MFS CHARTER INCOME TRUST N-CSRS
Table of Contents

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 811-05822

MFS CHARTER INCOME TRUST

(Exact name of registrant as specified in charter)

500 Boylston Street, Boston, Massachusetts 02116

(Address of principal executive offices) (Zip code)

Susan S. Newton

Massachusetts Financial Services Company

500 Boylston Street

Boston, Massachusetts 02116

(Name and address of agents for service)

Registrant’s telephone number, including area code: (617) 954-5000

Date of fiscal year end: November 30

Date of reporting period: May 31, 2012


Table of Contents
ITEM 1. REPORTS TO STOCKHOLDERS.


Table of Contents

LOGO

 

MFS® Charter Income Trust

 

LOGO

 

 

SEMIANNUAL REPORT

May 31, 2012

 

MCR-SEM


Table of Contents

MFS® CHARTER INCOME TRUST

New York Stock Exchange Symbol: MCR

 

Letter from the Chairman and CEO     1   
Portfolio composition     2   
Portfolio managers’ profiles     4   
Other notes     4   
Portfolio of investments     5   
Statement of assets and liabilities     29   
Statement of operations     30   
Statements of changes in net assets     31   
Statement of cash flows     32   
Financial highlights     33   
Notes to financial statements     35   
Report of independent registered public accounting firm     49   
Board review of investment advisory agreement     50   
Proxy voting policies and information     50   
Quarterly portfolio disclosure     50   
Further information     50   
Contact information    back cover   

 

 

 

 

NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK GUARANTEE


Table of Contents

LOGO

 

LETTER FROM THE CHAIRMAN AND CEO

 

Dear Shareholders:

World financial markets remain a venue of uncertainty. The focus has shifted most recently to the eurozone, where policymakers are attempting to develop a plan that will help debt-laden countries and prevent their woes from spreading across the region. Volatility is likely to continue as investors test the resolve of European officials to make the tough decisions needed to solve the crisis.

The U.S. economy is experiencing a period of growth. However, markets have been jittery in reaction to events in Europe and ahead of the U.S. presidential election. Voters in the United States are watching the economy closely and waiting to see if Congress agrees to cut the budget and extend the Bush administration tax cuts. Failure to do so could ultimately send the U.S. economy back into recession.

Amid this global uncertainty, managing risk becomes a top priority for investors and their advisors. At MFS® our global research platform is designed to ensure the smooth functioning

of our investment process in all business climates. Through this integrated approach, our investment staff shares ideas and evaluates opportunities across geographies, across both fundamental and quantitative disciplines, and across companies’ entire capital structure. We employ this uniquely collaborative approach to build better insights for our clients.

Additionally, we have a team of quantitative analysts that measures and assesses the risk profiles of our portfolios and securities on an ongoing basis. The chief investment risk officer, who oversees the team, reports directly to the firm’s president and chief investment officer so that the risk associated with each portfolio can be assessed objectively and independently of the portfolio management team.

We, like our investors, are mindful of the many economic challenges faced at the local, national, and international levels. It is in times such as these that we want to emphasize the merits of maintaining a long-term view, adhering to basic investing principles such as asset allocation and diversification, and working closely with investment advisors to research and identify appropriate investment opportunities.

Respectfully,

 

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

July 17, 2012

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

1


Table of Contents

 

PORTFOLIO COMPOSITION

 

Portfolio structure (i)

 

LOGO

 

Fixed income sectors (i)  
High Yield Corporates     58.1%   
High Grade Corporates     14.3%   
Non-U.S. Government Bonds     12.0%   
Emerging Markets Bonds     11.1%   
Mortgage-Backed Securities     6.2%   
Commercial Mortgage-Backed Securities     5.3%   
Collateralized Debt Obligations     0.8%   
U.S. Government Agencies     0.7%   
Asset-Backed Securities     0.3%   
Floating Rate Loans     0.1%   
U.S. Treasury Securities     (6.2)%   
Composition including fixed income credit quality (a)(i)  
AAA     7.8%   
AA     2.2%   
A     10.0%   
BBB     19.6%   
BB     23.3%   
B     29.7%   
CCC     9.0%   
CC     0.1%   
C     0.3%   
U.S. Government     3.0%   
Federal Agencies     6.9%   
Not Rated     (9.2)%   
Non-Fixed Income     0.6%   
Cash & Other     (3.3)%   
Portfolio facts (i)  
Average Duration (d)     4.9   
Average Effective Maturity (m)     7.3 yrs.   
Issuer country weightings (i)(x)  
United States     65.9%   
United Kingdom     3.9%   
Japan     3.4%   
Canada     2.3%   
Mexico     2.2%   
Italy     1.8%   
Germany     1.7%   
France     1.6%   
Brazil     1.3%   
Other Countries     15.9%   
 

 

2


Table of Contents

Portfolio Composition – continued

 

 

(a) For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities, including fixed income futures, which have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives) and commodities. Cash & Other includes cash, other assets less liabilities, offsets to derivative positions, and short-term securities. The fund may not hold all of these instruments. The fund is not rated by these agencies.

 

(d) Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move.

 

(i) For purposes of this presentation, the components include the market value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. The bond component will include any accrued interest amounts. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio.

 

(m) In determining an instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity.

 

(x) Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets.

From time to time “Cash & Other Net Assets” may be negative due to borrowings for leverage transactions, timing of cash receipts, and/or equivalent exposure from any derivative holdings.

Percentages are based on net assets as of 5/31/12.

The portfolio is actively managed and current holdings may be different.

 

3


Table of Contents

PORTFOLIO MANAGERS’ PROFILES

 

Richard Hawkins     Investment Officer of MFS; employed in the investment management area of MFS since 1988. Portfolio Manager of the Fund since July 2004.
William Adams     Investment Officer of MFS; employed in the investment management area of MFS since 2009. Portfolio Manager of the Fund since May 2011.

David Cole

    Investment Officer of MFS; employed in the investment management area of MFS since 2004. Portfolio Manager of the Fund since October 2006.

Matthew Ryan

    Investment Officer of MFS; employed in the investment management area of MFS since 1997. Portfolio Manager of the Fund since September 2004.

OTHER NOTES

The fund’s shares may trade at a discount or premium to net asset value. Shareholders do not have the right to cause the fund to repurchase their shares at net asset value. When fund shares trade at a premium, buyers pay more than the net asset value underlying fund shares, and shares purchased at a premium would receive less than the amount paid for them in the event of the fund’s liquidation. As a result, the total return that is calculated based on the net asset value and New York Stock Exchange price can be different.

The fund’s monthly distributions may include a return of capital to shareholders to the extent that distributions are in excess of the fund’s net investment income and net capital gains, determined in accordance with federal income tax regulations. Distributions that are treated for federal income tax purposes as a return of capital will reduce each shareholder’s basis in his or her shares and, to the extent the return of capital exceeds such basis, will be treated as gain to the shareholder from a sale of shares. Returns of shareholder capital have the effect of reducing the fund’s assets and increasing the fund’s expense ratio.

 

In accordance with Section 23(c) of the Investment Company Act of 1940, the fund hereby gives notice that it may from time to time repurchase shares of the fund in the open market at the option of the Board of Trustees and on such terms as the Trustees shall determine.

 

4


Table of Contents

PORTFOLIO OF INVESTMENTS

5/31/12 (unaudited)

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

 

Bonds - 110.2%                 
Issuer    Shares/Par     Value ($)  
    
Aerospace - 1.3%                 
BE Aerospace, Inc., 8.5%, 2018    $ 1,225,000      $ 1,335,250   
Bombardier, Inc., 7.5%, 2018 (n)          1,615,000        1,760,350   
Bombardier, Inc., 7.75%, 2020 (n)      375,000        411,563   
CPI International, Inc., 8%, 2018      840,000        751,800   
Heckler & Koch GmbH, 9.5%, 2018 (z)    EUR 505,000        430,859   
Huntington Ingalls Industries, Inc., 7.125%, 2021    $ 1,685,000        1,748,188   
Kratos Defense & Security Solutions, Inc., 10%, 2017      645,000        683,700   
    

 

 

 
             $ 7,121,710   
Airlines - 0.0%                 
Continental Airlines, Inc., 7.25%, 2021    $ 198,384      $ 223,182   
Apparel Manufacturers - 0.6%                 
Hanesbrands, Inc., 8%, 2016    $ 660,000      $ 723,525   
Hanesbrands, Inc., 6.375%, 2020      390,000        398,288   
Jones Group, Inc., 6.875%, 2019      455,000        437,369   
Levi Strauss & Co., 6.875%, 2022 (n)      175,000        173,688   
Phillips-Van Heusen Corp., 7.375%, 2020      1,305,000        1,425,713   
    

 

 

 
             $ 3,158,583   
Asset-Backed & Securitized - 6.4%                 
Anthracite Ltd., “A”, CDO, FRN, 0.599%, 2019 (z)    $ 1,103,475      $ 948,988   
Anthracite Ltd., “BFL”, CDO, FRN, 1.238%, 2037 (z)      3,000,000        2,820,000   
Banc of America Commercial Mortgage, Inc., FRN, 5.725%, 2051      1,500,000        1,703,076   
Bayview Financial Acquisition Trust, FRN, 5.483%, 2041      193,982        194,634   
Bayview Financial Revolving Mortgage Loan Trust, FRN, 1.838%, 2040 (z)      784,552        509,391   
Citigroup/Deutsche Bank Commercial Mortgage Trust, FRN, 5.366%, 2049      1,605,000        1,507,440   
Commercial Mortgage Pass-Through Certificates, FRN, 5.774%, 2046      230,000        234,560   
Countrywide Asset-Backed Certificates, FRN, 5.147%, 2035      799,789        742,343   
Credit Suisse Mortgage Capital Certificate, FRN, 5.678%, 2039      1,400,000        1,399,703   
Crest Ltd., CDO, 7%, 2040 (a)(p)      2,297,764        114,888   
First Union-Lehman Brothers Bank of America, FRN, 0.445%, 2035 (i)      14,458,773        201,281   
JPMorgan Chase Commercial Mortgage Securities Corp., “A3”, FRN, 5.817%, 2049      1,000,000        1,070,684   

 

5


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Asset-Backed & Securitized - continued                 
JPMorgan Chase Commercial Mortgage Securities Corp., “A3”, FRN, 5.98%, 2051    $ 6,000,000      $ 6,365,196   
JPMorgan Chase Commercial Mortgage Securities Corp., “A4”, FRN, 5.817%, 2049      5,000,000        5,398,755   
JPMorgan Chase Commercial Mortgage Securities Corp., “C”, FRN, 6.052%, 2051                 185,000        51,915   
Merrill Lynch Mortgage Trust, FRN, 5.847%, 2050      1,350,000        1,491,881   
Multi Security Asset Trust, “A3”, CDO, 5%, 2035 (z)      782,963        782,963   
Spirit Master Funding LLC, 5.05%, 2023 (z)      1,296,634        1,210,524   
Wachovia Bank Commercial Mortgage Trust, “A4”, FRN, 5.899%, 2051      7,250,000        8,059,093   
    

 

 

 
             $ 34,807,315   
Automotive - 3.0%                 
Accuride Corp., 9.5%, 2018    $ 1,935,000      $ 2,022,075   
Allison Transmission, Inc., 7.125%, 2019 (n)      945,000        987,525   
Automotores Gildemeister S.A., 8.25%, 2021 (n)      137,000        139,398   
Chrysler Group LLC/CG Co-Issuer, Inc., 8.25%, 2021      475,000        476,188   
Ford Motor Co., 7.45%, 2031      800,000        1,042,000   
Ford Motor Credit Co. LLC, 8%, 2014      485,000        539,719   
Ford Motor Credit Co. LLC, 12%, 2015      4,165,000        5,258,276   
General Motors Financial Co., Inc., 6.75%, 2018      795,000        853,490   
Goodyear Tire & Rubber Co., 7%, 2022      350,000        343,000   
Hyundai Capital America, 4%, 2017 (n)      210,000        215,562   
IDQ Holdings, Inc., 11.5%, 2017 (z)      335,000        350,075   
Jaguar Land Rover PLC, 7.75%, 2018 (n)      430,000        433,225   
Jaguar Land Rover PLC, 8.125%, 2021 (n)      2,065,000        2,085,650   
Lear Corp., 8.125%, 2020      1,190,000        1,332,800   
RCI Banque S.A., 4.6%, 2016 (n)      139,000        138,992   
    

 

 

 
             $ 16,217,975   
Basic Industry - 0.1%                 
Trimas Corp., 9.75%, 2017    $ 636,000      $ 694,830   
Broadcasting - 3.2%                 
Allbritton Communications Co., 8%, 2018    $ 900,000      $ 931,500   
AMC Networks, Inc., 7.75%, 2021 (n)      548,000        608,280   
Clear Channel Communications, Inc., 9%, 2021      1,068,000        918,480   
Clear Channel Worldwide Holdings, Inc., 7.625%, 2020 (n)      1,115,000        1,064,825   
Clear Channel Worldwide Holdings, Inc., “A”, 7.625%, 2020 (n)      50,000        47,000   
Hughes Network Systems LLC, 7.625%, 2021      765,000        791,775   
Inmarsat Finance PLC, 7.375%, 2017 (n)      790,000        841,350   
Intelsat Bermuda Ltd., 11.25%, 2017      1,435,000        1,409,888   

 

6


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Broadcasting - continued                 
Intelsat Bermuda Ltd., 11.5%, 2017 (p)    $ 1,370,000      $ 1,346,025   
Intelsat Jackson Holdings Ltd., 11.25%, 2016      320,000        334,000   
Liberty Media Corp., 8.5%, 2029      675,000        685,125   
Liberty Media Corp., 8.25%, 2030      355,000        361,213   
LIN Television Corp., 8.375%, 2018      160,000        164,000   
Local TV Finance LLC, 9.25%, 2015 (p)(z)                 995,374        1,014,037   
Newport Television LLC, 13%, 2017 (n)(p)      71,949        74,107   
News America, Inc., 6.2%, 2034      325,000        363,334   
Nexstar Broadcasting Group, Inc., 8.875%, 2017      320,000        334,400   
Sinclair Broadcast Group, Inc., 9.25%, 2017 (n)      1,425,000        1,567,500   
Sinclair Broadcast Group, Inc., 8.375%, 2018      185,000        198,413   
SIRIUS XM Radio, Inc., 13%, 2013 (n)      195,000        218,888   
SIRIUS XM Radio, Inc., 8.75%, 2015 (n)      725,000        817,438   
SIRIUS XM Radio, Inc., 7.625%, 2018 (n)      765,000        818,550   
Townsquare Radio LLC, 9%, 2019 (z)      380,000        389,500   
Univision Communications, Inc., 6.875%, 2019 (n)      730,000        711,750   
Univision Communications, Inc., 7.875%, 2020 (n)      535,000        547,038   
Univision Communications, Inc., 8.5%, 2021 (n)      710,000        685,150   
    

 

 

 
             $ 17,243,566   
Brokerage & Asset Managers - 0.5%                 
E*TRADE Financial Corp., 7.875%, 2015    $ 785,000      $ 796,775   
E*TRADE Financial Corp., 12.5%, 2017      1,580,000        1,813,050   
    

 

 

 
             $ 2,609,825   
Building - 2.0%                 
Building Materials Holding Corp., 6.875%, 2018 (n)    $ 680,000      $ 702,100   
Building Materials Holding Corp., 7%, 2020 (n)      600,000        630,000   
Building Materials Holding Corp., 6.75%, 2021 (n)      440,000        449,900   
CEMEX Finance LLC, 9.5%, 2016 (n)      1,275,000        1,169,813   
CEMEX S.A., 9.25%, 2020      1,695,000        1,339,050   
HD Supply, Inc., 8.125%, 2019 (n)      355,000        370,088   
Masonite International Corp., 8.25%, 2021 (n)      1,195,000        1,215,913   
Nortek, Inc., 10%, 2018      435,000        458,925   
Nortek, Inc., 8.5%, 2021      1,375,000        1,333,750   
Owens Corning, 9%, 2019      1,880,000        2,304,726   
Roofing Supply Group LLC/Roofing Supply Finance, Inc., 10%, 2020 (z)      355,000        358,550   
USG Corp., 7.875%, 2020 (n)      480,000        490,800   
    

 

 

 
             $ 10,823,615   
Business Services - 1.1%                 
Ceridian Corp., 12.25%, 2015 (p)    $ 365,000      $ 333,975   

 

7


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Business Services - continued                 
Fidelity National Information Services, Inc., 7.625%, 2017    $ 320,000      $ 348,400   
Fidelity National Information Services, Inc., 5%, 2022 (n)      455,000        441,919   
iGate Corp., 9%, 2016      1,323,000        1,402,380   
Iron Mountain, Inc., 8.375%, 2021      1,360,000        1,451,800   
SunGard Data Systems, Inc., 10.25%, 2015      915,000        940,163   
SunGard Data Systems, Inc., 7.375%, 2018          1,065,000        1,083,638   
    

 

 

 
             $ 6,002,275   
Cable TV - 3.0%                 
Bresnan Broadband Holdings LLC, 8%, 2018 (n)    $ 270,000      $ 274,725   
CCH II LLC, 13.5%, 2016      1,350,000        1,512,000   
CCO Holdings LLC, 7.875%, 2018      1,995,000        2,139,638   
CCO Holdings LLC, 8.125%, 2020      870,000        957,000   
Cequel Communications Holdings, 8.625%, 2017 (n)      780,000        821,925   
CSC Holdings LLC, 8.5%, 2014      845,000        930,556   
DIRECTV Holdings LLC, 5.2%, 2020      1,240,000        1,378,814   
DISH DBS Corp., 6.75%, 2021      400,000        413,000   
EchoStar Corp., 7.125%, 2016      450,000        481,500   
Myriad International Holdings B.V., 6.375%, 2017 (n)      485,000        532,288   
Nara Cable Funding Ltd., 8.875%, 2018 (z)      475,000        415,625   
ONO Finance ll PLC, 10.875%, 2019 (n)      300,000        240,000   
Telenet Finance Luxembourg, 6.375%, 2020 (n)    EUR 250,000        306,034   
Time Warner Cable, Inc., 5%, 2020    $ 1,150,000        1,288,691   
UPC Holding B.V., 9.875%, 2018 (n)      925,000        999,000   
UPCB Finance III Ltd., 6.625%, 2020 (n)      1,104,000        1,087,440   
Videotron Ltee, 5%, 2022 (n)      485,000        472,875   
Virgin Media Finance PLC, 9.5%, 2016      164,000        181,630   
Virgin Media Finance PLC, 8.375%, 2019      475,000        520,125   
Virgin Media Finance PLC, 5.25%, 2022      820,000        799,500   
Ziggo Bond Co. B.V., 8%, 2018 (n)    EUR 635,000        840,140   
    

 

 

 
             $ 16,592,506   
Chemicals - 2.2%                 
Ashland, Inc., 9.125%, 2017    $ 545,000      $ 598,138   
Celanese U.S. Holdings LLC, 6.625%, 2018      1,335,000        1,411,763   
Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, 8.875%, 2018      1,330,000        1,323,350   
Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, 9%, 2020      270,000        235,575   
Huntsman International LLC, 8.625%, 2021      975,000        1,092,000   
INEOS Finance PLC, 8.375%, 2019 (n)      800,000        822,000   
INEOS Group Holdings PLC, 8.5%, 2016 (n)      940,000        848,350   
LyondellBasell Industries N.V., 5%, 2019 (n)      270,000        274,725   
LyondellBasell Industries N.V., 6%, 2021 (n)      1,185,000        1,267,950   

 

8


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Chemicals - continued                 
Momentive Performance Materials, Inc., 12.5%, 2014    $ 1,901,000      $ 1,991,298   
Momentive Performance Materials, Inc., 11.5%, 2016      978,000        733,500   
Polypore International, Inc., 7.5%, 2017      920,000        961,400   
Sociedad Quimica y Minera de Chile S.A., 5.5%, 2020 (n)      414,000        455,589   
    

 

 

 
             $ 12,015,638   
Computer Software - 0.6%                 
Lawson Software, Inc., 11.5%, 2018 (n)    $          1,235,000      $ 1,355,413   
Lawson Software, Inc., 9.375%, 2019 (n)      20,000        20,600   
Syniverse Holdings, Inc., 9.125%, 2019      1,290,000        1,383,525   
TransUnion Holding Co., Inc., 9.625%, 2018 (n)(p)      305,000        321,775   
TransUnion LLC/TransUnion Financing Corp., 11.375%, 2018      150,000        175,688   
    

 

 

 
             $ 3,257,001   
Computer Software - Systems - 1.0%                 
Audatex North America, Inc., 6.75%, 2018 (n)    $ 95,000      $ 97,850   
Audatex North America, Inc., 6.75%, 2018 (n)      390,000        401,700   
CDW LLC/CDW Finance Corp., 12.535%, 2017      275,000        294,250   
CDW LLC/CDW Finance Corp., 8.5%, 2019      1,035,000        1,063,463   
CDW LLC/CDW Finance Corp., 8.5%, 2019 (n)      265,000        272,288   
DuPont Fabros Technology, Inc., REIT, 8.5%, 2017      1,380,000        1,504,200   
International Business Machines Corp., 8%, 2038      1,000,000        1,708,382   
    

 

 

 
             $ 5,342,133   
Conglomerates - 1.3%                 
Amsted Industries, Inc., 8.125%, 2018 (n)    $ 1,655,000      $ 1,754,300   
Dynacast International LLC, 9.25%, 2019 (z)      890,000        916,700   
Griffon Corp., 7.125%, 2018      1,635,000        1,643,175   
Kennametal, Inc., 7.2%, 2012      684,000        685,187   
Tomkins LLC/Tomkins, Inc., 9%, 2018      1,817,000        1,996,429   
    

 

 

 
             $ 6,995,791   
Construction - 0.1%                 
Corporacion Geo S.A. de C.V., 8.875%, 2022 (n)    $ 200,000      $ 192,500   
Urbi Desarrollos Urbanos S.A.B. de C.V., 9.75%, 2022 (n)      200,000        195,500   
    

 

 

 
             $ 388,000   
Consumer Products - 0.6%                 
ACCO Brands Corp., 6.75%, 2020    $ 175,000      $ 179,813   
Easton-Bell Sports, Inc., 9.75%, 2016      560,000        611,800   
Elizabeth Arden, Inc., 7.375%, 2021      1,215,000        1,325,869   
FGI Operating Co./FGI Finance, Inc., 7.875%, 2020 (z)      85,000        87,338   
Jarden Corp., 7.5%, 2020      755,000        817,288   
Libbey Glass, Inc., 10%, 2015      68,000        72,421   

 

9


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Consumer Products - continued                 
Libbey Glass, Inc., 6.875%, 2020 (z)    $            355,000      $ 355,888   
    

 

 

 
             $ 3,450,417   
Consumer Services - 1.0%                 
Realogy Corp., 11.5%, 2017    $ 630,000      $ 557,550   
Service Corp. International, 6.75%, 2015      265,000        286,200   
Service Corp. International, 7%, 2017      4,030,000        4,483,375   
    

 

 

 
             $ 5,327,125   
Containers - 1.4%                 
Ardagh Packaging Finance PLC, 9.125%, 2020 (n)    $ 1,645,000      $ 1,694,350   
Ball Corp., 5%, 2022      93,000        93,930   
Exopack Holding Corp., 10%, 2018      550,000        558,250   
Greif, Inc., 6.75%, 2017      855,000        916,988   
Greif, Inc., 7.75%, 2019      1,000,000        1,120,000   
Reynolds Group, 7.75%, 2016 (n)      495,000        522,225   
Reynolds Group, 7.125%, 2019 (n)      1,135,000        1,166,213   
Reynolds Group, 9.875%, 2019 (n)      410,000        408,975   
Reynolds Group, 8.5%, 2021 (n)      880,000        816,200   
Sealed Air Corp., 8.125%, 2019 (n)      180,000        195,300   
Sealed Air Corp., 8.375%, 2021 (n)      180,000        198,000   
Tekni-Plex, Inc., 9.75%, 2019 (z)      150,000        148,875   
    

 

 

 
             $ 7,839,306   
Defense Electronics - 0.4%                 
BAE Systems Holdings, Inc., 5.2%, 2015 (n)    $ 450,000      $ 491,395   
Ducommun, Inc., 9.75%, 2018      644,000        681,030   
ManTech International Corp., 7.25%, 2018      575,000        606,625   
MOOG, Inc., 7.25%, 2018      375,000        393,750   
    

 

 

 
             $ 2,172,800   
Electrical Equipment - 0.1%                 
Avaya, Inc., 9.75%, 2015    $ 600,000      $ 495,000   
Avaya, Inc., 7%, 2019 (z)      190,000        170,050   
    

 

 

 
             $ 665,050   
Electronics - 0.7%                 
Freescale Semiconductor, Inc., 9.25%, 2018 (n)    $ 1,480,000      $ 1,557,700   
Freescale Semiconductor, Inc., 8.05%, 2020      270,000        256,500   
Nokia Corp., 5.375%, 2019      250,000        204,042   
NXP B.V., 9.75%, 2018 (n)      418,000        471,295   
Sensata Technologies B.V., 6.5%, 2019 (n)      1,130,000        1,132,825   
    

 

 

 
             $ 3,622,362   

 

10


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Emerging Market Quasi-Sovereign - 3.6%                 
Banco do Estado Rio Grande do Sul S.A., 7.375%, 2022 (n)    $ 213,000      $ 217,368   
Banco do Nordeste do Brasil (BNB), 4.375%, 2019 (n)      658,000        654,710   
Bank of Ceylon, 6.875%, 2017 (n)                 200,000        190,165   
Centrais Eletricas Brasileiras S.A., 5.75%, 2021 (n)      1,017,000        1,080,563   
CEZ A.S., 4.25%, 2022 (n)      814,000        820,203   
CNOOC Finance (2012) Ltd., 3.875%, 2022 (n)      454,000        461,283   
CNOOC Finance (2012) Ltd., 5%, 2042 (n)      201,000        211,724   
CNPC (HK) Overseas Capital Ltd., 4.5%, 2021 (n)      897,000        957,450   
Comision Federal de Electricidad, 5.75%, 2042 (n)      1,184,000        1,201,760   
Corporacion Financiera de Desarrollo S.A., 4.75%, 2022 (n)      221,000        228,735   
Development Bank of Kazakhstan, 5.5%, 2015 (n)      205,000        210,638   
Dolphin Energy Ltd., 5.5%, 2021 (n)      400,000        432,800   
Ecopetrol S.A., 7.625%, 2019      594,000        733,590   
Gaz Capital S.A., 9.25%, 2019      583,000        708,345   
Gaz Capital S.A., 5.999%, 2021 (n)      1,344,000        1,403,808   
Georgian Oil & Gas Corp., 6.875%, 2017 (z)      200,000        193,000   
Majapahit Holding B.V., 7.25%, 2017 (n)      591,000        657,488   
Majapahit Holding B.V., 8%, 2019 (n)      380,000        437,950   
Novatek Finance Ltd., 5.326%, 2016 (n)      336,000        344,077   
OJSC Russian Agricultural Bank, FRN, 6%, 2021 (n)      558,000        538,827   
Pemex Project Funding Master Trust, 5.75%, 2018      642,000        717,435   
Pertamina PT, 5.25%, 2021 (n)      256,000        252,160   
Pertamina PT, 4.875%, 2022 (n)      272,000        261,120   
Pertamina PT, 6%, 2042 (n)      318,000        298,125   
Petrobras International Finance Co., 7.875%, 2019      1,361,000        1,646,094   
Petrobras International Finance Co., 6.75%, 2041      481,000        554,330   
Petroleos de Venezuela S.A., 5.25%, 2017      950,000        646,000   
Petroleos Mexicanos, 8%, 2019      1,101,000        1,370,745   
Petroleos Mexicanos, 4.875%, 2022 (n)      774,000        812,700   
Petroleos Mexicanos, 6.5%, 2041 (n)      315,000        353,588   
Ras Laffan Liquefied Natural Gas Co. Ltd., 6.75%, 2019 (n)      721,000        850,780   
Sinopec Group Overseas Development (2012) Ltd., 3.9%, 2022 (z)      279,000        284,071   
Turkiye Ihracat Kredi Bankasi A.S., 5.375%, 2016 (n)      200,000        199,500   
    

 

 

 
             $ 19,931,132   
Emerging Market Sovereign - 4.0%                 
Dominican Republic, 7.5%, 2021 (n)    $ 548,000      $ 577,592   
Government of Ukraine, 6.875%, 2015      500,000        452,500   
Republic of Argentina, 2.5%, to 2019, 3.75% to 2029, 5.25% to 2038      1,848,000        522,060   
Republic of Colombia, 8.125%, 2024      664,000        936,240   
Republic of Colombia, 6.125%, 2041      437,000        540,788   

 

11


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Emerging Market Sovereign - continued                 
Republic of Guatemala, 5.75%, 2022 (z)    $ 201,000      $ 199,493   
Republic of Indonesia, 11.625%, 2019 (n)      1,423,000        2,042,005   
Republic of Indonesia, 4.875%, 2021 (n)      348,000        365,835   
Republic of Indonesia, 7.75%, 2038 (n)      593,000        775,348   
Republic of Latvia, 5.25%, 2017 (n)      200,000        200,000   
Republic of Lithuania, 6.625%, 2022 (n)      752,000        815,920   
Republic of Panama, 9.375%, 2029               1,062,000        1,699,200   
Republic of Peru, 7.35%, 2025      355,000        487,238   
Republic of Philippines, 5.5%, 2026      421,000        484,150   
Republic of Philippines, 6.375%, 2034      848,000        1,043,040   
Republic of Poland, 5%, 2022      660,000        690,360   
Republic of Romania, 6.75%, 2022 (n)      1,372,000        1,374,675   
Republic of Slovakia, 4.375%, 2022 (z)      1,375,000        1,313,125   
Republic of South Africa, 5.5%, 2020      751,000        835,488   
Republic of South Africa, 4.665%, 2024      783,000        801,401   
Republic of South Africa, 6.25%, 2041      873,000        1,026,866   
Republic of Sri Lanka, 6.25%, 2021 (n)      208,000        203,732   
Republic of Turkey, 5.625%, 2021      362,000        378,290   
Republic of Turkey, 6.25%, 2022      390,000        417,300   
Russian Federation, 4.5%, 2022 (n)      400,000        407,600   
Russian Federation, 5.625%, 2042 (n)      200,000        206,810   
United Mexican States, 3.625%, 2022      2,734,000        2,816,020   
    

 

 

 
             $ 21,613,076   
Energy - Independent - 5.0%                 
ATP Oil & Gas Corp., 11.875%, 2015    $ 790,000      $ 420,675   
BreitBurn Energy Partners LP, 8.625%, 2020      330,000        342,375   
BreitBurn Energy Partners LP, 7.875%, 2022 (n)      410,000        401,800   
Carrizo Oil & Gas, Inc., 8.625%, 2018      435,000        454,575   
Chaparral Energy, Inc., 7.625%, 2022 (n)      535,000        547,038   
Chesapeake Energy Corp., 6.875%, 2020      400,000        379,000   
Concho Resources, Inc., 8.625%, 2017      420,000        457,800   
Concho Resources, Inc., 6.5%, 2022      875,000        914,375   
Continental Resources, Inc., 8.25%, 2019      1,170,000        1,298,700   
Denbury Resources, Inc., 8.25%, 2020      1,360,000        1,468,800   
Energy XXI Gulf Coast, Inc., 9.25%, 2017      1,380,000        1,483,500   
Everest Acquisition LLC/Everest Acquisition Finance, Inc.,
9.375%, 2020 (n)
     1,505,000        1,542,625   
EXCO Resources, Inc., 7.5%, 2018      1,255,000        1,060,475   
Harvest Operations Corp., 6.875%, 2017 (n)      1,380,000        1,445,550   
Hilcorp Energy I/Hilcorp Finance Co., 8%, 2020 (n)      265,000        282,225   
Laredo Petroleum, Inc., 9.5%, 2019      635,000        704,850   
Laredo Petroleum, Inc., 7.375%, 2022 (n)      175,000        178,938   

 

12


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Energy - Independent - continued                 
LINN Energy LLC, 6.5%, 2019 (n)    $ 440,000      $ 426,800   
LINN Energy LLC, 8.625%, 2020      605,000        641,300   
LINN Energy LLC, 7.75%, 2021      788,000        805,730   
Newfield Exploration Co., 6.625%, 2016                 560,000        572,600   
Newfield Exploration Co., 6.875%, 2020      855,000        906,300   
OGX Austria GmbH, 8.375%, 2022 (n)      200,000        189,500   
OGX Petroleo e Gas Participacoes S.A., 8.5%, 2018 (n)      786,000        756,525   
Pioneer Natural Resources Co., 6.875%, 2018      1,175,000        1,382,815   
Pioneer Natural Resources Co., 7.5%, 2020      1,015,000        1,255,084   
Plains Exploration & Production Co., 8.625%, 2019      995,000        1,079,575   
QEP Resources, Inc., 6.875%, 2021      1,690,000        1,829,425   
Range Resources Corp., 8%, 2019      1,045,000        1,139,050   
SandRidge Energy, Inc., 8%, 2018 (n)      1,655,000        1,655,000   
SM Energy Co., 6.5%, 2021      140,000        143,150   
Talisman Energy, Inc., 7.75%, 2019      280,000        349,665   
Whiting Petroleum Corp., 6.5%, 2018      820,000        856,900   
    

 

 

 
             $ 27,372,720   
Energy - Integrated - 0.5%                 
Hess Corp., 8.125%, 2019    $ 100,000      $ 129,950   
Husky Energy, Inc., 5.9%, 2014      306,000        333,260   
Husky Energy, Inc., 7.25%, 2019      324,000        405,009   
Listrindo Capital B.V., 6.95%, 2019 (n)      200,000        202,412   
Pacific Rubiales Energy Corp., 7.25%, 2021 (n)      1,395,000        1,492,650   
    

 

 

 
             $ 2,563,281   
Engineering - Construction - 0.1%                 
B-Corp. Merger Sub, Inc., 8.25%, 2019 (n)    $ 650,000      $ 650,000   
Entertainment - 1.0%                 
AMC Entertainment, Inc., 8.75%, 2019    $ 1,460,000      $ 1,562,200   
AMC Entertainment, Inc., 9.75%, 2020      1,095,000        1,177,125   
Cedar Fair LP, 9.125%, 2018      450,000        498,375   
Cinemark USA, Inc., 8.625%, 2019      1,460,000        1,587,750   
NAI Entertainment Holdings LLC, 8.25%, 2017 (n)      370,000        403,300   
    

 

 

 
             $ 5,228,750   
Financial Institutions - 3.4%                 
Ally Financial, Inc., 5.5%, 2017    $ 2,305,000      $ 2,307,075   
CIT Group, Inc., 5.25%, 2014 (n)      1,795,000        1,826,413   
CIT Group, Inc., 6.625%, 2018 (n)      1,205,000        1,250,188   
CIT Group, Inc., 5.5%, 2019 (n)      1,315,000        1,278,838   
Credit Acceptance Corp., 9.125%, 2017      875,000        940,625   

 

13


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Financial Institutions - continued                 
GMAC, Inc., 8%, 2031    $ 135,000      $ 151,875   
Icahn Enterprises LP, 8%, 2018      1,844,000        1,952,335   
International Lease Finance Corp., 4.875%, 2015      440,000        433,580   
International Lease Finance Corp., 8.625%, 2015      320,000        348,800   
International Lease Finance Corp., 8.75%, 2017             940,000        1,043,400   
International Lease Finance Corp., 7.125%, 2018 (n)      1,075,000        1,182,500   
Nationstar Mortgage LLC/Capital Corp., 10.875%, 2015      1,505,000        1,625,400   
Nationstar Mortgage LLC/Capital Corp., 9.625%, 2019 (n)      25,000        26,000   
PHH Corp., 9.25%, 2016      1,275,000        1,326,000   
SLM Corp., 8.45%, 2018      1,390,000        1,466,450   
SLM Corp., 8%, 2020      1,385,000        1,417,579   
SLM Corp., 7.25%, 2022      255,000        249,590   
    

 

 

 
             $ 18,826,648   
Food & Beverages - 1.8%                 
Anheuser Busch InBev S.A., 6.875%, 2019    $ 1,300,000      $ 1,684,131   
ARAMARK Corp., 8.5%, 2015      1,154,000        1,181,419   
B&G Foods, Inc., 7.625%, 2018      1,305,000        1,396,350   
Constellation Brands, Inc., 7.25%, 2016      1,020,000        1,150,688   
Del Monte Foods Co., 7.625%, 2019      125,000        121,250   
Grupo Bimbo S.A.B. de C.V., 4.5%, 2022 (n)      218,000        228,774   
JBS USA LLC/JBS USA Finance, 8.25%, 2020 (n)      665,000        635,075   
Pinnacle Foods Finance LLC, 9.25%, 2015      990,000        1,009,800   
Pinnacle Foods Finance LLC, 8.25%, 2017      190,000        198,550   
TreeHouse Foods, Inc., 7.75%, 2018      1,045,000        1,128,600   
Tyson Foods, Inc., 6.85%, 2016      912,000        1,020,300   
    

 

 

 
             $ 9,754,937   
Forest & Paper Products - 1.0%                 
Boise, Inc., 8%, 2020    $ 820,000      $ 897,900   
Cascades, Inc., 7.75%, 2017      1,535,000        1,527,325   
Georgia-Pacific Corp., 8%, 2024      260,000        345,495   
Graphic Packaging Holding Co., 7.875%, 2018      510,000        562,275   
Millar Western Forest Products Ltd., 8.5%, 2021      120,000        99,600   
Smurfit Kappa Group PLC, 7.75%, 2019 (n)    EUR 560,000        727,062   
Tembec Industries, Inc., 11.25%, 2018    $ 415,000        411,888   
Tembec Industries, Inc., 11.25%, 2018 (n)      300,000        297,750   
Xerium Technologies, Inc., 8.875%, 2018      815,000        615,325   
    

 

 

 
             $ 5,484,620   
Gaming & Lodging - 3.1%                 
Boyd Gaming Corp., 7.125%, 2016    $ 500,000      $ 477,500   
Caesars Operating Escrow LLC, 8.5%, 2020 (n)      265,000        264,006   

 

14


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Gaming & Lodging - continued                 
Fontainebleau Las Vegas Holdings LLC, 10.25%, 2015 (a)(d)(n)    $ 460,000      $ 288   
GWR Operating Partnership LLP, 10.875%, 2017      680,000        768,400   
Harrah’s Operating Co., Inc., 11.25%, 2017      1,570,000        1,668,125   
Harrah’s Operating Co., Inc., 10%, 2018                 735,000        485,100   
Harrah’s Operating Co., Inc., 10%, 2018      719,000        485,325   
Host Hotels & Resorts, Inc., 9%, 2017      425,000        470,688   
MGM Mirage, 10.375%, 2014      30,000        33,750   
MGM Mirage, 6.625%, 2015      265,000        272,122   
MGM Mirage, 7.5%, 2016      105,000        107,363   
MGM Resorts International, 11.375%, 2018      2,620,000        3,019,550   
MGM Resorts International, 9%, 2020      655,000        717,225   
Penn National Gaming, Inc., 8.75%, 2019      1,640,000        1,808,100   
Pinnacle Entertainment, Inc., 8.75%, 2020      525,000        570,938   
Pinnacle Entertainment, Inc., 7.75%, 2022      275,000        290,125   
Rivers Pittsburgh Borrower LP/Rivers Pittsburgh Finance Corp., 9.5%, 2019 (z)      175,000        178,938   
Seven Seas Cruises S. de R.L., 9.125%, 2019 (n)      900,000        927,000   
Starwood Hotels & Resorts Worldwide, Inc., 6.75%, 2018      1,485,000        1,733,285   
Wyndham Worldwide Corp., 6%, 2016      8,000        9,012   
Wyndham Worldwide Corp., 7.375%, 2020      405,000        492,461   
Wynn Las Vegas LLC, 7.75%, 2020      1,765,000        1,917,231   
    

 

 

 
             $ 16,696,532   
Industrial - 0.8%                 
Altra Holdings, Inc., 8.125%, 2016    $ 350,000      $ 373,625   
Dematic S.A., 8.75%, 2016 (z)      1,120,000        1,159,200   
Hillman Group, Inc., 10.875%, 2018      670,000        698,475   
Hyva Global B.V., 8.625%, 2016 (n)      1,124,000        958,210   
Mueller Water Products, Inc., 8.75%, 2020      516,000        570,180   
Rexel S.A., 6.125%, 2019 (n)      520,000        517,400   
    

 

 

 
             $ 4,277,090   
Insurance - 1.6%                 
American International Group, Inc., 4.875%, 2016    $ 1,480,000      $ 1,560,725   
American International Group, Inc., 8.25%, 2018      665,000        799,638   
American International Group, Inc., 8.175% to 2038, FRN to 2068      2,565,000        2,664,394   
MetLife, Inc., 9.25% to 2038, FRN to 2068 (n)      1,100,000        1,309,000   
Metropolitan Life Global Funding I, 5.125%, 2014 (n)      860,000        925,784   
Unum Group, 7.125%, 2016      1,171,000        1,343,768   
    

 

 

 
             $ 8,603,309   

 

15


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Insurance - Health - 0.1%                 
AMERIGROUP Corp., 7.5%, 2019    $ 630,000      $ 674,100   
Insurance - Property & Casualty - 1.7%                 
Allstate Corp., 7.45%, 2019    $ 850,000      $ 1,092,366   
AXIS Capital Holdings Ltd., 5.75%, 2014      1,013,000        1,080,180   
Liberty Mutual Group, Inc., 10.75% to 2038, FRN to 2088 (n)      1,635,000        2,256,300   
USI Holdings Corp., FRN, 4.341%, 2014 (n)      2,005,000        1,829,563   
XL Group PLC, 6.5% to 2017, FRN to 2049      1,610,000        1,239,700   
ZFS Finance USA Trust II, 6.45% to 2016, FRN to 2065 (n)      1,190,000        1,154,300   
ZFS Finance USA Trust V, 6.5% to 2017, FRN to 2067 (n)      627,000        603,488   
    

 

 

 
             $ 9,255,897   
International Market Quasi-Sovereign - 1.5%                 
Commonwealth Bank of Australia, 2.9%, 2014 (n)    $ 1,780,000      $ 1,864,306   
ING Bank N.V., 3.9%, 2014 (n)      1,390,000        1,460,107   
Irish Life & Permanent PLC, 3.6%, 2013 (e)(n)      1,900,000        1,831,881   
Israel Electric Corp. Ltd., 6.7%, 2017 (n)      588,000        611,983   
KFW International Finance, Inc., 4.875%, 2019      1,000,000        1,210,516   
Societe Financement de l’ Economie Francaise, 3.375%, 2014 (n)      1,000,000        1,038,730   
    

 

 

 
             $ 8,017,523   
International Market Sovereign - 9.9%                 
Commonwealth of Australia, 5.75%, 2021    AUD 1,028,000      $ 1,231,490   
Federal Republic of Germany, 3.75%, 2015    EUR 3,425,000        4,640,360   
Federal Republic of Germany, 4.25%, 2018    EUR 392,000        591,020   
Federal Republic of Germany, 6.25%, 2030    EUR 847,000        1,740,636   
Government of Canada, 4.5%, 2015    CAD 747,000        794,163   
Government of Canada, 4.25%, 2018    CAD 447,000        503,301   
Government of Canada, 3.25%, 2021    CAD 338,000        370,624   
Government of Canada, 5.75%, 2033    CAD 136,000        207,701   
Government of Japan, 1.7%, 2017    JPY 383,600,000        5,242,832   
Government of Japan, 1.1%, 2020    JPY 351,000,000        4,656,645   
Government of Japan, 2.1%, 2024    JPY 233,000,000        3,318,082   
Government of Japan, 2.2%, 2027    JPY 375,000,000        5,333,356   
Government of New Zealand, 6%, 2021    NZD 483,000        439,182   
Government of Norway, 3.75%, 2021    NOK 2,065,000        390,921   
Kingdom of Belgium, 5.5%, 2017    EUR 1,360,000        1,968,579   
Kingdom of Denmark, 3%, 2021    DKK 2,538,000        496,037   
Kingdom of Sweden, 5%, 2020    SEK 6,870,000        1,233,205   
Kingdom of the Netherlands, 5.5%, 2028    EUR 454,000        827,966   
Republic of Austria, 4.65%, 2018    EUR 823,000        1,190,435   
Republic of Finland, 3.875%, 2017    EUR 264,000        377,360   
Republic of France, 6%, 2025    EUR 388,000        653,340   

 

16


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
International Market Sovereign - continued                 
Republic of France, 4.75%, 2035    EUR 1,370,000      $ 2,161,616   
Republic of Iceland, 4.875%, 2016 (n)    $ 1,646,000        1,664,707   
Republic of Italy, 4.25%, 2015    EUR 1,702,000        2,081,462   
Republic of Italy, 5.25%, 2017    EUR  3,255,000        3,984,497   
Republic of Italy, 3.75%, 2021    EUR 650,000        699,961   
United Kingdom Treasury, 8%, 2015    GBP 1,681,000        3,287,360   
United Kingdom Treasury, 8%, 2021    GBP 953,000        2,294,091   
United Kingdom Treasury, 4.25%, 2036    GBP 739,000        1,422,203   
    

 

 

 
             $ 53,803,132   
Machinery & Tools - 1.3%                 
Case Corp., 7.25%, 2016    $ 710,000      $ 775,675   
Case New Holland, Inc., 7.875%, 2017          2,235,000        2,547,900   
CNH Capital LLC, 6.25%, 2016 (n)      280,000        291,900   
NESCO LLC/NESCO Holdings Corp., 11.75%, 2017 (z)      485,000        489,850   
RSC Equipment Rental, Inc., 8.25%, 2021      940,000        994,050   
UR Financing Escrow Corp., 5.75%, 2018 (n)      1,000,000        1,017,500   
UR Financing Escrow Corp., 7.625%, 2022 (n)      1,000,000        1,022,500   
    

 

 

 
             $ 7,139,375   
Major Banks - 2.2%                 
Bank of America Corp., 7.375%, 2014    $ 1,000,000      $ 1,078,939   
Bank of America Corp., 5.65%, 2018      545,000        567,698   
Bank of America Corp., 7.625%, 2019      370,000        422,945   
BNP Paribas, FRN, 3.223%, 2014      1,216,000        1,219,008   
Credit Suisse New York, 5.5%, 2014      1,000,000        1,062,660   
DBS Bank Ltd., 3.625% to 2017, FRN to 2022 (n)      738,000        728,537   
HSBC USA, Inc., 4.875%, 2020      460,000        472,030   
JPMorgan Chase & Co., 6.3%, 2019      1,000,000        1,161,948   
Morgan Stanley, 5.75%, 2016      397,000        402,007   
Morgan Stanley, 6.625%, 2018      391,000        396,878   
Morgan Stanley, 7.3%, 2019      830,000        860,480   
Morgan Stanley, 5.625%, 2019      1,500,000        1,431,200   
RBS Capital Trust II, 6.425% to 2034, FRN to 2049 (a)(d)      530,000        339,200   
Royal Bank of Scotland Group PLC, 6.99% to 2017, FRN to 2049 (a)(d)(n)      350,000        266,000   
Royal Bank of Scotland Group PLC, 7.648% to 2031, FRN to 2049      2,085,000        1,589,813   
    

 

 

 
             $ 11,999,343   
Medical & Health Technology & Services - 3.9%                 
Biomet, Inc., 10%, 2017    $ 545,000      $ 579,744   
Biomet, Inc., 10.375%, 2017 (p)      320,000        340,600   

 

17


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Medical & Health Technology & Services - continued                 
Biomet, Inc., 11.625%, 2017    $ 2,440,000      $ 2,586,400   
Davita, Inc., 6.375%, 2018      2,180,000        2,207,250   
Davita, Inc., 6.625%, 2020      575,000        582,188   
Fresenius Medical Care AG & Co. KGaA, 9%, 2015 (n)      665,000        759,763   
Fresenius Medical Care Capital Trust III, 5.625%, 2019 (n)      345,000        342,413   
HCA, Inc., 8.5%, 2019               2,920,000        3,222,950   
HCA, Inc., 7.5%, 2022      715,000        749,409   
HCA, Inc., 5.875%, 2022      330,000        327,525   
HealthSouth Corp., 8.125%, 2020      1,685,000        1,798,738   
Hospira, Inc., 6.05%, 2017      655,000        739,912   
IASIS Healthcare LLC/IASIS Capital Corp., 8.375%, 2019      440,000        413,600   
McKesson Corp., 7.5%, 2019      110,000        142,445   
Owens & Minor, Inc., 6.35%, 2016      970,000        1,068,245   
Physio-Control International, Inc., 9.875%, 2019 (z)      555,000        588,300   
Teleflex, Inc., 6.875%, 2019      595,000        630,700   
Tenet Healthcare Corp., 9.25%, 2015      605,000        667,769   
Truven Health Analytics, Inc., 10.625%, 2020 (z)      150,000        150,750   
Universal Health Services, Inc., 7%, 2018      1,055,000        1,128,850   
Universal Hospital Services, Inc., 8.5%, 2015 (p)      1,350,000        1,375,313   
USPI Finance Corp., 9%, 2020 (n)      265,000        274,938   
Vanguard Health Systems, Inc., 0%, 2016      5,000        3,463   
Vanguard Health Systems, Inc., 8%, 2018      405,000        396,900   
WP Rocket Merger Sub, Inc., 10.125%, 2019 (n)      515,000        482,813   
    

 

 

 
             $ 21,560,978   
Metals & Mining - 3.0%                 
ArcelorMittal, 6.5%, 2014    $ 1,300,000      $ 1,387,409   
ArcelorMittal, 9.85%, 2019      1,710,000        2,024,508   
Arch Coal, Inc., 7.25%, 2020      470,000        401,850   
Cloud Peak Energy, Inc., 8.25%, 2017      2,255,000        2,305,738   
Cloud Peak Energy, Inc., 8.5%, 2019      760,000        782,800   
Consol Energy, Inc., 8%, 2017      1,425,000        1,428,563   
Consol Energy, Inc., 8.25%, 2020      480,000        480,000   
Fortescue Metals Group Ltd., 8.25%, 2019 (n)      990,000        1,022,175   
Gold Fields Orogen Holding Ltd., 4.875%, 2020 (n)      1,410,000        1,334,447   
OJSC Russian Agricultural Bank, 7.75%, 2017 (n)      923,000        896,464   
Peabody Energy Corp., 7.375%, 2016      1,070,000        1,185,025   
Peabody Energy Corp., 6%, 2018 (n)      445,000        443,888   
Peabody Energy Corp., 6.25%, 2021 (n)      445,000        443,888   
Southern Copper Corp., 6.75%, 2040      553,000        577,439   
Vale Overseas Ltd., 4.625%, 2020      490,000        505,097   
Vale Overseas Ltd., 4.375%, 2022      999,000        998,574   
Vale Overseas Ltd., 6.875%, 2039      341,000        392,722   
    

 

 

 
             $ 16,610,587   

 

18


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Mortgage-Backed - 6.2%                 
Fannie Mae, 4.1%, 2013    $ 472,663      $ 482,458   
Fannie Mae, 4.19%, 2013      395,060        405,485   
Fannie Mae, 4.845%, 2013      133,696        137,051   
Fannie Mae, 4.561%, 2014                 225,740        237,521   
Fannie Mae, 4.6%, 2014      408,096        427,027   
Fannie Mae, 4.61%, 2014      442,579        467,740   
Fannie Mae, 4.77%, 2014      317,090        335,855   
Fannie Mae, 4.56%, 2015      171,738        183,974   
Fannie Mae, 4.665%, 2015      139,352        149,902   
Fannie Mae, 4.7%, 2015      133,047        143,210   
Fannie Mae, 4.74%, 2015      330,455        357,051   
Fannie Mae, 4.78%, 2015      384,356        417,303   
Fannie Mae, 4.815%, 2015      350,233        378,995   
Fannie Mae, 4.87%, 2015      281,620        305,072   
Fannie Mae, 4.89%, 2015      94,049        101,512   
Fannie Mae, 4.894%, 2015      585,029        639,692   
Fannie Mae, 6%, 2016-2037      2,227,593        2,468,071   
Fannie Mae, 5.5%, 2019-2037      8,351,673        9,135,180   
Fannie Mae, 4.88%, 2020      224,755        251,549   
Fannie Mae, 3%, 2027      1,724,000        1,808,045   
Fannie Mae, 6.5%, 2032-2033      519,611        594,738   
Fannie Mae, 5%, 2035      1,604,014        1,738,718   
Fannie Mae, TBA, 3.5%, 2033      2,200,000        2,308,969   
Freddie Mac, 6%, 2034      250,350        281,814   
Ginnie Mae, 5.5%, 2039      1,444,707        1,604,152   
Ginnie Mae, 4.5%, 2041      1,695,688        1,872,852   
Ginnie Mae, TBA, 3.5%, 2040      6,000,000        6,400,313   
    

 

 

 
             $ 33,634,249   
Natural Gas - Distribution - 0.1%                 
AmeriGas Finance LLC, 6.75%, 2020    $ 315,000      $ 310,275   
Ferrellgas LP/Ferrellgas Finance Corp., 6.5%, 2021      400,000        358,000   
    

 

 

 
             $ 668,275   
Natural Gas - Pipeline - 2.0%                 
Atlas Pipeline Partners LP, 8.75%, 2018    $ 1,095,000      $ 1,160,700   
Crosstex Energy, Inc., 8.875%, 2018      1,705,000        1,790,250   
El Paso Corp., 7%, 2017      1,395,000        1,565,662   
El Paso Corp., 7.75%, 2032      1,481,000        1,690,326   
Energy Transfer Equity LP, 7.5%, 2020      1,380,000        1,490,400   
Enterprise Products Partners LP, 8.375% to 2016, FRN to 2066      1,426,000        1,540,080   
Enterprise Products Partners LP, 7.034% to 2018, FRN to 2068      256,000        272,640   
Rockies Express Pipeline LLC, 5.625%, 2020 (n)      347,000        307,095   

 

19


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Natural Gas - Pipeline - continued                 
Spectra Energy Capital LLC, 8%, 2019    $ 810,000      $ 1,053,945   
    

 

 

 
             $ 10,871,098   
Network & Telecom - 1.8%                 
AT&T, Inc., 6.55%, 2039    $ 170,000      $ 217,016   
AT&T, Inc., 5.35%, 2040          1,108,000        1,248,619   
Cincinnati Bell, Inc., 8.25%, 2017      1,020,000        1,040,400   
Citizens Communications Co., 9%, 2031      840,000        768,600   
Eileme 2 AB, 11.625%, 2020 (n)      765,000        749,700   
Frontier Communications Corp., 8.125%, 2018      1,065,000        1,083,638   
Qwest Communications International, Inc., 7.125%, 2018 (n)      1,075,000        1,135,668   
Telefonica Emisiones S.A.U., 2.582%, 2013      995,000        981,389   
Windstream Corp., 8.125%, 2018      380,000        394,250   
Windstream Corp., 7.75%, 2020      1,725,000        1,725,000   
Windstream Corp., 7.75%, 2021      415,000        416,038   
    

 

 

 
             $ 9,760,318   
Oil Services - 0.6%                 
Afren PLC, 11.5%, 2016 (n)    $ 200,000      $ 208,500   
Afren PLC, 10.25%, 2019 (n)      212,000        214,120   
Chesapeake Energy Corp., 6.625%, 2019 (n)      370,000        320,050   
Dresser-Rand Group, Inc., 6.5%, 2021      305,000        311,100   
Edgen Murray Corp., 12.25%, 2015      595,000        608,388   
Pioneer Drilling Co., 9.875%, 2018      975,000        1,023,750   
Unit Corp., 6.625%, 2021      545,000        542,275   
    

 

 

 
             $ 3,228,183   
Other Banks & Diversified Financials - 2.0%                 
Banco de Credito del Peru, 6.125% to 2022, FRN to 2027 (n)    $ 301,000      $ 302,505   
Banco Santander U.S. Debt S.A.U., 3.781%, 2015 (n)      1,400,000        1,321,264   
Bancolombia S.A., 5.95%, 2021      819,000        847,665   
BBVA Bancomer S.A. Texas, 6.5%, 2021 (n)      900,000        884,250   
Capital One Financial Corp., 8.8%, 2019      320,000        406,265   
Capital One Financial Corp., 10.25%, 2039      2,215,000        2,292,525   
Groupe BPCE S.A., 12.5% to 2019, FRN to 2049 (n)      2,137,000        2,072,954   
Grupo Aval Ltd., 5.25%, 2017 (n)      205,000        210,125   
LBG Capital No. 1 PLC, 7.875%, 2020 (n)      1,440,000        1,257,196   
Santander UK PLC, 8.963% to 2030, FRN to 2049      1,485,000        1,440,450   
    

 

 

 
             $ 11,035,199   
Pharmaceuticals - 0.6%                 
Capsugel FinanceCo. SCA, 9.875%, 2019 (n)    EUR 651,000      $ 845,210   
Endo Health Solutions, Inc., 7%, 2019    $ 60,000        62,700   

 

20


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Pharmaceuticals - continued                 
Roche Holdings, Inc., 6%, 2019 (n)    $ 1,000,000      $ 1,257,434   
Valeant Pharmaceuticals International, Inc., 6.5%, 2016 (n)                 810,000        826,200   
Valeant Pharmaceuticals International, Inc., 7%, 2020 (n)      495,000        478,913   
    

 

 

 
             $ 3,470,457   
Pollution Control - 0.1%                 
Heckmann Corp., 9.875%, 2018 (z)    $ 440,000      $ 418,000   
Printing & Publishing - 0.2%                 
American Media, Inc., 13.5%, 2018 (z)    $ 11,911      $ 10,243   
Nielsen Finance LLC, 11.5%, 2016      354,000        400,020   
Nielsen Finance LLC, 7.75%, 2018      645,000        693,375   
    

 

 

 
             $ 1,103,638   
Railroad & Shipping - 0.1%                 
Kansas City Southern de Mexico S.A. de C.V., 6.125%, 2021    $ 360,000      $ 389,700   
Real Estate - 1.0%                 
CB Richard Ellis Group, Inc., 11.625%, 2017    $ 400,000      $ 452,000   
CNL Lifestyle Properties, Inc., REIT, 7.25%, 2019      320,000        286,400   
Entertainment Properties Trust, REIT, 7.75%, 2020      665,000        726,324   
HRPT Properties Trust, REIT, 6.25%, 2016      1,053,000        1,114,260   
Kennedy Wilson, Inc., 8.75%, 2019      300,000        309,000   
MPT Operating Partnership LP, REIT, 6.875%, 2021      680,000        700,400   
MPT Operating Partnership LP, REIT, 6.375%, 2022      295,000        293,525   
Simon Property Group, Inc., REIT, 5.875%, 2017      756,000        885,182   
Simon Property Group, Inc., REIT, 10.35%, 2019      660,000        928,276   
    

 

 

 
             $ 5,695,367   
Retailers - 1.7%                 
Academy Ltd., 9.25%, 2019 (n)    $ 585,000      $ 617,175   
Burlington Coat Factory Warehouse Corp., 10%, 2019      810,000        836,325   
Home Depot, Inc., 5.875%, 2036      509,000        641,763   
J. Crew Group, Inc., 8.125%, 2019      455,000        456,706   
Limited Brands, Inc., 6.9%, 2017      480,000        534,000   
Limited Brands, Inc., 6.95%, 2033      670,000        643,200   
Neiman Marcus Group, Inc., 10.375%, 2015      855,000        894,552   
QVC, Inc., 7.375%, 2020 (n)      485,000        528,650   
Rite Aid Corp., 9.25%, 2020 (z)      410,000        392,575   
Sally Beauty Holdings, Inc., 6.875%, 2019 (n)      465,000        495,225   
Toys “R” Us Property Co. II LLC, 8.5%, 2017      1,725,000        1,774,594   
Toys “R” Us, Inc., 10.75%, 2017      1,040,000        1,131,000   
Yankee Acquisition Corp., 8.5%, 2015      5,000        5,125   

 

21


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Retailers - continued                 
YCC Holdings LLC/Yankee Finance, Inc., 10.25%, 2016 (p)    $            285,000      $ 285,713   
    

 

 

 
             $ 9,236,603   
Specialty Chemicals - 0.1%                 
Koppers, Inc., 7.875%, 2019    $ 265,000      $ 282,888   
Specialty Stores - 0.4%                 
Michaels Stores, Inc., 11.375%, 2016    $ 635,000      $ 674,694   
Michaels Stores, Inc., 7.75%, 2018      1,295,000        1,350,038   
    

 

 

 
             $ 2,024,732   
Steel - 0.0%                 
Evraz Group S.A., 7.4%, 2017 (n)    $ 200,000      $ 194,560   
Supermarkets - 0.1%                 
Delhaize Group, 5.7%, 2040    $ 834,000      $ 757,309   
Supranational - 0.5%                 
European Investment Bank, 5.125%, 2017    $ 2,593,000      $ 3,029,054   
Telecommunications - Wireless - 2.3%                 
Clearwire Corp., 12%, 2015 (n)    $ 1,850,000      $ 1,614,125   
Cricket Communications, Inc., 7.75%, 2016      560,000        590,800   
Cricket Communications, Inc., 7.75%, 2020      720,000        658,800   
Crown Castle International Corp., 9%, 2015      1,475,000        1,604,063   
Crown Castle International Corp., 7.75%, 2017 (n)      430,000        462,250   
Crown Castle International Corp., 7.125%, 2019      1,005,000        1,079,119   
Digicel Group Ltd., 8.25%, 2017 (n)      710,000        713,550   
Digicel Group Ltd., 10.5%, 2018 (n)      350,000        357,000   
MetroPCS Wireless, Inc., 7.875%, 2018      355,000        358,550   
Sprint Capital Corp., 6.875%, 2028      1,315,000        976,388   
Sprint Nextel Corp., 6%, 2016      790,000        722,850   
Sprint Nextel Corp., 8.375%, 2017      315,000        302,400   
Sprint Nextel Corp., 9%, 2018 (n)      415,000        449,238   
Wind Acquisition Finance S.A., 11.75%, 2017 (n)      1,940,000        1,649,000   
Wind Acquisition Finance S.A., 7.25%, 2018 (n)      1,170,000        1,000,350   
    

 

 

 
             $ 12,538,483   
Telephone Services - 0.4%                 
Cogent Communications Group, Inc., 8.375%, 2018 (n)    $ 445,000      $ 477,263   
Level 3 Financing, Inc., 9.375%, 2019      475,000        504,688   
Level 3 Financing, Inc., 8.625%, 2020 (n)      1,200,000        1,224,000   

 

22


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Telephone Services - continued                 
Sable International Finance Ltd., 8.75%, 2020 (n)    $            200,000      $ 207,000   
    

 

 

 
             $ 2,412,951   
Tobacco - 0.2%                 
Reynolds American, Inc., 6.75%, 2017    $ 1,040,000      $ 1,252,510   
Transportation - 0.1%                 
Navios South American Logistics, Inc., 9.25%, 2019    $ 748,000      $ 688,160   
Transportation - Services - 2.2%                 
ACL I Corp., 10.625%, 2016 (n)(p)    $ 837,738      $ 800,243   
Aguila 3 S.A., 7.875%, 2018 (z)      375,000        382,500   
Aguila American Resources Ltd., 7.875%, 2018 (n)      780,000        795,600   
Atlas Airlines, Inc. Pass-Through Certificates, “B”, 7.68%, 2014      260,379        247,360   
Avis Budget Car Rental LLC, 8.25%, 2019      315,000        326,025   
Avis Budget Car Rental LLC, 8.25%, 2019 (n)      220,000        227,700   
CEVA Group PLC, 8.375%, 2017 (n)      1,710,000        1,662,975   
Commercial Barge Line Co., 12.5%, 2017      1,525,000        1,727,063   
Erac USA Finance Co., 6.375%, 2017 (n)      1,000,000        1,168,642   
Hertz Corp., 7.5%, 2018      311,000        323,829   
Navios Maritime Acquisition Corp., 8.625%, 2017      1,460,000        1,372,400   
Navios Maritime Holdings, Inc., 8.875%, 2017      480,000        492,000   
Swift Services Holdings, Inc., 10%, 2018      1,795,000        1,929,625   
Westinghouse Air Brake Technologies Corp., 6.875%, 2013      370,000        384,800   
    

 

 

 
             $ 11,840,762   
U.S. Government Agencies and Equivalents - 0.7%                 
Freddie Mac, 5.5%, 2017    $ 3,060,000      $ 3,754,430   
U.S. Treasury Obligations - 3.0%                 
U.S. Treasury Bonds, 6.25%, 2023 (f)    $ 1,800,000      $ 2,637,281   
U.S. Treasury Bonds, 5.375%, 2031      286,200        423,665   
U.S. Treasury Bonds, 4.5%, 2036      95,000        129,616   
U.S. Treasury Bonds, 4.75%, 2037      2,986,200        4,230,137   
U.S. Treasury Notes, 3.125%, 2019      8,087,000        9,253,299   
    

 

 

 
             $ 16,673,998   
Utilities - Electric Power - 3.7%                 
AES Corp., 8%, 2017    $ 1,965,000      $ 2,181,150   
Atlantic Power Corp., 9%, 2018 (z)      620,000        629,300   
Bruce Mansfield Unit, 6.85%, 2034      1,512,731        1,649,482   
Calpine Corp., 8%, 2016 (n)      1,800,000        1,930,500   
Calpine Corp., 7.875%, 2020 (n)      560,000        593,600   

 

23


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Utilities - Electric Power - continued                 
CenterPoint Energy, Inc., 6.5%, 2018    $            400,000      $ 479,549   
Covanta Holding Corp., 7.25%, 2020      905,000        982,405   
Dolphin Subsidiary ll, Inc., 7.25%, 2021 (n)      515,000        560,063   
Edison Mission Energy, 7%, 2017      610,000        326,350   
EDP Finance B.V., 6%, 2018 (n)      2,548,000        2,243,208   
Energy Future Holdings Corp., 10%, 2020      1,125,000        1,195,313   
Energy Future Holdings Corp., 10%, 2020      2,610,000        2,812,275   
Energy Future Holdings Corp., 11.75%, 2022 (n)      435,000        443,700   
GenOn Energy, Inc., 9.5%, 2018      15,000        13,950   
GenOn Energy, Inc., 9.875%, 2020      1,530,000        1,415,250   
NRG Energy, Inc., 7.375%, 2017      390,000        402,675   
NRG Energy, Inc., 8.25%, 2020      750,000        738,750   
System Energy Resources, Inc., 5.129%, 2014 (z)      684,519        693,212   
Texas Competitive Electric Holdings Co. LLC, 11.5%, 2020 (n)      630,000        422,100   
Viridian Group FundCo II, 11.125%, 2017 (z)      410,000        362,850   
    

 

 

 
             $ 20,075,682   
Total Bonds (Identified Cost, $581,158,365)            $ 601,670,641   
Preferred Stocks - 0.3%                 
Other Banks & Diversified Financials - 0.3%                 
Ally Financial, Inc., 7% (z)      380      $ 325,826   
Ally Financial, Inc., “A”, 8.5%      31,922        695,900   
GMAC Capital Trust I, 8.125%      22,000        504,240   
Total Preferred Stocks (Identified Cost, $1,750,406)            $ 1,525,966   
Convertible Bonds - 0.2%                 
Network & Telecom - 0.2%                 
Nortel Networks Corp., 2.125%, 2014 (Identified Cost, $952,581) (a)(d)    $ 965,000      $ 955,350   
Convertible Preferred Stocks - 0.1%                 
Automotive - 0.1%                 
General Motors Co., 4.75% (Identified Cost, $565,500)      11,310      $ 415,303   
Floating Rate Loans (g)(r) - 0.1%                 
Broadcasting - 0.0%                 
Gray Television, Inc., Term Loan B, 3.74%, 2014    $ 52,247      $ 51,725   
Financial Institutions - 0.0%                 
Springleaf Finance Corp., Term Loan, 5.5%, 2017    $ 63,660      $ 58,434   

 

24


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Floating Rate Loans (g)(r) - continued                 
Utilities - Electric Power - 0.1%                 
Dynegy Midwest Generation LLC, Term Loan, 9.25%, 2016    $ 70,376      $ 71,198   
Dynegy Power LLC, Term Loan, 9.25%, 2016                 105,565        108,556   
    

 

 

 
             $ 179,754   
Total Floating Rate Loans (Identified Cost, $268,704)            $ 289,913   
Common Stocks - 0.0%                 
Automotive - 0.0%                 
Accuride Corp. (a)      12,648      $ 74,876   
Printing & Publishing - 0.0%                 
American Media Operations, Inc. (a)      3,053      $ 16,944   
Total Common Stocks (Identified Cost, $271,148)            $ 91,820   
Money Market Funds - 6.8%                 
MFS Institutional Money Market Portfolio, 0.13%,
at Cost and Net Asset Value (v)
     37,395,306      $ 37,395,306   
Total Investments (Identified Cost, $622,362,010)            $ 642,344,299   
Other Assets, Less Liabilities - (17.7)%              (96,392,885
Net Assets - 100.0%            $ 545,951,414   

 

(a) Non-income producing security.

 

(d) In default. Interest and/or scheduled principal payment(s) have been missed.

 

(e) Guaranteed by Minister for Finance of Ireland.

 

(f) All or a portion of the security has been segregated as collateral for open futures contracts.

 

(g) The rate shown represents a weighted average coupon rate on settled positions at period end, unless otherwise indicated.

 

(i) Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security.

 

(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $141,774,989, representing 26.0% of net assets.

 

(p) Payment-in-kind security.

 

(r) Remaining maturities of floating rate loans may be less than stated maturities shown as a result of contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. These loans may be subject to restrictions on resale. Floating rate loans generally have rates of interest which are determined periodically by reference to a base lending rate plus a premium.

 

(v) Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end.

 

25


Table of Contents

Portfolio of Investments (unaudited) – continued

 

 

(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities:

 

Restricted Securities    Acquisition
Date
   Cost      Value  
Aguila 3 S.A., 7.875%, 2018    5/10/12      $386,174         $382,500   
Ally Financial, Inc., 7% (Preferred Stock)    4/13/11-4/14/11      356,250         325,826   
American Media, Inc., 13.5%, 2018    12/22/10      12,078         10,243   
Anthracite Ltd., “A”, CDO, FRN, 0.599%, 2019    1/15/10      832,121         948,988   
Anthracite Ltd., “BFL”, CDO, FRN, 1.238%, 2037    12/09/10      2,742,769         2,820,000   
Atlantic Power Corp., 9%, 2018    11/02/11-1/09/12      621,695         629,300   
Avaya, Inc., 7%, 2019    5/24/12      173,860         170,050   
Bayview Financial Revolving Mortgage Loan Trust, FRN, 1.838%, 2040    3/01/06      784,552         509,391   
Dematic S.A., 8.75%, 2016    4/19/11-10/21/11      1,117,388         1,159,200   
Dynacast International LLC, 9.25%, 2019    7/12/11-7/15/11      900,619         916,700   
FGI Operating Co./FGI Finance, Inc., 7.875%, 2020    4/12/12      85,000         87,338   
Georgian Oil & Gas Corp., 6.875%, 2017    5/09/12      197,943         193,000   
Heckler & Koch GmbH, 9.5%, 2018    5/06/11-7/11/11      701,780         430,859   
Heckmann Corp., 9.875%, 2018    4/04/12      437,589         418,000   
IDQ Holdings, Inc., 11.5%, 2017    3/20/12      328,483         350,075   
Libbey Glass, Inc., 6.875%, 2020    5/11/12      355,000         355,888   
Local TV Finance LLC, 9.25%, 2015    11/09/07-2/16/11      974,936         1,014,037   
Multi Security Asset Trust, “A3”, 5%, 2035    10/12/10      766,211         782,963   
NESCO LLC/NESCO Holdings Corp., 11.75%, 2017    4/05/12      476,282         489,850   
Nara Cable Funding Ltd., 8.875%, 2018    1/26/12      460,949         415,625   
Physio-Control International, Inc., 9.875%, 2019    1/13/12-1/30/12      562,059         588,300   
Republic of Guatemala, 5.75%, 2022    5/29/12      199,121         199,493   
Republic of Slovakia, 4.375%, 2022    5/10/12      1,362,408         1,313,125   
Rite Aid Corp., 9.25%, 2020    5/03/12-5/21/12      408,233         392,575   
Rivers Pittsburgh Borrower LP/Rivers Pittsburgh Finance Corp., 9.5%, 2019    5/30/12      175,000         178,938   
Roofing Supply Group LLC/Roofing Supply Finance, Inc., 10%, 2020    5/24/12      355,000         358,550   
Sinopec Group Overseas Development (2012) Ltd., 3.9%, 2022    5/10/12      278,157         284,071   
Spirit Master Funding LLC, 5.05%, 2023    7/15/05      1,296,381         1,210,524   
System Energy Resources, Inc., 5.129%, 2014    4/16/04      684,519         693,212   
Tekni-Plex, Inc., 9.75%, 2019    5/10/12      148,138         148,875   
Townsquare Radio LLC, 9%, 2019    3/30/12      376,263         389,500   
Truven Health Analytics, Inc., 10.625%, 2020    5/24/12-5/25/12      149,480         150,750   
Viridian Group FundCo II, 11.125%, 2017    3/01/12      397,043         362,850   
Total Restricted Securities            $18,680,596   
% of Net assets            3.4%   

 

26


Table of Contents

Portfolio of Investments (unaudited) – continued

 

The following abbreviations are used in this report and are defined:

 

CDO   Collateralized Debt Obligation
FRN   Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.
PLC   Public Limited Company
REIT   Real Estate Investment Trust
TBA   To Be Announced

Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:

 

AUD   Australian Dollar
CAD   Canadian Dollar
DKK   Danish Krone
EUR   Euro
GBP   British Pound
JPY   Japanese Yen
NOK   Norwegian Krone
NZD   New Zealand Dollar
PLN   Polish Zloty
RUB   Russian Ruble
SEK   Swedish Krona
SGD   Singapore Dollar

Derivative Contracts at 5/31/12

Forward Foreign Currency Exchange Contracts at 5/31/12

 

Type   Currency   Counterparty   Contracts
to
Deliver/
Receive
    Settlement
Date Range
  In
Exchange
For
    Contracts at
Value
    Net
Unrealized
Appreciation
(Depreciation)
 
Asset Derivatives                                 
SELL   AUD   Westpac Banking Corp.     1,140,143      7/13/12   $ 1,161,343      $ 1,106,703      $ 54,640   
SELL   CAD   Goldman Sachs International     401,000      7/13/12     395,189        387,890        7,299   
SELL   CAD   Merrill Lynch International Bank     1,552,400      7/13/12     1,548,605        1,501,647        46,958   
SELL   DKK   Goldman Sachs International     2,818,044      7/13/12     495,306        469,230        26,076   
SELL   EUR   JPMorgan Chase Bank N.A.     29,866,531      7/13/12     39,054,906        36,937,745        2,117,161   
SELL   GBP   Barclays Bank PLC     2,278,977      7/13/12     3,612,087        3,511,740        100,347   
SELL   GBP   Deutsche Bank AG     2,278,977      7/13/12     3,611,427        3,511,740        99,687   
SELL   NOK   Citibank N.A.     2,383,618      7/13/12     397,103        389,224        7,879   
SELL   NZD   Citibank N.A.     583,205      7/13/12     438,848        438,405        443   
SELL   RUB   JPMorgan Chase Bank N.A.     81,133,000      6/01/12     2,463,675        2,430,951        32,724   
SELL   RUB   UBS AG     81,148,000      6/01/12     2,704,934        2,431,401        273,533   
SELL   SEK   Barclays Bank PLC     6,659,394      7/13/12     928,065        915,332        12,733   
SELL   SEK   Credit Suisse Group     2,252,605      7/13/12     329,975        309,620        20,355   
SELL   SGD   Goldman Sachs International     2,029,000      7/17/12     1,631,980        1,574,693        57,287   

 

27


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Type   Currency   Counterparty   Contracts
to
Deliver/
Receive
    Settlement
Date Range
  In
Exchange
For
    Contracts at
Value
    Net
Unrealized
Appreciation
(Depreciation)
 
Asset Derivatives - continued                            
SELL   SGD   JPMorgan Chase Bank N.A.     4,885,000      7/17/12   $ 3,928,342      $ 3,791,215      $ 137,127   
             

 

 

 
              $ 2,994,249   
             

 

 

 
Liability Derivatives                                 
BUY   EUR   Citibank N.A.     1,773,442      7/13/12   $ 2,258,423      $ 2,193,323      $ (65,100
BUY   EUR   Deutsche Bank AG     4,282,000      7/13/12     5,607,116        5,295,808        (311,308
BUY   EUR   Merrill Lynch International Bank     4,155,000      7/13/12     5,462,928        5,138,740        (324,188
SELL   JPY   JPMorgan Chase Bank N.A.     1,439,907,169      7/13/12     17,780,254        18,382,987        (602,733
BUY   NOK   Barclays Bank PLC     8,412      7/12/12     1,442        1,374        (68
BUY   PLN   Barclays Bank PLC     8,000      7/12/12     2,459        2,246        (213
BUY   RUB   JPMorgan Chase Bank N.A.     81,133,000      6/01/12     2,748,408        2,430,951        (317,457
BUY   RUB   UBS AG     81,148,000      6/01/12     2,464,131        2,431,401        (32,730
BUY   SGD   JPMorgan Chase Bank N.A.     6,912,000      7/17/12     5,546,056        5,364,356        (181,700
             

 

 

 
              $ (1,835,497
             

 

 

 

Futures Contracts Outstanding at 5/31/12

 

Description   Currency     Contracts     Value   Expiration Date     Unrealized
Appreciation
(Depreciation)
 
Asset Derivatives          
Interest Rate Futures Contracts          
U.S. Treasury Bond 30 yr (Long)     USD        23      $3,443,531     September - 2012        $53,893   
         

 

 

 
Liability Derivatives          
Interest Rate Futures Contracts          
U.S. Treasury Note 10 yr (Short)     USD        404      $54,110,750     September - 2012        $(373,851
         

 

 

 

At May 31, 2012, the fund had liquid securities with an aggregate value of $443,943 to cover any commitments for certain derivative contracts.

See Notes to Financial Statements

 

28


Table of Contents

Financial Statements

 

STATEMENT OF ASSETS AND LIABILITIES

At 5/31/12 (unaudited)

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

Assets         

Investments-

  

Non-affiliated issuers, at value (identified cost, $584,966,704)

     $604,948,993   

Underlying affiliated funds, at cost and value

     37,395,306   

Total investments, at value (identified cost, $622,362,010)

     $642,344,299   

Cash

     10,244   

Receivables for

  

Forward foreign currency exchange contracts

     2,994,249   

Investments sold

     2,250,716   

Interest and dividends

     9,796,160   

Other assets

     31,494   

Total assets

     $657,427,162   
Liabilities         

Notes payable

     $100,000,000   

Payables for

  

Distributions

     165,590   

Forward foreign currency exchange contracts

     1,835,497   

Daily variation margin on open futures contracts

     80,313   

Investments purchased

     2,823,273   

TBA purchase commitments

     6,291,563   

Payable to affiliates

  

Investment adviser

     15,370   

Transfer agent and dividend disbursing costs

     3,138   

Payable for independent Trustees’ compensation

     96,179   

Accrued interest expense

     92,720   

Accrued expenses and other liabilities

     72,105   

Total liabilities

     $111,475,748   

Net assets

     $545,951,414   
Net assets consist of         

Paid-in capital

     $553,756,539   

Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies

     20,794,342   

Accumulated net realized gain (loss) on investments and foreign currency

     (23,545,382

Accumulated distributions in excess of net investment income

     (5,054,085

Net assets

     $545,951,414   

Shares of beneficial interest outstanding

     54,871,740   

Net asset value per share (net assets of
$545,951,414 / 54,871,740 shares of beneficial interest outstanding)

     $9.95   

See Notes to Financial Statements

 

29


Table of Contents

Financial Statements

 

STATEMENT OF OPERATIONS

Six months ended 5/31/12 (unaudited)

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Net investment income         

Income

  

Interest

     $19,834,302   

Dividends

     120,474   

Dividends from underlying affiliated funds

     16,500   

Total investment income

     $19,971,276   

Expenses

  

Management fee

     $1,814,726   

Transfer agent and dividend disbursing costs

     42,990   

Administrative services fee

     46,439   

Independent Trustees’ compensation

     40,270   

Stock exchange fee

     24,285   

Custodian fee

     38,890   

Interest expense

     536,328   

Shareholder communications

     58,352   

Audit and tax fees

     35,081   

Legal fees

     6,809   

Miscellaneous

     29,244   

Total expenses

     $2,673,414   

Fees paid indirectly

     (139

Reduction of expenses by investment adviser

     (1,171

Net expenses

     $2,672,104   

Net investment income

     $17,299,172   
Realized and unrealized gain (loss) on investments
and foreign currency
        

Realized gain (loss) (identified cost basis)

  

Investments

     $4,648,472   

Futures contracts

     (1,597,623

Foreign currency

     1,882,148   

Net realized gain (loss) on investments
and foreign currency

     $4,932,997   
Change in unrealized appreciation (depreciation)   

Investments

     $15,076,085   

Futures contracts

     (531,298

Translation of assets and liabilities in foreign currencies

     800,828   

Net unrealized gain (loss) on investments
and foreign currency translation

     $15,345,615   

Net realized and unrealized gain (loss) on investments
and foreign currency

     $20,278,612   

Change in net assets from operations

     $37,577,784   

See Notes to Financial Statements

 

30


Table of Contents

Financial Statements

 

STATEMENTS OF CHANGES IN NET ASSETS

These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.

 

    

Six months ended

5/31/12

     Year ended
11/30/11
 
Change in net assets    (unaudited)         
From operations                  

Net investment income

     $17,299,172         $35,868,749   

Net realized gain (loss) on investments
and foreign currency

     4,932,997         5,703,812   

Net unrealized gain (loss) on investments
and foreign currency translation

     15,345,615         (22,745,770

Change in net assets from operations

     $37,577,784         $18,826,791   
Distributions declared to shareholders                  

From net investment income

     $(17,943,064      $(40,906,885

Total change in net assets

     $19,634,720         $(22,080,094
Net assets                  

At beginning of period

     526,316,694         548,396,788   

At end of period (including accumulated distributions in excess of net investment income of $5,054,085 and $4,410,193, respectively)

     $545,951,414         $526,316,694   

See Notes to Financial Statements

 

31


Table of Contents

Financial Statements

 

STATEMENT OF CASH FLOWS

Six months ended 5/31/12 (unaudited)

This statement provides a summary of cash flows from investment activity for the fund.

 

Cash flows from operating activities:         

Net increase in net assets from operations

     $37,577,784   
Adjustments to reconcile change in net assets from operations to net cash provided by operating activities:         

Purchase of investment securities

     (164,587,876

Proceeds from disposition of investment securities

     177,084,723   

Proceeds from futures contracts

     (1,597,623

Purchases of short-term investments, net

     (14,619,146

Realized gain/loss on investments

     (4,648,472

Unrealized appreciation/depreciation on investments

     (15,076,085

Unrealized appreciation/depreciation on foreign currency contracts

     (799,485

Net amortization/accretion of income

     765,499   

Decrease in dividends and interest receivable

     833,342   

Decrease in accrued expenses and other liabilities

     (64,514

Decrease in receivable on daily variation margin on open futures contracts

     117,563   

Increase in payable for daily variation margin on open futures contracts

     80,313   

Increase in other assets

     (27,323

Realized gain/loss on futures contracts

     1,597,623   

Net cash provided by operating activities

     $16,636,323   
Cash flows from financing activities:         

Distributions paid in cash

     (17,947,511

Increase in interest payable

     5,850   

Net cash used by financing activities

     $(17,941,661

Net decrease in cash

     $(1,305,338
Cash:         

Beginning of period

     $1,315,582   

End of period

     $10,244   

Supplementary disclosure of cash flow information: cash paid during the year for interest $530,478.

See Notes to Financial Statements

 

32


Table of Contents

Financial Statements

 

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

   

Six months
ended

5/31/12

(unaudited)

    Years ended 11/30  
      2011     2010     2009     2008     2007  
                                 

Net asset value, beginning of period

    $9.59        $9.99        $9.50        $7.79        $9.54        $9.64   
Income (loss) from investment operations                                   

Net investment income (d)

    $0.32        $0.66        $0.68        $0.58        $0.47        $0.46   

Net realized and unrealized gain
(loss) on investments and
foreign currency

    0.37        (0.31     0.52        1.76        (1.72     (0.08

Total from investment operations

    $0.69        $0.35        $1.20        $2.34        $(1.25     $0.38   
Less distributions declared to shareholders                                           

From net investment income

    $(0.33     $(0.75     $(0.71     $(0.63     $(0.51     $(0.48

Net increase from repurchase of capital shares

    $—        $—        $—        $0.00 (w)      $0.01        $—   

Net asset value, end of period (x)

    $9.95        $9.59        $9.99        $9.50        $7.79        $9.54   

Market value, end of period

    $9.54        $8.93        $9.51        $8.96        $6.88        $8.30   

Total return at market value (%)

    10.55 (n)      1.79        14.36        40.77        (11.63     3.20   

Total return at net asset value (%) (j)(r)(s)(x)

    7.37 (n)      4.06        13.30        31.82        (12.95     4.71   
Ratios (%) (to average net assets)
and Supplemental data:
                                           

Expenses before expense
reductions (f)

    0.98 (a)      1.00        1.11        0.90        0.78        0.73   

Expenses after expense
reductions (f)

    0.98 (a)      1.00        1.11        0.90        0.78        0.73   

Net investment income

    6.33 (a)      6.60        6.93        6.71        5.18        4.89   

Portfolio turnover

    26        47        56        67        58        58   

Net assets at end of period
(000 omitted)

    $545,951        $526,317        $548,397        $521,228        $428,293        $527,269   

 

33


Table of Contents

Financial Highlights – continued

 

   

Six months
ended

5/31/12

(unaudited)

    Years ended 11/30  
      2011     2010     2009     2008     2007  
                                 
Supplemental Ratios (%):                                                

Ratio of expenses to average net assets
after expense reductions and
excluding interest expense (f)

    0.78 (a)      0.79        0.82        0.84        N/A        N/A   
Senior Securities:                                                

Total notes payable outstanding
(000 omitted)

    $100,000        $100,000        $100,000        $100,000        N/A        N/A   

Asset coverage per $1,000 of
indebtedness (k)

    $6,460        $6,263        $6,484        $6,212        N/A        N/A   
(a) Annualized.
(d) Per share data is based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.
(j) Total return at net asset value is calculated using the net asset value of the fund, not the publicly traded price and therefore may be different than the total return at market value.
(k) Calculated by subtracting the fund’s total liabilities (not including notes payable) from the fund’s total assets and dividing this number by the notes payable outstanding and then multiplying by 1,000.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
(w) Per share amount was less than $0.01.
(x) The net asset values per share and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes.

See Notes to Financial Statements

 

34


Table of Contents

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

(1)   Business and Organization

MFS Charter Income Trust (the fund) is organized as a 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 U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in high-yield securities rated below investment grade. Investments in high-yield securities involve greater degrees of credit and market risk than investments in higher-rated securities and tend to be more sensitive to economic conditions. The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. The value of these securities may depend, in part, on the issuer’s or borrower’s credit quality or ability to pay principal and interest when due and may fall if an issuer or borrower defaults on its obligation to pay principal or interest or if the instrument’s credit rating is downgraded by a credit rating agency. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae. The fund invests in foreign securities, including securities of emerging market issuers. 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. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries.

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods

 

35


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.

Investment Valuations – Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation as provided by a third-party pricing service on the market on which such futures contracts are primarily traded. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based

 

36


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such

 

37


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of May 31, 2012 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
Equity Securities      $1,690,319         $325,826         $16,944         $2,033,089   
U.S. Treasury Bonds & U.S. Government Agency & Equivalents              20,428,428                 20,428,428   
Non-U.S. Sovereign Debt              106,393,917                 106,393,917   
Corporate Bonds              331,460,886                 331,460,886   
Residential Mortgage-Backed Securities              34,571,226                 34,571,226   
Commercial Mortgage-Backed Securities              28,694,108                 28,694,108   
Asset-Backed Securities (including CDOs)              5,176,230                 5,176,230   
Foreign Bonds              75,901,196                 75,901,196   
Floating Rate Loans              289,913                 289,913   
Mutual Funds      37,395,306                         37,395,306   
Total Investments      $39,085,625         $603,241,730         $16,944         $642,344,299   
Other Financial Instruments                            
Futures Contracts      $(319,958      $—         $—         $(319,958
Forward Foreign Currency Exchange Contracts              1,158,752                 1,158,752   

For further information regarding security characteristics, see the Portfolio of Investments.

The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period. The table presents the activity of level 3 securities held at the beginning and the end of the period.

 

     Equity Securities  
Balance as of 11/30/11      $36,300   

Change in unrealized appreciation (depreciation)

     (19,356

Realized gain (loss)

     0   

Disposition of worthless securities

     0   
Balance as of 5/31/12      $16,944   

The net change in unrealized appreciation (depreciation) from investments still held as level 3 at May 31, 2012 is $(19,356).

Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on

 

38


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.

Derivatives – The fund uses derivatives for different purposes, primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.

The derivative instruments used by the fund were futures contracts and forward foreign currency exchange contracts. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract Tables, generally are indicative of the volume of its derivative activity during the period.

The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at May 31, 2012 as reported in the Statement of Assets and Liabilities:

 

        Fair Value (a)  
Risk   Derivative Contracts   Asset Derivatives     Liability Derivatives  
Interest Rate   Interest Rate Futures     $53,893        $(373,851

Foreign Exchange

  Forward Foreign Currency Exchange     2,994,249        (1,835,497
Total       $3,048,142        $(2,209,348

 

(a) The value of futures contracts outstanding includes cumulative appreciation (depreciation) as reported in the fund’s Portfolio of Investments. Only the current day variation margin for futures contracts is separately reported within the fund’s Statement of Assets and Liabilities.

 

39


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended May 31, 2012 as reported in the Statement of Operations:

 

Risk    Futures
Contracts
     Foreign
Currency
 
Interest Rate      $(1,597,623      $—   
Foreign Exchange              1,937,456   
Total      $(1,597,623      $1,937,456   

The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended May 31, 2012 as reported in the Statement of Operations:

 

Risk    Futures
Contracts
    

Translation

of Assets
and
Liabilities in
Foreign
Currencies

 
Interest Rate      $(531,298      $—   
Foreign Exchange              799,485   
Total      $(531,298      $799,485   

Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.

 

40


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been pledged to cover obligations of the fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as “Restricted cash.” Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.

Futures Contracts – The fund entered into futures contracts which may be used to hedge against or obtain broad market, interest rate, duration, or currency exposure. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a certain percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.

The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.

Forward Foreign Currency Exchange Contracts – The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against

 

41


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.

Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on foreign currency.

Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, an industry accepted settlement system. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.

Loans and Other Direct Debt Instruments – The fund invests in loans and loan participations or other receivables. These investments may include standby financing commitments, including revolving credit facilities, which obligate the fund to supply additional cash to the borrower on demand. Loan participations involve a risk of insolvency of the lending bank or other financial intermediary.

Statement of Cash Flows – Information on financial transactions which have been settled through the receipt or disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is the amount included within the fund’s Statement of Assets and Liabilities and includes cash on hand at its custodian bank and does not include any short term investments.

Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.

 

42


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. The fund earns certain fees in connection with its floating rate loan purchasing activities. These fees are in addition to interest payments earned and may include amendment fees, commitment fees, facility fees, consent fees, and prepayment fees. Commitment fees are recorded on an accrual basis as income in the accompanying financial statements. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date. Debt obligations may be placed on non-accrual status or set to accrue at a rate of interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by the write-off of the related interest receivables when deemed uncollectible.

The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

The fund purchased or sold debt securities on a when-issued or delayed delivery basis, or in a “To Be Announced” (TBA) or “forward commitment” transaction with delivery or payment to occur at a later date beyond the normal settlement period. TBA securities resulting from these transactions are included in the Portfolio of Investments. At the time a fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the security acquired is reflected in the fund’s net asset value. The price of such security and the date that the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the fund until payment takes place. At the time that a fund enters into this type of transaction, the fund is required to have sufficient cash and/or liquid securities to cover its commitments. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic or other factors. Additionally, losses may arise due to declines in the value of the securities prior to settlement date.

 

43


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended May 31, 2012, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.

Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

Book/tax differences primarily relate to amortization and accretion of debt securities, straddle loss deferrals, and derivative transactions.

The tax character of distributions made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

     11/30/11  
Ordinary income (including any short-term
capital gains)
     $40,906,885   

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 5/31/12       
Cost of investments      $625,832,531   
Gross appreciation      31,509,621   
Gross depreciation      (14,997,853
Net unrealized appreciation (depreciation)      $16,511,768   

 

44


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

As of 11/30/11       
Undistributed ordinary income      2,057,150   
Capital loss carryforwards      (24,936,861
Other temporary differences      (6,471,197
Net unrealized appreciation (depreciation)      1,911,063   

The aggregate cost above includes prior year end tax adjustments, if applicable.

Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after November 30, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.

As of November 30, 2011, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

Pre-enactment losses:   
11/30/15      $(954,320
11/30/16      (12,601,136
11/30/17      (11,381,405
Total      $(24,936,861

 

(3)   Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.32% of the fund’s average daily net assets and 4.57% of gross income less interest expense from leveraging. Gross income is calculated based on tax elections that generally include the accretion of discount and exclude the amortization of premium, which may differ from investment income reported in the Statement of Operations. The management fee, from net assets and gross income, incurred for the six months ended May 31, 2012 was equivalent to an annual effective rate of 0.66% of the fund’s average daily net assets.

Transfer Agent – The fund engages Computershare Trust Company, N.A. (“Computershare”) as the sole transfer agent for the fund. MFS Service Center, Inc. (MFSC) monitors and supervises the activities of Computershare for an agreed upon fee approved by the Board of Trustees. For the six months ended May 31, 2012, these fees paid to MFSC amounted to $15,486.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an

 

45


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended May 31, 2012 was equivalent to an annual effective rate of 0.0170% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS and MFSC.

Prior to December 31, 2001, the fund had an unfunded defined benefit plan (“DB plan”) for independent Trustees. As of December 31, 2001, the Board took action to terminate the DB plan with respect to then-current and any future independent Trustees, such that the DB plan covers only certain of those former independent Trustees who retired on or before December 31, 2001. Effective January 1, 2002, accrued benefits under the DB plan for then-current independent Trustees who continued were credited to an unfunded retirement deferral plan (the “Retirement Deferral plan”), which was established for and exists solely with respect to these credited amounts, and is not available for other deferrals by these or other independent Trustees. Although the Retirement Deferral plan is unfunded, amounts deferred under the plan are periodically adjusted for investment experience as if they had been invested in shares of the fund. The DB plan resulted in a pension expense of $687 and the Retirement Deferral plan resulted in an expense of $3,392. Both amounts are included in independent Trustees’ compensation for the six months ended May 31, 2012. The liability for deferred retirement benefits payable to certain independent Trustees under both plans amounted to $96,082 at May 31, 2012, and is included in “Payable for independent Trustees’ compensation” on the Statement of Assets and Liabilities.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended May 31, 2012, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $3,440 and are included in “Miscellaneous” expense on the Statement of Operations. MFS has

 

46


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $1,171, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” on the Statement of Operations. This money market fund does not pay a management fee to MFS.

 

(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      $14,542,894         $4,190,787   
Investments (non-U.S. Government securities)      $141,666,785         $154,642,285   

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. The Trustees have authorized the repurchase by the fund of up to 10% annually of its own shares of beneficial interest. During the six months ended May 31, 2012 and the year ended November 30, 2011, there were no transactions in fund shares.

 

(6)   Loan Agreement

The fund has a credit agreement with a bank for a revolving secured line of credit that can be drawn upon up to $100,000,000. At May 31, 2012, the fund had outstanding borrowings under this agreement in the amount of $100,000,000, which are secured by a lien on the fund’s assets. The loan’s carrying value on the fund’s Statement of Assets and Liabilities approximates its fair value. The loan value as of the reporting date is considered Level 2 under the fair value hierarchy. The credit agreement matures on August 24, 2012. Subsequent to the period end, the Trustees approved the renewal of the revolving secured line of credit up to the amount of $100,000,000 on substantially similar terms for an additional 364 day period. Borrowing under the agreement can be made for liquidity or leverage purposes. Interest is charged at a rate per annum equal to LIBOR plus an agreed upon spread or an alternate rate, at the option of the borrower, stated as the greater of Overnight LIBOR or the Federal Funds Rate each plus an agreed upon spread. The fund incurred interest expense of $536,328 during the period. The fund may also be charged a commitment fee based on the average daily unused portion of the line of credit. The fund did not incur a commitment fee during the period. For

 

47


Table of Contents

Notes to Financial Statements (unaudited) – continued

 

the six months ended May 31, 2012, the average loan balance was $100,000,000 at a weighted average annual interest rate of 1.07%. The fund is subject to certain covenants including, but not limited to, requirements with respect to asset coverage, portfolio diversification and liquidity.

 

(7)   Transactions in Underlying Affiliated Funds-Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:

 

Underlying Affiliated Fund    Beginning
Shares/Par
Amount
     Acquisitions
Shares/Par
Amount
     Dispositions
Shares/Par
Amount
     Ending
Shares/Par
Amount
 
MFS Institutional Money
Market Portfolio
     22,776,160         93,743,307         (79,124,161      37,395,306   
Underlying Affiliated Fund    Realized
Gain (Loss)
     Capital Gain
Distributions
     Dividend
Income
     Ending
Value
 
MFS Institutional Money
Market Portfolio
     $—         $—         $16,500         $37,395,306   

 

48


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholders of the MFS Charter Income Trust:

We have reviewed the accompanying statement of assets and liabilities of the MFS Charter Income Trust (the Fund), including the portfolio of investments, as of May 31, 2012, and the related statements of operations, changes in net assets, cash flows, and financial highlights for the six-month period ended May 31, 2012. These interim financial statements and financial highlights are the responsibility of the Fund’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements and financial highlights for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of changes in net assets for the year ended November 30, 2011, and the financial highlights for each of the five years in the period ended November 30, 2011, and in our report dated January 13, 2012, we expressed an unqualified opinion on such statement of changes in net assets and financial highlights.

 

LOGO

Boston, Massachusetts

July 17, 2012

 

49


Table of Contents

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Closed End Funds” in the “Products and Performance” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund voted proxies relating to portfolio securities during the twelve-month period ended June 30, 2011 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The fund’s Form N-Q is also available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:

Public Reference Room

Securities and Exchange Commission

100 F Street, NE, Room 1580

Washington, D.C. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Closed End Funds” in the “Products and Performance” section of mfs.com.

 

50


Table of Contents

CONTACT US

Transfer agent, Registrar, and

Dividend Disbursing Agent

Call

1-800-637-2304

9 a.m. to 5 p.m. Eastern time

Write

Computershare Trust Company, N.A.

P.O. Box 43078

Providence, RI 02940-3078

 

New York Stock Exchange Symbol: MCR

 

LOGO


Table of Contents
ITEM 2. CODE OF ETHICS.

During the period covered by this report, the Registrant has not amended any provision in its Code of Ethics (the “Code”) that relates to an element of the Code’s definitions enumerated in paragraph (b) of Item 2 of this Form N-CSR. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

Not applicable for semi-annual reports.

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Not applicable for semi-annual reports.

 

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable for semi-annual reports.

 

ITEM 6. SCHEDULE OF INVESTMENTS

A schedule of investments for each series of the Registrant is included as part of the report to shareholders of such series under Item 1 of this Form N-CSR.

 

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable for semi-annual reports.

 

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

There were no changes during the period.


Table of Contents
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

MFS Charter Income Trust

 

Period

   (a) Total number
of Shares
Purchased
     (b)
Average
Price
Paid per
Share
     (c) Total
Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
     (d) Maximum
Number (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
under the Plans
or Programs
 

12/01/11-12/31/11

     0         N/A         0         5,487,174   

1/01/12-1/31/12

     0         N/A         0         5,487,174   

2/01/12-2/28/12

     0         N/A         0         5,487,174   

3/01/12-3/31/12

     0         N/A         0         5,487,174   

4/01/12-4/30/12

     0         N/A         0         5,487,174   

5/01/12-5/31/12

     0         N/A         0         5,487,174   
  

 

 

       

 

 

    

Total

     0            0      
  

 

 

       

 

 

    

Note: The Board of Trustees approves procedures to repurchase shares annually. The notification to shareholders of the program is part of the semi-annual and annual reports sent to shareholders. These annual programs begin on March 1st of each year. The programs conform to the conditions of Rule 10b-18 of the securities Exchange Act of 1934 and limit the aggregate number of shares that may be purchased in each annual period (March 1 through the following February 28) to 10% of the Registrant’s outstanding shares as of the first day of the plan year (March 1). The aggregate number of shares available for purchase for the March 1, 2012 plan year is 5,487,174.

 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.

 

ITEM 11. CONTROLS AND PROCEDURES.

 

(a) Based upon their evaluation of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this Form N-CSR, the registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

(b) There were no changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter covered by the report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.


Table of Contents
ITEM 12. EXHIBITS.

 

(a) File the exhibits listed below as part of this form. Letter or number the exhibits in the sequence indicated.

 

  (1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit.

 

  (2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto.

 

(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: Attached hereto.


Table of Contents

Notice

A copy of the Amended and Restated Declaration of Trust of the Registrant is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.


Table of Contents

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 M. CORCORAN
  John M. Corcoran, President

Date: JULY 17, 2012

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 M. CORCORAN
  John M. Corcoran, President (Principal Executive Officer)

Date: JULY 17, 2012

 

By (Signature and Title)*   DAVID L. DILORENZO
  David L. DiLorenzo, Treasurer (Principal Financial Officer and Accounting Officer)

Date: JULY 17, 2012

 

* Print name and title of each signing officer under his or her signature.