-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WB44hWWF8Yi8M0aUtCJTnwiQU1Z8pqPkNqiDyDSA2ZR1OpqDMk3kqlyX+0CSeGzl 4502D/HaJWsmLr8IC/blUQ== 0000950156-08-000003.txt : 20080102 0000950156-08-000003.hdr.sgml : 20080101 20080102162221 ACCESSION NUMBER: 0000950156-08-000003 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20071031 FILED AS OF DATE: 20080102 DATE AS OF CHANGE: 20080102 EFFECTIVENESS DATE: 20080102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MFS Series Trust XII CENTRAL INDEX KEY: 0001330967 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-21780 FILM NUMBER: 08502127 BUSINESS ADDRESS: STREET 1: 500 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 617-954-5000 MAIL ADDRESS: STREET 1: 500 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 0001330967 S000013498 MFS Sector Rotational Fund C000036524 Class A SRFAX C000036525 Class B SRFBX C000036526 Class C SRFCX C000060709 Class W C000060710 Class R1 C000060711 Class R2 C000060712 Class R3 C000060713 Class R4 N-CSR 1 d685551.txt MFS SERIES TRUST XII 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 - ------------------------------------------------------------------------------- MFS SERIES TRUST XII - ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 500 Boylston Street, Boston, Massachusetts 02116 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Susan S. Newton Massachusetts Financial Services Company 500 Boylston Street Boston, Massachusetts 02116 - ------------------------------------------------------------------------------- (Name and address of agents for service) Registrant's telephone number, including area code: (617) 954-5000 - ------------------------------------------------------------------------------- Date of fiscal year end: October 31* - ------------------------------------------------------------------------------- Date of reporting period: October 31, 2007 - ------------------------------------------------------------------------------- * 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 - -------------------------------------------------------------- PORTFOLIO COMPOSITION 2 - -------------------------------------------------------------- MANAGEMENT REVIEW 3 - -------------------------------------------------------------- PERFORMANCE SUMMARY 5 - -------------------------------------------------------------- EXPENSE TABLE 8 - -------------------------------------------------------------- PORTFOLIO OF INVESTMENTS 10 - -------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 14 - -------------------------------------------------------------- STATEMENT OF OPERATIONS 16 - -------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS 17 - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS 18 - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 21 - -------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 31 - -------------------------------------------------------------- TRUSTEES AND OFFICERS 32 - -------------------------------------------------------------- BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 38 - -------------------------------------------------------------- PROXY VOTING POLICIES AND INFORMATION 43 - -------------------------------------------------------------- QUARTERLY PORTFOLIO DISCLOSURE 43 - -------------------------------------------------------------- FEDERAL TAX INFORMATION 43 - -------------------------------------------------------------- MFS(R) PRIVACY NOTICE 44 - -------------------------------------------------------------- CONTACT INFORMATION BACK COVER - -------------------------------------------------------------- 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. - ------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------- 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% ------------------------------------------------ FMC Technologies, Inc. 2.5% ------------------------------------------------ Praxair, Inc. 2.5% ------------------------------------------------ Google, Inc. "A" 2.5% ------------------------------------------------ Deere & Co. 2.4% ------------------------------------------------ Cisco Systems, Inc. 2.4% ------------------------------------------------ Coca-Cola Co. 2.2% ------------------------------------------------ General Dynamics Corp. 2.2% ------------------------------------------------ Principal Financial Group, Inc. 2.2% ------------------------------------------------ United Technologies Corp. 2.1% ------------------------------------------------ EQUITY SECTORS Industrial Goods & Services 17.5% ------------------------------------------------ Financial Services 15.4% ------------------------------------------------ Technology 12.9% ------------------------------------------------ Basic Materials 10.7% ------------------------------------------------ Energy 10.2% ------------------------------------------------ Health Care 8.2% ------------------------------------------------ Retailing 5.3% ------------------------------------------------ Consumer Staples 5.2% ------------------------------------------------ Utilities & Communications 4.6% ------------------------------------------------ Leisure 2.8% ------------------------------------------------ Transportation 2.8% ------------------------------------------------ Autos & Housing 2.7% ------------------------------------------------ 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) - ----------------------------------------------------------------------------- A 8/30/00 20.99% 17.66% 9.78% - ----------------------------------------------------------------------------- B 1/03/07 20.41% 17.55% 9.71% - ----------------------------------------------------------------------------- C 3/01/04 20.30% 17.37% 9.59% - ----------------------------------------------------------------------------- AVERAGE ANNUAL Comparative benchmark - ----------------------------------------------------------------------------- Russell 1000 Index (f) 15.03% 14.54% 2.37% - ----------------------------------------------------------------------------- AVERAGE ANNUAL WITH SALES CHARGE Share class - ----------------------------------------------------------------------------- A 14.04% 16.28% 8.88% With Initial Sales Charge (5.75%) - ----------------------------------------------------------------------------- B 16.41% 17.34% 9.71% With CDSC (Declining over six years from 4% to 0%) (x) - ----------------------------------------------------------------------------- C 19.30% 17.37% 9.59% With CDSC (1% for 12 months) (x) - ----------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- Actual 1.98% $1,000.00 $1,069.30 $10.33 B ------------------------------------------------------------------------ Hypothetical (h) 1.98% $1,000.00 $1,015.22 $10.06 - -------------------------------------------------------------------------------- Actual 1.98% $1,000.00 $1,069.84 $10.33 C ------------------------------------------------------------------------ Hypothetical (h) 1.98% $1,000.00 $1,015.22 $10.06 - -------------------------------------------------------------------------------- (h) 5% class return per year before expenses. (p) Expenses paid is equal to each class' annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. PORTFOLIO OF INVESTMENTS 10/31/07 The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Common Stocks - 98.3% - ----------------------------------------------------------------------------------------------------------------- ISSUER SHARES/PAR VALUE ($) - ----------------------------------------------------------------------------------------------------------------- Aerospace - 6.3% - ----------------------------------------------------------------------------------------------------------------- General Dynamics Corp. 66,108 $ 6,013,184 Lockheed Martin Corp. 51,000 5,612,040 United Technologies Corp. 75,920 5,814,713 ------------ $ 17,439,937 - ----------------------------------------------------------------------------------------------------------------- Automotive - 2.7% - ----------------------------------------------------------------------------------------------------------------- Genuine Parts Co. 96,960 $ 4,757,827 Magna International, Inc., "A" 28,990 2,747,092 ------------ $ 7,504,919 - ----------------------------------------------------------------------------------------------------------------- Biotechnology - 1.9% - ----------------------------------------------------------------------------------------------------------------- Gilead Sciences, Inc. (a) 113,052 $ 5,221,872 - ----------------------------------------------------------------------------------------------------------------- Broadcasting - 1.8% - ----------------------------------------------------------------------------------------------------------------- Omnicom Group, Inc. 97,000 $ 4,945,060 - ----------------------------------------------------------------------------------------------------------------- Brokerage & Asset Managers - 1.9% - ----------------------------------------------------------------------------------------------------------------- Goldman Sachs Group, Inc. 21,295 $ 5,279,456 - ----------------------------------------------------------------------------------------------------------------- Chemicals - 0.9% - ----------------------------------------------------------------------------------------------------------------- 3M Co. 28,920 $ 2,497,531 - ----------------------------------------------------------------------------------------------------------------- Computer Software - Systems - 6.1% - ----------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------- Containers - 1.8% - ----------------------------------------------------------------------------------------------------------------- Packaging Corp. of America 154,960 $ 4,933,926 - ----------------------------------------------------------------------------------------------------------------- Electrical Equipment - 2.0% - ----------------------------------------------------------------------------------------------------------------- Emerson Electric Co. 106,800 $ 5,582,436 - ----------------------------------------------------------------------------------------------------------------- Energy - Integrated - 2.1% - ----------------------------------------------------------------------------------------------------------------- Exxon Mobil Corp. 62,600 $ 5,758,574 - ----------------------------------------------------------------------------------------------------------------- Engineering - Construction - 2.0% - ----------------------------------------------------------------------------------------------------------------- McDermott International, Inc. 90,580 $ 5,530,815 - ----------------------------------------------------------------------------------------------------------------- Food & Beverages - 5.2% - ----------------------------------------------------------------------------------------------------------------- Coca-Cola Co. 97,530 $ 6,023,453 PepsiCo, Inc. 78,734 5,804,270 Pilgrims Pride Corp. (l) 85,480 2,538,756 ------------ $ 14,366,479 - ----------------------------------------------------------------------------------------------------------------- Food & Drug Stores - 1.0% - ----------------------------------------------------------------------------------------------------------------- CVS Caremark Corp. 67,630 $ 2,824,905 - ----------------------------------------------------------------------------------------------------------------- General Merchandise - 0.9% - ----------------------------------------------------------------------------------------------------------------- Dollar Tree Stores, Inc. 65,600 $ 2,512,480 - ----------------------------------------------------------------------------------------------------------------- Health Maintenance Organizations - 3.3% - ----------------------------------------------------------------------------------------------------------------- CIGNA Corp. 101,220 $ 5,313,038 WellPoint, Inc. (a) 47,750 3,783,233 ------------ $ 9,096,271 - ----------------------------------------------------------------------------------------------------------------- Insurance - 11.6% - ----------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------- Internet - 2.5% - ----------------------------------------------------------------------------------------------------------------- Google, Inc., "A" (a) 9,870 $ 6,978,090 - ----------------------------------------------------------------------------------------------------------------- Machinery & Tools - 6.3% - ----------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------- Major Banks - 1.9% - ----------------------------------------------------------------------------------------------------------------- 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. EX-99.CODE ETH 2 ex99_ethics-685551.txt CODE OF ETHICS EXHIBIT 12(A)(1) SEPTEMBER 2003 (AS REVISED FEBRUARY, 2004, MAY, 2005, SEPTEMBER, 2005 AND NOVEMBER, 2005) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND PRINCIPAL FINANCIAL OFFICERS I. COVERED OFFICERS/PURPOSE OF THE CODE This code of ethics (this "Code") has been adopted by the funds (collectively, "Funds" and each, "Fund") under supervision of the MFS Funds Board and Compass Board of Trustees/Managers (the "Boards") and applies to the Funds' Principal Executive Officer and Principal Financial Officer (the "Covered Officers" each of whom is set forth in Exhibit A) for the purpose of promoting: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely and understandable disclosure in reports and documents that the Funds file with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Funds; o compliance by the Funds with applicable laws and governmental rules and regulations; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. II. CONDUCT GUIDELINES Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. In addition, each Covered Officer should not place his or her personal interests ahead of the Funds' interests and should endeavor to act honestly and ethically. In furtherance of the foregoing, each Covered Officer must: o not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting for any Fund whereby the Covered Officer would benefit personally to the detriment of the Fund; and o not cause a Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the Fund. The following activities, which could create the appearance of a conflict of interest, are permitted only with the approval of the Funds' Chief Legal Officer ("CLO"): o service as a director on the board of any "for profit" company; o running for political office; o the receipt of any Fund business-related gift in excess of $300; o the receipt of any entertainment from any company with which a Fund has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; o any material ownership interest in, or any consulting or employment relationship with, any Fund service providers (e.g., custodian banks, audit firms), other than the Funds' investment adviser, principal underwriter, administrator or any affiliated person thereof; o a direct or indirect financial interest in commissions, transaction charges or spreads paid by a Fund for effecting portfolio transactions or for selling or redeeming shares, other than an interest arising from the Covered Officer's employment or securities ownership. III. DISCLOSURE AND COMPLIANCE o Each Covered Officer should familiarize himself or herself with the disclosure requirements generally applicable to the Funds; o each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about a Fund to others, whether within or outside the Fund, including to the Fund's trustees and auditors, and to governmental regulators and self-regulatory organizations; o each Covered Officer should, to the extent appropriate within his or her area of Fund responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and o it is the responsibility of each Covered Officer to promote compliance within his or her area of Fund responsibility with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: o upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he or she has received, read, and understands the Code; o annually thereafter affirm to the Boards that he or she has complied with the requirements of the Code; o annually report to the CLO affiliations and relationships which are or may raise the appearance of a conflict of interest with the Covered Officer's duties to the Funds, as identified in the annual Trustee and Officer Questionnaire; o not retaliate against any other Covered Officer or any officer or employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and o notify the CLO promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. The CLO is responsible for applying this Code to specific situations in which questions are presented under it, granting waivers upon consultation with the appropriate Board or its designee, investigating violations, and has the authority to interpret this Code in any particular situation. The CLO will report requests for waivers to the appropriate Board (or a designee thereof) promptly upon receipt of a waiver request and will periodically report to the appropriate Board any approvals granted since the last report. The CLO will take all appropriate action to investigate any potential violations reported to him or her and to report any violations to the appropriate Board. If the Board concurs that a violation has occurred, it will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer. Any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment adviser's codes of ethics under Rule 17j-1 under the Investment Company Act and any other codes or policies or procedures adopted by the Funds or their investment adviser or other service providers are separate requirements and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of each Board, including a majority of independent trustees. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code and under the direction of the CLO will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Funds' Board, its counsel, counsel to the Board's independent trustees and senior management and the board of directors of the Fund's investment adviser and its counsel. VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion. EXHIBIT A PERSONS COVERED BY THIS CODE OF ETHICS Funds' Principal Executive Officer: Maria F. Dwyer Funds' Principal Financial Officer: Tracy Atkinson EX-99.CERT 3 ex99_cert-685551.txt CERTIFICATION EX-99.CERT MFS SERIES TRUST XII CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT I, Tracy Atkinson, certify that: 1. I have reviewed this report on Form N-CSR of MFS Series Trust XII; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 14, 2007 TRACY ATKINSON ----------------- --------------------------------------- Tracy Atkinson Treasurer (Principal Financial Officer and Accounting Officer) EX-99.CERT MFS SERIES TRUST XII CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT I, Maria F. Dwyer, certify that: 1. I have reviewed this report on Form N-CSR of MFS Series Trust XII; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 14, 2007 MARIA F. DWYER ----------------- --------------------------------------- Maria F. Dwyer President (Principal Executive Officer) EX-99.906CERT MFS SERIES TRUST XII CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT I, Tracy Atkinson, certify that, to my knowledge: 1. The Form N-CSR (the "Report") of MFS Series Trust XII (the "Registrant") fully complies for the period covered by the Report with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: December 14, 2007 TRACY ATKINSON ----------------- --------------------------------------- Tracy Atkinson Treasurer (Principal Financial Officer and Accounting Officer) A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. EX-99.906CERT MFS SERIES TRUST XII CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT I, Maria F. Dwyer, certify that, to my knowledge: 1. The Form N-CSR (the "Report") of MFS Series Trust XII (the "Registrant") fully complies for the period covered by the Report with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: December 14, 2007 MARIA F. DWYER ----------------- --------------------------------------- Maria F. Dwyer President (Principal Executive Officer) A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. -----END PRIVACY-ENHANCED MESSAGE-----