MFS Core Equity Portfolio

Transcription

1 Semiannual Report June 30, 2018 MFS Core Equity Portfolio MFS Variable Insurance Trust II RGS-SEM

2 MFS Core Equity Portfolio CONTENTS Letter from the Executive Chairman... 1 Portfolio composition... 2 Expense table... 3 Portfolio of investments... 4 Statement of assets and liabilities... 8 Statement of operations... 9 Statements of changes in net assets Financial highlights Notes to financial statements Proxy voting policies and information Quarterly portfolio disclosure Further information Information about fund contracts and legal claims The report is prepared for the general information of contract owners. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus. NOT FDIC INSURED MAY LOSE VALUE NO BANK OR CREDIT UNION GUARANTEE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF

3 LETTER FROM THE EXECUTIVE CHAIRMAN MFS Core Equity Portfolio Dear Contract Owners: Rising bond yields, international trade friction and geopolitical uncertainty have contributed to a measurable uptick in market volatility a departure from the low-volatility environment that prevailed for much of In recent months, against this more challenging backdrop, global markets have given back some of the strong gains recorded during 2017 and early But global economic growth remains healthy, notwithstanding signs of a modest slowdown over the past few months, particularly in Europe and China. Although the U.S. Federal Reserve continues to gradually raise interest rates and shrink its balance sheet, monetary policy remains accommodative around the world, with many central banks taking only tentative steps toward tighter policies. Newly enacted U.S. tax reforms have been welcomed by equity markets, while emerging market economies have recently had to contend with tighter financial conditions as a result of firmer U.S. Treasury yields and a stronger dollar. Around the world, inflation remains largely subdued, but tight labor markets and solid global demand have investors on the lookout for its potential resurgence. Increased U.S. protectionism is also a growing concern, as investors fear that trade disputes could dampen business sentiment, leading to slower global growth. As a global investment manager, MFS strives to create long-term value for clients through an active approach and an investment platform built on nearly a century of expertise. To make that long-term value meaningful for clients, we work to align with you on our beliefs, your needs and the time it takes to deliver on your desired outcomes. Respectfully, Robert J. Manning Executive Chairman MFS Investment Management August 16, 2018 The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed. 1

4 PORTFOLIO COMPOSITION Portfolio structure Equities 99.5% (s) Cash & Cash Equivalents 0.5% Top ten holdings Amazon.com, Inc. 3.0% Alphabet, Inc., A 2.6% Facebook, Inc., A 2.3% Bank of America Corp. 2.1% Chevron Corp. 2.1% Analog Devices, Inc. 2.0% American Tower Corp., REIT 1.9% Microsoft Corp. 1.9% Citigroup, Inc. 1.9% Pfizer, Inc. 1.8% Equity sectors Technology 20.9% Financial Services 18.4% Health Care 13.4% Industrial Goods & Services 8.2% Retailing 7.7% Utilities & Communications (s) 5.7% Energy 5.4% Consumer Staples 5.2% Special Products & Services 4.7% Leisure 4.2% Basic Materials 3.3% Transportation 1.3% Autos & Housing 1.1% (s) Includes securities sold short. Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund s cash position and other assets and liabilities. Percentages are based on net assets as of June 30, The portfolio is actively managed and current holdings may be different. 2

5 EXPENSE TABLE Fund Expenses Borne by the Contract Holders during the Period, January 1, 2018 through June 30, 2018 As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2018 through June 30, Actual Expenses The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 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 Initial Class Service Class Annualized Expense Ratio Beginning Account Value 1/01/18 Ending Account Value 6/30/18 Expenses Paid During Period (p) 1/01/18-6/30/18 Actual 0.85% $1, $1, $4.30 Hypothetical (h) 0.85% $1, $1, $4.26 Actual 1.10% $1, $1, $5.56 Hypothetical (h) 1.10% $1, $1, $5.51 (h) 5% class return per year before expenses. (p) Expenses Paid During Period are equal to each class s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). 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). 3

6 PORTFOLIO OF INVESTMENTS 6/30/18 (unaudited) The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes. Issuer Shares/Par Value ($) COMMON STOCKS 99.7% Aerospace 3.7% Boeing Co. 4,360 $ 1,462,824 CACI International, Inc., A (a) 3, ,002 Curtiss-Wright Corp. 3, ,569 FLIR Systems, Inc. 8, ,259 Honeywell International, Inc. 13,039 1,878,268 Northrop Grumman Corp. 4,093 1,259,416 Textron, Inc. 8, ,471 United Technologies Corp. 10,402 1,300,562 $ 7,894,371 Alcoholic Beverages 0.4% Constellation Brands, Inc., A 3,478 $ 761,230 Apparel Manufacturers 1.7% Hanesbrands, Inc. 32,325 $ 711,796 NIKE, Inc., B 35,920 2,862,106 $ 3,573,902 Automotive 0.6% CoPart, Inc. (a) 11,719 $ 662,827 Lear Corp. 2, ,136 $ 1,176,963 Biotechnology 1.1% Biogen, Inc. (a) 7,952 $ 2,307,988 Brokerage & Asset Managers 2.0% Blackstone Group LP 40,295 $ 1,296,290 Invesco Ltd. 15, ,745 TD Ameritrade Holding Corp. 28,949 1,585,537 TMX Group Ltd. 15,257 1,000,151 $ 4,300,723 Business Services 3.1% Amdocs Ltd. 6,106 $ 404,156 Cognizant Technology Solutions Corp., A 13,510 1,067,155 DXC Technology Co. 10, ,830 Fidelity National Information Services, Inc. 11,230 1,190,717 First Data Corp. (a) 10, ,477 Global Payments, Inc. 8, ,444 Grand Canyon Education, Inc. (a) 1, ,915 Total System Services, Inc. 4, ,651 Verisk Analytics, Inc., A (a) 8, ,284 Zendesk, Inc. (a) 6, ,009 $ 6,512,638 Cable TV 0.8% Altice USA, Inc. 11,918 $ 203,321 Comcast Corp., A 45,370 1,488,590 $ 1,691,911 Chemicals 2.2% Celanese Corp. 4,598 $ 510,654 CF Industries Holdings, Inc. 15, ,736 DowDuPont, Inc. 23,167 1,527,169 Issuer Shares/Par Value ($) COMMON STOCKS continued Chemicals continued Ingevity Corp. (a) 6,689 $ 540,872 PPG Industries, Inc. 13,711 1,422,242 $ 4,708,673 Computer Software 5.5% 8x8, Inc. (a) 33,037 $ 662,392 Adobe Systems, Inc. (a) 11,673 2,845,994 Autodesk, Inc. (a) 3, ,438 Microsoft Corp. 40,917 4,034,825 Salesforce.com, Inc. (a) 25,792 3,518,029 $ 11,557,678 Computer Software Systems 1.7% Apple, Inc. 10,927 $ 2,022,697 Pluralsight, Inc., A (a) 6, ,974 Rapid7, Inc. (a) 25, ,947 SS&C Technologies Holdings, Inc. 8, ,888 Xerox Corp. 8, ,400 $ 3,534,906 Construction 0.5% Sherwin-Williams Co. 2,598 $ 1,058,867 Consumer Products 1.6% Coty, Inc., A 42,928 $ 605,285 e.l.f. Beauty, Inc. (a) 13, ,573 Kimberly-Clark Corp. 6, ,299 Newell Brands, Inc. 25, ,497 Procter & Gamble Co. 16,346 1,275,969 $ 3,447,623 Consumer Services 1.6% Bookings Holdings, Inc. (a) 1,109 $ 2,248,043 Bright Horizons Family Solutions, Inc. (a) 6, ,372 ServiceMaster Global Holdings, Inc. (a) 9, ,599 $ 3,448,014 Containers 0.5% Berry Global Group, Inc. (a) 15,274 $ 701,688 Sealed Air Corp. 10, ,376 $ 1,142,064 Electrical Equipment 2.4% AMETEK, Inc. 17,780 $ 1,283,005 AZZ, Inc. 9, ,991 HD Supply Holdings, Inc. (a) 17, ,257 Johnson Controls International PLC 25, ,341 Sensata Technologies Holding PLC (a) 16, ,198 TE Connectivity Ltd. 7, ,266 WESCO International, Inc. (a) 5, ,592 $ 5,109,650 Electronics 6.7% Analog Devices, Inc. 43,801 $ 4,201,392 Applied Materials, Inc. 9, ,973 4

7 Portfolio of Investments (unaudited) continued Issuer Shares/Par Value ($) COMMON STOCKS continued Electronics continued Inphi Corp. (a)(l) 26,342 $ 859,013 IPG Photonics Corp. (a) 1, ,203 Marvell Technology Group Ltd. 75,752 1,624,123 Mellanox Technologies Ltd. (a) 6, ,264 NVIDIA Corp. 11,591 2,745,908 Texas Instruments, Inc. 31,795 3,505,399 $ 14,215,275 Energy Independent 2.5% Concho Resources, Inc. (a) 4,999 $ 691,612 Energen Corp. (a) 3, ,698 EOG Resources, Inc. 14,408 1,792,787 EQT Corp. 3, ,740 Hess Corp. 13, ,206 Marathon Petroleum Corp. 16,055 1,126,419 Parsley Energy, Inc., A (a) 8, ,070 $ 5,166,532 Energy Integrated 2.1% Chevron Corp. (s) 34,629 $ 4,378,144 Engineering Construction 0.2% KBR, Inc. 25,567 $ 458,161 Entertainment 0.6% Six Flags Entertainment Corp. 9,720 $ 680,886 Twenty-First Century Fox, Inc. 12, ,721 $ 1,318,607 Food & Beverages 2.5% Archer Daniels Midland Co. 16,104 $ 738,046 J.M. Smucker Co. 3, ,499 Mondelez International, Inc. 28,740 1,178,340 Monster Worldwide, Inc. (a) 15, ,511 PepsiCo, Inc. 18,056 1,965,757 $ 5,155,153 Gaming & Lodging 0.6% Hilton Worldwide Holdings, Inc. 10,577 $ 837,275 Marriott International, Inc., A 3, ,156 $ 1,225,431 General Merchandise 0.3% Dollar Tree, Inc. (a) 7,473 $ 635,205 Health Maintenance Organizations 1.6% Cigna Corp. 10,833 $ 1,841,068 Humana Inc. 5,204 1,548,867 $ 3,389,935 Insurance 3.0% Aon PLC 22,124 $ 3,034,749 Athene Holding Ltd. (a) 9, ,924 Chubb Ltd. 11,074 1,406,620 Hartford Financial Services Group, Inc. 29,424 1,504,449 $ 6,368,742 Internet 5.7% Alphabet, Inc., A (a)(s) 4,836 $ 5,460,763 Facebook, Inc., A (a) 25,486 4,952,440 Issuer Shares/Par Value ($) COMMON STOCKS continued Internet continued LogMeIn, Inc. 9,881 $ 1,020,213 MINDBODY, Inc., A (a) 14, ,626 $ 11,994,042 Leisure & Toys 0.8% Electronic Arts, Inc. (a) 8,845 $ 1,247,322 Take-Two Interactive Software, Inc. (a) 2, ,031 $ 1,594,353 Machinery & Tools 1.3% Flowserve Corp. 12,189 $ 492,436 Illinois Tool Works, Inc. 4, ,054 ITT, Inc. 10, ,385 Roper Technologies, Inc. 4,136 1,141,164 $ 2,764,039 Major Banks 2.9% Bank of America Corp. 159,085 $ 4,484,606 PNC Financial Services Group, Inc. 11,812 1,595,801 $ 6,080,407 Medical & Health Technology & Services 1.3% HCA Healthcare, Inc. 7,824 $ 802,742 ICON PLC (a) 4, ,421 McKesson Corp. 6, ,710 Walgreens Boots Alliance, Inc. 8, ,211 $ 2,759,084 Medical Equipment 3.6% Abiomed, Inc. (a) 1,294 $ 529,311 Align Technology, Inc. (a) 1, ,659 Danaher Corp. 6, ,471 Edwards Lifesciences Corp. (a) 11,346 1,651,637 Medtronic PLC 25,975 2,223,720 PerkinElmer, Inc. 11, ,729 Steris PLC 10,579 1,110,901 West Pharmaceutical Services, Inc. 1, ,645 $ 7,630,073 Metals & Mining 0.3% First Quantum Minerals Ltd. 15,627 $ 230,247 Teck Resources Ltd., B 14, ,389 $ 598,636 Natural Gas Distribution 0.1% NiSource, Inc. 8,090 $ 212,605 Natural Gas Pipeline 0.6% Cheniere Energy, Inc. (a) 15,790 $ 1,029,350 Enterprise Products Partners LP 6, ,349 $ 1,210,699 Network & Telecom 1.3% Cisco Systems, Inc. 62,493 $ 2,689,074 Switch, Inc. (l) 4,673 56,870 $ 2,745,944 5

8 Portfolio of Investments (unaudited) continued Issuer Shares/Par Value ($) COMMON STOCKS continued Oil Services 0.9% Apergy Corp. (a) 5,898 $ 246,241 Liberty Oilfield Services, Inc. (a)(l) 17, ,964 Patterson-UTI Energy, Inc. 44, ,428 Schlumberger Ltd. 7, ,215 $ 1,848,848 Other Banks & Diversified Financials 7.1% Bank of the Ozarks, Inc. 17,567 $ 791,218 Citigroup, Inc. (s) 59,788 4,001,013 Discover Financial Services 12, ,514 EuroDekania Ltd. (u) 151,350 22,535 Mastercard, Inc., A 17,134 3,367,174 Northern Trust Corp. 8, ,759 Prosperity Bancshares, Inc. 3, ,787 U.S. Bancorp 52,782 2,640,156 Wintrust Financial Corp. 14,612 1,271,974 Zions Bancorporation 15, ,042 $ 14,892,172 Pharmaceuticals 5.8% Bristol-Myers Squibb Co. 35,876 $ 1,985,378 Eli Lilly & Co. 16,576 1,414,430 Johnson & Johnson 23,098 2,802,711 Pfizer, Inc. 105,137 3,814,371 Zoetis, Inc. 25,174 2,144,573 $ 12,161,463 Pollution Control 0.6% Evoqua Water TechnologiesLLC (a) 26,981 $ 553,110 Waste Connections, Inc. 8, ,749 $ 1,177,859 Railroad & Shipping 1.3% Canadian Pacific Railway Ltd. 7,535 $ 1,379,056 Kansas City Southern Co. 8, ,011 Union Pacific Corp. 3, ,251 $ 2,712,318 Real Estate 3.4% Industrial Logistics Properties Trust, REIT 31,202 $ 697,365 Life Storage, Inc., REIT 14,801 1,440,285 Medical Properties Trust, Inc., REIT 165,354 2,321,570 Store Capital Corp., REIT 53,809 1,474,367 Sun Communities, Inc., REIT 5, ,133 W.P. Carey, Inc., REIT 11, ,205 $ 7,257,925 Restaurants 1.4% Aramark 16,998 $ 630,626 Dave & Buster s, Inc. (a) 5, ,850 Starbucks Corp. 30,637 1,496,617 U.S. Foods Holding Corp. (a) 16, ,124 $ 3,014,217 Specialty Chemicals 0.2% Univar, Inc. (a) 19,000 $ 498,560 Issuer Shares/Par Value ($) COMMON STOCKS continued Specialty Stores 5.7% Amazon.com, Inc. (a) 3,696 $ 6,282,461 Costco Wholesale Corp. 6,897 1,441,335 L Brands, Inc. 15, ,230 Michaels Co., Inc. (a) 23, ,111 TJX Cos., Inc. 14,433 1,373,733 Tractor Supply Co. 12, ,950 Urban Outfitters, Inc. (a) 19, ,726 $ 11,933,546 Telecommunications Wireless 1.9% American Tower Corp., REIT 28,259 $ 4,074,100 Telephone Services 0.5% Verizon Communications, Inc. 22,771 $ 1,145,609 Tobacco 0.7% Philip Morris International, Inc. 18,680 $ 1,508,223 Utilities Electric Power 2.8% American Electric Power Co., Inc. 11,745 $ 813,341 Avangrid, Inc. 8, ,094 CenterPoint Energy, Inc. 10, ,313 CMS Energy Corp. 15, ,573 Evergy, Inc. 11, ,009 Exelon Corp. 22, ,013 NextEra Energy, Inc. 7,108 1,187,249 Xcel Energy, Inc. 15, ,446 $ 5,821,038 Total Common Stocks (Identified Cost, $160,254,402) $210,174,146 CONVERTABLE PREFERRED STOCKS 0.2% Natural Gas Distribution 0.2% South Jersey Industries, Inc., 7.25% (Identified Cost, $306,500) 6,130 $ 341,992 INVESTMENT COMPANIES (h) 0.7% Money Market Funds 0.7% MFS Institutional Money Market Portfolio, 1.9% (v) (Identified Cost, $1,472,996) 1,473,151 $ 1,473,151 COLLATERAL FOR SECURITIES LOANED 0.1% State Street Navigator Securities Lending Government Money Market Portfolio, 1.9% (j) (Identified Cost, $241,381) 241,381 $ 241,381 SECURITIES SOLD SHORT (0.4)% Telecommunications Wireless (0.4)% Crown Castle International Corp., REIT (Proceeds Received, $578,273) (6,970) $ (751,505) OTHER ASSETS, LESS LIABILITIES (0.3)% (699,439) NET ASSETS 100.0% $210,779,726 6

9 Portfolio of Investments (unaudited) continued (a) Non-income producing security. (h) An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund s investments in affiliated issuers and in unaffiliated issuers were $1,473,151 and $210,757,519, 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. (s) Security or a portion of the security was pledged to cover collateral requirements for securities sold short. (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: PLC Public Limited Company REIT Real Estate Investment Trust At June 30, 2018, the fund had cash collateral of $5,253 and other liquid securities with an aggregate value of $1,391,116 to cover any collateral or margin obligations for securities sold short. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised of cash collateral. See Notes to Financial Statements 7

10 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited) This statement represents your fund s balance sheet, which details the assets and liabilities comprising the total value of the fund. At 6/30/18 Assets Investments in unaffiliated issuers, at value, including $258,377 of securities on loan (identified cost, $160,802,283) $210,757,519 Investments in affiliated issuers, at value (identified cost, $1,472,996) 1,473,151 Deposits with brokers for Securities sold short 5,253 Receivables for Investments sold 368,247 Fund shares sold 7,067 Interest and dividends 229,300 Other assets 841 Total assets $212,841,378 Liabilities Payables for Securities sold short, at value (proceeds received, $578,273) $751,505 Investments purchased 879,321 Fund shares reacquired 114,854 Collateral for securities loaned, at value (c) 241,381 Payable to affiliates Investment adviser 13,114 Shareholder servicing costs 87 Distribution and/or service fees 900 Payable for independent Trustees compensation 100 Accrued expenses and other liabilities 60,390 Total liabilities $2,061,652 Net assets $210,779,726 Net assets consist of Paid-in capital $119,451,548 Unrealized appreciation (depreciation) 49,782,187 Accumulated net realized gain (loss) 39,376,824 Undistributed net investment income 2,169,167 Net assets $210,779,726 Shares of beneficial interest outstanding 8,050,940 Net assets Shares outstanding Net asset value per share Initial Class $166,826,509 6,357,377 $26.24 Service Class 43,953,217 1,693, (c) Non-cash collateral is not included. See Notes to Financial Statements 8

11 FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited) MFS Core Equity Portfolio This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations. Six months ended 6/30/18 Net investment income (loss) Income Dividends $1,733,398 Dividends from affiliated issuers 11,963 Other 10,035 Income on securities loaned 2,787 Foreign taxes withheld (3,515) Total investment income $1,754,668 Expenses Management fee $800,500 Distribution and/or service fees 56,912 Shareholder servicing costs 7,774 Administrative services fee 20,962 Independent Trustees compensation 4,133 Custodian fee 6,415 Shareholder communications 17,468 Audit and tax fees 27,701 Legal fees 1,209 Dividend and interest expense on securities sold short 23,442 Miscellaneous 10,146 Total expenses $976,662 Reduction of expenses by investment adviser (9,843) Net expenses $966,819 Net investment income (loss) $787,849 Realized and unrealized gain (loss) Realized gain (loss) (identified cost basis) Unaffiliated issuers $17,657,062 Affiliated issuers (109) Foreign currency 25 Net realized gain (loss) $17,656,978 Change in unrealized appreciation or depreciation Unaffiliated issuers $(9,792,545) Affiliated issuers 155 Securities sold short 22,235 Translation of assets and liabilities in foreign currencies 23 Net unrealized gain (loss) $(9,770,132) Net realized and unrealized gain (loss) $7,886,846 Change in net assets from operations $8,674,695 See Notes to Financial Statements 9

12 FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions. Six months ended 6/30/18 Year ended 12/31/17 (unaudited) Change in net assets From operations Net investment income (loss) $787,849 $1,381,451 Net realized gain (loss) 17,656,978 22,187,860 Net unrealized gain (loss) (9,770,132) 22,538,765 Change in net assets from operations $8,674,695 $46,108,076 Distributions declared to shareholders From net investment income $ $(1,852,020) From net realized gain (12,091,064) Total distributions declared to shareholders $ $(13,943,084) Change in net assets from fund share transactions $(15,385,680) $(13,597,982) Total change in net assets $(6,710,985) $18,567,010 Net assets At beginning of period 217,490, ,923,701 At end of period (including undistributed net investment income of $2,169,167 and $1,381,318, respectively) $210,779,726 $217,490,711 See Notes to Financial Statements 10

13 FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS MFS Core Equity Portfolio The financial highlights table is intended to help you understand the fund s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period. Initial Class Six months ended Year ended 6/30/18 12/31/17 12/31/16 12/31/15 12/31/14 12/31/13 (unaudited) Net asset value, beginning of period $25.21 $21.67 $21.28 $23.40 $21.49 $16.12 Income (loss) from investment operations Net investment income (loss) (d) $0.10 $0.17 $0.21(c) $0.17 $0.16 $0.16 Net realized and unrealized gain (loss) (0.35) Total from investment operations $1.03 $5.21 $2.37 $(0.18) $2.43 $5.56 Less distributions declared to shareholders From net investment income $ $(0.23) $(0.17) $(0.13) $(0.18) $(0.19) From net realized gain (1.44) (1.81) (1.81) (0.34) Total distributions declared to shareholders $ $(1.67) $(1.98) $(1.94) $(0.52) $(0.19) Net asset value, end of period (x) $26.24 $25.21 $21.67 $21.28 $23.40 $21.49 Total return (%) (k)(r)(s)(x) 4.09(n) (c) (0.21) Ratios (%) (to average net assets) and Supplemental data: Expenses before expense reductions (f) 0.86(a) (c) Expenses after expense reductions (f) 0.85(a) (c) Net investment income (loss) 0.79(a) (c) Portfolio turnover 22(n) Net assets at end of period (000 omitted) $166,827 $171,038 $156,040 $156,450 $115,826 $117,044 Supplemental Ratios (%): Ratio of expenses to average net assets after expense reductions excluding short sale expenses (f) 0.83(a) (c) See Notes to Financial Statements 11

14 Financial Highlights continued Service Class Six months ended Year ended 6/30/18 12/31/17 12/31/16 12/31/15 12/31/14 12/31/13 (unaudited) Net asset value, beginning of period $24.96 $21.47 $21.10 $23.20 $21.32 $16.00 Income (loss) from investment operations Net investment income (loss) (d) $0.07 $0.11 $0.16(c) $0.11 $0.11 $0.11 Net realized and unrealized gain (loss) (0.33) Total from investment operations $0.99 $5.10 $2.29 $(0.22) $2.35 $5.47 Less distributions declared to shareholders From net investment income $ $(0.17) $(0.11) $(0.07) $(0.13) $(0.15) From net realized gain (1.44) (1.81) (1.81) (0.34) Total distributions declared to shareholders $ $(1.61) $(1.92) $(1.88) $(0.47) $(0.15) Net asset value, end of period (x) $25.95 $24.96 $21.47 $21.10 $23.20 $21.32 Total return (%) (k)(r)(s)(x) 3.97(n) (c) (0.40) Ratios (%) (to average net assets) and Supplemental data: Expenses before expense reductions (f) 1.11(a) (c) Expenses after expense reductions (f) 1.10(a) (c) Net investment income (loss) 0.54(a) (c) Portfolio turnover 22(n) Net assets at end of period (000 omitted) $43,953 $46,453 $42,883 $47,083 $48,813 $50,394 Supplemental Ratios (%): Ratio of expenses to average net assets after expense reductions excluding short sale expenses (f) 1.08(a) (c) (a) Annualized. (c) Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. (d) Per share data is based on average shares outstanding. (f) Ratios do not reflect reductions from fees paid indirectly, if applicable. (k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. (n) Not annualized. (r) Certain expenses have been reduced without which performance would have been lower. (s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. Excluding the effect of the proceeds received from a non-recurring litigation settlement against Household International, Inc., the total return for the year ended December 31, 2017 would have been lower by approximately 0.78%. (x) The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. See Notes to Financial Statements 12

15 NOTES TO FINANCIAL STATEMENTS (unaudited) MFS Core Equity Portfolio (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 Equity securities, including restricted equity securities and equity securities held 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 held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service. The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the 13

16 Notes to Financial Statements (unaudited) continued business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share. Various inputs are used in determining the value of the fund s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2018 in valuing the fund s assets or liabilities: Financial Instruments Level 1 Level 2 Level 3 Total Equity Securities: United States $206,549,018 $341,993 $ $206,891,011 Canada 3,602,592 3,602,592 Cayman Islands 22,535 22,535 Mutual Funds 1,714,532 1,714,532 Total $211,866,142 $341,993 $22,535 $212,230,670 Short Sales $(751,505) $ $ $(751,505) For further information regarding security characteristics, see the Portfolio of Investments. The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The fund s policy is to recognize transfers between the levels as of the end of the period. The table presents the activity of level 3 securities held at the beginning and the end of the period. Equity Securities Balance as of 12/31/17 $17,706 Change in unrealized appreciation or depreciation 4,829 Balance as of 6/30/18 $22,535 The net change in unrealized appreciation or depreciation from investments held as level 3 at June 30, 2018 is $4,829. At June 30, 2018, the fund held one level 3 security. Foreign Currency Translation Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign 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, the fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. At June 30, 2018, the fund did not have any outstanding derivative instruments. 14

17 Notes to Financial Statements (unaudited) continued The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2018 as reported in the Statement of Operations: Unaffiliated Issuers Risk (Purchased Options) Equity $(89,406) The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the six months ended June 30, 2018 as reported in the Statement of Operations: Unaffiliated Issuers Risk (Purchased Options) Equity $88,673 Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund s custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and one 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 call options for a premium. Purchased call options entitle the holder to buy a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing call options may 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. The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased call options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased call option, the premium paid is added to the cost of the security or financial instrument purchased. 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. 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 15

18 Notes to Financial Statements (unaudited) continued the six months ended June 30, 2018, this expense amounted to $23,442. The fund segregates cash or marketable securities in an amount that, when combined with the amount of proceeds from the short sale deposited with the broker, at least equals the current market value of the security sold short. Security Loans Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company ( State Street ), 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. State Street provides the fund with indemnification against Borrower default. In the event of Borrower default, State Street 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, State Street assumes the fund s rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, State Street 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 $258,377. The fair value of the fund s investment securities on loan and a related liability of $241,381 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 $24,266. 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. 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. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes. Book/tax differences primarily relate to wash sale loss deferrals. 16