SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x] Filed by a Party other than the Registrant [box]
Check the appropriate box:
[x] Preliminary Proxy Statement
[box] Definitive Proxy Statement
[box] Definitive Additional Materials
[box] Soliciting Material Pursuant to S. 240.14a-11(c) or S. 240.14a-12
[box] Confidential for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
MFS CHARTER INCOME TRUST
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[box] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[box] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is calculated and state
how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[box] Fee paid previously with preliminary materials.
[box] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
MFS(R) CHARTER INCOME TRUST
Dear Shareholder,
The enclosed proxy statement for MFS Charter Income Trust contains information
regarding
ITEM 1. election of Trustees,
ITEM 2. approval of a proposal relating to converting the Trust from a
closed-end fund to an open-end fund.
ITEM 3. ratification of the Trust's selection of accountants.
As outlined in the proxy statement, your Board of Trustees, including the
independent Trustees who are unaffiliated with MFS, the Trust's investment
adviser, unanimously recommend that shareholders vote
[bullet] for the election of the Trustees (Item 1),
[bullet] against open-ending the Trust (Item 2), and
[bullet] for ratification of the selection of the Trust's accountants (Item 3).
The Trustees' recommendations are now subject to review by you and your fellow
shareholders at the Annual Meeting of Shareholders of the Trust in Boston on
October 26, 1995 at 9:30 a.m. Even if you cannot attend the Annual Meeting, it
is very important that you complete, sign, and return the enclosed proxy card.
Your prompt response will help save your Trust the expense of additional
solicitation.
Should you have any questions, we invite you to call the MFS Service Center
toll free, 1-800-637-2304 between 8 a.m. and 8 p.m.
Respectfully,
[signature of A. Keith Brodkin]
A. Keith Brodkin
Chairman of the Board of Trustees
<PAGE>
MFS(R) CHARTER INCOME TRUST
500 Boylston Street, Boston, Massachusetts 02116
Notice of the 1995 Annual Meeting of Shareholders
To be held on October 26, 1995
The 1995 Annual Meeting of Shareholders of MFS Charter Income Trust (the
"Trust") will be held at 500 Boylston Street, Boston, Massachusetts, at 9:30
a.m. on Thursday, October 26, 1995, for the following purposes:
ITEM 1. To elect Sir J. David Gibbons and Walter E. Robb, III as Trustees of
the Trust.
ITEM 2. To consider whether to approve the conversion of the Trust from a
closed-end fund to an open-end fund.
ITEM 3. To ratify or reject the selection of Ernst & Young LLP as the
independent public accountants to be employed by the Trust for the
fiscal year ending November 30, 1995.
ITEM 4. To transact such other business as may come before the Meeting and any
adjournments thereof.
YOUR TRUSTEES RECOMMEND THAT YOU VOTE AGAINST ITEM 2 AND
IN FAVOR OF ITEMS 1 AND 3.
Only shareholders of record on August 28, 1995 will be entitled to vote at the
Annual Meeting of Shareholders.
STEPHEN E. CAVAN, Secretary and Clerk
September 8, 1995
YOUR VOTE IS IMPORTANT. WE WOULD APPRECIATE YOUR PROMPTLY VOTING, SIGNING,
DATING AND RETURNING THE ENCLOSED PROXY, WHICH WILL HELP IN AVOIDING THE
ADDITIONAL EXPENSE OF A SECOND SOLICITATION. THE ENCLOSED ADDRESSED ENVELOPE
REQUIRES NO POSTAGE AND IS PROVIDED FOR YOUR CONVENIENCE.
<PAGE>
MFS(R) CHARTER INCOME TRUST
Proxy Statement
This Proxy Statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Trustees of MFS(R) Charter Income
Trust (the "Trust") to be used at the Annual Meeting of Shareholders (the
"Meeting") to be held at 9:30 a.m. on Thursday, October 26, 1995 at 500
Boylston Street, Boston, Massachusetts, for the purposes set forth in the
accompanying Notice. If the enclosed form of proxy is executed and returned, it
may nevertheless be revoked prior to its exercise by a signed writing filed
with the proxy tabulation agent, State Street Bank and Trust Company, P.O. Box
592, Boston, Massachusetts 02102 or delivered at the Meeting. On August 28,
1995, there were outstanding shares of the Trust. Shareholders of
record at the close of business on August 28, 1995 will be entitled to one vote
for each share held.
The mailing address of the Trust is 500 Boylston Street, Boston, Massachusetts
02116. Solicitation of proxies is being made by the mailing of this Notice and
Proxy Statement with its enclosures on or about September 8, 1995. A copy of
the Trust's Annual Report and its most recent Semi-Annual Report succeeding the
Annual Report may be obtained without charge by contacting MFS Service Center,
Inc., the Trust's transfer and shareholder servicing agent (the "Shareholder
Servicing Agent"), P.O. Box 9024, Boston, MA 02205-9824, or by telephone
toll-free at (800) 637-2304.
ITEM 1--ELECTION OF TRUSTEES
Under the provisions of the Trust's Declaration of Trust, the Trustees are
divided into three classes, each having a term of three years. It is intended
that proxies not limited to the contrary will be voted in favor of Sir J. David
Gibbons and Walter E. Robb, III, as Trustees of the class whose term will
expire at the 1998 annual meeting of shareholders (or special meeting in lieu
thereof). These individuals are currently Trustees of the Trust.
The following table presents certain information regarding the Trustees of the
Trust, including their principal occupations, which, unless specific dates are
shown, are of more than five years duration, although the titles may not have
been the same throughout. An asterisk beside a Trustee's name indicates that he
is an "interested person", as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), of the Trust's investment adviser and that he has
been affiliated with the investment adviser for more than five years.
<TABLE>
<CAPTION>
Shares of
Trust Owned
Name, Age, Position with Trust, First Beneficially as of
Principal Occupation and Became Term August 23, Percent
Other Directorships((1)) a Trustee Expiring 1995((2)) of Class((3))
----------------------------------------- -------------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C>
A. KEITH BRODKIN*, 60, Chairman,
President and Trustee; Massachusetts
Financial Services Company, Chairman,
Chief Executive Officer and Chief
Investment Officer. 1989 1997 %
</TABLE>
6
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<TABLE>
<CAPTION>
Shares of
Trust Owned
Name, Age, Position with Trust, First Beneficially as of
Principal Occupation and Became Term August 23, Percent
Other Directorships((1)) a Trustee Expiring 1995((2)) of Class((3))
----------------------------------------- -------------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C>
RICHARD B. BAILEY*, 68, Trustee; Private
Investor; Massachusetts Financial
Services Company, former Chairman and
Director (prior to September 1991);
Cambridge Bancorp, Director; Cambridge
Trust Company, Director. 1993 1996 %
MARSHALL N. COHAN, 68, Trustee; Private
Investor. 1993 1996 %
LAWRENCE H. COHN, M.D., 58, Trustee;
Brigham and Women's Hospital, Chief of
Cardiac Surgery; Harvard Medical School,
Professor of Surgery. 1989 1997 %
THE HON. SIR J. DAVID GIBBONS, KBE, 68,
Trustee; Edmund Gibbons Limited, Chief
Executive Officer; The Bank of N.T.
Butterfield & Son Ltd., Chairman. 1993 1995 %
ABBY M. O'NEILL, 67, Trustee; Private
Investor; Rockefeller Financial Services,
Inc. (investment advisers), Director. 1993 1997 %
WALTER E. ROBB, III, 69, Trustee; Benchmark
Advisors, Inc. (corporate financial
consultants), President and Treasurer;
Landmark Funds, (mutual funds), Trustee. 1993 1995 %
Arnold D. Scott*, 52, Trustee; Massachusetts
Financial Services Company, Senior
Executive Vice President, Director and
Secretary. 1993 1997 %
Jeffrey L. Shames*, 40, Trustee;
Massachusetts Financial Services Company,
President and Director. 1993 1997 %
J. DALE SHERRATT, 56, Trustee; Insight
Resources, Inc. (acquisition planning
specialists), President; Health Industry
Manufacturers Association, Director. 1989 1996 %
WARD SMITH, 64, Trustee; NACCO Industries
(holding company), Chairman and Director
(prior to June 1994); Sunstrand Corporation
(diversified mechanical manufacturer),
Director; Society Corporation (bank
holding company), Director (prior to April
1992); Society National Bank (commercial
bank), Director (prior to April 1992). 1993 1997 %
All Trustees and officers as a group %
</TABLE>
(1) Directorships or trusteeships of companies required to report to the
Securities and Exchange Commission (the "SEC") (i.e., "public companies").
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<PAGE>
(2) Numbers are approximate and include, where applicable, shares owned by a
Trustee's or officer's spouse or minor children or shares which were
otherwise reported by the Trustee or officer as "beneficially owned" in
light of pertinent SEC rules.
(3) Percentage of shares outstanding on August 23, 1995. All shares are held
with sole voting and investment power, except to the extent that such
powers may be shared by a family member or a trustee of a family trust.
All Trustees serve as Trustees of 36 funds within the MFS fund complex advised
by Massachusetts Financial Services Company ("MFS" or the "Adviser"),
investment adviser to the Trust. Mr. Bailey and Mr. Brodkin, who serve as
Trustees of 56 funds and 72 funds, respectively, within the MFS fund complex,
are also directors of Sun Life Assurance Company of Canada (U.S.) ("Sun Life of
Canada (U.S.)"), the corporate parent of MFS. Messrs. Brodkin, Scott and Shames
are "interested persons" of MFS because each person is an officer and director
of MFS. Mr. Bailey is considered an "interested person" of MFS because he is a
director of Sun Life of Canada (U.S.).
The Trust pays each Trustee who is not an officer of MFS a fee of $9,000 per
year, plus $500 per meeting and committee meeting attended, together with such
Trustee's actual out-of-pocket expenses relating to attendance at meetings. In
addition, each Trustee, other than Messrs. Brodkin, Scott and Shames, will be
entitled to receive certain benefits pursuant to the Trust's retirement plan.
Under this plan, each such Trustee (or his beneficiaries) will be entitled to
receive an annual retirement or death benefit in an amount of up to 50% of such
Trustee's average annual compensation, depending on the Trustee's length of
service. Set forth in Appendix A hereto is certain information concerning the
cash compensation paid to non-interested Trustees and Mr. Bailey and benefits
accrued, and estimated benefits payable, under the retirement plan.
The Board of Trustees of the Trust met 9 times during its last fiscal year.
The Board has a standing Audit Committee, composed of Messrs. Cohan, Robb,
Sherratt and Smith to review the internal and external accounting and auditing
procedures of the Trust and, among other things, to consider the selection of
independent public accountants for the Trust, to approve all significant
services proposed to be performed by its independent public accountants and to
consider the possible effect of such services on their independence. The Audit
Committee met 4 times during the Trust's last fiscal year. In addition, the
Board has created a standing Nominating Committee, composed of Ms. O'Neill and
Messrs. Cohan, Cohn, Gibbons, Robb, Sherratt and Smith, who are not "interested
persons" (as that term is defined in the 1940 Act) of the Trust or the Adviser,
to meet as necessary and recommend to the Board nominees for election as
Trustees of the Trust. The Nominating Committee did not meet during the Trust's
last fiscal year. The Nominating Committee has not adopted a policy regarding
shareholder recommendations as to nominees.
Section 16(a) of the Securities Exchange Act of 1934 requires Trustees,
directors and certain officers of the Trust and MFS, and persons who own more
than ten percent of the Trust's shares, to file reports of ownership and
changes in ownership with the SEC and the New York Stock Exchange. The Trust
believes that during the fiscal year ended November 30, 1994 all such persons
complied with all such filing requirements.
Required Vote. Approval of this matter as to any nominee will require the
affirmative vote of a plurality of the Trust's outstanding shares voting at the
Meeting in person or by proxy.
3
<PAGE>
ITEM 2--CONVERSION OF THE TRUST FROM A CLOSED-END FUND TO AN OPEN-END FUND.
BACKGROUND
The Trust is registered as a closed-end investment company under the 1940 Act
and has operated as a closed-end fund since its inception in 1989.
As stated in the Trust's Prospectus relating to its initial public offering in
1989, if the Trust's shares trade at an average discount from net asset value
of more than 10% for the twelve weeks preceding the beginning of the third
calendar quarter of 1994, the Trust will be required to submit to its
shareholders at the 1995 Annual Meeting of Shareholders a proposal to convert
the Trust to an open-end investment company. The Trust's shares traded at an
average discount of 10.95% during this period and, therefore, this item is
being submitted at the Meeting in accordance with that requirement.
The Board of Trustees unanimously recommends that you vote AGAINST this item
for the reasons set forth below.
RECOMMENDATION OF TRUSTEES
The Board of Trustees continually reviews the operations of the Trust in order
to serve the best interests of its shareholders. It has considered and will
continue to consider the appropriateness of the Trust remaining a closed-end
investment company, including a variety of alternative means of dealing with
the discount. The Board of Trustees does not believe that it would be in the
best interests of shareholders to convert the Trust to open-end status at this
particular time. Conversion would eliminate the trading market in the shares
and provide each shareholder with a continuing opportunity to redeem his shares
at net asset value. However, for the reasons discussed herein the Board of
Trustees unanimously recommends that shareholders vote AGAINST this item.
The issue of the conversion of the Trust to an open-end fund was recently
considered by the Trust's shareholders. In 1994, a shareholder proposal
recommending that the Board of Trustees consider converting the Trust from a
closed-end fund to an open-end fund was included in the Trust's proxy
statement. This shareholder proposal, which the Board of Trustees unanimously
recommended shareholders vote against, was defeated by a wide margin. The item
received the approval of approximately 15.7% of the Trust's outstanding shares.
The Board of Trustees believes that the factors considered by the Trustees in
recommending that shareholders vote against the shareholder proposal in 1994
continue to remain valid today.
The Trust's shares, as a closed-end fund, are bought and sold in the
securities markets at prevailing prices, which may be equal to, less than, or
more than net asset value. The Trust's shares generally traded at discounts
from net asset value during 1990 and beginning in late 1992 through the
present, which were as high as 16.9%. The Trust's shares generally traded at
premiums during 1989 and during certain periods in 1991 and 1992, which were as
high as 8.8%. As of September 1, 1995, the Trust's shares were trading at a
discount of approximately %.
Although shares of the Trust and many other closed-end fixed income funds with
similar investment objectives as the Trust have sold at a discount from net
asset value in the market, such funds have certain advantages which presumably
were among the reasons that caused the Trust's shareholders to invest in the
Trust, as described below.
4
<PAGE>
Most importantly, the investment adviser of a closed-end fund is free to manage
the fund for long-term performance because the fund generally has a fixed
amount of capital and can be managed without having to give consideration to
cash in-flows and out-flows from continuous sales or redemptions of its shares,
as described under "Differences Between Open-End and Closed-End Investment
Companies--Fluctuation of Capital" and "--Portfolio Management" below. Open-end
funds must maintain sufficient cash reserves to provide for shareholder
redemptions in uncertain amounts while closed-end funds can remain almost fully
invested. Furthermore, it is widely believed that more redemptions occur near
market bottoms, which often are good times to invest and are not good times to
sell portfolio securities at depressed prices as described under "Impact of
Conversion on the Trust--Portfolio Management" below. Conversely, more new
money tends to be invested in open-end funds near market peaks, which are
generally not good times for funds to invest. These factors have a tendency to
increase investment volatility. Closed-end investment companies like the Trust,
on the other hand, are able to maintain their investment strategy during these
peaks and troughs without their portfolio managers being forced to invest new
money or liquidate portfolio holdings at times when sound investment practice
could dictate otherwise and without generating unnecessary portfolio turnover
and brokerage expenses.
There are additional costs and disadvantages associated with converting to and
operating as an open-end fund which the Board of Trustees believes outweigh the
potential benefits. Conversion could be followed by redemptions in volume which
in turn could lead to forced realization of unrealized capital gains, if any,
with resulting unfavorable tax consequences to some shareholders, as described
under "Impact of Conversion on the Trust--Recognition of Capital Gains;
Qualification as a Regulated Investment Company." Conversion would probably
increase the Trust's total operating costs and operating costs per share as
continuous sales and redemptions would probably result in increased transaction
costs to the Trust in connection with investing new money and meeting
redemption requests, as described under "Impact of Conversion on the
Trust--Potential Increase in Expense Ratio." Further, the Trust's listing on
the New York Stock Exchange would be lost automatically, as described under
"Differences Between Open-End and Closed-End Investment Companies--New York
Stock Exchange Listing and Fees."
The Board of Trustees does not believe that eliminating any current discount or
the possibility of the Trust's shares trading at a discount in the future
justifies the changes to the Trust's portfolio management and operations (see
"Impact of Conversion on the Trust--Portfolio Management" below), the risk of
reduced size (see "Differences Between Open-End and Closed-End Investment
Companies--Raising Capital; Potential Net Redemptions" below), the potential
adverse effect on its investment performance that conversion would entail and
the additional costs and disadvantages of conversion, as discussed herein.
Although conversion of the Trust to an open-end fund would eliminate the
discount and permit shareholders to redeem their shares at net asset value, it
also would preclude the possibility that the Trust's shares would trade at a
premium.
The Board of Trustees over the years has implemented a number of programs
intended to minimize the discount problem without impairing the Trust's
closed-end format and the benefits it derives therefrom and has requested
periodic reports from the Adviser concerning a variety of alternatives to deal
with the discount. These programs have included periodically repurchasing the
Trust's shares, improved shareholder and market communication and meetings with
securities analysts and market professionals to raise their awareness of the
Trust. Meanwhile, discounts do permit investors to purchase significantly more
than a dollar of net assets to work for them for every dollar invested. In
November, 1994 the Board of Trustees authorized the repurchase of up
5
<PAGE>
to 20% of the Trust's outstanding shares when the shares trade at a discount to
their net asset value. At September 1, 1995, approximately [ ]% of the shares
authorized to be repurchased had been repurchased under this share repurchase
plan. The discount at the commencement of the share repurchase program was
13.4% and was [ ]% at September 1, 1995. While many factors contribute to
whether a fund's shares trade at a premium or discount to net asset value, the
Trustees believe that the share repurchase program has been a positive factor
in reducing the discount and providing increased value to current shareholders.
As described under "Measures to be Adopted if the Trust Becomes an Open-End
Fund--Redemption Fee" below, if shareholders vote to convert the Trust to an
open-end fund, the Board of Trustees, for an initial period of nine months from
conversion, would cause the Trust to impose a 1.5% fee, payable to the Trust,
on all redemptions.
DIFFERENCES BETWEEN OPEN-END AND CLOSED-END INVESTMENT COMPANIES
Some of the legal, operational and practical differences between closed-end
investment companies and open-end investment companies are as follows:
Fluctuation of Capital. The Trust is currently a "closed-end" investment
company registered as such under the 1940 Act. Closed-end investment companies
neither redeem their outstanding shares nor engage in the continuous sale of
new shares, and thus operate with a relatively fixed capitalization. Shares of
closed-end investment companies normally trade in securities markets; for
example, the Trust's shares are traded on the New York Stock Exchange ("NYSE").
In contrast, open-end investment companies, commonly referred to as "mutual
funds," issue redeemable securities. The holders of redeemable securities have
the right to surrender those securities to the mutual fund and obtain in return
their proportionate share of the value of the fund's net assets (less any
redemption fee charged by the fund or contingent deferred sales charge imposed
by the fund's distributor). Most mutual funds also continuously sell new shares
to investors based on the fund's net asset value at the time of such issuance.
Accordingly, an open-end fund may experience continuing inflows and outflows of
cash depending on whether it experiences net sales or net redemptions of its
shares.
Portfolio Management. Unlike open-end funds, closed-end investment companies
are not subject to pressure to sell portfolio securities at disadvantageous
times or prices in order to satisfy shareholders' requests for redemptions.
Because closed-end funds therefore can be more fully invested than open-end
funds, closed- end funds may invest with a greater emphasis on longer term
considerations. In addition, in the case of a fixed income fund such as the
Trust, the ability to be more fully invested means that a larger portion of the
Trust's portfolio is generating the income and gains to be used by the Trust to
pay periodic dividends and distributions to its shareholders.
Cash and Cash Equivalents. Because closed-end investment companies do not have
to meet redemptions, their cash reserves can be substantial or minimal,
depending primarily on the management's perception of market conditions. Most
open-end funds maintain reserves of cash or cash equivalents in order to meet
net redemptions as they may arise. The larger reserves of cash or cash
equivalents required to operate prudently as an open-end fund when net
redemptions are anticipated could reduce the Trust's investment flexibility,
the scope of its investment opportunities and the income earning potential of
its investment portfolio.
6
<PAGE>
Redeemability of Shares; Elimination of Discount and Premium. Open-end funds
are required to redeem their shares at a price based on their then-current net
asset value on no more than seven days' notice (except during periods that the
NYSE is closed or trading thereon is restricted, or as redemptions may
otherwise be suspended in an emergency as permitted by the 1940 Act). The
open-end fund structure thus precludes the possibility of the mutual fund's
shares trading at a discount from, or a premium to, net asset value.
Raising Capital; Potential Net Redemptions. A closed-end fund trading at a
discount may not be able to raise capital through share sales when it believes
further investment would be advantageous because the 1940 Act restricts the
ability of a closed-end fund to sell its shares at a price below net asset
value, except in rights offerings to existing shareholders, in payment of
distributions and in certain other limited circumstances. Open-end funds, on
the other hand, are priced at net asset value and therefore can sell additional
shares at any time. While the Trust's Board of Trustees has not decided whether
the Trust would sell additional shares in the event of its conversion to an
open-end fund, shares of substantially all of the funds in the MFS Family of
Funds (which consists of approximately separate portfolios) are
continuously offered for sale. The ability of an open-end fund to raise new
money may achieve greater economies of scale and improve investment management.
Nevertheless, open-ending could result in immediate redemptions and hence a
reduction in the size of the Trust, although this result could also be fully
offset (or more than offset) by new sales of the Trust's shares (if offered for
sale), by reinvestment of dividends and capital gains distributions in shares
of the Trust and by imposition of the proposed temporary 1.5% redemption fee
described under "Measures to be Adopted in the Event the Trust Becomes an
Open-End Investment Company--Redemption Fee" below. If the value of the new
shares sold exceeds the value of shares redeemed, the Trust should experience
an increase in assets; however, a decreased asset base would produce less
income than at present and the ratio of operating expenses to income would
increase if the Trust experienced net redemptions. Significant net redemptions
could render the Trust an uneconomical venture by virtue of its diminished
size. Also, in the event temporary investments and borrowings are exhausted,
the result of meeting net redemptions may be that the more liquid securities
will be sold, leaving the open-end fund with the less-liquid, lower-grade
securities and, accordingly (in the absence of new net sales), less able to
accommodate subsequent redemptions.
Underwriting Costs; Brokerage Commissions or Sales Charges on Purchases and
Sales. Open-end investment companies typically seek to sell new shares on a
continuous basis in order to offset redemptions and avoid shrinkage in size as
well as possibly to increase size. Shares of "load" open-end investment
companies are normally offered and sold through a principal underwriter which
deducts a sales charge from the purchase price at the time of purchase or from
the redemption proceeds at the time of redemption, or receives a distribution
fee paid out of the assets of the fund, or both, to compensate it and
broker-dealer firms selling shares of the fund to their customers for sales and
marketing services, while shares of "no-load" open-end investment companies are
sold at net asset value, without a sales charge, with the fund's investment
adviser or an affiliate normally bearing the cost of sales and marketing from
its own resources. Open-end funds offered in the MFS Family of Funds are
typically sold with some form of "load." Shares of closed-end investment
companies, on the other hand, are bought and sold in secondary market
transactions at prevailing market prices subject to the brokerage commissions
charged by the broker-dealer firms executing such transactions, which are
generally less than the amount of the "load."
7
<PAGE>
New York Stock Exchange Listing and Fees. The Trust is currently listed on the
NYSE. The Board of Trustees and the Adviser believe that the Trust's NYSE
listing is valuable. In addition, certain investors, such as pension funds,
have internal restrictions on the amount of their portfolio which can be
invested in non-listed securities. Conversion to an open-end fund would require
immediate de-listing of the Trust from the NYSE and could force the redemption
of shares by shareholders subject to such restrictions. However, if open-ended,
the Trust would save the annual NYSE fee of approximately $80,000.
Blue Sky Restrictions and Fees. Because the Trust is currently listed on the
NYSE, it is exempt from the securities registration process of most states. As
an open-end fund not listed on a stock exchange, the Trust would be required,
in order to continuously offer shares to the public, to register its shares
under the securities or "blue sky" laws of most of the states and would be
subject to certain investment restrictions imposed by the securities laws and
regulations of these states. It is not anticipated that such restrictions would
cause a fundamental change in the Trust's investment objective or have a
material effect upon its investment policies. However, if the Trust were so
required to register its shares, the Trust would have to bear the cost of
registering in the states, which can be significant. Such fees could range from
approximately $55,000 to $93,000 annually, depending on the projected sales of
shares of the Trust and the number of classes of shares of the Trust.
Net Asset Value. The 1940 Act generally requires open-end funds to value their
assets on each business day in order to determine the current net asset value
on the basis of which their shares may be redeemed by shareholders or purchased
by investors. Net asset values of open-end funds are published daily by leading
financial publications. Computing net asset value on a daily, rather than
weekly, basis would be more expensive for the Trust.
Leverage. The 1940 Act prohibits open-end funds from issuing "senior
securities" representing indebtedness (i.e., bonds, debentures, notes and other
similar securities), other than indebtedness to banks where there is an asset
coverage of at least 300% for all borrowings, and from issuing preferred stock.
Closed-end investment companies, on the other hand, are permitted to issue
senior securities representing indebtedness to any lenders where the 300% asset
coverage test is met, are not limited to borrowings from banks and may issue
preferred stock subject to various limitations. This ability to issue senior
securities may give closed-end investment companies more flexibility in
"leveraging" their investment portfolio. The Trust has not issued any
indebtedness to banks, and has no authorized class of senior securities nor any
plan for issuing such securities.
Annual Shareholder Meetings. The Trust is organized as a Massachusetts
business trust under the terms of a Declaration of Trust which does not require
annual meetings of shareholders, except when required for certain 1940 Act
matters. However, as a closed-end fund with shares listed on the NYSE, the
Trust is subject to NYSE rules requiring annual meetings of shareholders. If
the Trust does become an open-end fund and is therefore no longer subject to
these NYSE rules, annual shareholder meetings would be eliminated except when
required for certain 1940 Act votes, saving the Trust the approximate $80,000
annual cost of these meetings.
Shareholder Services. Open-end funds typically provide more services to
shareholders than closed-end funds and incur correspondingly higher shareholder
servicing expenses. One service that is generally offered by a family of
open-end funds is enabling shareholders to transfer their investment from one
fund to another fund which is part of the same family of open-end funds at
little or no cost to the shareholders. The MFS Family of Funds currently
consists of approximately [ ] separate portfolios, each with its own
investment objectives
8
<PAGE>
and policies. Shares of the various funds in the MFS Family of Funds are
generally eligible to be exchanged, in a taxable transaction, for shares of any
other fund in the MFS Family of Funds. As an open-end fund, the ability of
shares of the Trust to be exchanged for shares of any other fund in the MFS
Family of Funds would depend upon, among other things, the agreement to such
arrangement by the Board of Trustees of such other MFS fund. Other services
that could be offered include use of the Trust for retirement plans and
permitting purchases and sales of shares in convenient amounts pursuant to
alternative sales charge arrangements. The costs of these services are normally
borne by the open-end fund rather than by individual shareholders and should be
weighed against the anticipated benefit of the particular service.
Reinvestment of Dividends and Distributions. As a closed-end fund, the Trust's
current Dividend Reinvestment and Cash Purchase Plan (the "Plan") permits
shareholders to elect to reinvest their dividends and distributions on a
different basis than would be the case if the Trust converted to an open-end
fund. Currently, if shares are trading at a discount, the agent for the Plan
will, if possible, buy as many shares of the Trust as are available on the NYSE
or elsewhere. This permits a reinvesting shareholder to benefit by purchasing
additional shares at a discount and this buying activity may tend to lessen any
discount. (If before the agent for the Plan completes such purchases the market
price exceeds the net asset value, however, the average per share purchase
price of the reinvested shares may exceed the net asset value per share.)
However, if shares are trading at a premium, reinvesting shareholders are
issued shares at the higher of the net asset value or 95% of the market price.
As an open-end fund, all dividends and distributions would be reinvested at net
asset value.
IMPACT OF CONVERSION ON THE TRUST
In addition to the relative inherent attributes of closed-end and open-end
investment companies described above, certain negative results would
necessarily derive from the act of conversion itself. These include:
Portfolio Management. As discussed under "Differences Between Open-End and
Closed-End Investment Companies--Fluctuation of Capital" above, a closed-end
investment company operates with a relatively fixed capitalization, while the
capitalization of an open-end investment company fluctuates depending upon
whether it experiences net sales or net redemptions of its shares. Open-end
funds tend to have larger net sales near market highs, and larger net
redemptions near market lows. Accordingly, if the Trust converted to an open-
end investment company, the Adviser could be required to invest new monies near
market highs and to sell portfolio securities at times when it should be
investing. Since the Trust is a closed-end fund, however, the Adviser is not
required to invest new money or liquidate portfolio holdings at inopportune
times, and can manage the Trust's portfolio with a greater emphasis on
long-term considerations.
The Board of Trustees also believes that the closed-end format is better
suited to the Trust's investment objective and policies than the open-end
format. The Trust's investment objective is to maximize current income by
investing approximately one-third of its assets in each of the following
sectors: (i) U.S. Government securities; (ii) foreign fixed income securities;
and (iii) high yielding corporate fixed income securities. The goal of this
investment strategy is to achieve greater stability of net asset value for the
Trust as a whole through the allocation of the Trust's assets in each of these
three fixed income sectors. The Board of Trustees believes that achievement of
this goal is facilitated if the Adviser is able to practice this investment
strategy without pressures to invest new monies or liquidate portfolio holdings
at times when its investment style would dictate doing oth-
9
<PAGE>
erwise. Also, as a fixed income fund, the ability to be more fully invested
means that a larger portion of the Trust's portfolio is generating income to be
used by the Trust to pay periodic dividends and distributions to its
shareholders.
Currently, the Trust may invest up to 20% of its assets in illiquid
securities. If the Trust were converted to an open-end fund, it would not be
permitted to have more than 15% of its net assets invested in illiquid
securities. As of September 1, 1995, the Trust had [less than 15%] of its net
assets invested in illiquid securities. While this 15% investment limitation
may not have an immediate material impact on the operations of the Trust were
it to convert to an open-end fund, the Trust could, as a consequence of such
conversion, be forced to forego certain investment opportunities that, as a
closed-end fund, it currently has available to it.
Potential Increase in Expense Ratio. Net redemptions would be likely
immediately after the open-ending of the Trust, potentially resulting in a
reduction in the size of the Trust, as described under "Differences Between
Open-End and Closed-End Investment Companies--Raising Capital; Potential Net
Redemptions" above. As a result, the Trust's expense ratio would likely
increase because, while many of its expenses would remain the same, the size of
the Trust would have decreased. In addition, redemptions would result in
increased brokerage expenses.
Recognition of Capital Gains; Qualification as a Regulated Investment
Company. The treatment of capital gains required under U.S. tax law can be
disadvantageous to non-redeeming shareholders in the event of the Trust's
conversion to an open-end fund and resulting net redemptions. If, in the event
of redemptions, the Trust did not otherwise have sufficient cash on hand to
satisfy redemption requests, the Trust would either be required to sell
portfolio securities to raise cash to satisfy redeeming shareholders or would
pay redemptions by delivering portfolio securities to redeeming shareholders,
as described under "Measures to be Adopted if the Trust Becomes an Open-End
Investment Company--Redemptions in Kind" below. If the Trust sells portfolio
securities with a basis less than the sale price obtained, net capital gain
would be recognized. (The Trust would not recognize taxable gain or loss if it
delivers portfolio securities to redeeming shareholders in order to satisfy
such redemption requests.) In order to retain its qualification as a regulated
investment company under the Internal Revenue Code and thus be relieved of
taxation at the investment company level, the Trust would be required to
distribute these net recognized capital gains to its shareholders, including
those who do not redeem their shares and remain shareholders of the Trust. This
would have two negative consequences. First, non- redeeming shareholders would
recognize and be required to pay taxes on a greater amount of capital gain than
would otherwise be the case. Second, the Trust may need to sell additional
portfolio securities to raise cash to make the capital gain distributions,
thereby reducing further the size of the Trust and, possibly, creating the
recognition of additional capital gains. Currently, the Trust has sufficient
capital loss carryforwards to offset its net unrealized capital gains; however,
it is impossible to predict what the amount of unrealized gains or losses would
be in the Trust's portfolio at the time of any possible conversion to open-end
status.
Conversion Costs. Conversion would result in the Trust incurring legal,
accounting and other expenses of establishing a new structure. Although the
Board of Trustees is unable to determine at this time the actual costs that
would be involved, it has been advised that the cost of conversion would be at
least $100,000. Because the Trust is unable to determine at this time the
actual costs that would be involved, it is possible that the conversion
expenses would be substantially higher. Were the conversion to be effected
during the Trust's current fiscal year, the cost of conversion would not be
expected materially to increase the Trust's current expense ratio.
10
<PAGE>
MEASURES TO BE ADOPTED IF THE TRUST BECOMES AN OPEN-END INVESTMENT COMPANY
If the shareholders of the Trust vote to convert the Trust to an open-end
fund, the Board of Trustees would take the following actions:
Redemption Fee. In order to reduce the number of redemptions of the Trust's
shares immediately following conversion (thereby reducing any disruption of the
Trust's normal portfolio management), and to offset the brokerage and other
costs of such redemptions, for a period of up to nine months following the
Trust's conversion to an open-end investment company, the Board of Trustees
reserves the right to impose a fee of up to 1.5% of the redemption proceeds
payable to the Trust on all redemptions (whether in cash or in kind). This fee
would be paid to and retained by the Trust. Such a fee would be similar to fees
that have been proposed by other funds considering a conversion from closed-end
to open-end status.
Redemptions in Kind. The Board of Trustees has reserved the right to meet
redemptions following the Trust's conversion to an open-end investment company
by delivering portfolio securities of the Trust to the redeeming shareholder in
kind, rather than paying cash. Such redemptions in kind would shift the
brokerage cost of liquidating the portfolio securities from the Trust (and its
remaining shareholders) to the redeeming shareholder, and, to the extent
appreciated securities were delivered, would avoid the recognition of capital
gains by the Trust (see "Impact of Conversion on the Trust--Recognition of
Capital Gains; Qualification as a Regulated Investment Company" above).
Underwriting and Distribution. If shareholders vote to convert the Trust to an
open-end fund, the Board of Trustees would consider whether to select a
principal underwriter of the shares of the Trust, which underwriter could be
MFS Fund Distributors, Inc. ("MFD"), an affiliate of the Adviser and the
principal underwriter of the MFS Family of Funds. In that event, the shares
could be offered and sold directly by MFD and by any other broker-dealers who
enter into selling agreements with MFD, although there is no assurance that MFD
or any such other broker-dealers would be able to generate sufficient sales of
Trust shares to offset redemptions, particularly in the initial months
following conversion.
Subsequent Voting Requirements; Additional Steps; Timing. In the event this
item to convert the Trust to an open-end investment company is approved, it
will be necessary to call another meeting of shareholders at which meeting
shareholders would be asked to approve a number of matters either required or
desirable to implement the conversion of the Trust to an open-end fund. At such
meeting, shareholders would be asked to approve amendments to the Trust's
Declaration of Trust to include provisions commonly found in the governing
documents of open-end investment companies and amendments to certain of the
Trust's fundamental investment restrictions necessitated by certain
requirements imposed on open-end investment companies by the 1940 Act. In
addition, assuming that the Board of Trustees adopts and recommends to
shareholders the adoption of a distribution plan for the Trust, the
shareholders would vote to approve such a plan at the meeting, if held.
In addition to calling such a shareholder meeting in the event this item is
approved, additional steps would be required to convert the Trust to an
open-end investment company. These steps would include, assuming the Board of
Trustees determined that the Trust would sell new shares on a continuous basis
as an open-end
11
<PAGE>
fund, the filing and effectiveness of a registration statement under the
Securities Act of 1933, as amended, covering the continuous offering of the
Trust's shares and the negotiation and execution of a new distribution
agreement with a principal underwriter, as described above, and a new or
amended transfer agency and shareholder services agreement with a transfer
agent.
It is currently expected that such a shareholder meeting would be called to be
held as soon as practicable, but no earlier than the beginning of the second
quarter of 1996 and that, if such additional matters as would be required for
the Trust to operate as an open-end fund were approved, the Trust would convert
to an open-end fund as soon as practicable thereafter. If conversion were to
occur, it is anticipated that the discount, if any, at which the Trust's shares
trade would be reduced in anticipation of the ability to redeem shares at net
asset value upon completion of the conversion.
The Board of Trustees recommends that shareholders vote AGAINST conversion of
the Trust from a closed-end investment company to an open-end investment
company.
Required Vote. Approval of this item will require the affirmative vote of a
majority of the Trust's outstanding shares (which means the lesser of (i) more
than 50% of the outstanding shares of the Trust, or (ii) 67% or more of the
outstanding shares of the Trust present at a meeting at which holders of more
than 50% of its outstanding shares are represented in person or by proxy).
ITEM 3--RATIFICATION OR REJECTION OF SELECTION OF ACCOUNTANTS
It is intended that proxies not limited to the contrary will be voted in favor
of ratifying the selection, by a majority of Trustees who are not "interested
persons" (as that term is defined in the 1940 Act) of the Trust, of Ernst &
Young LLP under Section 32(a) of the 1940 Act as independent public accountants
to certify every financial statement of the Trust required by any law or
regulation to be certified by independent public accountants and filed with the
SEC and to provide certain other tax-related services (such as tax return
preparation and assistance and consultation with respect to the preparation of
filings with the SEC) in respect of all or any part of the fiscal year ending
November 30, 1995. Ernst & Young LLP has no direct or material indirect
interest in the Trust.
Coopers & Lybrand LLP were the Trust's independent certified public
accountants from the Trust's commencement of operations on July 21, 1989 to
November 30, 1989 and for the fiscal years ended November 30, 1990, 1991, 1992
and 1993. Beginning with the fiscal year ended November 30, 1994, the Trust has
engaged Ernst & Young LLP as its independent public accountants. There have
been no disagreements with Coopers & Lybrand LLP on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures in connection with the audits of the Trust by Coopers & Lybrand LLP,
and the Trust's financial statements with respect to these audits contain no
adverse opinion or disclaimer of opinion and are not qualified or modified as
to uncertainty, audit scope or accounting principles. The decision to change
independent certified public accountants was recommended by the Trust's Audit
Committee and approved by the Trust's Board of Trustees.
Representatives of Ernst & Young LLP are expected to be present at the Meeting
and will have an opportunity to make a statement if they desire to do so. Such
representatives are also expected to be available to respond to appropriate
questions.
Required Vote. Ratification of this matter will require the affirmative vote of
a majority of the Trust's outstanding shares voting at the Meeting on this
matter in person or by proxy.
12
<PAGE>
INVESTMENT ADVISER
The Trust engages as its investment adviser MFS, a Delaware corporation, with
offices at 500 Boylston Street, Boston, MA 02116. MFS is a wholly owned
subsidiary of Sun Life of Canada (U.S.), One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02181, which is in turn a wholly owned subsidiary of Sun
Life Assurance Company of Canada, 150 King Street West, Toronto, Canada M5H1J9.
MANNER OF VOTING PROXIES
All proxies received by the management will be voted on all matters presented
at the Meeting, and if not limited to the contrary, will be voted FOR the
election of Messrs. Gibbons and Robb as Trustees of the Trust (if still
available for election), FOR the ratification of the selection of Ernst & Young
LLP as independent public accountants and AGAINST the conversion of the Trust
from a closed-end fund to an open-end fund.
All proxies voted, including proxies that reflect (i) broker non-votes (if a
broker has voted on any item before the Meeting), (ii) abstentions or (iii) the
withholding of authority to vote for a nominee for election as Trustee, will be
counted toward establishing a quorum. Passage of any proposal being considered
at the Meeting will occur only if a sufficient number of votes are cast FOR the
proposal. With respect to the election of Trustees and the ratification of
public accountants, neither withholding authority to vote nor abstentions nor
broker non- votes have any effect on the outcome of the voting on the matter.
With respect to the item to consider the conversion of the Trust from a
closed-end fund to an open-end fund, abstentions and broker non-votes have the
effect of a vote AGAINST the proposal.
The Trust knows of no other matters to be brought before the Meeting. If,
however, because of any unexpected occurrence, any nominee is not available for
election or if any other matter properly comes before the Meeting, it is the
Trust's intention that proxies not limited to the contrary will be voted in
accordance with the judgment of the persons named in the enclosed form of
proxy.
SUBMISSION OF CERTAIN PROPOSALS
Proposals of shareholders which are intended to be presented at the 1996
Annual Meeting of Shareholders must be received by the Trust on or prior to May
11, 1996.
ADDITIONAL INFORMATION
To obtain the necessary representation at the Meeting, solicitations may be
made by mail, telephone or interview by Corporate Investor Communications, Inc.
("CIC") or its agents, as well as by officers of the Trust, employees of the
Adviser and securities dealers by whom shares of the Trust have been sold. It
is anticipated that the total cost of any such solicitations, if made by CIC or
its agents, would be approximately $ plus out-of-pocket expenses, and if
made by any other party, would be nominal.
The expense of solicitations as well as the preparation, printing and mailing
of the enclosed form of proxy, and this Notice and Proxy Statement, will be
borne by the Trust.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY
September 8, 1995 MFS CHARTER INCOME TRUST
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<PAGE>
APPENDIX A
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
Retirement Benefit Estimated Total Trustee Fees
Trustee Fees Accrued as part of Credited Years of from Trust and Fund
Trustee from Trust (1) Trust Expense (1) Service (2) Complex (3)
-------------------------- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Richard B. Bailey $16,666 $ 700 8 $226,221
Marshall N. Cohan 18,666 750 8 147,274
Dr. Lawrence Cohn 17,166 3,583 22 133,524
Sir J. David Gibbons 16,666 700 8 132,024
Abby M. O'Neill 16,166 700 9 125,924
Walter E. Robb, III 18,666 750 8 147,274
J. Dale Sherratt 18,666 3,625 24 147,274
Ward Smith 18,666 750 12 147,274
</TABLE>
(1) For fiscal year ended November 30, 1994.
(2) Based on normal retirement age of 75.
(3) For calendar year 1994. All Trustees served as Trustees of 36 funds within
the MFS fund complex (having aggregate net assets at December 31, 1994, of
approximately $9.7 billion) except Mr. Bailey, who served as Trustee of 56
funds within the MFS fund complex (having aggregate net assets at December
31, 1994 of approximately $24.5 billion).
ESTIMATED ANNUAL BENEFITS PAYABLE
BY THE TRUST UPON RETIREMENT (4)
<TABLE>
<CAPTION>
Average Years of Service
Trustee Fees 3 5 7 10 or more
------------- ----- ----- ----- -----------
<S> <C> <C> <C> <C>
$14,500 $2,175 $3,625 $5,075 $ 7,250
16,000 2,400 4,000 5,600 8,000
17,500 2,625 4,375 6,125 8,750
19,000 2,850 4,750 6,650 9,500
20,500 3,075 5,125 7,175 10,250
22,000 3,300 5,500 7,700 11,000
</TABLE>
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
14
<PAGE>
MFS(R) CHARTER
INCOME TRUST
500 Boylston Street
Boston, Massachusetts 02116
Proxy Statement
For the 1995 Annual Meeting
of Shareholders to be held on
October 26, 1995
MFS(R) CHARTER
INCOME TRUST
500 Boylston Street, Boston, Massachusetts 02116
<PAGE>
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF TRUSTEES OF
MFS(R) CHARTER INCOME TRUST
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS, OCTOBER 26, 1995
The undersigned hereby appoints JAMES R. BORDEWICK, JR., A. KEITH BRODKIN,
STEPHEN E. CAVAN and W. THOMAS LONDON, and each of them, proxies with several
powers of substitution, to vote for the undersigned at the 1995 Annual Meeting
of Shareholders of MFS CHARTER INCOME TRUST, to be held at 500 Boylston Street,
Boston, Massachusetts, on Thursday, October 26, 1995, notice of which meeting
and the Proxy Statement accompanying the same have been received by the
undersigned, or at any adjournment thereof, upon the following matters as
described in the Notice of Meeting and accompanying Proxy Statement:
1. ELECTION OF TRUSTEES.
Nominees: Sir J. David Gibbons and Walter E. Robb, III.
[box] VOTE FOR all nominees listed, except as
marked to the contrary above (if any).
[box] VOTE WITHHELD from all nominees.
(to withhold your vote for any nominee,
strike a line through the nominee's name above)
2. CONVERSION OF THE TRUST FROM A CLOSED-END FUND
TO AN OPEN-END FUND.
FOR [box] AGAINST [box] ABSTAIN [box]
3. RATIFICATION OR REJECTION OF SELECTION OF ACCOUNTANTS. FOR [box]
AGAINST [box] ABSTAIN [box]
(To Be Dated and Signed on Reverse Side)
Account Number Number of Shares Proxy Number
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. ALL PROPOSALS (SET FORTH ON THE REVERSE OF THIS
PROXY CARD) HAVE BEEN PROPOSED BY THE BOARD OF TRUSTEES. IF NO DIRECTION IS
GIVEN ON PROPOSALS 1 AND 3, THIS PROXY CARD WILL BE VOTED 'FOR' THE NOMINEES
AND 'FOR' ITEM 3. IF NO DIRECTION IS GIVEN ON PROPOSAL 2, THIS PROXY CARD WILL
BE VOTED 'AGAINST' THIS ITEM. THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE
HOLDER'S BEST JUDGMENT AS TO ANY OTHER MATTER.
Dated , 1995
(Please date this Proxy)
----------------------------------
(Signature)
----------------------------------
(Signature)
Please sign this proxy exactly as your name or
names appear at left. Joint owners should each
sign personally. Trustees and other
fiduciaries should indicate the capacity in
which they sign, and where more than one name
appears, a majority must sign. If a
corporation, this signature should be that of
an authorized officer who should state his or
her title.
PLEASE VOTE AND SIGN AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE.
PLEASE DO NOT FOLD, STAPLE OR MUTILATE
P
R
O
X
Y
