UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5822
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MFS CHARTER INCOME TRUST
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: November 30
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Date of reporting period: May 31, 2005
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) Mutual Funds
SEMIANNUAL REPORT 5/31/05
MFS(R) CHARTER INCOME TRUST
A path for pursuing opportunity
[logo] M F S(SM)
INVESTMENT MANAGEMENT(R)
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NOT FDIC INSURED MAY LOSE VALUE NO BANK OR CREDIT UNION GUARANTEE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUIF
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MFS(R) CHARTER INCOME TRUST
The trust seeks to maximize current income.
New York Stock Exchange Symbol: MCR
TABLE OF CONTENTS
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LETTER FROM THE CEO 1
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MFS ORIGINAL RESEARCH(R) 2
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PORTFOLIO COMPOSITION 3
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MANAGEMENT REVIEW 4
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PORTFOLIO MANAGER'S PROFILE 6
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PERFORMANCE SUMMARY 7
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN 10
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PORTFOLIO OF INVESTMENTS 11
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FINANCIAL STATEMENTS 23
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NOTES TO FINANCIAL STATEMENTS 28
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 40
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RESULTS OF SHAREHOLDER MEETING 41
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PROXY VOTING POLICIES AND INFORMATION 42
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QUARTERLY PORTFOLIO DISCLOSURE 42
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CONTACT INFORMATION AND
NUMBER OF SHAREHOLDERS BACK COVER
LETTER FROM THE CEO
Dear Shareholders,
[Photo of Robert J. Manning]
Dear Shareholders,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional. You may also want to refer to information on the subject on our
Website, MFS.COM.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
July 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
MFS ORIGINAL RESEARCH(R)
A DISCIPLINED INVESTMENT PROCESS
Since 1932 we have built our firm on the philosophy that fundamental, bottom-
up Original Research(SM) is the most effective process to take advantage of
investment opportunities in capital markets across all asset classes around
the world.
From start to finish, here is how the investment process at MFS(R) works:
o ANALYZE: Our analysts uncover investments one opportunity at a time by
developing in-depth, firsthand knowledge of companies.
o COLLABORATE: Constant communication enables our analysts and portfolio
managers to exchange opinions and challenge ideas in a spirit of
collaboration.
o RECOMMEND: The analysts give "buy" ratings to the securities they believe
offer the greatest long-term opportunities.
o INVEST: Our portfolio managers construct diversified portfolios by taking the
analysts' recommendations, drawing on their own experience, and using that
combined knowledge to select securities that they believe match their
portfolios' investment discipline.
o ASSESS RISK: MFS' quantitative teams help the managers in their efforts to
ensure that the risk levels they assume are appropriate for their portfolios'
objectives.
o MONITOR: The analysts and portfolio managers continue to review the
fundamentals of every security in a portfolio in their efforts to ensure it
remains a right fit for that particular portfolio.
FOCUSED ON YOUR GOALS
We believe that bottom-up research is the best way to uncover the factors that
drive security prices over the long term and the best way to help investors
pursue their long-term financial goals.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE*
Bonds 89.0%
Cash & Other Net Assets 10.9%
Stocks 0.1%
MARKET SECTORS
International Bonds 21.5%
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High Yield Corporates 15.6%
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Mortgage-Backed Securities 15.3%
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High Grade Corporates 13.0%
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Cash & Other Net Assets 10.9%
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Emerging Market Bonds 10.7%
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Commercial Mortgage-Backed Securities 6.6%
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U.S. Government Agencies 5.2%
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Asset-Backed Securities 1.1%
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Domestic Equities 0.1%
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CREDIT QUALITY OF BONDS**
AAA 55.4%
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AA 1.8%
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A 2.9%
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BBB 13.1%
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BB 18.4%
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B 6.4%
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CCC 1.1%
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CC 0.1%
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Not Rated 0.8%
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PORTFOLIO FACTS
Average Duration 4.2
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Average Life 7.5 yrs.
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Average Maturity*** 13.1 yrs.
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Average Credit Quality**** A+
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Average Short-Term Credit Quality A-1
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COUNTRY WEIGHTINGS
United States 63.0%
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Germany 5.0%
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Great Britain 3.0%
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Russia 2.7%
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Spain 2.6%
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Finland 2.5%
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Ireland 2.5%
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Netherlands 2.3%
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New Zealand 2.0%
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Other 14.4%
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* For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
** Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based
on the rating assigned by Fitch, Inc. For those portfolios that hold a
security which is not rated by any of the three agencies, the security is
considered Not Rated. Holdings in U.S. Treasuries and government agency
mortgage-backed securities, if any, are included in a "AAA"-rating
category. Percentages are based on the total market value of investments
as of 5/31/05.
*** The average maturity shown is calculated using the final stated maturity
on the portfolio's holdings without taking into account any holdings which
have been pre- refunded to an earlier date or which have a mandatory put
date prior to the stated maturity. The average life shown takes into
account these earlier dates.
**** The Portfolio Average Credit Quality rating is based upon a market
weighted average of portfolio holdings.
Percentages are based on net assets as of 5/31/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
To gauge performance of this portfolio, we use a variety of benchmarks
reflecting the varying results of the different markets in which we invest.
For the six months ended May 31, 2005, the MFS Charter Income Trust's
performance at net asset value surpassed four of the six benchmarks,
outperforming the Lehman Brothers Aggregate Bond, Lehman Brothers High Yield,
Lehman Brothers Government/Mortgage, and the Lehman Brothers Credit indices,
while underperforming the J.P. Morgan Emerging Markets Bond Index (EMBI)
Global and the Citigroup World Government Bond Non-Dollar Hedged indices.
The trust's investment objective is to maximize current income through
investments in fixed income securities. The investment policy is to allocate
portfolio assets among various categories of fixed income securities and to
reallocate assets in response to actual and anticipated market changes.
MARKET ENVIRONMENT
The U.S. fixed income market experienced a flattening of the yield curve
during the six-month period. (A yield curve for bonds shows the relationship
between yield and time to maturity.) The U.S. Federal Reserve Board raised its
target federal funds rate four times, continuing its steady drumbeat of
quarter-point rate hikes that had begun on June 30, 2004. But while the Fed
seemed committed to a course of gradually raising short-term rates, several
factors caused long-term rates to stagnate or retreat.
Job growth, which had shot up in the spring of 2004, ebbed and flowed during
the period; uncertainty about the employment situation helped to push down
yields on longer-dated bonds. Another factor that held long-term rates down
was overseas demand for U.S. Treasuries, especially from foreign central
banks. However, moderate GDP growth and inflation concerns kept shorter-term
interest rates moving up. For the period as a whole, the net effect was a
substantial flattening of the yield curve as short-term rates rose
significantly while long-term rates were generally flat to down.
TRUST POSITIONING
MFS Charter Income Trust, a closed-end trust, maintains a portfolio consisting
of various fixed income securities both domestic and global.
The portfolio was invested in U.S. government, corporate, and high yield
securities. Additional allocations were made in global sovereign bonds and
emerging market debt. Our foreign holdings were allocated across Europe and
Asian nations. We emphasized government bonds in Europe where growth has been
sluggish, while avoiding Japan, where interest rates have been extremely low
and the economy has been improving. Alternatively, we invested in Australia,
New Zealand and the U.K. where official rates have already been relatively
high.
CONTRIBUTORS TO PERFORMANCE
The trust's portfolio is allocated to U.S., European, and Pacific Rim
securities. The trust's yield curve exposure aided relative results. At the
sector level, the trust's positioning in longer-term agencies and mortgages
and our security selection within the corporate bond sector, specifically
industrial, banking, and financials, boosted results.
Our holdings of sovereign and emerging market debt also added to performance.
Although our underweighting in the more speculative areas of the high-yield
market overall benefited the trust as spreads widened over the period, the
negative impact of overweighting the "BBB" and "BB" quality sectors offset
some of those gains.
DETRACTORS FROM PERFORMANCE
Over the period, the dollar appreciated against the euro, British Pound,
Yen, and other Pacific Rim currencies. Additionally, the trust's positioning
in TIPS (treasury inflation protection securities) and supranational debt also
held back results.
Respectfully,
/s/ Richard O. Hawkins
Richard O. Hawkins
Portfolio Manager
Note to Shareholders: Effective May 31, 2005, the Lehman Brothers Credit
Index, and the Lehman Brothers Government/Mortgage Index were added as
benchmarks for the MFS Charter Income Trust. Additionally, the Lehman Brothers
Aggregate Bond Index was removed as a benchmark, however, we will continue to
provide comparative returns for that index in the next two shareholder
reports, including this semiannual report.
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report, as stated on the cover, and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS fund. References to specific securities are
not recommendations of such securities and may not be representative of any MFS
fund's current or future investments.
The portfolio is actively managed, and current holdings may be different.
PERFORMANCE SUMMARY FOR THE SIX MONTHS ENDED 5/31/05
All results are historical. Investment return and principal value will
fluctuate, and shares, when sold, may be worth more or less than their
original cost. More recent returns may be more or less than those shown. Past
performance is no guarantee of future results.
PRICE SUMMARY
Date Price
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Based on net asset value 11/30/2004 $9.71
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5/31/2005 $9.74
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Based on New York Stock Exchange 11/30/2004 $8.71
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2/01/2005 (high)* $9.01
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3/28/2005 (low)* $8.40
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5/31/2005 $8.70
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* For the period from December 1, 2004 through May 31, 2005.
TOTAL RETURNS VS BENCHMARKS
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Based on New York Stock Exchange price** 2.84%
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Based on net asset value** 3.28%
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Citigroup World Government Bond Non-Dollar Hedged Index 4.03%
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J.P. Morgan Emerging Markets Bond Index (EMBI) Global 5.86%
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Lehman Brothers Aggregate Bond Index 2.90%
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Lehman Brothers High Yield Index 0.64%
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Lehman Brothers Credit Index 3.01%
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Lehman Brothers Government/Mortgage Index 2.89%
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** Includes reinvestment of dividends and capital distributions.
INDEX DEFINITIONS
Lehman Brothers Credit Index - measures publicly issued, SEC-registered, U.S.
corporate and specified foreign debentures and secured notes that meet
specified maturity, liquidity, and quality requirements.
Lehman Brothers Government/Mortgage Index - measures debt issued by the U.S.
Government as well as mortgage-backed pass-through securities of Ginnie Mae
(GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
Citigroup World Government Bond Non-Dollar Hedged Index - is a market
capitalization weighted index that tracks the currency-hedged performance
of the major government bond markets, excluding the United States.
Country eligibility is determined based upon market capitalization and
investability criteria.
J.P. Morgan Emerging Markets Bond Index Global (the EMBI Global) - tracks
total returns for dollar-denominated Brady Bonds, Eurobonds, traded loans and
local market debt instruments issued by sovereign and quasi-sovereign entities
of emerging markets countries.
Lehman Brothers Aggregate Bond Index - measures the U.S. investment grade,
fixed rate bond market, with index components for government and corporate
securities, mortgage pass-through securities, and asset-backed securities.
Lehman Brothers High Yield Index - measures the universe of non-investment
grade, fixed rate debt. Eurobonds, and debt issues from countries designated
as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
The trust's shares may trade at a discount to net asset value. Shareholders do
not have the right to cause the trust to repurchase their shares at net asset
value. The trust's shares also may trade at a premium to net asset value.
When trust shares trade at a premium, buyers pay more than the asset value
underlying trust shares, and shares purchased at a premium would receive less
than the amount paid for them in the event of the trust'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 trust's monthly distributions may include a return of capital to
shareholders. 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 trust's assets and increasing the trust's
expense ratio.
KEY RISK CONSIDERATIONS
Because the portfolio invests in interest bearing securities, its value will
be affected by changes in interest rates.
The portfolio may invest in foreign and/or emerging markets securities, which
are more susceptible to interest rates, currency exchange rates, economic, and
political risks.
The portfolio may invest in derivative securities, which may include futures
and options. These types of instruments can increase share price fluctuation.
The portfolio invests in government-guaranteed securities. These guarantees
apply to the underlying securities only and not to the prices and yields of
the portfolio.
The portfolio invests in high yield or lower-rated securities, which may
provide greater returns but are subject to greater-than-average risk.
The portfolio can invest a relatively high percentage of its assets in one or
more issuers, thereby making it more susceptible to any single economic,
political or regulatory occurrence.
These risks may increase share price volatility.
PORTFOLIO MANAGER'S PROFILE
Richard O. Hawkins, CFA, is Senior Vice President of MFS Investment
Management(R) (MFS(R)); an investment grade fixed income research analyst; and
a portfolio manager of MFS(R) Charter Income Trust.
Prior to joining the firm in 1988, he spent two years as an International Bond
Analyst for Fidelity Management & Research Company; and five years as an
International Lending Officer for Manufacturers Hanover Trust Company. He was
named portfolio manager of MFS Charter Income Trust at MFS in 2004.
Richard earned a bachelor's degree from Brown University and a Master's of
Business Administration from the University of Pennsylvania. He is a member of
the Association for Investment Management and Research (AIMR) and holds the
Chartered Financial Analyst (CFA) designation.
All portfolio managers at MFS are supported by an investment staff of over 160
professionals utilizing MFS Original Research(R), a global, company-oriented,
bottom-up process of selecting securities.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The trust offers a Dividend Reinvestment and Cash Purchase Plan that allows
you to reinvest either all of the distributions paid by the trust or only the
long-term capital gains. Purchases are made at the market price unless that
price exceeds the net asset value (the shares are trading at a premium). If
the shares are trading at a premium, purchases will be made at a discounted
price of either the net asset value or 95% of the market price, whichever is
greater. Twice each year you can also buy shares. Investments may be made in
any amount over $100 in January and July on the 15th of the month or
shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee,
you can ask the firm or nominee to participate in the plan on your behalf. If
the nominee does not offer the plan, you may wish to request that your shares
be re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the trust. However, when shares are
bought on the New York Stock Exchange or otherwise on the open market, each
participant pays a pro rata share of the commissions. The automatic
reinvestment of distributions does not relieve you of any income tax that may
be payable (or required to be withheld) on the distributions.
To enroll in or withdraw from the plan, or if you have any questions, call
1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time. Please
have available the name of the trust and your account and Social Security
numbers. For certain types of registrations, such as corporate accounts,
instructions must be submitted in writing. Please call for additional details.
When you withdraw from the plan, you can receive the value of the reinvested
shares in one of two ways: a check for the value of the full and fractional
shares, or a certificate for the full shares and a check for the fractional
shares.
PORTFOLIO OF INVESTMENTS (unaudited) - 5/31/05
The Portfolio of Investments is a complete list of all securities
owned by your trust. It is categorized by broad-based asset classes.
Bonds - 95.9%
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ISSUER PAR AMOUNT $ VALUE
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Advertising & Broadcasting - 1.3%
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Allbritton Communications Co., 7.75%, 2012 $ 555,000 $ 543,900
DIRECTV Holdings LLC, 8.375%, 2013 884,000 979,030
Echostar DBS Corp., 6.375%, 2011 1,945,000 1,964,450
Intelsat Ltd., 8.625%, 2015## 340,000 348,925
Lamar Media Corp., 7.25%, 2013 1,140,000 1,202,700
News America Holdings, 7.7%, 2025 1,140,000 1,354,455
News America, Inc., 6.2%, 2034 542,000 560,372
Paxson Communications Corp., 0% to 2006, 12.25% to 2009 580,000 536,500
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$ 7,490,332
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Agency - Other - 1.0%
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Financing Corp., 10.35%, 2018 $ 3,600,000 $ 5,621,101
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Airlines - 0.2%
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Continental Airlines, Inc., 7.566%, 2020 $ 1,049,526 $ 860,885
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Asset Backed & Securitized - 7.6%
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Airplane Pass-Through Trust, 10.875%, 2019** $ 222,233 $ 667
Amresco Commercial Mortgage Funding I, 7%, 2029 3,000,000 3,116,801
Asset Securitization Corp., 7.525%, 2029 1,586,134 1,453,729
Asset Securitization Corp., FRN, 8.006%, 2026 2,000,000 2,085,294
Bear Stearns Commercial Mortgage Securities, Inc., FRN,
5.116%, 2041 1,120,248 1,160,302
Commercial Mortgage Acceptance Corp., 5.44%, 2013## 3,165,000 3,244,709
Countrywide Asset-Backed Certificates, FRN, 5.147%, 2035 2,000,000 2,037,413
Credit Suisse First Boston Mortgage Securities Corp.,
6.75%, 2030## 2,000,000 1,928,668
Crest Ltd., 7%, 2040## 2,000,000 1,913,454
DLJ Commercial Mortgage Corp., 6.04%, 2031 2,000,000 2,033,260
First Union-Lehman Brothers Bank of America, FRN,
0.5128%, 2028^^ 75,612,627 1,581,272
First Union-Lehman Brothers Commercial Mortgage Trust,
7%, 2029## 850,000 962,900
First Union-Lehman Brothers Commercial Mortgage Trust, FRN,
7.5%, 2029 3,000,000 3,528,444
J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN,
5.038%, 2046 4,000,000 4,117,867
Morgan Stanley Capital I, 5.168%, 2042 1,532,020 1,589,821
Mortgage Capital Funding, Inc., FRN, 0.8352%, 2031^^ 22,117,216 434,420
Residential Asset Mortgage Products, Inc., 3.878%, 2035 1,340,523 1,333,663
Structured Asset Securities Corp., 4.67%, 2035 2,484,152 2,468,256
TIAA Retail Estate CDO Ltd., 7.17%, 2032## 3,118,133 3,253,923
Wachovia Bank Commercial Mortgage Trust, FRN, 5.083%, 2042 2,000,000 2,067,011
Wachovia Bank Commerical Mortgage Trust, 4.847%, 2041 2,000,000 2,031,838
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$ 42,343,712
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Automotive - 1.1%
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Affinia Group, Inc., 9%, 2014## $ 75,000 $ 61,500
DaimlerChrysler N.A. Holdings Corp., 8.5%, 2031 400,000 490,411
Ford Motor Credit Co., 5.625%, 2008 185,000 174,690
Ford Motor Credit Co., 5.7%, 2010 1,400,000 1,273,646
General Motors Acceptance Corp., 6.125%, 2008 160,000 153,099
General Motors Acceptance Corp., 5.85%, 2009 285,000 260,092
General Motors Acceptance Corp., 6.75%, 2014 220,000 186,599
General Motors Acceptance Corp., 8%, 2031 500,000 418,261
General Motors Corp., 7.2%, 2011 1,200,000 1,031,791
General Motors Corp., 8.375%, 2033 750,000 574,556
Lear Corp., 8.11%, 2009 115,000 117,537
Navistar International Corp., 7.5%, 2011 505,000 513,838
TRW Automotive, Inc., 9.375%, 2013 781,000 843,480
TRW Automotive, Inc., 11%, 2013 84,000 91,980
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$ 6,191,480
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Banks & Credit Companies - 3.3%
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Abbey National Capital Trust I, 8.963% to 2030, FRN to 2049 $ 1,500,000 $ 2,162,707
Banco Mercantil del Norte S.A., FRN, 5.875%, 2014## 2,408,000 2,408,000
Bosphorus Financial Services Ltd., 5.0681%, 2012## 1,500,000 1,425,000
Chuo Mitsui Trust & Banking Co., 5.506% to 2015,
FRN to 2049## 1,676,000 1,602,295
HBOS Capital Funding LP, 6.071% to 2014, FRN to 2049## 1,330,000 1,428,226
J.P. Morgan Chase & Co., 5.125%, 2014 2,100,000 2,138,995
Kazkommerts International B.V., 10.125%, 2007 128,000 138,560
Kazkommerts International B.V., 10.125%, 2007## 367,000 397,277
Mizuho Financial Group, Inc., 5.79%, 2014## 1,898,000 1,988,969
RBS Capital Trust II, 6.425% to 2034, FRN to 2049 829,000 913,623
Russian Standard Finance S.A., 8.125%, 2008## 1,363,000 1,369,815
Turanalem Finance B.V., 8%, 2014## 854,000 847,595
UFJ Finance Aruba AEC, 6.75%, 2013 1,300,000 1,445,583
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$ 18,266,645
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Broadcast & Cable TV - 1.6%
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Charter Communications, Inc., 8.625%, 2009 $ 580,000 $ 430,650
Continental Cablevision, Inc., 9.5%, 2013 2,390,000 2,524,210
CSC Holdings, Inc., 8.125%, 2009 1,050,000 1,115,625
Lenfest Communications, Inc., 10.5%, 2006 1,900,000 2,013,628
Mediacom Broadband LLC, 9.5%, 2013 280,000 277,900
Rogers Cable, Inc., 5.5%, 2014 1,025,000 963,500
TCI Communications, Inc., 9.8%, 2012 1,169,000 1,491,792
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$ 8,817,305
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Brokerage & Asset Managers - 1.0%
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Goldman Sachs Group, Inc., 5.7%, 2012 $ 2,680,000 $ 2,833,800
Morgan Stanley Dean Witter, Inc., 6.6%, 2012 2,537,000 2,808,908
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$ 5,642,708
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Building - 0.1%
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Building Materials Corp. of America, 7.75%, 2014 $ 570,000 $ 530,100
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Business Services - 0.2%
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Iron Mountain, Inc., 7.75%, 2015 $ 265,000 $ 261,025
Xerox Corp., 7.625%, 2013 920,000 1,002,800
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$ 1,263,825
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Chemicals - 1.0%
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BCP Crystal Holdings Corp., 9.625%, 2014 $ 237,000 $ 266,032
Hercules, Inc., 6.75%, 2029 860,000 838,500
Huntsman International LLC, 10.125%, 2009 331,000 343,412
Kronos International, Inc., 8.875%, 2009 EUR 100,000 128,634
Lyondell Chemical Co., 11.125%, 2012 $ 615,000 697,256
Nalco Co., 7.75%, 2011 395,000 412,775
Nova Chemicals Corp., 6.5%, 2012 605,000 592,900
Rhodia S.A., 8.875%, 2011 325,000 312,000
Rockwood Specialties Group, Inc., 7.5%, 2014## 60,000 57,000
Yara International A.S.A., 5.25%, 2014## 2,000,000 2,016,976
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$ 5,665,485
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Conglomerates - 0.2%
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Kennametal, Inc., 7.2%, 2012 $ 1,140,000 $ 1,272,422
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Construction - 0.3%
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D.R. Horton, Inc., 8%, 2009 $ 935,000 $ 1,017,134
M/I Homes, Inc., 6.875%, 2012## 675,000 659,813
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$ 1,676,947
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Consumer Goods & Services - 0.2%
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Church & Dwight Co., Inc., 6%, 2012## $ 460,000 $ 460,000
K2, Inc., 7.375%, 2014 560,000 582,400
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$ 1,042,400
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Containers - 0.3%
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Crown European Holdings S.A., 9.5%, 2011 $ 530,000 $ 580,350
Owens-Brockway Glass Container, Inc., 8.875%, 2009 660,000 701,250
Owens-Brockway Glass Container, Inc., 8.25%, 2013 85,000 91,800
Pliant Corp., 13%, 2010 190,000 152,000
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$ 1,525,400
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Defense Electronics - 0.1%
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L-3 Communications Corp., 5.875%, 2015 $ 750,000 $ 723,750
---------------------------------------------------------------------------------------------------
Electronics - 0.2%
---------------------------------------------------------------------------------------------------
Flextronics International Ltd., 6.5%, 2013 $ 895,000 $ 910,663
---------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 1.4%
---------------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013## $ 1,510,000 $ 1,806,338
Gazprom OAO, 9.625%, 2013 420,000 502,425
Pemex Project Funding Master Trust, 7.375%, 2014 1,213,000 1,359,167
Pemex Project Funding Master Trust, 8.625%, 2022 1,383,000 1,676,888
Petroliam Nasional Berhad, 7.75%, 2015 1,363,000 1,669,438
Petronas Capital Ltd., 7.875%, 2022## 464,000 580,295
------------
$ 7,594,551
---------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 6.9%
---------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8%, 2014 $ 9,442,414 $ 9,643,065
Federal Republic of Brazil, 8.875%, 2019 59,000 61,478
Federal Republic of Brazil, 8.25%, 2034 122,000 116,998
Republic of Argentina, FRN, 3.01%, 2012 4,019,000 3,578,919
Republic of Colombia, 10.75%, 2013 685,000 813,437
Republic of Colombia, 11.75%, 2020 645,000 827,212
Republic of Panama, 9.375%, 2023 373,000 451,330
Republic of Panama, 9.375%, 2029 1,323,000 1,614,060
Republic of Peru, 9.875%, 2015 1,311,000 1,594,176
Republic of Peru, 8.75%, 2033 851,000 944,610
Republic of South Africa, 9.125%, 2009 469,000 544,626
Republic of South Africa, 8.5%, 2017 790,000 1,010,213
Republic of Turkey, 7.25%, 2015 544,000 550,120
Russian Federation, 3%, 2008 2,955,000 2,767,062
Russian Federation, 3%, 2011 4,910,000 4,247,150
Russian Federation, 11%, 2018 686,000 1,007,322
Russian Federation, 5% to 2007, 7.5% to 2030 522,000 572,999
State of Qatar, 9.75%, 2030 2,645,000 4,053,462
United Mexican States, 8.125%, 2019 1,426,000 1,741,146
United Mexican States, 8.3%, 2031 1,526,000 1,884,610
------------
$ 38,023,995
---------------------------------------------------------------------------------------------------
Energy - Independent - 0.7%
---------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 7.5%, 2014 $ 335,000 $ 362,637
Chesapeake Energy Corp., 6.875%, 2016 680,000 710,600
Forest Oil Corp., 7.75%, 2014 550,000 591,250
Kerr-McGee Corp., 6.95%, 2024 800,000 808,642
Newfield Exploration Co., 6.625%, 2014 225,000 230,063
Plains Exploration & Production Co., 7.125%, 2014 625,000 667,188
Vintage Petroleum, Inc., 8.25%, 2012 550,000 596,750
------------
$ 3,967,130
---------------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
---------------------------------------------------------------------------------------------------
Amerada Hess Corp., 7.3%, 2031 $ 725,000 $ 843,271
Tyumen Oil Co., 11%, 2007 849,000 938,145
------------
$ 1,781,416
---------------------------------------------------------------------------------------------------
Entertainment - 1.2%
---------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 9.5%, 2011 $ 349,000 $ 343,765
Liberty Media Corp., 5.7%, 2013 1,865,000 1,731,224
Loews Cineplex Entertainment Corp., 9%, 2014## 430,000 417,100
Six Flags, Inc., 9.75%, 2013 315,000 280,350
Turner Broadcasting System, Inc., 8.375%, 2013 1,784,000 2,193,890
Walt Disney Co., 6.375%, 2012 1,700,000 1,866,920
------------
$ 6,833,249
---------------------------------------------------------------------------------------------------
Financial Institutions - 0.1%
---------------------------------------------------------------------------------------------------
International Lease Finance Corp., 5%, 2010 $ 321,000 $ 325,151
---------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.2%
---------------------------------------------------------------------------------------------------
Burns, Philp & Co. Ltd., 9.75%, 2012 $ 340,000 $ 368,900
Smithfield Foods, Inc., 7%, 2011 465,000 487,088
------------
$ 855,988
---------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.2%
---------------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc., 7.75%, 2011 $ 720,000 $ 703,800
Buckeye Technologies, Inc., 8.5%, 2013 460,000 476,100
Donohue Forest Products, Inc., 7.625%, 2007 1,588,000 1,588,000
Georgia-Pacific Corp., 9.375%, 2013 1,695,000 1,919,588
Georgia-Pacific Corp., 7.75%, 2029 1,000,000 1,123,750
MDP Acquisitions PLC, 9.625%, 2012 310,000 303,025
Norske Skog Canada Ltd., 7.375%, 2014 695,000 649,825
------------
$ 6,764,088
---------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.3%
---------------------------------------------------------------------------------------------------
Aztar Corp., 7.875%, 2014 $ 235,000 $ 247,338
Boyd Gaming Corp., 6.75%, 2014 520,000 527,800
Caesars Entertainment, Inc., 8.125%, 2011 730,000 829,463
Harrahs Operation, Inc., 5.625%, 2015## 483,000 486,117
Host Marriott LP, 7.125%, 2013 465,000 478,950
Mandalay Resort Group, 9.375%, 2010 450,000 501,188
MGM Mirage, Inc., 8.375%, 2011 1,155,000 1,247,400
Pinnacle Entertainment, Inc., 8.75%, 2013 295,000 306,800
Royal Caribbean Cruises Ltd., 8%, 2010 990,000 1,089,000
Scientific Games Corp., 6.25%, 2012## 80,000 78,400
Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 895,000 1,001,281
Station Casinos, Inc., 6.5%, 2014 440,000 445,500
Wynn Las Vegas LLC, 6.625%, 2014## 155,000 148,800
------------
$ 7,388,037
---------------------------------------------------------------------------------------------------
Industrial - 0.2%
---------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011## $ 335,000 $ 358,450
Valmont Industries, Inc., 6.875%, 2014 730,000 730,000
Williams Scotsman, Inc., 10%, 2008 205,000 221,400
------------
$ 1,309,850
---------------------------------------------------------------------------------------------------
Insurance - 0.7%
---------------------------------------------------------------------------------------------------
American International Group, Inc., 4.25%, 2013 $ 4,250,000 $ 4,088,309
---------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.3%
---------------------------------------------------------------------------------------------------
Fund American Cos., Inc., 5.875%, 2013 $ 1,351,000 $ 1,400,983
---------------------------------------------------------------------------------------------------
International Market Sovereign - 21.0%
---------------------------------------------------------------------------------------------------
Canada Housing Trust, 4.65%, 2009 CAD 260,000 $ 217,551
Commonwealth of Australia, 6%, 2017 AUD 2,244,000 1,816,056
Federal Republic of Germany, 3.5%, 2008 EUR 15,517,000 19,775,106
Federal Republic of Germany, 3.75%, 2015 EUR 2,125,000 2,728,533
Federal Republic of Germany, 6.25%, 2030 EUR 920,000 1,575,895
Government of Canada, 5.25%, 2012 CAD 4,156,000 3,618,494
Government of Canada, 4.5%, 2015 CAD 312,000 259,425
Government of New Zealand, 7%, 2009 NZD 1,773,000 1,303,805
Government of New Zealand, 6.5%, 2013 NZD 12,350,000 9,134,786
Government of New Zealand, 6%, 2015 NZD 1,068,000 770,396
Kingdom of Netherlands, 5.75%, 2007 EUR 3,764,000 4,914,799
Kingdom of Netherlands, 3.75%, 2009 EUR 5,670,000 7,301,838
Kingdom of Norway, 6.5%, 2013 NOK 6,149,000 1,152,795
Kingdom of Spain, 6%, 2008 EUR 3,784,000 5,102,506
Kingdom of Spain, 5.35%, 2011 EUR 6,524,000 9,181,283
Republic of Finland, 3%, 2008 EUR 5,529,000 $6,936,920
Republic of Finland, 5.375%, 2013 EUR 4,656,000 6,668,976
Republic of France, 4.75%, 2007 EUR 7,166,000 9,284,677
Republic of France, 6%, 2025 EUR 309,000 503,094
Republic of Ireland, 4.25%, 2007 EUR 8,752,000 11,271,836
Republic of Ireland, 4.6%, 2016 EUR 1,059,000 1,455,993
United Kingdom Treasury, 5.75%, 2009 GBP 2,315,000 4,469,647
United Kingdom Treasury, 8%, 2015 GBP 2,785,000 6,634,807
------------
$116,079,218
---------------------------------------------------------------------------------------------------
Machinery & Tools - 0.6%
---------------------------------------------------------------------------------------------------
AGCO Corp., 9.5%, 2008 $ 940,000 $ 987,000
Case New Holland, Inc., 6%, 2009## 1,415,000 1,344,250
Manitowoc Co., Inc., 10.5%, 2012 331,000 370,720
Terex Corp., 9.25%, 2011 325,000 351,000
United Rentals, Inc., 6.5%, 2012 340,000 334,475
------------
$ 3,387,445
---------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.6%
---------------------------------------------------------------------------------------------------
AmerisourceBergen Corp., 7.25%, 2012 $ 550,000 $ 600,875
DaVita, Inc., 6.625%, 2013## 170,000 171,700
HCA, Inc., 8.75%, 2010 1,100,000 1,249,025
HCA, Inc., 6.375%, 2015 955,000 973,396
InSight Health Services Corp., 9.875%, 2011 270,000 230,850
------------
$ 3,225,846
---------------------------------------------------------------------------------------------------
Metals & Mining - 0.6%
---------------------------------------------------------------------------------------------------
Foundation PA Coal Co., 7.25%, 2014 $ 520,000 $ 535,600
Ispat Inland ULC, 9.75%, 2014 1,200,000 1,398,000
Peabody Energy Corp., 6.875%, 2013 355,000 372,750
Peabody Energy Corp., 5.875%, 2016 425,000 418,625
U.S. Steel Corp., 9.75%, 2010 413,000 451,203
------------
$ 3,176,178
---------------------------------------------------------------------------------------------------
Mortgage Backed - 15.3%
---------------------------------------------------------------------------------------------------
Fannie Mae, 4.845%, 2013 $ 255,915 $ 262,008
Fannie Mae, 4.1%, 2013 963,636 943,638
Fannie Mae, 4.19%, 2013 974,939 958,924
Fannie Mae, 3.81%, 2013 599,876 577,269
Fannie Mae, 4.6%, 2014 771,006 776,530
Fannie Mae, 4.56%, 2015 322,980 323,907
Fannie Mae, 4.665%, 2015 261,481 264,164
Fannie Mae, 4.7%, 2015 249,462 252,636
Fannie Mae, 4.89%, 2015 175,636 180,225
Fannie Mae, 4.74%, 2015 600,000 604,687
Fannie Mae, 4.925%, 2015 1,963,582 2,024,944
Fannie Mae, 6%, 2016 - 2034 8,448,213 8,730,072
Fannie Mae, 5.5%, 2019 - 2034 36,510,871 37,171,243
Fannie Mae, 4.88%, 2020 600,572 614,624
Fannie Mae, 5.9958%, 2020 3,446 3,437
Fannie Mae, 6.5%, 2032 - 2033 4,927,249 5,126,180
Fannie Mae TBA, 5%, 2035 13,860,000 13,846,999
Freddie Mac, 6%, 2034 2,832,045 2,910,891
Freddie Mac, 5.5%, 2034 8,783,199 8,924,938
------------
$ 84,497,316
---------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.1%
---------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 7.25%, 2015## $ 470,000 $ 472,350
---------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.3%
---------------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 $ 1,600,000 $ 1,896,392
Colorado Interstate Gas Co., 5.95%, 2015## 45,000 43,537
El Paso Energy Corp., 7.625%, 2010 570,000 601,410
Enterprise Products Operating LP, 6.375%, 2013 2,800,000 3,014,987
Magellan Midstream Partners LP, 5.65%, 2016 311,000 318,581
Southern Natural Gas Co., Inc., 8.875%, 2010 550,000 599,066
Williams Cos., Inc., 8.75%, 2032 800,000 938,000
------------
$ 7,411,973
---------------------------------------------------------------------------------------------------
Oil Services - 0.2%
---------------------------------------------------------------------------------------------------
Grant Prideco, Inc., 9%, 2009 $ 550,000 $ 605,000
GulfMark Offshore, Inc., 7.75%, 2014## 435,000 441,525
------------
$ 1,046,525
---------------------------------------------------------------------------------------------------
Oils - 0.2%
---------------------------------------------------------------------------------------------------
Citgo Petroleum Corp., 6%, 2011 $ 550,000 $ 539,000
Premcor Refining Group, Inc., 7.5%, 2015 550,000 596,750
------------
$ 1,135,750
---------------------------------------------------------------------------------------------------
Pollution Control - 0.1%
---------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 7.875%, 2013 $ 480,000 $ 487,200
---------------------------------------------------------------------------------------------------
Printing & Publishing - 0.5%
---------------------------------------------------------------------------------------------------
Dex Media East LLC, 9.875%, 2009 $ 565,000 $ 625,737
Dex Media West LLC, 9.875%, 2013 1,527,000 1,744,597
MediaNews Group, Inc., 6.875%, 2013 515,000 499,550
------------
$ 2,869,884
---------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.2%
---------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 9.375%, 2012## $ 709,000 $ 733,815
TFM S.A. de C.V., 12.5%, 2012 525,000 614,250
------------
$ 1,348,065
---------------------------------------------------------------------------------------------------
Real Estate - 0.3%
---------------------------------------------------------------------------------------------------
HRPT Properties Trust, 6.25%, 2016 $ 1,324,000 $ 1,421,698
---------------------------------------------------------------------------------------------------
Restaurants - 0.3%
---------------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $ 1,500,000 $ 1,815,477
---------------------------------------------------------------------------------------------------
Retailers - 0.5%
---------------------------------------------------------------------------------------------------
Couche-Tard, Inc., 7.5%, 2013 $ 210,000 $ 218,400
Gap, Inc., 10.05%, 2008 940,000 1,083,872
Limited Brands, Inc., 5.25%, 2014 1,100,000 1,060,392
Rite Aid Corp., 8.125%, 2010 365,000 360,438
------------
$ 2,723,102
---------------------------------------------------------------------------------------------------
Supermarkets - 0.1%
---------------------------------------------------------------------------------------------------
Roundy's, Inc., 8.875%, 2012 $ 475,000 $ 489,250
---------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.6%
---------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 8.75%, 2031 $ 1,500,000 $ 2,083,258
Centennial Communications Corp., 10.125%, 2013 240,000 267,900
Cingular Wireless LLC, 6.5%, 2011 1,700,000 1,870,233
Crown Castle International Corp., 7.5%, 2013 365,000 413,362
Dolphin Telecom PLC, 11.5%, 2008** 1,600,000 0
Dolphin Telecom PLC, 14%, 2009** 750,000 0
Mobile TeleSystems OJSC, 9.75%, 2008## 1,552,000 1,664,520
Nextel Communications, Inc., 5.95%, 2014 1,070,000 1,094,075
Nextel Communications, Inc., 7.375%, 2015 245,000 264,906
Rogers Wireless, Inc., 6.375%, 2014 550,000 547,250
Rogers Wireless, Inc., 7.5%, 2015 450,000 480,375
------------
$ 8,685,879
---------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.1%
---------------------------------------------------------------------------------------------------
AT&T Corp., 9.05%, 2011 $ 260,000 $ 298,675
AT&T Corp., 9.75%, 2031 785,000 996,950
Citizens Communications Co., 9.25%, 2011 815,000 902,612
Citizens Communications Co., 6.25%, 2013 645,000 622,425
Citizens Communications Co., 9%, 2031 650,000 663,000
Deutsche Telekom International Finance B.V., 8.75%, 2030 1,500,000 2,038,986
Eircom Funding PLC, 8.25%, 2013 515,000 540,750
Espirit Telecom Group PLC, 10.875%, 2008** 165,000 0
Qwest Corp., 7.875%, 2011## 860,000 892,250
Qwest Corp., 9.125%, 2012## 450,000 488,250
Qwest Services Corp., 13.5%, 2010## 230,000 262,200
Telecom Italia Capital, 6%, 2034## 1,000,000 1,014,190
Verizon New York, Inc., 6.875%, 2012 2,542,000 2,805,951
------------
$ 11,526,239
---------------------------------------------------------------------------------------------------
Tobacco - 0.1%
---------------------------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings, Inc., 7.25%, 2012 $ 818,000 $ 820,045
---------------------------------------------------------------------------------------------------
Transportation - Services - 0.1%
---------------------------------------------------------------------------------------------------
Stena AB, 7%, 2016 $ 330,000 $ 301,950
Westinghouse Air Brake Technologies Corp., 6.875%, 2013 30,000 30,375
------------
$ 332,325
---------------------------------------------------------------------------------------------------
U.S. Government Agencies - 4.1%
---------------------------------------------------------------------------------------------------
Freddie Mac, 7%, 2005 $ 6,100,000 $ 6,126,370
Small Business Administration, 4.34%, 2024 7,836,324 7,740,085
Small Business Administration, 4.77%, 2024 6,094,037 6,158,702
Small Business Administration, 5.11%, 2025 2,700,000 2,770,695
------------
$ 22,795,852
---------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 8.5%
---------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 10.75%, 2005 $ 8,000,000 $ 8,128,440
U.S. Treasury Bonds, 12%, 2013 7,500,000 9,370,020
U.S. Treasury Bonds, 10.625%, 2015 3,350,000 5,173,787
U.S. Treasury Bonds, 9.875%, 2015 5,025,000 7,480,185
U.S. Treasury Bonds, 5.375%, 2031 635,000 735,409
U.S. Treasury Notes, 2%, 2014### 10,624,049 10,993,819
U.S. Treasury Notes, 4.25%, 2014 1,263,000 1,285,793
U.S. Treasury Notes, 1.625%, 2015 3,649,560 3,652,411
------------
$ 46,819,864
---------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.3%
---------------------------------------------------------------------------------------------------
Calpine Corp., 8.75%, 2013## $ 165,000 $ 116,737
Calpine Corp., 9.625%, 2014## 45,000 44,437
CMS Energy Corp., 8.5%, 2011 320,000 348,000
DPL, Inc., 6.875%, 2011 1,073,000 1,148,110
Duke Capital Corp., 8%, 2019 1,350,000 1,684,479
Dynegy Holdings, Inc., 9.875%, 2010## 240,000 261,000
Empresa Nacional de Electricidad S.A., 8.35%, 2013 919,000 1,053,064
Enersis S.A., 7.375%, 2014 1,233,000 1,306,869
FirstEnergy Corp., 6.45%, 2011 1,130,000 1,228,689
FirstEnergy Corp., 7.375%, 2031 1,547,000 1,875,148
MSW Energy Holdings LLC, 7.375%, 2010 545,000 547,725
Nevada Power Co., 5.875%, 2015## 900,000 886,500
NorthWestern Corp., 5.875%, 2014## 775,000 782,750
NRG Energy, Inc., 8%, 2013## 855,000 902,025
PSEG Energy Holdings LLC, 7.75%, 2007 265,000 272,950
Reliant Resources, Inc., 9.5%, 2013 235,000 256,150
System Energy Resources, Inc., 5.129%, 2014## 2,478,257 2,463,958
TECO Energy, Inc., 7.5%, 2010 450,000 480,375
Texas Genco LLC, 6.875%, 2014## 275,000 282,563
TXU Corp., 6.5%, 2024## 2,553,000 2,471,712
------------
$ 18,413,241
---------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $521,348,436) $531,158,629
---------------------------------------------------------------------------------------------------
Stocks - 0.1%
---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
---------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.1%
---------------------------------------------------------------------------------------------------
Sind Holdings, Inc.+* 5,720 $ 600,600
---------------------------------------------------------------------------------------------------
Printing & Publishing - 0%
---------------------------------------------------------------------------------------------------
Golden Books Family Entertainment, Inc.* 3,683 $ 0
---------------------------------------------------------------------------------------------------
Specialty Chemicals - 0%
---------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc.* 6 $ 156
---------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $2,127,667) $ 600,756
---------------------------------------------------------------------------------------------------
Warrants - 0%
---------------------------------------------------------------------------------------------------
STRIKE FIRST
ISSUER PRICE EXERCISE SHARES $ VALUE
---------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd. (Business
Services)* $0.14 1/28/97 1,625 $ 10
Loral Space & Communications Ltd. (Business
Services)* 0.14 1/28/97 750 4
Sterling Chemicals, Inc. (Specialty Chemicals)* 52.00 12/31/02 11 14
Thermadyne Holdings Corp. (Machinery & Tools)* 20.78 5/29/03 760 76
---------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $39,014) $ 104
---------------------------------------------------------------------------------------------------
Repurchase Agreement - 4.4%
---------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
---------------------------------------------------------------------------------------------------
Morgan Stanley, 3.05%, dated 5/31/05, due 6/01/05, total to be
received $24,111,043 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account), at
Cost $ 24,109,000 $ 24,109,000
---------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $547,624,117) (S) $555,868,489
---------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.4)% (1,960,085)
---------------------------------------------------------------------------------------------------
Net Assets - 100.0% $553,908,404
---------------------------------------------------------------------------------------------------
* Non-income producing security.
** Non income producing security - in default.
^^ 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.
+ Restricted security.
## SEC Rule 144A restriction.
### All or a portion of the security has been segregated as collateral for an open futures contract.
(S) As of May 31, 2005, the fund had 6 securities representing $1,215,224 and 0.2% of net assets
that were fair valued in accordance with the policies adopted by the Board of Trustees.
FRN = Floating Rate Note
TBA = To Be Announced
Abbreviations have been used throughout this report to 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 MXN = Mexican Peso
CAD = Canadian Dollar NOK = Norwegian Krone
CNY = Chinese Yuan Renminbi NZD = New Zealand Dollar
EUR = Euro SEK = Swedish Krona
GBP = British Pound
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Assets and Liabilities (unaudited)
This statement represents your trust's balance sheet, which details the assets
and liabilities composing the total value of the trust.
AT 5/31/05
ASSETS
-------------------------------------------------------------------------------
Investments, at value (identified
cost, $547,624,117) $555,868,489
Cash 74
Foreign currency, at value (identified cost, $101) 95
Receivable for forward foreign currency
exchange contracts 6,067,122
Receivable for forward foreign currency
exchange contracts
subject to master netting agreements 16,092
Receivable for investments sold 94,894
Interest receivable 8,378,546
Other assets 17,473
-------------------------------------------------------------------------------
Total assets $570,442,785
-------------------------------------------------------------------------------
LIABILITIES
-------------------------------------------------------------------------------
Payable for investments purchased $15,061,634
Payable to dividend disbursing agent 205,784
Payable for forward foreign currency exchange
contracts 716,793
Payable for daily variation margin on open
futures contracts 188,156
Payable for treasury shares reacquired 32,105
Payable to affiliates
Management fee 23,562
Transfer agent and dividend disbursing costs 15,865
Administrative fee 959
Accrued expenses and other liabilities 289,523
-------------------------------------------------------------------------------
Total liabilities $16,534,381
-------------------------------------------------------------------------------
Net assets $553,908,404
-------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
-------------------------------------------------------------------------------
Paid-in capital $598,947,927
Unrealized appreciation on investments and
translation of assets and liabilities in
foreign currencies 13,449,538
Accumulated net realized loss on investments
and foreign currency transactions (49,407,932)
Accumulated distributions in excess of net
investment income (9,081,129)
-------------------------------------------------------------------------------
Net assets $553,908,404
-------------------------------------------------------------------------------
Shares of beneficial interest outstanding
(61,478,783 issued, less 4,601,344 treasury shares) 56,877,439
-------------------------------------------------------------------------------
Net asset value per share (net assets of
$553,908,404 / 56,877,439 shares of beneficial
interest outstanding) $9.74
-------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Operations (unaudited)
This statement describes how much your trust received in investment income and
paid in expenses. It also describes any gains and/or losses generated by trust
operations.
SIX MONTHS ENDED 5/31/05
NET INVESTMENT INCOME
-------------------------------------------------------------------------------
Interest income $15,126,776
Foreign taxes withheld (3,582)
-------------------------------------------------------------------------------
Total investment income $15,123,194
-------------------------------------------------------------------------------
Expenses
Management fee $1,633,555
Trustees' compensation 65,644
Transfer agent and dividend disbursing costs 87,258
Administrative fee 32,728
Custodian fee 174,451
Printing 6,070
Postage 91,546
Auditing fees 37,162
Legal fees 1,534
Miscellaneous 94,122
-------------------------------------------------------------------------------
Total expenses $2,224,070
-------------------------------------------------------------------------------
m
Fees paid indirectly (17,214)
Reduction of expenses by investment adviser (1,242)
-------------------------------------------------------------------------------
Net expenses $2,205,614
-------------------------------------------------------------------------------
Net investment income $12,917,580
-------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
-------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $7,544,890
Futures contracts 864,321
Foreign currency transactions (1,387,587)
-------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions $7,021,624
-------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(12,594,850)
Futures contracts (103,899)
Translation of assets and liabilities in
foreign currencies 8,522,950
-------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and
foreign currency translation $(4,175,799)
-------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency $2,845,825
-------------------------------------------------------------------------------
Change in net assets from operations $15,763,405
-------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statements of Changes in Net Assets
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
5/31/05 11/30/04
(UNAUDITED)
CHANGE IN NET ASSETS
------------------------------------------------------------------------------------------------------
FROM OPERATIONS
------------------------------------------------------------------------------------------------------
Net investment income $12,917,580 $28,651,944
Net realized gain (loss) on investments and foreign
currency transactions 7,021,624 13,948,586
Net unrealized gain (loss) on investments and foreign
currency translation (4,175,799) (4,401,904)
------------------------------------------------------------------------------------------------------
Change in net assets from operations $15,763,405 $38,198,626
------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------
From net investment income $(14,772,196) $(31,836,028)
------------------------------------------------------------------------------------------------------
TRUST SHARE (PRINCIPAL) TRANSACTIONS
------------------------------------------------------------------------------------------------------
Cost of shares reacquired $(5,523,232) $(9,821,953)
------------------------------------------------------------------------------------------------------
Total change in net assets $(4,532,023) $(3,459,355)
------------------------------------------------------------------------------------------------------
NET ASSETS
------------------------------------------------------------------------------------------------------
At beginning of period $558,440,427 $561,899,782
At end of period (including accumulated distributions in
excess of net investment income of $9,081,129 and
$7,226,513, respectively) $553,908,404 $558,440,427
------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Financial Highlights
The financial highlights table is intended to help you understand the trust's financial performance for the semiannual period
and the past 5 years. Certain information reflects financial results for a single trust share. The total returns in the table
represent the rate by which an investor would have earned (or lost) on an investment in the trust (assuming reinvestment of
all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 11/30
ENDED --------------------------------------------------------------------------
5/31/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value,
beginning of period $9.71 $9.58 $9.09 $9.17 $9.20 $9.71
------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
------------------------------------------------------------------------------------------------------------------------------
Net investment income(S) $0.23 $0.49 $0.49 $0.52 $0.67 $0.72
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.06 0.19 0.53 (0.02) (0.01) (0.45)
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.29 $0.68 $1.02 $0.50 $0.66 $0.27
------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.26) $(0.55) $(0.53) $(0.49) $(0.64) $(0.61)
From paid-in capital -- -- -- (0.09) (0.05) (0.17)
------------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.26) $(0.55) $(0.53) $(0.58) $(0.69) $(0.78)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.74 $9.71 $9.58 $9.09 $9.17 $9.20
------------------------------------------------------------------------------------------------------------------------------
Per share market value,
end of period $8.70 $8.71 $8.78 $8.26 $8.35 $8.44
------------------------------------------------------------------------------------------------------------------------------
Total return at market value (%) 2.84++ 5.52 13.02 5.99 6.92 14.66
------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 11/30
ENDED --------------------------------------------------------------------------
5/31/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
------------------------------------------------------------------------------------------------------------------------------
Expenses## 0.80+ 0.80 0.83 0.85 0.91 0.93
Net investment income(S)(S) 4.66+ 5.11 5.21 5.80 7.18 7.53
Portfolio turnover 45 70 129 137 98 113
Net assets at end of period
(000 Omitted) $553,908 $558,440 $561,900 $546,281 $556,614 $561,105
------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the trust for its proportional share
of substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee had been
incurred by the trust, the net investment income per share and the ratios would have been:
Net investment income $0.23^ $0.49^ $-- $-- $-- $--
------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
------------------------------------------------------------------------------------------------------------------------------
Expenses## 0.80+^ 0.80^ -- -- -- --
Net investment income 4.66+^ 5.11^ -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective December 1, 2001, the trust has adopted the provisions of the AICPA Audit and Accounting Guide
for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended
November 30, 2002 was to decrease net investment income per share by $0.02, increase net realized and unrealized gains
and losses per share by $0.02, and decrease the ratio of net investment income to average net assets by 0.24%. Per
share, ratios, and supplemental data for periods prior to December 1, 2001 have not been restated to reflect this
change in presentation.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
^ The reimbursement impact per share amount and the ratios were less than $0.01 and 0.01%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Charter Income Trust (the trust) is a non-diversified trust that 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. The
trust can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Bonds and other fixed income securities (other than
short-term obligations) in the trust's portfolio are valued at an evaluated
bid price as reported by an independent pricing service, or to the extent a
valuation is not reported by a pricing service, such securities are valued on
the basis of quotes from brokers and dealers. Prices obtained from pricing
services utilize both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Equity securities in the trust's portfolio
for which market quotations are available are valued at the last sale or
official closing price as reported by an independent pricing service on the
primary market or exchange on which they are primarily traded, or at the last
quoted bid price for securities in which there were no sales during the day.
Equity securities traded over the counter are valued at the last sales price
traded each day as reported by an independent pricing service, or to the
extent there are no sales reported, such securities are valued on the basis of
quotations obtained from brokers and dealers. Futures contracts are valued at
the settlement price as reported by an independent pricing service on the
primary exchange on which they are traded. Forward foreign currency contracts
are valued using spot rates and forward points as reported by an independent
pricing source. Short-term obligations with a remaining maturity in excess of
60 days will be valued upon dealer-supplied valuations. All other short-term
obligations in the trust's portfolio are valued at amortized cost, which
approximates market value as determined by the Board of Trustees. Investment
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon
current exchange rates. When pricing service information or market quotations
are not readily available, securities are priced at fair value as determined
under the direction of the Board of Trustees.
REPURCHASE AGREEMENTS - The trust may enter into repurchase agreements with
institutions that the trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The trust
requires that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the trust to
obtain those securities in the event of a default under the repurchase
agreement. The trust monitors, on a daily basis, the value of the collateral
to ensure that its value, including accrued interest, is greater than amounts
owed to the trust under each such repurchase agreement. The trust, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
FOREIGN CURRENCY TRANSLATION - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
DEFERRED TRUSTEE COMPENSATION - Under a Deferred Compensation Plan (the Plan)
independent Trustees may elect to defer receipt of all or a portion of their
annual compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the trust or other MFS funds selected
by the Trustee. Deferred amounts represent an unsecured obligation of the
trust until distributed in accordance with the Plan. Included in other assets,
and accrued expenses and other liabilities, is $12,721 of Deferred Trustees'
Compensation.
FUTURES CONTRACTS - The trust may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the trust is
required to deposit with the broker, either in cash or securities, an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the trust each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes
as unrealized gains or losses by the trust. The trust's investment in futures
contracts is designed to hedge against anticipated future changes in interest
or exchange rates or securities prices. Investments in interest rate futures
for purposes other than hedging may be made to modify the duration of the
portfolio without incurring the additional transaction costs involved in
buying and selling the underlying securities. Investments in currency futures
for purposes other than hedging may be made to change the trust's relative
position in one or more currencies without buying and selling portfolio
assets. Investments in index contracts or contracts on related options for
purposes other than hedging, may be made when the trust has cash on hand and
wishes to participate in anticipated market appreciation while the cash is
being invested. Should interest or exchange rates or securities prices move
unexpectedly, the trust may not achieve the anticipated benefits of the
futures contracts and may realize a loss.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the trust to certain qualified
institutions (the "Borrowers") approved by the trust. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the trust with indemnification against Borrower default. The
trust bears the risk of loss with respect to the investment of cash
collateral. On loans collateralized by cash, the cash collateral is invested
in a money market fund or short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the trust and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the trust and the lending agent. Income
from securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned
is accounted for in the same manner as other dividend and interest income. At
May 31, 2005, there were no securities on loan.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The trust may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The trust may enter
into forward foreign currency exchange contracts for hedging purposes as well
as for non-hedging purposes. For hedging purposes, the trust may enter into
contracts to deliver or receive foreign currency it will receive from or
require for its normal investment activities. The trust may also use contracts
in a manner intended to protect foreign currency-denominated securities from
declines in value due to unfavorable exchange rate movements. For non-hedging
purposes, the trust may enter into contracts with the intent of changing the
relative exposure of the trust's portfolio of securities to different
currencies to take advantage of anticipated changes. The forward foreign
currency exchange contracts are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded as unrealized until
the contract settlement date. On contract settlement date, the gains or losses
are recorded as realized gains or losses on foreign currency transactions.
DOLLAR ROLL TRANSACTIONS - The trust enters into dollar roll transactions,
with respect to mortgage backed securities issued by Ginnie Mae, Fannie Mae,
and Freddie Mac, in which the trust sells mortgage backed securities to
financial institutions and simultaneously agrees to accept substantially
similar (same type, coupon, and maturity) securities at a later date at an
agreed-upon price. During the period between the sale and repurchase in a
dollar roll transaction the trust will not be entitled to receive interest and
principal payments on the securities sold but is compensated by interest
earned on the proceeds of the initial sale and by a lower purchase price on
the securities to be repurchased which enhances the trust's total return. The
trust accounts for dollar roll transactions as purchases and sales. If certain
criteria are met these dollar roll transactions may be considered a financing
transaction whereby the difference in the sales price and the future purchase
price is recorded as an adjustment to interest income.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Some securities may be purchased on a "when-issued" or
"forward delivery" basis, which means that the securities will be delivered to
the trust at a future date, usually beyond customary settlement time. Interest
income is recorded on the accrual basis. All premium and discount is amortized
or accreted for financial statement purposes in accordance with U.S. generally
accepted accounting principles. All discount is accreted for tax reporting
purposes as required by federal income tax regulations. Dividends received in
cash are recorded on the ex-dividend date. Dividend and interest payments
received in additional securities are recorded on the ex-dividend or ex-
interest date in an amount equal to the value of the security on such date.
The trust may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the trust.
The trust may enter into "TBA" (to be announced) purchase commitments to
purchase securities for a fixed unit price at a future date. Although the unit
price has been established, the principal value has not been finalized.
However, the principal amount of the commitments will not fluctuate more than
0.01%. The trust holds, and maintains until settlement date, cash or high-
grade debt obligations in an amount sufficient to meet the purchase price, or
the trust may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to settlement date, which is in addition to the risk
of decline in the value of the trust's other assets. Unsettled TBA purchase
commitments are valued at the current market value of the underlying
securities. The trust may enter into "TBA" (to be announced) sale commitments
to hedge its portfolio positions or to sell mortgage-backed securities it owns
under delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction.
FEES PAID INDIRECTLY - The trust's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the trust. This amount, for the six months ended May 31, 2005, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The trust
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions, straddle loss deferrals,
derivatives, defaulted bonds, and amortization and accretion on debt
securities.
The tax character of distributions declared for the years ended
November 30, 2004 and November 30, 2003, was as follows:
11/30/04 11/30/03
Distributions declared from:
Ordinary income $31,836,028 $31,796,703
As of November 30, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $862,961
Capital loss carryforward (47,072,742)
Unrealized appreciation (depreciation) 11,572,675
Other temporary differences (11,393,626)
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration as follows:
EXPIRATION DATE
November 30, 2008 $(1,375,921)
November 30, 2009 (21,791,609)
November 30, 2010 (23,905,212)
----------------------------------------------------------
Total $(47,072,742)
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The trust has an investment advisory agreement with MFS
to provide overall investment advisory and administrative services, and
general office facilities. The management fee is computed daily and paid
monthly at an annual rate of 0.32% of the trust's average daily net assets and
4.57% of gross investment income. Management fees, from net assets
and gross investment income, incurred for the six months ended
May 31, 2005 were at an effective rate of 0.59% of average daily net assets
on an annualized basis.
The trust pays compensation to its Independent Trustees in the form of a
retainer, attendance fees, and additional compensation to Board and Committee
chairpersons, and pays no compensation directly to its Trustees who are
officers of the investment adviser, or to officers of the trust, all of whom
receive remuneration for their services to the trust from MFS. Certain
officers and Trustees of the trust are officers or directors of MFS and MFS
Service Center, Inc. (MFSC). The trust has an unfunded, defined benefit plan
for retired Independent Trustees and an unfunded retirement benefit deferral
plan for current Independent Trustees. Included in Trustees' compensation is
$1,984 as a result of the change in the trust's unfunded retirement benefit
deferral plan for certain current Independent Trustees and a pension expense
of $25,253 for retired Independent Trustees for the six months ended
May 31, 2005.
This trust and certain other MFS funds (the "funds") have entered into a
services agreement (the "Agreement") which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse each of the funds for a proportional share of substantially all of
the payments made by the funds to Tarantino LLC and also to provide office
space and other administrative support and supplies to the ICCO. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. The
trust paid MFS an administrative fee up to the following annual percentage
rates of the trust's average daily net assets:
BEGINNING OF PERIOD
EFFECTIVE DATE THROUGH 2/28/05 3/01/05
First $2 billion 0.01120% 0.01626%
Next $2.5 billion 0.00832% 0.01206%
Next $2.5 billion 0.00032% 0.00056%
In excess of $7 billion 0.00000% 0.00000%
For the six months ended May 31, 2005, the trust paid MFS $32,728, equivalent
to 0.0118% of average daily net assets, to partially reimburse MFS for the
costs of providing administrative services.
TRANSFER AGENT - Included in transfer agent and dividend disbursing costs is a
fee paid to MFSC, a wholly owned subsidiary of MFS, for its services as
registrar and dividend disbursing agent for the trust. The agreement provides
that the trust will pay MFSC an account maintenance fee of no more than $9.00
and a dividend services fee of $0.75 per reinvestment. These fees amounted to
$42,951 for the six months ended May 31, 2005. Also included in transfer agent
and dividend disbursing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $37,251 for the six months ended May 31, 2005, as well as other
expenses paid to unaffiliated vendors.
(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 $77,662,781 $70,269,969
------------------------------------------------------------------------------
Investments (non-U.S. government securities) $165,113,722 $172,840,722
------------------------------------------------------------------------------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the trust, as computed on a federal income tax basis, are
as follows:
Aggregate cost $554,063,154
----------------------------------------------------------
Gross unrealized appreciation $12,554,777
Gross unrealized depreciation (10,749,442)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $1,805,335
(5) SHARES OF BENEFICIAL INTEREST
The trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. The Trustees have
authorized the repurchase by the trust of up to 10% annually of its own shares
of beneficial interest. The trust repurchased and retired 635,500 shares of
beneficial interest during the six months ended May 31, 2005, at an average
price per share of $8.69 and a weighted average discount of 10.19% per share.
The trust repurchased and retired 1,134,600 shares of beneficial interest
during the year ended November 30, 2004 at an average price per share of $8.66
and a weighted average discount of 9.74% per share. Transactions in trust
shares were as follows:
Period ended 5/31/05 Year ended 11/30/04
SHARES AMOUNT SHARES AMOUNT
Treasury shares reacquired (635,500) $(5,523,232) (1,134,600) $(9,821,953)
(6) LINE OF CREDIT
The trust and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the trust for the six months ended May 31, 2005 was $2,015, and
is included in miscellaneous expense. The trust had no significant borrowings
during the six months ended May 31, 2005.
(7) FINANCIAL INSTRUMENTS
The trust trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange contracts and
futures contracts. The notional or contractual amounts of these instruments
represent the investment the trust has in particular classes of financial
instruments and does not necessarily represent the amounts potentially subject
to risk. The measurement of the risks associated with these instruments is
meaningful only when all related and offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
SALES
6/07/05 AUD 2,289,464 $1,748,659 $1,731,074 $17,585
6/08/05-6/27/05 EUR 73,109,547 94,932,164 90,041,374 4,890,790
7/06/05 GBP 8,861,967 16,811,151 16,089,668 721,483
8/01/05 MXN 64,999,200 5,674,804 5,905,286 (230,482)
6/08/05 NOK 7,689,274 1,198,107 1,192,619 5,488
6/08/05 NZD 17,091,003 12,149,033 12,034,596 114,437
6/14/05 SEK 2,018,612 283,513 271,460 12,053
------------ ------------ ----------
$132,797,431 $127,266,077 $5,531,354
============ ============ ==========
PURCHASES
2/06/06 CNY 42,072,400 $5,350,000 $5,276,674 ($73,326)
6/08/05-6/27/05 EUR 2,826,413 3,678,353 3,480,629 (197,724)
7/06/05 GBP 3,000,000 5,590,206 5,446,760 (143,446)
8/01/05 MXN 64,999,200 5,600,000 5,905,286 305,286
6/08/05 NZD 1,385,738 997,683 975,765 (21,918)
6/14/05 SEK 7,670,131 1,081,366 1,031,469 (49,897)
----------- ----------- ---------
$22,297,608 $22,116,583 $(181,025)
=========== =========== =========
At May 31, 2005, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net receivable of $16,092 with
Merrill Lynch International.
At May 31, 2005, the trust had sufficient cash and/or securities to cover any
commitments under these contracts.
Futures Contracts
UNREALIZED
APPRECIATION
DESCRIPTION EXPIRATION CONTRACTS POSITION (DEPRECIATION)
U.S. Treasury Notes 10 Year September 2005 134 Short $(22,536)
U.S. Treasury Notes 5 Year September 2005 200 Short (3,949)
U.S. Treasury Notes 2 Year September 2005 335 Short (6,614)
--------------------------------------------------------------------------------
$(33,099)
At May 31, 2005, the trust had sufficient cash and/or securities to cover any
margin requirements under these contracts.
(9) RESTRICTED SECURITIES
At May 31, 2005, the trust owned the following restricted securities which are
subject to legal or contractual restrictions on resale, excluding securities
issued under Rule 144A, constituting 0.1% of net assets which may not be
publicly sold without registration under the Securities Act of 1933. The trust
does not have the right to demand that such securities be registered. The
value of these securities is determined by valuations furnished by dealers or
by a pricing service, or if not available, in good faith at the direction of
the Trustees.
DATE OF SHARE/PRINCIPAL
DESCRIPTION ACQUISITION AMOUNT COST VALUE
Sind Holdings, Inc. 12/15/99 5,720 $2,127,667 $600,600
(10) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the
Securities and Exchange Commission ("SEC") regarding disclosure of brokerage
allocation practices in connection with MFS fund sales (the term "MFS funds"
means the open-end registered management investment companies sponsored by
MFS). Under the terms of the settlement, in which MFS neither admitted nor
denied any wrongdoing, MFS agreed to pay (one dollar) $1.00 in disgorgement
and $50 million in penalty to certain MFS funds, pursuant to a plan developed
by an independent distribution consultant. The brokerage allocation practices
which were the subject of this proceeding were discontinued by MFS in November
2003. The agreement with the SEC is reflected in an order of the SEC. The SEC
settlement order states that MFS failed to adequately disclose to the Boards
of Trustees and to shareholders of the MFS funds the specifics of its
preferred arrangements with certain brokerage firms selling MFS fund shares.
The SEC settlement order states that MFS had in place policies designed to
obtain best execution of all MFS fund trades. As part of the settlement, MFS
retained an independent compliance consultant to review the completeness of
its current policies and practices regarding disclosure to MFS fund trustees
and to MFS fund shareholders of strategic alliances between MFS or its
affiliates and broker-dealers and other financial intermediaries who support
the sale of MFS fund shares. Pursuant to the SEC order, on July 28, 2004, MFS
transferred these settlement amounts to the SEC, and those MFS funds entitled
to these settlement amounts accrued an estimate of their pro rata portion of
these amounts. The final distribution plan was approved by the SEC on January
21, 2005, and the affected MFS funds received the payment on February 16,
2005.
In addition, in February 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS open-end retail fund ("MFS
retail funds") prospectuses regarding market timing and related matters (the
"February Settlements"). These regulators alleged that prospectus language for
certain MFS retail funds was false and misleading because, although the
prospectuses for those funds in the regulators' view indicated that they
prohibited market timing, MFS did not limit trading activity in 11 domestic
large cap stock, high grade bond and money market retail funds. MFS' former
Chief Executive Officer and former President also reached agreement with the
SEC in which they agreed to, among other terms, monetary fines and temporary
suspensions from association with any investment adviser or registered
investment company. These individuals have resigned their positions with, and
will not be returning to, MFS and the MFS funds. Under the terms of the
February Settlements, MFS and the executives neither admit nor deny
wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain MFS retail funds,
which has been funded by MFS and of which $50 million is characterized as a
penalty. This pool will be distributed in accordance with a methodology
developed by an independent distribution consultant in consultation with MFS
and the Board of Trustees of the MFS retail funds, and acceptable to the SEC.
MFS has further agreed with NYAG to reduce its management fees in the
aggregate amount of approximately $25 million annually over the next five
years, and not to increase certain management fees during this period. MFS has
also paid an administrative fine to NH in the amount of $1 million, which will
be used for investor education purposes (NH retained $250,000 and $750,000 was
contributed to the North American Securities Administrators Association's
Investor Protection Trust). In addition, under the terms of the February
Settlements, MFS is in the process of adopting certain governance changes and
reviewing its policies and procedures.
Since December 2003, MFS, MFS Fund Distributors, Inc., MFS Service Center,
Inc., MFS Corporation Retirement Committee, Sun Life Financial Inc., various
MFS funds, certain current and/or former Trustees of these MFS funds, and
certain officers of MFS have been named as defendants in multiple lawsuits
filed in federal and state courts. The lawsuits variously have been commenced
as class actions or individual actions on behalf of investors who purchased,
held or redeemed shares of the MFS funds during specified periods, as ERISA
actions by participants in certain retirement plan accounts on behalf of those
accounts, or as derivative actions on behalf of the MFS funds. The lawsuits
relating to market timing and related matters have been transferred to, and
consolidated before, the United States District Court for the District of
Maryland, as part of a multi-district litigation of market timing and related
claims involving several other fund complexes (In re Mutual Funds Investment
Litigation (Alger, Columbia, Janus, MFS, One Group, Putnam, Allianz Dresdner),
No. 1:04-md-15863 (transfer began March 19, 2004)). The market timing cases
related to the MFS complex are Riggs v. MFS et al., Case No. 04-cv-01162-JFM
(direct), Hammerslough v. MFS et al., Case No. 04-md-01620 (derivative) and
Anita Walker v. MFS et al., Case No. 1:04-CV-01758 (ERISA). The plaintiffs in
these consolidated lawsuits generally seek injunctive relief including removal
of the named Trustees, adviser and distributor, rescission of contracts and
12b-1 Plans, disgorgement of fees and profits, monetary damages, punitive
damages, attorney's fees and costs and other equitable and declaratory relief.
Two lawsuits alleging improper brokerage allocation practices and excessive
compensation are pending in the United States District Court for the District
of Massachusetts (Forsythe v. Sun Life Financial Inc., et al., No. 04cv10584
(GAO) (a consolidated action) and Marcus Dumond, et al. v. Massachusetts
Financial Servs. Co., et al., No. 04cv11458 (GAO)). The plaintiffs in these
lawsuits generally seek compensatory damages, punitive damages, recovery of
fees, rescission of contracts, an accounting, restitution, declaratory relief,
equitable and/or injunctive relief and attorney's fees and costs. The various
lawsuits generally allege that some or all of the defendants (i) permitted or
acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and
such matters (ii) received excessive compensation as fiduciaries to the MFS
funds, or (iii) permitted or acquiesced in the improper use of fund assets by
MFS to support the distribution of MFS fund shares and inadequately disclosed
MFS' use of fund assets in this manner. The actions assert that some or all of
the defendants violated the federal securities laws, including the Securities
Act of 1933 and the Securities Exchange Act of 1934, the Investment Company
Act of 1940 and the Investment Advisers Act of 1940, the Employee Retirement
Income Security Act of 1974, as well as fiduciary duties and other violations
of common law. Insofar as any of the actions is appropriately brought
derivatively on behalf of any of the MFS funds, any recovery will inure to the
benefit of the MFS funds. In February, March, and April 2005, the defendants
filed separate motions to dismiss all claims of the various lawsuits. The
parties continue to brief the issues for the courts and various hearing dates
have been scheduled. Additional lawsuits based on similar allegations may be
filed in the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS
has established a restitution pool in the amount of $225 million to compensate
certain shareholders of certain MFS retail funds for damages that they
allegedly sustained as a result of market timing or late trading in certain of
the MFS retail funds, and distributed $50 million to affected MFS funds to
compensate those funds based upon the amount of brokerage commissions
allocated in recognition of MFS fund sales. It is not clear whether these
amounts will be sufficient to compensate shareholders for all of the damage
they allegedly sustained, whether certain shareholders or putative class
members may have additional claims to compensation, or whether the damages
that may be awarded in any of the actions will exceed these amounts. In the
event the MFS funds incur any losses, costs or expenses in connection with
such lawsuits, the Boards of Trustees of the affected MFS funds may pursue
claims on behalf of such funds against any party that may have liability to
the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments,
will not result in increased fund redemptions, reduced sales of fund shares,
or other adverse consequences to the MFS funds.
While these developments relate to MFS and the MFS' open-end funds, there can
be no assurance that these developments, or the adverse publicity associated
with these developments, will not result in an increase to the market discount
of the MFS closed-end fund shares or other adverse consequences.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Shareholders of the MFS Charter Income Trust:
We have reviewed the accompanying statement of assets and liabilities of
MFS Charter Income Trust (the Trust), including the portfolio of investments,
as of May 31, 2005, and the related statements of operations, changes in net
assets, and financial highlights for the six-month period ended May 31, 2005.
These interim financial statements are the responsibility of the Trust'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 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, 2004, and financial highlights
for each of the five years in the period ended November 30, 2004, and in our
report dated January 14, 2005, we expressed an unqualified opinion on such
statement of changes in net assets and financial highlights.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
July 12, 2005
RESULTS OF SHAREHOLDER MEETING (unaudited) - 5/31/05
At a special meeting of shareholders of MFS Charter Income Trust, which was
held on March 23, 2005, the following actions were taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF SHARES
--------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. 50,136,139.256 1,293,785.742
David H. Gunning 50,236,249.256 1,193,675.742
William R. Gutow 50,198,321.256 1,231,603,742
Michael Hegarty 50,145,125.784 1,284,799.214
J. Atwood Ives 50,143,690.256 1,286,234.742
Amy B. Lane 50,204,641.213 1,225,283.785
Robert J. Manning 50,201,185.255 1,228,739.743
Lawrence T. Perera 50,147,987.806 1,281,937.192
Robert C. Pozen 50,184,238.781 1,245,686.217
J. Dale Sherratt 50,172,143.194 1,257,781.804
Laurie J. Thomsen 50,143,987.716 1,285,937.282
PROXY VOTING POLICIES AND INFORMATION,bmark,title="Fund Expenses"
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 trust voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The trust will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The trust's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The trust's Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
CONTACT INFORMATION AND NUMBER OF SHAREHOLDERS
INVESTOR INFORMATION
Transfer Agent, Registrar and Dividend Disbursing Agent
Call 1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time
Write to: State Street Bank and Trust Company
c/o MFS Service Center, Inc.
P.O. Box 55024
Boston, MA 02205-5024
NUMBER OF SHAREHOLDERS
As of May 31, 2005, our records indicate that there are 4,208 registered
shareholders and approximately 36,081 shareholders owning trust shares in
"street" name, such as through brokers, banks, and other financial
intermediaries.
If you are a "street" name shareholder and wish to directly receive our
reports, which contain important information about the trust, please write or
call:
State Street Bank and Trust Company
c/o MFS Service Center, Inc.
P.O. Box 55024
Boston, MA 02205-5024
1-800-637-2304
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
500 Boylston Street, Boston, MA 02116.
MCR-SEM-07/05 55M
ITEM 2. CODE OF ETHICS.
The Registrant has amended its Code of Ethics to reflect that the Registrant's
Principal Financial Officer has changed.
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 of the Registrant is included as part of the report
to shareholders of the Registrant 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.
Not applicable at this time.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
=============================================================================================================
MFS CHARTER INCOME TRUST
-------------------------------------------------------------------------------------------------------------
(D)
(C) MAXIMUM NUMBER
TOTAL NUMBER OF (OR APPROXIMATE
(B) SHARES PURCHASED AS DOLLAR VALUE) OF
(A) AVERAGE PART OF PUBLICLY SHARES THAT MAY YET
TOTAL NUMBER OF PRICE PAID ANNOUNCED PLANS OR BE PURCHASED UNDER
PERIOD SHARES PURCHASED PER SHARE PROGRAMS THE PLANS OR PROGRAMS
-------------------------------------------------------------------------------------------------------------
12/1/04-12/31/04 137,500 $8.83 137,500 4,689,584
-------------------------------------------------------------------------------------------------------------
1/1/05-1/31/05 56,200 $8.83 56,200 4,633,384
-------------------------------------------------------------------------------------------------------------
2/1/05-2/28/05 28,000 $8.85 28,000 4,605,384
-------------------------------------------------------------------------------------------------------------
3/1/05-3/31/05 137,200 $8.60 137,200 5,591,924
-------------------------------------------------------------------------------------------------------------
4/1/05-4/30/05 149,600 $8.58 149,600 5,442,324
-------------------------------------------------------------------------------------------------------------
5/1/05-5/31/05 127,000 $8.68 127,000 5,315,324
-------------------------------------------------------------------------------------------------------------
Total 635,500 $8.69 635,500
=============================================================================================================
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, 2005 plan year are 5,729,124.
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 7(d)(2)(ii)(G) of Schedule 14A.
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 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.
ITEM 12. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends
to satisfy the Item 2 requirements through filing of an exhibit: Code of
Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto. (3)Any written
solicitation to purchase securities under Rule 23c-1 under the Act sent or
given during the period covered by the report by or on behalf of the
Registrant to 10 or more persons. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification
furnished pursuant to this paragraph will not be deemed "filed" for the
purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise
subject to the liability of that section. Such certification will not be deemed
to be incorporated by reference into any filing under the Securities Act of
1933 or the Exchange Act, except to the extent that the registrant specifically
incorporates it by reference: Attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant MFS CHARTER INCOME TRUST
--------------------------------------------------------------------
By (Signature and Title)* ROBERT J. MANNING
-----------------------------------------------------
Robert J. Manning, President
Date: July 25, 2005
-------------
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)* ROBERT J. MANNING
-----------------------------------------------------
Robert J. Manning, President (Principal Executive
Officer)
Date: July 25, 2005
-------------
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: July 25, 2005
-------------
* Print name and title of each signing officer under his or her signature.