027 (n) | | | 630,000 | 570,205 |
| CHS/Community Health Systems, Inc., 6.125%, 4/01/2030 (n) | | | 1,435,000 | 710,581 |
| CHS/Community Health Systems, Inc., 5.25%, 5/15/2030 (n) | | | 560,000 | 422,261 |
| DaVita, Inc., 4.625%, 6/01/2030 (n) | | | 1,070,000 | 860,737 |
| Encompass Health Corp., 5.75%, 9/15/2025 | | | 490,000 | 482,438 |
| Encompass Health Corp., 4.75%, 2/01/2030 | | | 810,000 | 711,295 |
| Encompass Health Corp., 4.625%, 4/01/2031 | | | 155,000 | 133,225 |
| IQVIA Holdings, Inc., 5%, 10/15/2026 (n) | | | 580,000 | 553,812 |
| IQVIA Holdings, Inc., 5%, 5/15/2027 (n) | | | 1,310,000 | 1,248,823 |
| Legacy LifePoint Health LLC, 4.375%, 2/15/2027 (n) | | | 380,000 | 321,412 |
| Regional Care/LifePoint Health, Inc., 9.75%, 12/01/2026 (n) | | | 675,000 | 543,179 |
| Syneos Health, Inc., 3.625%, 1/15/2029 (n) | | | 1,501,000 | 1,195,314 |
| Tenet Healthcare Corp., 6.125%, 10/01/2028 (n) | | | 1,731,000 | 1,549,799 |
| Tenet Healthcare Corp., 4.375%, 1/15/2030 (n) | | | 305,000 | 263,997 |
| Tenet Healthcare Corp., 6.125%, 6/15/2030 (n) | | | 452,000 | 430,666 |
| U.S. Acute Care Solutions LLC, 6.375%, 3/01/2026 (n) | | | 785,000 | 696,627 |
| | | | | $16,461,531 |
| Medical Equipment – 0.9% |
| Garden SpinCo Corp., 8.625%, 7/20/2030 (n) | | $ | 609,000 | $ 645,540 |
| Mozart Debt Merger Sub, Inc., 5.25%, 10/01/2029 (n) | | | 540,000 | 428,906 |
| Teleflex, Inc., 4.625%, 11/15/2027 | | | 1,375,000 | 1,310,499 |
| | | | | $2,384,945 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Metals & Mining – 4.0% |
| Baffinland Iron Mines Corp./Baffinland Iron Mines LP, 8.75%, 7/15/2026 (n) | | $ | 904,000 | $ 856,518 |
| Coeur Mining, Inc., 5.125%, 2/15/2029 (n) | | | 1,098,000 | 856,908 |
| Compass Minerals International, Inc., 6.75%, 12/01/2027 (n) | | | 985,000 | 945,600 |
| Eldorado Gold Corp., 6.25%, 9/01/2029 (n) | | | 730,000 | 638,627 |
| Ero Copper Corp., 6.5%, 2/15/2030 (n) | | | 638,000 | 514,519 |
| FMG Resources Ltd., 4.375%, 4/01/2031 (n) | | | 1,665,000 | 1,384,753 |
| GrafTech Finance, Inc., 4.625%, 12/15/2028 (n) | | | 1,121,000 | 920,591 |
| Kaiser Aluminum Corp., 4.625%, 3/01/2028 (n) | | | 1,197,000 | 1,044,533 |
| Kaiser Aluminum Corp., 4.5%, 6/01/2031 (n) | | | 645,000 | 518,419 |
| Novelis Corp., 3.25%, 11/15/2026 (n) | | | 551,000 | 493,977 |
| Novelis Corp., 4.75%, 1/30/2030 (n) | | | 1,005,000 | 890,998 |
| Novelis Corp., 3.875%, 8/15/2031 (n) | | | 488,000 | 398,399 |
| Petra Diamonds US$ Treasury PLC, 10.5% PIK to 12/31/2022, 10.5% PIK/9.75% Cash to 6/30/2023, 9.75% Cash to 3/08/2026 (n)(p) | | | 494,044 | 484,163 |
| TMS International Corp., 6.25%, 4/15/2029 (n) | | | 240,000 | 171,662 |
| | | | | $10,119,667 |
| Midstream – 5.2% |
| Cheniere Energy Partners LP, 4.5%, 10/01/2029 | | $ | 629,000 | $ 565,610 |
| Cheniere Energy Partners LP, 4%, 3/01/2031 | | | 1,445,000 | 1,230,215 |
| DT Midstream, Inc., 4.125%, 6/15/2029 (n) | | | 826,000 | 709,625 |
| DT Midstream, Inc., 4.375%, 6/15/2031 (n) | | | 1,231,000 | 1,032,686 |
| EnLink Midstream LLC, 6.5%, 9/01/2030 (n) | | | 1,105,000 | 1,093,618 |
| EQM Midstream Partners LP, 6%, 7/01/2025 (n) | | | 92,000 | 88,780 |
| EQM Midstream Partners LP, 6.5%, 7/01/2027 (n) | | | 145,000 | 138,584 |
| EQM Midstream Partners LP, 5.5%, 7/15/2028 | | | 2,175,000 | 1,944,794 |
| EQM Midstream Partners LP, 4.5%, 1/15/2029 (n) | | | 480,000 | 403,165 |
| Kinetik Holdings, Inc., 5.875%, 6/15/2030 (n) | | | 1,011,000 | 948,099 |
| Tallgrass Energy Partners LP, 5.5%, 1/15/2028 (n) | | | 1,425,000 | 1,263,747 |
| Targa Resources Partners LP/Targa Resources Finance Corp., 6.875%, 1/15/2029 | | | 1,035,000 | 1,043,236 |
| Targa Resources Partners LP/Targa Resources Finance Corp., 4.875%, 2/01/2031 | | | 968,000 | 874,056 |
| Venture Global Calcasieu Pass LLC, 3.875%, 8/15/2029 (n) | | | 1,205,000 | 1,054,375 |
| Venture Global Calcasieu Pass LLC, 4.125%, 8/15/2031 (n) | | | 750,000 | 638,996 |
| | | | | $13,029,586 |
| Network & Telecom – 0.4% |
| Iliad Holding S.A.S., 7%, 10/15/2028 (n) | | $ | 1,227,000 | $ 1,108,950 |
| Oil Services – 0.5% |
| Nabors Industries Ltd., 7.25%, 1/15/2026 (n) | | $ | 695,000 | $ 654,968 |
| Solaris Midstream Holding LLC, 7.625%, 4/01/2026 (n) | | | 675,000 | 671,375 |
| | | | | $1,326,343 |
| Oils – 0.7% |
| Parkland Corp., 4.625%, 5/01/2030 (n) | | $ | 1,600,000 | $ 1,324,000 |
| PBF Holding Co. LLC/PBF Finance Corp., 6%, 2/15/2028 | | | 465,000 | 415,013 |
| | | | | $1,739,013 |
| Personal Computers & Peripherals – 0.6% |
| NCR Corp., 5%, 10/01/2028 (n) | | $ | 1,035,000 | $ 882,373 |
| NCR Corp., 5.125%, 4/15/2029 (n) | | | 621,000 | 519,357 |
| | | | | $1,401,730 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Pharmaceuticals – 1.7% |
| 13752090 BC Ltd., 9%, 1/30/2028 (n) | | $ | 361,000 | $ 351,524 |
| Bausch Health Co., Inc., 11%, 9/30/2028 (n) | | | 640,000 | 499,101 |
| Bausch Health Co., Inc., 14%, 10/15/2030 (n) | | | 127,000 | 75,393 |
| Jazz Securities DAC, 4.375%, 1/15/2029 (n) | | | 1,650,000 | 1,470,397 |
| Organon Finance 1 LLC, 4.125%, 4/30/2028 (n) | | | 1,111,000 | 983,679 |
| Organon Finance 1 LLC, 5.125%, 4/30/2031 (n) | | | 1,026,000 | 888,393 |
| | | | | $4,268,487 |
| Pollution Control – 1.0% |
| GFL Environmental, Inc., 4.25%, 6/01/2025 (n) | | $ | 230,000 | $ 219,695 |
| GFL Environmental, Inc., 4%, 8/01/2028 (n) | | | 945,000 | 807,975 |
| GFL Environmental, Inc., 4.75%, 6/15/2029 (n) | | | 330,000 | 288,833 |
| GFL Environmental, Inc., 4.375%, 8/15/2029 (n) | | | 410,000 | 347,454 |
| Stericycle, Inc., 3.875%, 1/15/2029 (n) | | | 968,000 | 844,580 |
| | | | | $2,508,537 |
| Precious Metals & Minerals – 0.5% |
| IAMGOLD Corp., 5.75%, 10/15/2028 (n) | | $ | 830,000 | $ 644,445 |
| Taseko Mines Ltd., 7%, 2/15/2026 (n) | | | 760,000 | 668,298 |
| | | | | $1,312,743 |
| Printing & Publishing – 0.3% |
| Cimpress N.V., 7%, 6/15/2026 (n) | | $ | 1,255,000 | $ 867,582 |
| Real Estate - Healthcare – 0.4% |
| MPT Operating Partnership LP/MPT Finance Corp., REIT, 0.993%, 10/15/2026 | | EUR | 235,000 | $ 190,744 |
| MPT Operating Partnership LP/MPT Finance Corp., REIT, 5%, 10/15/2027 | | $ | 977,000 | 821,198 |
| | | | | $1,011,942 |
| Real Estate - Other – 0.3% |
| XHR LP, REIT, 4.875%, 6/01/2029 (n) | | $ | 1,005,000 | $ 823,222 |
| Restaurants – 0.3% |
| Fertitta Entertainment LLC, 6.75%, 1/15/2030 (n) | | $ | 865,000 | $ 697,709 |
| Retailers – 1.4% |
| Asbury Automotive Group, Inc., 4.625%, 11/15/2029 (n) | | $ | 1,054,000 | $ 888,143 |
| Bath & Body Works, Inc., 5.25%, 2/01/2028 | | | 1,910,000 | 1,773,721 |
| Victoria's Secret & Co., 4.625%, 7/15/2029 (n) | | | 972,000 | 763,117 |
| | | | | $3,424,981 |
| Specialty Chemicals – 0.2% |
| Univar Solutions USA, Inc., 5.125%, 12/01/2027 (n) | | $ | 485,000 | $ 459,950 |
| Specialty Stores – 1.3% |
| Group 1 Automotive, Inc., 4%, 8/15/2028 (n) | | $ | 940,000 | $ 795,645 |
| Michael Cos., Inc., 5.25%, 5/01/2028 (n) | | | 550,000 | 442,492 |
| Michael Cos., Inc., 7.875%, 5/01/2029 (n) | | | 655,000 | 437,650 |
| Penske Automotive Group Co., 3.75%, 6/15/2029 | | | 1,024,000 | 831,123 |
| PetSmart, Inc./PetSmart Finance Corp., 7.75%, 2/15/2029 (n) | | | 775,000 | 727,874 |
| | | | | $3,234,784 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Bonds – continued |
| Supermarkets – 0.6% |
| Albertsons Cos. LLC/Safeway, Inc., 4.625%, 1/15/2027 (n) | | $ | 864,000 | $ 802,543 |
| Albertsons Cos. LLC/Safeway, Inc., 3.5%, 3/15/2029 (n) | | | 820,000 | 687,972 |
| | | | | $1,490,515 |
| Telecommunications - Wireless – 2.1% |
| Altice France S.A., 6%, 2/15/2028 (n) | | $ | 1,235,000 | $ 729,010 |
| SBA Communications Corp., 3.875%, 2/15/2027 | | | 864,000 | 780,636 |
| SBA Communications Corp., 3.125%, 2/01/2029 | | | 1,555,000 | 1,292,967 |
| Sprint Capital Corp., 6.875%, 11/15/2028 | | | 1,470,000 | 1,525,772 |
| Sprint Corp., 7.625%, 3/01/2026 | | | 912,000 | 959,703 |
| | | | | $5,288,088 |
| Tobacco – 0.2% |
| Vector Group Ltd., 5.75%, 2/01/2029 (n) | | $ | 540,000 | $ 468,212 |
| Utilities - Electric Power – 3.3% |
| Calpine Corp., 4.5%, 2/15/2028 (n) | | $ | 1,240,000 | $ 1,106,053 |
| Calpine Corp., 5.125%, 3/15/2028 (n) | | | 1,205,000 | 1,075,213 |
| Clearway Energy Operating LLC, 4.75%, 3/15/2028 (n) | | | 655,000 | 604,530 |
| Clearway Energy Operating LLC, 3.75%, 2/15/2031 (n) | | | 1,755,000 | 1,457,087 |
| NextEra Energy, Inc., 4.25%, 7/15/2024 (n) | | | 529,000 | 513,131 |
| NextEra Energy, Inc., 4.25%, 9/15/2024 (n) | | | 146,000 | 135,736 |
| NextEra Energy, Inc., 4.5%, 9/15/2027 (n) | | | 815,000 | 747,573 |
| TerraForm Global Operating LLC, 6.125%, 3/01/2026 (n) | | | 850,000 | 796,875 |
| TerraForm Power Operating LLC, 5%, 1/31/2028 (n) | | | 1,585,000 | 1,426,484 |
| TerraForm Power Operating LLC, 4.75%, 1/15/2030 (n) | | | 480,000 | 417,599 |
| | | | | $8,280,281 |
| Total Bonds (Identified Cost, $283,158,731) | | $246,194,165 |
| Common Stocks – 0.3% |
| Cable TV – 0.1% | |
| Intelsat Emergence S.A. (a) | | 10,678 | $ 234,916 |
| Construction – 0.1% | |
| ICA Tenedora, S.A. de C.V. (a)(u) | | 147,380 | $ 128,574 |
| Oil Services – 0.1% | |
| LTRI Holdings LP (a)(u) | | 1,115 | $ 373,570 |
| Total Common Stocks (Identified Cost, $1,383,335) | | $737,060 |
| Contingent Value Rights – 0.0% |
| Cable TV – 0.0% |
| Intelsat Jackson Holdings S.A. - Series A, 12/05/2025 (a) | | | 1,117 | $ 7,260 |
| Intelsat Jackson Holdings S.A. - Series B, 12/05/2025 (a) | | | 1,117 | 6,423 |
| Total Contingent Value Rights (Identified Cost, $0) | | $13,683 |
Portfolio of Investments – continued
| Issuer | Strike
Price | First
Exercise | Shares/Par | Value ($) |
| Warrants – 0.0% | | | | |
| Other Banks & Diversified Financials – 0.0% |
| Avation Capital S.A. (1 share for 1 warrant, Expiration 10/31/26) (a) (Identified Cost, $0) | GBP 1.14 | 3/16/21 | 11,113 | $ 2,687 |
| | | | | |
| Investment Companies (h) – 0.9% |
| Money Market Funds – 0.9% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $2,221,717) | | | 2,221,859 | $ 2,222,525 |
| Other Assets, Less Liabilities – 1.5% | | 3,865,622 |
| Net Assets – 100.0% | $253,035,742 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $2,222,525 and $246,947,595, respectively. | | | |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $209,370,707, representing 82.7% of net assets. | | | |
| (p) | Payment-in-kind (PIK) security for which interest income may be received in additional securities and/or cash. | | | |
| (u) | The security was valued using significant unobservable inputs and is considered level 3 under the fair value hierarchy. For further information about the fund’s level 3 holdings, please see Note 2 in the Notes to Financial Statements. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| CDO | Collateralized Debt Obligation |
| CMT | Constant Maturity Treasury |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
| LIBOR | London Interbank Offered Rate |
| 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: |
| EUR | Euro |
| GBP | British Pound |
| Derivative Contracts at 12/31/22 |
| Forward Foreign Currency Exchange Contracts |
Currency
Purchased | Currency
Sold | Counterparty | Settlement
Date | Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| GBP | 66,094 | USD | 74,184 | State Street Bank Corp. | 1/20/2023 | $5,754 |
| Liability Derivatives |
| USD | 177,904 | EUR | 178,135 | Brown Brothers Harriman | 1/20/2023 | $(12,986) |
| USD | 756,381 | EUR | 763,319 | HSBC Bank | 1/20/2023 | (61,595) |
| USD | 400,163 | EUR | 395,678 | State Street Bank Corp. | 1/20/2023 | (23,849) |
| | | | | | | $(98,430) |
Portfolio of Investments – continued
| Futures Contracts |
| Description | Long/
Short | Currency | Contracts | Notional
Amount | Expiration
Date | Value/Unrealized
Appreciation
(Depreciation) |
| Asset Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Note 10 yr | Short | USD | 41 | $4,604,172 | March – 2023 | $31,211 |
| Liability Derivatives |
| Interest Rate Futures | | |
| U.S. Treasury Bond | Long | USD | 14 | $1,754,813 | March – 2023 | $(16,458) |
| U.S. Treasury Ultra Bond | Long | USD | 2 | 268,625 | March – 2023 | (2,742) |
| | | | | | | $(19,200) |
At December 31, 2022, the fund had cash collateral of $43,530 to cover any collateral or margin obligations for certain derivative contracts. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised of cash collateral.
See Notes to Financial Statements
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $284,542,066) | $246,947,595 |
| Investments in affiliated issuers, at value (identified cost, $2,221,717) | 2,222,525 |
| Cash | 8,065 |
| Deposits with brokers for | |
| Futures contracts | 43,530 |
| Receivables for | |
| Forward foreign currency exchange contracts | 5,754 |
| Net daily variation margin on open futures contracts | 2,594 |
| Fund shares sold | 1,639 |
| Interest | 4,233,810 |
| Receivable from investment adviser | 2,952 |
| Other assets | 1,724 |
| Total assets | $253,470,188 |
| Liabilities | |
| Payables for | |
| Forward foreign currency exchange contracts | $98,430 |
| Fund shares reacquired | 213,748 |
| Payable to affiliates | |
| Administrative services fee | 374 |
| Shareholder servicing costs | 43 |
| Distribution and/or service fees | 588 |
| Accrued expenses and other liabilities | 121,263 |
| Total liabilities | $434,446 |
| Net assets | $253,035,742 |
| Net assets consist of | |
| Paid-in capital | $326,961,380 |
| Total distributable earnings (loss) | (73,925,638) |
| Net assets | $253,035,742 |
| Shares of beneficial interest outstanding | 53,732,609 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $224,472,307 | 47,595,931 | $4.72 |
| Service Class | 28,563,435 | 6,136,678 | 4.65 |
See Notes to Financial Statements
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Interest | $15,151,084 |
| Dividends from affiliated issuers | 87,539 |
| Other | 11,629 |
| Income on securities loaned | 39 |
| Total investment income | $15,250,291 |
| Expenses | |
| Management fee | $1,978,819 |
| Distribution and/or service fees | 80,788 |
| Shareholder servicing costs | 11,618 |
| Administrative services fee | 53,199 |
| Independent Trustees' compensation | 6,198 |
| Custodian fee | 21,410 |
| Shareholder communications | 35,643 |
| Audit and tax fees | 87,187 |
| Legal fees | 1,514 |
| Miscellaneous | 39,178 |
| Total expenses | $2,315,554 |
| Reduction of expenses by investment adviser | (198,989) |
| Net expenses | $2,116,565 |
| Net investment income (loss) | $13,133,726 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(7,520,016) |
| Affiliated issuers | (488) |
| Futures contracts | 129,447 |
| Forward foreign currency exchange contracts | 39,928 |
| Foreign currency | 24,997 |
| Net realized gain (loss) | $(7,326,132) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(40,302,109) |
| Affiliated issuers | 808 |
| Futures contracts | 34,835 |
| Forward foreign currency exchange contracts | (98,845) |
| Translation of assets and liabilities in foreign currencies | 1,093 |
| Net unrealized gain (loss) | $(40,364,218) |
| Net realized and unrealized gain (loss) | $(47,690,350) |
| Change in net assets from operations | $(34,556,624) |
See Notes to Financial Statements
| 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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $13,133,726 | $14,093,588 |
| Net realized gain (loss) | (7,326,132) | 6,154,664 |
| Net unrealized gain (loss) | (40,364,218) | (8,806,930) |
| Change in net assets from operations | $(34,556,624) | $11,441,322 |
| Total distributions to shareholders | $(15,313,201) | $(16,802,373) |
| Change in net assets from fund share transactions | $(33,984,248) | $(9,041,399) |
| Total change in net assets | $(83,854,073) | $(14,402,450) |
| Net assets | | |
| At beginning of period | 336,889,815 | 351,292,265 |
| At end of period | $253,035,742 | $336,889,815 |
See Notes to Financial Statements
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $5.59 | $5.68 | $5.72 | $5.28 | $5.77 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.23 | $0.23 | $0.25 | $0.27 | $0.28 |
| Net realized and unrealized gain (loss) | (0.81) | (0.03) | 0.03(g) | 0.50 | (0.45) |
| Total from investment operations | $(0.58) | $0.20 | $0.28 | $0.77 | $(0.17) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.29) | $(0.29) | $(0.32) | $(0.33) | $(0.32) |
| Net asset value, end of period (x) | $4.72 | $5.59 | $5.68 | $5.72 | $5.28 |
| Total return (%) (k)(r)(s)(x) | (10.51) | 3.49 | 5.09 | 14.81 | (3.08) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.79 | 0.78 | 0.78 | 0.77 | 0.77 |
| Expenses after expense reductions | 0.72 | 0.72 | 0.72 | 0.72 | 0.72 |
| Net investment income (loss) | 4.68 | 4.13 | 4.50 | 4.78 | 4.91 |
| Portfolio turnover | 29 | 63 | 54 | 59 | 40 |
| Net assets at end of period (000 omitted) | $224,472 | $298,460 | $310,121 | $324,544 | $320,380 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $5.51 | $5.61 | $5.65 | $5.22 | $5.70 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.22 | $0.22 | $0.23 | $0.25 | $0.26 |
| Net realized and unrealized gain (loss) | (0.81) | (0.05) | 0.03(g) | 0.49 | (0.43) |
| Total from investment operations | $(0.59) | $0.17 | $0.26 | $0.74 | $(0.17) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.27) | $(0.27) | $(0.30) | $(0.31) | $(0.31) |
| Net asset value, end of period (x) | $4.65 | $5.51 | $5.61 | $5.65 | $5.22 |
| Total return (%) (k)(r)(s)(x) | (10.78) | 3.08 | 4.85 | 14.44 | (3.24) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.04 | 1.03 | 1.03 | 1.02 | 1.02 |
| Expenses after expense reductions | 0.97 | 0.97 | 0.97 | 0.97 | 0.97 |
| Net investment income (loss) | 4.43 | 3.88 | 4.25 | 4.54 | 4.66 |
| Portfolio turnover | 29 | 63 | 54 | 59 | 40 |
| Net assets at end of period (000 omitted) | $28,563 | $38,430 | $41,171 | $43,696 | $44,995 |
See Notes to Financial Statements
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (g) | The per share amount varies from the net realized and unrealized gain/loss for the period because of the timing of sales of fund shares and the per share amount of realized and unrealized gains and losses at such time. |
| (k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
Notes to Financial Statements
(1) Business and Organization
MFS High Yield Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and
Notes to Financial Statements - continued
procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| United States | $— | $— | $373,570 | $373,570 |
| Luxembourg | — | 248,599 | — | 248,599 |
| Mexico | — | — | 128,574 | 128,574 |
| United Kingdom | — | 2,687 | — | 2,687 |
| U.S. Corporate Bonds | — | 209,999,077 | — | 209,999,077 |
| Asset-Backed Securities (including CDOs) | — | 132 | — | 132 |
| Foreign Bonds | — | 36,194,956 | — | 36,194,956 |
| Mutual Funds | 2,222,525 | — | — | 2,222,525 |
| Total | $2,222,525 | $246,445,451 | $502,144 | $249,170,120 |
| Other Financial Instruments | | | | |
| Futures Contracts – Assets | $31,211 | $— | $— | $31,211 |
| Futures Contracts – Liabilities | (19,200) | — | — | (19,200) |
| Forward Foreign Currency Exchange Contracts – Assets | — | 5,754 | — | 5,754 |
| Forward Foreign Currency Exchange Contracts – Liabilities | — | (98,430) | — | (98,430) |
For further information regarding security characteristics, see the Portfolio of Investments.
The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The table presents the activity of level 3 securities held at the beginning and the end of the period.
| | Equity
Securities |
| Balance as of 12/31/21 | $444,737 |
| Change in unrealized appreciation or depreciation | 60,094 |
| Transfers out of level 3 | (2,687) |
| Balance as of 12/31/22 | $502,144 |
The net change in unrealized appreciation or depreciation from investments held as level 3 at December 31, 2022 is $59,117 At December 31, 2022, the fund held two level 3 securities.
Notes to Financial Statements - 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 primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were futures contracts and forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at December 31, 2022 as reported in the Statement of Assets and Liabilities:
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Futures Contracts | $31,211 | $(19,200) |
| Foreign Exchange | Forward Foreign Currency Exchange Contracts | 5,754 | (98,430) |
| Total | | $36,965 | $(117,630) |
(a) Values presented in this table for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is reported separately within the Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $129,447 | $— |
| Foreign Exchange | — | 39,928 |
| Total | $129,447 | $39,928 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Futures
Contracts | Forward Foreign
Currency
Exchange
Contracts |
| Interest Rate | $34,835 | $— |
| Foreign Exchange | — | (98,845) |
| Total | $34,835 | $(98,845) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out
Notes to Financial Statements - continued
all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On
Notes to Financial Statements - continued
loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At December 31, 2022, there were no securities on loan or collateral outstanding.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. 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. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to amortization and accretion of debt securities.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $15,313,201 | $16,802,373 |
Notes to Financial Statements - continued
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/22 | |
| Cost of investments | $288,138,782 |
| Gross appreciation | 764,164 |
| Gross depreciation | (39,813,491) |
| Net unrealized appreciation (depreciation) | $(39,049,327) |
| Undistributed ordinary income | 14,083,068 |
| Capital loss carryforwards | (48,960,484) |
| Other temporary differences | 1,105 |
| Total distributable earnings (loss) | $(73,925,638) |
As of December 31, 2022, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(2,291,501) |
| Long-Term | (46,668,983) |
| Total | $(48,960,484) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| Initial Class | $13,629,653 | | $14,930,072 |
| Service Class | 1,683,548 | | 1,872,301 |
| Total | $15,313,201 | | $16,802,373 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.70% |
| In excess of $1 billion | 0.65% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $39,299, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.69% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.72% of average daily net assets for the Initial Class shares and 0.97% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this reduction amounted to $159,690, which is included in the reduction of total expenses in the Statement of Operations.
Notes to Financial Statements - 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 year ended December 31, 2022, the fee was $10,714, which equated to 0.0038% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $904.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0188% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
During the year ended December 31, 2022, pursuant to a policy adopted by the Board of Trustees and designed to comply with Rule 17a-7 under the Investment Company Act of 1940 (the “Act”), the fund engaged in purchase transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) which amounted to $86,460.
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than short-term obligations, aggregated $79,797,402 and $105,281,503, 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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 1,232,053 | $6,076,787 | | 2,767,138 | $15,658,509 |
| Service Class | 157,991 | 780,121 | | 492,471 | 2,759,659 |
| | 1,390,044 | $6,856,908 | | 3,259,609 | $18,418,168 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 2,826,154 | $13,537,279 | | 2,666,936 | $14,828,166 |
| Service Class | 355,930 | 1,683,548 | | 341,038 | 1,872,301 |
| | 3,182,084 | $15,220,827 | | 3,007,974 | $16,700,467 |
Notes to Financial Statements - continued
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares reacquired | | | | | |
| Initial Class | (9,883,702) | $(49,445,337) | | (6,600,705) | $(37,426,650) |
| Service Class | (1,346,626) | (6,616,646) | | (1,202,510) | (6,733,384) |
| | (11,230,328) | $(56,061,983) | | (7,803,215) | $(44,160,034) |
| Net change | | | | | |
| Initial Class | (5,825,495) | $(29,831,271) | | (1,166,631) | $(6,939,975) |
| Service Class | (832,705) | (4,152,977) | | (369,001) | (2,101,424) |
| | (6,658,200) | $(33,984,248) | | (1,535,632) | $(9,041,399) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Conservative Allocation Portfolio, and the MFS Growth Allocation Portfolio were the owners of record of approximately 20%, 6%, and 5%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $1,412 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $11,123,705 | $50,247,081 | $59,148,581 | $(488) | $808 | $2,222,525 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $87,539 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as
Notes to Financial Statements - continued
borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS High Yield Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS High Yield Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian, brokers and agent banks; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
David Cole
Michael Skatrud | |
Board Review of Investment Advisory Agreement
MFS High Yield Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 5th quintile for the one-year period and the 4th quintile for the three-year period ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
The Trustees expressed concern to MFS about the substandard investment performance of the Fund and the Fund’s retail counterpart, MFS High Income Fund, which has substantially similar investment strategies and experienced substantially similar investment performance as the Fund. In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year as to MFS’ efforts to improve the performance of the Fund and the Fund’s
Board Review of Investment Advisory Agreement - continued
retail counterpart. In addition, the Trustees requested that they receive a separate update on the Fund’s retail counterpart at each of their regular meetings. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that MFS’ responses and efforts and plans to improve investment performance were sufficient to support approval of the continuance of the investment advisory agreement for an additional one-year period, but that they would continue to closely monitor the performance of the Fund’s retail counterpart.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Board Review of Investment Advisory Agreement - continued
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Treasury Regulation §1.163(j)-1(b).
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® International
Growth Portfolio
MFS® Variable Insurance Trust II
MFS® International Growth Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS International Growth Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS International Growth Portfolio
Portfolio structure
Top ten holdings
| Nestle S.A. | 4.7% |
| Roche Holding AG | 4.2% |
| LVMH Moet Hennessy Louis Vuitton SE | 3.6% |
| Hitachi Ltd. | 3.4% |
| SAP SE | 3.3% |
| Novartis AG | 3.2% |
| Linde PLC | 3.1% |
| AIA Group Ltd. | 3.1% |
| Schneider Electric SE | 3.0% |
| EssilorLuxottica | 2.8% |
GICS equity sectors (g)
| Industrials | 16.9% |
| Health Care | 15.8% |
| Consumer Staples | 14.6% |
| Information Technology | 12.4% |
| Materials | 12.2% |
| Financials | 11.6% |
| Consumer Discretionary | 10.8% |
| Communication Services | 2.6% |
| Utilities | 0.8% |
| Energy | 0.7% |
Issuer country weightings (x)
| France | 15.7% |
| Switzerland | 13.9% |
| Germany | 10.0% |
| United Kingdom | 8.8% |
| Japan | 8.7% |
| Canada | 7.9% |
| China | 4.7% |
| United States | 4.7% |
| Taiwan | 4.1% |
| Other Countries | 21.5% |
Currency exposure weightings (y)
| Euro | 33.8% |
| Swiss Franc | 13.9% |
| British Pound Sterling | 10.4% |
| Japanese Yen | 8.7% |
| Hong Kong Dollar | 7.2% |
| Canadian Dollar | 6.4% |
| United States Dollar | 4.4% |
| Taiwan Dollar | 4.1% |
| Indian Rupee | 3.9% |
| Other Currencies | 7.2% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS International Growth Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS International Growth Portfolio (fund) provided a total return of -14.95%, while Service Class shares of the fund provided a total return of -15.18%. These compare with a return of -23.05% over the same period for the fund’s benchmark, the MSCI All Country World (ex-U.S.) Growth Index (net div).
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Contributors to Performance
The combination of stock selection and an underweight position in the information technology sector contributed to the fund’s performance relative to the MSCI All Country World (ex-U.S.) Growth Index. Within this sector, not owning shares of cloud-based e-commerce platform operator Shopify (Canada) boosted relative returns. The stock price of Shopify declined after the company reported gross merchandise value, subscription revenue growth and profitability below market expectations due to higher inflation and weaker consumer spending.
Stock selection in the financials sector also benefited relative performance. Within this sector, the fund's ownership in shares of fleet management company Element Fleet Management, which was not a benchmark constituent for the entire reporting period, contributed to relative returns. Additionally, an overweight position in insurance company AIA Group (Hong Kong) and holding shares of financial services firm HDFC Bank(b) (India) bolstered the fund’s relative results. The stock price of AIA Group appreciated as the company benefited from more concrete signs of the economy re-opening due to the easing of COVID-19 lockdown policies and the addition of new insurance underwriting revenue.
Security selection in the industrials sector strengthened relative performance, led by the fund’s overweight position in electronics company Hitachi (Japan).
Stock selection and an overweight position in the health care sector also bolstered the fund’s relative results. Within this sector, holding shares of pharmaceutical company Novartis(b) (Switzerland) supported relative performance as the stock outperformed the benchmark.
Elsewhere, holdings of industrial gas supplier Linde(b) and consumer products company ITC(b) (India) were also among the fund’s top relative contributors. The fund’s overweight position in tobacco product manufacturer Swedish Match(h) (Sweden) further bolstered relative returns.
During the reporting period, the fund's relative currency exposure, resulting primarily from differences between the fund's and the benchmark's exposures to holdings of securities denominated in foreign currencies, contributed to relative performance. All of MFS' investment decisions are driven by the fundamentals of each individual opportunity and as such, it is common for our funds to have different currency exposure than the benchmark.
MFS International Growth Portfolio
Management Review - continued
The fund's cash and/or cash equivalents position during the period also contributed to relative performance. Under normal market conditions, the fund strives to be fully invested and generally holds cash to buy new holdings and to provide liquidity. In a period when equity markets fell, as measured by the fund's benchmark, holding cash helped performance versus the benchmark, which has no cash position.
Detractors from Performance
Stock selection in both the communication services and utilities sectors detracted from the fund’s relative performance. Within the communication services sector, the fund's overweight positions in internet advertisement and e-commerce solutions providers Z Holdings (Japan) and NAVER (South Korea) held back relative returns. The stock price of Z Holdings declined as the company posted operating profit results below expectations due to sizeable losses booked in PayPay and Demae-Can. There were no individual stocks within the utilities sector, either in the fund or in the benchmark, that were among the fund's largest relative detractors during the period.
Elsewhere, not holding shares of biopharmaceutical company AstraZeneca (United Kingdom), pharmaceutical sales company Daiichi Sankyo (Japan), e-commerce platform developer Pinduoduo (China) and biopharmaceutical company CSL (Australia) held back the fund’s relative returns. The stock price of AstraZeneca advanced as the company reported better-than-expected earnings per share results, driven by strong sales for both its COVID-19 vaccine and Type 2 diabetes medicine, Farixiga. Additionally, a higher sales forecast for its breast cancer treatment, Enhertu, and a lower tax rate further supported the stock. The timing of the fund's ownership in shares of pharmaceutical company Novo Nordisk(h) (Denmark), and overweight positions in specialty chemical supply company Sika (Switzerland) and coatings and paint products manufacturer Akzo Nobel (Netherlands) weighed on relative performance. The fund’s underweight position in semiconductor manufacturer Taiwan Semiconductor Manufacturing (Taiwan), of which the portfolio holds the ADR while the benchmark holds the common stock, also weighed on relative performance.
Respectfully,
Portfolio Manager(s)
Matthew Barrett and Kevin Dwan
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS International Growth Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 6/03/96 | (14.95)% | 4.51% | 6.29% |
| Service Class | 8/24/01 | (15.18)% | 4.24% | 6.03% |
Comparative benchmark(s)
| MSCI All Country World (ex-U.S.) Growth Index (net div) (f) | (23.05)% | 1.49% | 4.68% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
MSCI All Country World (ex-U.S.) Growth Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance for growth securities in the global developed and emerging markets, excluding the U.S.
It is not possible to invest directly in an index.
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
MFS International Growth Portfolio
Performance Summary – continued
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS International Growth Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.88% | $1,000.00 | $1,054.74 | $4.56 |
| Hypothetical (h) | 0.88% | $1,000.00 | $1,020.77 | $4.48 |
| Service Class | Actual | 1.13% | $1,000.00 | $1,053.07 | $5.85 |
| Hypothetical (h) | 1.13% | $1,000.00 | $1,019.51 | $5.75 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS International Growth Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 98.4% |
| Aerospace & Defense – 0.8% | |
| Rolls-Royce Holdings PLC (a) | | 1,270,681 | $ 1,431,729 |
| Alcoholic Beverages – 4.5% | |
| Diageo PLC | | 104,929 | $ 4,630,168 |
| Pernod Ricard S.A. | | 19,262 | 3,788,741 |
| | | | | $8,418,909 |
| Apparel Manufacturers – 5.5% | |
| Burberry Group PLC | | 68,992 | $ 1,693,180 |
| Kering S.A. | | 3,740 | 1,914,066 |
| LVMH Moet Hennessy Louis Vuitton SE | | 9,229 | 6,704,360 |
| | | | | $10,311,606 |
| Automotive – 0.4% | |
| Koito Manufacturing Co. Ltd. | | 47,800 | $ 712,018 |
| Brokerage & Asset Managers – 1.6% | |
| Deutsche Boerse AG | | 12,862 | $ 2,222,175 |
| London Stock Exchange Group PLC | | 10,055 | 867,452 |
| | | | | $3,089,627 |
| Business Services – 1.6% | |
| Experian PLC | | 85,966 | $ 2,923,512 |
| Chemicals – 0.8% | |
| UPL Ltd. | | 168,736 | $ 1,460,659 |
| Computer Software – 6.0% | |
| Aveva Group PLC | | 12,315 | $ 478,358 |
| Dassault Systemes SE | | 25,865 | 932,875 |
| Kingsoft Corp. | | 175,200 | 585,837 |
| NAVER Corp. | | 7,494 | 1,064,364 |
| NICE Systems Ltd., ADR (a) | | 3,522 | 677,280 |
| Oracle Corp. Japan | | 13,700 | 891,378 |
| SAP SE | | 59,735 | 6,163,495 |
| Wisetech Global Ltd. | | 12,189 | 420,323 |
| | | | | $11,213,910 |
| Computer Software - Systems – 5.4% | |
| Amadeus IT Group S.A. (a) | | 40,325 | $ 2,079,562 |
| Cap Gemini S.A. | | 10,578 | 1,774,077 |
| Hitachi Ltd. | | 125,500 | 6,315,768 |
| | | | | $10,169,407 |
| Construction – 0.3% | |
| Kingspan Group PLC | | 9,857 | $ 533,691 |
| Consumer Products – 4.2% | |
| AmorePacific Corp. (a) | | 16,459 | $ 1,804,834 |
| Kao Corp. | | 26,300 | 1,053,082 |
| KOSE Corp. | | 7,400 | 803,922 |
| Reckitt Benckiser Group PLC | | 61,774 | 4,297,184 |
| | | | | $7,959,022 |
MFS International Growth Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Electrical Equipment – 4.3% | |
| Prysmian S.p.A. | | 65,936 | $ 2,446,343 |
| Schneider Electric SE | | 40,160 | 5,648,080 |
| | | | | $8,094,423 |
| Electronics – 5.3% | |
| ASML Holding N.V. | | 3,126 | $ 1,685,828 |
| Delta Electronics, Inc. | | 277,000 | 2,582,047 |
| SK Hynix, Inc. | | 8,383 | 504,588 |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | 68,087 | 5,071,801 |
| | | | | $9,844,264 |
| Energy - Independent – 0.8% | |
| Reliance Industries Ltd. | | 46,683 | $ 1,432,054 |
| Entertainment – 0.2% | |
| Lottery Corp. Ltd. (a) | | 126,698 | $ 386,455 |
| Food & Beverages – 4.7% | |
| Nestle S.A. | | 75,708 | $ 8,743,175 |
| Food & Drug Stores – 0.5% | |
| Ocado Group PLC (a) | | 26,334 | $ 196,367 |
| Sugi Holdings Co. Ltd. | | 17,700 | 789,197 |
| | | | | $985,564 |
| Gaming & Lodging – 2.1% | |
| Aristocrat Leisure Ltd. | | 50,158 | $ 1,035,827 |
| Flutter Entertainment PLC (a) | | 21,604 | 2,948,740 |
| | | | | $3,984,567 |
| Insurance – 3.6% | |
| AIA Group Ltd. | | 524,000 | $ 5,772,910 |
| Ping An Insurance Co. of China Ltd., “H” | | 150,500 | 995,884 |
| | | | | $6,768,794 |
| Internet – 1.7% | |
| Tencent Holdings Ltd. | | 51,500 | $ 2,188,864 |
| Z Holdings Corp. | | 405,300 | 1,025,294 |
| | | | | $3,214,158 |
| Leisure & Toys – 0.5% | |
| Prosus N.V. | | 13,637 | $ 940,823 |
| Machinery & Tools – 3.9% | |
| Assa Abloy AB | | 125,587 | $ 2,702,120 |
| GEA Group AG | | 54,061 | 2,210,618 |
| Ritchie Bros. Auctioneers, Inc. | | 40,358 | 2,331,166 |
| | | | | $7,243,904 |
| Major Banks – 1.6% | |
| DBS Group Holdings Ltd. | | 115,000 | $ 2,912,349 |
| Medical & Health Technology & Services – 0.3% | |
| Alcon, Inc. | | 8,350 | $ 573,515 |
MFS International Growth Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Medical Equipment – 5.8% | |
| EssilorLuxottica | | 28,592 | $ ���5,206,492 |
| QIAGEN N.V. (a) | | 55,819 | 2,808,914 |
| Sonova Holding AG | | 5,810 | 1,382,415 |
| Terumo Corp. | | 54,100 | 1,529,886 |
| | | | | $10,927,707 |
| Natural Gas - Distribution – 0.8% | |
| China Resources Gas Group Ltd. | | 394,000 | $ 1,467,360 |
| Other Banks & Diversified Financials – 4.8% | |
| AEON Financial Service Co. Ltd. (l) | | 71,300 | $ 757,314 |
| Credicorp Ltd. | | 10,995 | 1,491,582 |
| Element Fleet Management Corp. | | 172,808 | 2,354,732 |
| Grupo Financiero Banorte S.A. de C.V. | | 180,065 | 1,292,838 |
| HDFC Bank Ltd. | | 158,014 | 3,109,761 |
| | | | | $9,006,227 |
| Pharmaceuticals – 9.6% | |
| Bayer AG | | 46,460 | $ 2,403,351 |
| Hypera S.A. | | 85,226 | 729,621 |
| Merck KGaA | | 5,380 | 1,041,807 |
| Novartis AG | | 65,499 | 5,932,985 |
| Roche Holding AG | | 25,176 | 7,909,618 |
| | | | | $18,017,382 |
| Precious Metals & Minerals – 2.7% | |
| Agnico Eagle Mines Ltd. | | 48,379 | $ 2,513,993 |
| Franco-Nevada Corp. | | 18,725 | 2,552,491 |
| | | | | $5,066,484 |
| Railroad & Shipping – 2.7% | |
| Canadian National Railway Co. | | 23,328 | $ 2,773,233 |
| Canadian Pacific Railway Ltd. | | 30,115 | 2,245,280 |
| | | | | $5,018,513 |
| Restaurants – 0.9% | |
| Yum China Holdings, Inc. | | 20,965 | $ 1,145,737 |
| Yum China Holdings, Inc. | | 8,900 | 496,703 |
| | | | | $1,642,440 |
| Specialty Chemicals – 8.7% | |
| Akzo Nobel N.V. | | 19,354 | $ 1,296,085 |
| L'Air Liquide S.A. | | 23,963 | 3,408,480 |
| Linde PLC | | 18,010 | 5,888,708 |
| Nitto Denko Corp. | | 24,300 | 1,397,846 |
| Showa Denko K. K. | | 60,200 | 914,844 |
| Sika AG | | 6,437 | 1,553,180 |
| Symrise AG | | 17,112 | 1,861,977 |
| | | | | $16,321,120 |
| Specialty Stores – 1.2% | |
| Alibaba Group Holding Ltd. (a) | | 176,300 | $ 1,948,110 |
| Just Eat Takeaway (a) | | 11,029 | 233,168 |
| | | | | $2,181,278 |
MFS International Growth Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Tobacco – 0.6% | |
| ITC Ltd. | | 305,011 | $ 1,222,367 |
| Total Common Stocks (Identified Cost, $140,547,442) | | $184,219,013 |
| Investment Companies (h) – 1.4% |
| Money Market Funds – 1.4% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $2,595,137) | | | 2,595,237 | $ 2,596,015 |
| Other Assets, Less Liabilities – 0.2% | | 308,159 |
| Net Assets – 100.0% | $187,123,187 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $2,596,015 and $184,219,013, respectively. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
See Notes to Financial Statements
MFS International Growth Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value, including $39,966 of securities on loan (identified cost, $140,547,442) | $184,219,013 |
| Investments in affiliated issuers, at value (identified cost, $2,595,137) | 2,596,015 |
| Cash | 11,241 |
| Receivables for | |
| Fund shares sold | 101,979 |
| Interest and dividends | 754,295 |
| Receivable from investment adviser | 8,387 |
| Other assets | 1,267 |
| Total assets | $187,692,197 |
| Liabilities | |
| Payable to custodian | $899 |
| Payables for | |
| Fund shares reacquired | 293,608 |
| Payable to affiliates | |
| Administrative services fee | 300 |
| Shareholder servicing costs | 63 |
| Distribution and/or service fees | 1,723 |
| Deferred country tax expense payable | 192,545 |
| Accrued expenses and other liabilities | 79,872 |
| Total liabilities | $569,010 |
| Net assets | $187,123,187 |
| Net assets consist of | |
| Paid-in capital | $137,107,572 |
| Total distributable earnings (loss) | 50,015,615 |
| Net assets | $187,123,187 |
| Shares of beneficial interest outstanding | 14,113,465 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $103,798,109 | 7,776,039 | $13.35 |
| Service Class | 83,325,078 | 6,337,426 | 13.15 |
See Notes to Financial Statements
MFS International Growth Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $3,712,841 |
| Dividends from affiliated issuers | 45,495 |
| Other | 1,472 |
| Income on securities loaned | 1,140 |
| Foreign taxes withheld | (416,412) |
| Total investment income | $3,344,536 |
| Expenses | |
| Management fee | $1,677,944 |
| Distribution and/or service fees | 198,434 |
| Shareholder servicing costs | 13,253 |
| Administrative services fee | 38,470 |
| Independent Trustees' compensation | 4,961 |
| Custodian fee | 37,929 |
| Shareholder communications | 4,966 |
| Audit and tax fees | 75,355 |
| Legal fees | 884 |
| Miscellaneous | 37,056 |
| Total expenses | $2,089,252 |
| Reduction of expenses by investment adviser | (248,685) |
| Net expenses | $1,840,567 |
| Net investment income (loss) | $1,503,969 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $68,629 country tax) | $6,430,759 |
| Affiliated issuers | 116 |
| Foreign currency | 12,427 |
| Net realized gain (loss) | $6,443,302 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $32,656 decrease in deferred country tax) | $(39,880,953) |
| Affiliated issuers | 878 |
| Translation of assets and liabilities in foreign currencies | (41,093) |
| Net unrealized gain (loss) | $(39,921,168) |
| Net realized and unrealized gain (loss) | $(33,477,866) |
| Change in net assets from operations | $(31,973,897) |
See Notes to Financial Statements
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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $1,503,969 | $808,207 |
| Net realized gain (loss) | 6,443,302 | 10,800,683 |
| Net unrealized gain (loss) | (39,921,168) | 5,323,346 |
| Change in net assets from operations | $(31,973,897) | $16,932,236 |
| Total distributions to shareholders | $(11,842,247) | $(9,355,125) |
| Change in net assets from fund share transactions | $18,723,642 | $32,495,568 |
| Total change in net assets | $(25,092,502) | $40,072,679 |
| Net assets | | |
| At beginning of period | 212,215,689 | 172,143,010 |
| At end of period | $187,123,187 | $212,215,689 |
See Notes to Financial Statements
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 past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $16.78 | $16.09 | $14.26 | $12.78 | $15.50 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.13 | $0.09 | $0.10 | $0.21 | $0.17 |
| Net realized and unrealized gain (loss) | (2.65) | 1.39 | 2.12 | 3.07 | (1.38) |
| Total from investment operations | $(2.52) | $1.48 | $2.22 | $3.28 | $(1.21) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.09) | $(0.09) | $(0.21) | $(0.18) | $(0.16) |
| From net realized gain | (0.82) | (0.70) | (0.18) | (1.62) | (1.35) |
| Total distributions declared to shareholders | $(0.91) | $(0.79) | $(0.39) | $(1.80) | $(1.51) |
| Net asset value, end of period (x) | $13.35 | $16.78 | $16.09 | $14.26 | $12.78 |
| Total return (%) (k)(r)(s)(x) | (14.95) | 9.27 | 15.84 | 27.30 | (9.02) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.01 | 1.01 | 1.04 | 1.05 | 1.05 |
| Expenses after expense reductions | 0.88 | 0.88 | 0.88 | 0.88 | 0.97 |
| Net investment income (loss) | 0.93 | 0.52 | 0.72 | 1.49 | 1.16 |
| Portfolio turnover | 11 | 14 | 26 | 7 | 18 |
| Net assets at end of period (000 omitted) | $103,798 | $124,671 | $120,291 | $112,259 | $105,919 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $16.55 | $15.90 | $14.11 | $12.65 | $15.37 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.09 | $0.04 | $0.06 | $0.16 | $0.13 |
| Net realized and unrealized gain (loss) | (2.61) | 1.38 | 2.09 | 3.07 | (1.38) |
| Total from investment operations | $(2.52) | $1.42 | $2.15 | $3.23 | $(1.25) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.06) | $(0.07) | $(0.18) | $(0.15) | $(0.12) |
| From net realized gain | (0.82) | (0.70) | (0.18) | (1.62) | (1.35) |
| Total distributions declared to shareholders | $(0.88) | $(0.77) | $(0.36) | $(1.77) | $(1.47) |
| Net asset value, end of period (x) | $13.15 | $16.55 | $15.90 | $14.11 | $12.65 |
| Total return (%) (k)(r)(s)(x) | (15.18) | 8.99 | 15.50 | 27.11 | (9.30) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.26 | 1.27 | 1.29 | 1.30 | 1.30 |
| Expenses after expense reductions | 1.13 | 1.13 | 1.13 | 1.13 | 1.22 |
| Net investment income (loss) | 0.65 | 0.22 | 0.44 | 1.18 | 0.87 |
| Portfolio turnover | 11 | 14 | 26 | 7 | 18 |
| Net assets at end of period (000 omitted) | $83,325 | $87,545 | $51,852 | $34,616 | $27,233 |
See Notes to Financial Statements
MFS International Growth Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS International Growth Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS International Growth Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, accounting, and auditing systems, greater government involvement in the economy, greater risk of new or inconsistent government treatment of or restrictions on issuers and instruments, and greater political, social, and economic instability than developed markets.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the 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
MFS International Growth Portfolio
Notes to Financial Statements - continued
market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant 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 December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| France | $3,788,741 | $25,588,430 | $— | $29,377,171 |
| Switzerland | 7,909,618 | 18,185,270 | — | 26,094,888 |
| Germany | 18,712,337 | — | — | 18,712,337 |
| United Kingdom | 16,517,950 | — | — | 16,517,950 |
| Japan | 2,078,376 | 14,112,173 | — | 16,190,549 |
| Canada | 14,770,895 | — | — | 14,770,895 |
| China | 4,675,568 | 4,152,927 | — | 8,828,495 |
| Taiwan | 7,653,848 | — | — | 7,653,848 |
| India | 5,792,787 | 1,432,054 | — | 7,224,841 |
| Other Countries | 23,463,511 | 15,384,528 | — | 38,848,039 |
| Mutual Funds | 2,596,015 | — | — | 2,596,015 |
| Total | $107,959,646 | $78,855,382 | $— | $186,815,028 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from
MFS International Growth Portfolio
Notes to Financial Statements - continued
collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $39,966. The fair value of the fund’s investment securities on loan is presented gross in the Statement of Assets and Liabilities. These loans were collateralized by U.S. Treasury Obligations of $41,418 held by the lending agent. The collateral on securities loaned exceeded the value of securities on loan at period end. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to passive foreign investment companies and wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $1,936,167 | $1,563,110 |
| Long-term capital gains | 9,906,080 | 7,792,015 |
| Total distributions | $11,842,247 | $9,355,125 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
MFS International Growth Portfolio
Notes to Financial Statements - continued
| As of 12/31/22 | |
| Cost of investments | $145,216,252 |
| Gross appreciation | 55,847,318 |
| Gross depreciation | (14,248,542) |
| Net unrealized appreciation (depreciation) | $41,598,776 |
| Undistributed ordinary income | 2,155,928 |
| Undistributed long-term capital gain | 6,283,419 |
| Other temporary differences | (22,508) |
| Total distributable earnings (loss) | $50,015,615 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $6,790,940 | | $5,715,069 |
| Service Class | 5,051,307 | | 3,640,056 |
| Total | $11,842,247 | | $9,355,125 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2 billion | 0.80% |
| In excess of $2 billion | 0.70% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $25,900, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.89% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.88% of average daily net assets for the Initial Class shares and 1.13% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this reduction amounted to $222,785, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
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
MFS International Growth Portfolio
Notes to Financial Statements - continued
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 year ended December 31, 2022, the fee was $12,308, which equated to 0.0066% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $945.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0206% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended December 31, 2022, the fund engaged in purchase transactions pursuant to this policy, which amounted to $175,198.
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than short-term obligations, aggregated $31,029,041 and $20,350,196, 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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 1,217,168 | $17,134,032 | | 736,218 | $12,306,356 |
| Service Class | 4,750,270 | 66,664,792 | | 2,496,290 | 41,263,750 |
| | 5,967,438 | $83,798,824 | | 3,232,508 | $53,570,106 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 514,465 | $6,790,940 | | 345,113 | $5,715,069 |
| Service Class | 387,965 | 5,051,307 | | 222,633 | 3,640,056 |
| | 902,430 | $11,842,247 | | 567,746 | $9,355,125 |
| Shares reacquired | | | | | |
| Initial Class | (1,383,930) | $(19,215,679) | | (1,130,683) | $(18,993,670) |
| Service Class | (4,089,695) | (57,701,750) | | (691,959) | (11,435,993) |
| | (5,473,625) | $(76,917,429) | | (1,822,642) | $(30,429,663) |
| Net change | | | | | |
| Initial Class | 347,703 | $4,709,293 | | (49,352) | $(972,245) |
| Service Class | 1,048,540 | 14,014,349 | | 2,026,964 | 33,467,813 |
| | 1,396,243 | $18,723,642 | | 1,977,612 | $32,495,568 |
MFS International Growth Portfolio
Notes to Financial Statements - continued
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 16%, 7%, and 3%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $876 and $1,323, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $4,586,283 | $37,582,979 | $39,574,241 | $116 | $878 | $2,596,015 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $45,495 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
MFS International Growth Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS International Growth Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS International Growth Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS International Growth Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS International Growth Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS International Growth Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Matthew Barrett
Kevin Dwan
| |
MFS International Growth Portfolio
Board Review of Investment Advisory Agreement
MFS International Growth Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 2nd quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 3rd quintile for each of the one- and three-year periods ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS International Growth Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was approximately at the Broadridge expense group median and the Fund’s total expense ratio was lower than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS International Growth Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $10,897,000 as capital gain dividends paid during the fiscal year.
Income derived from foreign sources was $3,698,219. The fund intends to pass through foreign tax credits of $465,456 for the fiscal year.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® International Intrinsic
Value Portfolio
MFS® Variable Insurance Trust II
MFS® International Intrinsic Value Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS International Intrinsic Value Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS International Intrinsic Value Portfolio
Portfolio structure
Top ten holdings
| Nestle S.A. | 4.2% |
| Schneider Electric SE | 3.7% |
| Franco-Nevada Corp. | 3.3% |
| TotalEnergies SE | 2.8% |
| Legrand S.A. | 2.6% |
| Pernod Ricard S.A. | 2.3% |
| Cadence Design Systems, Inc. | 2.3% |
| Samsung Electronics Co. Ltd. | 2.2% |
| Analog Devices, Inc. | 2.1% |
| Deutsche Boerse AG | 2.1% |
GICS equity sectors (g)
| Industrials | 21.2% |
| Information Technology | 19.8% |
| Consumer Staples | 19.0% |
| Materials | 13.3% |
| Financials | 9.9% |
| Health Care | 6.3% |
| Energy | 5.1% |
| Consumer Discretionary | 3.1% |
| Real Estate | 1.3% |
| Equity Warrants (o) | 0.0% |
Issuer country weightings (x)
| France | 18.2% |
| Japan | 15.7% |
| Switzerland | 14.3% |
| United Kingdom | 12.1% |
| Germany | 10.3% |
| United States | 8.3% |
| Canada | 5.0% |
| Ireland | 2.7% |
| Denmark | 2.6% |
| Other Countries | 10.8% |
Currency exposure weightings (y)
| Euro | 34.7% |
| Japanese Yen | 15.7% |
| Swiss Franc | 14.3% |
| British Pound Sterling | 12.1% |
| United States Dollar | 8.3% |
| Canadian Dollar | 5.0% |
| Danish Krone | 2.6% |
| South Korean Won | 2.2% |
| Australian Dollar | 2.0% |
| Other Currencies | 3.1% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
MFS International Intrinsic Value Portfolio
Portfolio Composition - continued
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS International Intrinsic Value Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS International Intrinsic Value Portfolio (fund) provided a total return of -23.56%, while Service Class shares of the fund provided a total return of -23.75%. These compare with a return of -14.45% over the same period for the fund’s benchmark, the MSCI EAFE Index (net div).
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Detractors from Performance
Stock selection within both the industrials and materials sectors detracted from the fund’s performance relative to the MSCI EAFE Index. Within the industrials sector, the fund's overweight positions in industrial and commercial steam systems developer Spirax-Sarco Engineering (United Kingdom), electrical distribution equipment company Schneider Electric (France) and wiring devices and cable systems manufacturer Legrand (France) held back relative results. Within the materials sector, the fund’s overweight positions in fragrance and flavor products maker Givaudan (Switzerland) and biotechnology company Novozymes (Denmark) weakened relative performance. The stock price of Givaudan declined as the company reported sales volume pressure that is expected to worsen in the near term over deteriorating consumer demand and continued input and labor cost inflation.
An overweight allocation to the information technology sector also hindered relative performance, led by the fund’s holdings of semiconductor manufacturer Taiwan Semiconductor Manufacturing(b) (Taiwan), simulation software developer ANSYS(b) and microchip and electronics manufacturer Samsung Electronics(b) (South Korea).
In other sectors, not holding shares of strong-performing global energy and petrochemicals company Shell (United Kingdom) and pharmaceutical company Novo Nordisk (Denmark) detracted from the fund’s relative returns.
Contributors to Performance
The fund’s underweight allocation to the consumer discretionary sector benefited relative performance as this sector underperformed the benchmark over the reporting period. Here, the fund’s avoidance of poor-performing electronic equipment manufacturer Sony (Japan) supported relative returns as the company’s stock price declined over management’s lowered full-year operating profit guidance due to weakness in its games segment.
Elsewhere, the fund's overweight holdings of semiconductor industry lithography systems manufacturer ASML Holding (Netherlands) helped relative results as the company’s stock price benefited from stronger-than-anticipated orders intake and improved sales guidance. The fund’s holdings of integrated circuits and electronic devices developer Cadence Design Systems(b), pharmaceutical manufacturing company ROHTO Pharmaceutical(b) (Japan), gold-focused royalty and stream company Franco-Nevada(b) (Canada) and electronic equipment and circuit company Analog Devices(b) were also among the top relative contributors for the reporting
MFS International Intrinsic Value Portfolio
Management Review - continued
period. Avoiding shares of poor-performing online gaming services provider Sea (Singapore), industrial equipment manufacturer Keyence (Japan), semiconductor production equipment manufacturer Tokyo Electron (Japan) and integrated human resource services provider Recruit Holdings (Japan) also strengthened relative performance.
During the reporting period, the fund's relative currency exposure, resulting primarily from differences between the fund's and the benchmark's exposures to holdings of securities denominated in foreign currencies, contributed to relative performance. All of MFS' investment decisions are driven by the fundamentals of each individual opportunity and as such, it is common for our funds to have different currency exposure than the benchmark.
Respectfully,
Portfolio Manager(s)
Philip Evans and Benjamin Stone
Note to Shareholders: Effective April 15, 2022, Pablo de la Mata is no longer a Portfolio Manager of the fund.
| (b) | Security is not a benchmark constituent. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS International Intrinsic Value Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 10/02/95 | (23.56)% | 3.03% | 7.82% |
| Service Class | 8/24/01 | (23.75)% | 2.77% | 7.56% |
Comparative benchmark(s)
| MSCI EAFE Index (net div) (f) | (14.45)% | 1.54% | 4.67% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
MSCI EAFE (Europe, Australasia, Far East) Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance in the developed markets, excluding the U.S. and Canada.
It is not possible to invest directly in an index.
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
MFS International Intrinsic Value Portfolio
Performance Summary – continued
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS International Intrinsic Value Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.90% | $1,000.00 | $1,044.59 | $4.64 |
| Hypothetical (h) | 0.90% | $1,000.00 | $1,020.67 | $4.58 |
| Service Class | Actual | 1.15% | $1,000.00 | $1,042.97 | $5.92 |
| Hypothetical (h) | 1.15% | $1,000.00 | $1,019.41 | $5.85 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS International Intrinsic Value Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 98.8% |
| Airlines – 0.9% | |
| Ryanair Holdings PLC, ADR (a) | | 147,282 | $ 11,010,802 |
| Alcoholic Beverages – 4.3% | |
| Diageo PLC | | 588,667 | $ 25,975,920 |
| Pernod Ricard S.A. | | 146,579 | 28,831,370 |
| | | | | $54,807,290 |
| Apparel Manufacturers – 2.3% | |
| Adidas AG | | 60,858 | $ 8,303,434 |
| Compagnie Financiere Richemont S.A. | | 84,831 | 10,977,610 |
| LVMH Moet Hennessy Louis Vuitton SE | | 12,755 | 9,265,805 |
| | | | | $28,546,849 |
| Automotive – 1.1% | |
| Compagnie Generale des Etablissements Michelin | | 258,647 | $ 7,194,429 |
| Knorr-Bremse AG | | 125,563 | 6,860,228 |
| | | | | $14,054,657 |
| Brokerage & Asset Managers – 3.0% | |
| Deutsche Boerse AG | | 150,626 | $ 26,023,736 |
| Euronext N.V. | | 166,909 | 12,372,064 |
| | | | | $38,395,800 |
| Business Services – 5.7% | |
| Experian PLC | | 636,916 | $ 21,660,091 |
| Intertek Group PLC | | 250,866 | 12,234,496 |
| Nomura Research Institute Ltd. | | 472,100 | 11,205,360 |
| Secom Co. Ltd. | | 166,600 | 9,503,764 |
| SGS S.A. | | 6,783 | 15,704,813 |
| Sohgo Security Services Co. Ltd. | | 48,700 | 1,325,260 |
| | | | | $71,633,784 |
| Chemicals – 1.0% | |
| Givaudan S.A. | | 4,114 | $ 12,542,486 |
| Computer Software – 6.1% | |
| ANSYS, Inc. (a) | | 46,698 | $ 11,281,770 |
| Cadence Design Systems, Inc. (a) | | 179,023 | 28,758,255 |
| Dassault Systemes SE | | 328,616 | 11,852,217 |
| NICE Systems Ltd., ADR (a) | | 22,168 | 4,262,906 |
| OBIC Co. Ltd. | | 18,500 | 2,736,094 |
| SAP SE | | 170,168 | 17,558,041 |
| | | | | $76,449,283 |
| Computer Software - Systems – 4.1% | |
| Amadeus IT Group S.A. (a) | | 272,683 | $ 14,062,275 |
| Cap Gemini S.A. | | 60,478 | 10,142,998 |
| Samsung Electronics Co. Ltd. | | 628,161 | 27,700,699 |
| | | | | $51,905,972 |
MFS International Intrinsic Value Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Construction – 1.7% | |
| CRH PLC | | 290,793 | $ 11,520,444 |
| Geberit AG | | 21,370 | 10,119,558 |
| | | | | $21,640,002 |
| Consumer Products – 7.4% | |
| Beiersdorf AG | | 109,600 | $ 12,576,840 |
| Kobayashi Pharmaceutical Co. Ltd. | | 107,100 | 7,369,041 |
| KOSE Corp. | | 37,300 | 4,052,200 |
| L’Oréal S.A. | | 51,529 | 18,485,659 |
| Lion Corp. | | 409,300 | 4,721,733 |
| Reckitt Benckiser Group PLC | | 302,656 | 21,053,656 |
| ROHTO Pharmaceutical Co. Ltd. | | 1,025,800 | 18,194,710 |
| Svenska Cellulosa Aktiebolaget | | 523,534 | 6,620,154 |
| | | | | $93,073,993 |
| Electrical Equipment – 7.0% | |
| Legrand S.A. | | 413,042 | $ 33,257,083 |
| OMRON Corp. | | 47,300 | 2,308,416 |
| Schneider Electric SE | | 330,837 | 46,528,730 |
| Yokogawa Electric Corp. | | 410,200 | 6,498,889 |
| | | | | $88,593,118 |
| Electronics – 6.4% | |
| Analog Devices, Inc. | | 159,362 | $ 26,140,149 |
| ASML Holding N.V. | | 13,225 | 7,132,143 |
| DISCO Corp. | | 29,700 | 8,542,936 |
| Hirose Electric Co. Ltd. | | 169,600 | 21,214,930 |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | 238,112 | 17,736,963 |
| | | | | $80,767,121 |
| Energy - Independent – 2.0% | |
| Woodside Energy Group Ltd. | | 1,035,634 | $ 25,057,273 |
| Energy - Integrated – 3.1% | |
| Galp Energia SGPS S.A., “B” | | 245,529 | $ 3,322,364 |
| TotalEnergies SE (l) | | 569,015 | 35,515,159 |
| | | | | $38,837,523 |
| Food & Beverages – 6.6% | |
| Chocoladefabriken Lindt & Sprungli AG | | 481 | $ 4,905,456 |
| Ezaki Glico Co. Ltd. | | 210,300 | 5,783,958 |
| ITO EN Ltd. | | 157,300 | 5,741,139 |
| Nestle S.A. | | 461,038 | 53,243,196 |
| Toyo Suisan Kaisha Ltd. | | 353,800 | 13,701,588 |
| | | | | $83,375,337 |
| Food & Drug Stores – 0.1% | |
| Ocado Group PLC (a) | | 213,760 | $ 1,593,966 |
| Insurance – 0.5% | |
| Hiscox Ltd. | | 496,102 | $ 6,534,413 |
MFS International Intrinsic Value Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Machinery & Tools – 6.6% | |
| Epiroc AB | | 600,486 | $ 10,973,479 |
| GEA Group AG | | 291,017 | 11,900,026 |
| IMI PLC | | 1,127,291 | 17,553,361 |
| Schindler Holding AG | | 77,818 | 14,611,803 |
| SMC Corp. | | 37,300 | 15,796,510 |
| Spirax-Sarco Engineering PLC | | 92,193 | 11,831,133 |
| | | | | $82,666,312 |
| Major Banks – 3.4% | |
| Bank of Ireland Group PLC | | 1,193,681 | $ 11,372,199 |
| Resona Holdings, Inc. | | 2,189,500 | 12,028,076 |
| UBS Group AG | | 1,029,894 | 19,196,796 |
| | | | | $42,597,071 |
| Medical & Health Technology & Services – 0.9% | |
| Haleon PLC (a) | | 2,874,088 | $ 11,374,198 |
| Medical Equipment – 4.9% | |
| Agilent Technologies, Inc. | | 87,984 | $ 13,166,806 |
| Bruker BioSciences Corp. | | 179,275 | 12,253,446 |
| EssilorLuxottica | | 89,404 | 16,280,121 |
| Shimadzu Corp. | | 694,200 | 19,809,349 |
| | | | | $61,509,722 |
| Metals & Mining – 1.3% | |
| Glencore PLC | | 2,466,994 | $ 16,475,179 |
| Other Banks & Diversified Financials – 2.9% | |
| Caixabank S.A. | | 721,937 | $ 2,833,806 |
| Chiba Bank Ltd. | | 1,184,200 | 8,680,283 |
| Hachijuni Bank Ltd. | | 694,600 | 2,898,181 |
| Julius Baer Group Ltd. | | 101,610 | 5,906,181 |
| Jyske Bank A.S. (a) | | 88,186 | 5,729,018 |
| Mebuki Financial Group, Inc. | | 1,514,900 | 3,855,354 |
| North Pacific Bank Ltd. | | 1,041,400 | 2,019,128 |
| Sydbank A.S. | | 113,596 | 4,784,676 |
| | | | | $36,706,627 |
| Pharmaceuticals – 3.0% | |
| Bayer AG | | 212,929 | $ 11,014,705 |
| Roche Holding AG | | 69,808 | 21,931,784 |
| Santen Pharmaceutical Co. Ltd. | | 647,600 | 5,299,622 |
| | | | | $38,246,111 |
| Precious Metals & Minerals – 5.0% | |
| Agnico Eagle Mines Ltd. | | 223,371 | $ 11,607,373 |
| Franco-Nevada Corp. | | 304,960 | 41,570,508 |
| Wheaton Precious Metals Corp. | | 239,984 | 9,376,037 |
| | | | | $62,553,918 |
| Printing & Publishing – 1.3% | |
| Wolters Kluwer N.V. | | 158,521 | $ 16,588,770 |
MFS International Intrinsic Value Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Real Estate – 1.3% | |
| LEG Immobilien SE | | 86,745 | $ 5,651,225 |
| TAG Immobilien AG | | 331,956 | 2,148,043 |
| Vonovia SE, REIT | | 342,457 | 8,072,156 |
| | | | | $15,871,424 |
| Specialty Chemicals – 4.6% | |
| Croda International PLC | | 84,384 | $ 6,737,140 |
| Kansai Paint Co. Ltd. | | 333,400 | 4,112,882 |
| Novozymes A.S. | | 438,315 | 22,203,467 |
| Sika AG | | 45,927 | 11,081,698 |
| Symrise AG | | 124,966 | 13,597,699 |
| | | | | $57,732,886 |
| Specialty Stores – 0.3% | |
| Zalando SE (a) | | 100,593 | $ 3,565,276 |
| Total Common Stocks (Identified Cost, $1,074,339,059) | | $1,244,707,163 |
| Preferred Stocks – 0.2% |
| Consumer Products – 0.2% | | | | |
| Henkel AG & Co. KGaA (Identified Cost, $1,889,499) | | 29,877 | $ 2,079,458 |
| | Strike
Price | First
Exercise | | |
| Warrants – 0.0% | | | | |
| Apparel Manufacturers – 0.0% |
| Compagnie Financiere Richemont S.A. (1 share for 2 warrants, Expiration 12/04/23) (a) (Identified Cost, $0) | CHF 67.00 | 11/20/23 | 224,332 | $ 186,812 |
| | | | | |
| Investment Companies (h) – 0.8% |
| Money Market Funds – 0.8% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $10,491,873) | | | 10,492,894 | $ 10,496,042 |
| Collateral for Securities Loaned – 1.0% |
| State Street Navigator Securities Lending Government Money Market Portfolio, 4.33% (j) (Identified Cost, $13,210,177) | | | 13,210,177 | $ 13,210,177 |
| Other Assets, Less Liabilities – (0.8)% | | (10,509,764) |
| Net Assets – 100.0% | $1,260,169,888 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $10,496,042 and $1,260,183,610, respectively. | | | |
| (j) | The rate quoted is the annualized seven-day yield of the fund at period end. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
MFS International Intrinsic Value Portfolio
Portfolio of Investments – continued
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| REIT | Real Estate Investment Trust |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| CHF | Swiss Franc |
See Notes to Financial Statements
MFS International Intrinsic Value Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value, including $12,447,035 of securities on loan (identified cost, $1,089,438,735) | $1,260,183,610 |
| Investments in affiliated issuers, at value (identified cost, $10,491,873) | 10,496,042 |
| Foreign currency, at value (identified cost, $908,898) | 912,974 |
| Receivables for | |
| Investments sold | 873,925 |
| Fund shares sold | 503,630 |
| Interest and dividends | 4,459,780 |
| Other assets | 5,845 |
| Total assets | $1,277,435,806 |
| Liabilities | |
| Payable to custodian | $908,893 |
| Payables for | |
| Investments purchased | 1,922,848 |
| Fund shares reacquired | 902,332 |
| Collateral for securities loaned, at value | 13,210,177 |
| Payable to affiliates | |
| Investment adviser | 73,773 |
| Administrative services fee | 1,518 |
| Shareholder servicing costs | 146 |
| Distribution and/or service fees | 20,740 |
| Payable for independent Trustees' compensation | 482 |
| Accrued expenses and other liabilities | 225,009 |
| Total liabilities | $17,265,918 |
| Net assets | $1,260,169,888 |
| Net assets consist of | |
| Paid-in capital | $992,726,919 |
| Total distributable earnings (loss) | 267,442,969 |
| Net assets | $1,260,169,888 |
| Shares of beneficial interest outstanding | 46,942,821 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $253,910,699 | 9,322,788 | $27.24 |
| Service Class | 1,006,259,189 | 37,620,033 | 26.75 |
See Notes to Financial Statements
MFS International Intrinsic Value Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $23,480,170 |
| Dividends from affiliated issuers | 459,273 |
| Income on securities loaned | 16,585 |
| Other | 12,090 |
| Foreign taxes withheld | (2,583,774) |
| Total investment income | $21,384,344 |
| Expenses | |
| Management fee | $11,617,049 |
| Distribution and/or service fees | 2,639,122 |
| Shareholder servicing costs | 35,425 |
| Administrative services fee | 213,816 |
| Independent Trustees' compensation | 21,545 |
| Custodian fee | 187,177 |
| Shareholder communications | 23,934 |
| Audit and tax fees | 66,006 |
| Legal fees | 5,918 |
| Miscellaneous | 72,791 |
| Total expenses | $14,882,783 |
| Reduction of expenses by investment adviser | (284,484) |
| Net expenses | $14,598,299 |
| Net investment income (loss) | $6,786,045 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $98,522,982 |
| Affiliated issuers | 10,847 |
| Foreign currency | 56,677 |
| Net realized gain (loss) | $98,590,506 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(499,990,098) |
| Affiliated issuers | 1,939 |
| Translation of assets and liabilities in foreign currencies | (87,847) |
| Net unrealized gain (loss) | $(500,076,006) |
| Net realized and unrealized gain (loss) | $(401,485,500) |
| Change in net assets from operations | $(394,699,455) |
See Notes to Financial Statements
MFS International Intrinsic Value Portfolio
| Financial Statements | Statements of Changes in Net Assets |
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $6,786,045 | $3,921,419 |
| Net realized gain (loss) | 98,590,506 | 61,299,221 |
| Net unrealized gain (loss) | (500,076,006) | 93,687,255 |
| Change in net assets from operations | $(394,699,455) | $158,907,895 |
| Total distributions to shareholders | $(66,373,289) | $(45,822,539) |
| Change in net assets from fund share transactions | $58,193,922 | $44,576,605 |
| Total change in net assets | $(402,878,822) | $157,661,961 |
| Net assets | | |
| At beginning of period | 1,663,048,710 | 1,505,386,749 |
| At end of period | $1,260,169,888 | $1,663,048,710 |
See Notes to Financial Statements
MFS International Intrinsic Value Portfolio
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $37.62 | $35.05 | $29.94 | $25.02 | $28.25 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.21 | $0.16 | $0.18 | $0.28 | $0.30 |
| Net realized and unrealized gain (loss) | (9.07) | 3.51 | 5.87 | 6.06 | (2.91) |
| Total from investment operations | $(8.86) | $3.67 | $6.05 | $6.34 | $(2.61) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.23) | $(0.12) | $(0.31) | $(0.54) | $(0.31) |
| From net realized gain | (1.29) | (0.98) | (0.63) | (0.88) | (0.31) |
| Total distributions declared to shareholders | $(1.52) | $(1.10) | $(0.94) | $(1.42) | $(0.62) |
| Net asset value, end of period (x) | $27.24 | $37.62 | $35.05 | $29.94 | $25.02 |
| Total return (%) (k)(r)(s)(x) | (23.56) | 10.55 | 20.52 | 25.94 | (9.49) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.92 | 0.90 | 0.92 | 0.92 | 0.91 |
| Expenses after expense reductions | 0.90 | 0.89 | 0.90 | 0.90 | 0.90 |
| Net investment income (loss) | 0.71 | 0.45 | 0.59 | 0.99 | 1.08 |
| Portfolio turnover | 30 | 13 | 10 | 13 | 16 |
| Net assets at end of period (000 omitted) | $253,911 | $344,052 | $328,247 | $308,053 | $282,244 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $36.96 | $34.47 | $29.47 | $24.60 | $27.80 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.13 | $0.07 | $0.10 | $0.20 | $0.27 |
| Net realized and unrealized gain (loss) | (8.90) | 3.45 | 5.77 | 5.97 | (2.91) |
| Total from investment operations | $(8.77) | $3.52 | $5.87 | $6.17 | $(2.64) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.15) | $(0.05) | $(0.24) | $(0.42) | $(0.25) |
| From net realized gain | (1.29) | (0.98) | (0.63) | (0.88) | (0.31) |
| Total distributions declared to shareholders | $(1.44) | $(1.03) | $(0.87) | $(1.30) | $(0.56) |
| Net asset value, end of period (x) | $26.75 | $36.96 | $34.47 | $29.47 | $24.60 |
| Total return (%) (k)(r)(s)(x) | (23.75) | 10.28 | 20.21 | 25.65 | (9.72) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.17 | 1.15 | 1.17 | 1.17 | 1.15 |
| Expenses after expense reductions | 1.15 | 1.14 | 1.15 | 1.15 | 1.14 |
| Net investment income (loss) | 0.46 | 0.19 | 0.34 | 0.72 | 0.97 |
| Portfolio turnover | 30 | 13 | 10 | 13 | 16 |
| Net assets at end of period (000 omitted) | $1,006,259 | $1,318,997 | $1,177,140 | $1,048,117 | $858,278 |
See Notes to Financial Statements
MFS International Intrinsic Value Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS International Intrinsic Value Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS International Intrinsic Value Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign
MFS International Intrinsic Value Portfolio
Notes to Financial Statements - continued
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 significant 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 December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| France | $36,025,799 | $193,699,836 | $— | $229,725,635 |
| Japan | 100,178,719 | 97,220,684 | — | 197,399,403 |
| Switzerland | 27,024,052 | 153,384,141 | — | 180,408,193 |
| United Kingdom | 153,023,553 | — | — | 153,023,553 |
| Germany | 129,350,867 | — | — | 129,350,867 |
| United States | 91,600,426 | — | — | 91,600,426 |
| Canada | 62,553,918 | — | — | 62,553,918 |
| Ireland | 33,903,445 | — | — | 33,903,445 |
| Denmark | 32,717,161 | — | — | 32,717,161 |
| Other Countries | 52,340,936 | 83,949,896 | — | 136,290,832 |
| Mutual Funds | 23,706,219 | — | — | 23,706,219 |
| Total | $742,425,095 | $528,254,557 | $— | $1,270,679,652 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund's Portfolio of Investments, with a fair value of $12,447,035. The fair value of the fund's investment securities on loan and a related liability of $13,210,177 for cash collateral received on securities loaned are both presented gross in the Statement of Assets and Liabilities. The collateral on securities loaned exceeded the value of securities on loan
MFS International Intrinsic Value Portfolio
Notes to Financial Statements - continued
at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $12,442,083 | $3,637,214 |
| Long-term capital gains | 53,931,206 | 42,185,325 |
| Total distributions | $66,373,289 | $45,822,539 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
MFS International Intrinsic Value Portfolio
Notes to Financial Statements - continued
| As of 12/31/22 | |
| Cost of investments | $1,107,917,418 |
| Gross appreciation | 255,366,492 |
| Gross depreciation | (92,604,258) |
| Net unrealized appreciation (depreciation) | $162,762,234 |
| Undistributed ordinary income | 6,785,945 |
| Undistributed long-term capital gain | 98,000,234 |
| Other temporary differences | (105,444) |
| Total distributable earnings (loss) | $267,442,969 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $14,068,472 | | $10,070,073 |
| Service Class | 52,304,817 | | 35,752,466 |
| Total | $66,373,289 | | $45,822,539 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2 billion | 0.80% |
| In excess of $2 billion | 0.70% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $184,657, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.86% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), 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, 2024. For the year ended December 31, 2022, this reduction amounted to $99,827, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and
MFS International Intrinsic Value Portfolio
Notes to Financial Statements - continued
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 year ended December 31, 2022, the fee was $33,703, which equated to 0.0025% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $1,722.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0161% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended December 31, 2022, the fund engaged in sale transactions pursuant to this policy, which amounted to $216,728. The sales transactions resulted in net realized gains (losses) of $7,920.
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than short-term obligations, aggregated $406,128,888 and $389,791,794, 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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 1,771,546 | $52,672,777 | | 1,560,198 | $55,767,129 |
| Service Class | 17,043,700 | 503,582,214 | | 5,119,497 | 180,287,362 |
| | 18,815,246 | $556,254,991 | | 6,679,695 | $236,054,491 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 502,678 | $13,763,324 | | 268,496 | $9,856,486 |
| Service Class | 1,943,694 | 52,304,817 | | 990,373 | 35,752,466 |
| | 2,446,372 | $66,068,141 | | 1,258,869 | $45,608,952 |
| Shares reacquired | | | | | |
| Initial Class | (2,097,229) | $(61,157,518) | | (2,047,578) | $(73,961,957) |
| Service Class | (17,056,927) | (502,971,692) | | (4,570,255) | (163,124,881) |
| | (19,154,156) | $(564,129,210) | | (6,617,833) | $(237,086,838) |
MFS International Intrinsic Value Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Net change | | | | | |
| Initial Class | 176,995 | $5,278,583 | | (218,884) | $(8,338,342) |
| Service Class | 1,930,467 | 52,915,339 | | 1,539,615 | 52,914,947 |
| | 2,107,462 | $58,193,922 | | 1,320,731 | $44,576,605 |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 2%, 1%, and 1%, respectively, of the value of outstanding voting shares of the fund.
Effective at the close of business on October 16, 2017, the fund was closed to new investors subject to certain exceptions.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $6,365 and $10,990, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $27,183,142 | $313,345,775 | $330,045,661 | $10,847 | $1,939 | $10,496,042 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $459,273 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a
MFS International Intrinsic Value Portfolio
Notes to Financial Statements - continued
result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
MFS International Intrinsic Value Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS International Intrinsic Value Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS International Intrinsic Value Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS International Intrinsic Value Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS International Intrinsic Value Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS International Intrinsic Value Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Philip Evans
Benjamin Stone | |
MFS International Intrinsic Value Portfolio
Board Review of Investment Advisory Agreement
MFS International Intrinsic Value Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 2nd quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 2nd quintile for the one-year period and the 3rd quintile for the three-year period ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS International Intrinsic Value Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS International Intrinsic Value Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $59,325,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 9.66% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
Income derived from foreign sources was $22,607,035. The fund intends to pass through foreign tax credits of $2,578,620 for the fiscal year.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® Massachusetts Investors
Growth Stock Portfolio
MFS® Variable Insurance Trust II
MFS® Massachusetts Investors Growth Stock Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Massachusetts Investors Growth Stock Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Massachusetts Investors Growth Stock Portfolio
Portfolio structure
Top ten holdings
| Microsoft Corp. | 10.6% |
| Alphabet, Inc., “A” | 6.2% |
| Apple, Inc. | 4.8% |
| Visa, Inc., “A” | 4.0% |
| Accenture PLC, “A” | 3.4% |
| Church & Dwight Co., Inc. | 2.7% |
| Aon PLC | 2.6% |
| NIKE, Inc., “B” | 2.5% |
| Amphenol Corp., “A” | 2.5% |
| Boston Scientific Corp. | 2.3% |
GICS equity sectors (g)
| Information Technology | 39.0% |
| Health Care | 15.2% |
| Communication Services | 9.7% |
| Consumer Discretionary | 9.7% |
| Consumer Staples | 7.9% |
| Financials | 7.2% |
| Industrials | 6.8% |
| Real Estate | 1.6% |
| Materials | 1.2% |
| Utilities | 1.0% |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. MFS has applied its own internal sector/industry classification methodology for equity securities and non-equity securities that are unclassified by GICS. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS Massachusetts Investors Growth Stock Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Massachusetts Investors Growth Stock Portfolio (fund) provided a total return of -19.26%, while Service Class shares of the fund provided a total return of -19.45%. These compare with a return of -29.14% over the same period for the fund’s benchmark, the Russell 1000® Growth Index.
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Contributors to Performance
Security selection and, to a lesser extent, an underweight position in the consumer discretionary sector contributed to the fund’s performance relative to the Russell 1000® Growth Index. Within this sector, not owning shares of electric vehicle manufacturer Tesla and internet retailer Amazon.com, and the fund’s overweight position in apparel retailer Ross Stores, boosted relative returns. The share price of Tesla declined due to uncertainty surrounding production shutdowns at the company's Shanghai manufacturing plant, reduced vehicle deliveries, increased competitive concerns and uncertainties regarding Tesla CEO Elon Musk’s acquisition of social media platform Twitter.
Favorable stock selection within both the information technology and communication services sectors also aided the fund’s relative performance. Within the information technology sector, not owning shares of computer graphics processor maker NVIDIA, and an overweight position in financial technology services provider Fiserv, supported relative returns. The share price of NVIDIA fell as the company lowered its revenue growth guidance, citing the negative effects on gaming revenue from the lockdowns in China, elevated inventory levels and an exit from the Russian market. Within the communication services sector, not owning shares of social networking service provider Meta Platforms further strengthened relative results. The stock price of Meta Platforms declined during the reporting period due to a reduction in the company’s forward-looking guidance, led by higher-than-anticipated expenses, uncertain macroeconomic conditions and the weakening of online advertising demand.
Stocks in other sectors that supported relative performance included the fund’s holdings of medical devices maker Boston Scientific(b) and medical technology company Becton, Dickinson and Co(b). Additionally, the fund’s overweight positions in risk management and human capital consulting services provider Aon and financial services provider Charles Schwab further aided relative returns.
Detractors from Performance
Stock selection in the industrials sector weighed on the fund’s relative performance. Within this sector, not owning shares of defense contractor Lockheed Martin and heavy equipment manufacturers Deere & Company and Caterpillar weakened relative returns. The share price of Lockheed Martin, along with other defense-related stocks, reacted positively to defense budget increases following the war in Ukraine and expectations of heightened demand in the medium term.
MFS Massachusetts Investors Growth Stock Portfolio
Management Review - continued
Not owning stocks in the strong-performing energy sector also held back relative returns. However, there were no individual stocks within this sector, either in the fund or in the benchmark, that were among the fund's largest relative detractors during the period.
Elsewhere, not owning shares of pharmaceutical companies, Abbvie and Eli Lilly, beverage maker Coca-Cola, health insurance and Medicare/Medicaid provider UnitedHealth Group and biotechnology firm Amgen weakened relative performance. The share price of Abbvie advanced during the reporting period as the company reported strong revenue growth led by its Botox and Juvederm segments. Additionally, the fund’s position in sportswear and sports equipment manufacturer Adidas(b)(h) (Germany), and an overweight position in technology company Alphabet, further hindered relative returns. The share price of Adidas came under pressure as the company reported a significant decline in sales in China due to supply chain disruptions and COVID-19 restrictions. Additionally, shares of Adidas suffered from a combination of its operations in Russia and Ukraine and the termination of its contract with YE, following months of disagreements between Kanye West and Adidas.
Respectfully,
Portfolio Manager(s)
Jeffrey Constantino and Joseph Skorski
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Massachusetts Investors Growth Stock Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 5/06/98 | (19.26)% | 11.95% | 13.28% |
| Service Class | 8/24/01 | (19.45)% | 11.67% | 13.01% |
Comparative benchmark(s)
| Russell 1000® Growth Index (f) | (29.14)% | 10.96% | 14.10% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Russell 1000® Growth Index(h) – constructed to provide a comprehensive barometer for growth securities in the large-cap segment of the U.S. equity universe. Companies in this index generally have higher price-to-book ratios and higher forecasted growth values.
It is not possible to invest directly in an index.
| (h) | Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this document. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor, or endorse the content of this document. |
MFS Massachusetts Investors Growth Stock Portfolio
Performance Summary – continued
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Massachusetts Investors Growth Stock Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.74% | $1,000.00 | $1,012.76 | $3.75 |
| Hypothetical (h) | 0.74% | $1,000.00 | $1,021.48 | $3.77 |
| Service Class | Actual | 0.99% | $1,000.00 | $1,011.40 | $5.02 |
| Hypothetical (h) | 0.99% | $1,000.00 | $1,020.21 | $5.04 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Notes to Expense Table
Changes to the fund’s fee arrangements occurred during the six month period. Had these fee changes been in effect throughout the entire six month period, the annualized expense ratios, the actual expenses paid during the period, and the hypothetical expenses paid during the period would have been approximately 0.73%, $3.70, and $3.72 for Initial Class and 0.98%, $4.97, and $4.99 for Service Class, respectively. For further information about the fund’s fee arrangements and changes to those fee arrangements, please see Note 3 in the Notes to Financial Statements.
MFS Massachusetts Investors Growth Stock Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 99.3% |
| Apparel Manufacturers – 3.6% | |
| LVMH Moet Hennessy Louis Vuitton SE | | 12,379 | $ 8,992,661 |
| NIKE, Inc., “B” | | 190,496 | 22,289,937 |
| | | | | $31,282,598 |
| Automotive – 1.7% | |
| Aptiv PLC (a) | | 159,440 | $ 14,848,647 |
| Brokerage & Asset Managers – 2.0% | |
| Blackstone, Inc. | | 44,067 | $ 3,269,331 |
| Charles Schwab Corp. | | 175,609 | 14,621,205 |
| | | | | $17,890,536 |
| Business Services – 9.2% | |
| Accenture PLC, “A” | | 110,427 | $ 29,466,341 |
| Cognizant Technology Solutions Corp., “A” | | 93,873 | 5,368,597 |
| Equifax, Inc. | | 71,246 | 13,847,372 |
| Fidelity National Information Services, Inc. | | 137,042 | 9,298,300 |
| Fiserv, Inc. (a) | | 170,916 | 17,274,480 |
| Verisk Analytics, Inc., “A” | | 29,371 | 5,181,632 |
| | | | | $80,436,722 |
| Computer Software – 14.2% | |
| Adobe Systems, Inc. (a) | | 56,493 | $ 19,011,590 |
| Black Knight, Inc. (a) | | 212,827 | 13,142,067 |
| Microsoft Corp. | | 387,661 | 92,968,861 |
| | | | | $125,122,518 |
| Computer Software - Systems – 4.8% | |
| Apple, Inc. | | 327,518 | $ 42,554,414 |
| Construction – 2.5% | |
| Otis Worldwide Corp. | | 144,812 | $ 11,340,228 |
| Sherwin-Williams Co. | | 45,331 | 10,758,406 |
| | | | | $22,098,634 |
| Consumer Products – 4.8% | |
| Church & Dwight Co., Inc. | | 289,656 | $ 23,349,170 |
| Colgate-Palmolive Co. | | 116,209 | 9,156,107 |
| Estee Lauder Cos., Inc., “A” | | 39,435 | 9,784,218 |
| | | | | $42,289,495 |
| Electrical Equipment – 5.9% | |
| Amphenol Corp., “A” | | 291,537 | $ 22,197,627 |
| Fortive Corp. | | 269,244 | 17,298,927 |
| TE Connectivity Ltd. | | 105,292 | 12,087,522 |
| | | | | $51,584,076 |
| Electronics – 3.0% | |
| Analog Devices, Inc. | | 64,487 | $ 10,577,803 |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | 84,342 | 6,282,635 |
| Texas Instruments, Inc. | | 58,860 | 9,724,849 |
| | | | | $26,585,287 |
MFS Massachusetts Investors Growth Stock Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Food & Beverages – 3.1% | |
| McCormick & Co., Inc. | | 173,630 | $ 14,392,191 |
| PepsiCo, Inc. | | 68,913 | 12,449,822 |
| | | | | $26,842,013 |
| Health Maintenance Organizations – 0.8% | |
| Cigna Corp. | | 21,085 | $ 6,986,304 |
| Insurance – 3.8% | |
| Aon PLC | | 75,508 | $ 22,662,971 |
| Marsh & McLennan Cos., Inc. | | 67,177 | 11,116,450 |
| | | | | $33,779,421 |
| Internet – 8.2% | |
| Alphabet, Inc., “A” (a) | | 620,550 | $ 54,751,127 |
| Gartner, Inc. (a) | | 21,268 | 7,149,026 |
| Tencent Holdings Ltd. | | 238,700 | 10,145,276 |
| | | | | $72,045,429 |
| Leisure & Toys – 2.3% | |
| Electronic Arts, Inc. | | 164,446 | $ 20,092,012 |
| Medical & Health Technology & Services – 2.0% | |
| ICON PLC (a) | | 88,731 | $ 17,235,997 |
| Medical Equipment – 12.4% | |
| Abbott Laboratories | | 80,129 | $ 8,797,363 |
| Agilent Technologies, Inc. | | 89,754 | 13,431,686 |
| Becton, Dickinson and Co. | | 56,196 | 14,290,643 |
| Boston Scientific Corp. (a) | | 436,275 | 20,186,444 |
| Danaher Corp. | | 44,540 | 11,821,807 |
| STERIS PLC | | 69,024 | 12,748,043 |
| Stryker Corp. | | 38,582 | 9,432,913 |
| Thermo Fisher Scientific, Inc. | | 33,135 | 18,247,113 |
| | | | | $108,956,012 |
| Other Banks & Diversified Financials – 6.6% | |
| Mastercard, Inc., “A” | | 31,208 | $ 10,851,958 |
| Moody's Corp. | | 42,301 | 11,785,905 |
| Visa, Inc., “A” | | 169,715 | 35,259,988 |
| | | | | $57,897,851 |
| Railroad & Shipping – 1.4% | |
| Canadian Pacific Railway Ltd. | | 166,505 | $ 12,419,608 |
| Restaurants – 1.1% | |
| Starbucks Corp. | | 95,631 | $ 9,486,595 |
| Specialty Stores – 3.3% | |
| Ross Stores, Inc. | | 152,949 | $ 17,752,790 |
| TJX Cos., Inc. | | 145,870 | 11,611,252 |
| | | | | $29,364,042 |
| Telecommunications - Wireless – 1.6% | |
| American Tower Corp., REIT | | 67,397 | $ 14,278,728 |
MFS Massachusetts Investors Growth Stock Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Utilities - Electric Power – 1.0% | |
| Xcel Energy, Inc. | | 128,411 | $ 9,002,895 |
| Total Common Stocks (Identified Cost, $481,894,462) | | $873,079,834 |
| Investment Companies (h) – 0.7% |
| Money Market Funds – 0.7% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $6,194,894) | | | 6,193,387 | $ 6,195,245 |
| Other Assets, Less Liabilities – (0.0)% | | (106,576) |
| Net Assets – 100.0% | $879,168,503 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $6,195,245 and $873,079,834, respectively. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| REIT | Real Estate Investment Trust |
See Notes to Financial Statements
MFS Massachusetts Investors Growth Stock Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $481,894,462) | $873,079,834 |
| Investments in affiliated issuers, at value (identified cost, $6,194,894) | 6,195,245 |
| Receivables for | |
| Investments sold | 66,201 |
| Fund shares sold | 98,327 |
| Dividends | 705,290 |
| Other assets | 4,477 |
| Total assets | $880,149,374 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $812,434 |
| Payable to affiliates | |
| Investment adviser | 926 |
| Administrative services fee | 1,082 |
| Shareholder servicing costs | 114 |
| Distribution and/or service fees | 7,421 |
| Accrued expenses and other liabilities | 158,894 |
| Total liabilities | $980,871 |
| Net assets | $879,168,503 |
| Net assets consist of | |
| Paid-in capital | $439,627,622 |
| Total distributable earnings (loss) | 439,540,881 |
| Net assets | $879,168,503 |
| Shares of beneficial interest outstanding | 46,002,074 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $517,838,921 | 26,844,774 | $19.29 |
| Service Class | 361,329,582 | 19,157,300 | 18.86 |
See Notes to Financial Statements
MFS Massachusetts Investors Growth Stock Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $10,148,544 |
| Dividends from affiliated issuers | 73,126 |
| Other | 126 |
| Foreign taxes withheld | (109,840) |
| Total investment income | $10,111,956 |
| Expenses | |
| Management fee | $7,256,764 |
| Distribution and/or service fees | 982,305 |
| Shareholder servicing costs | 29,030 |
| Administrative services fee | 158,678 |
| Independent Trustees' compensation | 16,021 |
| Custodian fee | 58,628 |
| Shareholder communications | 30,030 |
| Audit and tax fees | 63,702 |
| Legal fees | 4,383 |
| Miscellaneous | 38,181 |
| Total expenses | $8,637,722 |
| Reduction of expenses by investment adviser | (334,071) |
| Net expenses | $8,303,651 |
| Net investment income (loss) | $1,808,305 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $47,847,707 |
| Affiliated issuers | 741 |
| Foreign currency | (19,143) |
| Net realized gain (loss) | $47,829,305 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(274,943,106) |
| Affiliated issuers | 351 |
| Translation of assets and liabilities in foreign currencies | (3,534) |
| Net unrealized gain (loss) | $(274,946,289) |
| Net realized and unrealized gain (loss) | $(227,116,984) |
| Change in net assets from operations | $(225,308,679) |
See Notes to Financial Statements
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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $1,808,305 | $571,880 |
| Net realized gain (loss) | 47,829,305 | 131,578,854 |
| Net unrealized gain (loss) | (274,946,289) | 126,850,492 |
| Change in net assets from operations | $(225,308,679) | $259,001,226 |
| Total distributions to shareholders | $(131,637,497) | $(148,535,842) |
| Change in net assets from fund share transactions | $46,113,579 | $9,979,941 |
| Total change in net assets | $(310,832,597) | $120,445,325 |
| Net assets | | |
| At beginning of period | 1,190,001,100 | 1,069,555,775 |
| At end of period | $879,168,503 | $1,190,001,100 |
See Notes to Financial Statements
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 past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $27.57 | $25.06 | $22.58 | $17.60 | $18.60 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.06 | $0.04 | $0.06 | $0.11 | $0.13 |
| Net realized and unrealized gain (loss) | (5.14) | 6.24 | 4.80 | 6.71 | 0.16 |
| Total from investment operations | $(5.08) | $6.28 | $4.86 | $6.82 | $0.29 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.02) | $(0.07) | $(0.11) | $(0.13) | $(0.12) |
| From net realized gain | (3.18) | (3.70) | (2.27) | (1.71) | (1.17) |
| Total distributions declared to shareholders | $(3.20) | $(3.77) | $(2.38) | $(1.84) | $(1.29) |
| Net asset value, end of period (x) | $19.29 | $27.57 | $25.06 | $22.58 | $17.60 |
| Total return (%) (k)(r)(s)(x) | (19.26) | 25.97 | 22.53 | 39.95 | 0.81 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.79 | 0.78 | 0.79 | 0.79 | 0.80 |
| Expenses after expense reductions | 0.76 | 0.76 | 0.78 | 0.78 | 0.79 |
| Net investment income (loss) | 0.29 | 0.15 | 0.27 | 0.51 | 0.65 |
| Portfolio turnover | 17 | 15 | 33 | 22 | 23 |
| Net assets at end of period (000 omitted) | $517,839 | $714,524 | $641,267 | $603,369 | $493,783 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $27.07 | $24.67 | $22.27 | $17.38 | $18.38 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.01 | $(0.03) | $0.00(w) | $0.05 | $0.08 |
| Net realized and unrealized gain (loss) | (5.04) | 6.14 | 4.72 | 6.62 | 0.16 |
| Total from investment operations | $(5.03) | $6.11 | $4.72 | $6.67 | $0.24 |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $— | $(0.01) | $(0.05) | $(0.07) | $(0.07) |
| From net realized gain | (3.18) | (3.70) | (2.27) | (1.71) | (1.17) |
| Total distributions declared to shareholders | $(3.18) | $(3.71) | $(2.32) | $(1.78) | $(1.24) |
| Net asset value, end of period (x) | $18.86 | $27.07 | $24.67 | $22.27 | $17.38 |
| Total return (%) (k)(r)(s)(x) | (19.45) | 25.66 | 22.20 | 39.58 | 0.58 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.04 | 1.03 | 1.04 | 1.04 | 1.05 |
| Expenses after expense reductions | 1.01 | 1.01 | 1.03 | 1.03 | 1.04 |
| Net investment income (loss) | 0.04 | (0.10) | 0.02 | 0.26 | 0.40 |
| Portfolio turnover | 17 | 15 | 33 | 22 | 23 |
| Net assets at end of period (000 omitted) | $361,330 | $475,478 | $428,289 | $402,228 | $319,950 |
See Notes to Financial Statements
MFS Massachusetts Investors Growth Stock Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Massachusetts Investors Growth Stock Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements - continued
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 significant 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 December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| United States | $835,239,654 | $— | $— | $835,239,654 |
| Canada | 12,419,608 | — | — | 12,419,608 |
| China | — | 10,145,276 | — | 10,145,276 |
| France | — | 8,992,661 | — | 8,992,661 |
| Taiwan | 6,282,635 | — | — | 6,282,635 |
| Mutual Funds | 6,195,245 | — | — | 6,195,245 |
| Total | $860,137,142 | $19,137,937 | $— | $879,275,079 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements - continued
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $16,603,158 | $6,118,487 |
| Long-term capital gains | 115,034,339 | 142,417,355 |
| Total distributions | $131,637,497 | $148,535,842 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/22 | |
| Cost of investments | $489,516,664 |
| Gross appreciation | 406,224,911 |
| Gross depreciation | (16,466,496) |
| Net unrealized appreciation (depreciation) | $389,758,415 |
| Undistributed ordinary income | 1,787,173 |
| Undistributed long-term capital gain | 47,980,688 |
| Other temporary differences | 14,605 |
| Total distributable earnings (loss) | $439,540,881 |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $77,533,633 | | $89,257,028 |
| Service Class | 54,103,864 | | 59,278,814 |
| Total | $131,637,497 | | $148,535,842 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.75% |
| In excess of $1 billion | 0.65% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $134,716, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.74% of the fund's average daily net assets.
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements - continued
For the period from January 1, 2022 through July 31, 2022, the investment adviser had agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses did 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 terminated on July 31, 2022. For the period from January 1, 2022 through July 31, 2022, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
Effective August 1, 2022, the investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.73% of average daily net assets for the Initial Class shares and 0.98% 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, 2024. For the period from August 1, 2022 through December 31, 2022, this reduction amounted to $199,355, which is included in the reduction of total expenses in the Statement of Operations.
Distributor — MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent — MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the year ended December 31, 2022, the fee was $27,592, which equated to 0.0029% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $1,438.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 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 from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended December 31, 2022, the fund engaged in sale transactions pursuant to this policy, which amounted to $1,172,223. The sales transactions resulted in net realized gains (losses) of $(153,148).
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than short-term obligations, aggregated $166,481,132 and $252,260,001, respectively.
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements - 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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 389,377 | $8,711,128 | | 301,917 | $8,152,931 |
| Service Class | 1,467,695 | 32,214,023 | | 638,576 | 16,756,952 |
| | 1,857,072 | $40,925,151 | | 940,493 | $24,909,883 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 3,722,210 | $77,533,633 | | 3,431,643 | $89,257,028 |
| Service Class | 2,654,753 | 54,103,864 | | 2,318,295 | 59,278,814 |
| | 6,376,963 | $131,637,497 | | 5,749,938 | $148,535,842 |
| Shares reacquired | | | | | |
| Initial Class | (3,184,423) | $(71,137,383) | | (3,409,834) | $(91,134,490) |
| Service Class | (2,526,752) | (55,311,686) | | (2,755,500) | (72,331,294) |
| | (5,711,175) | $(126,449,069) | | (6,165,334) | $(163,465,784) |
| Net change | | | | | |
| Initial Class | 927,164 | $15,107,378 | | 323,726 | $6,275,469 |
| Service Class | 1,595,696 | 31,006,201 | | 201,371 | 3,704,472 |
| | 2,522,860 | $46,113,579 | | 525,097 | $9,979,941 |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $4,706 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $4,764,975 | $123,650,836 | $122,221,658 | $741 | $351 | $6,195,245 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $73,126 | $— |
MFS Massachusetts Investors Growth Stock Portfolio
Notes to Financial Statements - continued
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
MFS Massachusetts Investors Growth Stock Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of
MFS Massachusetts Investors Growth Stock Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Massachusetts Investors Growth Stock Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Massachusetts Investors Growth Stock Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS Massachusetts Investors Growth Stock Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS Massachusetts Investors Growth Stock Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Jeffrey Constantino
Joseph Skorski | |
MFS Massachusetts Investors Growth Stock Portfolio
Board Review of Investment Advisory Agreement
MFS Massachusetts Investors Growth Stock Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 2nd quintile for the one-year period and the 4th quintile for the three-year period ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. The Trustees noted that the total return performance (Class I shares) of the Fund’s retail counterpart, Massachusetts Investors Growth Stock Fund, which has substantially similar investment strategies, was in the 3rd
MFS Massachusetts Investors Growth Stock Portfolio
Board Review of Investment Advisory Agreement - continued
quintile relative to the other funds in its Broadridge performance universe for the five-year period ended December 31, 2021. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median. The Trustees also noted that MFS has agreed to further reduce the expense limitation for the Fund effective August 1, 2022.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS Massachusetts Investors Growth Stock Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $126,538,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 47.44% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® Research
International Portfolio
MFS® Variable Insurance Trust II
MFS® Research International Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
MFS Research International Portfolio
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
MFS Research International Portfolio
Portfolio structure
Top ten holdings
| Novo Nordisk A.S., “B” | 3.3% |
| Roche Holding AG | 3.3% |
| Nestle S.A. | 3.1% |
| Linde PLC | 3.0% |
| LVMH Moet Hennessy Louis Vuitton SE | 2.7% |
| Schneider Electric SE | 2.6% |
| Hitachi Ltd. | 1.8% |
| TotalEnergies SE | 1.7% |
| AIA Group Ltd. | 1.7% |
| UBS Group AG | 1.6% |
Global equity sectors (k)
| Capital Goods | 23.1% |
| Financial Services | 20.6% |
| Health Care | 13.4% |
| Technology | 11.5% |
| Consumer Cyclicals | 9.6% |
| Consumer Staples | 8.9% |
| Energy | 8.8% |
| Telecommunications/Cable Television | 3.0% |
Issuer country weightings (x)
| Japan | 19.0% |
| France | 13.1% |
| Switzerland | 13.0% |
| United Kingdom | 12.4% |
| United States | 8.8% |
| Germany | 7.6% |
| Hong Kong | 4.4% |
| Denmark | 3.7% |
| Australia | 3.4% |
| Other Countries | 14.6% |
Currency exposure weightings (y)
| Euro | 31.0% |
| Japanese Yen | 19.0% |
| Swiss Franc | 13.0% |
| British Pound Sterling | 12.7% |
| United States Dollar | 6.5% |
| Hong Kong Dollar | 6.0% |
| Danish Krone | 3.7% |
| Australian Dollar | 3.4% |
| Canadian Dollar | 1.5% |
| Other Currencies | 3.2% |
| (k) | The sectors set forth above and the associated portfolio composition are based on MFS’ own custom sector classification methodology. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio's net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
MFS Research International Portfolio
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Research International Portfolio (fund) provided a total return of -17.58%, while Service Class shares of the fund provided a total return of -17.80%. These compare with a return of -14.45% over the same period for the fund's benchmark, the MSCI EAFE Index (net div).
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Detractors from Performance
Stock selection within the capital goods sector was a primary detractor from the fund’s performance relative to the MSCI EAFE Index. Here, the fund’s overweight positions in specialty chemical products maker Croda International (United Kingdom) and electrical distribution equipment manufacturer Schneider Electric (France), and not owning shares of strong-performing mining company BHP Group (Australia), dampened relative returns.
Stock selection in the financial services sector further weighed on relative performance, led by the fund’s overweight position in real estate company LEG Immobilien (Germany).
Elsewhere, the fund’s holdings of software engineering solutions and technology services provider EPAM Systems(b)(h), and not owning shares of global energy and petrochemicals company Shell (United Kingdom) and biopharmaceutical company AstraZeneca (United Kingdom), weakened relative results. Although EPAM Systems reported strong financial results that easily topped expectations, the company’s stock price dropped after management withdrew its guidance for the upcoming year as the Ukraine and Russian conflict escalated. The fund’s overweight positions in business system services company Nomura Research Institute (Japan), sportswear and sports equipment manufacturer Adidas(h) (Germany) and healthcare, lighting, and consumer well-being technology firm Koninklijke Philips(h) (Netherlands) also held back relative performance. The stock price of Nomura Research Institute declined as the company reported below-consensus operating profit results, driven by overseas restructuring and higher domestic infrastructure procurement costs due to weakness in the yen.
Contributors to Performance
Favorable stock selection within the technology sector strengthened relative performance, led by the timing of the fund’s ownership in shares of semiconductor industry lithography systems manufacturer ASML Holding (Netherlands). The share price of ASML Holding benefited from stronger-than-anticipated orders intake and improved sales guidance. Not owning shares of electronic equipment manufacturer Sony (Japan) further contributed to the fund’s relative returns. The stock price of Sony declined as the company lowered its full-year operating profit guidance due to weakness in its games segment.
MFS Research International Portfolio
Management Review - continued
Stocks in other sectors that benefited relative performance included the fund’s overweight positions in pharmaceutical company Novo Nordisk (Denmark), oil and gas company Galp Energia (Portugal), commodity trading and mining company Glencore (United Kingdom), oil and gas exploration and development company Woodside Energy (Australia) and international banking and financial services provider NatWest Group (United Kingdom). Holdings of industrial gas supplier Linde(b) (United Kingdom) and risk management and human capital consulting services provider Aon(h) (United States) also boosted the fund’s relative returns.
During the reporting period, the fund's relative currency exposure, resulting primarily from differences between the fund's and the benchmark's exposures to holdings of securities denominated in foreign currencies, was a contributor to relative performance. All of MFS' investment decisions are driven by the fundamentals of each individual opportunity and as such, it is common for our funds to have different currency exposure than the benchmark.
The fund’s cash and/or cash equivalents position during the period further supported relative performance. Under normal market conditions, the fund strives to be fully invested and generally holds cash to buy new holdings and to provide liquidity. In a period when equity markets fell, as measured by the fund’s benchmark, holding cash helped performance versus the benchmark, which has no cash position.
Respectfully,
Portfolio Manager(s)
Camille Humphries Lee and Nicholas Paul
Note to Shareholders: Effective December 31, 2022, Nicholas Paul was added as a Portfolio Manager of the fund and Victoria Higley is no longer a Portfolio Manager of the fund.
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
MFS Research International Portfolio
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 5/06/98 | (17.58)% | 2.69% | 4.68% |
| Service Class | 8/24/01 | (17.80)% | 2.43% | 4.42% |
Comparative benchmark(s)
| MSCI EAFE Index (net div) (f) | (14.45)% | 1.54% | 4.67% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
MSCI EAFE (Europe, Australasia, Far East) Index(e) (net div) – a market capitalization-weighted index that is designed to measure equity market performance in the developed markets, excluding the U.S. and Canada.
It is not possible to invest directly in an index.
| (e) | Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
MFS Research International Portfolio
Performance Summary – continued
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
MFS Research International Portfolio
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.96% | $1,000.00 | $1,040.05 | $4.94 |
| Hypothetical (h) | 0.96% | $1,000.00 | $1,020.37 | $4.89 |
| Service Class | Actual | 1.21% | $1,000.00 | $1,037.96 | $6.22 |
| Hypothetical (h) | 1.21% | $1,000.00 | $1,019.11 | $6.16 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
MFS Research International Portfolio
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 98.9% |
| Aerospace & Defense – 1.2% | |
| MTU Aero Engines Holding AG | | 17,538 | $ 3,796,010 |
| Thales S.A. | | 10,822 | 1,383,446 |
| | | | | $5,179,456 |
| Airlines – 0.4% | |
| Ryanair Holdings PLC, ADR (a) | | 23,011 | $ 1,720,302 |
| Alcoholic Beverages – 2.1% | |
| Diageo PLC | | 147,630 | $ 6,514,422 |
| Kirin Holdings Co. Ltd. | | 168,300 | 2,578,873 |
| | | | | $9,093,295 |
| Apparel Manufacturers – 4.7% | |
| Burberry Group PLC | | 60,334 | $ 1,480,698 |
| Compagnie Financiere Richemont S.A. | | 38,398 | 4,968,918 |
| LVMH Moet Hennessy Louis Vuitton SE | | 16,369 | 11,891,176 |
| NIKE, Inc., “B” | | 20,183 | 2,361,613 |
| | | | | $20,702,405 |
| Automotive – 1.6% | |
| Bridgestone Corp. (l) | | 66,400 | $ 2,363,953 |
| Compagnie Generale des Etablissements Michelin | | 86,347 | 2,401,796 |
| Koito Manufacturing Co. Ltd. | | 166,700 | 2,483,126 |
| | | | | $7,248,875 |
| Brokerage & Asset Managers – 3.6% | |
| Euronext N.V. | | 75,969 | $ 5,631,172 |
| Hong Kong Exchanges & Clearing Ltd. | | 104,000 | 4,492,861 |
| London Stock Exchange Group PLC | | 69,719 | 6,014,705 |
| | | | | $16,138,738 |
| Business Services – 1.2% | |
| Nomura Research Institute Ltd. | | 176,400 | $ 4,186,879 |
| Secom Co. Ltd. | | 23,900 | 1,363,385 |
| | | | | $5,550,264 |
| Computer Software – 1.6% | |
| Cadence Design Systems, Inc. (a) | | 16,908 | $ 2,716,101 |
| NAVER Corp. | | 9,464 | 1,344,160 |
| NetEase.com, Inc., ADR | | 39,088 | 2,838,962 |
| | | | | $6,899,223 |
| Computer Software - Systems – 5.8% | |
| Amadeus IT Group S.A. (a) | | 74,064 | $ 3,819,484 |
| Constellation Software, Inc. | | 3,191 | 4,982,013 |
| Fujitsu Ltd. | | 43,500 | 5,760,620 |
| Hitachi Ltd. | | 156,000 | 7,850,676 |
| Samsung Electronics Co. Ltd. | | 74,735 | 3,295,671 |
| | | | | $25,708,464 |
| Construction – 0.9% | |
| Techtronic Industries Co. Ltd. | | 350,500 | $ 3,911,184 |
MFS Research International Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Consumer Products – 1.6% | |
| Kao Corp. | | 62,800 | $ 2,514,584 |
| Reckitt Benckiser Group PLC | | 63,890 | 4,444,379 |
| | | | | $6,958,963 |
| Consumer Services – 1.0% | |
| Carsales.com Ltd. | | 105,518 | $ 1,489,406 |
| Persol Holdings Co. Ltd. | | 82,700 | 1,756,280 |
| SEEK Ltd. | | 75,171 | 1,070,159 |
| | | | | $4,315,845 |
| Electrical Equipment – 3.7% | |
| Legrand S.A. | | 60,593 | $ 4,878,793 |
| Schneider Electric SE | | 80,675 | 11,346,087 |
| | | | | $16,224,880 |
| Electronics – 2.4% | |
| ASML Holding N.V. | | 3,132 | $ 1,689,064 |
| Kyocera Corp. | | 60,300 | 3,010,405 |
| NXP Semiconductors N.V. | | 16,850 | 2,662,806 |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | 225,804 | 3,294,988 |
| | | | | $10,657,263 |
| Energy - Independent – 1.0% | |
| Woodside Energy Group Ltd. | | 176,802 | $ 4,277,743 |
| Energy - Integrated – 4.5% | |
| Eni S.p.A. | | 304,062 | $ 4,324,367 |
| Galp Energia SGPS S.A., “B” | | 418,809 | 5,667,094 |
| Idemitsu Kosan Co. Ltd. | | 113,700 | 2,659,700 |
| TotalEnergies SE (l) | | 119,361 | 7,449,935 |
| | | | | $20,101,096 |
| Energy - Renewables – 0.4% | |
| Orsted A/S | | 17,268 | $ 1,569,253 |
| Food & Beverages – 3.8% | |
| Danone S.A. | | 53,130 | $ 2,799,857 |
| Nestle S.A. | | 120,317 | 13,894,867 |
| | | | | $16,694,724 |
| Food & Drug Stores – 0.3% | |
| Ocado Group PLC (a) | | 56,968 | $ 424,799 |
| Sugi Holdings Co. Ltd. | | 23,700 | 1,056,722 |
| | | | | $1,481,521 |
| Gaming & Lodging – 1.2% | |
| Aristocrat Leisure Ltd. | | 112,928 | $ 2,332,107 |
| Flutter Entertainment PLC (a) | | 8,977 | 1,225,275 |
| Whitbread PLC | | 56,197 | 1,746,042 |
| | | | | $5,303,424 |
MFS Research International Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Insurance – 6.1% | |
| AIA Group Ltd. | | 675,200 | $ 7,438,681 |
| Aon PLC | | 21,399 | 6,422,696 |
| Beazley PLC | | 372,917 | 3,063,445 |
| Hiscox Ltd. | | 156,568 | 2,062,237 |
| Willis Towers Watson PLC | | 9,922 | 2,426,723 |
| Zurich Insurance Group AG | | 11,540 | 5,514,681 |
| | | | | $26,928,463 |
| Internet – 0.5% | |
| Tencent Holdings Ltd. | | 51,100 | $ 2,171,863 |
| Leisure & Toys – 0.4% | |
| Yamaha Corp. | | 49,900 | $ 1,840,971 |
| Machinery & Tools – 6.6% | |
| Daikin Industries Ltd. | | 36,600 | $ 5,633,344 |
| GEA Group AG | | 102,884 | 4,207,047 |
| Kubota Corp. | | 271,100 | 3,734,493 |
| Ritchie Bros. Auctioneers, Inc. | | 30,633 | 1,769,429 |
| Schindler Holding AG | | 17,610 | 3,306,611 |
| SMC Corp. | | 12,200 | 5,166,687 |
| Toyota Industries Corp. | | 57,700 | 3,145,855 |
| Weir Group PLC | | 118,322 | 2,387,428 |
| | | | | $29,350,894 |
| Major Banks – 5.7% | |
| Bank of Ireland Group PLC | | 103,954 | $ 990,370 |
| BNP Paribas | | 119,033 | 6,773,850 |
| Mitsubishi UFJ Financial Group, Inc. | | 576,800 | 3,891,109 |
| NatWest Group PLC | | 2,040,317 | 6,541,533 |
| UBS Group AG | | 378,932 | 7,063,135 |
| | | | | $25,259,997 |
| Medical Equipment – 2.5% | |
| ConvaTec Group PLC | | 897,212 | $ 2,522,976 |
| QIAGEN N.V. (a) | | 117,053 | 5,890,322 |
| Terumo Corp. | | 88,400 | 2,499,850 |
| | | | | $10,913,148 |
| Metals & Mining – 1.6% | |
| Glencore PLC | | 1,033,562 | $ 6,902,376 |
| Natural Gas - Distribution – 0.4% | |
| China Resources Gas Group Ltd. | | 459,700 | $ 1,712,044 |
| Natural Gas - Pipeline – 0.4% | |
| APA Group | | 242,718 | $ 1,778,139 |
| Other Banks & Diversified Financials – 3.6% | |
| HDFC Bank Ltd. | | 196,570 | $ 3,868,554 |
| Julius Baer Group Ltd. | | 66,729 | 3,878,689 |
| Macquarie Group Ltd. | | 34,715 | 3,941,029 |
| Visa, Inc., “A” | | 21,320 | 4,429,443 |
| | | | | $16,117,715 |
MFS Research International Portfolio
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Pharmaceuticals – 11.0% | |
| Bayer AG | | 60,783 | $ 3,144,273 |
| Kyowa Kirin Co. Ltd. | | 218,100 | 5,018,760 |
| Merck KGaA | | 24,571 | 4,758,034 |
| Novo Nordisk A.S., “B” | | 108,621 | 14,666,681 |
| Roche Holding AG | | 46,383 | 14,572,283 |
| Sanofi | | 36,067 | 3,489,865 |
| Santen Pharmaceutical Co. Ltd. | | 349,500 | 2,860,126 |
| | | | | $48,510,022 |
| Printing & Publishing – 0.5% | |
| Wolters Kluwer N.V. | | 23,130 | $ 2,420,488 |
| Real Estate – 1.5% | |
| ESR Group Ltd. | | 854,600 | $ 1,793,407 |
| Grand City Properties S.A. | | 160,980 | 1,583,630 |
| LEG Immobilien SE | | 52,870 | 3,444,351 |
| | | | | $6,821,388 |
| Restaurants – 0.6% | |
| Yum China Holdings, Inc. | | 50,614 | $ 2,766,055 |
| Specialty Chemicals – 7.5% | |
| Akzo Nobel N.V. | | 34,652 | $ 2,320,552 |
| Croda International PLC | | 55,509 | 4,431,787 |
| Kansai Paint Co. Ltd. | | 104,300 | 1,286,663 |
| Linde PLC | | 40,531 | 13,252,372 |
| Nitto Denko Corp. | | 58,800 | 3,382,442 |
| Sika AG | | 17,405 | 4,199,642 |
| Symrise AG | | 40,542 | 4,411,423 |
| | | | | $33,284,881 |
| Specialty Stores – 0.4% | |
| ZOZO, Inc. | | 64,100 | $ 1,592,243 |
| Telecommunications - Wireless – 2.6% | |
| Advanced Info Service Public Co. Ltd. | | 450,900 | $ 2,538,632 |
| Cellnex Telecom S.A. | | 77,022 | 2,561,414 |
| KDDI Corp. | | 129,400 | 3,911,001 |
| SoftBank Group Corp. | | 59,800 | 2,532,414 |
| | | | | $11,543,461 |
| Telephone Services – 0.4% | |
| Hellenic Telecommunications Organization S.A. | | 116,239 | $ 1,815,404 |
| Tobacco – 1.5% | |
| British American Tobacco PLC | | 162,873 | $ 6,461,448 |
| Utilities - Electric Power – 2.1% | |
| CLP Holdings Ltd. | | 273,500 | $ 1,995,506 |
| E.ON SE | | 225,255 | 2,250,653 |
| Iberdrola S.A. | | 449,882 | 5,263,625 |
| | | | | $9,509,784 |
| Total Common Stocks (Identified Cost, $403,371,642) | | $437,437,702 |
MFS Research International Portfolio
Portfolio of Investments – continued
| Issuer | Strike
Price | First
Exercise | Shares/Par | Value ($) |
| Warrants – 0.0% | | | | |
| Apparel Manufacturers – 0.0% |
| Compagnie Financiere Richemont S.A. (1 share for 2 warrants, Expiration 12/04/23) (a) (Identified Cost, $0) | CHF 67.00 | 11/20/23 | 54,066 | $ 45,023 |
| Issuer | | | | |
| Investment Companies (h) – 0.9% |
| Money Market Funds – 0.9% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $4,171,055) | | | 4,170,795 | $ 4,172,046 |
| Collateral for Securities Loaned – 0.7% |
| State Street Navigator Securities Lending Government Money Market Portfolio, 4.33% (j) (Identified Cost, $3,030,833) | | | 3,030,833 | $ 3,030,833 |
| Other Assets, Less Liabilities – (0.5)% | | (2,326,010) |
| Net Assets – 100.0% | $442,359,594 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $4,172,046 and $440,513,558, respectively. | | | |
| (j) | The rate quoted is the annualized seven-day yield of the fund at period end. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
| CHF | Swiss Franc |
See Notes to Financial Statements
MFS Research International Portfolio
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value, including $3,912,309 of securities on loan (identified cost, $406,402,475) | $440,513,558 |
| Investments in affiliated issuers, at value (identified cost, $4,171,055) | 4,172,046 |
| Foreign currency, at value (identified cost, $645,400) | 645,347 |
| Receivables for | |
| Fund shares sold | 56,719 |
| Interest and dividends | 1,664,279 |
| Other assets | 2,150 |
| Total assets | $447,054,099 |
| Liabilities | |
| Payable to custodian | $11,017 |
| Payables for | |
| Investments purchased | 1,042,134 |
| Fund shares reacquired | 355,090 |
| Collateral for securities loaned, at value (c) | 3,030,833 |
| Payable to affiliates | |
| Investment adviser | 26,880 |
| Administrative services fee | 590 |
| Shareholder servicing costs | 84 |
| Distribution and/or service fees | 2,644 |
| Payable for independent Trustees' compensation | 1,152 |
| Deferred country tax expense payable | 74,816 |
| Accrued expenses and other liabilities | 149,265 |
| Total liabilities | $4,694,505 |
| Net assets | $442,359,594 |
| Net assets consist of | |
| Paid-in capital | $418,319,818 |
| Total distributable earnings (loss) | 24,039,776 |
| Net assets | $442,359,594 |
| Shares of beneficial interest outstanding | 29,430,823 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $314,093,048 | 20,801,869 | $15.10 |
| Service Class | 128,266,546 | 8,628,954 | 14.86 |
| (c) | Non-cash collateral is not included. |
See Notes to Financial Statements
MFS Research International Portfolio
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $9,308,510 |
| Dividends from affiliated issuers | 61,299 |
| Income on securities loaned | 8,147 |
| Other | 272 |
| Foreign taxes withheld | (747,304) |
| Total investment income | $8,630,924 |
| Expenses | |
| Management fee | $3,267,152 |
| Distribution and/or service fees | 317,489 |
| Shareholder servicing costs | 14,593 |
| Administrative services fee | 65,377 |
| Independent Trustees' compensation | 8,476 |
| Custodian fee | 101,378 |
| Shareholder communications | 15,362 |
| Audit and tax fees | 67,401 |
| Legal fees | 1,401 |
| Miscellaneous | 41,755 |
| Total expenses | $3,900,384 |
| Reduction of expenses by investment adviser | (95,574) |
| Net expenses | $3,804,810 |
| Net investment income (loss) | $4,826,114 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers (net of $147,810 country tax) | $29,421,612 |
| Affiliated issuers | 3,569 |
| Foreign currency | (127,486) |
| Net realized gain (loss) | $29,297,695 |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (net of $161,240 decrease in deferred country tax) | $(104,059,177) |
| Affiliated issuers | 991 |
| Translation of assets and liabilities in foreign currencies | (54,895) |
| Net unrealized gain (loss) | $(104,113,081) |
| Net realized and unrealized gain (loss) | $(74,815,386) |
| Change in net assets from operations | $(69,989,272) |
See Notes to Financial Statements
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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $4,826,114 | $4,590,838 |
| Net realized gain (loss) | 29,297,695 | 6,940,928 |
| Net unrealized gain (loss) | (104,113,081) | 44,344,578 |
| Change in net assets from operations | $(69,989,272) | $55,876,344 |
| Total distributions to shareholders | $(13,773,367) | $(28,944,311) |
| Change in net assets from fund share transactions | $(2,718,334) | $11,923,218 |
| Total change in net assets | $(86,480,973) | $38,855,251 |
| Net assets | | |
| At beginning of period | 528,840,567 | 489,985,316 |
| At end of period | $442,359,594 | $528,840,567 |
See Notes to Financial Statements
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 past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $19.13 | $18.14 | $16.96 | $14.07 | $17.05 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.22 | $0.18 | $0.17 | $0.31 | $0.25 |
| Net realized and unrealized gain (loss) | (3.59) | 1.91 | 1.92 | 3.51 | (2.56) |
| Total from investment operations | $(3.37) | $2.09 | $2.09 | $3.82 | $(2.31) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.30) | $(0.16) | $(0.34) | $(0.24) | $(0.25) |
| From net realized gain | (0.36) | (0.94) | (0.57) | (0.69) | (0.42) |
| Total distributions declared to shareholders | $(0.66) | $(1.10) | $(0.91) | $(0.93) | $(0.67) |
| Net asset value, end of period (x) | $15.10 | $19.13 | $18.14 | $16.96 | $14.07 |
| Total return (%) (k)(r)(s)(x) | (17.58) | 11.57 | 12.95 | 28.04 | (14.12) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.99 | 0.96 | 0.98 | 0.99 | 0.98 |
| Expenses after expense reductions | 0.96 | 0.95 | 0.96 | 0.96 | 0.97 |
| Net investment income (loss) | 1.40 | 0.96 | 1.06 | 1.99 | 1.51 |
| Portfolio turnover | 22 | 23 | 28 | 24 | 25 |
| Net assets at end of period (000 omitted) | $314,093 | $387,370 | $369,243 | $356,291 | $302,386 |
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $18.84 | $17.90 | $16.74 | $13.90 | $16.84 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $0.19 | $0.13 | $0.14 | $0.26 | $0.21 |
| Net realized and unrealized gain (loss) | (3.55) | 1.88 | 1.89 | 3.47 | (2.53) |
| Total from investment operations | $(3.36) | $2.01 | $2.03 | $3.73 | $(2.32) |
| Less distributions declared to shareholders | | | | | |
| From net investment income | $(0.26) | $(0.13) | $(0.30) | $(0.20) | $(0.20) |
| From net realized gain | (0.36) | (0.94) | (0.57) | (0.69) | (0.42) |
| Total distributions declared to shareholders | $(0.62) | $(1.07) | $(0.87) | $(0.89) | $(0.62) |
| Net asset value, end of period (x) | $14.86 | $18.84 | $17.90 | $16.74 | $13.90 |
| Total return (%) (k)(r)(s)(x) | (17.80) | 11.27 | 12.71 | 27.67 | (14.32) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.24 | 1.22 | 1.23 | 1.24 | 1.23 |
| Expenses after expense reductions | 1.21 | 1.20 | 1.21 | 1.21 | 1.22 |
| Net investment income (loss) | 1.20 | 0.69 | 0.87 | 1.65 | 1.27 |
| Portfolio turnover | 22 | 23 | 28 | 24 | 25 |
| Net assets at end of period (000 omitted) | $128,267 | $141,471 | $120,742 | $100,445 | $66,789 |
See Notes to Financial Statements
MFS Research International Portfolio
Financial Highlights - continued
| (d) | Per share data is based on average shares outstanding. |
| (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 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
MFS Research International Portfolio
Notes to Financial Statements
(1) Business and Organization
MFS Research International Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign
MFS Research International Portfolio
Notes to Financial Statements - continued
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 significant 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 December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| Japan | $36,508,264 | $47,572,897 | $— | $84,081,161 |
| France | 5,201,653 | 52,844,324 | — | 58,045,977 |
| Switzerland | 14,617,306 | 42,826,543 | — | 57,443,849 |
| United Kingdom | 54,998,275 | — | — | 54,998,275 |
| United States | 34,271,754 | — | — | 34,271,754 |
| Germany | 33,485,743 | — | — | 33,485,743 |
| Hong Kong | 12,192,958 | 7,438,681 | — | 19,631,639 |
| Denmark | 16,235,934 | — | — | 16,235,934 |
| Australia | 1,778,139 | 13,110,444 | — | 14,888,583 |
| Other Countries | 41,289,448 | 23,110,362 | — | 64,399,810 |
| Mutual Funds | 7,202,879 | — | — | 7,202,879 |
| Total | $257,782,353 | $186,903,251 | $— | $444,685,604 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund's Portfolio of Investments, with a fair value of $3,912,309. The fair value of the fund's investment securities on loan and a related liability of $3,030,833 for cash collateral received on securities loaned are both presented gross in the Statement of Assets and Liabilities. Additionally, these loans were collateralized by U.S. Treasury Obligations of
MFS Research International Portfolio
Notes to Financial Statements - continued
$1,096,491 held by the lending agent. The collateral on securities loaned exceeded the value of securities on loan at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to passive foreign investment companies, wash sale loss deferrals, and redemptions in-kind.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $10,502,993 | $6,016,271 |
| Long-term capital gains | 3,270,374 | 22,928,040 |
| Total distributions | $13,773,367 | $28,944,311 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
MFS Research International Portfolio
Notes to Financial Statements - continued
| As of 12/31/22 | |
| Cost of investments | $414,556,980 |
| Gross appreciation | 64,329,839 |
| Gross depreciation | (34,201,215) |
| Net unrealized appreciation (depreciation) | $30,128,624 |
| Undistributed ordinary income | 4,292,076 |
| Capital loss carryforwards | (10,245,755) |
| Other temporary differences | (135,169) |
| Total distributable earnings (loss) | $24,039,776 |
As of December 31, 2022, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(2,686,431) |
| Long-Term | (7,559,324) |
| Total | $(10,245,755) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $8,626,934 | | $21,510,111 |
| Service Class | 5,146,433 | | 7,434,200 |
| Total | $13,773,367 | | $28,944,311 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.90% |
| In excess of $1 billion and up to $2 billion | 0.80% |
| In excess of $2 billion | 0.70% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $50,371, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.89% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses, such that total annual operating expenses do not exceed 0.96% of average daily net assets for the Initial Class shares and 1.21% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this reduction amounted to $45,203, which is included in the reduction of total expenses in the Statement of Operations.
MFS Research International Portfolio
Notes to Financial Statements - 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 year ended December 31, 2022, the fee was $13,365, which equated to 0.0037% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $1,228.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0180% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended December 31, 2022, the fund engaged in purchase transactions pursuant to this policy, which amounted to $33,158.
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than in-kind transactions and short-term obligations, aggregated $192,643,769 and $80,855,687, 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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 8,640,598 | $127,704,449 | | 1,505,288 | $28,286,847 |
| Service Class | 2,676,944 | 42,224,462 | | 1,163,923 | 21,941,026 |
| | 11,317,542 | $169,928,911 | | 2,669,211 | $50,227,873 |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 573,981 | $8,626,934 | | 1,130,326 | $21,510,111 |
| Service Class | 347,497 | 5,146,433 | | 396,279 | 7,434,200 |
| | 921,478 | $13,773,367 | | 1,526,605 | $28,944,311 |
MFS Research International Portfolio
Notes to Financial Statements - continued
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares reacquired | | | | | |
| Initial Class | (8,667,276) | $(156,672,950) | | (2,738,021) | $(52,292,691) |
| Service Class | (1,904,730) | (29,747,662) | | (796,926) | (14,956,275) |
| | (10,572,006) | $(186,420,612) | | (3,534,947) | $(67,248,966) |
| Net change | | | | | |
| Initial Class | 547,303 | $(20,341,567) | | (102,407) | $(2,495,733) |
| Service Class | 1,119,711 | 17,623,233 | | 763,276 | 14,418,951 |
| | 1,667,014 | $(2,718,334) | | 660,869 | $11,923,218 |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 16%, 5%, and 3%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $1,718 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $5,858,779 | $169,046,736 | $170,738,029 | $3,569 | $991 | $4,172,046 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $61,299 | $— |
(8) Redemptions In-Kind
On January 10, 2022, the fund recorded redemption proceeds for a distribution in-kind of portfolio securities and cash that were valued at $130,118,114. The redeeming shareholder generally receives a pro rata share of the securities held by the fund. The distribution of such securities generated a realized gain (loss) of $42,503,070 for the fund. For tax purposes, no gains were recognized with respect to the portfolio securities redeemed in-kind.
MFS Research International Portfolio
Notes to Financial Statements - continued
(9) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(10) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
MFS Research International Portfolio
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Research International Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Research International Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
MFS Research International Portfolio
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
MFS Research International Portfolio
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
MFS Research International Portfolio
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Camille Humphries Lee
Nicholas Paul | |
MFS Research International Portfolio
Board Review of Investment Advisory Agreement
MFS Research International Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 2nd quintile for the one-year period and the 1st quintile for the three-year period ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
MFS Research International Portfolio
Board Review of Investment Advisory Agreement - continued
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
MFS Research International Portfolio
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $3,598,000 as capital gain dividends paid during the fiscal year.
Income derived from foreign sources was $9,251,090. The fund intends to pass through foreign tax credits of $709,473 for the fiscal year.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Annual Report
December 31, 2022
MFS® Technology Portfolio
MFS® Variable Insurance Trust II
MFS® Technology Portfolio
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The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK OR CREDIT UNION GUARANTEE •
NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
LETTER FROM THE CHAIR AND CEO
Dear Shareholders:
Signs of peaking inflation, hopes that monetary policy tightening cycles may be nearing an end and a rapid reopening of China’s economy in late-2022 and early-2023 have combined to bolster investor sentiment in recent months. Markets have largely adjusted to the challenges posed by Russia’s invasion of Ukraine, thanks in part to mild European winter weather which has alleviated concerns over potential shortages of natural gas. Resilient labor markets in much of the developed world have further contributed to a brighter-than-expected economic backdrop. However, many investors are mindful that the lagged effects of ongoing policy tightening have yet to work their way through the global economy.
Tighter global financial conditions have been a particular headwind for richly valued growth equities and interest rate-sensitive parts of the economy, such as housing. Over the near term, companies may face a challenging earnings backdrop as they are forced to absorb higher input and labor costs at a time of dwindling pricing power. For fixed income, the rise in interest rates has made bonds more attractive than they have been in years, which may provide balance to an overall portfolio.
During times of market transition, it is important to have a deep understanding of company fundamentals, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W. Roberge
Chair and Chief Executive Officer
MFS Investment Management
February 15, 2023
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
Portfolio structure (i)
Top ten holdings
| Microsoft Corp. | 13.0% |
| Alphabet, Inc., “A” | 8.7% |
| Amazon.com, Inc. | 7.6% |
| Mastercard, Inc., “A” | 6.1% |
| Booking Holdings, Inc. | 3.2% |
| Adobe Systems, Inc. | 2.7% |
| Intuit, Inc. | 2.6% |
| NVIDIA Corp. | 2.5% |
| Accenture PLC, “A” | 2.4% |
| Visa, Inc., “A” | 2.4% |
Top five industries (i)
| Computer Software | 26.2% |
| Business Services | 15.6% |
| Internet | 12.0% |
| Other Banks & Diversified Financials | 9.1% |
| Specialty Stores | 7.6% |
| (i) | For purposes of this presentation, the components include the value of securities, less any securities sold short, and reflect the impact of the equivalent exposure of derivative positions. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of December 31, 2022.
The portfolio is actively managed and current holdings may be different.
Management Review
Summary of Results
For the twelve months ended December 31, 2022, Initial Class shares of the MFS Technology Portfolio (fund) provided a total return of -35.70%, while Service Class shares of the fund provided a total return of -35.85%. These compare with a return of -18.11% over the same period for the fund’s benchmark, the Standard & Poor's 500 Stock Index, and a return of -35.36% for the fund’s other benchmark, the Standard & Poor's North American Technology Sector Index.
Market Environment
During the reporting period, markets continued to grapple with the strongest global inflationary pressures in decades along with signs of slowing economic growth. Intermittent coronavirus flareups, particularly in China, where home-grown vaccines have proved less effective than elsewhere, kept supply chains stretched for a considerable period. At the same time, the reopening of the economy in the parts of the world where the virus has been better contained has led to a shift in consumption patterns in favor of services, straining already tight labor markets in most developed economies, while reducing demand for manufactured goods, primarily from Asia. As a result of Russia’s invasion of Ukraine, geopolitical considerations, such as sanctions and trade bans, have resulted in additional supply chain disruptions and volatile global energy prices. Taken together, these factors have contributed to market volatility.
The ripple effects from the Russian invasion further complicated the mission central banks must undertake to rein in surging inflation. Energy shocks have historically resulted in global growth slowdowns, if not pullbacks, so policymakers will find themselves in the difficult position of trying to restrain inflation without tipping economies into recession. Despite the challenging macroeconomic and geopolitical environment, policymakers remained focused on controlling inflation, although investors appeared to have expected varying degrees of action from the central banks. The Fed has been among the most aggressive developed market central banks, tightening policy at the fastest rate in decades, although it slowed its hiking pace at the end of the period, as did the European Central Bank. After remaining on the monetary sidelines for much of the period, the Bank of Japan widened its Yield Curve Control band, capping the yield on its 10-year bond at 0.5%, up from 0.25%, an action investors interpreted as a first step toward monetary policy normalization.
Against an environment of still-tight labor markets, tighter global financial conditions and volatile materials prices, investor anxiety appeared to have increased over the potential that corporate profit margins may be past peak for this cycle. That said, tentative signs that supply chain bottlenecks (particularly semiconductors) may be moderating, the easing of COVID restrictions in China, low levels of unemployment across developed markets and hopes that inflation levels may be near a peak were supportive factors for the macroeconomic backdrop.
Detractors from Performance
Stock selection in both the semiconductor & semiconductor equipment and software industries weighed on the fund’s performance relative to the Standard & Poor’s North American Technology Sector Index. Within the semiconductor & semiconductor equipment industry, not owning shares of broadband communications and networking services company Broadcom and semiconductor company Texas Instruments held back relative returns. Although the company posted negative absolute returns for the period, the share price of Broadcom outperformed the benchmark, benefiting from broad-based demand strength across its networking, broadband, storage and industrial semiconductor segments. Broadcom’s management also raised its dividend, which appeared to have further supported investor sentiment. Within the software industry, not owning shares of enterprise software products maker Oracle, and an overweight position in global enterprise cloud communications and collaboration solutions provider RingCentral, weakened relative results. Despite delivering a negative return in absolute terms, the share price of Oracle outpaced the benchmark, primarily driven by strong sales and margins attributable to robust momentum growth within its cloud segment.
An underweight position in the technology hardware storage & peripherals industry also dampened relative returns, led by the fund’s underweight position in computer and personal electronics maker Apple. Although Apple posted negative absolute returns for the period, its share price outpaced the benchmark as it faced lower-than-expected supply chain headwinds. Despite ongoing component shortages impacting Mac and iPad sales, Apple continued to demonstrate the strength of its product ecosystem with broad-based growth. iPhone sales remained strong across all regions with revenue growth ahead of estimates, offsetting production disruptions caused by factory lockdowns in China.
Elsewhere, not owning shares of diversified technology products and services company International Business Machines (IBM) and cloud-based human capital management solutions provider Automatic Data Processing held back relative returns. Additionally, an overweight position in internet retailer Amazon.com, an underweight position in digital payments services provider Visa, and the fund’s holdings of technology services provider Endava(b) further weighed on relative results.
Management Review - continued
Contributors to Performance
Stock selection in the interactive media & services industry contributed to relative performance, led by the fund’s underweight position in social networking service provider Meta Platforms. The stock price of Meta Platforms fell during the reporting period due to a reduction in the company’s forward-looking guidance, driven by higher-than-anticipated expenses, uncertain macroeconomic conditions and weakening of online advertising demand.
The fund’s exposure to both the insurance and capital markets industries, for which the benchmark has no exposure, also supported relative results. Within the insurance industry, the fund’s holdings of insurance brokerage services provider Arthur J Gallagher(b) boosted relative returns. The share price of Arthur J Gallagher benefited from healthy organic growth across the board with brokerage and risk management sales driving the upside. Within the capital markets industry, holdings of financial services provider Charles Schwab(b) aided relative performance. The share price of Charles Schwab advanced as the company increased its net interest income growth expectations, reflecting a higher interest rate environment, and announced that it would lower its tier 1 capital requirement levels, potentially freeing up capital for other uses, such as share buybacks.
Stocks in other sectors that strengthened relative results included the fund’s overweight positions in debit and credit transaction processing company Mastercard, payment processing and information management solutions provider WEX and software giant Microsoft. Additionally, holdings of online travel company Booking(b) and integrated payment and frictionless commerce solutions provider Paya(b), coupled with the timing of the fund’s ownership in shares of cloud-based e-commerce platform operator Shopify, further contributed to relative performance.
The fund’s cash and/or cash equivalents position during the period was also a contributor to relative performance. Under normal market conditions, the fund strives to be fully invested and generally holds cash to buy new holdings and to provide liquidity. In a period when equity markets fell, as measured by the fund’s benchmark, holding cash helped performance versus the benchmark, which has no cash position.
Respectfully,
Portfolio Manager(s)
Reinier Dobbelmann and Matthew Sabel
Note to Shareholders: Effective May 15, 2022, Reinier Dobbelmann was added as a Portfolio Manager of the fund. MFS anticipates that Matthew Sabel will retire as a Portfolio Manager of the fund by May 31, 2024.
| (b) | Security is not a benchmark constituent. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
Performance Summary Through 12/31/22
The following chart illustrates the historical performance of the fund in comparison to its benchmark(s). Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect any fees or expenses. The performance of other share classes will be greater than or less than that of the class depicted below. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for the fund shown also do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges imposed by the insurance company separate accounts. Such expenses would reduce the overall returns shown.
Growth of a Hypothetical $10,000 Investment
Total Returns through 12/31/22
Average annual total returns
| Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr |
| Initial Class | 6/16/00 | (35.70)% | 8.26% | 14.05% |
| Service Class | 8/24/01 | (35.85)% | 8.00% | 13.76% |
Comparative benchmark(s)
| Standard & Poor's 500 Stock Index (f) | (18.11)% | 9.42% | 12.56% |
| Standard & Poor's North American Technology Sector Index (f) | (35.36)% | 11.73% | 16.60% |
| (f) | Source: FactSet Research Systems Inc. |
Benchmark Definition(s)
Standard & Poor's 500 Stock Index(g) – a market capitalization-weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance.
Standard & Poor's North American Technology Sector Index(g) - a modified market capitalization-weighted index that measures the performance of selected technology stocks.
It is not possible to invest directly in an index.
| (g) | “Standard & Poor's®” and “S&P®” are registered trademarks of Standard & Poor's Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by MFS. The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS's product(s) is not sponsored, endorsed, sold, or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, nor their respective affiliates make any representation regarding the advisability of investing in such product(s). |
Performance Summary – continued
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund's performance results would be less favorable. Please see the prospectus and financial statements for complete details. All results are historical and assume the reinvestment of any dividends and capital gains distributions.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
Expense Table
Fund expenses borne by the shareholders during the period,
July 1, 2022 through December 31, 2022
As a shareholder 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 July 1, 2022 through December 31, 2022.
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
7/01/22 | Ending
Account Value
12/31/22 | Expenses
Paid During
Period (p)
7/01/22-12/31/22 |
| Initial Class | Actual | 0.89% | $1,000.00 | $932.32 | $4.33 |
| Hypothetical (h) | 0.89% | $1,000.00 | $1,020.72 | $4.53 |
| Service Class | Actual | 1.14% | $1,000.00 | $931.40 | $5.55 |
| Hypothetical (h) | 1.14% | $1,000.00 | $1,019.46 | $5.80 |
| (h) | 5% class return per year before expenses. |
| (p) | “Expenses Paid During Period” are equal to each class's annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Portfolio of Investments − 12/31/22
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – 95.4% |
| Brokerage & Asset Managers – 2.1% | |
| Charles Schwab Corp. | | 15,630 | $ 1,301,354 |
| CME Group, Inc. | | 1,965 | 330,434 |
| Tradeweb Markets, Inc. | | 6,447 | 418,604 |
| | | | | $2,050,392 |
| Business Services – 15.6% | |
| Accenture PLC, “A” | | 8,863 | $ 2,365,003 |
| Endava PLC, ADR (a) | | 9,745 | 745,493 |
| Equifax, Inc. | | 2,685 | 521,857 |
| Factset Research Systems, Inc. | | 601 | 241,127 |
| Fidelity National Information Services, Inc. | | 17,197 | 1,166,816 |
| FleetCor Technologies, Inc. (a) | | 6,770 | 1,243,514 |
| Global Payments, Inc. | | 15,691 | 1,558,431 |
| Morningstar, Inc. | | 2,265 | 490,576 |
| MSCI, Inc. | | 1,542 | 717,292 |
| Paya, Inc. (a) | | 123,245 | 969,938 |
| PayPal Holdings, Inc. (a) | | 19,666 | 1,400,613 |
| TaskUs, Inc., “A” (a) | | 11,246 | 190,057 |
| Thoughtworks Holding, Inc. (a) | | 48,401 | 493,206 |
| TransUnion | | 5,449 | 309,231 |
| Verisk Analytics, Inc., “A” | | 5,160 | 910,327 |
| WEX, Inc. (a) | | 12,098 | 1,979,838 |
| | | | | $15,303,319 |
| Cable TV – 0.6% | |
| Charter Communications, Inc., “A” (a) | | 1,646 | $ 558,159 |
| Computer Software – 26.2% | |
| Activision Blizzard, Inc. | | 10,207 | $ 781,346 |
| Adobe Systems, Inc. (a) | | 7,761 | 2,611,809 |
| Asana, Inc. (a) | | 1,508 | 20,765 |
| Atlassian Corp. (a) | | 2,838 | 365,194 |
| Black Knight, Inc. (a) | | 17,837 | 1,101,435 |
| Dun & Bradstreet Holdings, Inc. | | 47,409 | 581,234 |
| Freshworks, Inc, ���A” (a)(l) | | 6,819 | 100,308 |
| Intuit, Inc. | | 6,535 | 2,543,553 |
| Microsoft Corp. (s) | | 53,033 | 12,718,374 |
| Mobileye Global, Inc., “A” (a) | | 17,333 | 607,695 |
| Palo Alto Networks, Inc. (a) | | 6,002 | 837,519 |
| Paycor HCM, Inc. (a) | | 12,779 | 312,702 |
| Qualtrics International, “A” (a) | | 8,719 | 90,503 |
| RAKUS Co. Ltd. | | 13,300 | 160,524 |
| RingCentral, Inc. (a) | | 9,426 | 333,680 |
| Salesforce, Inc. (a) | | 15,701 | 2,081,796 |
| Topicus.com, Inc. (a) | | 7,944 | 417,089 |
| | | | | $25,665,526 |
| Computer Software - Systems – 7.6% | |
| Apple, Inc. (s) | | 9,207 | $ 1,196,265 |
| Arista Networks, Inc. (a) | | 4,913 | 596,193 |
| Constellation Software, Inc. | | 629 | 982,039 |
| Descartes Systems Group, Inc. (a) | | 13,003 | 906,465 |
| Hitachi Ltd. | | 14,600 | 734,743 |
| HubSpot, Inc. (a) | | 1,530 | 442,369 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Common Stocks – continued |
| Computer Software - Systems – continued | |
| Nuvei Corp. (a) | | 6,172 | $ 156,830 |
| Q2 Holdings, Inc. (a) | | 7,891 | 212,031 |
| ServiceNow, Inc. (a) | | 4,220 | 1,638,499 |
| Shopify, Inc. (a) | | 15,875 | 551,021 |
| | | | | $7,416,455 |
| Consumer Services – 3.2% | |
| Booking Holdings, Inc. (a) | | 1,547 | $ 3,117,638 |
| Electronics – 6.2% | |
| Advanced Micro Devices (a)(s) | | 11,960 | $ 774,649 |
| KLA Corp. | | 3,456 | 1,303,016 |
| Lam Research Corp. | | 1,000 | 420,300 |
| Marvell Technology, Inc. | | 31,952 | 1,183,502 |
| NVIDIA Corp. | | 16,478 | 2,408,095 |
| | | | | $6,089,562 |
| Energy - Renewables – 0.5% | |
| Enphase Energy, Inc. (a) | | 1,809 | $ 479,313 |
| Insurance – 3.4% | |
| Aon PLC | | 4,342 | $ 1,303,208 |
| Arthur J. Gallagher & Co. | | 10,952 | 2,064,890 |
| | | | | $3,368,098 |
| Internet – 12.0% | |
| Alphabet, Inc., “A” (a)(s) | | 96,920 | $ 8,551,252 |
| Gartner, Inc. (a) | | 3,023 | 1,016,151 |
| Meta Platforms, Inc., “A” (a) | | 9,552 | 1,149,488 |
| Pinterest, Inc. (a) | | 6,643 | 161,292 |
| Tencent Holdings Ltd. | | 20,900 | 888,296 |
| | | | | $11,766,479 |
| Leisure & Toys – 0.9% | |
| Take-Two Interactive Software, Inc. (a) | | 8,706 | $ 906,556 |
| Medical Equipment – 0.1% | |
| Maravai Lifesciences Holdings, Inc., “A” (a) | | 8,632 | $ 123,524 |
| Other Banks & Diversified Financials – 9.1% | |
| Mastercard, Inc., “A” | | 17,109 | $ 5,949,312 |
| S&P Global, Inc. | | 2,002 | 670,550 |
| Visa, Inc., “A” | | 11,359 | 2,359,946 |
| | | | | $8,979,808 |
| Specialty Stores – 7.6% | |
| Amazon.com, Inc. (a)(s) | | 89,018 | $ 7,477,512 |
| Telecommunications - Wireless – 0.3% | |
| SBA Communications Corp., REIT | | 972 | $ 272,461 |
| Total Common Stocks (Identified Cost, $83,386,706) | | $93,574,802 |
Portfolio of Investments – continued
| Issuer | | | Shares/Par | Value ($) |
| Investment Companies (h) – 4.3% |
| Money Market Funds – 4.3% | |
| MFS Institutional Money Market Portfolio, 4.02% (v) (Identified Cost, $4,211,413) | | | 4,211,548 | $ 4,212,811 |
| Underlying/Expiration Date/Exercise Price | Put/Call | Counterparty | Notional
Amount | Par Amount/
Number of
Contracts | |
| Purchased Options – 0.5% | |
| Special Products & Services – 0.5% | |
| Invesco QQQ Trust Series I – June 2023 @ $295 (Premiums Paid, $370,274) | Put | Goldman Sachs International | $ 3,701,292 | 139 | $477,743 |
| Other Assets, Less Liabilities – (0.2)% | (204,363) |
| Net Assets – 100.0% | $98,060,993 |
| (a) | Non-income producing security. | | | |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $4,212,811 and $94,052,545, respectively. | | | |
| (l) | A portion of this security is on loan. See Note 2 for additional information. | | | |
| (s) | Security or a portion of the security was pledged to cover collateral requirements for certain derivative transactions. | | | |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. | | | |
| The following abbreviations are used in this report and are defined: |
| ADR | American Depositary Receipt |
| REIT | Real Estate Investment Trust |
At December 31, 2022, the fund had cash collateral of $8,784 and other liquid securities with an aggregate value of $64,172 to cover any collateral or margin obligations for certain derivative contracts. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised of cash collateral.
See Notes to Financial Statements
| Financial Statements | Statement of Assets and Liabilities |
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| At 12/31/22Assets | |
| Investments in unaffiliated issuers, at value, including $50,146 of securities on loan (identified cost, $83,756,980) | $94,052,545 |
| Investments in affiliated issuers, at value (identified cost, $4,211,413) | 4,212,811 |
| Deposits with brokers for | |
| Cleared options | 8,784 |
| Receivables for | |
| Fund shares sold | 40,220 |
| Interest and dividends | 11,122 |
| Other assets | 796 |
| Total assets | $98,326,278 |
| Liabilities | |
| Payables for | |
| Fund shares reacquired | $201,094 |
| Payable to affiliates | |
| Investment adviser | 5,909 |
| Administrative services fee | 198 |
| Shareholder servicing costs | 31 |
| Distribution and/or service fees | 1,656 |
| Payable for independent Trustees' compensation | 189 |
| Accrued expenses and other liabilities | 56,208 |
| Total liabilities | $265,285 |
| Net assets | $98,060,993 |
| Net assets consist of | |
| Paid-in capital | $93,285,189 |
| Total distributable earnings (loss) | 4,775,804 |
| Net assets | $98,060,993 |
| Shares of beneficial interest outstanding | 5,313,093 |
| | Net assets | Shares
outstanding | Net asset value
per share |
| Initial Class | $17,105,932 | 866,802 | $19.73 |
| Service Class | 80,955,061 | 4,446,291 | 18.21 |
See Notes to Financial Statements
| Financial Statements | Statement of Operations |
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.
| Year ended 12/31/22 | |
| Net investment income (loss) | |
| Income | |
| Dividends | $484,262 |
| Dividends from affiliated issuers | 63,549 |
| Other | 2,846 |
| Income on securities loaned | 198 |
| Foreign taxes withheld | (1,065) |
| Total investment income | $549,790 |
| Expenses | |
| Management fee | $804,792 |
| Distribution and/or service fees | 217,525 |
| Shareholder servicing costs | 7,986 |
| Administrative services fee | 26,332 |
| Independent Trustees' compensation | 4,013 |
| Custodian fee | 8,577 |
| Shareholder communications | 11,406 |
| Audit and tax fees | 62,162 |
| Legal fees | 532 |
| Miscellaneous | 34,124 |
| Total expenses | $1,177,449 |
| Reduction of expenses by investment adviser | (14,953) |
| Net expenses | $1,162,496 |
| Net investment income (loss) | $(612,706) |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(5,053,800) |
| Affiliated issuers | (229) |
| Foreign currency | (1,901) |
| Net realized gain (loss) | $(5,055,930) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers | $(44,243,181) |
| Affiliated issuers | 1,398 |
| Net unrealized gain (loss) | $(44,241,783) |
| Net realized and unrealized gain (loss) | $(49,297,713) |
| Change in net assets from operations | $(49,910,419) |
See Notes to Financial Statements
| 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.
| | Year ended |
| | 12/31/22 | 12/31/21 |
| Change in net assets | | |
| From operations | | |
| Net investment income (loss) | $(612,706) | $(1,002,027) |
| Net realized gain (loss) | (5,055,930) | 11,162,183 |
| Net unrealized gain (loss) | (44,241,783) | 4,968,309 |
| Change in net assets from operations | $(49,910,419) | $15,128,465 |
| Total distributions to shareholders | $(10,135,043) | $(6,980,065) |
| Change in net assets from fund share transactions | $23,742,044 | $21,904,529 |
| Total change in net assets | $(36,303,418) | $30,052,929 |
| Net assets | | |
| At beginning of period | 134,364,411 | 104,311,482 |
| At end of period | $98,060,993 | $134,364,411 |
See Notes to Financial Statements
| Financial Statements | Financial Highlights |
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Initial Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $33.58 | $31.10 | $21.18 | $17.34 | $17.96 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $(0.09) | $(0.21) | $(0.14) | $(0.09) | $(0.07) |
| Net realized and unrealized gain (loss) | (11.54) | 4.47 | 10.06 | 6.16 | 0.58 |
| Total from investment operations | $(11.63) | $4.26 | $9.92 | $6.07 | $0.51 |
| Less distributions declared to shareholders | | | | | |
| From net realized gain | $(2.22) | $(1.78) | $— | $(2.23) | $(1.13) |
| Net asset value, end of period (x) | $19.73 | $33.58 | $31.10 | $21.18 | $17.34 |
| Total return (%) (k)(r)(s)(x) | (35.70) | 13.68 | 46.84 | 36.16 | 1.73 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 0.89 | 0.88 | 0.94 | 0.97 | 0.94 |
| Expenses after expense reductions | 0.88 | 0.87 | 0.93 | 0.96 | 0.93 |
| Net investment income (loss) | (0.37) | (0.62) | (0.55) | (0.44) | (0.38) |
| Portfolio turnover | 28 | 44 | 57 | 33 | 39 |
| Net assets at end of period (000 omitted) | $17,106 | $28,740 | $28,768 | $19,336 | $17,056 |
| Supplemental Ratios (%): | | | | | |
| Ratios of expenses to average net assets after expense reductions and excluding interest expense and fees | N/A | 0.86 | 0.91 | 0.93 | 0.85 |
See Notes to Financial Statements
Financial Highlights - continued
| Service Class | Year ended |
| | 12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
| Net asset value, beginning of period | $31.29 | $29.15 | $19.91 | $16.44 | $17.11 |
| Income (loss) from investment operations | | | | | |
| Net investment income (loss) (d) | $(0.14) | $(0.27) | $(0.19) | $(0.13) | $(0.12) |
| Net realized and unrealized gain (loss) | (10.72) | 4.19 | 9.43 | 5.83 | 0.58 |
| Total from investment operations | $(10.86) | $3.92 | $9.24 | $5.70 | $0.46 |
| Less distributions declared to shareholders | | | | | |
| From net realized gain | $(2.22) | $(1.78) | $— | $(2.23) | $(1.13) |
| Net asset value, end of period (x) | $18.21 | $31.29 | $29.15 | $19.91 | $16.44 |
| Total return (%) (k)(r)(s)(x) | (35.85) | 13.43 | 46.41 | 35.88 | 1.52 |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
| Expenses before expense reductions | 1.15 | 1.13 | 1.19 | 1.22 | 1.16 |
| Expenses after expense reductions | 1.13 | 1.12 | 1.18 | 1.21 | 1.15 |
| Net investment income (loss) | (0.62) | (0.87) | (0.81) | (0.69) | (0.61) |
| Portfolio turnover | 28 | 44 | 57 | 33 | 39 |
| Net assets at end of period (000 omitted) | $80,955 | $105,624 | $75,544 | $48,811 | $39,272 |
| Supplemental Ratios (%): | | | | | |
| Ratios of expenses to average net assets after expense reductions and excluding interest expense and fees | N/A | 1.11 | 1.16 | 1.18 | 1.07 |
| (d) | Per share data is based on average shares outstanding. |
| (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 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
Notes to Financial Statements
(1) Business and Organization
MFS Technology Portfolio (the fund) is a non-diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests primarily in securities of issuers in the technology industry. Issuers in a single industry can react similarly to market, currency, political, economic, regulatory, geopolitical, environmental, public health, and other conditions. The value of stocks in the technology sector can be very volatile due to the rapid pace of product change, technological developments, and other factors.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. Effective September 8, 2022, and in accordance with Rule 2a-5 under the Investment Company Act of 1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy and procedures, equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. For put options, the position may be valued at the last daily ask quotation if there are no trades reported during the day. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. 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.
Under the fund’s valuation policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the investment’s value has been materially affected by
Notes to Financial Statements - continued
events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant 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 December 31, 2022 in valuing the fund's assets and liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| Equity Securities: | | | | |
| United States | $87,902,350 | $— | $— | $87,902,350 |
| Canada | 3,013,444 | — | — | 3,013,444 |
| Japan | 160,524 | 734,743 | — | 895,267 |
| China | — | 888,296 | — | 888,296 |
| United Kingdom | 745,493 | — | — | 745,493 |
| Israel | 607,695 | — | — | 607,695 |
| Mutual Funds | 4,212,811 | — | — | 4,212,811 |
| Total | $96,642,317 | $1,623,039 | $— | $98,265,356 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation — Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were purchased options. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. 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 December 31, 2022 as reported in the Statement of Assets and Liabilities:
Notes to Financial Statements - continued
| | | Fair Value (a) |
| Risk | Derivative Contracts | Asset Derivatives |
| Equity | Purchased Option Contracts | $477,743 |
(a) The value of purchased options outstanding is included in investments in unaffiliated issuers, at value, within the Statement of Assets and Liabilities.
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Unaffiliated Issuers
(Purchased
Options) |
| Equity | $169,045 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended December 31, 2022 as reported in the Statement of Operations:
| Risk | Unaffiliated Issuers
(Purchased
Options) |
| Equity | $107,469 |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
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 an anticipated decline in the value of portfolio securities or currency or decrease the fund's exposure to an underlying instrument.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased 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.
Notes to Financial Statements - continued
Whether or not the option is exercised, the fund's maximum risk of loss from purchasing an option is the amount of premium paid. All option contracts involve credit risk if the counterparty to the option contract fails to perform. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Security Loans — Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund's rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund's Portfolio of Investments, with a fair value of $50,146. The fair value of the fund's investment securities on loan is presented gross in the Statement of Assets and Liabilities. These loans were collateralized by U.S. Treasury Obligations of $50,777 held by the lending agent. The collateral on securities loaned exceeded the value of securities on loan at period end. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Notes to Financial Statements - continued
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 two fiscal years is as follows:
| | Year ended
12/31/22 | Year ended
12/31/21 |
| Ordinary income (including any short-term capital gains) | $1,464,022 | $1,121,029 |
| Long-term capital gains | 8,671,021 | 5,859,036 |
| Total distributions | $10,135,043 | $6,980,065 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| As of 12/31/22 | |
| Cost of investments | $89,394,401 |
| Gross appreciation | 22,233,804 |
| Gross depreciation | (13,362,849) |
| Net unrealized appreciation (depreciation) | $8,870,955 |
| Capital loss carryforwards | (4,095,151) |
| Total distributable earnings (loss) | $4,775,804 |
As of December 31, 2022, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
| Short-Term | $(3,355,236) |
| Long-Term | (739,915) |
| Total | $(4,095,151) |
Multiple Classes of Shares of Beneficial Interest — The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund's income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | Year
ended
12/31/22 | | Year
ended
12/31/21 |
| Initial Class | $1,788,007 | | $1,553,491 |
| Service Class | 8,347,036 | | 5,426,574 |
| Total | $10,135,043 | | $6,980,065 |
(3) Transactions with Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund's average daily net assets:
| Up to $1 billion | 0.75% |
| In excess of $1 billion | 0.70% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund's Board of Trustees. Effective March 1, 2022, MFS has also agreed in writing to waive at least 0.01% of its management fee as part of this agreement. The agreement to waive at least 0.01% of the management fee will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, this management fee reduction amounted to $14,953, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.74% of the fund's average daily net assets.
Notes to Financial Statements - continued
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and investment-related expenses (such as short sale dividend and interest expenses incurred in connection with the fund's investment activity), such that total annual operating expenses do not exceed 1.00% of average daily net assets for the Initial Class shares and 1.25% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2024. For the year ended December 31, 2022, 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 year ended December 31, 2022, the fee was $7,519, which equated to 0.0070% annually of the fund's average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the year ended December 31, 2022, these costs amounted to $467.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended December 31, 2022 was equivalent to an annual effective rate of 0.0245% of the fund's average daily net assets.
Trustees’ and Officers’ Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended December 31, 2022, this reimbursement amounted to $2,418, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended December 31, 2022, purchases and sales of investments, other than purchased options with an expiration date of less than one year from the time of purchase, and short-term obligations, aggregated $41,133,219 and $29,233,763, 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:
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
| Shares sold | | | | | |
| Initial Class | 73,436 | $1,814,506 | | 115,612 | $3,776,656 |
| Service Class | 1,383,790 | 31,721,430 | | 1,413,331 | 43,584,533 |
| | 1,457,226 | $33,535,936 | | 1,528,943 | $47,361,189 |
Notes to Financial Statements - continued
| | Year ended
12/31/22 | | Year ended
12/31/21 |
| | Shares | Amount | | Shares | Amount |
Shares issued to shareholders
in reinvestment of distributions | | | | | |
| Initial Class | 76,021 | $1,788,007 | | 46,249 | $1,553,491 |
| Service Class | 384,302 | 8,347,036 | | 173,262 | 5,426,574 |
| | 460,323 | $10,135,043 | | 219,511 | $6,980,065 |
| Shares reacquired | | | | | |
| Initial Class | (138,410) | $(3,580,611) | | (231,079) | $(7,709,675) |
| Service Class | (697,883) | (16,348,324) | | (802,009) | (24,727,050) |
| | (836,293) | $(19,928,935) | | (1,033,088) | $(32,436,725) |
| Net change | | | | | |
| Initial Class | 11,047 | $21,902 | | (69,218) | $(2,379,528) |
| Service Class | 1,070,209 | 23,720,142 | | 784,584 | 24,284,057 |
| | 1,081,256 | $23,742,044 | | 715,366 | $21,904,529 |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each 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. The line of credit expires on March 16, 2023 unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended December 31, 2022, the fund’s commitment fee and interest expense were $500 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning
Value | Purchases | Sales
Proceeds | Realized
Gain
(Loss) | Change in
Unrealized
Appreciation or
Depreciation | Ending
Value |
| MFS Institutional Money Market Portfolio | $3,118,400 | $31,953,834 | $30,860,592 | $(229) | $1,398 | $4,212,811 |
| Affiliated Issuers | Dividend
Income | Capital Gain
Distributions |
| MFS Institutional Money Market Portfolio | $63,549 | $— |
(8) LIBOR Transition
Certain of the fund's investments, including investments in certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With
Notes to Financial Statements - continued
respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022, associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the related impacts, if any, to the fund.
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of MFS Variable Insurance Trust II and the Shareholders of MFS Technology Portfolio:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Technology Portfolio (the “Fund”), including the portfolio of investments, as of December 31, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 15, 2023
We have served as the auditor of one or more of the MFS investment companies since 1924.
Trustees and Officers — Identification and Background
The Trustees and Officers of the Trust, as of February 1, 2023, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age | | Position(s) Held with Fund | | Trustee/Officer Since(h) | | Number of MFS Funds overseen by the Trustee | | Principal Occupations During
the Past Five Years | | Other Directorships During
the Past Five Years (j) |
| INTERESTED TRUSTEE | | | | | | | | | | |
Michael W. Roberge (k)
(age 56) | | Trustee | | January 2021 | | 136 | | Massachusetts Financial Services Company, Chairman (since January 2021); Chief Executive Officer (since January 2017); Director; Chairman of the Board (since January 2022); President (until December 2018); Chief Investment Officer (until December 2018) | | N/A |
| INDEPENDENT TRUSTEES | | | | | | | | | | |
John P. Kavanaugh
(age 68) | | Trustee and Chair of Trustees | | January 2009 | | 136 | | Private investor | | N/A |
Steven E. Buller
(age 71) | | Trustee | | February 2014 | | 136 | | Private investor | | N/A |
John A. Caroselli
(age 68) | | Trustee | | March 2017 | | 136 | | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015) | | N/A |
Maureen R. Goldfarb
(age 67) | | Trustee | | January 2009 | | 136 | | Private investor | | N/A |
Peter D. Jones
(age 67) | | Trustee | | January 2019 | | 136 | | Private investor | | N/A |
James W. Kilman, Jr.
(age 61) | | Trustee | | January 2019 | | 136 | | Burford Capital Limited (finance and investment management), Senior Advisor (since May 3, 2021), Chief Financial Officer (2019 - May 2, 2021); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016) | | Alpha-En Corporation, Director (2016-2019) |
Clarence Otis, Jr.
(age 66) | | Trustee | | March 2017 | | 136 | | Private investor | | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director |
Maryanne L. Roepke
(age 66) | | Trustee | | May 2014 | | 136 | | Private investor | | N/A |
Laurie J. Thomsen
(age 65) | | Trustee | | March 2005 | | 136 | | Private investor | | The Travelers Companies, Director; Dycom Industries, Inc., Director |
Trustees and Officers - continued
| Name, Age | | Position(s) Held with
Fund | | Trustee/Officer Since(h) | | Number of MFS Funds for which the Person is an Officer | | Principal Occupations During
the Past Five Years |
| OFFICERS | | | | | | | | |
Christopher R. Bohane (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President and Senior Managing Counsel |
Kino Clark (k)
(age 54) | | Assistant Treasurer | | January 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
John W. Clark, Jr. (k)
(age 55) | | Assistant Treasurer | | April 2017 | | 136 | | Massachusetts Financial Services Company, Vice President |
David L. DiLorenzo (k)
(age 54) | | President | | July 2005 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
Heidi W. Hardin (k)
(age 55) | | Secretary and Clerk | | April 2017 | | 136 | | Massachusetts Financial Services Company, Executive Vice President and General Counsel |
Brian E. Langenfeld (k)
(age 49) | | Assistant Secretary and Assistant Clerk | | June 2006 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Rosa E. Licea-Mailloux (k)
(age 46) | | Chief Compliance Officer | | March 2022 | | 136 | | Massachusetts Financial Services Company, Vice President (since 2018); Director of Corporate Compliance (2018-2021), Senior Director Compliance (2021-2022), Senior Managing Director of North American Compliance & Chief Compliance Officer (since March 2022); Natixis Investment Managers (investment management), Funds Chief Compliance Officer, Deputy General Counsel & Senior Vice President (until 2018) |
Amanda S. Mooradian (k)
(age 43) | | Assistant Secretary and Assistant Clerk | | September 2018 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel |
Susan A. Pereira (k)
(age 52) | | Assistant Secretary and Assistant Clerk | | July 2005 | | 136 | | Massachusetts Financial Services Company, Vice President and Managing Counsel |
Kasey L. Phillips (k)
(age 52) | | Assistant Treasurer | | September 2012 | | 136 | | Massachusetts Financial Services Company, Vice President |
Matthew A. Stowe (k)
(age 48) | | Assistant Secretary and Assistant Clerk | | October 2014 | | 136 | | Massachusetts Financial Services Company, Vice President and Senior Managing Counsel |
William B. Wilson (k)
(age 40) | | Assistant Secretary and Assistant Clerk | | October 2022 | | 136 | | Massachusetts Financial Services Company, Assistant Vice President and Counsel |
James O. Yost (k)
(age 62) | | Treasurer | | September 1990 | | 136 | | Massachusetts Financial Services Company, Senior Vice President |
| (h) | Date first appointed to serve as Trustee/Officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
| (k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones, Kilman and Roberge) has been elected by shareholders and each Trustee and Officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Mr. Roberge became a Trustee of the Funds on January 1, 2021 and Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board's retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Trustees and Officers - continued
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
| Investment Adviser | Custodian |
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618 | State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111-2900 |
| Distributor | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
111 Huntington Avenue
Boston, MA 02199-7618 | Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 |
| Portfolio Manager(s) | |
Reinier Dobbelmann
Matthew Sabel | |
Board Review of Investment Advisory Agreement
MFS Technology Portfolio
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2022 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2021 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Initial Class shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2021, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Initial Class shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Initial Class shares was in the 4th quintile for the one-year period and the 5th quintile for the three-year period ended December 31, 2021 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. The Trustees noted that the total return performance (Class I shares) of the Fund’s retail counterpart, MFS Technology Fund, which has substantially similar investment strategies, was in the 3rd quintile relative to the
Board Review of Investment Advisory Agreement - continued
other funds in its Broadridge performance universe for the five-year period ended December 31, 2021. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Initial Class shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was approximately at the Broadridge expense group median and the Fund’s total expense ratio was lower than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2022.
Proxy Voting Policies and Information
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/vit2 by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Information About Fund Contracts and Legal Claims
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Federal Tax Information (unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $9,539,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 18.78% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
| FACTS | WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: |
| • Social Security number and account balances |
| • Account transactions and transaction history |
| • Checking account information and wire transfer instructions |
| When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your
personal information | Does MFS share? | Can you limit
this sharing? |
For our everyday business purposes –
such as to process your transactions, maintain your
account(s), respond to court orders and legal
investigations, or report to credit bureaus | Yes | No |
For our marketing purposes –
to offer our products and services to you | No | We don't share |
For joint marketing with other
financial companies | No | We don't share |
For our affiliates' everyday business purposes –
information about your transactions and experiences | No | We don't share |
For our affiliates' everyday business purposes –
information about your creditworthiness | No | We don't share |
| For nonaffiliates to market to you | No | We don't share |
| Questions? | Call 800-225-2606 or go to mfs.com. |
| Who we are |
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
| What we do |
How does MFS
protect my personal
information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. |
How does MFS
collect my personal
information? | We collect your personal information, for example, when you |
| • open an account or provide account information |
| • direct us to buy securities or direct us to sell your securities |
| • make a wire transfer |
| We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can't I limit all sharing? | Federal law gives you the right to limit only |
| • sharing for affiliates' everyday business purposes – information about your creditworthiness |
| • affiliates from using your information to market to you |
| • sharing for nonaffiliates to market to you |
| State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. |
| • MFS does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
| • MFS doesn't jointly market. |
| Other important information |
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
Item 1(b):
Not applicable.
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics (the "Code") pursuant to Section 406 of the Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the Registrant's principal executive officer and principal financial and accounting officer. During the period covered by this report, the Registrant has not amended any provision in the Code that relates to an element of the Code's definition 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.
A copy of the Code is attached hereto as EX-99.COE.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. Steven E. Buller, James Kilman, and Clarence Otis, Jr. and Ms. Maryanne L. Roepke, members of the Audit Committee, have been determined by the Board of Trustees in their reasonable business judgment to meet the definition of "audit committee financial expert" as such term is defined in Form N-CSR. In addition, Messrs. Buller, Kilman, and Otis and Ms. Roepke are "independent" members of the Audit Committee (as such term has been defined by the Securities and Exchange Commission in regulations implementing Section 407 of the Sarbanes-Oxley Act of 2002). The Securities and Exchange Commission has stated that the designation of a person as an audit committee financial expert pursuant to this Item 3 on the Form N-CSR does not impose on such a person any duties, obligations or liability that are greater than the duties, obligations or liability imposed on such person as a member of the Audit Committee and the Board of Trustees in the absence of such designation or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Items 4(a) through 4(d) and 4(g):
The Board of Trustees has appointed Deloitte & Touche LLP ("Deloitte") to serve as independent accountants to the Registrant (hereinafter the "Registrant" or the "Fund"). The tables below set forth the audit fees billed to the Fund as well as fees for non-audit services provided to the Fund and/or to the Fund's investment adviser, Massachusetts Financial Services Company ("MFS"), and to various entities either controlling, controlled by, or under common control with MFS that provide ongoing services to the Fund ("MFS Related Entities").
For the fiscal years ended December 31, 2022 and 2021, audit fees billed to the Fund by Deloitte were as follows:
Fees billed by Deloitte: | | Audit Fees |
| 2022 | | 2021 |
MFS Blended Research Core Equity Portfolio | 49,857 | | 47,221 |
MFS Core Equity Portfolio | 52,205 | | 49,448 |
MFS Corporate Bond Portfolio | 72,815 | | 69,002 |
MFS Emerging Markets Equity Portfolio | 52,536 | | 49,762 |
MFS Global Governments Portfolio | 70,232 | | 66,552 |
MFS Global Growth Portfolio | 64,131 | | 60,763 |
MFS Global Research Portfolio | 50,866 | | 48,178 |
MFS Global Tactical Allocation Portfolio | 70,274 | | 66,592 |
MFS Government Securities Portfolio | 59,709 | | 56,568 |
MFS High Yield Portfolio | 77,506 | | 73,453 |
MFS Income Portfolio | 77,204 | | 73,167 |
MFS International Growth Portfolio | 52,536 | | 49,762 |
MFS International Intrinsic Value Portfolio | 53,541 | | 50,716 |
MFS Massachusetts Investors Growth Stock Portfolio | 52,089 | | 49,338 |
MFS Research International Portfolio | 49,857 | | 47,221 |
MFS Technology Portfolio | 49,973 | | 47,331 |
MFS U.S. Government Money Market Portfolio | 30,862 | | 29,199 |
Total | 986,193 | | 934,273 |
For the fiscal years ended December 31, 2022 and 2021, fees billed by Deloitte for audit-related, tax and other services provided to each Fund and for audit-related, tax and other services provided to MFS and MFS Related Entities were as follows:
Fees billed by Deloitte: | Audit-Related Fees1 | Tax Fees2 | All Other Fees3 |
| 2022 | 2021 | 2022 | 20214 | 2022 | 2021 |
To MFS Blended Research | 2,400 | 2,400 | 0 | 711 | 0 | 0 |
Core Equity Portfolio | | | | | | |
To MFS Core Equity Portfolio | 2,400 | 2,400 | 0 | 725 | 0 | 0 |
| | | | | | |
To MFS Corporate Bond | 2,400 | 2,400 | 0 | 711 | 0 | 0 |
Portfolio | | | | | | |
To MFS Emerging Markets | 2,400 | 2,400 | 0 | 711 | 0 | 0 |
Equity Portfolio | | | | | | |
To MFS Global Governments | 2,400 | 2,400 | 0 | 711 | 0 | 0 |
Portfolio | | | | | | |
To MFS Global Growth | 2,400 | 2,400 | 0 | 711 | 0 | 0 |
Portfolio | | | | | | |
To MFS Global Research | 2,400 | 2,400 | 0 | 725 | 0 | 0 |
Portfolio | | | | | | |
To MFS Global Tactical | 2,400 | 2,400 | 0 | 725 | 0 | 0 |
Allocation Portfolio | | | | | | |
To MFS Government Securities | 2,400 | 2,400 | 0 | 711 | 0 | 0 |
Portfolio | | | | | | |
To MFS High Yield Portfolio | 2,400 | 2,400 | 0 | 711 | 0 | 0 |
| | | | | | |
To MFS Income Portfolio | 2,400 | 2,400 | 0 | 711 | 0 | 0 |
| | | | | | |
To MFS International Growth | 2,400 | 2,400 | 0 | 711 | 0 | 0 |
Portfolio | | | | | | |
To MFS International Intrinsic | 2,400 | 2,400 | 0 | 711 | 0 | 0 |
Value Portfolio | | | | | | |
To MFS Massachusetts | 2,400 | | 2,400 | 0 | | 711 | 0 | 0 |
Investors Growth Stock | | | | | | | | |
Portfolio | | | | | | | | |
To MFS Research International | 2,400 | | 2,400 | 0 | | 711 | 0 | 0 |
Portfolio | | | | | | | | |
To MFS Technology Portfolio | 2,400 | | 2,400 | 0 | | 725 | 0 | 0 |
| | | | | | | | |
To MFS U.S. Government Money | 2,400 | | 2,400 | 0 | | 711 | 0 | 0 |
Market Portfolio | | | | | | | | |
Total fees billed by Deloitte | | | | | | | | |
To above Funds: | 40,800 | | 40,800 | 0 | | 12,143 | 0 | 0 |
| | | | | |
Fees billed by Deloitte: | Audit-Related Fees1 | Tax Fees2 | All Other Fees3 |
| 2022 | | 2021 | 2022 | | 2021 | 2022 | 2021 |
| | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Blended | | | | | | | | |
Research Core Equity Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Core Equity | | | | | | | | |
Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Corporate Bond | | | | | | | | |
Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Emerging | | | | | | | | |
Markets Equity Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Global | | | | | | | | |
Governments Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Global | | | | | | | | |
Growth Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Global | | | | | | | | |
Research Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Global Tactical | | | | | | | | |
Allocation Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Government | | | | | | | | |
Securities Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS High | | | | | | | | |
Yield Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Income | | | | | | | | |
Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS International | | | | | | | | |
Growth Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS International | | | | | | | | |
Intrinsic Value Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Massachusetts | | | | | | | | |
Investors Growth Stock | | | | | | | | |
Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Research | | | | | | | | |
International Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | | 0 | 0 | | 0 | 3,790 | 5,390 |
Entities of MFS Technology | | | | | | | | |
Portfolio* | | | | | | | | |
To MFS and MFS Related | 0 | 0 | | 0 | | 0 | 3,790 | | 5,390 |
Entities of MFS U.S. Government | | | | | | | | | | |
Money Market Portfolio * | | | | | | | | | | |
| | | | | | |
Fees billed by Deloitte: | | | | | Aggregate fees for non-audit services: |
| | | | | 2022 | | | 20214 |
To MFS Blended Research Core Equity Portfolio, MFS and MFS | | 6,190 | | | 8,501 |
Related Entities# | | | | | | | | | | |
To MFS Core Equity Portfolio, MFS and MFS Related Entities# | | 6,190 | | | 8,515 |
To MFS Corporate Bond Portfolio, MFS and MFS Related | | 6,190 | | | 8,501 |
Entities# | | | | | | | | | | |
To MFS Emerging Markets Equity Portfolio, MFS and MFS | | 6,190 | | | 8,501 |
Related Entities# | | | | | | | | | | |
To MFS Global Governments Portfolio, MFS and MFS Related | | 6,190 | | | 8,501 |
Entities# | | | | | | | | | | |
To MFS Global Growth Portfolio MFS and MFS Related Entities# | | 6,190 | | | 8,501 |
To MFS Global Research Portfolio, MFS and MFS Related | | 6,190 | | | 8,515 |
Entities# | | | | | | | | | | |
To MFS Global Tactical Allocation Portfolio, MFS and MFS | | 6,190 | | | 8,515 |
Related Entities# | | | | | | | | | | |
To MFS Government Securities Portfolio, MFS and MFS Related | | 6,190 | | | 8,501 |
Entities# | | | | | | | | | | |
To MFS High Yield Portfolio, MFS and MFS Related Entities# | | 6,190 | | | 8,501 |
To MFS Income Portfolio, MFS and MFS Related Entities# | | 6,190 | | | 8,501 |
To MFS International Growth Portfolio, MFS and MFS Related | | 6,190 | | | 8,501 |
Entities# | | | | | | | | | | |
To MFS International Intrinsic Value Portfolio, MFS and MFS | | 6,190 | | | 8,501 |
Related Entities# | | | | | | | | | | |
To MFS Massachusetts Investors Growth Stock Portfolio, MFS | | 6,190 | | | 8,501 |
and MFS Related Entities# | | | | | | | | | | |
To MFS Research International Portfolio, MFS and MFS Related | | 6,190 | | | 8,501 |
Entities# | | | | | | | | | | |
To MFS Technology Portfolio, MFS and MFS Related Entities# | | 6,190 | | | 8,515 |
To MFS U.S. Government Money Market Portfolio, MFS and | | 6,190 | | | 8,501 |
MFS Related Entities# | | | | | | | | | | |
*This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to the operations and financial reporting of the Fund (portions of which services also related to the operations and financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by Deloitte for non-audit services rendered to the Fund and for non-audit services rendered to MFS and the MFS Related Entities.
1 The fees included under "Audit-Related Fees" are fees related to assurance and related services that are reasonably related to the performance of the audit or review of financial statements, but not reported under ''Audit Fees,'' including accounting consultations, agreed- upon procedure reports, attestation reports, comfort letters and internal control reviews.
2 The fees included under "Tax Fees" are fees associated with tax compliance, tax advice and tax planning, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews and tax distribution and analysis.
3 The fees included under "All Other Fees" are fees for products and services provided by Deloitte other than those reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees".
4 Certain fees reported in 2021 have been restated in this filing from those reported in the Registrant's filing for the reporting period ended December 31, 2021.
Item 4(e)(1):
Set forth below are the policies and procedures established by the Audit Committee of the Board of Trustees relating to the pre-approval of audit and non-audit related services:
To the extent required by applicable law, pre-approval by the Audit Committee of the Board is needed for all audit and permissible non-audit services rendered to the Fund and all permissible non-audit services rendered to MFS or MFS Related Entities if the services relate directly to the operations and financial reporting of the Registrant. Pre-approval is currently on an engagement-by-engagement basis. In the event pre- approval of such services is necessary between regular meetings of the Audit Committee and it is not practical to wait to seek pre-approval at the next regular meeting of the Audit Committee, pre-approval of such services may be referred to the Chair of the Audit Committee for approval; provided that the Chair may not pre-approve any individual engagement for such services exceeding $50,000 or multiple engagements for such services in the aggregate exceeding $100,000 between such regular meetings of the Audit Committee. Any engagement
pre-approved by the Chair between regular meetings of the Audit Committee shall be presented for ratification by the entire Audit Committee at its next regularly scheduled meeting.
Item 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and All Other Fees paid by the Fund and MFS and MFS Related Entities relating directly to the operations and financial reporting of the Registrant disclosed above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C) of Rule 2-01 of Regulation S-X (which permits audit committee approval after the start of the engagement with respect to services other than audit, review or attest services, if certain conditions are satisfied).
Item 4(f):
Not applicable.
Item 4(h):
The Registrant's Audit Committee has considered whether the provision by a Registrant's independent registered public accounting firm of non-audit services to MFS and MFS Related Entities that were not pre-approved by the Committee (because such services were provided prior to the effectiveness of SEC rules requiring pre-approval or because such services did not relate directly to the operations and financial reporting of the Registrant) was compatible with maintaining the independence of the independent registered public accounting firm as the Registrant's principal auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. INVESTMENTS
A schedule of investments for each series covered by this Form N-CSR is included as part of the report to shareholders of such series under Item 1(a) of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant's Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a)Based upon their evaluation of the effectiveness of the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) as conducted within 90 days of the filing date of this report on Form N-CSR, the Registrant's principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the Registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
(b)There were no changes in the Registrant's internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the period covered by the report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 13. EXHIBITS.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Attached hereto as EX-99.COE.
(2)A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto as EX-99.302CERT.
(3)Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable.
(4)Change in the registrant's independent public accountant. Not applicable.
(b)If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed "filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Attached hereto as EX-99.906CERT.
Notice
A copy of the Amended and Restated Declaration of Trust, as amended, of the Registrant is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS VARIABLE INSURANCE TRUST II
By (Signature and Title)*
/S/ DAVID L. DILORENZO
David L. DiLorenzo, President
Date: February 15, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)*
/S/ DAVID L. DILORENZO
David L. DiLorenzo, President (Principal Executive Officer)
Date: February 15, 2023
By (Signature and Title)*
/S/ JAMES O. YOST
James O. Yost, Treasurer (Principal Financial Officer and Accounting Officer) Date: February 15, 2023
* Print name and title of each signing officer under his or her signature.
