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: November 30, 2005
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) Mutual Funds 11/30/05
ANNUAL REPORT
MFS(R) 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/NCUSIF
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MFS(R) CHARTER INCOME TRUST 11/30/05
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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PORTFOLIO COMPOSITION 2
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MANAGEMENT REVIEW 3
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PORTFOLIO MANAGER'S PROFILE 4
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PERFORMANCE SUMMARY 5
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN 8
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PORTFOLIO OF INVESTMENTS 9
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FINANCIAL STATEMENTS 21
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NOTES TO FINANCIAL STATEMENTS 25
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 32
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TRUSTEES AND OFFICERS 33
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 39
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PROXY VOTING POLICIES AND INFORMATION 43
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QUARTERLY PORTFOLIO DISCLOSURE 43
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FEDERAL TAX INFORMATION 43
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CONTACT INFORMATION BACK COVER
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s
had many people hoping they could become millionaires overnight. But the
market decline that started in the spring of 2000 taught everyone how
misguided those hopes had been.
Now, less than five years after the market taught a harsh lesson in the
follies of speculative investing, we are seeing a number of trends that
suggest many investors, including professionals, are hoping for overnight
miracles again. We see a steady stream of market "gurus" on television news
shows, promising to teach amateur investors the strategies that will allow
them to get rich quick. Hedge funds - which by their nature move in and out of
investments rapidly - have soared in popularity over the past five years. We
are reminded every day that we live in a "what have you done for me lately?"
world, but this mindset should not influence how we invest and manage our
money. In fact, investors often fall short of their goals because they trade
in and out of investments too frequently and at inopportune times.
Throughout our entire 80-year history, MFS" money management process has
focused on long-term investment opportunities. We firmly believe that one of
the best ways to realize long-term financial goals - be it a college
education, a comfortable retirement, or a secure family legacy - is to follow
a three-pronged approach that focuses on longer time horizons. Allocate
holdings across the major asset classes - including stocks, bonds, and cash.
Diversify within each class to take advantage of different market segments and
investing styles. And rebalance assets regularly to maintain a desired asset
allocation.*
This long-term approach requires diligence and patience, two traits that in
our experience are essential to capitalizing on the many opportunities the
financial markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
January 17, 2006
* Asset allocation, diversification, and rebalancing does not guarantee a
profit or protect against a loss. The opinions expressed in this letter are
those of MFS, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE*
Bonds 92.8%
Cash & Other Net Assets 7.2%
MARKET SECTORS*
Non U.S. Government Bonds 24.0%
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High Grade Corporates 15.4%
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Mortgage Backed Securities 14.5%
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High Yield Corporates 14.2%
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Emerging Markets Bonds 8.2%
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Cash & Other Net Assets 7.2%
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Commercial Mortgage Backed
Securities 7.0%
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U.S. Government Agencies 3.9%
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U.S. Treasury Securities 3.1%
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Asset Backed Securities 1.5%
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Municipal Bonds 1.0%
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PORTFOLIO FACTS
Average Duration^ 4.5
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Average Life@ 7.7 yrs.
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Average Maturity@ 12.6 yrs.
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Average Credit Quality of Rated
Securities+ A+
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Average Short Term Quality A-1
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CREDIT QUALITY OF BONDS#
AAA 56.6%
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AA 2.0%
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A 4.7%
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BBB 15.6%
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BB 15.2%
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B 4.6%
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CCC 0.4%
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CC 0.1%
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Not Rated 0.8%
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COUNTRY WEIGHTINGS*
United States 62.9%
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Germany 4.6%
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United Kingdom 3.9%
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Ireland 2.7%
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France 2.7%
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Netherlands 2.6%
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Spain 2.6%
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Finland 2.4%
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New Zealand 2.4%
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All Others 13.2%
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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 11/30/05.
^ Duration is a measure of how much a bond fund's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a fund
with a 5-year duration is likely to lose about 5.00% of
its value.
@ 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 average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
Percentages are based on net assets as of 11/30/05, 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 track five benchmarks reflecting
the varying results of the different markets in which we invest. For the
twelve months ended November 30, 2005, the MFS Charter Income Trust's
performance at net asset value of 4.56% surpassed three of the five
benchmarks, outperforming the Lehman Brothers Government Mortgage Index, the
Lehman Brothers U.S. Credit Index, and the Lehman Brothers U.S. High Yield
Corporate Index, while underperforming the Citigroup World Government Bond
Non-Dollar Hedged Index and the J.P. Morgan Emerging Markets Bond Index Global
(J.P. Morgan EMBI Global).
CONTRIBUTORS TO PERFORMANCE
The trust's portfolio is allocated to U.S., European, and Pacific Rim
securities. The trust's shorter duration stance aided relative results
(duration is a measure of a portfolio's sensitivity to changes in interest
rates). The trust maintained a defensive posture, believing that rates were
more likely to rise than fall. The trust's positioning in asset backed,
mortgage backed, sovereign debt and emerging markets debt securities boosted
results.
The trust benefited by being underweighted in "B" rated bonds and lower but
this was somewhat offset by overweighting in "BB" and "BBB" rated credits
(bonds rated "BBB" or higher are considered investment grade; bonds rated "BB"
or lower are considered non-investment grade).
DETRACTORS FROM PERFORMANCE
The trust's positioning in corporate bonds detracted from results over the
period. Other detractors to performance came from positioning in
supranationals. Over the period our Japanese currency position also
disappointed as the dollar continued to gain against most major currencies,
although these losses were largely offset by gains in other currencies.
Respectfully,
Richard O. Hawkins
Portfolio Manager
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.
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.
Richard joined MFS(R) in 1988 and was named a portfolio manager of MFS Charter
Income Trust in 2004. He earned a bachelor's degree from Brown University and
a Master's of Business Administration from the University of Pennsylvania.
Richard is a member of the Association for Investment Management and Research
(AIMR) and holds the Chartered Financial Analyst (CFA) designation.
John F. Addeo, CFA, is Vice President and Associate Director of Fixed Income
Research of MFS Investment Management(R) (MFS(R)) and portfolio manager of the
high-yield bond portfolios of our mutual funds, variable annuities, offshore
accounts and closed-end funds.
John joined MFS as a research analyst in 1998 and was named a portfolio
manager of MFS Charter Income Trust in 2005. He became Vice President in 1999,
associate portfolio manager in 2000, and portfolio manager in 2001. He was
named Associate Director of Fixed Income Research in 2004. Previously, he was
a quantitative analyst and a vice president in the high-yield groups of
several major investment companies.
He received a Bachelor of Science degree from Siena College in 1984. He holds
the Chartered Financial Analyst (CFA) designation.
Scott B. Richards, CFA, is Vice President of MFS Investment Management(R)
(MFS(R)) and a portfolio manager of the firm's high-yield and strategic
income portfolios.
Scott joined MFS in May 2004 with more than 24 years experience as a high-
yield bond portfolio manager and research director at several leading
investment management firms. He was named a portfolio manager of MFS Charter
Income Trust in 2005.
He earned a Master of Business Administration degree from the Amos Tuck School
at Dartmouth College in 1984 and a bachelor's degree in applied economics from
Cornell University in 1981. He holds the Chartered Financial Analyst (CFA)
designation and is a member of the Boston Security Analyst Society.
Matthew W. Ryan, CFA, is Senior Vice President of MFS Investment Management(R)
(MFS(R)) and portfolio manager of strategic income and high yield portfolios,
as well as the firm's emerging market debt portfolios. He was named a
portfolio manager of MFS Charter Income Trust in 2004.
Before joining the firm in 1997, Matt worked for four years as an economist at
the International Monetary Fund and for five years as an international
economist with the U.S. Treasury Department. He was named a portfolio manager
of MFS in 1998; Vice President in 1999; and Senior Vice President in 2005.
He is a graduate of Williams College and earned a master's degree in
international economics and foreign policy from Johns Hopkins University. Matt
also holds the Chartered Financial Analyst (CFA) designation.
PERFORMANCE SUMMARY THROUGH 11/30/05
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
Year ended 11/30/05
Date Price
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Net asset value 11/30/2004 $9.71
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11/30/2005 $9.58
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New York Stock Exchange Price 11/30/2004 $8.71
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2/01/2005(high)* $9.01
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11/03/2005(low)* $8.33
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11/30/2005 $8.43
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* For the period from December 1, 2004 through November 30, 2005.
TOTAL RETURNS VS BENCHMARKS
Year ended 11/30/05
New York Stock Exchange price** 2.57%
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Net asset value** 4.56%
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Citigroup World Government Bond Non-Dollar Hedged Index 5.40%
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J.P. Morgan EMBI Global 11.45%
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Lehman Brothers U.S. Aggregate Bond Index*** 2.40%
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Lehman Brothers U.S. Credit Index 2.28%
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Lehman Brothers Government Mortgage Index 2.48%
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Lehman Brothers U.S. High Yield Corporate Index 3.38%
** Includes reinvestment of dividend and capital distributions.
*** Effective November 30, 2005, we no longer use the Lehman Brothers U.S.
Aggregate Bond Index as a benchmark because we believe the Lehman Brothers
U.S. Credit Index and Lehman Brothers Government Mortgage Index better
reflect the fund's investment policies and objectives.
INDEX DEFINITIONS
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 U.S. 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 U.S. 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).
Lehman Brothers U.S. High Yield Corporate 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 or premium 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
their net asset value.
When trust shares trade at a premium, buyers pay more than the net 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.
From time to time the trust may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
The portfolio's yield and share prices change daily based on the credit
quality of its investments and changes in interest rates. In general, the
value of debt securities will decline when interest rates rise and will
increase when interest rates fall. Debt securities with longer maturity dates
will be subject to greater price fluctuations than those with shorter
maturities. Lower quality debt securities involve substantially greater risk
of default and their value can decline significantly over time. Mortgage
securities are subject to prepayment risk which can offer less potential for
gains in a declining interest rate environment and greater potential for loss
in a rising interest rate environment. Derivatives involve risks different
from, and greater than, those of the underlying indicator's in whose value the
derivative is based. The value of the derivative can move in unexpected ways
and result in unanticipated losses and increased volatility if the value of
the underlying indicator(s) does not move in the direction or the extent
anticipated. Foreign investments are more susceptible to risks relating to
interest rates, currency exchange rates and economic and political risks and
can be more volatile than U.S. investments. Investing in emerging markets can
involve risks in addition to those generally associated with investing in more
developed foreign markets.
These risks can increase share price volatility.
In accordance with Section 23(c) of the Investment Company Act of 1940, the
trust hereby gives notice that it may from time to time repurchase shares of
the trust in the open market at the option of the Board of Trustees and on
such terms as the Trustees shall determine.
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 - 11/30/05
The Portfolio of Investments is a complete list of all securities owned by your trust.
It is categorized by broad-based asset classes.
Bonds - 95.4%
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ISSUER SHARES/PAR $ VALUE
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Advertising & Broadcasting - 1.3%
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Allbritton Communications Co., 7.75%, 2012 $ 365,000 $ 365,456
DIRECTV Holdings LLC, 8.375%, 2013 884,000 959,140
EchoStar DBS Corp., 6.375%, 2011 1,945,000 1,881,787
Intelsat Ltd., 8.625%, 2015## 340,000 340,850
Lamar Media Corp., 7.25%, 2013 1,140,000 1,174,200
News America Holdings, 7.7%, 2025 1,140,000 1,292,226
News America, Inc., 6.2%, 2034 542,000 533,414
Paxson Communications Corp., 0% to 2006, 12.25% to 2009 580,000 596,675
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$ 7,143,748
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Agency - Other - 1.0%
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Financing Corp., 10.35%, 2018 $ 3,600,000 $ 5,350,334
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Airlines - 0.2%
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Continental Airlines, Inc., 7.566%, 2020 $ 1,045,217 $ 943,340
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Apparel Manufacturers - 0%
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Quiksilver, Inc., 6.875%, 2015## $ 100,000 $ 94,500
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Asset Backed & Securitized - 8.5%
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Airplane Pass-Through Trust, "D", 10.875%, 2019**+ $ 222,233 $ 667
Amresco Commercial Mortgage Funding I, 7%, 2029 3,000,000 3,044,099
Asset Securitization Corp., 7.525%, 2029 1,586,134 1,742,577
Asset Securitization Corp., FRN, 8.292%, 2026 2,000,000 2,119,948
Bear Stearns Commercial Mortgage Securities, Inc., FRN,
5.116%, 2041 1,120,248 1,106,275
Commercial Mortgage Acceptance Corp., FRN, 5.44%, 2013## 3,165,000 3,151,398
Countrywide Asset-Backed Certificates, FRN, 5.147%, 2035 2,000,000 1,975,239
Credit Suisse First Boston Mortgage Securities Corp.,
6.75%, 2030## 2,000,000 2,076,789
Crest Ltd., 7%, 2040## 2,000,000 1,890,600
DLJ Commercial Mortgage Corp., 6.04%, 2031 2,000,000 1,993,086
First Union-Lehman Brothers Bank of America, FRN,
0.6937%, 2028^^ 70,957,847 1,427,459
First Union-Lehman Brothers Commercial Mortgage Trust,
7%, 2029## 850,000 913,748
First Union-Lehman Brothers Commercial Mortgage Trust, FRN,
7.5%, 2029 3,000,000 3,355,112
J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN,
5.038%, 2015 4,000,000 3,920,220
Morgan Stanley Capital I, Inc., 5.168%, 2042 1,532,020 1,518,934
Mortgage Capital Funding, Inc., FRN, 0.9637%, 2031^^ 20,024,655 311,590
New Century Home Equity Loan Trust, 4.532%, 2035 2,500,000 2,457,314
Residential Asset Mortgage Products, Inc., 3.878%, 2035 1,340,523 1,321,303
Spirit Master Funding, LLC, 5.05%, 2023## 1,971,891 1,914,676
Structured Asset Securities Corp., FRN, 4.67%, 2035 2,484,152 2,448,391
TIAA Real Estate CDO Ltd., 7.17%, 2032## 2,979,641 3,042,818
Wachovia Bank Commercial Mortgage Trust, FRN, 5.083%, 2042 2,000,000 1,966,991
Wachovia Bank Commercial Mortgage Trust, FRN, 4.847%, 2041 2,000,000 1,935,585
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$ 45,634,819
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Automotive - 1.1%
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Affinia Group, Inc., 9%, 2014 $ 75,000 $ 60,375
DaimlerChrysler N.A. Holdings Corp., 8.5%, 2031 400,000 473,120
Ford Motor Credit Co., 5.8%, 2009 1,600,000 1,427,365
Ford Motor Credit Co., 7%, 2013 254,000 224,602
General Motors Acceptance Corp., 6.125%, 2008 160,000 148,159
General Motors Acceptance Corp., 5.85%, 2009 285,000 257,983
General Motors Acceptance Corp., 6.75%, 2014 714,000 647,787
General Motors Acceptance Corp., 8%, 2031 500,000 490,315
General Motors Corp., 8.375%, 2033 506,000 341,550
Lear Corp., 8.11%, 2009 260,000 245,260
Navistar International Corp., 7.5%, 2011 530,000 511,450
TRW Automotive, Inc., 9.375%, 2013 781,000 841,528
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$ 5,669,494
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Banks & Credit Companies - 4.5%
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Abbey National Capital Trust I, 8.963% to 2030, FRN to 2049 $ 1,500,000 $ 1,999,991
Banco De Estado de Sao Paulo S.A., 8.7%, 2049## 2,100,000 2,136,750
Banco Mercantil del Norte S.A., 5.875% to 2009, FRN to 2014## 2,108,000 2,092,190
BNP Paribas, 5.186% to 2015, FRN to 2049## 1,667,000 1,604,649
Bosphorus Financial Services Ltd., FRN, 6.14%, 2012## 1,500,000 1,477,680
Chuo Mitsui Trust & Banking Co., 5.506% to 2015, FRN to 2049## 1,676,000 1,611,804
DFS Funding Corp., FRN, 5.87%, 2010## 1,750,000 1,793,750
HBOS Capital Funding LP, 6.071% to 2014, FRN to 2049## 1,330,000 1,359,317
J.P. Morgan Chase & Co., 5.125%, 2014 2,100,000 2,065,627
Kazkommerts International B.V., 10.125%, 2007## 367,000 388,102
Kazkommerts International B.V., 10.125%, 2007 128,000 135,360
Mizuho Financial Group, Inc., 5.79%, 2014## 1,898,000 1,953,564
RBS Capital Trust II, 6.425% to 2034, FRN to 2049 829,000 852,277
Resona Bank Ltd., 5.85% to 2016, FRN to 2049## 655,000 647,107
Russian Standard Finance S.A., 8.125%, 2008## 682,000 687,968
Russian Standard Finance S.A., 7.5%, 2010## 176,000 172,260
Turanalem Finance B.V., 8%, 2014## 854,000 863,608
UFJ Finance Aruba AEC, 6.75%, 2013 1,300,000 1,411,101
VTB Capital S.A., 6.25%, 2035## 974,000 1,003,220
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$ 24,256,325
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Broadcast & Cable TV - 1.1%
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CCH Holdings LLC, 11%, 2015## $ 336,000 $ 288,120
Charter Communications, Inc., 8.625%, 2009 174,000 139,200
CSC Holdings, Inc., 8.125%, 2009 1,050,000 1,063,125
Lenfest Communications, Inc., 10.5%, 2006 1,900,000 1,948,098
Mediacom Broadband LLC, 9.5%, 2013 280,000 275,100
Rogers Cable, Inc., 5.5%, 2014 1,025,000 949,406
TCI Communications, Inc., 9.8%, 2012 1,169,000 1,409,547
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$ 6,072,596
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Brokerage & Asset Managers - 1.0%
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Goldman Sachs Group, Inc., 5.7%, 2012 $ 2,680,000 $ 2,739,788
Morgan Stanley Dean Witter, Inc., 6.6%, 2012 2,537,000 2,711,891
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$ 5,451,679
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Business Services - 0.2%
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Iron Mountain, Inc., 7.75%, 2015 $ 175,000 $ 176,750
Xerox Corp., 7.625%, 2013 920,000 968,300
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$ 1,145,050
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Chemicals - 1.0%
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BCP Crystal Holdings Corp., 9.625%, 2014 $ 237,000 $ 262,774
Hercules, Inc., 6.75%, 2029 860,000 833,125
Huntsman International LLC, 10.125%, 2009 331,000 340,930
Kronos International, Inc., 8.875%, 2009 EUR 100,000 123,053
Lyondell Chemical Co., 11.125%, 2012 $ 615,000 691,875
Nalco Co., 7.75%, 2011 395,000 405,863
NOVA Chemicals Corp., 6.5%, 2012 420,000 410,550
Rhodia S.A., 8.875%, 2011 325,000 329,875
Rockwood Specialties, Inc., 7.5%, 2014 60,000 58,800
Yara International A.S.A., 5.25%, 2014## 2,000,000 1,940,146
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$ 5,396,991
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Conglomerates - 0.2%
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Kennametal, Inc., 7.2%, 2012 $ 1,140,000 $ 1,231,649
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Construction - 0.3%
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D.R. Horton, Inc., 8%, 2009 $ 935,000 $ 997,283
M/I Homes, Inc., 6.875%, 2012 675,000 604,125
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$ 1,601,408
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Consumer Goods & Services - 0.1%
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Church & Dwight Co., Inc., 6%, 2012 $ 460,000 $ 453,100
Service Corp. International, 7%, 2017## 260,000 257,075
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$ 710,175
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Containers - 0.2%
--------------------------------------------------------------------------------------------------
Crown Americas, 7.75%, 2015## $ 245,000 $ 249,900
Huntsman Packaging Corp., 13%, 2010** 190,000 36,100
Owens-Brockway Glass Container, Inc., 8.875%, 2009 660,000 693,000
Owens-Brockway Glass Container, Inc., 8.25%, 2013 85,000 87,763
------------
$ 1,066,763
--------------------------------------------------------------------------------------------------
Defense Electronics - 0.6%
--------------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 4.75%, 2010## $ 790,000 $ 773,353
BAE Systems Holdings, Inc., 5.2%, 2015## 2,000,000 1,947,830
L-3 Communications Holdings, Inc., 5.875%, 2015 750,000 720,000
------------
$ 3,441,183
--------------------------------------------------------------------------------------------------
Electronics - 0.2%
--------------------------------------------------------------------------------------------------
Flextronics International Ltd., 6.5%, 2013 $ 895,000 $ 903,950
--------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 1.2%
--------------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013## $ 1,510,000 $ 1,810,112
Pemex Project Funding Master Trust, 7.375%, 2014 774,000 853,722
Pemex Project Funding Master Trust, 8.625%, 2022 1,218,000 1,485,960
Petronas Capital Ltd., 7.875%, 2022## 464,000 564,514
Petronas Capital Ltd., 7.875%, 2022 1,340,000 1,630,278
------------
$ 6,344,586
--------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 3.1%
--------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 7.875%, 2015 $ 143,000 $ 146,718
Federal Republic of Brazil, FRN, 5.25%, 2012 2,408,103 2,369,092
Republic of Argentina, FRN, 4.005%, 2012 3,019,000 2,333,973
Republic of Panama, 9.375%, 2029 509,000 626,070
Republic of Peru, FRN, 5%, 2017 1,658,160 1,587,688
Republic of South Africa, 9.125%, 2009 469,000 526,453
Republic of South Africa, 8.5%, 2017 540,000 673,650
Russian Federation, 3%, 2008 4,677,000 4,425,377
Russian Federation, 3%, 2011 2,510,000 2,227,625
State of Qatar, 9.75%, 2030 435,000 650,325
United Mexican States, 8.125%, 2019 976,000 1,195,600
------------
$ 16,762,571
--------------------------------------------------------------------------------------------------
Energy - Independent - 0.7%
--------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 7.5%, 2014 $ 335,000 $ 353,425
Chesapeake Energy Corp., 6.875%, 2016 680,000 683,400
Forest Oil Corp., 7.75%, 2014 550,000 574,750
Kerr-McGee Corp., 6.95%, 2024 800,000 832,987
Newfield Exploration Co., 6.625%, 2014 225,000 227,250
Plains Exploration & Production Co., 7.125%, 2014 625,000 640,625
Pogo Producing Co., 6.875%, 2017## 80,000 78,000
Vintage Petroleum, Inc., 8.25%, 2012 550,000 592,625
------------
$ 3,983,062
--------------------------------------------------------------------------------------------------
Energy - Integrated - 0.2%
--------------------------------------------------------------------------------------------------
Amerada Hess Corp., 7.3%, 2031 $ 725,000 $ 826,741
--------------------------------------------------------------------------------------------------
Entertainment - 0.6%
--------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 9.5%, 2011 $ 349,000 $ 340,275
Loews Cineplex Entertainment Corp., 9%, 2014 430,000 430,537
Six Flags, Inc., 9.75%, 2013 220,000 217,250
Turner Broadcasting System, Inc., 8.375%, 2013 1,784,000 2,069,540
------------
$ 3,057,602
--------------------------------------------------------------------------------------------------
Financial Institutions - 0.1%
--------------------------------------------------------------------------------------------------
International Lease Finance Corp., 5%, 2010 $ 321,000 $ 317,977
--------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.1%
--------------------------------------------------------------------------------------------------
B&G Foods Holding Corp., 8%, 2011 $ 150,000 $ 152,250
Dean Foods Co., 6.625%, 2009 90,000 91,350
Smithfield Foods, Inc., 7%, 2011 465,000 473,719
------------
$ 717,319
--------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.0%
--------------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc., 7.75%, 2011 $720,000 $691,200
Buckeye Technologies, Inc., 8.5%, 2013 460,000 462,300
Donohue Forest Products, Inc., 7.625%, 2007 1,588,000 1,631,670
Georgia-Pacific Corp., 9.375%, 2013 1,695,000 1,900,519
MDP Acquisitions PLC, 9.625%, 2012 310,000 306,900
Norske Skog Canada Ltd., 7.375%, 2014 695,000 628,975
------------
$ 5,621,564
--------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.7%
--------------------------------------------------------------------------------------------------
Aztar Corp., 7.875%, 2014 $ 280,000 $ 289,800
Boyd Gaming Corp., 6.75%, 2014 520,000 516,100
Caesars Entertainment, Inc., 8.125%, 2011 730,000 801,175
GTECH Holdings Corp., 5.25%, 2014 235,000 199,498
Harrah's Operating Co., Inc., 5.625%, 2015## 2,147,000 2,089,368
Host Marriott LP, 7.125%, 2013 465,000 482,437
Host Marriott LP, 6.375%, 2015 90,000 89,325
Mandalay Resort Group, 9.375%, 2010 450,000 492,750
MGM Mirage, Inc., 8.375%, 2011 1,155,000 1,227,187
Pinnacle Entertainment, Inc., 8.75%, 2013 295,000 311,225
Royal Caribbean Cruises Ltd., 8%, 2010 990,000 1,075,388
Scientific Games Corp., 6.25%, 2012 80,000 78,800
Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 895,000 980,025
Station Casinos, Inc., 6.5%, 2014 440,000 442,200
Wynn Las Vegas LLC, 6.625%, 2014 225,000 217,406
------------
$ 9,292,684
--------------------------------------------------------------------------------------------------
Industrial - 0.2%
--------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011## $ 335,000 $ 362,219
Valmont Industries, Inc., 6.875%, 2014 730,000 737,300
------------
$ 1,099,519
--------------------------------------------------------------------------------------------------
Insurance - 0.8%
--------------------------------------------------------------------------------------------------
American International Group, Inc., 4.25%, 2013 $ 4,250,000 $ 4,011,252
UnumProvident Corp., 7.625%, 2011 215,000 230,220
UnumProvident Finance Co., 6.85%, 2015## 200,000 205,087
------------
$ 4,446,559
--------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.9%
--------------------------------------------------------------------------------------------------
ACE INA Holdings, Inc., 5.875%, 2014 $ 1,700,000 $ 1,739,676
AXIS Capital Holdings Ltd., 5.75%, 2014 1,879,000 1,866,251
Fund American Cos., Inc., 5.875%, 2013 1,351,000 1,353,688
------------
$ 4,959,615
--------------------------------------------------------------------------------------------------
International Market Quasi-Sovereign - 0.7%
--------------------------------------------------------------------------------------------------
KfW Bankengruppe, FRN, 2.007%, 2007 EUR 3,321,000 $ 3,911,184
--------------------------------------------------------------------------------------------------
International Market Sovereign - 22.9%
--------------------------------------------------------------------------------------------------
Canada Housing Trust, 4.65%, 2009 CAD 260,000 228,364
Federal Republic of Germany, 3.5%, 2008 EUR 8,759,000 10,494,222
Federal Republic of Germany, 3.75%, 2015 EUR 4,639,000 5,613,422
Federal Republic of Germany, 6.25%, 2030 EUR 920,000 1,503,052
Government of Australia, 6.25%, 2015 AUD 3,604,000 2,834,964
Government of Canada, 5.25%, 2012 CAD 1,488,000 1,369,506
Government of New Zealand, 7%, 2009 NZD 1,773,000 1,281,567
Government of New Zealand, 6.5%, 2013 NZD 12,081,000 8,804,224
Government of New Zealand, 6%, 2015 NZD 3,691,000 2,621,597
Kingdom of Netherlands, 5.75%, 2007 EUR 5,502,000 6,718,553
Kingdom of Netherlands, 3.75%, 2009 EUR 6,006,000 7,266,598
Kingdom of Spain, 6%, 2008 EUR 7,080,000 8,882,687
Kingdom of Spain, 5.35%, 2011 EUR 3,728,000 4,895,315
Republic of Austria, 5.5%, 2007 EUR 4,953,000 6,125,668
Republic of Finland, 3%, 2008 EUR 6,399,000 7,574,243
Republic of Finland, 5.375%, 2013 EUR 3,809,000 5,112,098
Republic of France, 4.75%, 2007 EUR 8,645,000 10,501,763
Republic of France, 4.75%, 2012 EUR 950,000 1,221,316
Republic of France, 6%, 2025 EUR 309,000 479,057
Republic of Ireland, 4.25%, 2007 EUR 10,057,000 12,174,857
Republic of Ireland, 4.6%, 2016 EUR 1,059,000 1,372,901
United Kingdom Treasury, 5.75%, 2009 GBP 4,334,000 7,896,569
United Kingdom Treasury, 8%, 2015 GBP 3,727,000 8,436,277
---------------
$ 123,408,820
--------------------------------------------------------------------------------------------------
Machinery & Tools - 0.4%
--------------------------------------------------------------------------------------------------
Case New Holland, Inc., 6%, 2009 $1,415,000 $1,358,400
Manitowoc Co., Inc., 10.5%, 2012 331,000 369,065
Terex Corp., 9.25%, 2011 265,000 283,550
United Rentals, Inc., 6.5%, 2012 185,000 178,063
------------
$ 2,189,078
--------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.9%
--------------------------------------------------------------------------------------------------
AmerisourceBergen Corp., 5.875%, 2015## $ 2,465,000 $ 2,477,325
DaVita, Inc., 6.625%, 2013 170,000 174,250
Fisher Scientific International, Inc., 6.125%, 2015## 300,000 298,875
HCA, Inc., 8.75%, 2010 1,100,000 1,208,007
HCA, Inc., 6.375%, 2015 955,000 948,873
------------
$ 5,107,330
--------------------------------------------------------------------------------------------------
Metals & Mining - 0.8%
--------------------------------------------------------------------------------------------------
Codelco, Inc., 5.625%, 2035## $ 1,104,000 $ 1,064,123
Foundation PA Coal Co., 7.25%, 2014 520,000 530,400
Ispat Inland ULC, 9.75%, 2014 1,200,000 1,353,000
Peabody Energy Corp., 5.875%, 2016 425,000 412,250
Peabody Energy Corp., "B", 6.875%, 2013 355,000 366,538
U.S. Steel Corp., 9.75%, 2010 413,000 448,621
------------
$ 4,174,932
--------------------------------------------------------------------------------------------------
Mortgage Backed - 14.4%
--------------------------------------------------------------------------------------------------
Fannie Mae, 4.845%, 2013 $ 253,943 $ 249,978
Fannie Mae, 4.1%, 2013 953,273 901,007
Fannie Mae, 4.19%, 2013 920,189 873,140
Fannie Mae, 3.81%, 2013 592,449 550,689
Fannie Mae, 4.6%, 2014 765,740 742,615
Fannie Mae, 4.667%, 2014 1,353,270 1,320,358
Fannie Mae, 4.518%, 2014 913,913 883,343
Fannie Mae, 4.77%, 2014 597,779 582,521
Fannie Mae, 4.56%, 2015 320,835 309,310
Fannie Mae, 4.665%, 2015 259,783 252,248
Fannie Mae, 4.7%, 2015 247,855 241,220
Fannie Mae, 4.89%, 2015 174,551 172,079
Fannie Mae, 4.74%, 2015 600,000 584,105
Fannie Mae, 4.87%, 2015 523,235 515,072
Fannie Mae, 4.925%, 2015 1,950,380 1,931,232
Fannie Mae, 4.815%, 2015 600,000 586,800
Fannie Mae, 6%, 2016 - 2034 7,363,851 7,474,195
Fannie Mae, 5.5%, 2019 - 2035 44,711,577 44,249,766
Fannie Mae, 4.88%, 2020 587,052 580,593
Fannie Mae, 6.5%, 2032 - 2033 3,897,291 3,996,280
Freddie Mac, 6%, 2034 2,576,546 2,596,208
Freddie Mac, 5.5%, 2034 8,251,873 8,157,571
------------
$ 77,750,330
--------------------------------------------------------------------------------------------------
Municipals - 1.0%
--------------------------------------------------------------------------------------------------
Massachusetts State Water Resources Authority, "A", MBIA,
5.25%, 2015 $ 4,800,000 $ 5,288,544
--------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.1%
--------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 7.25%, 2015## $ 470,000 $ 481,750
--------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.1%
--------------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 $ 1,600,000 $ 1,821,365
Colorado Interstate Gas Co., 5.95%, 2015 170,000 162,994
Enterprise Products Operating LP, 6.375%, 2013 1,800,000 1,871,294
Magellan Midstream Partners LP, 5.65%, 2016 311,000 308,736
Pacific Energy Partners, LP, 6.25%, 2015## 90,000 88,650
Southern Natural Gas Co., Inc., 8.875%, 2010 550,000 588,148
Williams Cos., Inc., 8.75%, 2032 800,000 908,000
------------
$ 5,749,187
--------------------------------------------------------------------------------------------------
Network & Telecom - 2.0%
--------------------------------------------------------------------------------------------------
AT&T Corp., 9.05%, 2011 $ 260,000 $ 288,520
AT&T Corp., 9.75%, 2031 785,000 965,550
Citizens Communications Co., 9.25%, 2011 815,000 890,387
Citizens Communications Co., 6.25%, 2013 645,000 620,812
Citizens Communications Co., 9%, 2031 650,000 650,000
Deutsche Telekom International Finance B.V., 8.75%, 2030 1,500,000 1,882,309
Eircom Funding PLC, 8.25%, 2013 515,000 557,487
Espirit Telecom Group PLC, 10.875%, 2008** 165,000 0
Qwest Corp., 7.875%, 2011 860,000 922,350
Qwest Corp., 8.875%, 2012 450,000 505,125
Telecom Italia Capital, 6%, 2034 1,000,000 956,157
Verizon New York, Inc., 6.875%, 2012 2,542,000 2,639,999
------------
$ 10,878,696
--------------------------------------------------------------------------------------------------
Oil Services - 0.1%
--------------------------------------------------------------------------------------------------
GulfMark Offshore, Inc., 7.75%, 2014 $ 435,000 $ 451,312
Petroleum Export Peloil, 5.265%, 2011## 280,000 278,796
------------
$ 730,108
--------------------------------------------------------------------------------------------------
Oils - 0.7%
--------------------------------------------------------------------------------------------------
Premcor Refining Group, Inc., 7.5%, 2015 $ 3,550,000 $ 3,751,367
--------------------------------------------------------------------------------------------------
Pollution Control - 0.1%
--------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 7.875%, 2013 $ 360,000 $ 374,400
--------------------------------------------------------------------------------------------------
Printing & Publishing - 0.5%
--------------------------------------------------------------------------------------------------
Dex Media East LLC, 9.875%, 2009 $ 565,000 $ 611,612
Dex Media West LLC, 9.875%, 2013 1,527,000 1,689,244
MediaNews Group, Inc., 6.875%, 2013 515,000 502,125
------------
$ 2,802,981
--------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.6%
--------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 9.375%, 2012## $ 2,809,000 $ 3,068,833
--------------------------------------------------------------------------------------------------
Real Estate - 0.3%
--------------------------------------------------------------------------------------------------
HRPT Properties Trust, 6.25%, 2016 $ 1,324,000 $ 1,365,574
--------------------------------------------------------------------------------------------------
Restaurants - 0.3%
--------------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $ 1,500,000 $ 1,725,855
--------------------------------------------------------------------------------------------------
Retailers - 0.5%
--------------------------------------------------------------------------------------------------
Couche-Tard, Inc., 7.5%, 2013 $ 210,000 $ 214,200
Gap, Inc., 9.55%, 2008 940,000 1,046,329
GSC Holdings Corp., 8%, 2012## 130,000 125,450
Limited Brands, Inc., 5.25%, 2014 1,100,000 1,016,468
Rite Aid Corp., 8.125%, 2010 365,000 365,000
------------
$ 2,767,447
--------------------------------------------------------------------------------------------------
Supranational - 0.3%
--------------------------------------------------------------------------------------------------
Central American Bank, 4.875%, 2012## $ 1,426,000 $ 1,371,819
--------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.8%
--------------------------------------------------------------------------------------------------
America Movil, S.A. de C.V., 5.75%, 2015 $ 1,602,000 $ 1,589,580
AT&T Wireless Services, Inc., 8.75%, 2031 1,500,000 1,965,354
Centennial Communications Corp., 10.125%, 2013 240,000 267,600
Cingular Wireless LLC, 6.5%, 2011 1,700,000 1,810,723
Dolphin Telecom PLC, 11.5%, 2008** 1,600,000 0
Dolphin Telecom PLC, "B", 14%, 2009** 750,000 0
Mobile TeleSystems OJSC, 9.75%, 2008## 1,552,000 1,654,820
Nextel Communications, Inc., 5.95%, 2014 1,315,000 1,314,995
Rogers Wireless, Inc., 6.375%, 2014 550,000 546,563
Rogers Wireless, Inc., 7.5%, 2015 450,000 481,500
------------
$ 9,631,135
--------------------------------------------------------------------------------------------------
Tobacco - 0.4%
--------------------------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings, Inc., 7.25%, 2012 $ 818,000 $ 827,203
R.J. Reynolds Tobacco Holdings, Inc., 7.3%, 2015## 1,300,000 1,309,750
------------
$ 2,136,953
--------------------------------------------------------------------------------------------------
Transportation - Services - 0.1%
--------------------------------------------------------------------------------------------------
Stena AB, 7%, 2016 $ 330,000 $ 301,125
Westinghouse Air Brake Technologies Corp., 6.875%, 2013 140,000 140,700
------------
$ 441,825
--------------------------------------------------------------------------------------------------
U.S. Government Agencies - 2.9%
--------------------------------------------------------------------------------------------------
Small Business Administration, 4.34%, 2024 $ 7,615,823 $ 7,290,069
Small Business Administration, 4.77%, 2024 5,889,975 5,789,733
Small Business Administration, 5.11%, 2025 2,652,266 2,652,882
------------
$ 15,732,684
--------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 6.9%
--------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 12%, 2013 $ 7,500,000 $ 8,937,015
U.S. Treasury Bonds, 10.625%, 2015 3,350,000 4,922,145
U.S. Treasury Bonds, 9.875%, 2015 5,025,000 7,124,505
U.S. Treasury Bonds, 5.375%, 2031 635,000 697,706
U.S. Treasury Notes, 4.125%, 2015 1,285,000 1,244,041
U.S. Treasury Notes, TIPS, 2%, 2014### 10,924,624 10,815,804
U.S. Treasury Notes, TIPS, 1.625%, 2015 3,752,836 3,596,272
------------
$ 37,337,488
--------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.5%
--------------------------------------------------------------------------------------------------
Allegheny Energy Supply Co., LLC, 8.25%, 2012## $ 545,000 $ 613,125
CMS Energy Corp., 8.5%, 2011 285,000 307,087
DPL, Inc., 6.875%, 2011 707,000 749,420
Duke Capital Corp., 8%, 2019 1,350,000 1,591,219
Dynegy Holdings, Inc., 9.875%, 2010## 240,000 262,200
Enersis S.A., 7.375%, 2014 1,273,000 1,363,088
FirstEnergy Corp., 6.45%, 2011 4,759,000 5,003,113
MSW Energy Holdings LLC, 7.375%, 2010 545,000 557,262
Nevada Power Co., 5.875%, 2015 900,000 886,675
NorthWestern Corp., 5.875%, 2014 1,010,000 1,004,892
NRG Energy, Inc., 8%, 2013 1,190,000 1,306,025
PSEG Energy Holdings LLC, 7.75%, 2007 265,000 270,300
Reliant Resources, Inc., 9.5%, 2013 235,000 239,700
System Energy Resources, Inc., 5.129%, 2014## 2,478,257 2,384,777
TECO Energy, Inc., 7.5%, 2010 450,000 478,125
Tenaska Alabama Partners LP, 7%, 2021## 107,637 108,812
Texas Genco LLC, 6.875%, 2014## 275,000 294,250
TXU Energy Co., 7%, 2013 1,220,000 1,291,087
------------
$ 18,711,157
--------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $521,129,925) $514,433,280
--------------------------------------------------------------------------------------------------
Stocks - 0%
--------------------------------------------------------------------------------------------------
Printing & Publishing - 0%
--------------------------------------------------------------------------------------------------
Golden Books Family Entertainment, Inc.* 3,683 $ 0
--------------------------------------------------------------------------------------------------
Specialty Chemicals - 0%
--------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc.* 6 $ 108
--------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $0) $ 108
--------------------------------------------------------------------------------------------------
Warrants - 0%
--------------------------------------------------------------------------------------------------
STRIKE FIRST
ISSUER PRICE EXERCISE SHARES/PAR $ VALUE
--------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd.
(Business Services)* 0.14 1/28/97 1,625 $ 0
Loral Space & Communications Ltd.
(Business Services)* 0.14 1/28/97 750 0
Sterling Chemicals, Inc. (Specialty
Chemicals)* 52.00 12/31/02 11 10
Thermadyne Holdings Corp. (Machinery &
Tools)* 20.78 5/29/03 760 114
--------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $39,014) $ 124
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Repurchase Agreement - 3.5%
--------------------------------------------------------------------------------------------------
Morgan Stanley, 4.02%, dated 11/30/05, due 12/01/05, total to be
received $19,065,129 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account), at Cost $ 19,063,000 $ 19,063,000
--------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $540,231,939)~ $533,496,512
--------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.1% 5,994,439
--------------------------------------------------------------------------------------------------
Net Assets - 100.0% $539,490,951
--------------------------------------------------------------------------------------------------
* Non-income producing security.
** Non income producing security - in default.
^^ Interest only security for which the trust receives interest on notional principal (Par
amount). Par amount shown is the notional principal and does not reflect the cost of the
security.
## SEC Rule 144A restriction.
### All or a portion of the security has been segregated as collateral for an open futures
contract.
~ As of November 30, 2005 the trust had 4 securities representing $0 that were fair valued in
accordance with the policies adopted by the Board of Trustees.
+ Restricted securities (excluding 144A issues) are not registered under the Securities Act of
1933 and are subject to legal or contractual restrictions on resale. These securities
generally may be resold in transactions exempt from registration or to the public if the
securities are registered. Disposal of these securities may involve time-consuming
negotiations and prompt sale at an acceptable price may be difficult. The trust holds the
following restricted security:
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
SECURITY DATE COST VALUE NET ASSETS
--------------------------------------------------------------------------------------------------
Airplane Pass-Through Trust, "D",
10.875%, 2019 3/13/96 $222,233 $667 0.0%
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Sales and Purchases in the table below are netted by currency.
NET UNREALIZED
CONTRACTS TO SETTLEMENT CONTRACTS APPRECIATION
DELIVER/RECEIVE DATE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
--------------------------------------------------------------------------------------------------
SALES
--------------------------------------------------------------------------------------------------
AUD 3,776,111 12/05/05-12/07/05 $ 2,846,248 $ 2,793,107 $ 53,141
EUR 80,905,175 1/23/06-2/21/06 95,076,307 95,804,166 (727,859)
GBP 9,518,619 12/01/05-1/31/06 16,926,379 16,453,685 472,694
NOK 5,670,092 1/17/06 851,659 843,080 8,579
NZD 18,767,630 12/07/05 12,931,389 13,185,866 (254,477)
--------------------------------------------------------------------------------------------------
$128,631,982 $129,079,904 $(447,922)
--------------------------------------------------------------------------------------------------
PURCHASES
--------------------------------------------------------------------------------------------------
CNY 42,072,400 2/06/06 $ 5,350,000 $ 5,244,300 $(105,700)
GBP 242,937 12/01/05 418,727 420,071 1,344
SEK 1,151,519 12/14/05 148,392 142,832 (5,560)
--------------------------------------------------------------------------------------------------
$ 5,917,119 $ 5,807,203 $(109,916)
--------------------------------------------------------------------------------------------------
At November 30, 2005, forward foreign currency purchases and sales under
master netting agreements excluded above amounted to a net receivable of
$1,801 with Merrill Lynch International.
FUTURES CONTRACTS OUTSTANDING AT NOVEMBER 30, 2005:
UNREALIZED
EXPIRATION APPRECIATION/
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
-------------------------------------------------------------------------------------------------
U.S. Treasury Note 5 yr (Short) 200 $21,187,500 Mar-06 $25,863
At November 30, 2005, the trust had sufficient cash and/or securities to cover
any commitments under these derivative contracts.
The following abbreviations are used in the Portfolio of Investments and are
defined:
FRN Floating Rate Note. The interest rate is the rate in effect as of period end.
MBIA MBIA Insurance Corp.
TIPS Treasury Inflation Protected Security
Abbreviations indicate amounts shown in currencies other than the U.S. Dollar.
All amounts are stated in U.S. Dollars unless otherwise indicated. A list of
abbreviations is shown below:
AUD Australian Dollar
CAD Canadian Dollar
CNY Chinese Yuan Renminbi
EUR Euro
GBP British Pound
NOK Norwegian Krone
NZD New Zealand Dollar
SEK Swedish Krona
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Assets and Liabilities
This statement represents your trust's balance sheet, which details the assets
and liabilities composing the total value of the trust.
AT 11/30/05
ASSETS
------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $540,231,939) $533,496,512
Cash 813
Foreign currency, at value (identified cost, $93) 91
Receivable for forward foreign currency exchange contracts 546,729
Receivable for forward foreign currency exchange contracts
subject to master netting agreements 1,801
Receivable for daily variation margin on open futures contracts 15,625
Receivable for investments sold 66,208
Interest receivable 7,502,404
Other assets 29,522
------------------------------------------------------------------------------------------------------
Total assets $541,659,705
------------------------------------------------------------------------------------------------------
LIABILITIES
------------------------------------------------------------------------------------------------------
Payable to dividend disbursing agent $200,139
Payable for forward foreign currency exchange contracts 1,104,567
Payable for investments purchased 388,455
Payable for treasury shares reacquired 143,739
Payable to affiliates
Management fee 9,037
Transfer agent and dividend disbursing costs 14,385
Administrative services fee 88
Accrued expenses and other liabilities 308,344
------------------------------------------------------------------------------------------------------
Total liabilities $2,168,754
------------------------------------------------------------------------------------------------------
Net assets $539,490,951
------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
------------------------------------------------------------------------------------------------------
Paid-in capital $593,817,025
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies (7,325,581)
Accumulated net realized gain (loss) on investments and foreign
currency transactions (52,440,953)
Undistributed net investment income 5,440,460
------------------------------------------------------------------------------------------------------
Net assets $539,490,951
------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding (60,895,183 issued,
less 4,601,344 treasury shares) 56,293,839
------------------------------------------------------------------------------------------------------
Net asset value per share (net assets of $539,490,951 /
56,293,839 shares of beneficial interest outstanding) $9.58
------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Operations
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.
YEAR ENDED 11/30/05
NET INVESTMENT INCOME
-------------------------------------------------------------------------------------------------------
Income
Interest $29,907,267
Foreign taxes withheld (8,744)
-------------------------------------------------------------------------------------------------------
Total investment income $29,898,523
-------------------------------------------------------------------------------------------------------
Expenses
Management fee $3,276,174
Transfer agent and dividend disbursing costs 151,946
Administrative services fee 66,359
Independent trustees' compensation 81,766
Custodian fee 350,561
Printing 28,545
Postage 191,283
Auditing fees 80,648
Legal fees 9,792
Shareholder solicitation expenses 9,454
Miscellaneous 85,142
-------------------------------------------------------------------------------------------------------
Total expenses $4,331,670
-------------------------------------------------------------------------------------------------------
Fees paid indirectly (40,454)
Reduction of expenses by investment adviser (2,427)
-------------------------------------------------------------------------------------------------------
Net expenses $4,288,789
-------------------------------------------------------------------------------------------------------
Net investment income $25,609,734
-------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
-------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $8,588,207
Futures contracts 2,455,978
Foreign currency transactions 8,960,248
-------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $20,004,433
-------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(27,574,649)
Futures contracts (44,937)
Translation of assets and liabilities in foreign currencies 2,668,668
-------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(24,950,918)
-------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $(4,946,485)
-------------------------------------------------------------------------------------------------------
Change in net assets from operations $20,663,249
-------------------------------------------------------------------------------------------------------
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.
FOR YEARS ENDED 11/30 2005 2004
CHANGE IN NET ASSETS
------------------------------------------------------------------------------------------------------
FROM OPERATIONS
------------------------------------------------------------------------------------------------------
Net investment income $25,609,734 $28,651,944
Net realized gain (loss) on investments and foreign
currency transactions 20,004,433 13,948,586
Net unrealized gain (loss) on investments and foreign
currency translation (24,950,918) (4,401,904)
------------------------------------------------------------------------------------------------------
Change in net assets from operations $20,663,249 $38,198,626
------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------
From net investment income $(29,042,810) $(31,836,028)
------------------------------------------------------------------------------------------------------
TRUST SHARE (PRINCIPAL) TRANSACTIONS
------------------------------------------------------------------------------------------------------
Cost of shares reacquired $(10,569,915) $(9,821,953)
------------------------------------------------------------------------------------------------------
Total change in net assets $(18,949,476) $(3,459,355)
------------------------------------------------------------------------------------------------------
NET ASSETS
------------------------------------------------------------------------------------------------------
At beginning of period $558,440,427 $561,899,782
At end of period (including accumulated undistributed net
investment income of $5,440,460 and accumulated
distributions in excess of net investment income of
$7,226,513, respectively) $539,490,951 $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 past 5 years.
Certain information reflects financial results for a single trust share. The total returns in the table represent the rate by
which an investor would have earned (or lost) on an investment in the trust (assuming reinvestment of all distributions) held
for the entire period. This information has been audited by the trust's independent registered public accounting firm, whose
report, together with the trust's financial statements, are included in this report.
YEARS ENDED 11/30
--------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $9.71 $9.58 $9.09 $9.17 $9.20
------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS(S)
------------------------------------------------------------------------------------------------------------------------------
Net investment income# $0.45 $0.49 $0.49 $0.52 $0.67
Net realized and unrealized gain (loss) on
investments and foreign currency (0.09) 0.17 0.51 (0.03) (0.01)
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.36 $0.66 $1.00 $0.49 $0.66
------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.51) $(0.55) $(0.53) $(0.49) $(0.64)
From paid-in capital -- -- -- (0.09) (0.05)
------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.51) $(0.55) $(0.53) $(0.58) $(0.69)
------------------------------------------------------------------------------------------------------------------------------
Net increase from repurchase of capital shares $0.02 $0.02 $0.02 $0.01 $0.00+++
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.58 $9.71 $9.58 $9.09 $9.17
------------------------------------------------------------------------------------------------------------------------------
Per share market value, end of period $8.43 $8.71 $8.78 $8.26 $8.35
------------------------------------------------------------------------------------------------------------------------------
Total return at market value (%)&*** 2.57 5.52 13.02 5.99 6.92
------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.79 0.80 0.83 0.85 0.91
Expenses after expense reductions## 0.79 0.80 0.83 0.85 0.91
Net investment income(S) 4.64 5.11 5.21 5.80 7.18
Portfolio turnover 73 70 129 137 98
Net assets at end of period (000 Omitted) $539,491 $558,440 $561,900 $546,281 $556,614
------------------------------------------------------------------------------------------------------------------------------
*** Certain expenses have been reduced without which performance would have been lower.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+++ Per share amount was less than $0.01.
(S) Effective December 1, 2001, the trust adopted the provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing and accreting all premiums and discounts on debt securities. Per share data and ratios for
the period prior to November 30, 2002 have not been restated to reflect this change.
& From time to time the trust may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Charter Income Trust (the trust) 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, including securities of emerging
market issuers. Investments in foreign securities are vulnerable to the
effects of changes in the relative values of the local currency and the U.S.
dollar and to the effects of changes in each country's legal, political, and
economic environment. The markets of emerging markets countries are generally
more volatile than the markets of developed countries with more mature
economies. All of the risks of investing in foreign securities previously
described are heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - Debt instruments (other than short-term instruments),
including restricted debt instruments, are generally valued at an evaluated
bid price as reported by an independent pricing service. Values of debt
instruments obtained from pricing services can utilize both dealer-supplied
valuations and electronic data processing techniques which take into account
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. Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales during
the day, equity securities are generally valued at the last quoted bid price
as reported by an independent pricing service on the market or exchange on
which they are primarily traded. Short-term instruments with a maturity at
issuance of 365 days or less are generally valued at amortized cost, which
approximates market value. Futures contracts are generally valued at
settlement price as reported by an independent pricing service on the exchange
on which they are primarily traded. For futures contracts in which there were
no sales during the day, futures contracts are generally valued at the last
quoted bid price as reported by an independent pricing service on the exchange
on which they are primarily traded. Forward foreign currency contracts are
generally valued at the mean of bid and asked prices based on rates reported
by an independent pricing service. Securities and other assets generally
valued on the basis of information from an independent pricing service may
also be valued on the basis of information from brokers and dealers. The
values of foreign securities and other assets and liabilities expressed in
foreign currencies are converted to U.S. dollars based upon exchange rates
provided by an independent source. 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.
INFLATION-ADJUSTED DEBT SECURITIES - The trust invests in inflation-adjusted
debt securities issued by the U.S. Treasury. The trust may also invest in
inflation-adjusted debt securities issued by U.S. Government agencies and
instrumentalities other than the U.S. Treasury and by other entities such as
U.S. and foreign corporations and foreign governments. The principal value of
these debt securities is adjusted by references to changes in the Consumer
Price Index or another general price or wage index. These debt securities
typically pay a fixed rate of interest, but this fixed rate is applied to the
inflation- adjusted principal amount. The principal paid at maturity of the
debt security is typically equal to the inflation-adjusted principal amount, or
the security's original par value, whichever is greater. Other types of
inflation- adjusted securities may use other methods to adjust for other
measures of inflation.
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.
DERIVATIVE RISK - The trust may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the trust uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from
derivative instruments may be substantially greater than the derivative's
original cost. Derivative instruments include forward foreign currency
exchange contracts and futures contracts.
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. Upon entering into such contracts,
the trust bears the risk of interest or exchange rates or securities prices
moving unexpectedly, in which case, the trust may not achieve the anticipated
benefits of the futures contracts and may realize a loss.
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 the contract. 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.
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
November 30, 2005, there were no securities on loan.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
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.
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 year ended November 30, 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, amortization and accretion on
debt securities, derivatives, straddle loss deferrals, defaulted bonds, and
wash sales.
The tax character of distributions declared for the years ended
November 30, 2005 and November 30, 2004 was as follows:
11/30/05 11/30/04
Distributions declared from:
Ordinary income $29,042,810 $31,836,028
During the year ended November 30, 2005 undistributed net investment income
increased by $16,100,049, accumulated net realized loss on investments and
foreign currency transactions increased by $16,015,830, and paid-in capital
decreased by $84,219 due to differences between book and tax accounting for
foreign currency transactions, amortization and accretion on debt securities,
and defaulted bonds. This change had no effect on the net assets or net asset
value per share.
As of November 30, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $6,866,994
Capital loss carryforward (45,279,622)
Unrealized appreciation (depreciation) (13,923,198)
Other temporary differences (1,990,248)
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on November 30, 2009, ($21,374,410)
and November 30, 2010 ($23,905,212).
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at an annual rate of
0.32% of the trust's average daily net assets and 4.57% of gross investment
income. The management fee, from net assets and gross investment income,
incurred for the year ended November 30, 2005 was equivalent to an annual
effective rate of 0.59% of the trust's average daily net assets.
TRANSFER AGENT - The trust pays a portion of transfer agent and dividend-
disbursing costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary
of MFS. MFSC receives a fee from the trust, for its services as registrar and
dividend-disbursing agent. 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. For the year ended November 30, 2005, these fees
amounted to $85,965. MFSC also receives payment from the trust for out-of-
pocket expenses paid by MFSC on behalf of the trust. For the year ended
November 30, 2005, these costs amounted to $51,856.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. Effective July 1, 2005, the fund's annual fixed amount is $10,000.
The administrative services fee incurred for the year ended November 30, 2005
was equivalent to an annual effective rate of 0.0120% of the trust's average
daily net assets.
TRUSTEES' AND OFFICERS' COMPENSATION - The trust pays compensation to
Independent Trustees in the form of a retainer, attendance fees, and
additional compensation to Board and Committee chairpersons. The trust does
not pay compensation directly to 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 MFSC. The trust has an unfunded,
defined benefit plan for retired Independent Trustees which resulted in a
pension expense of $7,558. The trust also has an unfunded retirement benefit
deferral plan for certain current Independent Trustees which resulted in an
expense of $2,444. Both amounts are included in Independent trustees'
compensation for the year ended November 30, 2005.
DEFERRED TRUSTEE COMPENSATION - Under a Deferred Compensation Plan (the Plan)
Independent Trustees previously were allowed to elect to defer receipt of all
or a portion of their annual compensation. Trustees are no longer allowed to
defer compensation under the Plan. Amounts previously deferred are treated as
though equivalent dollar amounts had been invested in shares of the trust or
other MFS funds selected by the Trustee. Deferred amounts represent an
unsecured obligation of the trust until distributed in accordance with the
Plan. Included in other assets, and accrued expenses and other liabilities, is
$13,368 of Deferred Trustees' Compensation.
OTHER - 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 the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $2,427, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement.
(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 $111,176,266 $108,851,614
-------------------------------------------------------------------------------
Investments (non-U.S. government securities) $277,932,744 $282,097,947
-------------------------------------------------------------------------------
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 $547,419,710
------------------------------------------------------------
Gross unrealized appreciation $5,589,695
Gross unrealized depreciation (19,512,893)
------------------------------------------------------------
Net unrealized appreciation (depreciation) $(13,923,198)
(5) SHARES OF BENEFICIAL INTEREST
The trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. The Trustees have
authorized the repurchase by the trust of up to 10% annually of its own shares
of beneficial interest. The trust repurchased and retired 1,219,100 shares of
beneficial interest during the year ended November 30, 2005 at an average
price per share of $8.67 and a weighted average discount of 10.39% 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:
Year ended 11/30/05 Year ended 11/30/04
SHARES AMOUNT SHARES AMOUNT
Treasury shares
reacquired (1,219,100) $(10,569,915) (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 year ended November 30, 2005 was $3,623, and is
included in miscellaneous expense on the Statement of Operations. The trust
had no significant borrowings during the year ended November 30, 2005.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Shareholders of MFS Charter Income Trust:
We have audited the accompanying statement of assets and liabilities of MFS
Charter Income Trust (the Fund), including the portfolio of investments, as of
November 30, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Fund's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of November 30, 2005, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Charter Income Trust at November 30, 2005, the results of its operations for
the year then ended, the changes in its net assets for each of the two years
in the period then ended, and its financial highlights for each of the five
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
January 10, 2006
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of January 1, 2006, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.) The
address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(1) OTHER DIRECTORSHIPS(2)
------------------- ---------------- --------------- ----------------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Secretary of Economic
Affairs, The Commonwealth of
Massachusetts (January 2002 to
December 2002); Fidelity
Investments, Vice Chairman (June
2000 to December 2001); Fidelity
Management & Research Company
(investment adviser), President
(March 1997 to July 2001); Bell
Canada Enterprises
(telecommunications), Director;
Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(1) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (November 2000 to June
2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group (1997 to
February 2001); Borders Group,
Inc. (book and music retailer),
Director; Federal Realty
Investment Trust (real estate
investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 06/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 08/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 05/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (since 2000); Hillview
Investment Trust II Funds (mutual
fund complex), Trustee (since
2000)
OFFICERS
Maria F. Dwyer(3) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(3) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003); Nvest Services Company,
Assistant Vice President and
Associate Counsel (prior to
January 2001)
Ethan D. Corey(3) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(3) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (January
2001 to June 2005); State Street
Bank, Vice President and Corporate
Audit Manager (prior to January
2001)
Timothy M. Fagan(3) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(3) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian T. Hourihan(3) Assistant September 2004 Massachusetts Financial Services
(born 11/11/64) Secretary and Company, Vice President, Senior
Assistant Clerk Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance
Program (January to April 2004);
Fidelity Research & Management
Company, Assistant General Counsel
(prior to January 2004)
Ellen Moynihan(3) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Vice President
Susan S. Newton(3) Assistant May 2005 Massachusetts Financial Services
(born 03/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(3) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (January 2001 to June
2004); Preti, Flaherty, Beliveau,
Pachios & Haley, LLC, Associate
(prior to January 2001)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (February
1997 to March 2003)
James O. Yost(3) Assistant September 1990 Massachusetts Financial Services
(born 06/12/60) Treasurer Company, Senior Vice President
------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940 (referred
to as the 1940 Act), which is the principal federal law governing investment companies like the fund,
as a result of position with MFS. The address of MFS is 500 Boylston Street, Boston, Massachusetts
02116.
The Trust holds annual shareholder meetings for the purpose of electing Trustees, and Trustees are
elected for fixed terms. The Board of Trustees is currently divided into three classes, each having a
term of three years.
Each year the term of one class expires. Each Trustee's term of office expires on the date of the third
annual meeting following the election to office of the Trustee's class. Each Trustee and officer will
serve until next elected or his or her earlier death, resignation, retirement or removal.
Messrs. Butler, Ives, Sherratt and Uek and Mses. Lane and Thomsen are members of the Trust's Audit
Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which
MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with
certain affiliates of MFS. As of December 31, 2005, each Trustee served as a board member of 98 funds
within the MFS Family of Funds.
The Statement of Additional Information for the Trust and further information about the Trustees are
available without charge upon request by calling 1-800-225-2606.
On April 20, 2005, Robert J. Manning, as Chief Executive Officer of the Trust, certified to the New York
Stock Exchange that as of the date of his certification he was not aware of any violation by the Trust of
the corporate governance listing standards of the New York Stock Exchange.
The Trust filed with the Securities and Exchange Commission the certifications of its principal executive
officer and principal financial officer under Section 302 of the Sarbanes-Oxley Act of 2003 as an exhibit
to the Trust's Form N-CSR for the period covered by this report.
-----------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 02110
02116-3741
INDEPENDENT REGISTERED PUBLIC
PORTFOLIO MANAGERS ACCOUNTING FIRM
Richard O. Hawkins Ernst & Young LLP
John F. Addeo 200 Clarendon Street, Boston, MA 02116
Scott B. Richards
Matthew W. Ryan
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the MFS Charter Income
Trust's (the "Fund's") investment advisory agreement with MFS. The Trustees
consider matters bearing on the Fund and its advisory arrangements at their
meetings throughout the year, including a review of performance data at each
regular meeting. In addition, the independent Trustees met several times over
the course of three months beginning in May and ending in July, 2005
("contract review meetings") for the specific purpose of considering whether
to approve the continuation of the investment advisory agreement for the Fund
and the other investment companies that the Board oversees (the "MFS Funds").
The independent Trustees were assisted in their evaluation of the Fund's
investment advisory agreement by independent legal counsel, from whom they
received separate legal advice and with whom they met separately from MFS
during various contract review meetings. The independent Trustees were also
assisted in this process by the MFS Funds' Independent Chief Compliance
Officer, a full-time senior officer appointed by and reporting to the
independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light
of the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance (based on net asset
value) of the Fund for various time periods ended December 31, 2004 and the
investment performance (based on net asset value) of a group of funds with
substantially similar investment classifications/objectives (the "Lipper
performance universe"), as well as the investment performance (based on net
asset value) of a group of funds identified by objective criteria suggested by
MFS ("peer funds"), (ii) information provided by Lipper Inc. on the Fund's
advisory fees and other expenses and the advisory fees and other expenses of
comparable funds identified by Lipper (the "Lipper expense group"), as well as
the advisory fees and other expenses of peer funds identified by objective
criteria suggested by MFS, (iii) information provided by MFS on the advisory
fees of comparable portfolios of other clients of MFS, including institutional
separate account and other clients, (iv) information as to whether and to what
extent applicable expense waivers, reimbursements or fee "breakpoints" are
observed for the Fund, (v) information regarding MFS' financial results and
financial condition, including MFS' and certain of its affiliates' estimated
profitability from services performed for the Fund and the MFS Funds as a
whole, (vi) MFS' views regarding the outlook for the mutual fund industry and
the strategic business plans of MFS, (vii) descriptions of various functions
performed by MFS for the Funds, such as compliance monitoring and portfolio
trading practices, and (viii) information regarding the overall organization
of MFS, including information about MFS' senior management and other personnel
providing investment advisory, administrative and other services to the Fund
and the other MFS Funds. The comparative performance, fee and expense
information prepared and provided by Lipper Inc. was not independently
verified and the independent Trustees did not independently verify any
information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed
the Fund's total return investment performance as well as the performance of
peer groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's common shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2004, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 80th percentile relative to the other funds in the
universe for this three-year period (the 1st percentile being the best
performers and the 100th percentile being the worst performers). The total
return performance of the Fund's common shares was in the 80th percentile
for the one-year period and the 60th percentile for the five-year period
ended December 31, 2004 relative to the Lipper performance universe. Because
of the passage of time, these performance results are likely to differ from
the performance results for more recent periods, including those shown
elsewhere in this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings, as
well as during investment review meetings conducted with portfolio management
personnel during the course of the year. Among other information, the Trustees
took into account information from MFS identifying differences between the Fund
and other funds in its Lipper performance universe that adversely affected the
Fund's relative performance results, including that the Fund does not employ
financial leverage, and also reviewed the Fund's performance in comparison to
other benchmarks developed by MFS. After reviewing these and related factors,
the Trustees concluded, within the context of their overall conclusions
regarding the investment advisory agreement, that they were satisfied with MFS'
responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's common shares as a percentage of average net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
whether the Fund was subject to any fee waivers or reductions or expense
limitations. The Trustees also considered that, according to the Lipper data,
the Fund's effective advisory fee rate and the Fund's total expense ratio each
were approximately at the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information
provided by MFS as to the generally broader scope of services provided by MFS
to the Fund in comparison to institutional accounts and the impact on MFS and
expenses associated with the more extensive regulatory regime to which the
Fund is subject in comparison to institutional accounts.
The Trustees considered that, as a closed-end fund, the Fund is unlikely to
experience meaningful asset growth. As a result, the Trustees did not view the
potential for realization of economies of scale as the Fund's assets grow to
be a material factor in their deliberations. The Trustees noted that they
would consider economies of scale in the future in the event the Fund
experiences significant asset growth, such as through an offering of preferred
shares (which is not currently contemplated) or a material increase in the
market value of the Fund's portfolio securities.
The Trustees also considered information prepared by MFS relating to
MFS' costs and profits with respect to the Fund, the MFS Funds considered as a
group, and other investment companies and accounts advised by MFS, as well as
MFS' methodologies used to determine and allocate its costs to the MFS Funds,
the Fund and other accounts and products for purposes of estimating
profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the
financial services industry, including the entry into the industry of large
and well-capitalized companies which are spending, and appear to be prepared
to continue to spend, substantial sums to engage personnel and to provide
services to competing investment companies. In this regard, the Trustees also
considered the financial resources of MFS and its ultimate parent, Sun Life
Financial Inc. The Trustees also considered the advantages and possible
disadvantages to the Fund of having an adviser which also serves other
investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative services provided to the Fund by MFS under agreements other
than the investment advisory agreement. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for research and other similar services
(including MFS' general policy to pay directly for third-party research), and
various other factors. Additionally, the Trustees considered so-called "fall-
out benefits" to MFS such as reputational value derived from serving as
investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material,
including those factors described above, the Board of Trustees, including a
majority of the independent Trustees, concluded that the Fund's investment
advisory agreement with MFS should be continued for an additional one-year
period, commencing August 1, 2005.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement is available by visiting the Closed-End
fund section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
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 fund's Form N-Q is available on
the EDGAR database on the Commission's Internet Web site at http://
www.sec.gov, and copies of this information may be obtained, upon payment of a
duplicating fee, by electronic request at the following e-mail address:
publicinfo@sec.gov or by writing the Public Reference Section at the above
address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
FEDERAL TAX INFORMATION (unaudited)
In January 2006, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2005.
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 November 30, 2005, our records indicate that there are 4,017 registered
shareholders and approximately 35,121 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) 2006 MFS Investment Management(R)
500 Boylston Street, Boston, MA 02116.
MCR-ANN-1/06 48M
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the
Registrant's principal executive officer and principal financial and accounting
officer. The Registrant has amended its Code of Ethics to reflect that the
Registrant's Principal Financial Officer and Principal Executive Officer have
changed.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. Robert E. Butler, J. Atwood Ives and Robert W. Uek and Mses. Amy B.
Lane and Laurie J. Thomsen, members of the Audit Committee, have been
determined by the Board of Trustees in their reasonable business judgment to
meet the definition of "audit committee financial expert" as such term is
defined in Form N-CSR. In addition, Messrs. Butler, Ives and Uek and Mses. Lane
and Thomsen are "independent" members of the Audit Committee as defined in Form
N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEMS 4(a) THROUGH 4(d) AND 4(g):
The Board of Trustees has appointed Ernst & Young LLP ("E&Y") to serve as
independent accountants to the Registrant (hereinafter the "Registrant" or the
"Fund"). The tables below set forth the audit fees billed to the Fund as well
as fees for non-audit services provided to the Fund and/or to the Fund's
investment adviser, Massachusetts Financial Services Company ("MFS") and to
various entities either controlling, controlled by, or under common control
with MFS that provide ongoing services to the Fund ("MFS Related Entities").
For the fiscal years ended November 30, 2005 and 2004, audit fees billed to the
Fund by E&Y were as follows:
Audit Fees
FEES BILLED BY E&Y: 2005 2004
---- ----
MFS Charter Income Trust $41,610 $37,900
TOTAL
For the fiscal years ended November 30, 2005 and 2004, fees billed by E&Y for
audit-related, tax and other services provided to the Funds and for
audit-related, tax and other services provided to MFS and MFS Related Entities
were as follows:
Audit-Related Fees(1) Tax Fees(2) All Other Fees(3)
FEES BILLED BY E&Y: 2005 2004 2005 2004 2005 2004
---- ---- ---- ---- ---- ----
To MFS Charter $20,000 $0 $10,620 $11,600 $197 $0
Income Trust
To MFS and MFS Related $0 $0 $15,500 $0 $670,399 $35,000
Entities of MFS
Charter Income
Trust*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2005 2004
To MFS Charter Income $748,716 $53,600
Trust, MFS and MFS Related
Entities#
* This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to
the operations and financial reporting of the Fund (portions of which services also related to the operations and
financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by E&Y for non-audit services rendered to the Fund and for
non-audit services rendered to MFS and the MFS Related Entities.
(1) The fees included under "Audit-Related Fees" are fees related to assurance and related services that are
reasonably related to the performance of the audit or review of financial statements, but not reported under
"Audit Fees," including accounting consultations, agreed-upon procedure reports, attestation reports, comfort
letters and internal control reviews.
(2) The fees included under "Tax Fees" are fees associated with tax compliance, tax advice and tax planning, including
services relating to the filing or amendment of federal, state or local income tax returns, regulated investment
company qualification reviews and tax distribution and analysis.
(3) The fees included under "All Other Fees" are fees for products and services provided by E&Y other than those
reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees", including fees for services related to analysis
of fund administrative expenses, compliance program and records management projects.
For periods prior to May 6, 2003, the amounts shown above under "Audit-Related
Fees," "Tax Fees" and "All Other Fees" relate to permitted non-audit services
that would have been subject to pre-approval if the Securities and Exchange
Commission's rules relating to pre-approval of non-audit services had been in
effect.
ITEM 4(e)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services: To the extent required by applicable law,
pre-approval by the Audit Committee of the Board is needed for all audit and
permissible non-audit services rendered to the Funds and all permissible
non-audit services rendered to MFS or MFS Related Entities if the services
relate directly to the operations and financial reporting of the Registrant.
Pre-approval is currently on an engagement-by-engagement basis. In the event
pre-approval of such services is necessary between regular meetings of the
Audit Committee and it is not practical to wait to seek pre-approval at the
next regular meeting of the Audit Committee, pre-approval of such services may
be referred to the Chair of the Audit Committee for approval; provided that the
Chair may not pre-approve any individual engagement for such services exceeding
$50,000 or multiple engagements for such services in the aggregate exceeding
$100,000 between such regular meetings of the Audit Committee. Any engagement
pre-approved by the Chair between regular meetings of the Audit Committee shall
be presented for ratification by the entire Audit Committee at its next
regularly scheduled meeting.
ITEM 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Fund and MFS and MFS Related Entities relating
directly to the operations and financial reporting of the Registrant disclosed
above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X (which permits audit committee approval after
the start of the engagement with respect to services other than audit, review
or attest services, if certain conditions are satisfied).
ITEM 4(f): Not applicable.
ITEM 4(h): The Registrant's Audit Committee has considered whether the
provision by a Registrant's independent registered public accounting firm of
non-audit services to MFS and MFS Related Entities that were not pre-approved
by the Committee (because such services were provided prior to the
effectiveness of SEC rules requiring pre-approval or because such services did
not relate directly to the operations and financial reporting of the
Registrant) was compatible with maintaining the independence of the independent
registered public accounting firm as the Registrant's principal auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has an Audit Committee established in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit
Committee are Messrs. Robert E. Butler, J. Atwood Ives, J. Dale Sherratt and
Robert W. Uek and Mses. Amy B. Lane and Laurie J. Thomsen.
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.
The Board of Trustees and the Board of Managers of the investment
companies (the "MFS Funds") advised by Massachusetts Financial Services Company
("MFS") have delegated to MFS the right and obligation to vote proxies for
shares that are owned by the MFS Funds, in accordance with MFS' proxy voting
policies and procedures (the "MFS Proxy Policies"). The MFS Proxy Policies are
set forth below:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
PROXY VOTING POLICIES AND PROCEDURES
SEPTEMBER 17, 2003, AS REVISED ON SEPTEMBER 20, 2004 AND MARCH 15, 2005
Massachusetts Financial Services Company, MFS Institutional Advisors,
Inc. and MFS' other investment adviser subsidiaries (collectively, "MFS") have
adopted proxy voting policies and procedures, as set forth below, with respect
to securities owned by the clients for which MFS serves as investment adviser
and has the power to vote proxies, including the registered investment
companies sponsored by MFS, other than the MFS Union Standard Equity Fund (the
"MFS Funds"). References to "clients" in these policies and procedures include
the MFS Funds and other clients of MFS, such as funds organized offshore,
sub-advised funds and separate account clients, to the extent these clients
have delegated to MFS the responsibility to vote proxies on their behalf under
MFS' proxy and voting policies.
These policies and procedures include:
A. Voting Guidelines;
B. Administrative Procedures;
C. Monitoring System;
D. Records Retention; and
E. Reports.
A. VOTING GUIDELINES
1. GENERAL POLICY; POTENTIAL CONFLICTS OF INTEREST
MFS' policy is that proxy voting decisions are made in what MFS
believes to be the best long-term economic interests of MFS' clients, and not
in the interests of any other party or in MFS' corporate interests, including
interests such as the distribution of MFS Fund shares, administration of 401(k)
plans, and institutional relationships.
MFS has carefully reviewed matters that in recent years have been
presented for shareholder vote by either management or shareholders of public
companies. Based on the overall principle that all votes cast by MFS on behalf
of its clients must be in what MFS believes to be the best long-term economic
interests of such clients, MFS has adopted proxy voting guidelines, set forth
below, that govern how MFS generally plans to vote on specific matters
presented for shareholder vote. In all cases, MFS will exercise its discretion
in voting on these matters in accordance with this overall principle. In other
words, the underlying guidelines are simply that - guidelines. Proxy items of
significance are often considered on a case-by-case basis, in light of all
relevant facts and circumstances, and in certain cases MFS may vote proxies in
a manner different from these guidelines.
As a general matter, MFS maintains a consistent voting position on
similar proxy proposals with respect to various issuers. In addition, MFS
generally votes consistently on the same matter when securities of an issuer
are held by multiple client accounts. However, MFS recognizes that there are
gradations in certain types of proposals that might result in different voting
positions being taken with respect to different proxy statements. There also
may be situations involving matters presented for shareholder vote that are not
clearly governed by the guidelines, such as proposed mergers and acquisitions.
Some items that otherwise would be acceptable will be voted against the
proponent when it is seeking extremely broad flexibility without offering a
valid explanation. MFS reserves the right to override the guidelines with
respect to a particular shareholder vote when such an override is, in MFS' best
judgment, consistent with the overall principle of voting proxies in the best
long-term economic interests of MFS' clients.
From time to time, MFS receives comments on these guidelines as well
as regarding particular voting issues from its clients and corporate issuers.
These comments are carefully considered by MFS, when it reviews these
guidelines each year and revises them as appropriate.
These policies and procedures are intended to address any potential
material conflicts of interest on the part of MFS or its affiliates that are
likely to arise in connection with the voting of proxies on behalf of MFS'
clients. If such potential conflicts of interest do arise, MFS will analyze,
document and report on such potential conflicts (see Sections B.2 and E below),
and shall ultimately vote these proxies in what MFS believes to be the best
long-term economic interests of its clients. The MFS Proxy Review Group is
responsible for monitoring and reporting with respect to such potential
conflicts of interest.
2. MFS' POLICY ON SPECIFIC ISSUES
ELECTION OF DIRECTORS
MFS believes that good governance should be based on a board with a majority of
directors who are "independent" of management, and whose key committees (e.g.
compensation, nominating, and audit committees) are comprised entirely of
"independent" directors. While MFS generally supports the board's nominees in
uncontested elections, we will withhold our vote for a nominee for a board of a
U.S. issuer if, as a result of such nominee being elected to the board, the
board would be comprised of a majority of members who are not "independent" or,
alternatively, the compensation, nominating or audit committees would include
members who are not "independent." MFS will also withhold its vote for a
nominee to the board if he or she failed to attend at least 75% of the board
meetings in the previous year without a valid reason. In addition, MFS will
withhold its vote for all nominees standing for election to a board of a U.S.
issuer: (1) if, since the last annual meeting of shareholders and without
shareholder approval, the board or its compensation committee has repriced
underwater options; or (2) if, within the last year, shareholders approved by
majority vote a resolution recommending that the board rescind a "poison pill"
and the board has failed to take responsive action to that resolution.
Responsive action would include the rescission of the "poison pill"(without a
broad reservation to reinstate the "poison pill" in the event of a hostile
tender offer), or public assurances that the terms of the "poison pill" would
be put to a binding shareholder vote within the next five to seven years.
MFS evaluates a contested election of directors on a case-by-case basis
considering the long-term financial performance of the company relative to its
industry, management's track record, the qualifications of the nominees for
both slates and an evaluation of what each side is offering shareholders.
CLASSIFIED BOARDS
MFS opposes proposals to classify a board (e.g., a board in which only
one-third of board members are elected each year). MFS supports proposals to
declassify a board.
NON-SALARY COMPENSATION PROGRAMS
Restricted stock plans are supposed to reward results rather than
tenure, so the issuance of restricted stock at bargain prices is not favored.
In some cases, restricted stock is granted to the recipient at deep discounts
to fair market value, sometimes at par value. The holder cannot sell for a
period of years, but in the meantime the holder is able to vote and receive
dividends. Eventually the restrictions lapse and the stock can be sold by the
holder.
MFS votes against stock option programs for officers, employees or
non-employee directors that do not require an investment by the optionee, that
give "free rides" on the stock price, or that permit grants of stock options
with an exercise price below fair market value on the date the options are
granted.
MFS opposes stock option programs that allow the board or the
compensation committee, without shareholder approval, to reprice underwater
options or to automatically replenish shares (i.e., evergreen plans). MFS will
consider on a case-by-case basis proposals to exchange existing options for
newly issued options (taking into account such factors as whether there is a
reasonable value-for-value exchange).
MFS opposes stock option and restricted stock plans that provide
unduly generous compensation for officers, directors or employees, or could
result in excessive dilution to other shareholders. As a general guideline, MFS
votes against stock option and restricted stock plans if all such plans for a
particular company involve potential dilution, in the aggregate, of more than
15%. However, MFS may accept a higher percentage (up to 20%) in the case of
startup or small companies which cannot afford to pay large salaries to
executives, or in the case where MFS, based upon the issuer's public
disclosures, believes that the issuer has been responsible with respect to its
recent compensation practices, including the mix of the issuance of restricted
stock and options.
MFS votes in favor of stock option or restricted stock plans for
non-employee directors as long as they satisfy the requirements set forth above
with respect to stock option and restricted stock plans for company executives.
EXPENSING OF STOCK OPTIONS
While we acknowledge that there is no agreement on a uniform
methodology for expensing stock options, MFS supports shareholder proposals to
expense stock options because we believe that the expensing of options presents
a more accurate picture of the company's financial results to investors. We
also believe that companies are likely to be more disciplined when granting
options if the value of stock options were treated as an expense item on the
company's income statements.
EXECUTIVE COMPENSATION
MFS believes that competitive compensation packages are necessary to
attract, motivate and retain executives. Therefore, MFS opposes shareholder
proposals that seek to set limits on executive compensation. Shareholder
proposals seeking to set limits on executive compensation tend to specify
arbitrary compensation criteria. MFS also opposes shareholder requests for
disclosure on executive compensation beyond regulatory requirements because we
believe that current regulatory requirements for disclosure of executive
compensation are appropriate and that additional disclosure is often
unwarranted and costly. Although we support linking executive stock option
grants to a company's stock performance, MFS opposes shareholder proposals that
mandate a link of performance-based options to a specific industry or peer
group index. MFS believes that compensation committees should retain the
flexibility to propose the appropriate index or other criteria by which
performance-based options should be measured. MFS evaluates other executive
compensation restrictions (e.g., terminating the company's stock option or
restricted stock programs, freezing executive pay during periods of large
layoffs, and establishing a maximum ratio between the highest paid executive
and lowest paid employee) based on whether such proposals are in the best
long-term economic interests of our clients.
EMPLOYEE STOCK PURCHASE PLANS
MFS supports the use of a broad-based employee stock purchase plans to
increase company stock ownership by employees, provided that shares purchased
under the plan are acquired for no less than 85% of their market value and do
not result in excessive dilution.
"GOLDEN PARACHUTES"
From time to time, shareholders of companies have submitted proxy
proposals that would require shareholder approval of severance packages for
executive officers that exceed certain predetermined thresholds. MFS votes in
favor of such shareholder proposals when they would require shareholder
approval of any severance package for an executive officer that exceeds a
certain multiple of such officer's annual compensation that is not determined
in MFS' judgment to be excessive.
ANTI-TAKEOVER MEASURES
In general, MFS votes against any measure that inhibits capital
appreciation in a stock, including proposals that protect management from
action by shareholders. These types of proposals take many forms, ranging from
"poison pills" and "shark repellents" to super-majority requirements.
MFS will vote for proposals to rescind existing "poison pills" and
proposals that would require shareholder approval to adopt prospective "poison
pills." Nevertheless, MFS will consider supporting the adoption of a
prospective "poison pill" or the continuation of an existing "poison pill" if
the following two conditions are met: (1) the "poison pill" allows MFS clients
to hold an aggregate position of up to 15% of a company's total voting
securities (and of any class of voting securities); and (2) either (a) the
"poison pill" has a term of not longer than five years, provided that MFS will
consider voting in favor of the "poison pill" if the term does not exceed seven
years and the "poison pill" is linked to a business strategy or purpose that
MFS believes is likely to result in greater value for shareholders; or (b) the
terms of the "poison pill" allow MFS clients the opportunity to accept a fairly
structured and attractively priced tender offer (e.g., a "chewable poison pill"
that automatically dissolves in the event of an all cash, all shares tender
offer at a premium price).
MFS will consider on a case-by-case basis proposals designed to
prevent tenders which are disadvantageous to shareholders such as tenders at
below market prices and tenders for substantially less than all shares of an
issuer.
REINCORPORATION AND REORGANIZATION PROPOSALS
When presented with a proposal to reincorporate a company under the
laws of a different state, or to effect some other type of corporate
reorganization, MFS considers the underlying purpose and ultimate effect of
such a proposal in determining whether or not to support such a measure. While
MFS generally votes in favor of management proposals that it believes are in
the best long-term economic interests of its clients, MFS may oppose such a
measure if, for example, the intent or effect would be to create additional
inappropriate impediments to possible acquisitions or takeovers.
ISSUANCE OF STOCK
There are many legitimate reasons for issuance of stock. Nevertheless,
as noted above under "Non-Salary Compensation Programs", when a stock option
plan (either individually or when aggregated with other plans of the same
company) would substantially dilute the existing equity (e.g., by approximately
15% or more), MFS generally votes against the plan. In addition, MFS votes
against proposals where management is asking for authorization to issue common
or preferred stock with no reason stated (a "blank check") because the
unexplained authorization could work as a potential anti-takeover device.
REPURCHASE PROGRAMS
MFS supports proposals to institute share repurchase plans in which
all shareholders have the opportunity to participate on an equal basis. Such
plans may include a company acquiring its own shares on the open market, or a
company making a tender offer to its own shareholders.
CONFIDENTIAL VOTING
MFS votes in favor of proposals to ensure that shareholder voting
results are kept confidential. For example, MFS supports proposals that would
prevent management from having access to shareholder voting information that is
compiled by an independent proxy tabulation firm.
CUMULATIVE VOTING
MFS opposes proposals that seek to introduce cumulative voting and for
proposals that seek to eliminate cumulative voting. In either case, MFS will
consider whether cumulative voting is likely to enhance the interests of MFS'
clients as minority shareholders. In our view, shareholders should provide
names of qualified candidates to a company's nominating committee, which now
for the first time (for U.S. listed companies) must be comprised solely of
"independent" directors.
WRITTEN CONSENT AND SPECIAL MEETINGS
Because the shareholder right to act by written consent (without
calling a formal meeting of shareholders) can be a powerful tool for
shareholders, MFS generally opposes proposals that would prevent shareholders
from taking action without a formal meeting or would take away a shareholder's
right to call a special meeting of company shareholders.
INDEPENDENT AUDITORS
MFS believes that the appointment of auditors is best left to the
board of directors of the company and therefore supports the ratification of
the board's selection of an auditor for the company. Recently, some shareholder
groups have submitted proposals to limit the non-audit activities of a
company's audit firm. Some proposals would prohibit the provision of any
non-audit services by a company's auditors to that company. MFS opposes
proposals recommending the prohibition or limitation of the performance of
non-audit services by an auditor, and proposals recommending the removal of a
company's auditor due to the performance of non-audit work for the company by
its auditor. MFS believes that the board, or its audit committee, should have
the discretion to hire the company's auditor for specific pieces of non-audit
work in the limited situations permitted under current law.
BEST PRACTICES STANDARDS
Best practices standards are rapidly developing in the corporate
governance areas as a result of recent corporate scandals, the Sarbanes-Oxley
Act of 2002 and revised listing standards on major stock exchanges. MFS
generally support these developments. However, many issuers are not publicly
registered, are not subject to these enhanced listing standards, or are not
operating in an environment that is comparable to that in the United States. In
reviewing proxy proposals under these circumstances, MFS votes for proposals
that enhance standards of corporate governance so long as we believe that -
given the circumstances or the environment within which the issuers operate -
the proposal is consistent with the best long-term economic interests of our
clients.
FOREIGN ISSUERS - SHARE BLOCKING
In accordance with local law or business practices, many foreign
companies prevent the sales of shares that have been voted for a certain period
beginning prior to the shareholder meeting and ending on the day following the
meeting ("share blocking"). Depending on the country in which a company is
domiciled, the blocking period may begin a stated number of days prior to the
meeting (e.g., one, three or five days) or on a date established by the
company. While practices vary, in many countries the block period can be
continued for a longer period if the shareholder meeting is adjourned and
postponed to a later date. Similarly, practices vary widely as to the ability
of a shareholder to have the "block" restriction lifted early (e.g., in some
countries shares generally can be "unblocked" up to two days prior to the
meeting whereas in other countries the removal of the block appears to be
discretionary with the issuer's transfer agent). Due to these restrictions, MFS
must balance the benefits to its clients of voting proxies against the
potentially serious portfolio management consequences of a reduced flexibility
to sell the underlying shares at the most advantageous time. For companies in
countries with potentially long block periods, the disadvantage of being unable
to sell the stock regardless of changing conditions generally outweighs the
advantages of voting at the shareholder meeting for routine items. Accordingly,
MFS generally will not vote those proxies in the absence of an unusual,
significant vote. Conversely, for companies domiciled in countries with very
short block periods, MFS generally will continue to cast votes in accordance
with these policies and procedures.
SOCIAL ISSUES
There are many groups advocating social change, and many have chosen
the publicly-held corporation as a vehicle for advancing their agenda. Common
among these are resolutions requiring the corporation to refrain from investing
or conducting business in certain countries, to adhere to some list of goals or
principles (e.g., environmental standards) or to promulgate special reports on
various activities. MFS votes against such proposals unless their
shareholder-oriented benefits will outweigh any costs or disruptions to the
business, including those that use corporate resources to further a particular
social objective outside the business of the company or when no discernible
shareholder economic advantage is evident.
The laws of various states may regulate how the interests of certain
clients subject to those laws (e.g., state pension plans) are voted with
respect to social issues. Thus, it may be necessary to cast ballots differently
for certain clients than MFS might normally do for other clients.
B. ADMINISTRATIVE PROCEDURES
1. MFS PROXY REVIEW GROUP
The administration of these policies and procedures is overseen by the
MFS Proxy Review Group, which includes senior MFS Legal Department officers and
MFS' Proxy Consultant. The MFS Proxy Review Group:
a. Reviews these policies and procedures at least annually and
recommends any amendments considered to be necessary or
advisable;
b. Determines whether any material conflicts of interest exist with
respect to instances in which (i) MFS seeks to override these
guidelines and (ii) votes not clearly governed by these
guidelines; and
c. Considers special proxy issues as they may arise from time to
time.
The current MFS Proxy Consultant is an independent proxy consultant
who performs these services exclusively for MFS.
2. POTENTIAL CONFLICTS OF INTEREST
The MFS Proxy Review Group is responsible for monitoring potential
material conflicts of interest on the part of MFS or its affiliates that could
arise in connection with the voting of proxies on behalf of MFS' clients. Any
significant attempt to influence MFS' voting on a particular proxy matter
should be reported to the MFS Proxy Review Group. The MFS Proxy Consultant will
assist the MFS Proxy Review Group in carrying out these monitoring
responsibilities.
In cases where proxies are voted in accordance with these policies and
guidelines, no conflict of interest will be deemed to exist. In cases where (i)
MFS is considering overriding these policies and guidelines, or (ii) matters
presented for vote are not clearly governed by these policies and guidelines,
the MFS Proxy Review Group and the MFS Proxy Consultant will follow these
procedures:
a. Compare the name of the issuer of such proxy against a list of
significant current and potential (i) distributors of MFS Fund
shares, (ii) retirement plans administered by MFS, and (iii) MFS
institutional clients (the "MFS Significant Client List");
b. If the name of the issuer does not appear on the MFS Significant
Client List, then no material conflict of interest will be deemed
to exist, and the proxy will be voted as otherwise determined by
the MFS Proxy Review Group;
c. If the name of the issuer appears on the MFS Significant Client
List, then at least one member of the MFS Proxy Review Group will
carefully evaluate the proposed votes in order to ensure that the
proxy ultimately is voted in what MFS believes to be the best
long-term economic interests of MFS' clients, and not in MFS'
corporate interests; and
d. For all potential material conflicts of interest identified under
clause (c) above, the MFS Proxy Review Group will document: the
name of the issuer, the issuer's relationship to MFS, the
analysis of the matters submitted for proxy vote, and the basis
for the determination that the votes ultimately were cast in what
MFS believes to be the best long-term economic interests of MFS'
clients, and not in MFS' corporate interests. A copy of the
foregoing documentation will be provided to the MFS' Conflicts
Officer.
The members of the MFS Proxy Review Group other than the Proxy Consultant
are responsible for creating and maintaining the MFS Significant Client
List, in consultation with MFS' distribution, retirement plan
administration and institutional business units. The MFS Significant
Client List will be reviewed and updated periodically as appropriate.
3. GATHERING PROXIES
Most proxies received by MFS and its clients originate at Automatic
Data Processing Corp. ("ADP") although a few proxies are transmitted to
investors by corporate issuers through their custodians or depositories. ADP
and issuers send proxies and related material directly to the record holders of
the shares beneficially owned by MFS' clients, usually to the client's
custodian or, less commonly, to the client itself. This material will include
proxy cards, reflecting the proper shareholdings of Funds and of clients on the
record dates for such shareholder meetings, as well as proxy statements with
the issuer's explanation of the items to be voted upon.
MFS, on behalf of itself and the Funds, has entered into an agreement
with an independent proxy administration firm, Institutional Shareholder
Services, Inc. (the "Proxy Administrator"), pursuant to which the Proxy
Administrator performs various proxy vote processing and recordkeeping
functions for MFS' Fund and institutional client accounts. The Proxy
Administrator does not make recommendations to MFS as to how to vote any
particular item. The Proxy Administrator receives proxy statements and proxy
cards directly or indirectly from various custodians, logs these materials into
its database and matches upcoming meetings with MFS Fund and client portfolio
holdings, which are input into the Proxy Administrator's system by an MFS
holdings datafeed. Through the use of the Proxy Administrator system, ballots
and proxy material summaries for the upcoming shareholders' meetings of over
10,000 corporations are available on-line to certain MFS employees, the MFS
Proxy Consultant and the MFS Proxy Review Group.
4. ANALYZING PROXIES
After input into the Proxy Administrator system, proxies which are
deemed to be routine and which do not require the exercise of judgment under
these guidelines (e.g., those involving only uncontested elections of directors
and the appointment of auditors)(1) are automatically voted in favor by the
Proxy Administrator without being sent to either the MFS Proxy Consultant or
the MFS Proxy Review Group for further review. All proxies that are reviewed by
either the MFS Proxy Consultant or a portfolio manager or analyst (e.g., those
that involve merger or acquisition proposals) are then forwarded with the
corresponding recommendation to the MFS Proxy Review Group.(2)
------------
(1) Proxies for foreign companies often contain significantly more voting items
than those of U.S. companies. Many of these items on foreign proxies
involve repetitive, non-controversial matters that are mandated by local
law. Accordingly, the items that are generally deemed routine and which do
not require the exercise of judgment under these guidelines (and therefore
automatically voted in favor) for foreign issuers include the following:
(i) receiving financial statements or other reports from the board; (ii)
approval of declarations of dividends; (iii) appointment of shareholders to
sign board meeting minutes; (iv) discharge of management and supervisory
boards; (v) approval of share repurchase programs; (vi) election of
directors in uncontested elections and (vii) appointment of auditors.
(2) From time to time, due to travel schedules and other commitments, an
appropriate portfolio manager or research analyst is not available to
provide a recommendation on a merger or acquisition proposal. If such a
recommendation cannot be obtained within a few business days prior to the
shareholder meeting, the MFS Proxy Review Group may determine the vote in
what it believes to be the best long-term economic interests of MFS'
clients.
Recommendations with respect to voting on non-routine issues are
generally made by the MFS Proxy Consultant in accordance with the policies
summarized under "Voting Guidelines," and other relevant materials. His or her
recommendation as to how each proxy proposal should be voted, including his or
her rationale on significant items, is indicated on copies of proxy cards.
These cards are then forwarded to the MFS Proxy Review Group.
As a general matter, portfolio managers and investment analysts have
little or no involvement in specific votes taken by MFS. This is designed to
promote consistency in the application of MFS' voting guidelines, to promote
consistency in voting on the same or similar issues (for the same or for
multiple issuers) across all client accounts, and to minimize the potential
that proxy solicitors, issuers, or third parties might attempt to exert
inappropriate influence on the vote. In limited types of votes (e.g., mergers
and acquisitions), the MFS Proxy Consultant or the MFS Proxy Review Group may
consult with or seek recommendations from portfolio managers or analysts. But,
the MFS Proxy Review Group would ultimately determine the manner in which all
proxies are voted.
As noted above, MFS reserves the right to override the guidelines when
such an override is, in MFS' best judgment, consistent with the overall
principle of voting proxies in the best long-term economic interests of MFS'
clients. Any such override of the guidelines shall be analyzed, documented and
reported in accordance with the procedures set forth in these policies.
5. VOTING PROXIES
After the proxy card copies are reviewed, they are voted
electronically through the Proxy Administrator's system. In accordance with its
contract with MFS, the Proxy Administrator also generates a variety of reports
for the MFS Proxy Consultant and the MFS Proxy Review Group, and makes
available on-line various other types of information so that the MFS Proxy
Review Group and the MFS Proxy Consultant may monitor the votes cast by the
Proxy Administrator on behalf of MFS' clients.
C. MONITORING SYSTEM
It is the responsibility of the Proxy Administrator and MFS' Proxy
Consultant to monitor the proxy voting process. As noted above, when proxy
materials for clients are received, they are forwarded to the Proxy
Administrator and are input into the Proxy Administrator's system.
Additionally, through an interface with the portfolio holdings database of MFS,
the Proxy Administrator matches a list of all MFS Funds and clients who hold
shares of a company's stock and the number of shares held on the record date
with the Proxy Administrator's listing of any upcoming shareholder's meeting of
that company.
When the Proxy Administrator's system "tickler" shows that the date of
a shareholders' meeting is approaching, a Proxy Administrator representative
checks that the vote for MFS Funds and clients holding that security has been
recorded in the computer system. If a proxy card has not been received from the
client's custodian, the Proxy Administrator calls the custodian requesting that
the materials be forward immediately. If it is not possible to receive the
proxy card from the custodian in time to be voted at the meeting, MFS may
instruct the custodian to cast the vote in the manner specified and to mail the
proxy directly to the issuer.
D. RECORDS RETENTION
MFS will retain copies of these policies and procedures in effect from
time to time and will retain all proxy voting reports submitted to the Board of
Trustees and Board of Managers of the MFS Funds for the period required by
applicable law. Proxy solicitation materials, including electronic versions of
the proxy cards completed by the MFS Proxy Consultant and the MFS Proxy Review
Group, together with their respective notes and comments, are maintained in an
electronic format by the Proxy Administrator and are accessible on-line by the
MFS Proxy Consultant and the MFS Proxy Review Group. All proxy voting materials
and supporting documentation, including records generated by the Proxy
Administrator's system as to proxies processed, the dates when proxies were
received and returned, and the votes on each company's proxy issues, are
retained as required by applicable law.
E. REPORTS
MFS FUNDS
Annually, MFS will report the results of its voting to the Board of
Trustees and Board of Managers of the MFS Funds. These reports will include:
(i) a summary of how votes were cast; (ii) a review of situations where MFS did
not vote in accordance with the guidelines and the rationale therefor; (iii) a
review of the procedures used by MFS to identify material conflicts of
interest; and (iv) a review of these policies and the guidelines and, as
necessary or appropriate, any proposed modifications thereto to reflect new
developments in corporate governance and other issues. Based on these reviews,
the Trustees and Managers of the MFS Funds will consider possible modifications
to these policies to the extent necessary or advisable.
ALL MFS ADVISORY CLIENTS
At any time, a report can be printed by MFS for each client who has
requested that MFS furnish a record of votes cast. The report specifies the
proxy issues which have been voted for the client during the year and the
position taken with respect to each issue.
Generally, MFS will not divulge actual voting practices to any party
other than the client or its representatives (unless required by applicable
law) because we consider that information to be confidential and proprietary to
the client.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
GENERAL. Information as of January 23, 2006 regarding the portfolio manager(s)
of the MFS Charter Income Trust (the "Fund") is set forth below.
TITLE AND FIVE YEAR
PORTFOLIO MANAGER PRIMARY ROLE SINCE HISTORY
----------------- ------------ ----- -------------------
Richard O. Hawkins Lead Portfolio Manager 2004 Senior Vice President of
MFS; employed in the
investment management
area of MFS since 1988.
John Addeo High Yield Debt 2005 Vice President of MFS;
Securities Portfolio employed in the
Manager investment management
area of MFS since 1998.
Scott B. Richards High Yield Debt 2005 Senior Vice President of
Securities Portfolio MFS; employed in the
Manager investment management
area of MFS since 2004.
Head of High Yield Group
at Columbia Management
Group from 1999 to 2003.
Matthew W. Ryan Emerging Markets Debt 2004 Senior Vice President of
Securities Portfolio MFS; employed in the
Manager investment management
area of MFS since 1997.
COMPENSATION. As of the Fund's fiscal year ended November 30, 2005, portfolio
manager total cash compensation is a combination of base salary and performance
bonus:
o Base Salary - Base salary represents a relatively smaller percentage
of portfolio manager total cash compensation (generally below 33%)
than incentive compensation.
o Performance Bonus - Generally, incentive compensation represents a
majority of portfolio manager total cash compensation. The
performance bonus is based on a combination of quantitative and
qualitative factors, with more weight given to the former (generally
over 60 %) and less weight given to the latter.
> The quantitative portion is based on pre-tax performance of all
of the accounts managed by the portfolio manager (which includes
the Fund and any other accounts managed by the portfolio
manager) over a one-, three- and five-year period relative to
the appropriate Lipper peer group universe and/or one or more
benchmark indices with respect to each account. The primary
weight is given to portfolio performance over a three-year time
period with lesser consideration given to portfolio performance
over one- and five-year periods (adjusted as appropriate if the
portfolio manager has served for shorter periods).
> The qualitative portion is based on the results of an annual
internal peer review process (conducted by other portfolio
managers, analysts and traders) and management's assessment of
overall portfolio manager contributions to the investment
process (distinct from portfolio performance).
Portfolio managers also typically benefit from the opportunity to participate
in the MFS Equity Plan. Equity interests in MFS or its parent company are
awarded by management, on a discretionary basis, taking into account tenure at
MFS, contribution to the investment process and other factors.
Finally, portfolio managers are provided with a benefits package including a
defined contribution plan, health coverage and other insurance, which are
available to other employees of MFS on substantially similar terms. The
percentage of compensation provided by these benefits depends upon the length
of the individual's tenure at MFS and salary level as well as other factors.
Ownership of Fund Shares. The following table shows the dollar range of equity
securities of the Fund beneficially owned by the Fund's portfolio manager as of
the Fund's fiscal year ended November 30, 2005. The following dollar ranges
apply:
N. None
A. $1 - $10,000
B. $10,001 - $50,000
C. $50,001 - $100,000
D. $100,001 - $500,000
E. $500,001 - $1,000,000
F. Over $1,000,000
NAME OF PORTFOLIO MANAGER DOLLAR RANGE OF EQUITY SECURITIES IN FUND
------------------------- -----------------------------------------
Richard O. Hawkins N
John Addeo N
Scott B. Richards N
Matthew W. Ryan N
OTHER ACCOUNTS. In addition to the Fund, the Fund's portfolio manager is
responsible (either individually or jointly) for the day-to-day management of
certain other accounts, the number and total assets of which as of the Fund's
fiscal year ended November 30, 2005 were as follows:
REGISTERED INVESTMENT OTHER POOLED INVESTMENT
COMPANIES VEHICLES OTHER ACCOUNTS
------------------------- ------------------------- ------------------------
NUMBER OF NUMBER OF NUMBER OF
NAME ACCOUNTS* TOTAL ASSETS* ACCOUNTS TOTAL ASSETS ACCOUNTS TOTAL ASSETS
Richard O. Hawkins 11 $24.5 billion 0 N/A 0 N/A
John Addeo 9 $3.9 billion 1 $211.0 million 2 $521.5 million
Scott B. Richards 12 $4.3 billion 2 $541.3 million 2 $521.5 million
Matthew W. Ryan 9 $2.0 billion 3 $1.8 billion 6 $717.0 million
-----------------
* Includes the Fund.
Advisory fees are not based upon performance of any of the accounts identified
in the table above.
POTENTIAL CONFLICTS OF INTEREST. MFS seeks to identify potential conflicts of
interest resulting from a portfolio manager's management of both the Fund and
other accounts and has adopted policies and procedures designed to address such
potential conflicts.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for accounts with similar investment objectives of the
Adviser or subsidiary of the Adviser. Securities transactions for the Fund and
other accounts with similar investment objectives are generally executed on the
same day, or the next day. Nevertheless, it may develop that a particular
security is bought or sold for only one client even though it might be held by,
or bought or sold for, other clients. Likewise, a particular security may be
bought for one or more clients when one or more other clients are selling that
same security.
When two or more clients are simultaneously engaged in the purchase or sale of
the same security, the securities are allocated among clients in a manner
believed by MFS to be fair and equitable to each. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of the
security as far as the Fund is concerned. In most cases, however, MFS believes
that the Fund's ability to participate in volume transactions will produce
better executions for the Fund.
MFS does not receive a performance fee for its management of the Fund. MFS
and/or a portfolio manager may have an incentive to allocate favorable or
limited opportunity investments or structure the timing of investments to favor
accounts other than the Fund--for instance, those that pay a higher advisory
fee and/or have a performance fee.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
==================================================================================================================
MFS CHARTER INCOME TRUST
------------------------------------------------------------------------------------------------------------------
(D) MAXIMUM NUMBER
(C) TOTAL NUMBER OF (OR APPROXIMATE
SHARES PURCHASED AS DOLLAR VALUE) OF
(B) AVERAGE PART OF PUBLICLY SHARES THAT MAY YET
(A) TOTAL NUMBER OF PRICE PAID ANNOUNCED PLANS BE PURCHASED UNDER
PERIOD SHARES PURCHASED PER SHARE OR 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
------------------------------------------------------------------------------------------------------------------
05/1/05-05/31/05 127,000 $8.68 127,000 5,315,324
------------------------------------------------------------------------------------------------------------------
06/1/05-06/30/05 73,900 $8.74 73,900 5,241,424
------------------------------------------------------------------------------------------------------------------
07/1/05-07/31/05 89,400 $8.78 89,400 5,152,024
------------------------------------------------------------------------------------------------------------------
08/1/05-08/31/05 128,800 $8.71 128,800 5,023,224
------------------------------------------------------------------------------------------------------------------
09/1/05-09/30/05 88,300 $8.75 88,300 4,934,924
------------------------------------------------------------------------------------------------------------------
10/1/05-10/31/05 127,400 $8.49 127,400 4,807,524
------------------------------------------------------------------------------------------------------------------
11/1/05-11/30/05 75,800 $8.44 75,800 4,731,724
------------------------------------------------------------------------------------------------------------------
TOTAL 1,219,100 $8.67 1,219,100
==================================================================================================================
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 8,170,585.
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 Investment Company Act
of 1940 (the "Act")) as conducted within 90 days of the filing date of
this Form N-CSR, the registrant's principal financial officer and
principal executive officer have concluded that those disclosure controls
and procedures provide reasonable assurance that the material information
required to be disclosed by the registrant on this report is recorded,
processed, summarized and reported within the time periods specified in
the Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter covered by the report that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
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)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: January 23, 2006
----------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President (Principal Executive
Officer)
Date: January 23, 2006
----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: January 23, 2006
----------------
* Print name and title of each signing officer under his or her signature.