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 811-5822
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MFS CHARTER INCOME TRUST
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Stephen E. Cavan
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: November 30, 2003
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Date of reporting period: November 30, 2003
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ITEM 1. REPORT TO STOCKHOLDERS.
MFS(R) Mutual Funds
ANNUAL REPORT 11/30/03
[graphic omitted]
MFS(R) CHARTER
INCOME TRUST
A path for pursuing opportunity
[logo] M F S(R)
INVESTMENT MANAGEMENT
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MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
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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 every MFS investment product and service 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 information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements. Access to your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you. We
maintain physical, electronic, and procedural safeguards that comply with
applicable federal regulations.
If you have any questions about 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.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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MFS(R) CHARTER INCOME TRUST
The trust seeks to maximize current income.
New York Stock Exchange Symbol: MCR
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To view MFS' statement concerning regulatory issues affecting the mutual fund
industry and the firm, please visit www.mfs.com.
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TABLE OF CONTENTS
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MFS PRIVACY POLICY
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LETTER FROM THE CHAIRMAN 1
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MFS ORIGINAL RESEARCH(R) 2
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MANAGEMENT REVIEW 3
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PERFORMANCE SUMMARY 6
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN 8
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RESULTS OF SHAREHOLDER MEETINGS 9
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PORTFOLIO OF INVESTMENTS 10
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FINANCIAL STATEMENTS 24
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NOTES TO FINANCIAL STATEMENTS 29
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INDEPENDENT AUDITORS' REPORT 40
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TRUSTEES AND OFFICERS 41
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FEDERAL TAX INFORMATION 43
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CONTACT INFORMATION 44
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LETTER FROM THE CHAIRMAN
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Dear Shareholders,
[photo of Jeffrey L. Shames]
In our view, the past year has been a promising one for investors. Financial
markets have improved steadily, spurred by indications of a global economic
recovery.
These developments make this an encouraging time for MFS and for our
shareholders. But we also think it's a time to reinforce the fundamentals of a
sound investment strategy.
At MFS, we think in any market environment the best approach for investors is
disciplined diversification. This method of investing involves three simple
steps. First, allocate your holdings across the major asset classes. Second,
diversify within each class so that you get exposure to different investment
styles, such as growth and value, and market sectors, such as government and
corporate bonds. Finally, to respond to the way market activity can shift the
value of your accounts, rebalance your accounts on a routine schedule, such as
once per year. Doing so will help you maintain your desired allocation across
each asset class.
These investing fundamentals are often lost when markets are on an upswing. At
such times, it's easy to be tempted to shift your holdings into the current,
"hottest" performing investment. History suggests, however, that it is difficult
to predict year after year what the best performing sector or market will be.
While it is true that the past cannot offer any guarantees for the future, the
markets historically have demonstrated the benefits of taking the prudent
approach and spreading your assets across a variety of holdings. For investors
with long-term goals such as college or retirement, a balanced approach usually
makes the most sense. As always, your investment professional can help you
identify an appropriate mix of investments for your needs.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman
MFS Investment Management(R)
December 19, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
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MFS ORIGINAL RESEARCH(R)
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THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands of
institutions all over the world look to MFS to manage their assets with insight
and care.
Our success, we believe, has to do with the fact that we see investors as people
with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
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MANAGEMENT REVIEW
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MARKET ENVIRONMENT
Throughout the year ended November 30, 2003, global bond markets were influenced
by accommodative monetary policies and low interest rates. The period provided
positive returns to all bond investors, particularly those who bought high-yield
bonds and emerging market debt securities (EMDs).
Governments throughout the world sought to stimulate sluggish local economies by
lowering interest rates. The financial markets responded by providing easier
access to capital for high-yield companies and emerging market countries - two
sectors that had been rebuffed by those markets in the summer and early fall of
2002. Although fundamentals improved in both of these sectors, strong
supply-demand technicals were the main drivers of performance. Both experienced
tremendous inflows as investors continuously sought higher- yielding securities
due to the low interest rate environment. In our view, high-yield bonds and EMDs
continued to offer good value, but were unlikely to appreciate in price the way
they did during the reporting period ended November 30, 2003.
For the period, high-yield corporate bonds provided the best performance
results, followed by EMDs and high-grade corporate bonds. Government bond
markets around the globe lagged other fixed-income sectors.
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TOP 5 SECTOR ALLOCATIONS
AS OF 11/30/03
HIGH-YIELD CORPORATES 30.8%
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INTERNATIONAL SOVEREIGNS 20.0%
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EMERGING MARKETS DEBT 10.2%
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MORTGAGE-BACKED SECURITIES 10.0%
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U.S. TREASURIES 9.9%
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The portfolio is actively managed, and current holdings
may be different.
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TRUST POSITIONING
The trust benefited from very conservative positioning in 2002. At the end of
November 2002, the start of the period, high-yield corporate bonds represented
only 12% of the portfolio, EMDs constituted only 6% of the portfolio, and U.S.
Treasury securities stood at 16.2% of the trust's assets. In response to signs
that the economy might be turning the corner and given the perceived value in
corporate bonds, we began to trim our U.S. Treasury position in December 2002
and add to our high-yield and EMD holdings. (Principal value and interest on
Treasury securities are guaranteed by the U.S. government if held to maturity.)
By the end of the period, high-yield corporate bonds represented almost 31% of
the portfolio, EMDs were 10.2% of the portfolio, and U.S. Treasury holdings were
down to 9.9% of the trust's assets.
DETRACTORS FROM PERFORMANCE
The nature of this portfolio is to provide investors with a fair amount of
diversification within the fixed-income markets. Relative performance results,
when compared to different benchmark indices, will naturally differ from
benchmarks that are comprised of just one or very few fixed-income sectors. For
this reporting period ended November 30, 2003, the trust's net asset value
results were lower than a 100% high-yield benchmark index or a 100% EMD index.
Our gradual approach to allocation shifts in uncertain times caused us to not
fully capitalize on the strong performance of high-yield and EMDs early in the
period. At the start of the reporting period, we did not want to add too
aggressively to our positions in high-yield securities and bonds from emerging
market countries because of the risks we saw at that time. By the end of the
period, conditions in the capital markets had eased, economic conditions around
the world had improved, and investor demand for yield had driven the prices of
some high-yield bonds from $0.30 on the dollar to $0.90. Demand was strong for
EMDs as well.
CONTRIBUTORS TO ABSOLUTE PERFORMANCE
Despite missing some of the early part of the high-yield rally, the trust did
receive strong absolute returns from the group. By continuing to increase our
commitment to high yield and EMDs throughout the year, we captured a larger
percentage of the later performance as the markets continued to appreciate.
Although yields and spreads for the group declined throughout the period as the
markets performed well, we felt that high-yield bonds still offered good value
for investors, especially as global economic conditions continued to strengthen.
Industrials and telecommunications were among the trust's strongest industry
sectors. Both groups had fallen out of favor with investors in 2002 for reasons
that included structural problems, the threat of potential defaults, and limited
access to capital. As the economy improved, investors realized that the defaults
threat was not as severe as they had anticipated. Also, the easing in the
capital markets proved to be a watershed event. That financing pulled companies
such as Charter Communications back from the brink of bankruptcy.
The trust experienced strong absolute returns from its EMDs. Historically, this
group has generated the strongest returns in periods of economic recovery and
economic strength. As global economic conditions began to show signs of
improvement during the period, values for EMDs rose. The group's returns for the
period also were lifted by an influx of capital from yield-starved investors.
Respectfully,
/s/ Joseph C. Flaherty, Jr.
Joseph C. Flaherty, Jr.
Portfolio Manager
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Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment- related news.
o From Week in Review, link to MFS Global Investment Perspective for our current
view of the world.
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The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
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PERFORMANCE SUMMARY THROUGH 11/30/03
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All results are historical. Investment return and principal value will
fluctuate, and shares, when sold, may be worth more or less than their original
cost. More recent returns may be different from those shown. Past performance is
no guarantee of future results.
PRICE SUMMARY
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Year ended 11/30/03
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Date Price
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Net asset value 11/30/2002 $9.09
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11/30/2003 $9.58
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New York Stock Exchange 11/30/2002 $8.26
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6/04/2003 (high)* $8.97
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12/16/2002 (low)* $8.20
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11/30/2003 $8.78
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* For the period December 1, 2002, through November 30, 2003.
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TOTAL RETURN VS BENCHMARKS
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Year ended 11/30/03
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New York Stock Exchange price* 13.02%
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Net asset value 12.06%
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Citigroup World Government Bond Non-dollar Hedged Index 2.46%
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J.P. Morgan EMBI Index Global 25.83%
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Lehman Brothers Aggregate Bond Index 5.18%
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Lehman Brothers High Yield Index 27.88%
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* Includes reinvestment of dividends and capital gains distributions.
INDEX DEFINITIONS
CITIGROUP WORLD GOVERNMENT BOND NON-DOLLAR HEDGED INDEX - measures the
government bond markets around the world, ex-U.S.
J.P. MORGAN EMERGING MARKETS BOND INDEX GLOBAL (THE EMBI GLOBAL) - tracks debt
instruments in the emerging markets (includes a broader array of countries than
the EMBI Plus).
LEHMAN BROTHERS AGGREGATE BOND INDEX - a measure of the U.S. bond market.
LEHMAN BROTHERS HIGH YIELD INDEX - measures the performance of the high-yield
bond market.
It is not possible to invest directly in an index.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
The portfolio may invest in derivative securities, which may include futures and
options. These types of instruments can increase price fluctuation.
The portfolio focuses on companies in a limited number of sectors, making it
more susceptible to adverse economic, political, or regulatory developments
affecting those sectors than a portfolio that invests more broadly.
Investments in high yield or lower-rated securities may provide greater returns
but are subject to greater-than-average risk.
Because the portfolio invests in a limited number of companies a change in one
security's value may have a more significant effect on the portfolio's value.
Government guarantees apply to the underlying securities only and not to the
prices and yields of the portfolio.
These risks may increase share price volatility. Please see the prospectus for
further information on these and other risk considerations.
In accordance with Section 23(c) of the Investment Company Act of 1940, the
trust hereby gives notice that it may from time to time repurchase shares of the
trust in the open market at the option of the Board of Trustees and on such
terms as the Trustees shall determine.
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
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MFS offers a Dividend Reinvestment and Cash Purchase Plan that allows you to
reinvest either all of the distributions paid by the trust or only the long-
term capital gains. Purchases are made at the market price unless that price
exceeds the net asset value (the shares are trading at a premium). If the shares
are trading at a premium, purchases will be made at a discounted price of either
the net asset value or 95% of the market price, whichever is greater. Twice each
year you can also buy shares. Investments in any amount over $100 can be made in
January and July on the 15th of the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee, you
can ask the firm or nominee to participate in the plan on your behalf. If the
nominee does not offer the plan, you may wish to request that your shares be
re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the trust. However, when shares are bought
on the New York Stock Exchange or otherwise on the open market, each participant
pays a pro rata share of the commissions. The automatic reinvestment of
distributions does not relieve you of any income tax that may be payable (or
required to be withheld) on the distributions.
To enroll in or withdraw from the plan, or if you have any questions, call
1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time. Please have
available the name of the trust and your account and Social Security numbers.
For certain types of registrations, such as corporate accounts, instructions
must be submitted in writing. Please call for additional details. When you
withdraw, you can receive the value of the reinvested shares in one of two ways:
a check for the value of the full and fractional shares, or a certificate for
the full shares and a check for the fractional shares.
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RESULTS OF SHAREHOLDER MEETINGS (unaudited) - 11/30/03
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At the annual meeting of shareholders of MFS Charter Income Trust, which was
held on October 8, 2003, the following actions were taken:
ITEM 1. To elect a Board of Trustees.
NUMBER OF SHARES
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NOMINEE FOR WITHHOLD AUTHORITY
John W. Ballen 54,636,594.431 2,286,010.144
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William J. Poorvu 54,595,396.003 2,327,208.572
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J. Dale Sherratt 54,667,670.409 2,254,934.166
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Ward Smith 54,556,875.966 2,365,728.609
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ITEM 2. To act on a shareholder proposal recommending that each Trust's Trustee
be required to invest at least 10% of their Trustees fees in trust shares.
NUMBER OF SHARES
For 9,399,410.608
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Against 19,076,374.777
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Abstain 1,532,468.190
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Broker Non-votes 26,914,351.000
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ITEM 3. To ratify the selection of independent public accountants for the
current fiscal year.
NUMBER OF SHARES
For 55,247,451.289
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Against 1,001,540.125
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Abstain 673,613.161
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PORTFOLIO OF INVESTMENTS - 11/30/03
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The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Bonds - 95.9%
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PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
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U.S. Bonds - 61.3%
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Advertising & Broadcasting - 2.5%
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Allbritton Communications Co., 7.75s, 2012 $1,500 $1,526,250
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Granite Broadcasting Corp., 10.375s, 2005 1,537 1,521,630
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Granite Broadcasting Corp., 8.875s, 2008 675 641,250
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Lamar Media Corp., 7.25s, 2013 1,390 1,483,825
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Muzak LLC, 10s, 2009 440 460,900
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Paxson Communications Corp., 0s to 2006, 12.25s to 2009 2,305 1,970,775
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Spanish Broadcasting Systems, Inc., 9.625s, 2009 1,500 1,582,500
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XM Satellite Radio, Inc., 0s to 2005, 14s to 2009 380 333,450
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XM Satellite Radio, Inc., 12s, 2010 1,420 1,583,300
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Young Broadcasting, Inc., 8.5s, 2008 2,600 2,788,500
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$13,892,380
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Aerospace - 0.8%
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Hexcel Corp., 9.875s, 2008 $1,240 $1,382,600
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Hexcel Corp., 9.75s, 2009 800 834,000
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K & F Industries, Inc., 9.25s, 2007 941 971,582
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Transdigm, Inc., 8.375s, 2011## 995 1,054,700
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$4,242,882
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Agency - Other - 1.0%
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Financing Corp., 10.35s, 2018 $3,600 $5,489,917
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Apparel Manufacturers - 0.1%
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Westpoint Stevens, Inc., 7.875s, 2005** $3,550 $452,625
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Asset Backed & Securitized - 3.4%
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Airplane Pass-Through Trust, 10.875s, 2019** $222 $4,445
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Amresco Commercial Mortgage Funding I Corp., 7s, 2029 3,000 2,950,195
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Commercial Mortgage Acceptance Corp., 5.44s, 2030 3,535 3,080,353
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First Union Lehman Brothers Commercial, 7s, 2029 850 793,593
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First Union Lehman Brothers Commercial, 7.5s, 2029 3,000 2,783,555
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First Union Lehman Brothers Commercial, 0s, 2035
(Interest Only) 86,260 2,228,701
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Morgan Stanley Capital I, Inc., 7.709s, 2039 2,000 1,922,679
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Mortgage Capital Funding, Inc., 1.083s, 2031 25,547 827,731
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TIAA Retail Commercial Mortgage Trust, 7.17s, 2032## 4,357 4,743,943
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$19,335,195
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Automotive - 1.5%
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Eagle-Picher, Inc., 9.75s, 2013## $905 $961,562
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Ford Motor Credit Co., 7s, 2013 952 965,330
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General Motors Acceptance Corp., 8s, 2031 1,363 1,440,424
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Metaldyne Corp., 11s, 2012 2,045 1,738,250
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Tenneco Automotive, Inc., 10.25s, 2013 1,715 1,946,525
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TRW Automotive, Inc., 9.375s, 2013## 875 988,750
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TRW Automotive, Inc., 11s, 2013## 130 152,425
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$8,193,266
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Broadcast & Cable TV - 3.3%
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Charter Communications Holdings LLC, 8.625s, 2009 $3,030 $2,424,000
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Continental Cablevision, 9.5s, 2013 2,390 2,745,586
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CSC Holdings, Inc., 8.125s, 2009 3,450 3,588,000
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DIRECTV, Inc., 8.375s, 2013 335 378,969
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Jones Intercable, Inc., 8.875s, 2007 3,150 3,266,027
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Lenfest Communications, Inc., 10.5s, 2006 1,900 2,242,000
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Mediacom Communications Corp., 11s, 2013 2,400 2,574,000
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TCI Communications, Inc., 9.8s, 2012 1,169 1,517,015
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$18,735,597
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Building - 1.3%
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American Standard Cos., Inc., 7.375s, 2008 $1,005 $1,108,013
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Atrium Cos, Inc., 10.5s, 2009 1,070 1,135,537
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Jacuzzi Brands, Inc., 9.625s, 2010## 510 555,900
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Nortek Holdings, Inc., 9.25s, 2007 1,500 1,545,000
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Nortek Holdings, Inc., 8.875s, 2008 1,145 1,190,800
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Williams Scotsman, Inc., 9.875s, 2007 1,650 1,608,750
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Williams Scotsman, Inc., 10s, 2008 205 222,425
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$7,366,425
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Business Services - 0.9%
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Iron Mountain, Inc., 7.75s, 2015 $3,000 $3,180,000
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Xerox Corp., 7.625s, 2013 1,995 2,054,850
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$5,234,850
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Chemicals - 1.9%
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Equistar Chemicals LP, 10.625s, 2011## $710 $752,600
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Huntsman ICI Chemicals, 10.125s, 2009 1,950 1,945,125
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IMC Global, Inc., 10.875s, 2013## 1,745 1,840,975
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JohnsonDiversey Holdings, Inc., 9.625s, 2012 2,000 2,210,000
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JohnsonDiversey Holdings, Inc., 0s to 2007, 10.67s to
2013## 1,470 1,113,525
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Koppers, Inc., 9.875s, 2013## 400 434,000
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Lyondell Chemical Co., 11.125s, 2012 1,690 1,812,525
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Nalco Co., 7.75s, 2011## 690 719,325
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$10,828,075
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Consumer Goods & Services - 0.6%
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KinderCare Learning Centers, Inc., 9.5s, 2009 $855 $867,825
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Samsonite Corp., 10.75s, 2008 925 959,687
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Sealy Mattress Co., 9.875s, 2007 1,700 1,755,250
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$3,582,762
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Containers - 0.9%
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Owens-Brockway Glass Container, Inc., 8.875s, 2009 $660 $714,450
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Owens-Brockway Glass Container, Inc., 8.25s, 2013 2,245 2,351,637
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Pliant Corp., 13s, 2010 190 174,800
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Silgan Holdings, Inc., 9s, 2009 1,919 1,988,852
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$5,229,739
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Defense Electronics - 0.3%
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L-3 Communications Holdings, Inc., 7.625s, 2012 $1,480 $1,613,200
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Electronics - 0.2%
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Flextronics International Ltd., 6.5s, 2013 $1,145 $1,145,000
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Entertainment - 1.4%
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AMC Entertainment, Inc., 9.5s, 2011 $1,700 $1,785,000
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News America Holdings, Inc., 7.7s, 2025 530 615,287
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News America, Inc., 6.55s, 2033 538 557,498
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Six Flags, Inc., 9.75s, 2013 1,500 1,520,625
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Turner Broadcasting, Inc., 8.375s, 2013 2,859 3,445,023
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$7,923,433
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Food & Non Alcoholic Beverages - 0.1%
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Seminis Vegetable Seeds, Inc., 10.25s, 2013## $360 $382,050
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Forest & Paper Products - 1.0%
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Buckeye Tecnologies, Inc., 8.5s, 2013## $1,680 $1,785,000
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Graphic Packaging International, Inc., 8.5s, 2011## 500 550,000
-----------------------------------------------------------------------------------------------------
Graphic Packaging International, Inc., 9.5s, 2013## 2,940 3,245,025
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$5,580,025
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Gaming & Lodging - 3.0%
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Aztar Corp., 8.875s, 2007 $1,550 $1,617,813
-----------------------------------------------------------------------------------------------------
Forest City Enterprises, Inc., 7.625s, 2015 240 250,800
-----------------------------------------------------------------------------------------------------
Hilton Hotels Corp., 7.625s, 2012 1,100 1,215,500
-----------------------------------------------------------------------------------------------------
HMH Properties, Inc., 8.45s, 2008 2,700 2,814,750
-----------------------------------------------------------------------------------------------------
MGM Mirage, Inc., 8.375s, 2011 1,675 1,871,812
-----------------------------------------------------------------------------------------------------
Park Place Entertainment Corp., 8.875s, 2008 1,550 1,732,125
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Pinnacle Entertainment, Inc., 8.75s, 2013 900 895,500
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Starwood Hotels & Resorts, Inc., 7.875s, 2012 3,000 3,326,250
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Venetian Casino Resort, 11s, 2010 1,550 1,794,125
-----------------------------------------------------------------------------------------------------
Wackenhut Corrections Corp., 8.25s, 2013## 1,120 1,183,000
-----------------------------------------------------------------------------------------------------
$16,701,675
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Home Construction - 0.3%
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Pulte Homes, Inc., 6.375s, 2033 $1,517 $1,467,130
-----------------------------------------------------------------------------------------------------
Industrial - 0.2%
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MSW Energy Holdings, 7.375s, 2010## $1,045 $1,076,350
-----------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.3%
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Willis Corroon Corp., 9s, 2009 $1,355 $1,439,688
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Machinery & Tools - 1.4%
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AGCO Corp., 9.5s, 2008 $1,750 $1,907,500
-----------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25s, 2011## 1,865 2,046,837
-----------------------------------------------------------------------------------------------------
Case New Holland, Inc., 9.25s, 2011## 2,185 2,447,200
-----------------------------------------------------------------------------------------------------
Terex Corp., 9.25s, 2011 1,405 1,559,550
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$7,961,087
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Medical & Health Technology & Services - 0.6%
-----------------------------------------------------------------------------------------------------
Fisher Scientific International, Inc., 8.125s, 2012 $1,147 $1,230,157
-----------------------------------------------------------------------------------------------------
Genesis Healthcare Corp., 8s, 2013## 255 259,463
-----------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., 6.5s, 2012 1,800 1,656,000
-----------------------------------------------------------------------------------------------------
$3,145,620
-----------------------------------------------------------------------------------------------------
Metals & Mining - 0.3%
-----------------------------------------------------------------------------------------------------
Peabody Energy Corp., 6.875s, 2013 $355 $373,638
-----------------------------------------------------------------------------------------------------
U.S. Steel Corp., 9.75s, 2010 1,020 1,093,950
-----------------------------------------------------------------------------------------------------
$1,467,588
-----------------------------------------------------------------------------------------------------
Mortgage Backed - 10.0%
-----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6s, 2016 $2,209 $2,307,345
-----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6s, 2017 6,690 6,988,367
-----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 5.975s, 2020 4 4,066
-----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6.5s, 2031 1,232 1,284,760
-----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6.5s, 2032 9,549 9,957,306
-----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 5.5s, 2033 24,704 24,873,690
-----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6s, 2033 6,035 6,202,589
-----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. TBA 30, 6s, 2033 4,369 4,487,784
-----------------------------------------------------------------------------------------------------
$56,105,907
-----------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.6%
-----------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 8.875s, 2011 $3,235 $3,509,975
-----------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.2%
-----------------------------------------------------------------------------------------------------
El Paso Natural Gas Co., 7.625s, 2010 $2,890 $2,904,450
-----------------------------------------------------------------------------------------------------
Southern Natural Gas Co., 8.875s, 2010 1,650 1,819,125
-----------------------------------------------------------------------------------------------------
Williams Cos., Inc., 7.125s, 2011 2,100 2,163,000
-----------------------------------------------------------------------------------------------------
$6,886,575
-----------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 0.2%
-----------------------------------------------------------------------------------------------------
Jabil Circuit, Inc., 5.875s, 2010 $1,042 $1,074,443
-----------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.2%
-----------------------------------------------------------------------------------------------------
Schering-Plough Corp., 6.5s, 2033 $996 $1,015,522
-----------------------------------------------------------------------------------------------------
Photographic Products - 0.1%
-----------------------------------------------------------------------------------------------------
Eastman Kodak Co., 7.25s, 2013 $832 $863,407
-----------------------------------------------------------------------------------------------------
Pollution Control - 0.5%
-----------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 7.875s, 2013 $2,500 $2,675,000
-----------------------------------------------------------------------------------------------------
Printing & Publishing - 0.8%
-----------------------------------------------------------------------------------------------------
Dex Media East LLC, 9.875s, 2009 $1,500 $1,702,500
-----------------------------------------------------------------------------------------------------
Dex Media West LLC, 9.875s, 2013## 1,500 1,702,500
-----------------------------------------------------------------------------------------------------
MediaNews Group, Inc., 6.875s, 2013## 1,015 1,008,656
-----------------------------------------------------------------------------------------------------
$4,413,656
-----------------------------------------------------------------------------------------------------
Steel
-----------------------------------------------------------------------------------------------------
WCI Steel, Inc., 10s, 2004** $280 $78,400
-----------------------------------------------------------------------------------------------------
Stores - 0.6%
-----------------------------------------------------------------------------------------------------
J. Crew Group, Inc., 10.375s, 2007 $1,100 $1,135,750
-----------------------------------------------------------------------------------------------------
Rite Aid Corp., 9.5s, 2011 1,250 1,406,250
-----------------------------------------------------------------------------------------------------
Rite Aid Corp., 9.25s, 2013 825 886,875
-----------------------------------------------------------------------------------------------------
$3,428,875
-----------------------------------------------------------------------------------------------------
Supermarkets - 0.3%
-----------------------------------------------------------------------------------------------------
Roundy's, Inc., 8.875s, 2012 $1,650 $1,744,875
-----------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.0%
-----------------------------------------------------------------------------------------------------
AT & T Wireless Services, Inc., 8.75s, 2031 $1,106 $1,270,023
-----------------------------------------------------------------------------------------------------
Qwest Services Corp., 13.5s, 2010## 2,500 2,940,625
-----------------------------------------------------------------------------------------------------
Worldcom, Inc., 7.5s, 2011 4,000 1,345,000
-----------------------------------------------------------------------------------------------------
$5,555,648
-----------------------------------------------------------------------------------------------------
Tobacco - 0.1%
-----------------------------------------------------------------------------------------------------
Philip Morris Cos., Inc., 6.8s, 2003 $604 $604,000
-----------------------------------------------------------------------------------------------------
U.S. Government Agencies - 3.8%
-----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 7s, 2005 $6,100 $6,590,355
-----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 6s, 2011 5,005 5,513,968
-----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 5s, 2007++ 5,105 5,423,680
-----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6s, 2008 3,672 4,051,112
-----------------------------------------------------------------------------------------------------
$21,579,115
-----------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 9.9%
-----------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 10.75s, 2005++ $8,000 $9,191,560
-----------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 12s, 2013++ 7,500 10,347,068
-----------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 9.875s, 2015 5,025 7,458,788
-----------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 10.625s, 2015++ 3,350 5,193,415
-----------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 6.875s, 2006++ 8,000 8,875,000
-----------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.375s, 2007++ 13,254 14,322,811
-----------------------------------------------------------------------------------------------------
$55,388,642
-----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.7%
-----------------------------------------------------------------------------------------------------
AES Corp., 8.75s, 2013## $1,100 $1,190,750
-----------------------------------------------------------------------------------------------------
AES Corp., 9s, 2015## 1,100 1,197,625
-----------------------------------------------------------------------------------------------------
Calpine Corp., 8.75s, 2013## 1,185 1,093,163
-----------------------------------------------------------------------------------------------------
CMS Energy Corp., 8.5s, 2011 2,000 2,085,000
-----------------------------------------------------------------------------------------------------
Dynegy Holdings, Inc., 9.875s, 2010## 1,150 1,259,250
-----------------------------------------------------------------------------------------------------
Dynegy Holdings, Inc., 6.875s, 2011 1,500 1,297,500
-----------------------------------------------------------------------------------------------------
PG&E Corp., 6.875s, 2008## 405 431,325
-----------------------------------------------------------------------------------------------------
PSEG Energy Holdings, 7.75s, 2007 3,101 3,197,906
-----------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.25s, 2010## 370 373,700
-----------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.5s, 2013## 430 434,300
-----------------------------------------------------------------------------------------------------
TXU Corp., 6.375s, 2006 2,727 2,914,481
-----------------------------------------------------------------------------------------------------
$15,475,000
-----------------------------------------------------------------------------------------------------
Utilities - Telephone - 0.2%
-----------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc., 7.25s, 2013## $1,220 $1,268,800
-----------------------------------------------------------------------------------------------------
Wireless Communications - 1.8%
-----------------------------------------------------------------------------------------------------
Alamosa Delaware, Inc., 11s, 2010 $1,251 $1,294,785
-----------------------------------------------------------------------------------------------------
Centennial Cellular Communications, 10.125s, 2013 1,800 1,899,000
-----------------------------------------------------------------------------------------------------
Crown Castle International Corp., 1s, 2011 1,500 1,560,000
-----------------------------------------------------------------------------------------------------
Dobson Communications Corp., 8.875s, 2013## 500 503,125
-----------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 7.375s, 2015 520 547,300
-----------------------------------------------------------------------------------------------------
Rural Cellular Corp., 9.75s, 2010 600 556,500
-----------------------------------------------------------------------------------------------------
Rural Cellular Corp., 9.875s, 2010## 1,175 1,216,125
-----------------------------------------------------------------------------------------------------
Triton PCS, Inc., 8.5s, 2013 860 911,600
-----------------------------------------------------------------------------------------------------
Western Wireless Corp., 9.25s, 2013 1,735 1,804,400
-----------------------------------------------------------------------------------------------------
$10,292,835
-----------------------------------------------------------------------------------------------------
Total U.S. Bonds $344,447,234
-----------------------------------------------------------------------------------------------------
Foreign Bonds - 33.0%
-----------------------------------------------------------------------------------------------------
Algeria
-----------------------------------------------------------------------------------------------------
Republic of Algeria, 2.063s, 2010 $167 $161,566
-----------------------------------------------------------------------------------------------------
Australia - 0.4%
-----------------------------------------------------------------------------------------------------
Burns Philp Capital Property Ltd., 9.75s, 2012 (Food &
Non Alcoholic Beverages)## $2,000 $2,075,000
-----------------------------------------------------------------------------------------------------
Austria - 1.7%
-----------------------------------------------------------------------------------------------------
Republic of Austria, 5.5s, 2007 EUR 6,061 $7,770,144
-----------------------------------------------------------------------------------------------------
Republic of Austria, 5s, 2012 558 698,767
-----------------------------------------------------------------------------------------------------
Republic of Austria, 4.65s, 2018 1,010 1,198,380
-----------------------------------------------------------------------------------------------------
$9,667,291
-----------------------------------------------------------------------------------------------------
Belgium - 0.4%
-----------------------------------------------------------------------------------------------------
Kingdom of Belgium, 3.75s, 2009 EUR 945 $1,126,831
-----------------------------------------------------------------------------------------------------
Kingdom of Belgium, 5s, 2012 912 1,143,694
-----------------------------------------------------------------------------------------------------
$2,270,525
-----------------------------------------------------------------------------------------------------
Brazil - 2.2%
-----------------------------------------------------------------------------------------------------
Banco Nacional de Desenvolvi, 8.754s, 2008 (Banks &
Credit Companies) $352 $349,142
-----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 2.063s, 2009 1,629 1,514,691
-----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 9.25s, 2010 1,746 1,801,872
-----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 10s, 2011 1,446 1,528,422
-----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 10.25s, 2013 593 638,365
-----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8s, 2014 3,141 3,023,528
-----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 2s, 2024 874 731,975
-----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8.875s, 2024 1,535 1,377,662
-----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 11s, 2040 1,373 1,404,579
-----------------------------------------------------------------------------------------------------
$12,370,236
-----------------------------------------------------------------------------------------------------
Bulgaria - 0.3%
-----------------------------------------------------------------------------------------------------
Republic of Bulgaria, 8.25s, 2015## $1,604 $1,864,650
-----------------------------------------------------------------------------------------------------
Canada - 2.2%
-----------------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc., 8.55s, 2010 (Forest & Paper
Products) $1,398 $1,517,611
-----------------------------------------------------------------------------------------------------
Acetex Corp., 10.875s, 2009 (Chemicals)## 1,350 1,498,500
-----------------------------------------------------------------------------------------------------
Government of Canada, 5.5s, 2009 CAD 4,993 4,069,146
-----------------------------------------------------------------------------------------------------
Government of Canada, 5.5s, 2010 1,761 1,432,108
-----------------------------------------------------------------------------------------------------
Government of Canada, 5.25s, 2012 868 691,235
-----------------------------------------------------------------------------------------------------
Government of Canada, 8s, 2023 1,243 1,270,289
-----------------------------------------------------------------------------------------------------
Rogers Cable, Inc., 6.25s, 2013 (Broadcast & Cable TV) $1,790 1,796,713
-----------------------------------------------------------------------------------------------------
$12,275,602
-----------------------------------------------------------------------------------------------------
Chile - 0.4%
-----------------------------------------------------------------------------------------------------
Empresa Nacional de Electricidad SA, 8.35s, 2013
(Utilities - Electric Power) $1,029 $1,132,798
-----------------------------------------------------------------------------------------------------
Enersis SA, 7.375s, 2014 (Utilities - Electric Power)## 1,056 1,068,626
-----------------------------------------------------------------------------------------------------
$2,201,424
-----------------------------------------------------------------------------------------------------
Colombia - 0.3%
-----------------------------------------------------------------------------------------------------
Republic of Colombia, 9.75s, 2009 $503 $550,785
-----------------------------------------------------------------------------------------------------
Republic of Colombia, 10.75s, 2013 976 1,073,600
-----------------------------------------------------------------------------------------------------
$1,624,385
-----------------------------------------------------------------------------------------------------
Denmark - 0.8%
-----------------------------------------------------------------------------------------------------
Kingdom of Denmark, 7s, 2007 DKK 8,924 $1,611,943
-----------------------------------------------------------------------------------------------------
Kingdom of Denmark, 6s, 2009 16,161 2,863,142
-----------------------------------------------------------------------------------------------------
Kingdom of Denmark, 5s, 2013 1,874 310,730
-----------------------------------------------------------------------------------------------------
$4,785,815
-----------------------------------------------------------------------------------------------------
Dominican Republic - 0.1%
-----------------------------------------------------------------------------------------------------
Dominican Republic, 9.5s, 2006## $604 $525,480
-----------------------------------------------------------------------------------------------------
Finland - 1.8%
-----------------------------------------------------------------------------------------------------
Republic of Finland, 2.75s, 2006 EUR 299 $355,377
-----------------------------------------------------------------------------------------------------
Republic of Finland, 3s, 2008 5,543 6,439,542
-----------------------------------------------------------------------------------------------------
Republic of Finland, 5.375s, 2013 2,716 3,489,762
-----------------------------------------------------------------------------------------------------
$10,284,681
-----------------------------------------------------------------------------------------------------
France - 2.6%
-----------------------------------------------------------------------------------------------------
Crown Euro Holdings SA, 9.5s, 2011 (Containers) $2,580 $2,889,600
-----------------------------------------------------------------------------------------------------
Republic of France, 4.75s, 2007 EUR 3,830 4,789,293
-----------------------------------------------------------------------------------------------------
Republic of France, 4s, 2009 3,888 4,671,331
-----------------------------------------------------------------------------------------------------
Republic of France, 4.75s, 2012 356 438,421
-----------------------------------------------------------------------------------------------------
Rhodia SA, 8.875s, 2011 (Chemicals)## $1,045 924,825
-----------------------------------------------------------------------------------------------------
Vivendi Universal SA, 6.25s, 2008 (Advertising &
Broadcasting)## 915 960,750
-----------------------------------------------------------------------------------------------------
$14,674,220
-----------------------------------------------------------------------------------------------------
Germany - 3.6%
-----------------------------------------------------------------------------------------------------
Federal Republic of Germany, 4.5s, 2009 EUR 11,947 $14,756,234
-----------------------------------------------------------------------------------------------------
Federal Republic of Germany, 5.25s, 2010 2,101 2,685,033
-----------------------------------------------------------------------------------------------------
KFW-Kredit Wiederaufbau, 3.25s, 2008 (Banks & Credit
Companies) 2,244 2,645,704
-----------------------------------------------------------------------------------------------------
Kronos International, Inc., 8.875s, 2009 (Chemicals) 100 127,473
-----------------------------------------------------------------------------------------------------
$20,214,444
-----------------------------------------------------------------------------------------------------
Greece - 0.4%
-----------------------------------------------------------------------------------------------------
Republic of Greece, 3.5s, 2008 EUR 1,044 $1,240,060
-----------------------------------------------------------------------------------------------------
Republic of Greece, 4.6s, 2013 618 745,085
-----------------------------------------------------------------------------------------------------
$1,985,145
-----------------------------------------------------------------------------------------------------
Ireland - 2.2%
-----------------------------------------------------------------------------------------------------
Eircom Funding, 8.25s, 2013 (Telecommunications -
Wireline)## $810 $878,850
-----------------------------------------------------------------------------------------------------
MDP Acquisitions PLC, 9.625s, 2012 (Forest & Paper
Products) 970 1,076,700
-----------------------------------------------------------------------------------------------------
Republic of Ireland, 4.25s, 2007 EUR 3,956 4,866,679
-----------------------------------------------------------------------------------------------------
Republic of Ireland, 3.25s, 2009 3,290 3,831,754
-----------------------------------------------------------------------------------------------------
Republic of Ireland, 5s, 2013 1,326 1,657,007
-----------------------------------------------------------------------------------------------------
$12,310,990
-----------------------------------------------------------------------------------------------------
Italy - 1.1%
-----------------------------------------------------------------------------------------------------
Republic of Italy, 5s, 2008 EUR 3,057 $3,858,580
-----------------------------------------------------------------------------------------------------
Republic of Italy, 4.75s, 2013 122 149,527
-----------------------------------------------------------------------------------------------------
Republic of Italy, 5.25s, 2017 458 575,127
-----------------------------------------------------------------------------------------------------
Telecom Italia Capital, 5.25s, 2013 (Telecommunications -
Wireline)## $1,418 1,410,147
-----------------------------------------------------------------------------------------------------
$5,993,381
-----------------------------------------------------------------------------------------------------
Kazakhstan - 0.6%
-----------------------------------------------------------------------------------------------------
Hurricane Finance BV, 9.625s, 2010 (Oils)+ $735 $817,688
-----------------------------------------------------------------------------------------------------
Kazkommerts International BV, 10.125s, 2007 (Banks &
Credit Companies)+ 128 143,360
-----------------------------------------------------------------------------------------------------
Kazkommerts International BV, 10.125s, 2007 (Banks &
Credit Companies)## 123 137,760
-----------------------------------------------------------------------------------------------------
Kazkommerts International BV, 8.5s, 2013 (Banks & Credit
Companies) 190 196,175
-----------------------------------------------------------------------------------------------------
Kazkommerts International BV, 8.5s, 2013 (Banks & Credit
Companies)## 949 979,842
-----------------------------------------------------------------------------------------------------
Kaztransoil Co., 8.5s, 2006 (Oil Services)## 1,002 1,064,388
-----------------------------------------------------------------------------------------------------
$3,339,213
-----------------------------------------------------------------------------------------------------
Luxembourg - 0.2%
-----------------------------------------------------------------------------------------------------
Millicom International Cellular, 10s, 2013 (Wireless
Communications)## $1,125 $1,153,125
-----------------------------------------------------------------------------------------------------
Malaysia - 0.5%
-----------------------------------------------------------------------------------------------------
Petroliam Nasional Berhad, 7.75s, 2015 (Sovereign Bonds)+ $970 $1,155,076
-----------------------------------------------------------------------------------------------------
Petronas Capital Ltd., 7.875s, 2022 (Oil Services)## 1,357 1,564,569
-----------------------------------------------------------------------------------------------------
$2,719,645
-----------------------------------------------------------------------------------------------------
Mexico - 2.9%
-----------------------------------------------------------------------------------------------------
BBVA Bancomer, 10.5s, 2011 (Banks & Credit Companies)## $1,000 $1,126,250
-----------------------------------------------------------------------------------------------------
Grupo Televisa SA, 8.5s, 2032 (Broadcast & Cable TV) 1,061 1,103,440
-----------------------------------------------------------------------------------------------------
Innova S De R.L., 9.375s, 2013 (Wireless
Communications)## 654 668,715
-----------------------------------------------------------------------------------------------------
Pemex Finance Ltd., 9.69s, 2009 (Energy - Integrated) 915 1,065,975
-----------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 9.125s, 2010 (Oil
Services) 457 539,260
-----------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 8.625s, 2022 (Oil
Services) 5,545 6,057,913
-----------------------------------------------------------------------------------------------------
Petroleos Mexicanos, 9.5s, 2027 (Quasi-Government) 2,129 2,469,640
-----------------------------------------------------------------------------------------------------
United Mexican States, 8.125s, 2019 270 297,675
-----------------------------------------------------------------------------------------------------
United Mexican States, 11.5s, 2026 2,163 3,099,579
-----------------------------------------------------------------------------------------------------
$16,428,447
-----------------------------------------------------------------------------------------------------
Netherlands - 1.8%
-----------------------------------------------------------------------------------------------------
Kingdom of Netherlands, 3.75s, 2009 EUR 5,867 $6,984,283
-----------------------------------------------------------------------------------------------------
Kingdom of Netherlands, 5s, 2012 2,636 3,307,872
-----------------------------------------------------------------------------------------------------
$10,292,155
-----------------------------------------------------------------------------------------------------
New Zealand - 0.6%
-----------------------------------------------------------------------------------------------------
Government of New Zealand, 7s, 2009 NZD 2,425 $1,612,698
-----------------------------------------------------------------------------------------------------
Government of New Zealand, 6.5s, 2013 2,468 1,602,976
-----------------------------------------------------------------------------------------------------
$3,215,674
-----------------------------------------------------------------------------------------------------
Panama - 0.4%
-----------------------------------------------------------------------------------------------------
Republic of Panama, 9.375s, 2029 $2,208 $2,484,000
-----------------------------------------------------------------------------------------------------
Poland - 0.3%
-----------------------------------------------------------------------------------------------------
PTC International Finance II SA, 11.25s, 2009 (Wireless
Communications) $1,316 $1,441,020
-----------------------------------------------------------------------------------------------------
Portugal - 0.4%
-----------------------------------------------------------------------------------------------------
Republic of Portugal, 5.45s, 2013 EUR 1,777 $2,283,768
-----------------------------------------------------------------------------------------------------
Qatar - 0.6%
-----------------------------------------------------------------------------------------------------
State of Qatar, 9.75s, 2030 $2,292 $3,214,530
-----------------------------------------------------------------------------------------------------
Russia - 1.1%
-----------------------------------------------------------------------------------------------------
Government of Russia, 11s, 2018+ $624 $832,260
-----------------------------------------------------------------------------------------------------
Mobile Telesystems Finance, 9.75s, 2008 (Wireless
Communications)## 1,042 1,113,638
-----------------------------------------------------------------------------------------------------
OAO Gazprom, 9.625s, 2013 (Utilities - Gas)## 1,360 1,475,600
-----------------------------------------------------------------------------------------------------
OAO Siberian Oil Co., 10.75s, 2009 (Energy - Integrated) 980 1,060,850
-----------------------------------------------------------------------------------------------------
Tyumen Oil Co., 11s, 2007 (Oil Services) 1,514 1,720,282
-----------------------------------------------------------------------------------------------------
$6,202,630
-----------------------------------------------------------------------------------------------------
Spain - 1.8%
-----------------------------------------------------------------------------------------------------
Kingdom of Spain, 6s, 2008 EUR 4,096 $5,361,450
-----------------------------------------------------------------------------------------------------
Kingdom of Spain, 5.35s, 2011 3,630 4,658,655
-----------------------------------------------------------------------------------------------------
$10,020,105
-----------------------------------------------------------------------------------------------------
Sweden - 0.5%
-----------------------------------------------------------------------------------------------------
AB Spintab, 5s, 2008 (Banks & Credit Companies) SEK 16,600 $2,227,378
-----------------------------------------------------------------------------------------------------
Kingdom of Sweden, 5.5s, 2012 4,205 581,022
-----------------------------------------------------------------------------------------------------
$2,808,400
-----------------------------------------------------------------------------------------------------
United Kingdom - 0.5%
-----------------------------------------------------------------------------------------------------
Global Telesystems, Inc., 10.875s, 2008
(Telecommunications - Wireline)** $165 $17
-----------------------------------------------------------------------------------------------------
U.K. Treasury, 7.25s, 2007 GBP 1,179 2,203,607
-----------------------------------------------------------------------------------------------------
U.K. Treasury, 5s, 2012 298 511,404
-----------------------------------------------------------------------------------------------------
$2,715,028
-----------------------------------------------------------------------------------------------------
Venezuela - 0.1%
-----------------------------------------------------------------------------------------------------
Republic of Venezuela, 10.75s, 2013## $766 $752,595
-----------------------------------------------------------------------------------------------------
Ukraine - 0.2%
-----------------------------------------------------------------------------------------------------
Ukraine Government, 7.65s, 2013## $886 $899,290
-----------------------------------------------------------------------------------------------------
Total Foreign Bonds $185,254,460
-----------------------------------------------------------------------------------------------------
Municipal Bonds - 1.6%
-----------------------------------------------------------------------------------------------------
Austin, Texas Electric, 5.5s, 2012 $1,200 $1,375,560
-----------------------------------------------------------------------------------------------------
Metropolitan Pier & Exposition Illinois, 5s, 2028 4,800 4,848,336
-----------------------------------------------------------------------------------------------------
Metropolitan Transportation Authority New York, 5s, 2032 2,500 2,536,475
-----------------------------------------------------------------------------------------------------
Total Municipal Bonds $8,760,371
-----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $512,152,301) $538,462,065
-----------------------------------------------------------------------------------------------------
Convertible Bonds - 0.4%
-----------------------------------------------------------------------------------------------------
Wireless Communications - 0.4%
-----------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 7.75s, 2013* $2 $535,150
-----------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.25s, 2010 1,500 1,477,500
-----------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $1,427,913) $2,012,650
-----------------------------------------------------------------------------------------------------
Stocks - 0.1%
-----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
-----------------------------------------------------------------------------------------------------
U.S. Stocks - 0.1%
-----------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.1%
-----------------------------------------------------------------------------------------------------
Sind Holdings, Inc.* 5,720 $371,800
-----------------------------------------------------------------------------------------------------
Basic Industry
-----------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp.* 795 $9,381
-----------------------------------------------------------------------------------------------------
Chemicals
-----------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc.* 72 $1,512
-----------------------------------------------------------------------------------------------------
Machinery & Tools
-----------------------------------------------------------------------------------------------------
Simonds Industries, Inc.* 1,235 $3,322
-----------------------------------------------------------------------------------------------------
Utilities - Telephone
-----------------------------------------------------------------------------------------------------
ITC-DeltaCom, Inc.* 63,023 $311,964
-----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $3,096,811) $697,979
-----------------------------------------------------------------------------------------------------
Warrants
-----------------------------------------------------------------------------------------------------
Ono Finance PLC, Expire 2/15/11 (Broadcast & Cable TV)* 1,000 $10
-----------------------------------------------------------------------------------------------------
Loral Orion Network Systems, Inc., Expire 1/15/07
(Business Services)* 1,625 42
-----------------------------------------------------------------------------------------------------
Loral Orion Network Systems, Inc., Expire 1/15/07
(Business Services)* 750 23
-----------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc., Expire 12/19/08 (Chemicals)* 250 3
-----------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp., Expire 5/23/04 (Basic
Industry)* 1,257 1,131
-----------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp., Expire 5/23/06 (Basic
Industry)* 760 760
-----------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $186,200) $1,969
-----------------------------------------------------------------------------------------------------
Repurchase Agreement - 2.8%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
-----------------------------------------------------------------------------------------------------
Merrill Lynch Repurchase Agreement, dated 11/28/03, due 12/01/03, total to be
received $15,862,348 (secured by various U.S. Treasury and Federal Agency
obligations in a
jointly traded account), at Cost $15,861 $15,861,000
-----------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 6.5%
-----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
-----------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Amortized Cost 36,839,451 $36,839,451
-----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $569,563,676) $593,875,114
-----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (5.7)% (31,975,332)
-----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $561,899,782
-----------------------------------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security - in default.
## SEC Rule 144A restriction.
+ Restricted security.
++ All or a portion of this security is on loan.
Abbreviations have been used throughout this report to indicate amounts shown in currencies other than the
U.S. Dollar. A list of abbreviations is shown below:
AUD = Australian Dollars GBP = British Pounds
CAD = Canadian Dollars NZD = New Zealand Dollars
DKK = Danish Kroner SEK = Swedish Kronor
EUR = Euro
See notes to financial statements.
-----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the asset and liabilities composing
the total value of your fund.
AT 11/30/03
ASSETS
Investments, at value, including $36,119,158 of securities
on loan (identified cost, $569,563,676) $593,875,114
-----------------------------------------------------------------------------------------------------
Cash 6,125
-----------------------------------------------------------------------------------------------------
Receivable for forward foreign currency exchange contracts 461,010
-----------------------------------------------------------------------------------------------------
Receivable for daily variation margin on open futures
contracts 105,000
-----------------------------------------------------------------------------------------------------
Receivable for investments sold 3,626,837
-----------------------------------------------------------------------------------------------------
Interest receivable 9,628,463
-----------------------------------------------------------------------------------------------------
Other assets 18,562
-----------------------------------------------------------------------------------------------------
Total assets $607,721,111
-----------------------------------------------------------------------------------------------------
LIABILITIES
Payable to custodian $57
-----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 36,839,451
-----------------------------------------------------------------------------------------------------
Payable to dividend disbursing agent 206,413
-----------------------------------------------------------------------------------------------------
Payable for investments purchased 856,856
-----------------------------------------------------------------------------------------------------
Payable for TBA purchase commitments 4,480,273
-----------------------------------------------------------------------------------------------------
Payable for forward foreign currency exchange contracts 2,931,641
-----------------------------------------------------------------------------------------------------
Payable to affiliates
-----------------------------------------------------------------------------------------------------
Management fee 36,683
-----------------------------------------------------------------------------------------------------
Transfer agent and dividend disbursing costs 8,040
-----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 461,915
-----------------------------------------------------------------------------------------------------
Total liabilities $45,821,329
-----------------------------------------------------------------------------------------------------
Net assets $561,899,782
-----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
NET ASSETS CONSIST OF
Paid-in capital $613,581,573
-----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 22,027,241
-----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (62,448,806)
-----------------------------------------------------------------------------------------------------
Accumulated net investment loss (11,260,226)
-----------------------------------------------------------------------------------------------------
Total $561,899,782
-----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding (63,248,883 shares
issued, less 4,601,344 treasury shares) 58,647,539
-----------------------------------------------------------------------------------------------------
Net asset value per share (net assets / shares of beneficial
interest outstanding) $9.58
-----------------------------------------------------------------------------------------------------
See notes to financial statements.
-----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OFOPERATIONS
-----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It also
describes any gains and/or losses generated by fund operations.
FOR YEAR ENDED 11/30/03
NET INVESTMENT INCOME
Interest income $33,901,085
-----------------------------------------------------------------------------------------------------
Expenses
-----------------------------------------------------------------------------------------------------
Management fee $3,483,586
-----------------------------------------------------------------------------------------------------
Trustees' compensation 91,714
-----------------------------------------------------------------------------------------------------
Transfer agent and dividend disbursing costs 110,112
-----------------------------------------------------------------------------------------------------
Administrative fee 55,438
-----------------------------------------------------------------------------------------------------
Investor communication expense 306,966
-----------------------------------------------------------------------------------------------------
Custodian fee 404,323
-----------------------------------------------------------------------------------------------------
Printing 49,528
-----------------------------------------------------------------------------------------------------
Auditing fees 42,600
-----------------------------------------------------------------------------------------------------
Postage 21,108
-----------------------------------------------------------------------------------------------------
Legal fees 6,388
-----------------------------------------------------------------------------------------------------
Miscellaneous 73,654
-----------------------------------------------------------------------------------------------------
Total expenses $4,645,417
-----------------------------------------------------------------------------------------------------
Fees paid indirectly (13,634)
-----------------------------------------------------------------------------------------------------
Net expenses $4,631,783
-----------------------------------------------------------------------------------------------------
Net investment income $29,269,302
-----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
-----------------------------------------------------------------------------------------------------
Investment transactions $36,017,607
-----------------------------------------------------------------------------------------------------
Foreign currency transactions (21,210,370)
-----------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $14,807,237
-----------------------------------------------------------------------------------------------------
Change in unrealized appreciation
-----------------------------------------------------------------------------------------------------
Investments $15,408,351
-----------------------------------------------------------------------------------------------------
Future contracts 102,870
-----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign countries 202,092
-----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation $15,713,313
-----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency $30,520,550
-----------------------------------------------------------------------------------------------------
Increase in net assets from operations $59,789,852
-----------------------------------------------------------------------------------------------------
See notes to financial statements.
-----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 11/30 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income $29,269,302 $31,517,233
-----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 14,807,237 (23,234,066)
-----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation 15,713,313 21,261,871
----------------------------------------------------------- -------------- ------------------
Increase in net assets from operations $59,789,852 $29,545,038
----------------------------------------------------------- -------------- ------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(31,796,703) $(29,555,338)
-----------------------------------------------------------------------------------------------------
From paid-in capital -- (5,548,996)
----------------------------------------------------------- -------------- ------------------
Total distributions declared to shareholders $(31,796,703) $(35,104,334)
----------------------------------------------------------- -------------- ------------------
Net decrease in net assets from trust share transactions $(12,374,600) $(4,773,607)
----------------------------------------------------------- -------------- ------------------
Total increase (decrease) in net assets $15,618,549 $(10,332,903)
----------------------------------------------------------- -------------- ------------------
NET ASSETS
At beginning of period $546,281,233 $556,614,136
-----------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
loss of $11,260,226 and $3,355,518, respectively) $561,899,782 $546,281,233
-----------------------------------------------------------------------------------------------------
See notes to financial statements.
-------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the trust's financial performance for the past 5 years.
Certain information reflects financial results for a single trust share. The total returns in the table represent the rate by
which an investor would have earned (or lost) on an investment in the trust (assuming reinvestment of all distributions) held
for the entire period. This information has been audited by the trust's independent auditors, whose report, together with the
trust's financial statements, are included in this report.
FOR YEARS ENDED 11/30
2003 2002 2001 2000 1999
Net asset value, beginning of period $9.09 $9.17 $9.20 $9.71 $10.39
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INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income $0.49 $0.52 $0.67 $0.72 $0.72
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Net realized and unrealized gain (loss)
on investments and foreign currency 0.53 (0.02) (0.01) (0.45) (0.65)
----------------------------------------------- ------- ------------ ------------ ----------- ------------
Total from investment operations $1.02 $0.50 $0.66 $0.27 $0.07
----------------------------------------------- ------- ------------ ------------ ----------- ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.53) $(0.49) $(0.64) $(0.61) $(0.68)
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From paid-in capital -- (0.09) (0.05) (0.17) (0.07)
----------------------------------------------- ------- ------------ ------------ ----------- ------------
Total distributions declared to
shareholders $(0.53) $(0.58) $(0.69) $(0.78) $(0.75)
----------------------------------------------- ------- ------------ ------------ ----------- ------------
Net asset value, end of period $9.58 $9.09 $9.17 $9.20 $9.71
----------------------------------------------- ------- ------------ ------------ ----------- ------------
Per share market value, end of period $8.78 $8.26 $8.35 $8.44 $8.06
----------------------------------------------- ------- ------------ ------------ ----------- ------------
Total return at market value (%) 13.02 5.99 6.92 14.66 (11.88)
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RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 0.83 0.85 0.91 0.93 0.88
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Net investment income 5.21 5.80 7.18 7.53 7.17
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Portfolio turnover 129 137 98 113 121
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Net assets at end of period
(000 Omitted) $561,900 $546,281 $556,614 $561,105 $632,594
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# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
(S)(S) As required, effective December 1, 2001, the trust has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended
November 30, 2002 was to decrease net investment income per share by $0.02, increase net realized gains and losses per
share by $0.02, and decrease the ratio of net investment income to average net assets by 0.24%. Per share, ratios, and
supplemental data for the periods prior to December 1, 2001 have not been restated to reflect this change in
presentation.
See notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
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(1) BUSINESS AND ORGANIZATION
MFS Charter Income Trust (the trust) is a non-diversified Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
a closed-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 trust 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 - Bonds and other fixed income securities (other than
short-term obligations) in the trust's portfolio are valued at an evaluated bid
price on the basis of quotes from brokers and dealers or on the basis of
valuations furnished by a pricing service. Prices obtained from pricing services
utilize both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Equity securities in the trust's portfolio
for which market quotations are available are valued at the last sale or
official closing price on the primary market or exchange on which they are
primarily traded or at the last quoted bid price for securities in which there
were no sales during the day. If no sales are reported, as is the case for most
securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. Forward contracts will be valued using a pricing
model taking into consideration market data from an external pricing source. Use
of the pricing services has been approved by the Board of Trustees. All other
securities (other than short-term obligations), and futures contracts in the
trust's portfolio for which the principal market is one or more securities or
commodities exchanges (whether domestic or foreign) will be valued at the last
reported sale price or at the settlement price prior to the determination (or if
there has been no current sale, at the closing bid price) on the primary
exchange on which such futures contracts are traded; but if a securities
exchange is not the principal market for securities, such securities will, if
market quotations are readily available, be valued at current bid prices.
Short-term obligations in the trust's portfolio are valued at amortized cost,
which constitutes fair value as determined by the Board of Trustees. Short-term
obligations with a remaining maturity in excess of 60 days will be valued upon
dealer-supplied valuations. The trust values its portfolio securities at current
market prices where current market prices are readily available, or at fair
value as determined under the direction of the Board of Trustees when a
determination is made that current market prices are not readily available.
Because developments that could affect the values of foreign securities may
occur between the close of the foreign market where the security is principally
traded and the trust's valuation time, such closing prices may not be reflective
of current market prices and current market prices may not be readily available
when the trust determines net asset value, and therefore the trust may adjust
closing market prices of foreign securities to reflect what it believes to be
the fair value of the securities as of the trust's valuation time.
REPURCHASE AGREEMENTS - The trust may enter into repurchase agreements with
institutions that the trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The trust requires
that the securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the trust to obtain those securities
in the event of a default under the repurchase agreement. The trust 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 trust under each such
repurchase agreement. The trust, along with other affiliated entities of
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
DEFERRED TRUSTEE COMPENSATION - Under a Deferred Compensation Plan (the Plan)
independent Trustees may elect to defer receipt of all or a portion of their
annual compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the trust or other MFS funds selected by
the Trustee. Deferred amounts represent an unsecured obligation of the trust
until distributed in accordance with the Plan. Included in other assets and
accrued expenses and other liabilities is $13,810 of Deferred Trustees'
Compensation.
FUTURES CONTRACTS - The trust may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at a
fixed price on a future date. In entering such contracts, the trust is required
to deposit with the broker either in cash or securities an amount equal to a
certain percentage of the contract amount. Subsequent payments are made or
received by the trust each day, depending on the daily fluctuations in the value
of the contract, and are recorded for financial statement purposes as unrealized
gains or losses by the trust. The trust's investment in futures contracts is
designed to hedge against anticipated future changes in interest or exchange
rates or securities prices. Investments in interest rate futures for purposes
other than hedging may be made to modify the duration of the portfolio without
incurring the additional transaction costs involved in buying and selling the
underlying securities. Investments in currency futures for purposes other than
hedging may be made to change the trust's relative position in one or more
currencies without buying and selling portfolio assets. Investments in index
contracts or contracts on related options for purposes other than hedging, may
be made when the trust has cash on hand and wishes to participate in anticipated
market appreciation while the cash is being invested. Should interest or
exchange rates or securities prices move unexpectedly, the trust may not achieve
the anticipated benefits of the futures contracts and may realize a loss.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the trust to certain qualified
institutions (the "Borrowers") approved by the trust. The loans are
collateralized at all times by cash and U.S. Treasury securities in an amount at
least equal to the market value of the securities loaned. State Street provides
the trust with indemnification against Borrower default. The trust bears the
risk of loss with respect to the investment of cash collateral.
Cash collateral is invested in 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 trust and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the Borrower,
and is allocated between the trust and the lending agent. 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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The trust may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The trust may enter into
forward foreign currency exchange contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the trust may enter into contracts
to deliver or receive foreign currency it will receive from or require for its
normal investment activities. The trust may also use contracts in a manner
intended to protect foreign currency-denominated securities from declines in
value due to unfavorable exchange rate movements. For non-hedging purposes, the
trust may enter into contracts with the intent of changing the relative exposure
of the trust's portfolio of securities to different currencies to take advantage
of anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. 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.
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. Some securities may be purchased on a "when-issued" or
"forward delivery" basis, which means that the securities will be delivered to
the trust at a future date, usually beyond customary settlement time.
The trust may enter into TBA (to be announced) purchase commitments to purchase
securities for a fixed unit price at a future date. Although the unit price has
been established, the principal value has not been finalized. However, the
principal amount of the commitments will not fluctuate more than 1.0%. The trust
holds, and maintains until settlement date, cash or high-grade debt obligations
in an amount sufficient to meet the purchase price, or the trust may enter into
offsetting contracts for the forward sale of other securities it owns. Income on
the securities will not be earned until settlement date. TBA purchase
commitments may be considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased declines prior to settlement
date, which is in addition to the risk of decline in the value of the trusts'
other assets. Unsettled TBA purchase commitments are valued at the current
market value of the underlying securities, according to the procedures described
under "Investment Valuations" above. The trust may enter into TBA sale
commitments to hedge its portfolio positions or to sell mortgage-backed
securities it owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date. During the
time a TBA sale commitment is outstanding, equivalent deliverable securities, or
an offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Legal fees and other related expenses incurred to preserve and protect the value
of a security owned are added to the cost of the security; other legal fees are
expensed. Capital infusions made directly to the security issuer, which are
generally non-recurring, incurred to protect or enhance the value of high-yield
debt securities, are reported as additions to the cost basis of the security.
Costs that are incurred to negotiate the terms or conditions of capital
infusions or that are expected to result in a plan of reorganization are
reported as realized losses. Ongoing costs incurred to protect or enhance an
investment, or costs incurred to pursue other claims or legal actions, are
expensed.
FEES PAID INDIRECTLY - The trust's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
trust. This amount is shown as a reduction of total expenses on the Statement of
Operations.
TAX MATTERS AND DISTRIBUTIONS - The trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The trust
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, mortgage-backed securities, derivatives,
real estate investment trusts, defaulted bonds, timing of capital losses, and
amortization and accretion on debt securities.
The tax character of distributions declared for the years ended November 30,
2003 and November 30, 2002 was as follows:
11/30/03 11/30/02
Distributions declared from:
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Ordinary income $31,796,703 $29,555,338
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Tax return of capital -- 5,548,996
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Total distributions declared $31,796,703 $35,104,334
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During the year ended November 30, 2003, accumulated net investment loss
increased by $5,377,307, accumulated net realized loss on investments and
foreign currency transactions decreased by $7,492,374, and paid-in capital
decreased by $2,115,067 due to differences between book and tax accounting for
mortgage-backed securities, currency transactions, and amortization and
accretion on debt securities. This change had no effect on the net assets or net
asset value per share.
At November 30, 2003, accumulated net investment loss and realized loss on
investments and foreign currency transactions under book accounting were
different from tax accounting due to temporary differences in accounting for
capital losses, defaulted bonds, foreign currency transactions, and amortization
and accretion on debt securities.
As of November 30, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(55,912,985)
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Unrealized appreciation 17,852,838
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Other temporary differences (13,621,644)
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For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the earlier
of its utilization or expiration on.
EXPIRATION DATE
November 30, 2008 $(10,216,164)
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November 30, 2009 (21,791,609)
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November 30, 2010 (23,905,212)
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Total $(55,912,985)
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(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at an annual rate of 0.32%
of the trust's average daily net assets and 4.57% of investment income.
The trust pays compensation to the Independent Trustees ("Trustees") in the form
of both a retainer and attendance fees, and pays no compensation directly to its
Trustees who are officers of the investment adviser, or to officers of the
trust, all of whom receive remuneration for their services to the trust from
MFS. Certain officers and Trustees of the trust are officers or directors of MFS
and MFS Service Center, Inc. (MFSC). The trust has an unfunded, defined benefit
plan for inactive Trustees and an unfunded retirement benefit deferral plan for
active Trustees. Included in Trustees' compensation is $18,916 as a result of
the change in the trust's unfunded retirement benefit deferral plan liability
for active Trustees and a pension expense of $9,392 for inactive trustees for
the year ended November 30, 2003.
ADMINISTRATOR - The trust has an administrative services agreement with MFS to
provide the trust with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the trust pays MFS an administrative fee
not to exceed the following annual percentage rates of the trust's average daily
net assets:
First $2 billion 0.0175%
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Next $2.5 billion 0.0130%
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Next $2.5 billion 0.0005%
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In excess of $7 billion 0.0000%
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TRANSFER AGENT - Included in transfer agent and dividend disbursing costs is a
fee paid to MFSC, a wholly owned subsidiary of MFS, for its services as
registrar and dividend disbursing agent for the trust. The agreement provides
that the trust will pay MFSC an account maintenance fee of no more than $9.00
and a dividend services fee of $0.75 per reinvestment. These fees amounted to
$89,579 for the year ended November 30, 2003. MFSC is also reimbursed by the
trust for out-of-pocket expenses that amounted to $5,956 for the year ended
November 30, 2003.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $173,172,963 $192,655,917
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Investments (non-U.S. government securities) $525,264,484 $556,913,560
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The cost and unrealized appreciation and depreciation in the value of the
investments owned by the trust, as computed on a federal income tax basis, are
as follows:
Aggregate cost $576,007,903
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Gross unrealized appreciation $26,378,172
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Gross unrealized depreciation (8,510,961)
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Net unrealized appreciation $17,867,211
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(5) SHARES OF BENEFICIAL INTEREST
The trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. The Trustees have
authorized the repurchase by the trust of up to 10% annually of its own shares
of beneficial interest. The trust repurchased and retired 1,445,000 shares of
beneficial interest during the year ended November 30, 2003 at an average price
per share of $8.56 and a weighted average discount of 9.10% per share. The trust
repurchased and retired 579,900 shares of beneficial interest during the year
ended November 30, 2002 at an average price per share of $8.23 and a weighted
average discount of 9.02% per share. Transactions in trust shares were as
follows:
Year ended 11/30/03 Year ended 11/30/02
SHARES AMOUNT SHARES AMOUNT
Treasury shares reacquired (1,445,000) $(12,374,600) (579,900) $(4,773,607)
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(6) LINE OF CREDIT
The trust and other affiliated funds participate in an $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating funds at the
end of each quarter. The commitment fee allocated to the trust for the year
ended November 30, 2003, was $3,855. The trust had no borrowings during the
year.
(7) FINANCIAL INSTRUMENTS
The trust trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include written options, forward foreign currency exchange
contracts, swap agreements, and futures contracts. The notional or contractual
amounts of these instruments represent the investment the trust has in
particular classes of financial instruments and does not necessarily represent
the amounts potentially subject to risk. The measurement of the risks associated
with these instruments is meaningful only when all related and offsetting
transactions are considered.
Forward Foreign Currency Exchange Contracts
-------
SALES
-------
CONTRACTS TO NET UNREALIZED
DELIVER/ IN EXCHANGE CONTRACTS APPRECIATION
SETTLEMENT DATE RECEIVE FOR AT VALUE (DEPRECIATION)
---------------------------------------------------------------------------------------------------------
12/17/03-1/13/04 CAD 8,180,767 $6,225,633 $6,292,872 $(67,239)
12/17/03 DKK 36,843,370 5,791,434 5,936,876 (145,442)
12/17/03-1/20/04 EUR 78,265,791 91,383,203 93,781,056 (2,397,853)
1/13/04 GBP 657,714 1,111,656 1,128,737 (17,081)
12/17/03 NZD 8,504,572 5,183,367 5,426,970 (243,603)
12/17/03 SEK 15,508,519 1,990,463 2,050,886 (60,423)
------------ ------------ -----------
$111,685,756 $114,617,397 $(2,931,641)
============ ============ ===========
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---------
PURCHASES
---------
CONTRACTS TO NET UNREALIZED
DELIVER/ IN EXCHANGE CONTRACTS APPRECIATION
SETTLEMENT DATE RECEIVE FOR AT VALUE (DEPRECIATION)
---------------------------------------------------------------------------------------------------------
1/13/04 AUD 3,309,693 $2,314,750 $2,383,844 $69,094
12/17/03-1/13/04 CAD 3,307,164 2,504,725 2,544,929 40,204
12/17/03 DKK 10,700,940 1,676,827 1,724,331 47,504
12/17/03-1/13/04 EUR 7,107,888 8,306,299 8,519,038 212,739
1/13/04 GBP 1,894,314 3,201,510 3,250,932 49,422
12/17/03 NZD 3,127,621 1,953,762 1,995,809 42,047
----------- ----------- --------
$19,957,873 $20,418,883 $461,010
=========== =========== ========
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At November 30, 2003, the trust had sufficient cash and/or securities to cover any commitments under these contracts.
Futures Contracts
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION APPRECIATION
U.S. Treasury Notes 10 Year Futures December 2003 160 Short $102,870
------------------------------------------------------------------------------------------------------------
At November 30, 2003, the trust had sufficient cash and/or securities to cover any margin requirements under
these contracts.
(8) RESTRICTED SECURITIES
The trust may invest not more than 20% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At November 30,
2003, the trust owned the following restricted securities, excluding securities
issued under Rule 144A, constituting 0.5% of net assets which may not be
publicly sold without registration under the Securities Act of 1933. The trust
does not have the right to demand that such securities be registered. The value
of these securities is determined by valuations furnished by dealers or by a
pricing service, or if not available, in good faith at the direction of the
Trustees.
SHARE/
DATE OF PRINCIPAL
DESCRIPTION ACQUISITION AMOUNT COST VALUE
Hurricane Finance BV 9/18/03 735,000 $810,338 $817,688
--------------------------------------------------------------------------------
Kazkommerts International BV 4/14/03 128,000 139,853 143,360
--------------------------------------------------------------------------------
Petroliam Nasional Berhad 12/19/01 970,000 994,750 1,155,076
--------------------------------------------------------------------------------
Government of Russia 11/28/03 624,000 832,260 832,260
--------------------------------------------------------------------------------
$2,948,384
--------------------------------------------------------------------------------
(9) CHANGE IN ACCOUNTING PRINCIPLE
As required, effective December 1, 2001, the trust adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting market discount on debt securities. Prior to December 1,
2001, the trust did not amortize premium nor accrete market discount on debt
securities. The cumulative effect of this accounting change had no impact on
total net assets of the trust, but resulted in a $3,914,186 reduction in cost of
securities and a corresponding $3,914,186 increase in net unrealized
appreciation, based on securities held by the trust on December 1, 2001.
The effect of this change for the year ended November 30, 2002 was to decrease
net investment income by $1,285,943, increase net unrealized appreciation by
$735,369, and increase net realized gains by $550,574. The Statement of Changes
in Net Assets and Financial Highlights for prior periods has not been restated
to reflect this change in presentation.
(10) LEGAL PROCEEDINGS
Massachusetts Financial Services Company ("MFS"), the trust's investment
adviser, has been contacted by the United States Securities and Exchange
Commission ("SEC"), the Office of the New York State Attorney General ("NYAG")
and the Bureau of Securities for the State of New Hampshire ("New Hampshire") in
connection with their investigations of practices in the mutual fund industry
identified as "market timing" mutual fund shares. MFS is cooperating with
respect to these investigations. MFS has been informed that the SEC, the NYAG
and New Hampshire are considering whether to institute enforcement actions
against MFS alleging false and misleading disclosure in certain MFS fund
prospectuses and breach of fiduciary duty concerning market timing. MFS
continues to discuss these matters with the SEC, the NYAG and New Hampshire.
Certain other regulatory authorities are also conducting investigations into
these practices within the industry and have requested that MFS provide
information to them.
Since December 2003, MFS and Sun Life Financial Inc., along with certain MFS
funds and Trustees who serve on the Board of Trustees of these MFS funds, have
been named as defendants in class action lawsuits filed in the United States
District Court, District of Massachusetts seeking damages of unspecified
amounts. The lawsuits were purportedly filed on behalf of people who purchased,
owned and/or redeemed shares of MFS funds during specified periods. The suits
allege that certain defendants permitted market timing and late trading in the
MFS funds which allegedly caused financial injury to the funds' shareholders.
The defendants are reviewing the allegations and will respond appropriately.
Additional lawsuits based upon similar allegations may be filed in the future.
Any potential resolution of these matters may include, but not be limited to,
sanctions, penalties, damages or injunctions regarding MFS, restitution to
mutual fund shareholders and/or other financial penalties and structural changes
in the governance of MFS' mutual fund business.
These regulatory developments do not relate to closed-end investment companies
such as the trust. Although MFS does not believe that these lawsuits will have a
material adverse effect on the trust, there can be no assurance that the ongoing
adverse publicity and/or other developments resulting from related regulatory
investigations or developments will not result in an increase to the market
discount of the trust's shares or other adverse consequences to the trust.
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Trustees and Shareholders of MFS Charter Income Trust:
We have audited the accompanying statement of assets and liabilities of MFS
Charter Income Trust (the Fund), including the portfolio of investments, as of
November 30, 2003, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended. 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
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of November 30, 2003, by correspondence with
the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. 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
Charter Income Trust at November 30, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and its financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
January 9, 2004
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TRUSTEES AND OFFICERS
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The following tables present certain information regarding the Trustees and officers of the Trust, including their
principal occupations, which, unless specific dates are shown, are of more than five years' duration, although the
titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Private investor; Rockefeller Financial Services, Inc.
Chairman (investment advisers), Chairman and
Chief Executive Officer
JOHN W. BALLEN(2) (born 09/12/59)
Trustee and President LAWRENCE T. PERERA (born 06/23/35)
Massachusetts Financial Services Company, Trustee
Chief Executive Officer and Director Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59) WILLIAM J. POORVU (born 04/10/35)
Trustee Trustee
Massachusetts Financial Services Company, Private investor; Harvard University Graduate School
President, Chief Investment Officer, and Director of Business Administration, Class of 1961 Adjunct
Professor in Entrepreneurship Emeritus;
INDEPENDENT TRUSTEES CBL & Associates Properties, Inc. (real estate
investment trust), Director
LAWRENCE H. COHN, M.D. (born 03/11/37)
Trustee J. DALE SHERRATT (born 09/23/38)
Brigham and Women's Hospital, Chief of Cardiac Trustee
Surgery; Harvard Medical School, Professor of Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments (investor
WILLIAM R. GUTOW (born 09/27/41) in health care companies), Managing General Partner
Trustee (since 1993); Cambridge Nutraceuticals (professional
Private investor and real estate consultant; nutritional products), Chief Executive Officer (until
Capitol Entertainment Management Company May 2001)
(video franchise), Vice Chairman
ELAINE R. SMITH (born 04/25/46)
J. ATWOOD IVES (born 05/01/36) Trustee
Trustee Independent health care industry consultant
Private investor; KeySpan Corporation (energy related
services), Director; Eastern Enterprises (diversified WARD SMITH (born 09/13/30)
services company), Chairman, Trustee and Chief Trustee
Executive Officer (until November 2000) Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e.,
"public companies").
(2) "Interested person" of MFS 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 Trust. The address of MFS is 500
Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
JOHN W. BALLEN (born 09/12/59) Senior Vice President (prior to August 2000)
Trustee and President
Massachusetts Financial Services Company, Chief RICHARD M. HISEY (born 08/29/58)
Executive Officer and Director Treasurer
Massachusetts Financial Services Company, Senior
JAMES R. BORDEWICK, JR. (born 03/06/59) Vice President (since July 2002); The Bank of New
Assistant Secretary and Assistant Clerk York, Senior Vice President (September 2000 to
Massachusetts Financial Services Company, Senior July 2002); Lexington Global Asset Managers, Inc.,
Vice President and Associate General Counsel Executive Vice President and Chief Financial Officer,
(prior to September 2000); Lexington Funds,
STEPHEN E. CAVAN (born 11/06/53) Treasurer (prior to September 2000)
Secretary and Clerk
Massachusetts Financial Services Company, Senior ELLEN MOYNIHAN (born 11/13/57)
Vice President, General Counsel and Secretary Assistant Treasurer
Massachusetts Financial Services Company,
STEPHANIE A. DESISTO (born 10/01/53) Vice President
Assistant Treasurer
Massachusetts Financial Services Company, Vice JAMES O. YOST (born 06/12/60)
President (since April 2003); Brown Brothers Assistant Treasurer
Harriman & Co., Senior Vice President Massachusetts Financial Services Company, Senior
(November 2002 to April 2003); ING Groep N.V./ Vice President
Aeltus Investment Management, Senior Vice President
(prior to November 2002)
The Trust holds annual shareholder meetings for the purpose of electing Trustees, and Trustees are elected for fixed
terms. The Board of Trustees is currently divided into three classes, each having a term of three years. Each year
the term of one class expires. Each Trustee's term of office expires on the date of the third annual meeting
following the election to office of the Trustee's class. Each Trustee will serve until next elected or his or her
earlier death, resignation, retirement or removal.
Messrs. Shames, Cohn, Sherratt and Smith, and Ms. O'Neill, have served in their capacity as Trustee of the Trust
continuously since originally elected or appointed. Messrs. Ballen, Gutow, Ives, Perera and Poorvu, and Ms. Smith,
were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr. Parke has served as
a Trustee of the Trust since January 1, 2002.
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.
Each Trustee serves as a board member of 110 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.
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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
PORTFOLIO MANAGER AUDITORS
Joseph C. Flaherty, Jr.(1) Ernst & Young LLP
(1) MFS Investment Management
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FEDERAL TAX INFORMATION (UNAUDITED)
In January 2004, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
The fund has the option to use equalization, which is a tax basis dividends paid
deduction from earnings and profits distributed to shareholders upon redemption
of shares.
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CONTACT INFORMATION AND NUMBER OF SHAREHOLDERS
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INVESTOR INFORMATION
Transfer Agent, Registrar and Dividend Disbursing Agent
Call 1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern
time
Write to: State Street Bank and Trust Company
c/o MFS Service Center, Inc.
P.O. Box 55024
Boston, MA 02205-5024
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec.gov.
NUMBER OF SHAREHOLDERS
As of November 30, 2003, our records indicate that there are 4,823 registered
shareholders and approximately 37,123 shareholders owning trust shares in
"street" name, such as through brokers, banks, and other financial
intermediaries.
If you are a "street" name shareholder and wish to directly receive our reports,
which contain important information about the trust, please write or call:
State Street Bank and Trust Company
c/o MFS Service Center, Inc.
P.O. Box 55024
Boston, MA 02205-5024
1-800-637-2304
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2004 MFS Investment Management(R)
500 Boylston Street, Boston, MA 02116
MCR-ANN-1/04 63M
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 the instructions to Form N-CSR that
applies to the Registrant's principal executive officer and principal financial
and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. J. Atwood Ives and Ward Smith, 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 the instructions to Form N-CSR. In addition, Messrs. Ives and Smith
are both "independent" members of the Audit Committee as defined in the
instructions to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time. [Applicable for annual reports filed for the first
fiscal year ending after December 15, 2003 (beginning with annual N-CSR filings
at the end of February, 2004 for December 31, 2003 reporting period.)]
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time. [Applicable for closed-end fund annual reports
covering periods ending on or after the compliance date for the listing
standards applicable to the closed-end fund. Listed issuers must be in
compliance with the new listing rules by the earlier of the registrant's first
annual shareholders meeting after January 15, 2004 or October 31, 2004.]
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Board of Trustees and the Board of Managers of the investment companies
(the "MFS Funds") advised by Massachusetts Financial Services Company ("MFS")
have delegated to MFS the right and obligation to vote proxies for shares that
are owned by the MFS Funds, in accordance with MFS' proxy voting policies and
procedures (the "MFS Proxy Policies"). The MFS Proxy Policies are set forth
below:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
PROXY VOTING POLICIES AND PROCEDURES
SEPTEMBER 17, 2003
Massachusetts Financial Services Company, MFS Institutional Advisors,
Inc. and MFS' other investment adviser subsidiaries (collectively, "MFS") have
adopted proxy voting policies and procedures, as set forth below, with respect
to securities owned by the clients for which MFS serves as investment adviser
and has the power to vote proxies, including the registered investment
companies included within the MFS Family of Funds (the "MFS Funds").
These policies and procedures include:
A. Voting Guidelines;
B. Administrative Procedures;
C. Monitoring System;
D. Records Retention; and
E. Reports.
A. VOTING GUIDELINES
1. GENERAL POLICY; POTENTIAL CONFLICTS OF INTEREST
MFS' policy is that proxy voting decisions are made in what
MFS believes to be the best long-term economic interests of MFS'
clients, and not in the interests of any other party or in MFS'
corporate interests, including interests such as the distribution of
MFS Fund shares, administration of 401(k) plans, and institutional
relationships.
MFS has carefully reviewed matters that in recent years have
been presented for shareholder vote by either management or
shareholders of public companies. Based on the guiding principle that
all votes made by MFS on behalf of its clients must be in what MFS
believes to be the best long-term economic interests of such clients,
MFS has adopted proxy voting guidelines, which are set forth below,
that govern how MFS generally plans to vote on specific matters
presented for shareholder vote. In all cases, MFS will exercise its
discretion to vote these items in accordance with this guiding
principle. These underlying guidelines are simply that - guidelines.
Each proxy item is considered on a case-by-case basis, in light of all
relevant facts and circumstances, and there may be instances in which
MFS may vote proxies in a manner different from these guidelines.
As a general matter, MFS maintains a consistent voting
position with respect to similar proxy proposals made by various
issuers. In addition, MFS generally votes consistently on the same
matter when securities of an issuer are held by multiple client
accounts. However, MFS recognizes that there are gradations in certain
types of proposals that might result in different voting positions
being taken with respect to the different proxy statements. There also
may be situations involving matters presented for shareholder vote
that are not clearly governed by the guidelines, such as proposed
mergers and acquisitions. Some items that otherwise would be
acceptable will be voted against the proponent when it is seeking
extremely broad flexibility without offering a valid explanation. MFS
reserves the right to override the guidelines with respect to a
particular shareholder vote when such an override is, in MFS' best
judgment, consistent with the guiding principle of voting proxies in
the best long-term economic interests of MFS' clients.
From time to time, MFS receives comments on these guidelines
and regarding particular voting issues from its clients. Those
comments are reviewed and considered periodically, and these
guidelines are reviewed each year with MFS Equity Research Department
management, the MFS Proxy Review Group and the MFS Proxy Consultant
and are revised as appropriate.
These policies and procedures are intended to address any
potential material conflicts of interest on the part of MFS or its
affiliates that could arise in connection with the voting of proxies
on behalf of MFS' clients. MFS shall be mindful of any and all
potential material conflicts of interest that could arise in the
voting of these proxies, shall identify, analyze, document and report
on any such potential conflicts, and shall ultimately vote these
proxies in what MFS believes to be the best long-term economic
interests of its clients. The MFS Proxy Review Group is responsible
for monitoring and reporting on all potential conflicts of interest.
2. MFS' POLICY ON SPECIFIC ISSUES
NON-SALARY COMPENSATION PROGRAMS
Managements have become increasingly creative and generous
with compensation programs involving common stock. The original stock
option plans, which called for the optionee to pay the money to
exercise the option, are now embellished with no risk benefits such as
stock appreciation rights, the use of unexercised options to "buy"
stock, and restricted stock at bargain prices.
Stock option plans are supposed to reward results rather than
tenure, so the use of restricted stock at bargain prices is not
favored. In some cases, restricted stock is granted to the recipient
at deep discounts to fair market value, sometimes at par value. The
holder cannot sell for a period of years, but in the meantime is able
to vote and receive dividends. Eventually the restrictions lapse and
the stock can be sold.
MFS votes against option programs for officers, employees or
non-employee directors that do not require an investment by the
optionee, that give "free rides" on the stock price, or that permit
grants of restricted stock at deep discounts to fair market value. MFS
generally votes against stock option plans that involve stock
appreciation rights or the use of unexercised options to "buy" stock.
MFS opposes plans that provide unduly generous compensation
for officers, directors or employees, or could result in excessive
dilution to other shareholders. As a general guideline, MFS votes
against stock option plans if all such plans for a particular company
involve potential dilution, in the aggregate, of more than 15%.
MFS votes in favor of stock option plans for non-employee
directors as long as they satisfy the requirements set forth above
with respect to stock option plans for employees. Stock option plans
that include options for consultants and other third parties not
involved in the management of the company generally are opposed by
MFS.
"GOLDEN PARACHUTES"
From time to time, shareholders of companies have submitted
proxy proposals that would require shareholder approval of any
severance packages for executive officers that exceed certain
predetermined thresholds. MFS votes in favor of such shareholder
proposals when they would require shareholder approval of any
severance package for an executive officer that exceeds a certain
percentage of such officer's annual compensation. When put to a vote,
MFS votes against very large golden parachutes.
ANTI-TAKEOVER MEASURES
In general, MFS votes against any measure that inhibits
capital appreciation in a stock, including a possible takeover and any
proposal that protects management from action by shareholders. These
types of proposals take many forms, ranging from "poison pills" and
"shark repellents" to board classification and super-majority
requirements.
REINCORPORATION AND REORGANIZATION PROPOSALS
When presented with a proposal to reincorporate a company
under the laws of a different state, or to effect some other type of
corporate reorganization, MFS considers the underlying purpose and
ultimate effect of such a proposal in determining whether or not to
support such a measure. While MFS generally votes in favor of
management proposals that it believes are in the best long-term
economic interests of its clients, MFS may oppose such a measure if,
for example, the intent or effect would be to create additional
inappropriate impediments to possible acquisitions or takeovers.
DILUTION
There are many reasons for issuance of stock and most are
legitimate. As noted above under "Non-Salary Compensation Programs",
when a stock option plan (either individually or when aggregated with
other plans of the same company) would substantially dilute the
existing equity (e.g., by approximately 15% or more), MFS generally
votes against the plan. In addition, MFS votes against proposals where
management is asking for authorization to issue common or preferred
stock with no reason stated (a "blank check") because the unexplained
authorization could work as a potential anti-takeover device.
CONFIDENTIAL VOTING
MFS votes in favor of proposals to ensure that shareholder
voting results are kept confidential. For example, MFS supports
proposals that would prevent management from having access to
shareholder voting information that is compiled by an independent
proxy tabulation firm.
INDEPENDENCE OF BOARDS OF DIRECTORS AND COMMITTEES THEREOF
While MFS acknowledges the potential benefits of a company's
inclusion of directors who are "independent" from management, MFS
generally opposes shareholder proposals that would require that a
majority (or a "super-majority") of a company's board be comprised of
"independent" directors. Such proposals could inappropriately reduce a
company's ability to engage in certain types of transactions, could
result in the exclusion of talented directors who are not deemed
"independent", or could result in the unnecessary addition of
additional "independent" directors to a company's board. However, in
view of the special role and responsibilities of various the audit
committees of a board of directors, MFS supports proposals that would
require that the Audit, Nominating and Compensation Committees be
comprised entirely of directors who are deemed "independent" of the
company.
INDEPENDENT AUDITORS
Recently, some shareholder groups have submitted proposals to
limit the non-audit activities of a company's audit firm. Some
proposals would prohibit the provision of any non-audit services
(unless approved in advance by the full board) whereas other proposals
would cap non-audit fees so that such fees do not exceed a certain
percentage of the audit fees. MFS supports such shareholder proposals
that would cap non-audit fees at an amount deemed to be not excessive.
BEST PRACTICES STANDARDS
Best practices standards are rapidly evolving in the
corporate governance areas as a result of recent corporate failures,
the Sarbanes-Oxley Act of 2002 and revised listing standards on major
stock exchanges. MFS generally support these changes. However, many
issuers are not publicly registered, are not subject to these enhanced
listing standards or are not operating in an environment that is
comparable to that in the United States. In reviewing proxy proposals
under these circumstances, MFS votes for proposals that enhance
standards of corporate governance so long as we believe that -- within
the circumstances of the environment within which the issuers operate
- the proposal is consistent with the best long-term economic
interests of our clients.
FOREIGN ISSUERS - SHARE BLOCKING
In accordance with local law or business practices, many
foreign companies prevent the sales of shares that have been voted for
a certain period beginning prior to the shareholder meeting and ending
on the day following the meeting ("share blocking"). Depending on the
country in which a company is domiciled, the blocking period may begin
a stated number of days prior to the meeting (e.g., one, three or five
days) or on a date established by the company. While practices vary,
in many countries the block period can be continued for a longer
period if the shareholder meeting is adjourned and postponed to a
later date. Similarly, practices vary widely as to the ability of a
shareholder to have the "block" restriction lifted early (e.g., in
some countries shares generally can be "unblocked" up to two days
prior to the meeting whereas in other countries the removal of the
block appears to be discretionary with the issuer's transfer agent).
Due to these restrictions, MFS must balance the benefits to its
clients of voting proxies against the potentially serious portfolio
management consequences of a reduced flexibility to sell the
underlying shares at the most advantageous time. For companies in
countries with potentially long block periods, the disadvantage of
being unable to sell the stock regardless of changing conditions
generally outweighs the advantages of voting at the shareholder
meeting for routine items. Accordingly, MFS generally will not vote
those proxies in the absence of an unusual, significant vote.
Conversely, for companies domiciled in countries with very short block
periods, MFS generally will continue to cast votes in accordance with
these policies and procedures.
SOCIAL ISSUES
There are many groups advocating social change, and many have
chosen the publicly-held corporation as a vehicle for their agenda.
Common among these are resolutions requiring the corporation to
refrain from investing or conducting business in certain countries, to
adhere to some list of goals or principles (e.g., environmental
standards) or to report on various activities. MFS votes against such
proposals unless their shareholder-oriented benefits will outweigh any
costs or disruptions to the business, including those that use
corporate resources to further a particular social objective outside
the business of the company or when no discernible shareholder
economic advantage is evident.
The laws of various states may regulate how the interests of
certain clients subject to those laws are voted. For example, the
General Laws of The Commonwealth of Massachusetts prohibit the
investment of state funds, including retirement system assets, in the
following types of investments: (i) financial institutions which
directly or through any subsidiary have outstanding loans to any
individual or corporation engaged in manufacturing, distribution or
sale of firearms, munitions, rubber or plastic bullets, tear gas,
armored vehicles or military aircraft for use or deployment in any
activity in Northern Ireland; or (ii) any stocks, securities or
obligations of any company so engaged.
Because of these statutory restrictions, it is necessary when
voting proxies for securities held in Massachusetts public pension
accounts to support the purpose of this legislation. Thus, on issues
relating to these or similar state law questions, it may be necessary
to cast ballots differently for these portfolios than MFS might
normally do for other accounts.
B. ADMINISTRATIVE PROCEDURES
1. MFS PROXY REVIEW GROUP
The administration of these policies and procedures is
overseen by the MFS Proxy Review Group, which includes senior MFS
Legal Department officers and MFS' Proxy Consultant. The MFS Proxy
Review Group:
a. Reviews these policies and procedures at least annually
and recommends any amendments considered to be necessary
or advisable;
b. Determines whether any material conflicts of interest
exist with respect to instances in which (i) MFS seeks to
override these guidelines and (ii) votes not clearly
governed by these guidelines; and
c. Considers special proxy issues as they may arise from time
to time.
The current MFS Proxy Consultant is an independent proxy
consultant who performs these services exclusively for MFS.
2. POTENTIAL CONFLICTS OF INTEREST
The MFS Proxy Review Group is responsible for monitoring
potential material conflicts of interest on the part of MFS or its
affiliates that could arise in connection with the voting of proxies
on behalf of MFS' clients. Any attempt to influence MFS' voting on a
particular proxy matter should be reported to the MFS Proxy Review
Group. The MFS Proxy Consultant will assist the MFS Proxy Review Group
in carrying out these responsibilities.
In cases where proxies are voted in accordance with these
policies and guidelines, no conflict of interest will be deemed to
exist. In cases where (i) MFS is considering overriding these policies
and guidelines, or (ii) matters presented for vote are not clearly
governed by these policies and guidelines, the MFS Proxy Review Group
and the MFS Proxy Consultant will follow these procedures:
a. Compare the name of the issuer of such proxy against a
list of significant current and potential (i) distributors
of MFS Fund shares, (ii) retirement plans administered by
MFS, and (iii) MFS institutional clients (the "MFS
Significant Client List");
b. If the name of the issuer does not appear on the MFS
Significant Client List, then no material conflict of
interest will be deemed to exist, and the proxy will be
voted as otherwise determined by the MFS Proxy Review
Group;
c. If the name of the issuer appears on the MFS Significant
Client List, then the MFS Proxy Review Group will
carefully evaluate the proposed votes in order to ensure
that the proxy ultimately is voted in what MFS believes to
be the best long-term economic interests of MFS' clients,
and not in MFS' corporate interests; and
d. For all potential material conflicts of interest
identified under clause (c) above, the MFS Proxy Review
Group will document: the name of the issuer, the issuer's
relationship to MFS, the analysis of the matters submitted
for proxy vote, and the basis for the determination that
the votes ultimately were cast in what MFS believes to be
the best long-term economic interests of MFS' clients, and
not in MFS' corporate interests.
The MFS Proxy Review Group is responsible for creating and
maintaining the MFS Significant Client List, in consultation with MFS'
distribution, retirement plan administration and institutional
business units. The MFS Significant Client List will be reviewed and
updated as necessary, but no less frequently than quarterly.
3. GATHERING PROXIES
Nearly all proxies received by MFS originate at Automatic
Data Processing Corp. ("ADP"). ADP and issuers send proxies and
related material directly to the record holders of the shares
beneficially owned by MFS' clients, usually to the client's custodian
or, less commonly, to the client itself. Each client's custodian is
responsible for forwarding all proxy solicitation materials to MFS
(except in the case of certain institutional clients for which MFS
does not vote proxies). This material will include proxy cards,
reflecting the proper shareholdings of Funds and of clients on the
record dates for such shareholder meetings, and proxy statements, the
issuer's explanation of the items to be voted upon.
MFS, on behalf of itself and the Funds, has entered into an
agreement with an independent proxy administration firm, Institutional
Shareholder Services, Inc. (the "Proxy Administrator"), pursuant to
which the Proxy Administrator performs various proxy vote processing
and recordkeeping functions for MFS' Fund and institutional client
accounts. The Proxy Administrator does not make recommendations to MFS
as to how to vote any particular item. The Proxy Administrator
receives proxy statements and proxy cards directly from various
custodians, logs these materials into its database and matches
upcoming meetings with MFS Fund and client portfolio holdings, which
are input into the Proxy Administrator's system by an MFS holdings
datafeed. Through the use of the Proxy Administrator system, ballots
and proxy material summaries for the upcoming shareholders' meetings
of over 10,000 corporations are available on-line to certain MFS
employees, the MFS Proxy Consultant and the MFS Proxy Review Group and
most proxies can be voted electronically. In addition to receiving the
hard copies of materials relating to meetings of shareholders of
issuers whose securities are held by the Funds and/or clients, the
ballots and proxy statements can be printed from the Proxy
Administrator's system and forwarded for review.
4. ANALYZING PROXIES
After input into the Proxy Administrator system, proxies
which are deemed to be completely routine (e.g., those involving only
uncontested elections of directors, appointments of auditors, and/or
employee stock purchase plans)(1) are automatically voted in favor by
the Proxy Administrator without being sent to either the MFS Proxy
Consultant or the MFS Proxy Review Group for further review. Proxies
that pertain only to merger and acquisition proposals are forwarded
initially to an appropriate MFS portfolio manager or research analyst
for his or her recommendation. All proxies that are reviewed by either
the MFS Proxy Consultant or a portfolio manager or analyst are then
forwarded with the corresponding recommendation to the MFS Proxy
Review Group.(2)
--------
(1) Proxies for foreign companies often contain significantly more voting items
than those of U.S. companies. Many of these items on foreign proxies
involve repetitive, non-controversial matters that are mandated by local
law. Accordingly, there is an expanded list of items that are deemed
routine (and therefore automatically voted in favor) for foreign issuers,
including the following: (i) receiving financial statements or other
reports from the board; (ii) approval of declarations of dividends; (iii)
appointment of shareholders to sign board meeting minutes; (iv) the
discharge of management and supervisory boards; and (v) approval of share
repurchase programs.
(2) From time to time, due to travel schedules and other commitments, an
appropriate portfolio manager or research analyst is not available to
provide a recommendation on a merger or acquisition proposal. If such a
recommendation cannot be obtained within a few business days prior to the
shareholder meeting, the MFS Proxy Review Group will determine the vote in
what MFS believes to be the best long-term economic interests of its
clients.
Recommendations with respect to voting on non-routine issues
are generally made by the MFS Proxy Consultant in accordance with the
policies summarized under "Voting Guidelines," and all other relevant
materials. His or her recommendation as to how each proxy proposal
should be voted is indicated on copies of proxy cards, including his
or her rationale on significant items. These cards are then forwarded
to the MFS Proxy Review Group.
As a general matter, portfolio managers and investment
analysts are consulted and involved in developing MFS' substantive
proxy voting guidelines, but have little or no involvement in or
knowledge of proxy proposals or voting positions taken by MFS. This is
designed to promote consistency in the application of MFS' voting
guidelines, to promote consistency in voting on the same or similar
issues (for the same or for multiple issuers) across all client
accounts, and to minimize or remove the potential that proxy
solicitors, issuers, and third parties might attempt to exert
influence on the vote or might create a conflict of interest that is
not in what MFS believes to be the best long-term economic interests
of our clients. In limited, specific instances (e.g., mergers), the
MFS Proxy Consultant or the MFS Proxy Review Group may consult with or
seek recommendations from portfolio managers or analysts. The MFS
Proxy Review Group would ultimately determine the manner in which all
proxies are voted.
As noted above, MFS reserves the right to override the
guidelines when such an override is, in MFS' best judgment, consistent
with the guiding principle of voting proxies in the best long-term
economic interests of MFS' clients. Any such override of the
guidelines shall be examined, explained and reported in accordance
with the procedures set forth in these policies.
5. VOTING PROXIES
After the proxy card copies are reviewed, they are voted
electronically through the Proxy Administrator's system. In accordance
with its contract with MFS, the Proxy Administrator also generates a
variety of reports for the MFS Proxy Consultant and the MFS Proxy
Review Group, and makes available on-line various other types of
information so that the MFS Proxy Review Group and the MFS Proxy
Consultant may monitor the votes cast by the Proxy Administrator on
behalf of MFS' clients.
C. MONITORING SYSTEM
It is the responsibility of the Proxy Administrator and MFS'
Proxy Consultant to monitor the proxy voting process. As noted above,
when proxy materials for clients are received, they are forwarded to
the Proxy Administrator and are input into the Proxy Administrator's
system. Additionally, through an interface with the portfolio holdings
database of MFS, the Proxy Administrator matches a list of all MFS
Funds and clients who hold shares of a company's stock and the number
of shares held on the record date with the Proxy Administrator's
listing of any upcoming shareholder's meeting of that company.
When the Proxy Administrator's system "tickler" shows that
the date of a shareholders' meeting is approaching, a Proxy
Administrator representative checks that the vote for MFS Funds and
clients holding that security has been recorded in the computer
system. If a proxy card has not been received from the client's
custodian, the Proxy Administrator calls the custodian requesting that
the materials be forward immediately. If it is not possible to receive
the proxy card from the custodian in time to be voted at the meeting,
MFS may instruct the custodian to cast the vote in the manner
specified and to mail the proxy directly to the issuer.
D. RECORDS RETENTION
MFS will retain copies of these policies and procedures in
effect from time to time and will retain all proxy voting reports
submitted to the Board of Trustees and Board of Managers of the MFS
Funds for a period of six years. Proxy solicitation materials,
including electronic versions of the proxy cards completed by the MFS
Proxy Consultant and the MFS Proxy Review Group, together with their
respective notes and comments, are maintained in an electronic format
by the Proxy Administrator and are accessible on-line by the MFS Proxy
Consultant and the MFS Proxy Review Group. All proxy voting materials
and supporting documentation, including records generated by the Proxy
Administrator's system as to proxies processed, the dates when proxies
were received and returned, and the votes on each company's proxy
issues, are retained for six years.
E. REPORTS
MFS FUNDS
Periodically, MFS will report the results of its voting to
the Board of Trustees and Board of Managers of the MFS Funds. These
reports will include: (i) a listing of how votes were cast; (ii) a
review of situations where MFS did not vote in accordance with the
guidelines and the rationale therefor; (iii) a review of the
procedures used by MFS to identify material conflicts of interest; and
(iv) a review of these policies and the guidelines and, as necessary
or appropriate, any proposed modifications thereto to reflect new
developments in corporate governance and other issues. Based on these
reviews, the Trustees and Managers of the MFS Funds will consider
possible modifications to these policies to the extent necessary or
advisable.
ALL MFS ADVISORY CLIENTS
At any time, a report can be printed by MFS for each client
who has requested that MFS furnish a record of votes cast. The report
specifies the proxy issues which have been voted for the client during
the year and the position taken with respect to each issue.
Generally, MFS will not divulge actual voting practices to any party other than
the client or its representatives (unless required by applicable law) because
we consider that information to be confidential and proprietary to the client.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable at this time. [Required for closed-end funds for periods ending
on or after June 15, 2004 (beginning with N-CSR's filed at the end of August,
2004 for June 30, 2004 reporting period.)]
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not required at this time. [Required for reporting periods ending after January
1, 2004 (beginning with N-CSR's filed at the end of March 2004, for January 31,
2004 reporting period).]
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this 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 registrant's last fiscal half-year (the registrant's second fiscal
half-year in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 11. 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.
(3) Any written solicitation to purchase securities under 23c-1 under the
Act (17 C.F.R. 270.23c-1) sent or given during the period covered by
the report by or on behalf of the registrant to 10 or more persons.
Not applicable at this time. [For closed-end funds for periods ending
on or after June 15, 2004 (beginning with N-CSR's filed at the end of
August 2004 for June 30, 2004 reporting period.)]
(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.
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 CHARTER INCOME TRUST
By (Signature and Title)* JOHN W. BALLEN
----------------------------------------------------
John W. Ballen, President
Date: January 23, 2004
---------------------------
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)* JOHN W. BALLEN
----------------------------------------------------
John W. Ballen, President
(Principal Executive Officer)
Date: January 23, 2004
---------------------------
By (Signature and Title)* RICHARD M. HISEY
----------------------------------------------------
Richard M. Hisey, Treasurer
(Principal Financial Officer and Accounting Officer)
Date: January 23, 2004
---------------------------
* Print name and title of each signing officer under his or her signature.