RESEARCH INTERNATIONAL PORTFOLIO

Transcription

1 SEMIANNUAL REPORT June 30, 2017 MFS RESEARCH INTERNATIONAL PORTFOLIO MFS Variable Insurance Trust II RSS-SEM

2 MFS RESEARCH INTERNATIONAL PORTFOLIO CONTENTS Letter from the Executive Chairman... 1 Portfolio composition... 2 Expense table... 3 Portfolio of investments... 4 Statement of assets and liabilities... 6 Statement of operations... 7 Statements of changes in net assets... 8 Financial highlights... 9 Notes to financial statements Results of shareholder meeting 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 Research International Portfolio Dear Contract Owners: Despite policy uncertainty accompanying a new presidential administration in the United States and unease over ongoing Brexit negotiations, most markets have proved resilient. U.S. share prices have reached new highs. The U.S. Federal Reserve has continued to gradually hike interest rates. However, rates in most developed markets remain very low, with major non-u.s. central banks just beginning to contemplate curbing accommodative monetary policies. Globally, economic growth has shown signs of recovery, led by China, the U.S. and the eurozone. Despite better growth, there are few immediate signs of worrisome inflation as wage growth remains muted. Europe has benefited from diminishing event risks as establishment candidates won both the Dutch and French elections, averting a feared populist trend. Emerging market economies are recovering at a somewhat slower pace amid fears that restrictive U.S. trade policies could further hamper the restrained pace of global trade growth. Looking ahead, markets will have to contend with issues involving geopolitical hot spots on the Korean peninsula and in the Middle East, which could potentially lead to a clash of interests between the U.S. and other major powers such as China or Russia. At MFS, we believe time is an asset. A patient, long-term approach to investing can have a powerful impact on decision making and outcomes. Time arbitrage, as we call it, simply comes down to having the conviction and discipline to allow enough time for good investment ideas to play out. In our view, such an approach, along with the professional guidance of a financial advisor, will help you reach your investment objectives. Respectfully, Robert J. Manning Executive Chairman MFS Investment Management August 16, 2017 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 98.9% Cash & Cash Equivalents 1.1% Top ten holdings Nestle S.A. 3.6% Roche Holding AG 3.1% Bayer AG 2.8% Novartis AG 2.3% Schneider Electric S.A. 2.0% UBS AG 2.0% AIA Group Ltd. 1.9% Reckitt Benckiser Group PLC 1.7% Danone S.A. 1.7% Akzo Nobel N.V. 1.7% Issuer country weightings (x) Japan 18.5% Switzerland 15.8% United Kingdom 11.6% Germany 8.5% France 8.4% United States 6.8% Australia 3.9% Hong Kong 3.5% Italy 3.3% Other Countries 19.7% Currency exposure weightings (y) Euro 28.1% Japanese Yen 18.5% Swiss Franc 15.8% British Pound Sterling 12.2% United States Dollar 7.5% Hong Kong Dollar 4.0% Australian Dollar 3.9% Canadian Dollar 1.7% Chinese Renminbi 1.3% Other Currencies 7.0% Global equity sectors Financial Services 24.7% Capital Goods 23.5% Health Care 10.4% Consumer Staples 10.0% Technology 9.3% Consumer Cyclicals 8.4% Energy 8.0% Telecommunications/Cable Television 4.6% (x) Represents the portfolio s exposure to issuer countries as a percentage of a portfolio s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. (y) Represents the portfolio s exposure to a particular currency as a percentage of a portfolio s net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund s cash position and other assets and liabilities. Percentages are based on net assets as of June 30, 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, 2017 through June 30, 2017 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, 2017 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 1/01/17 Ending Account Value 6/30/17 Expenses Paid During Period (p) 1/01/17-6/30/17 Actual 0.99% $1, $1, $5.31 Hypothetical (h) 0.99% $1, $1, $4.96 Actual 1.24% $1, $1, $6.64 Hypothetical (h) 1.24% $1, $1, $6.21 (h) 5% class return per year before expenses. (p) Expenses Paid During Period are equal to each class s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). 3

6 PORTFOLIO OF INVESTMENTS 6/30/17 (unaudited) The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes. Issuer Shares/Par Value ($) COMMON STOCKS 98.9% Airlines 0.8% Aena S.A. 8,304 $ 1,620,412 Malaysia Airports Holdings Berhad 828,600 1,652,316 $ 3,272,728 Alcoholic Beverages 0.4% AmBev S.A., ADR 340,379 $ 1,868,681 Apparel Manufacturers 1.2% LVMH Moet Hennessy Louis Vuitton SE 20,936 $ 5,220,000 Automotive 3.3% GKN PLC 1,160,507 $ 4,927,496 Koito Manufacturing Co. Ltd. 71,500 3,674,328 USS Co. Ltd. 269,800 5,356,420 $ 13,958,244 Broadcasting 1.0% WPP PLC 204,847 $ 4,306,199 Business Services 3.2% Amadeus IT Holding S.A. 64,614 $ 3,863,370 Cerved Information Solutions S.p.A. 106,277 1,137,370 Cognizant Technology Solutions Corp., A 89,216 5,923,943 Nomura Research, Inc. 57,600 2,266,104 $ 13,190,787 Chemicals 0.5% Orica Ltd. 145,902 $ 2,319,061 Computer Software 0.7% Check Point Software Technologies Ltd. (a) 26,794 $ 2,922,690 Computer Software Systems 0.6% EPAM Systems, Inc. (a) 31,224 $ 2,625,626 Construction 1.9% Techtronic Industries Co. Ltd. 752,500 $ 3,460,125 Toto Ltd. 114,200 4,355,794 $ 7,815,919 Consumer Products 3.1% L Oréal 26,671 $ 5,556,319 Reckitt Benckiser Group PLC 71,144 7,212,769 $ 12,769,088 Containers 1.2% Brambles Ltd. 653,798 $ 4,889,414 Electrical Equipment 2.5% Legrand S.A. 34,707 $ 2,427,986 Schneider Electric S.A. 106,573 8,188,260 $ 10,616,246 Electronics 2.7% Broadcom Corp. 10,339 $ 2,409,504 Mellanox Technologies Ltd. (a) 51,181 2,216,137 Samsung Electronics Co. Ltd. 1,082 2,247,882 Issuer Shares/Par Value ($) COMMON STOCKS continued Electronics continued Taiwan Semiconductor Manufacturing Co. Ltd. 630,804 $ 4,323,558 $11,197,081 Energy Independent 1.3% Cairn Energy PLC (a) 565,792 $ 1,268,969 Caltex Australia Ltd. 80,900 1,965,501 Oil Search Ltd. 406,757 2,132,160 $ 5,366,630 Energy Integrated 2.8% BP PLC 892,235 $ 5,145,740 Eni S.p.A. 230,032 3,457,539 Galp Energia SGPS S.A., B 193,745 2,933,143 $11,536,422 Food & Beverages 5.3% Danone S.A. 93,907 $ 7,058,507 Nestle S.A. 173,300 15,081,745 $22,140,252 Food & Drug Stores 1.2% Clicks Group Ltd. 99,620 $ 1,066,066 Sundrug Co. Ltd. 103,300 3,848,206 $ 4,914,272 Gaming & Lodging 0.6% Paddy Power Betfair PLC 22,087 $ 2,353,157 General Merchandise 0.5% Dollarama, Inc. 23,652 $ 2,259,962 Insurance 6.3% AIA Group Ltd. 1,058,000 $ 7,730,936 AMP Ltd. 769,512 3,069,609 Aon PLC 30,870 4,104,167 Hiscox Ltd. 181,759 2,999,394 Swiss Re Ltd. 33,826 3,091,927 Zurich Insurance Group AG 17,763 5,170,146 $26,166,179 Internet 1.5% Alibaba Group Holding Ltd., ADR (a) 22,514 $ 3,172,224 NAVER Corp. 3,847 2,817,625 Scout24 AG 11, ,067 $ 6,409,916 Machinery & Tools 5.1% Daikin Industries Ltd. 52,700 $ 5,374,252 GEA Group AG 96,599 3,953,142 Kubota Corp. 349,500 5,865,137 Ritchie Bros. Auctioneers, Inc. 62,520 1,796,341 Schindler Holding AG 20,723 4,384,917 $21,373,789 4

7 Portfolio of Investments (unaudited) continued Issuer Shares/Par Value ($) COMMON STOCKS continued Major Banks 7.6% ABN AMRO Group N.V., GDR 23,524 $ 623,605 Barclays PLC 1,594,278 4,210,036 BNP Paribas 89,933 6,477,330 Erste Group Bank AG 56,506 2,163,647 Lloyds TSB Group PLC 6,235,670 5,372,469 Sumitomo Mitsui Financial Group, Inc. 119,400 4,648,612 UBS AG 482,527 8,172,112 $31,667,811 Medical Equipment 0.5% Terumo Corp. 51,700 $ 2,033,985 Metals & Mining 1.2% Rio Tinto Ltd. 115,908 $ 4,894,264 Natural Gas Distribution 0.5% China Resources Gas Group Ltd. 674,000 $ 2,300,636 Natural Gas Pipeline 1.2% APA Group 296,188 $ 2,087,551 Enbridge, Inc. 71,568 2,851,020 $ 4,938,571 Network & Telecom 0.6% LM Ericsson Telephone Co., B 349,082 $ 2,496,491 Oil Services 0.5% Schlumberger Ltd. 29,953 $ 1,972,106 Other Banks & Diversified Financials 7.9% Aeon Credit Service Co. Ltd. 237,900 $ 5,029,795 DnB NOR A.S.A. 223,438 3,800,353 HDFC Bank Ltd. 82,942 2,134,325 HDFC Bank Ltd., ADR 12,234 1,063,991 Intesa Sanpaolo S.p.A. 1,544,723 4,897,710 Julius Baer Group Ltd. 72,576 3,818,395 Jyske Bank A.S. 29,380 1,701,331 KBC Groep N.V. 73,980 5,611,395 Mastercard, Inc., A 38,940 4,729,263 $32,786,558 Pharmaceuticals 9.9% Bayer AG 91,945 $11,887,692 Novartis AG 113,001 9,403,984 Roche Holding AG 50,289 12,806,939 Santen Pharmaceutical Co. Ltd. 364,600 4,940,212 Shionogi & Co. Ltd. 41,900 2,331,648 $41,370,475 Printing & Publishing 1.5% RELX N.V. 302,427 $ 6,217,504 Real Estate 3.0% Grand City Properties S.A. 161,755 $ 3,241,411 LEG Immobilien AG 61,975 5,826,291 Mitsui Fudosan Co. Ltd. 148,900 3,548,579 $12,616,281 Issuer Shares/Par Value ($) COMMON STOCKS continued Specialty Chemicals 6.9% Akzo Nobel N.V. 79,353 $ 6,896,265 Croda International PLC 94,552 4,784,347 Linde AG 35,668 6,754,393 Nippon Paint Holdings Co. Ltd. 79,700 3,011,558 Sika AG 623 4,002,169 Symrise AG 48,183 3,413,097 $ 28,861,829 Specialty Stores 1.6% Esprit Holdings Ltd. (a) 906,900 $ 483,219 JD.com, Inc., ADR (a) 50,906 1,996,533 Just Eat PLC (a) 244,750 2,087,973 Ryohin Keikaku Co. Ltd. 8,000 1,996,533 $ 6,564,258 Telecommunications Wireless 4.2% Advanced Info Service PLC 488,900 $ 2,554,600 Cellnex Telecom S.A.U. 152,927 3,154,459 KDDI Corp. 220,100 5,821,716 SoftBank Corp. 55,400 4,480,763 Vodafone Group PLC 495,342 1,404,831 $ 17,416,369 Telephone Services 0.4% Com Hem Holding AB 114,929 $ 1,596,104 Tobacco 1.2% Japan Tobacco, Inc. 139,700 $ 4,902,386 Trucking 0.8% Yamato Holdings Co. Ltd. 174,300 $ 3,530,941 Utilities Electric Power 1.7% CLP Holdings Ltd. 265,500 $ 2,808,894 Enel S.p.A. 815,406 4,371,596 $ 7,180,490 Total Common Stocks (Identified Cost, $366,616,020) $412,839,402 MONEY MARKET FUNDS 0.1% MFS Institutional Money Market Portfolio, 0.98% (v) (Identified Cost, $381,660) 381,698 $ 381,698 Total Investments (Identified Cost, $366,997,680) $413,221,100 OTHER ASSETS, LESS LIABILITIES 1.0% 4,054,279 NET ASSETS 100.0% $417,275,379 (a) Non-income producing security. (v) Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. The following abbreviations are used in this report and are defined: ADR American Depositary Receipt GDR Global Depositary Receipt PLC Public Limited Company See Notes to Financial Statements 5

8 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 6/30/17 Assets Investments Non-affiliated issuers, at value (identified cost, $366,616,020) $412,839,402 Underlying affiliated funds, at value (identified cost, $381,660) 381,698 Total investments, at value (identified cost, $366,997,680) $413,221,100 Cash 43 Foreign currency, at value (identified cost, $451,947) 451,253 Receivables for Investments sold 4,829,502 Fund shares sold 26,895 Interest and dividends 1,963,550 Other assets 1,559 Total assets $420,493,902 Liabilities Payables for Investments purchased $2,391,267 Fund shares reacquired 642,401 Payable to affiliates Investment adviser 21,017 Shareholder servicing costs 90 Distribution and/or service fees 1,224 Payable for independent Trustees compensation 283 Deferred country tax expense payable 20,187 Accrued expenses and other liabilities 142,054 Total liabilities $3,218,523 Net assets $417,275,379 Net assets consist of Paid-in capital $362,412,486 Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (net of $20,187 deferred country tax) 46,208,344 Accumulated net realized gain (loss) on investments and foreign currency (3,978,519) Undistributed net investment income 12,633,068 Net assets $417,275,379 Shares of beneficial interest outstanding 26,583,684 Net assets Shares outstanding Net asset value per share Initial Class $328,787,932 20,886,304 $15.74 Service Class 88,487,447 5,697, See Notes to Financial Statements 6

9 FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited) This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations. Six months ended 6/30/17 Net investment income Income Dividends $8,342,900 Interest 28,578 Dividends from underlying affiliated funds 8,240 Foreign taxes withheld (834,927) Total investment income $7,544,791 Expenses Management fee $1,859,034 Distribution and/or service fees 108,810 Shareholder servicing costs 9,043 Administrative services fee 38,043 Independent Trustees compensation 4,652 Custodian fee 69,742 Shareholder communications 32,213 Audit and tax fees 29,236 Legal fees 2,207 Miscellaneous 8,199 Total expenses $2,161,179 Reduction of expenses by investment adviser (15,836) Net expenses $2,145,343 Net investment income $5,399,448 Realized and unrealized gain (loss) on investments and foreign currency Realized gain (loss) (identified cost basis) Investments: Non-affiliated issuers (net of $1,421 country tax) $13,014,868 Underlying affiliated funds 96 Foreign currency 37,285 Net realized gain (loss) on investments and foreign currency $13,052,249 Change in unrealized appreciation (depreciation) Investments (net of $20,187 increase in deferred country tax) $44,076,013 Translation of assets and liabilities in foreign currencies 76,018 Net unrealized gain (loss) on investments and foreign currency translation $44,152,031 Net realized and unrealized gain (loss) on investments and foreign currency $57,204,280 Change in net assets from operations $62,603,728 See Notes to Financial Statements 7

10 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 6/30/17 (unaudited) Year ended 12/31/16 Change in net assets From operations Net investment income $5,399,448 $7,385,655 Net realized gain (loss) on investments and foreign currency 13,052,249 (5,112,043) Net unrealized gain (loss) on investments and foreign currency translation 44,152,031 (1,484,446) Change in net assets from operations $62,603,728 $789,166 Distributions declared to shareholders From net investment income $ $(6,410,697) Change in net assets from fund share transactions $(47,219,102) $4,052,321 Total change in net assets $15,384,626 $(1,569,210) Net assets At beginning of period 401,890, ,459,963 At end of period (including undistributed net investment income of $12,633,068 and $7,233,620, respectively) $417,275,379 $401,890,753 See Notes to Financial Statements 8

11 FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS MFS Research International 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 Years ended 12/31 6/30/ (unaudited) Net asset value, beginning of period $13.54 $13.85 $14.56 $16.09 $13.62 $11.94 Income (loss) from investment operations Net investment income (d) $0.19 $0.25(c) $0.24 $0.39 $0.25 $0.19 Net realized and unrealized gain (loss) on investments and foreign currency 2.01 (0.34) (0.52) (1.46) Total from investment operations $2.20 $(0.09) $(0.28) $(1.07) $2.58 $1.96 Less distributions declared to shareholders From net investment income $ $(0.22) $(0.30) $(0.30) $(0.11) $(0.28) From net realized gain on investments (0.13) (0.16) Total distributions declared to shareholders $ $(0.22) $(0.43) $(0.46) $(0.11) $(0.28) Net asset value, end of period (x) $15.74 $13.54 $13.85 $14.56 $16.09 $13.62 Total return (%) (k)(r)(s)(x) 16.25(n) (0.70)(c) (1.96) (6.88) Ratios (%) (to average net assets) and Supplemental data: Expenses before expense reductions (f) 0.99(a) 0.95(c) Expenses after expense reductions (f) 0.99(a) 0.94(c) Net investment income 2.66(a) 1.87(c) Portfolio turnover 14(n) Net assets at end of period (000 omitted) $328,788 $318,753 $305,502 $253,001 $286,763 $269,211 Service Class Six months ended Years ended 12/31 6/30/ (unaudited) Net asset value, beginning of period $13.38 $13.68 $14.39 $15.91 $13.46 $11.80 Income (loss) from investment operations Net investment income (d) $0.18 $0.21(c) $0.20 $0.36 $0.21 $0.23 Net realized and unrealized gain (loss) on investments and foreign currency 1.97 (0.33) (0.51) (1.47) Total from investment operations $2.15 $(0.12) $(0.31) $(1.11) $2.52 $1.90 Less distributions declared to shareholders From net investment income $ $(0.18) $(0.27) $(0.25) $(0.07) $(0.24) From net realized gain on investments (0.13) (0.16) Total distributions declared to shareholders $ $(0.18) $(0.40) $(0.41) $(0.07) $(0.24) Net asset value, end of period (x) $15.53 $13.38 $13.68 $14.39 $15.91 $13.46 Total return (%) (k)(r)(s)(x) 16.07(n) (0.91)(c) (2.20) (7.16) Ratios (%) (to average net assets) and Supplemental data: Expenses before expense reductions (f) 1.24(a) 1.20(c) Expenses after expense reductions (f) 1.24(a) 1.19(c) Net investment income 2.44(a) 1.58(c) Portfolio turnover 14(n) Net assets at end of period (000 omitted) $88,487 $83,138 $97,958 $74,383 $92,773 $91,341 See Notes to Financial Statements 9

12 Financial Highlights continued (a) Annualized. (c) Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. (d) Per share data is based on average shares outstanding. (f) Ratios do not reflect reductions from fees paid indirectly, if applicable. (k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. (n) Not annualized. (r) Certain expenses have been reduced without which performance would have been lower. (s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. (x) The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. See Notes to Financial Statements 10

13 NOTES TO FINANCIAL STATEMENTS (unaudited) (1) Business and Organization MFS Research International Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust II (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans. The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services Investment Companies. (2) Significant Accounting Policies General The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country s legal, political, and economic environment. In October 2016, the Securities and Exchange Commission (SEC) released its Final Rule on Investment Company Reporting Modernization (the Rule ). The Rule, which introduces two new regulatory reporting forms for investment companies Form N-PORT and Form N-CEN also contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. Although still evaluating the impacts of the Rule, management believes that many of the Regulation S-X amendments are consistent with the fund s current financial statement presentation and expects that the fund will be able to comply with the Rule s Regulation S-X amendments by the August 1, 2017 compliance date. 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 does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund s Significant Accounting Policies note under the captions for each of the fund s in-scope financial instruments and transactions. Investment Valuations Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service. The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund s foreign equity securities may often be 11

14 Notes to Financial Statements (unaudited) continued valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share. Various inputs are used in determining the value of the fund s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2017 in valuing the fund s assets or liabilities: Investments at Value Level 1 Level 2 Level 3 Total Equity Securities: Japan $77,016,970 $ $ $77,016,970 Switzerland 65,932,334 65,932,334 United Kingdom 48,614,488 48,614,488 Germany 35,396,093 35,396,093 France 34,928,402 34,928,402 United States 23,980,745 23,980,745 Australia 16,463,296 16,463,296 Hong Kong 14,483,174 14,483,174 Italy 13,864,216 13,864,216 Other Countries 79,505,084 2,554,600 82,059,684 Mutual Funds 381, ,698 Total Investments $410,666,500 $2,554,600 $ $413,221,100 For further information regarding security characteristics, see the Portfolio of Investments. Of the level 1 investments presented above, equity investments amounting to $227,472,631 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund s foreign equity securities may often be valued using other observable market-based inputs. The fund s policy is to recognize transfers between the levels as of the end of the period. Foreign Currency Translation Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed. Security Loans 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 12

15 Notes to Financial Statements (unaudited) continued 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. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in Interest income in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At June 30, 2017, 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. 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 expiration of capital loss carryforwards and wash sale loss deferrals. The tax character of distributions declared to shareholders for the last fiscal year is as follows: Year ended 12/31/16 Ordinary income (including any short-term capital gains) $6,410,697 13

16 Notes to Financial Statements (unaudited) continued The federal tax cost and the tax basis components of distributable earnings were as follows: As of 6/30/17 Cost of investments $369,825,321 Gross appreciation 59,270,835 Gross depreciation (15,875,056) Net unrealized appreciation (depreciation) $43,395,779 As of 12/31/16 Undistributed ordinary income 7,281,177 Capital loss carryforwards (14,203,127) Other temporary differences (118,464) Net unrealized appreciation (depreciation) (700,421) The aggregate cost above includes prior fiscal year end tax adjustments, if applicable. Under the Regulated Investment Company Modernization Act of 2010 (the Act ), net capital losses recognized for fund fiscal years beginning after December 31, 2010 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses ( post-enactment losses ). Previously, net capital losses were carried forward for eight years and treated as short-term losses ( pre-enactment losses ). As a transition rule, the Act requires that all post-enactment net capital losses be used before pre-enactment net capital losses. As of December 31, 2016, the fund had capital loss carryforwards available to offset future realized gains as follows: Pre-enactment losses which expire as follows: 12/31/17 $(2,184,929) Post-enactment losses which are characterized as follows: Long-Term $(12,018,198) 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: From net investment income Six months ended 6/30/17 Year ended 12/31/16 Initial Class $ $5,253,219 Service Class 1,157,478 Total $ $6,410,697 (3) Transactions with Affiliates Investment Adviser The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates: First $1 billion of average daily net assets 0.90% Next $1 billion of average daily net assets 0.80% Average daily net assets in excess of $2 billion 0.70% MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund s Board of Trustees. For the six months ended June 30, 2017, this management fee reduction amounted to $15,836, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.89% of the fund s average daily net assets. The investment adviser has agreed in writing to pay a portion of the fund s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 1.00% of average daily net assets for the Initial Class shares and 1.25% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund s Board of Trustees, but such agreement will continue at least until April 30, For the six months ended June 30, 2017, 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. 14

17 Notes to Financial Statements (unaudited) continued Distributor MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of The fund s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries. Shareholder Servicing Agent MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2017, the fee was $8,111, which equated to % annually of the fund s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2017, these costs amounted to $932. Administrator MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of % of the fund s average daily net assets. Trustees and Officers Compensation The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC. Other This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the six months ended June 30, 2017, the fee paid by the fund under this agreement was $381 and is included in Miscellaneous expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO. 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. 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 Under this policy, cross-trades are effected at current market prices with no remuneration paid in connection with the transaction. During the six months ended June 30, 2017, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $391,893 and $778,159, respectively. The sales transactions resulted in net realized gains (losses) of $153,322. (4) Portfolio Securities For the six months ended June 30, 2017, purchases and sales of investments, other than short-term obligations, aggregated $57,464,751 and $100,997,385, respectively. 15

18 Notes to Financial Statements (unaudited) continued (5) Shares of Beneficial Interest The fund s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows: Six months ended 6/30/17 Year ended 12/31/16 Shares Amount Shares Amount Shares sold Initial Class 325,371 $4,762,037 4,041,108 $51,331,181 Service Class 402,695 5,848, ,122 10,322, ,066 $10,610,142 4,813,230 $61,654,152 Shares issued to shareholders in reinvestment of distributions Initial Class $ 374,695 $5,253,219 Service Class 83,512 1,157,478 $ 458,207 $6,410,697 Shares reacquired Initial Class (2,973,309) $(44,179,713) (2,945,541) $(40,269,094) Service Class (919,104) (13,649,531) (1,804,269) (23,743,434) (3,892,413) $(57,829,244) (4,749,810) $(64,012,528) Net change Initial Class (2,647,938) $(39,417,676) 1,470,262 $16,315,306 Service Class (516,409) (7,801,426) (948,635) (12,262,985) (3,164,347) $(47,219,102) 521,627 $4,052,321 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 29%, 9%, and 6%, respectively, of the value of outstanding voting shares of the fund. (6) Line of Credit The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Overnight Federal Reserve funds rate or daily one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Overnight Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2017, the fund s commitment fee and interest expense were $1,415 and $0, respectively, and are included in Miscellaneous expense in the Statement of Operations. (7) Transactions in Underlying Affiliated Funds Affiliated Issuers An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer: Underlying Affiliated Fund Beginning Shares/Par Amount Acquisitions Shares/Par Amount Dispositions Shares/Par Amount Ending Shares/Par Amount MFS Institutional Money Market Portfolio 2,422,703 38,235,065 (40,276,070) 381,698 Underlying Affiliated Fund Realized Gain (Loss) Capital Gain Distributions Dividend Income Ending Value MFS Institutional Money Market Portfolio $96 $ $8,240 $381,698 16