UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21780
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MFS SERIES TRUST XII
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: October 31*
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Date of reporting period: October 31, 2007
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* This Form N-CSR pertains to the following series of the Registrant: MFS
Sector Rotational Fund. The remaining series of the Registrant, MFS Lifetime
Retirement Income Fund, MFS Lifetime 2010 Fund, MFS Lifetime 2020 Fund, MFS
Lifetime 2030 Fund, and MFS Lifetime 2040 Fund, have a fiscal year end of
April 30.
ITEM 1. REPORTS TO STOCKHOLDERS.
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
MFS(R) SECTOR ROTATIONAL FUND
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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MANAGEMENT REVIEW 3
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PERFORMANCE SUMMARY 5
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EXPENSE TABLE 8
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PORTFOLIO OF INVESTMENTS 10
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STATEMENT OF ASSETS AND LIABILITIES 14
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STATEMENT OF OPERATIONS 16
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STATEMENTS OF CHANGES IN NET ASSETS 17
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FINANCIAL HIGHLIGHTS 18
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NOTES TO FINANCIAL STATEMENTS 21
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 31
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TRUSTEES AND OFFICERS 32
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 38
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PROXY VOTING POLICIES AND INFORMATION 43
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QUARTERLY PORTFOLIO DISCLOSURE 43
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FEDERAL TAX INFORMATION 43
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MFS(R) PRIVACY NOTICE 44
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CONTACT INFORMATION BACK COVER
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SIPC CONTACT INFORMATION:
You may obtain information about the Securities Investor Protection
Corporation ("SIPC"), including the SIPC Brochure, by contacting SIPC either
by telephone (202-371-8300) or by accessing SIPC's website address
(www.sipc.org).
THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
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NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
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10/31/07
MSR-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19% and was fairly stable.
This year we have seen a greater level of volatility than has been experienced
in recent years. The Dow hit several new highs but also experienced swift
drops as a global credit crisis swept through markets, spurred by defaults on
U.S. subprime loans and a liquidity crunch. Still, even with this volatility,
the Dow ended the first three quarters of 2007 with a return near 13%.
U.S. Treasury bonds gained ground, especially in the third quarter as
investors sought less risky asset classes. The spreads of many lower quality
debt investments widened.
In 2007 the U.S. dollar fell against the euro, oil prices have hit their
highest levels yet, and gold has spiked to its steepest price in 28 years.
Around the globe, stocks sold off as risk aversion mounted. As we have said
before, markets can be volatile, and investors should make sure they have an
investment plan that can carry them through the peaks and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. In our view, investors who remain committed to a long-term plan are more
likely to achieve their financial goals.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss. Investing
and planning for the long term require diligence and patience, two traits that
in our experience are essential to capitalizing on the many opportunities the
financial markets can offer -- through both up and down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
December 14, 2007
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Common Stocks 98.3%
Cash & Other Net Assets 1.7%
TOP TEN HOLDINGS
Hewlett-Packard Co. 2.7%
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FMC Technologies, Inc. 2.5%
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Praxair, Inc. 2.5%
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Google, Inc. "A" 2.5%
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Deere & Co. 2.4%
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Cisco Systems, Inc. 2.4%
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Coca-Cola Co. 2.2%
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General Dynamics Corp. 2.2%
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Principal Financial Group, Inc. 2.2%
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United Technologies Corp. 2.1%
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EQUITY SECTORS
Industrial Goods & Services 17.5%
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Financial Services 15.4%
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Technology 12.9%
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Basic Materials 10.7%
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Energy 10.2%
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Health Care 8.2%
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Retailing 5.3%
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Consumer Staples 5.2%
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Utilities & Communications 4.6%
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Leisure 2.8%
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Transportation 2.8%
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Autos & Housing 2.7%
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Percentages are based on net assets as of 10/31/07.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended October 31, 2007, Class A shares of the MFS Sector
Rotational Fund provided a total return of 20.99%, at net asset value. This
compares with a return of 15.03% for the fund's benchmark, the Russell 1000
Index (Russell Index).
MARKET ENVIRONMENT
The U.S. economy continues to decouple from the rest of the world. Despite
seemingly robust growth rates during the second and third quarters of 2007,
underlying economic activity in the U.S. remains muted relative to other major
economies. Overall, global economies have seen moderate to strong growth over
the last twelve months as domestic demand improves and world trade accelerates.
With the strong global growth, however, has come increased concern about rising
global inflation, especially as capacity becomes more constrained, wages rise,
and energy and food prices advance. During the reporting period, global central
banks tightened monetary conditions, which in turn pushed global bond yields to
their highest levels during this economic expansion.
However, beginning in late July, heightened uncertainty and distress concerning
the subprime mortgage market caused several global credit markets to seize up,
forcing central banks to inject liquidity and to reassess their tightening
biases as sovereign bond yields declined and credit spreads widened. While
credit conditions improved somewhat by late October as the Federal Reserve
Board cut interest rates, the level of market turbulence remains significant.
Increased market volatility has also been exacerbated by U.S. home
foreclosures, falling housing prices, and a weakening trend in the labor
market. Despite increased volatility across all asset classes and the widening
in credit spreads, global equity markets remained elevated, generally having
erased losses incurred earlier in the summer.
CONTRIBUTORS TO PERFORMANCE
For the MFS Sector Rotational Fund, stock selection and an overweighted
position in the industrial goods and services sector led the way to strong
performance relative to the Russell Index. Agricultural equipment manufacturer
Deere & Co., industrial machinery and equipment manufacturer Parker Hannifin,
and energy services company McDermott International were among the top
contributors. McDermott International provided solid quarterly profits due, in
part, to the reconsolidation of its power generation systems subsidiary -
Babcock & Wilcox - and higher demand from the oil and gas industries.
The combination of stock selection and an underweighted position in the weak-
performing health care sector also aided relative returns. Holdings of
healthcare services company Express Scripts helped as the stock posted strong
gains over the reporting period.
Stock selection and positioning in the technology sector were favorable to
performance. Two stocks in this sector were among our top relative
contributors: electronics distributor Avnet and computer and electronics maker
Apple(g).
The basic materials sector also helped, with returns boosted primarily by an
overweighted position in this strong sector with a modest assistance from stock
selection. Reliance Steel and Aluminum(g) was among the portfolio's top
contributors in this sector.
Stock selection in the energy sector further boosted relative performance. Oil
and gas drilling equipment manufacturer National Oilwell Varco was the
portfolio's largest contributor. The company reported robust quarterly profits
during the reporting period, citing strong demand for its drilling rig
products. Oil field services companies FMC Technologies and Schlumberger also
had a positive impact on results.
DETRACTORS FROM PERFORMANCE
Although the financial services sector had a positive effect on the portfolio's
relative performance, the fund's holdings of several financial services firms
held back results. These included investment banking firm Lehman Brothers(g)
and commercial and consumer financing firm CIT Group(g), both of which were
affected by the turmoil in the subprime mortgage market. CNA Financial(g), a
property and casualty insurance company, also detracted from relative returns.
Respectfully,
G. Michael Mara
Portfolio Manager
(g) Security was not held in the portfolio at period end.
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market or
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS portfolio. References to specific
securities are not recommendations of such securities, and may not be
representative of any MFS portfolio's current or future investments.
PERFORMANCE SUMMARY THROUGH 10/31/07
The following chart illustrates a representative class of the fund's historical
performance in comparison to its benchmark. Performance results include the
deduction of the maximum applicable sales charge and reflect the percentage
change in net asset value, including reinvestment of dividends and capital
gains distributions. The performance of other share classes will be greater
than or less than that of the class depicted below. Benchmark comparisons are
unmanaged; do not reflect sales charges, commissions or expenses; and cannot be
invested in directly. (See Notes to Performance Summary.)
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR SHARES,
WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN QUOTED. THE PERFORMANCE SHOWN DOES NOT
REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
MFS Sector
Rotational Russell 1000
Fund -- Class A Index (f)
8/00 $ 9,425 $10,000
10/00 9,621 9,505
10/01 8,380 7,030
10/02 8,160 6,003
10/03 10,297 7,343
10/04 11,860 8,031
10/05 13,677 8,869
10/06 15,212 10,290
10/07 18,405 11,837
TOTAL RETURNS THROUGH 10/31/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr Life (t)
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A 8/30/00 20.99% 17.66% 9.78%
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B 1/03/07 20.41% 17.55% 9.71%
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C 3/01/04 20.30% 17.37% 9.59%
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AVERAGE ANNUAL
Comparative benchmark
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Russell 1000 Index (f) 15.03% 14.54% 2.37%
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AVERAGE ANNUAL WITH SALES CHARGE
Share class
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A 14.04% 16.28% 8.88%
With Initial Sales Charge (5.75%)
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B 16.41% 17.34% 9.71%
With CDSC (Declining over six years
from 4% to 0%) (x)
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C 19.30% 17.37% 9.59%
With CDSC (1% for 12 months) (x)
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CDSC - Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(t) For the period from the commencment of the fund's investment operations,
August 30, 2000 through the stated period end.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Russell 1000 Index - constructed to provide a comprehensive barometer for the
large-cap segment of the U.S. equity universe based on total market
capitalization, which represents approximately 92% of the investable U.S.
equity market.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Performance information in the chart and tables for periods prior to January 3,
2007, reflect performance information of the Penn Street Advisors Sector
Rotational Portfolio, the fund's predecessor (the "Predecessor Fund"). On
January 3, 2007, the fund acquired all of the assets of the Predecessor Fund
pursuant to an agreement and plan of reorganization, in exchange for Class A
and Class C shares of the fund.
Beginning January 3, 2007, performance for share classes offered after Class A
shares includes the performance of the fund's Class A shares for periods prior
to their offering. This blended class performance has been adjusted to take
into account differences in sales loads, if any, applicable to these share
classes, but has not been adjusted to take into account differences in class
specific operating expenses (such as Rule 12b-1 fees). Compared to performance
these share classes would have experienced had they been offered for the entire
period, the use of blended performance generally results in higher performance
for share classes with higher operating expenses than the share class to which
it is blended, and lower performance for share classes with lower operating
expenses than the share class to which it is blended.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
EXPENSE TABLE
Fund Expenses Borne by the Shareholders During the Period,
May 1, 2007 through October 31, 2007
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on certain purchase or redemption
payments and (2) ongoing costs, including management fees; distribution and
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 May 1, 2007 through October 31, 2007.
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 your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line for each share class in the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period(p)
Share Expense Account Value Account Value 5/01/07-
Class Ratio 5/01/07 10/31/07 10/31/07
- --------------------------------------------------------------------------------
Actual 1.35% $1,000.00 $1,072.88 $7.05
A ------------------------------------------------------------------------
Hypothetical (h) 1.35% $1,000.00 $1,018.40 $6.87
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Actual 1.98% $1,000.00 $1,069.30 $10.33
B ------------------------------------------------------------------------
Hypothetical (h) 1.98% $1,000.00 $1,015.22 $10.06
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Actual 1.98% $1,000.00 $1,069.84 $10.33
C ------------------------------------------------------------------------
Hypothetical (h) 1.98% $1,000.00 $1,015.22 $10.06
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads). If
these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
10/31/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Common Stocks - 98.3%
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ISSUER SHARES/PAR VALUE ($)
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Aerospace - 6.3%
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General Dynamics Corp. 66,108 $ 6,013,184
Lockheed Martin Corp. 51,000 5,612,040
United Technologies Corp. 75,920 5,814,713
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$ 17,439,937
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Automotive - 2.7%
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Genuine Parts Co. 96,960 $ 4,757,827
Magna International, Inc., "A" 28,990 2,747,092
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$ 7,504,919
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Biotechnology - 1.9%
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Gilead Sciences, Inc. (a) 113,052 $ 5,221,872
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Broadcasting - 1.8%
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Omnicom Group, Inc. 97,000 $ 4,945,060
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Brokerage & Asset Managers - 1.9%
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Goldman Sachs Group, Inc. 21,295 $ 5,279,456
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Chemicals - 0.9%
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3M Co. 28,920 $ 2,497,531
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Computer Software - Systems - 6.1%
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Avnet, Inc. 115,940 $ 4,837,017
Hewlett-Packard Co. 146,495 7,570,862
International Business Machines Corp. 37,040 4,301,085
------------
$ 16,708,964
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Containers - 1.8%
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Packaging Corp. of America 154,960 $ 4,933,926
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Electrical Equipment - 2.0%
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Emerson Electric Co. 106,800 $ 5,582,436
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Energy - Integrated - 2.1%
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Exxon Mobil Corp. 62,600 $ 5,758,574
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Engineering - Construction - 2.0%
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McDermott International, Inc. 90,580 $ 5,530,815
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Food & Beverages - 5.2%
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Coca-Cola Co. 97,530 $ 6,023,453
PepsiCo, Inc. 78,734 5,804,270
Pilgrims Pride Corp. (l) 85,480 2,538,756
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$ 14,366,479
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Food & Drug Stores - 1.0%
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CVS Caremark Corp. 67,630 $ 2,824,905
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General Merchandise - 0.9%
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Dollar Tree Stores, Inc. 65,600 $ 2,512,480
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Health Maintenance Organizations - 3.3%
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CIGNA Corp. 101,220 $ 5,313,038
WellPoint, Inc. (a) 47,750 3,783,233
------------
$ 9,096,271
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Insurance - 11.6%
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Chubb Corp. 98,580 $ 5,259,243
Genworth Financial, Inc., "A" 181,160 4,945,668
MetLife, Inc. (l) 77,290 5,321,417
Principal Financial Group, Inc. 88,020 5,956,313
Prudential Financial, Inc. 53,800 5,203,536
Torchmark Corp. 84,130 5,481,911
------------
$ 32,168,088
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Internet - 2.5%
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Google, Inc., "A" (a) 9,870 $ 6,978,090
- -----------------------------------------------------------------------------------------------------------------
Machinery & Tools - 6.3%
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Deere & Co. 43,380 $ 6,719,562
Parker Hannifin Corp. 70,180 5,640,326
Terex Corp. 66,670 4,948,247
------------
$ 17,308,135
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Major Banks - 1.9%
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Wells Fargo & Co. 156,300 $ 5,315,763
- -----------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.4%
- -----------------------------------------------------------------------------------------------------------------
Express Scripts, Inc. (a) 61,860 $ 3,903,366
- -----------------------------------------------------------------------------------------------------------------
Medical Equipment - 1.6%
- -----------------------------------------------------------------------------------------------------------------
Baxter International, Inc. 72,123 $ 4,328,101
- -----------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 1.1%
- -----------------------------------------------------------------------------------------------------------------
Energen Corp. 46,885 $ 3,000,640
- -----------------------------------------------------------------------------------------------------------------
Network & Telecom - 2.7%
- -----------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc. (a) 196,664 $ 6,501,712
QUALCOMM, Inc. 23,520 1,005,010
------------
$ 7,506,722
- -----------------------------------------------------------------------------------------------------------------
Oil Services - 8.1%
- -----------------------------------------------------------------------------------------------------------------
ENSCO International, Inc. 34,330 $ 1,904,972
FMC Technologies, Inc. 115,916 7,027,987
GlobalSantaFe Corp. 35,440 2,871,703
National Oilwell Varco, Inc. (a) 74,880 5,484,211
Schlumberger Ltd. 54,033 5,217,967
------------
$ 22,506,840
- -----------------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.6%
- -----------------------------------------------------------------------------------------------------------------
Seagate Technology LLC (l) 162,120 $ 4,513,421
- -----------------------------------------------------------------------------------------------------------------
Pollution Control - 0.9%
- -----------------------------------------------------------------------------------------------------------------
Republic Services, Inc. 73,160 $ 2,501,340
- -----------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 1.8%
- -----------------------------------------------------------------------------------------------------------------
Union Pacific Corp. 37,769 $ 4,835,943
- -----------------------------------------------------------------------------------------------------------------
Restaurants - 1.0%
- -----------------------------------------------------------------------------------------------------------------
Darden Restaurants, Inc. 65,990 $ 2,837,570
- -----------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 8.0%
- -----------------------------------------------------------------------------------------------------------------
Air Products & Chemicals, Inc. 55,055 $ 5,387,132
Airgas, Inc. 54,080 2,729,418
FMC Corp. 78,970 4,540,775
NOVA Chemicals Corp. 70,330 2,536,803
Praxair, Inc. 82,113 7,019,019
------------
$ 22,213,147
- -----------------------------------------------------------------------------------------------------------------
Specialty Stores - 3.4%
- -----------------------------------------------------------------------------------------------------------------
Tiffany & Co. 92,440 $ 5,008,399
TJX Cos., Inc. 153,680 4,445,962
------------
$ 9,454,361
- -----------------------------------------------------------------------------------------------------------------
Telephone Services - 2.8%
- -----------------------------------------------------------------------------------------------------------------
AT&T, Inc. 125,651 $ 5,250,955
CenturyTel, Inc. 53,170 2,342,139
------------
$ 7,593,094
- -----------------------------------------------------------------------------------------------------------------
Trucking - 1.0%
- -----------------------------------------------------------------------------------------------------------------
United Parcel Service, Inc., "B" 36,220 $ 2,720,122
- -----------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 0.7%
- -----------------------------------------------------------------------------------------------------------------
PG&E Corp. (l) 37,400 $ 1,829,982
- -----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $244,114,340) $271,718,350
- -----------------------------------------------------------------------------------------------------------------
Repurchase Agreements - 4.0%
- -----------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., 4.94%, dated 10/31/07, due 11/01/07, total
to be received $11,034,514 (secured by various U.S. Treasury
and Federal Agency obligations and Mortgage Backed securities
in a jointly traded account), at Cost $11,033,000 $ 11,033,000
- -----------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 4.5%
- -----------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 12,314,193 $ 12,314,193
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $267,461,533) $295,065,543
- -----------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (6.8)% (18,796,865)
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $276,268,678
- -----------------------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(l) All or a portion of this security is on loan.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 10/31/07
This statement represents your fund's balance sheet, which details the assets
and liabilities comprising the total value of the fund.
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $12,040,727 of securities on
loan (identified cost, $267,461,533) $295,065,543
Cash 820
Receivable for investments sold 8,231,362
Receivable for fund shares sold 4,135,829
Interest and dividends receivable 161,337
Receivable from investment adviser 4,166
- -------------------------------------------------------------------------------------------------------
Total assets $307,599,057
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $18,465,705
Payable for fund shares reacquired 438,974
Collateral for securities loaned, at value 12,314,193
Payable to affiliates
Management fee 11,193
Shareholder servicing costs 11,260
Distribution and service fees 7,513
Administrative services fee 285
Payable for independent trustees' compensation 725
Accrued expenses and other liabilities 80,531
- -------------------------------------------------------------------------------------------------------
Total liabilities $31,330,379
- -------------------------------------------------------------------------------------------------------
Net assets $276,268,678
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $252,421,811
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 27,604,066
Accumulated distributions in excess of net realized gain
on investments (3,757,199)
- -------------------------------------------------------------------------------------------------------
Net assets $276,268,678
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 13,845,002
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $210,953,630
Shares outstanding 10,538,661
- -------------------------------------------------------------------------------------------------------
Net asset value per share $20.02
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $21.24
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $13,483,598
Shares outstanding 682,680
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $19.75
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $51,831,450
Shares outstanding 2,623,661
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $19.76
- -------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred
sales charge may be imposed on redemptions of Class A, Class B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 10/31/07
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.
NET INVESTMENT LOSS
- ----------------------------------------------------------------------------------------------------
Income
Dividends $1,346,415
Interest 185,286
Foreign taxes withheld (1,059)
- ----------------------------------------------------------------------------------------------------
Total investment income $1,530,642
- ----------------------------------------------------------------------------------------------------
Expenses
Management fee $953,152
Distribution and service fees 587,583
Shareholder servicing costs 86,804
Administrative services fee 27,985
Independent trustees' compensation 6,216
Custodian fee 32,048
Shareholder communications 31,030
Auditing fees 45,312
Legal fees 19,616
Miscellaneous 87,282
- ----------------------------------------------------------------------------------------------------
Total expenses $1,877,028
- ----------------------------------------------------------------------------------------------------
Fees paid indirectly (236)
Reduction of expenses by investment adviser (4,706)
- ----------------------------------------------------------------------------------------------------
Net expenses $1,872,086
- ----------------------------------------------------------------------------------------------------
Net investment loss $(341,444)
- ----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ----------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $(3,738,758)
- ----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $25,747,935
Translation of assets and liabilities in foreign currencies 56
- ----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments
and foreign currency translation $25,747,991
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency $22,009,233
- ----------------------------------------------------------------------------------------------------
Change in net assets from operations $21,667,789
- ----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from
operations, any distributions, and any shareholder transactions.
YEARS ENDED 10/31
-----------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment loss $(341,444) $(29,826)
Net realized gain (loss) on investments (3,738,758) 844,401
Net unrealized gain (loss) on investments
and foreign currency translation 25,747,991 400,080
- -------------------------------------------------------------------------------------------
Change in net assets from operations $21,667,789 $1,214,655
- -------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions
Class A $(852,020) $(744,610)
Class C (7,776) (3,263)
- -------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(859,796) $(747,873)
- -------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $239,917,263 $3,959,879
- -------------------------------------------------------------------------------------------
Total change in net assets $260,725,256 $4,426,661
- -------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------
At beginning of period 15,543,422 11,116,761
At end of period $276,268,678 $15,543,422
- -------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's financial performance for
the past 5 years (or life of a particular share class, if shorter). Certain information reflects
financial results for a single fund share. The total returns in the table represent the rate by which an
investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of
all distributions) held for the entire period.
CLASS A YEARS ENDED 10/31
------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $17.50 $16.77 $15.10 $13.11 $10.39
- -------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.03) $(0.03) $(0.06) $(0.08) $(0.10)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.55 1.84 2.34 2.07 2.82
- -------------------------------------------------------------------------------------------------------
Total from investment operations $3.52 $1.81 $2.28 $1.99 $2.72
- -------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net realized gain on investments $(1.00) $(1.08) $(0.61) $-- $--
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.02 $17.50 $16.77 $15.10 $13.11
- -------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 20.99 11.22 15.33 15.18 26.18
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.38 2.90 2.82 2.62 2.40
Expenses after expense reductions (f) 1.37 1.75 1.75 1.75 1.75
Net investment loss (0.14) (0.19) (0.39) (0.55) (0.89)
Portfolio turnover 141 168 107 133 100
Net assets at end of period (000 Omitted) $210,954 $15,405 $11,078 $6,711 $4,446
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B PERIOD ENDED
10/31
------------
2007(i)
Net asset value, beginning of period $17.03
- -------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------
Net investment loss (d) (0.12)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.84(g)
- -------------------------------------------------------------------------
Total from investment operations $2.72
- -------------------------------------------------------------------------
Net asset value, end of period $19.75
- -------------------------------------------------------------------------
Total return (%) (r)(s)(t) 15.97(n)
- -------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------
Expenses before expense reductions (f) 1.98(a)
Expenses after expense reductions (f) 1.98(a)
Net investment loss (0.85)(a)
Portfolio turnover 141
Net assets at end of period (000 Omitted) $13,484
- -------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 10/31
----------------------------------------
2007 2006 2005 2004(i)
Net asset value, beginning of period $17.38 $16.78 $15.11 $14.64
- -----------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment loss (d) $(0.15) $(0.12) $(0.04) $(0.13)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.53 1.80 2.32 0.60
- -----------------------------------------------------------------------------------------
Total from investment operations $3.38 $1.68 $2.28 $0.47
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------
From net realized gain on investments $(1.00) $(1.08) $(0.61) $--
- -----------------------------------------------------------------------------------------
Net asset value, end of period $19.76 $17.38 $16.78 $15.11
- -----------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 20.30 10.40 15.31 3.21(n)
- -----------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.98 3.65 3.57 3.37(a)
Expenses after expense reductions (f) 1.98 2.50 2.50 2.50(a)
Net investment loss (0.85) (0.94) (1.14) (1.30)(a)
Portfolio turnover 141 168 107 133
Net assets at end of period (000 Omitted) $51,831 $139 $39 $--(z)
- -----------------------------------------------------------------------------------------
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(g) The per share amount is not in accordance with the net realized and unrealized
gain/loss for the period because of the timing of sales of fund shares and the per
share amount of realized and unrealized gains and losses at such time.
(i) For the period from the class' inception, January 3, 2007 (Class B) and March 1, 2004
(Class C) through the stated period end.
(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.
(t) Total returns do not include any applicable sales charges.
(z) Amount was less than $500.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Sector Rotational Fund (the fund) is a series of MFS Series Trust XII (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. On January 3, 2007, the fund acquired all of
the assets and certain identified liabilities of the Penn Street Advisors
Sector Rotational Portfolio (the predecessor fund), a series of The Penn Street
Fund, Inc., a Maryland corporation, registered under the 1940 Act as an
open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The fund
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales
reported that day, equity securities are generally valued at the last quoted
daily bid quotation as reported by an independent pricing service on the market
or exchange on which they are primarily traded. For securities held short for
which there were no sales reported for the day, the position is generally
valued at the last quoted daily ask quotation as reported by an independent
pricing service on the market or exchange on which such securities are
primarily traded. Short-term instruments with a maturity at issuance of 60 days
or less may be valued at amortized cost, which approximates market value.
Open-end investment companies are generally valued at their net asset value per
share. Securities and other assets generally valued on the basis of information
from an independent pricing service may also be valued at a broker-dealer bid
quotation.
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 many types of debt instruments and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. In addition, investments may be valued at fair
value if the adviser determines that an investment's value has been materially
affected by events occurring after the close of the exchange or market on which
the investment is principally traded (such as foreign exchange or market) and
prior to the determination of the fund's net asset value, or after the halting
of trading of a specific security where trading does not resume prior to the
close of the exchange or market on which the security is principally traded.
The adviser may rely on independent 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
investments used to determine the fund's net asset value may differ from quoted
or published prices for the same investments.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the fund's financial statements.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund and other funds managed by
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the fund with indemnification against Borrower default. The
fund bears the risk of loss with respect to the investment of cash collateral.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or short-term securities. A portion of the income generated upon
investment of the collateral is remitted to the Borrowers, and the remainder is
allocated between the fund and the lending agent. On loans collateralized by
U.S. Treasury securities, a fee is received from the Borrower, and is allocated
between the fund and the lending agent. Net income from securities lending is
included in interest income on the Statement of Operations. The dividend and
interest income earned on the securities loaned is accounted for in the same
manner as other dividend and interest income.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Certain dividends from foreign securities will be recorded when the fund is
informed of the dividend if such information is obtained subsequent to the ex-
dividend date. Dividend and interest payments received in additional securities
are recorded on the ex-dividend or ex-interest date in an amount equal to the
value of the security on such date. The fund may receive proceeds from
litigation settlements. Any proceeds received from litigation involving
portfolio holdings are reflected in the Statement of Operations in realized
gain/loss if the security has been disposed of by the fund or in unrealized
gain/loss if the security is still held by the fund. Any other proceeds from
litigation not related to portfolio holdings are reflected as other income in
the Statement of Operations.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the year ended October 31, 2007, is shown as a reduction
of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue Code,
and to distribute all of its taxable income, including realized capital gains.
Accordingly, no provision for federal income tax is required in the financial
statements. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from U.S. generally accepted accounting
principles. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These adjustments have no impact on net assets or net asset value
per share. Temporary differences which arise from recognizing certain items of
income, expense, gain or loss in different periods for financial statement and
tax purposes will reverse at some time in the future. Distributions in excess
of net investment income or net realized gains are temporary overdistributions
for financial statement purposes resulting from differences in the recognition
or classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to net operating losses and wash sale
loss deferrals.
The tax character of distributions declared to shareholders is as follows:
10/31/07 10/31/06
Ordinary income (including
any short-term capital gains) $-- $266,188
Long-term capital gain 859,796 481,685
-----------------------------------------------------------
Total distributions $859,796 $747,873
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 10/31/07
Cost of investments $267,612,314
--------------------------------------------------------------
Gross appreciation $29,735,310
Gross depreciation (2,282,081)
--------------------------------------------------------------
Net unrealized appreciation (depreciation) $27,453,229
Capital loss carryforwards (3,606,418)
Other temporary differences 56
As of October 31, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
10/31/15 $(3,606,418)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management
has evaluated the application of the Interpretation to the fund, and has
determined that there is no impact resulting from the adoption of this
Interpretation on the fund's financial statements.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates are
generally due to differences in separate class expenses. Class B shares will
convert to Class A shares approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
Information in the fund's financial statements regarding expenses includes
expenses paid by the Penn Street Advisors Sector Rotational Portfolio (the
predecessor fund) prior to January 3, 2007.
INVESTMENT ADVISER - The fund has an investment advisory agreement with (MFS)
to provide overall investment management and related administrative services
and facilities to the fund. The management fee is computed daily and paid
monthly at the following annual rates:
First $1 billion of average daily net assets 0.75%
Next $1.5 billion of average daily net assets 0.65%
Next $2.5 billion of average daily net assets 0.60%
Average daily net assets in excess of $5 billion 0.50%
MFS has engaged Valley Forge Capital Advisors, Inc., (Valley Forge) as a
subadviser for the fund. MFS pays a sub-advisory fee at the following annual
rates:
First 1 billion of average daily net assets 0.35%
Next 1.5 billion of average daily net assets 0.30%
Next 2.5 billion of average daily net assets 0.25%
Average daily net assets in excess of 5 billion 0.20%
The fund is not responsible for paying a sub-advisory fee.
Prior to January 3, 2007, the predecessor fund had an investment advisory
agreement with Penn Street Investment Advisors, Inc (PSIA). Under this
agreement, the management fee was computed daily and paid monthly at an annual
rate of 0.25% of the fund's average daily net assets. The predecessor fund and
PSIA had engaged Valley Forge as a sub-adviser for the fund. The predecessor
fund paid to Valley Forge a sub-advisory fee computed daily and paid monthly at
an annual rate of 0.75% of the fund's average daily net assets.
The management fee incurred for the year ended October 31, 2007, including any
fees paid by the predecessor fund to PSIA and Valley Forge, was equivalent to
an annual effective rate of 0.75% of the fund's average daily net assets.
MFS as investment adviser has agreed in writing to pay a portion of the fund's
operating expenses, exclusive of certain other fees and expenses, such that
total annual fund operating expenses do not exceed the following rates annually
of the fund's average daily net assets:
CLASS A CLASS B CLASS C
1.40% 2.05% 2.05%
This written agreement will continue through February 29, 2008 unless changed
or rescinded by the fund's Board of Trustees.
Prior to January 3, 2007 PSIA as investment adviser to the predecessor fund had
agreed to pay a portion of the fund's operating expenses, exclusive of certain
other fees and expenses, such that total annual fund operating expenses did not
exceed the following rates annually of the fund's average daily net assets:
CLASS A CLASS C
1.75% 2.50%
During the year ended October 31, 2007, PSIA paid $4,166 in expenses of the
predecessor fund under PSIA's arrangement with the predecessor fund. These
payments are reflected as a reduction of total expenses in the Statement of
Operations.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $250,293 for the period ended October 31, 2007,
as its portion of the initial sales charge on sales of Class A shares of the
fund.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Plan Fee Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN (d) RATE (e) FEE
Class A 0.10% 0.25% 0.35% 0.35% $358,938
Class B 0.75% 0.25% 1.00% 1.00% 50,080
Class C 0.75% 0.25% 1.00% 1.00% 178,565
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $587,583(f)
(d) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up to
these annual percentage rates of each class' average daily net assets.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the year ended October
31, 2007 based on each class' average daily net assets.
(f) The MFS Sector Rotational Fund paid $580,632 to MFS; and the predecessor fund paid $6,951 to Citco Mutual Fund
Distributors (CMFD) (see plan below).
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months of purchase.
Class B shares are subject to a contingent deferred sales charge in the event
of a shareholder redemption within six years of purchase. All contingent
deferred sales charges are paid to MFD and during the year ended October 31,
2007, were as follows:
AMOUNT
Class A $112
Class B 5,175
Class C 4,513
The Board of Directors of the predecessor fund had adopted a distribution plan
for certain class shares pursuant to Rule 12b-1 of the Investment Company Act
of 1940.
The predecessor fund's distribution plan provided that the predecessor fund
would pay CMFD the following fees:
Predecessor Fund Distribution Fee Plan Table:
TOTAL
DISTRIBUTION SERVICE DISTRIBUTION
FEE RATE FEE RATE PLAN
Class A -- 0.25 0.25
Class C 0.75 0.25 1.00
The predecessor fund did not offer Class B shares.
SHAREHOLDER SERVICING AGENT/ADMINISTRATOR - MFS Service Center, Inc. (MFSC), a
wholly-owned subsidiary of MFS, receives a fee from the fund for its services
as shareholder servicing agent calculated as a percentage of the average daily
net assets of the fund as determined periodically under the supervision of the
fund's Board of Trustees. For the year ended October 31, 2007, the fee was
$55,097, which equated to 0.0436% annually of the fund's average daily net
assets. MFSC also receives payment from the fund for out-of-pocket expenses,
sub-accounting and other shareholder servicing costs which may be paid to
affiliated and unaffiliated service providers. For the year ended October 31,
2007, these out-of-pocket expenses, sub-accounting and other shareholder
servicing costs amounted to $31,104. The fund may also pay shareholder
servicing related costs directly to non-related parties.
MFS provides certain financial, legal, shareholder communications, compliance,
and other administrative services to the fund. Under an administrative services
agreement, the fund partially reimburses MFS the costs incurred to provide
these services. The fund is charged a fixed amount plus a fee based on calendar
year average net assets. The fund's annual fixed amount is $17,500.
The administrative services fee incurred and paid to MFS for the period ended
October 31, 2007 was equivalent to an annual effective rate of 0.0222% of the
fund average daily net assets.
Prior to January 3, 2007, the predecessor fund engaged Citco Mutual Fund
Services, Inc. ("CMFS") as transfer and dividend disbursing agent, fund
accounting agent and administrator to the fund. For its services to the
predecessor fund, CMFS was paid a fee based on a declining scale as follows:
First $100 million of average daily net assets 0.40%
Next $100 million of average daily net assets 0.30%
Next $100 million of average daily net assets 0.25%
Next $200 million of average daily net assets 0.20%
Average daily net assets in excess of 500 million 0.15%
Shareholder servicing costs and administrative services fees paid to CMFS
amounted to $10,827 for the period ended October 31, 2007 and are included in
the administrative services fee in the Statement of Operations.
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 MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended October 31, 2007, the fee paid to Tarantino LLC
was $2,294. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $540, which is shown as a
reduction of total expenses in the Statement of Operations. Additionally, MFS
has agreed to bear all expenses associated with office space, other
administrative support, and supplies provided to the ICCO.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$409,859,326 and $175,302,123, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
YEAR ENDED YEAR ENDED
10/31/07(i) 10/31/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 12,487,855 $232,035,779 417,445 $7,227,110
Class B 759,546 14,146,018 -- --
Class C 2,675,224 49,981,249 5,491 94,500
- --------------------------------------------------------------------------------------------------
15,922,625 $296,163,046 422,936 $7,321,610
Shares issued to shareholders in
reinvestment of distributions
Class A 46,111 $796,798 37,428 $616,074
Class C 342 5,862 183 3,005
- --------------------------------------------------------------------------------------------------
46,453 $802,660 37,611 $619,079
Shares reacquired
Class A (2,875,802) $(54,518,116) (234,990) $(3,980,810)
Class B (76,866) (1,418,169) -- --
Class C (59,893) (1,112,158) -- --
- --------------------------------------------------------------------------------------------------
(3,012,561) $(57,048,443) (234,990) $(3,980,810)
Net change
Class A 9,658,164 $178,314,461 219,883 $3,862,374
Class B 682,680 12,727,849 -- --
Class C 2,615,673 48,874,953 5,674 97,505
- --------------------------------------------------------------------------------------------------
12,956,517 $239,917,263 225,557 $3,959,879
(i) For the period from the class' inception, January 3, 2007 (Class B), through the stated
period end.
(6) LINE OF CREDIT
The fund and other funds managed by MFS participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other funds managed by MFS have
established uncommitted borrowing arrangements with certain banks. 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 Federal Reserve funds
rate plus 0.30%. In addition, 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. For the year ended
October 31, 2007, the fund's commitment fee and interest expense were $463 and
$441, respectively, and are included in miscellaneous expense on the Statement
of Operations.
(7) ACQUISITIONS
On January 3, 2007, the fund acquired all of the assets of Penn Street Advisors
Sector Rotational Portfolio (the predecessor fund) as of the close of business
on December 29, 2006. The acquisition was accomplished by a tax-free exchange
of 909,586 shares of the Class A and Class C shares of the fund (valued at
$15,625,585) and the assumption of certain liabilities of the predecessor fund
by the fund for all of the assets of the predecessor fund. The predecessor fund
then distributed the shares that the predecessor fund received from the fund to
its shareholders. The predecessor fund's net assets on that date were
$15,625,585 including $2,093,997 of unrealized appreciation, $15,296 of
accumulated net investment loss, and $324,063 of accumulated net realized gain
on investments. The aggregate net assets of the fund after the acquisition were
$15,625,585, and the fund continued the operations of the predecessor fund. All
accounting and performance history of the predecessor fund were carried forward
to MFS Sector Rotational Fund.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust XII
and Shareholders of MFS Sector Rotational Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Sector Rotational Fund (the Fund), (one of the portfolios comprising MFS Series
Trust XII), including the portfolio of investments, as of October 31, 2007, and
the related statement of operations, the statement of changes in net assets and
the financial highlights for the year then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the period ended October 31, 2006 and the financial highlights for each of
the four years in the period then ended were audited by another independent
registered public accounting firm whose report, dated November 30, 2006,
expressed an unqualified opinion on the statement of changes in net assets and
financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of October 31, 2007, by correspondence with
the Fund's custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Sector Rotational Fund at October 31, 2007, the results of its operations, the
changes in its net assets and its financial highlights for the year then ended,
in conformity with U.S. generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 14, 2007
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of December 1, 2007, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.) The
address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(h) OTHER DIRECTORSHIPS(j)
- ------------------- ---------------- --------------- ----------------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); MIT Sloan School
(education), Senior Lecturer
(since 2006); Secretary of
Economic Affairs, The Commonwealth
of Massachusetts (January 2002 to
December 2002); Fidelity
Investments, Vice Chairman (June
2000 to December 2001); Fidelity
Management & Research Company
(investment adviser), President
(March 1997 to July 2001); Bell
Canada Enterprises
(telecommunications), Director;
Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Retired; Cleveland-Cliffs Inc.
(born 5/30/42) (mining products and service
provider), Vice Chairman/Director
(until May 2007); Portman Limited
(mining), Director (since 2005);
Encinitos Ventures (private
investment company), Principal
(1997 to April 2001); Lincoln
Electric Holdings, Inc. (welding
equipment manufacturer), Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 9/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 New Profit, Inc. (venture
(born 8/05/57) philanthropy), Partner (since
2006); Private investor; Prism
Venture Partners (venture
capital), Co-founder and General
Partner (until June 2004); The
Travelers Companies (commercial
property liability insurance),
Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004) Chief
Compliance Officer (since December
2006); Fidelity Management &
Research Company, Vice President
(prior to March 2004); Fidelity
Group of Funds, President and
Treasurer (prior to March 2004)
Tracy Atkinson(k) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance Officer compliance services), Principal
(since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
- ------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served
continuously since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(k) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940 (referred
to as the 1940 Act), which is the principal federal law governing investment companies like the
fund, as a result of position with MFS. The address of MFS is 500 Boylston Street, Boston,
Massachusetts 02116.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related
matters. The terms of that settlement required that compensation and expenses related to the
independent compliance consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler
for the services he rendered to the independent compliance consultant. In 2004 and 2005, MFS paid
Mr. Butler a total of $351,119.29.
The Trust held a shareholders' meeting in 2005 to elect Trustees, and will hold a shareholders' meeting
at least once every five years thereafter, to elect Trustees.
Each Trustee (except Mr. Butler and Mr. Uek) has been elected by shareholders and each Trustee and
officer holds office until his or her successor is chosen and qualified or until his or her earlier
death, resignation, retirement or removal. Messrs. Butler, Gutow, Sherratt and Uek and Ms. Thomsen are
members of the Trust's Audit Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which
MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with
certain affiliates of MFS. As of January 1, 2007, the Trustees served as board members of 97 funds
within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is
available without charge upon request by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 02116-3741 200 Clarendon Street, Boston, MA 02116
PORTFOLIO MANAGER
G. Michael Mara
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment advisory
agreement with MFS and investment sub-advisory agreement among MFS Series Trust
XII, on behalf of the Fund, MFS and Valley Forge Capital Advisors, Inc.
("Valley Forge") (together, the "Agreements"). The Trustees consider matters
bearing on the Fund and its advisory arrangements at their meetings throughout
the year, including a review of performance data at each regular meeting. In
addition, the independent Trustees met several times over the course of three
months beginning in May and ending in July, 2007 ("contract review meetings")
for the specific purpose of considering whether to approve the continuation of
the investment advisory agreements for the Fund and the other investment
companies that the Board oversees (the "MFS Funds"). The independent Trustees
were assisted in their evaluation of the Agreements by independent legal
counsel, from whom they received separate legal advice and with whom they met
separately from MFS and Valley Forge during various contract review meetings.
The independent Trustees were also assisted in this process by the MFS Funds'
Independent Chief Compliance Officer, a full-time senior officer appointed by
and reporting to the independent Trustees.
On January 3, 2007, the Fund acquired all of the assets and identified
liabilities of the Penn Street Advisors Sector Rotational Portfolio, the fund's
predecessor (the "Predecessor Fund"), pursuant to an agreement and plan of
reorganization, in exchange for Class A and Class C shares of the Fund, and
assumed the performance record of the Predecessor Fund. As a result,
performance information for the Fund includes the performance of the
Predecessor Fund adjusted to reflect the Fund's applicable sales charges.
In connection with their deliberations regarding the continuation of the
Agreements, the Trustees, including the independent Trustees, considered such
information and factors as they believed, in light of the legal advice
furnished to them and their own business judgment, to be relevant. The
investment advisory agreements for the Fund were considered separately,
although the Trustees also took into account the common interests of all MFS
Funds in their review. As described below, the Trustees considered the nature,
quality, and extent of the various investment advisory, administrative, and
shareholder services performed by MFS and Valley Forge under the Agreements and
other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials that included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2006 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("MFS peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable funds
identified by Lipper (the "Lipper expense group"), as well as the advisory fees
and other expenses of MFS peer funds, (iii) information provided by MFS on the
advisory fees of comparable portfolios of other clients of MFS, including
institutional separate accounts and other clients, (iv) information as to
whether and to what extent applicable expense waivers, reimbursements or fee
"breakpoints" are observed for the Fund, (v) information regarding MFS'
financial results and financial condition, including MFS' and certain of its
affiliates' estimated profitability from services performed for the Fund and
MFS Funds as a whole, (vi) MFS' views regarding the outlook for the mutual fund
industry and the strategic business plans of MFS, (vii) descriptions of various
functions performed by MFS for the Funds, such as compliance monitoring and
portfolio trading practices (viii) information regarding the overall
organization of MFS, including information about MFS' senior management and
other personnel providing investment advisory, administrative and other
services to the Fund and the other MFS Funds and (ix) information regarding the
overall organization of Valley Forge, including information about Valley Forge
personnel providing investment advisory services to the Fund. The comparative
performance, fee and expense information prepared and provided by Lipper Inc.
was not independently verified and the independent Trustees did not
independently verify any information provided to them by MFS or Valley Forge.
The Trustees' conclusion as to the continuation of the Agreements was based on
a comprehensive consideration of all information provided to the Trustees and
not the result of any single factor. Some of the factors that figured
particularly in the Trustees' deliberations are described below, although
individual Trustees may have evaluated the information presented differently
from one another, giving different weights to various factors.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed the
Fund's total return investment performance as well as the performance of peer
groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares was in the 1st quintile relative to
the other funds in the universe for this three-year period (the 1st quintile
being the best performers and the 5th quintile being the worst performers). The
total return performance of the Fund's Class A shares was in the 5th quintile
for the one-year period and the 1st quintile for the five-year period ended
December 31, 2006 relative to the Lipper performance universe. Because of the
passage of time, these performance results may differ from the performance
results for more recent periods, including those shown elsewhere in this
report.
The Trustees expressed concern to MFS about the substandard investment
performance of the Fund during the one-year period ended December 31, 2006. In
the course of their deliberations, the Trustees took into account information
provided by MFS and Valley Forge in connection with the contract review
meetings, as well as during investment review meetings conducted with portfolio
management personnel during the course of the year, as to Valley Forge's
efforts to improve the Fund's performance. The Trustees also noted the Fund's
strong relative performance for the three- and five-year periods. In addition,
the Trustees requested that they receive a separate update on the Fund's
performance at each of their regular meetings. After reviewing these and
related factors, the Trustees concluded, within the context of their overall
conclusions regarding the investment advisory agreement, that MFS' and Valley
Forge's responses and efforts were sufficient to support approval of the
continuance of the investment advisory agreement for an additional one-year
period, but that they would continue to closely monitor the performance of the
Fund.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee, sub-advisory fee
and the total expense ratio of the Fund's Class A shares as a percentage of
average daily net assets and the advisory fee and total expense ratios of peer
groups of funds based on information provided by Lipper Inc. and MFS and/or
Valley Forge. The Trustees noted that MFS (and not the Fund) pays Valley Forge
its sub-advisory fee from its advisory fees. The Trustees considered that MFS
currently observes an expense limitation for the Fund. The Trustees also
considered that, according to the Lipper data (which takes into account the
expense limitation), the Fund's effective advisory fee and total expense ratio
were each lower than the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the
Fund in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate and sub-
advisory fee rate schedules are subject to breakpoints that reduce the Fund's
advisory fee rate on average daily net assets over $1 billion, $2.5 billion and
$5 billion. The Trustees concluded that the existing breakpoints were
sufficient to allow the Fund to benefit from economies of scale as its assets
grow.
The Trustees also considered information prepared by MFS relating to MFS'
costs and profits with respect to the Fund, and with respect to the MFS Funds
considered as a group, and other investment companies and accounts advised by
MFS, as well as MFS' methodologies used to determine and allocate its costs to
the MFS Funds, the Fund and other accounts and products for purposes of
estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
Agreements, that the advisory fee charged to the Fund and the sub-advisory fee
paid by MFS to Valley Forge represent reasonable compensation in light of the
services being provided by MFS and Valley Forge to the Fund.
In addition, the Trustees considered MFS' and Valley Forge's resources and
related efforts to continue to retain, attract and motivate capable personnel
to serve the Fund. The Trustees also considered current and developing
conditions in the financial services industry, including the entry into the
industry of large and well-capitalized companies which are spending, and appear
to be prepared to continue to spend, substantial sums to engage personnel and
to provide services to competing investment companies. In this regard, the
Trustees also considered the financial resources of MFS, Valley Forge and MFS'
ultimate parent, Sun Life Financial Inc. The Trustees also considered the
advantages and possible disadvantages to the Fund of having an adviser and
sub-adviser that also serve other investment companies as well as other
accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the Fund
by MFS and its affiliates under agreements and plans other than the investment
advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund
Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, which may include securities lending programs,
directed expense payment programs, class action recovery programs, and MFS'
interaction with third-party service providers, principally custodians and
sub-custodians. The Trustees concluded that the various non-advisory services
provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees also considered benefits to MFS and Valley Forge from the use of
the Fund's portfolio brokerage commissions, if applicable, to pay for
investment research (excluding third-party research, for which MFS pays
directly) and various other factors. Additionally, the Trustees considered so-
called "fall-out benefits" to MFS and Valley Forge such as reputational value
derived from serving as an investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material, including
those factors described above, the Board of Trustees, including a majority of
the independent Trustees, concluded that the Fund's investment advisory
agreement with MFS and MFS' investment sub-advisory agreement with Valley Forge
should be continued for an additional one-year period, commencing August 1,
2007.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement is available by clicking on the fund's name under
"Select a fund" on the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The fund's Form N-Q is available on
the EDGAR database on the Commission's Internet Web site at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2007 income
tax forms in January 2008. The following information is provided pursuant to
provisions of the Internal Revenue Code.
The fund designates $859,796 as capital gain dividends paid during the fiscal
year.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information.
We maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with
which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you. We
maintain physical, electronic, and procedural safeguards to help protect the
personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA 02205-5824
1-800-637-8255
24 hours a day OVERNIGHT MAIL
MFS Service Center, Inc.
ACCOUNT SERVICE AND 500 Boylston Street
LITERATURE Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS(R) send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to MFS.COM, log in to
your account via MFS(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the
Registrant's principal executive officer and principal financial and accounting
officer. The Registrant has not amended any provision in its Code of Ethics
(the "Code") that relates to an element of the Code's definitions enumerated in
paragraph (b) of Item 2 of this Form N-CSR.
A copy of the Code of Ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. Robert E. Butler and Robert W. Uek and Ms. Laurie J. Thomsen, members
of the Audit Committee, have been determined by the Board of Trustees in their
reasonable business judgment to meet the definition of "audit committee
financial expert" as such term is defined in Form N-CSR. In addition, Messrs.
Butler and Uek and Ms. Thomsen are "independent" members of the Audit Committee
(as such term has been defined by the Securities and Exchange Commission in
regulations implementing Section 407 of the Sarbanes-Oxley Act of 2002). The
Securities and Exchange Commission has stated that the designation of a person
as an audit committee financial expert pursuant to this Item 3 on the Form
N-CSR does not impose on such a person any duties, obligations or liability
that are greater than the duties, obligations or liability imposed on such
person as a member of the Audit Committee and the Board of Trustees in the
absence of such designation or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEMS 4(a) THROUGH 4(d) AND 4(g):
The Board of Trustees has appointed Ernst & Young LLP ("E&Y") to serve as
independent accountants to the series of the Registrant (the series referred to
as the "Fund"). The tables below set forth the audit fees billed to the Fund as
well as fees for non-audit services provided to the Fund and/or to the Fund's
investment adviser, Massachusetts Financial Services Company ("MFS"), and to
various entities either controlling, controlled by, or under common control
with MFS that provide ongoing services to the Fund ("MFS Related Entities").
For the fiscal years ended October 31, 2007 and 2006, audit fees billed to the
Fund by E&Y were as follows:
AUDIT FEES
FEES BILLED BY E&Y: 2007 2006
---- ----
MFS Sector Rotational Fund 30,100 0
For the fiscal years ended October 31, 2007 and 2006, fees billed by E&Y for
audit-related, tax and other services provided to the Fund and for
audit-related, tax and other services provided to MFS and MFS Related Entities
were as follows:
Audit-Related Fees(1) Tax Fees(2) All Other Fees(3)
FEES BILLED BY E&Y: 2007 2006 2007 2006 2007 2006
---- ---- ---- ---- ---- ----
To MFS Sector Rotational 0 0 7,500 0 0 0
Fund
To MFS and MFS Related 7,500 0 0 0 0 0
Entities of MFS Sector
Rotational Fund*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2007 2006
---- ----
To MFS Sector Rotational 216,016 0
Fund, MFS and MFS
Related Entities#
* This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to the
operations and financial reporting of the Fund (portions of which services also related to the operations and
financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by E&Y for non-audit services rendered to the Fund and for non-audit
services rendered to MFS and the MFS Related Entities.
(1) The fees included under "Audit-Related Fees" are fees related to assurance and related services that are reasonably
related to the performance of the audit or review of financial statements, but not reported under "Audit Fees,"
including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters and internal
control reviews.
(2) The fees included under "Tax Fees" are fees associated with tax compliance, tax advice and tax planning, including
services relating to the filing or amendment of federal, state or local income tax returns, regulated investment
company qualification reviews and tax distribution and analysis.
(3) The fees included under "All Other Fees" are fees for products and services provided by E&Y other than those
reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees," including fees for the subscription to tax
treatise and for services related to analysis of fund administrative expenses, compliance program and records
management projects.
ITEM 4(e)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services: To the extent required by applicable law,
pre-approval by the Audit Committee of the Board is needed for all audit and
permissible non-audit services rendered to the Funds and all permissible
non-audit services rendered to MFS or MFS Related Entities if the services
relate directly to the operations and financial reporting of the Registrant.
Pre-approval is currently on an engagement-by-engagement basis. In the event
pre-approval of such services is necessary between regular meetings of the
Audit Committee and it is not practical to wait to seek pre-approval at the
next regular meeting of the Audit Committee, pre-approval of such services may
be referred to the Chair of the Audit Committee for approval; provided that the
Chair may not pre-approve any individual engagement for such services exceeding
$50,000 or multiple engagements for such services in the aggregate exceeding
$100,000 in each period between regular meetings of the Audit Committee. Any
engagement pre-approved by the Chair between regular meetings of the Audit
Committee shall be presented for ratification by the entire Audit Committee at
its next regularly scheduled meeting.
ITEM 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Fund and MFS and MFS Related Entities relating
directly to the operations and financial reporting of the Registrant disclosed
above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X (which permits audit committee approval after
the start of the engagement with respect to services other than audit, review
or attest services, if certain conditions are satisfied).
ITEM 4(f): Not applicable.
ITEM 4(h): The Registrant's Audit Committee has considered whether the
provision by a Registrant's independent registered public accounting firm of
non-audit services to MFS and MFS Related Entities that were not pre-approved
by the Committee (because such services did not relate directly to the
operations and financial reporting of the Registrant) was compatible with
maintaining the independence of the independent registered public accounting
firm as the Registrant's principal auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments of the Registrant is included as part of the report
to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 407(c)(2)(iv) of Regulation S-K (as required by Item
22(b)(15) of Schedule 14A), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the effectiveness of the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act")) as conducted within 90 days of
the filing date of this report on Form N-CSR, the registrant's principal
financial officer and principal executive officer have concluded that those
disclosure controls and procedures provide reasonable assurance that the
material information required to be disclosed by the registrant on this
report is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and
forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter of the period covered by the report that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) File the exhibits listed below as part of this form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item 2 requirements through filing of an
exhibit: Code of Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r),
or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, except to the extent that
the registrant specifically incorporates it by reference: Attached hereto.
NOTICE
A copy of the Declaration of Trust, as amended, of the Registrant is on file
with the Secretary of State of The Commonwealth of Massachusetts and notice is
hereby given that this instrument is executed on behalf of the Registrant by an
officer of the Registrant as an officer and not individually and the
obligations of or arising out of this instrument are not binding upon any of
the Trustees or shareholders individually, but are binding only upon the assets
and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST XII
------------------------------------------------------------------
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: December 14, 2007
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President (Principal Executive
Officer)
Date: December 14, 2007
-----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: December 14, 2007
-----------------
* Print name and title of each signing officer under his or her signature.