Trustees
A. Keith Brodkin*
Chairman and President
Richard B. Bailey*(2)
Private Investor; Former Chairman and
Director (until 1991), Massachusetts Financial Services Company
Marshall N. Cohan(1)
Private Investor
Lawrence H. Cohn, M.D.(2)
Chief of Cardiac Surgery,
Brigham and Women's Hospital;
Professor of Surgery, Harvard
Medical School
The Hon. Sir J. David
Gibbons, KBE(2)
Chief Executive Officer,
Edmund Gibbons Ltd.;
Chairman, Bank of N.T.
Butterfield & Son Ltd.
Abby M. O'Neill(2)
Private Investor; Director,
Rockefeller Financial Services, Inc.
(Investment Advisers)
Walter E. Robb, III(1)
President and Treasurer,
Benchmark Advisors, Inc.
(Corporate Financial Consultants)
Arnold D. Scott*
Senior Executive Vice President
and Secretary,
Massachusetts Financial
Services Company
Jeffrey L. Shames*
President, Massachusetts Financial
Services Company
J. Dale Sherratt(1)
President, Insight Resources, Inc.
(Acquisition Planning Specialists)
Ward Smith(1)
Former Chairman (until 1994),
NACCO Industries;
Director, Sundstrand Corporation
Portfolio Manager
James T. Swanson*
Treasurer
W. Thomas London*
Assistant Treasurer
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
Transfer Agent,
Registrar and Dividend
Disbursing Agent
MFS Service Center, Inc.
P.O. Box 9024
Boston, MA 02205-9824
1-800-637-2304
Custodian
State Street Bank and
Trust Company
Auditors
Ernst & Young LLP
Investment Adviser
Massachusetts Financial
Services Company
500 Boylston Street
Boston, MA 02116-3741
*Affiliated with the Investment Adviser
(1)Member of Audit Committee
(2)Member of Portfolio Trading CommitteeMCICE-3 7/95 75.5M MFS(R) Charter
Income Trust
<PAGE>
Dear Shareholders:
During the past six months, continued signs of slowing economic momentum and
the prospect that the Federal Reserve Board may have concluded its monetary
tightening initiatives have created a more favorable environment for domestic
fixed-income securities. At the same time, the decline of the U.S. dollar in
world currency markets and the improvement of major world bond markets have
helped the Trust's performance. Over this period, the net asset value of the
Trust rose from $9.60 per share on November 30, 1994 to $10.40 on May 31, 1995,
while the market price on the New York Stock Exchange rose from $8.719 to
$9.25. For the period from November 30, 1994 through May 31, 1995, the Trust
achieved a total return of +10.62%. This return is based on the closing market
prices in effect on those dates and assumes the reinvestment of all
distributions paid during the period.
The share repurchase program which the Trustees approved last year remains an
active program and one which we believe has enhanced shareholder value.
U.S. Government Sector
As we mentioned in the annual report, we expected to become more aggressive in
the U.S. government sector of the portfolio if economic growth continued to
moderate and inflation remained subdued. This scenario has occurred and in late
1994 we started to increase our sensitivity to interest rates by increasing
both the maturities and the duration of the investments in this segment of the
portfolio. These strategies were productive as the Trust benefited from
increases in bond prices as interest rates fell. During the past six months, we
have alternated between anticipating a flattening yield curve (where short-term
rates approximate long-term rates) and the prospects for a steeper yield curve
(where long-term rates are higher than short-term rates). This active
management of securities, in addition to managing expectations of interest rate
levels, has been a hallmark of our approach to managing bonds. Through this
approach, we have added significant value to the Trust this year.
High-Yield Corporate Bonds
The U.S. economic expansion has been accompanied by productivity gains in U.S.
industry. The overall credit quality of below-investment-grade corporate bonds
has improved as is evidenced by the number of upgrades assigned by rating
agencies.
As the economic expansion pauses or fades, we plan to retain a higher-quality
credit profile in this sector, avoiding the more speculative grade issues. We
will increase our selectivity in buying new issues and favor the steady income
producers such as supermarkets, cable TV operators, and other non- economically
sensitive companies. The supply and demand conditions surrounding this market
remain favorable as new-issue volume remains light.
International Sector
The U.S. has led the way in signaling slower economic growth prospects and, as
a result, interest rates have fallen in most of the European and dollar-bloc
nations. Our largest holdings in percentage terms have been the principal
credit issuers: Germany, Japan, and the United Kingdom. These markets have
outperformed the smaller countries such as Sweden and Italy, which continue to
wrestle with low employment growth and heavy government spending. As this year
has progressed, we have increased our international interest rate exposure.
We have favored local currencies over the U.S. dollar during much of the
period. We continue to hold a longer-term view that does not favor the dollar
over the yen or deutsche mark, but near term, we may adjust our non-dollar
weightings to reflect current capital market conditions as the dollar has
strengthened. As we look ahead, we may add exposure to some of the
higher-yielding, non-core sovereign credits.
1
<PAGE>
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
(Signature of A. Keith Brodkin)
A. Keith Brodkin
Chairman and President
(Signature of James T. Swanson)
James T. Swanson
Portfolio Manager
Number of Shareholders
As of May 31, 1995, our records indicate that there are 12,167 registered
shareholders and approximately 55,500 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
P.O. Box 8200
Boston, MA 02266-8200
1-800-637-2304
Number of Employees
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,
non-diversified, management investment company and has no employees.
New York Stock Exchange Symbol
The New York Stock Exchange symbol is MCR.
Performance Summary
(For the period ended May 31, 1995)
<TABLE>
<CAPTION>
<S> <C>
Net Asset Value Per Share
November 30, 1994 $ 9.60
May 31, 1995 $10.40
New York Stock Exchange
Price
November 30, 1994 $ 8.719
May 4, 1995 (high)* $ 9.250
December 13, 1994 (low)* $ 8.250
May 31, 1995 $ 9.250
*For the period December 1, 1994
through May 31, 1995.
</TABLE>
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.
2
<PAGE>
Dividend Reinvestment and
Cash Purchase Plan
The Trust offers a Dividend Reinvestment and Cash Purchase Plan which allows
you to reinvest either all of the distributions or only the long-term capital
gains paid by the Trust. Unless the shares are trading at a premium (exceeding
net asset value), purchases are made at the market price. Otherwise, purchases
will be made at a discounted price of either the net asset value or 95% of the
market price, whichever is greater. You can also buy shares of the Trust.
Investments from $100 to $500 can be made in January and July on the 15th of
the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank or other nominee, you
can ask the firm or nominee to participate in the Plan on your behalf. If the
nominee does not offer the Plan, you may wish to request that your shares be
re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the Trust. However, when shares are bought
on the New York Stock Exchange or otherwise on the open market, each participant
pays a pro rata share of the commissions. A service fee of $0.75 is charged for
each cash purchase as well as a pro rata share of the brokerage commissions, if
any. 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 to receive a brochure providing a
complete description of the Plan, please contact the Plan agent at the address
and telephone number located on the back cover of this report. 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. 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 -- May 31, 1995
Bonds -- 96.9%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Dollar Denominated -- 69.7%
Financial Institutions -- 1.7%
American Annuity Group, Inc., 9.5s, 2001 $2,000 $ 1,990,000
American Annuity Group, Inc., 11.125s, 2003 1,000 1,050,000
American Financial Corp., 9.75s, 2004 2,000 1,982,500
American Life Holdings Co., 11.25s, 2004 2,000 2,080,000
Americo Life, Inc., 9.25s, 2005 500 460,000
Leucadia National Corp., 10.375s, 2002 2,500 2,687,500
Merrill Lynch Mortgage Investors, 8.227s,
2023+ 1,500 1,136,445
Phoenix RE Corp., 9.75s, 2003 750 787,500
Tiphook Finance Corp., 8s, 2000 2,056 1,644,800
----------
$13,818,745
----------
Foreign -- U.S. Dollar Denominated -- 1.7%
Federal Republic of Brazil, 7.8125s, 2001 $ 485 $ 390,425
Korea Electric Power Corp., 7.75s, 2013 3,220 3,163,360
Republic of Argentina, 7.3125s, 2005 7,000 4,628,750
Republic of Argentina, 7.3125s, 2005 3,750 2,470,312
Republic of Argentina, 5s, 2023 4,000 2,000,000
United States of Mexico, 6.25s, 2019 1,500 988,125
----------
$13,640,972
----------
Industrials -- 30.3%
Apparel and Textiles -- 0.2%
Guess, Inc., 9.5s, 2003 $2,000 $ 2,010,000
----------
</TABLE>
3
<PAGE>
Portfolio of Investments -- continued
<TABLE>
<CAPTION>
Bonds -- continued Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Dollar Denominated -- continued
Industrials -- continued
Automotive -- 0.9%
Exide Corp., 10s, 2005## $ 750 $ 765,000
Harvard Industries, Inc., 12s, 2004 3,250 3,436,875
SPX Corp., 11.75s, 2002 2,750 2,928,750
-----------
$ 7,130,625
-----------
Building -- 1.6%
American Standard, Inc., 10.5s, 2005 $5,500 $ 4,125,000
Atlantic Gulf Communities Corp., 12s, 1996 382 318,803
Atlantic Gulf Communities Corp., 13s, 1998 382 204,263
Congoleum Corp., 9s, 2001 1,350 1,309,500
Nortek, Inc., 9.875s, 2004 2,150 2,031,750
Schuller International Group, 10.875s, 2004 1,500 1,646,250
UDC Homes, Inc., 11.75s, 2003 300 210,000
USG Corp., 9.25s, 2001 3,300 3,382,500
-----------
$13,228,066
-----------
Chemicals -- 1.7%
Arcadian Partners L.P., 10.75s, 2005## $ 800 $ 816,000
Huntsman Corp., 10.625s, 2001 2,800 2,996,000
Koppers Industries, Inc., 8.5s, 2004 500 480,000
NL Industries, Inc., 11.75s, 2003 2,110 2,231,325
OSI Specialties Holding Co., 0s, 2004 2,650 1,828,500
Rexene Corp., 11.75s, 2004 1,750 1,903,125
UCC Investors Holdings, Inc., 10.5s, 2002 2,500 2,587,500
UCC Investors Holdings, Inc., 0s, 2005 1,000 745,000
-----------
$13,587,450
-----------
Conglomerates -- 0.6%
Bell & Howell Co., 10.75s, 2002 $1,700 $ 1,785,000
News America Holdings, Inc., 10.125s, 2012 3,000 3,414,960
-----------
$ 5,199,960
-----------
Consumer Goods and Services -- 3.4%
ADT Operations, Inc., 9.25s, 2003 $2,250 $ 2,300,625
Calmar Spraying Systems, Inc., 12s, 1997 700 707,000
Calmar Spraying Systems, Inc., 14s, 1999 5,000 5,100,000
Fieldcrest Cannon, Inc., 11.25s, 2004 2,000 2,090,000
International Semi-Tech Microelectronics,
Inc., 0s, 2003 3,500 1,802,500
Ithaca Industries, Inc., 11.125s, 2002 1,600 1,536,000
MAFCO, Inc., 11.875s, 2002 800 804,000
Remington Arms, Inc., 9.5s, 2003## 600 561,000
Revlon, Inc., 10.5s, 2003 5,000 4,900,000
Revlon Worldwide Corp., 0s, 1998 1,250 840,625
Sealy Corp., 9.5s, 2003 2,500 2,425,000
Westpoint Stevens, Inc., 9.375s, 2005 4,000 3,920,000
-----------
$26,986,750
-----------
Containers -- 3.4%
Container Corp. of America, 9.75s, 2003 $2,650 $ 2,683,125
Gaylord Container Co., 0s, 2005 2,750 2,681,250
Ivex Packaging Corp., 12.5s, 2002 1,800 1,935,000
Owens-Illinois, Inc., 11s, 2003 2,000 2,215,000
Owens-Illinois, Inc., 9.75s, 2004 1,750 1,776,250
Owens-Illinois, Inc., 9.95s, 2004 1,000 1,027,500
4
<PAGE>
U.S. Dollar Denominated -- continued
Industrials -- continued
Containers -- continued
Plastic Containers, Inc., 10.75s, 2001 $ 500 $ 520,000
Quno Corp., 9.125s, 2005 1,000 1,005,000
Riverwood International Corp., 11.25s, 2002 3,000 3,300,000
SD Warren Co., 12s, 2004## 2,600 2,847,000
Silgan Corp., 11.75s, 2002 2,150 2,289,750
Stone Consolidated Corp., 10.25s, 2000 1,600 1,664,000
Stone Container Corp., 9.875s, 2001 3,525 3,507,375
-----------
$27,451,250
-----------
Defense Electronics -- 0.1%
Alliant Techsystems, Inc., 11.75s, 2003## $ 600 $ 633,000
-----------
Entertainment -- 0.7%
ACT III Theatres, Inc., 11.875s, 2003 $1,000 $ 1,070,000
SCI Television, Inc., 11s, 2005 2,450 2,572,500
United Artists Theater Circuit, Inc.,
11.5s, 2002 1,700 1,836,000
-----------
$ 5,478,500
-----------
Food and Beverage Products -- 1.0%
Canandaigua Wine, Inc., 8.75s, 2003 $1,500 $ 1,470,000
Coca-Cola Bottling Group Southwest, Inc.,
9s, 2003 750 733,125
Envirodyne Industries, Inc., 10.25s, 2001 1,314 1,103,760
Specialty Foods Corp., 10.25s, 2001 2,000 1,980,000
Texas Bottling Group, Inc., 9s, 2003 2,500 2,443,750
-----------
$ 7,730,635
-----------
Forest and Paper Products -- 0.1%
Repap New Brunswick, 10.625s, 2005 $ 500 $ 507,500
-----------
Machinery -- 0.1%
Fairfield Manufacturing, 11.375s, 2001 $ 500 $ 475,000
-----------
Medical and Health Products -- 0.4%
National Medical Enterprises, 10.125s, 2005 $2,800 $ 2,954,000
-----------
Medical and Health Technology and Services
-- 1.2%
Community Health System, 10.25s, 2003 $3,450 $ 3,605,250
Integrated Health Services, Inc., 10.75s,
2004 2,750 2,928,750
OrNda Healthcorp, 12.25s, 2002 2,950 3,245,000
-----------
$ 9,779,000
-----------
Metals and Minerals -- 0.6%
Easco Corp., 10s, 2001 $1,500 $ 1,515,000
Jorgensen (Earle M.) Co., 10.75s, 2000 1,500 1,485,000
Kaiser Aluminum & Chemical Corp., 9.875s,
2002 2,100 2,058,000
-----------
$ 5,058,000
-----------
Oil Services -- 0.7%
Amerigas Partners, 10.125s, 2007## $ 600 $ 619,500
Ferrellgas L.P., 10s, 2001 2,600 2,723,500
Giant Industries, Inc., 9.75s, 2003 125 117,500
Global Marine, 12.75s, 1999 1,500 1,653,750
Tuboscope Vetco International, Inc.,
10.75s, 2003 550 561,000
-----------
$ 5,675,250
-----------
Oils -- 0.5%
Gulf Canada, 9.25s, 2004 $2,900 $ 2,871,000
Mesa Capital Corp., 0s, 1998 1,424 1,374,160
-----------
$ 4,245,160
-----------
5
<PAGE>
U.S. Dollar Denominated -- continued
Industrials -- continued
Printing and Publishing -- 0.3%
Day International Group, 11.125s, 2005## $ 400 $ 404,250
World Color Press, Inc., 9.125s, 2003 2,000 1,960,000
-----------
$ 2,364,250
-----------
Restaurants and Lodging -- 0.4%
Embassy Suites, Inc., 10.875s, 2002 $2,250 $ 2,452,500
Kloster, Inc., 13s, 2003 1,000 820,000
-----------
$ 3,272,500
-----------
Special Products and Services -- 3.4%
Astrum International Corp., 11.5s, 2003 $ 908 $ 953,400
Blount, Inc., 9s, 2003 1,250 1,243,750
Eagle Industries, Inc., 0s, 2003 5,700 4,104,000
Gillett Holdings, Inc., 12.25s, 2002 888 923,423
IMO Industries, Inc., 12s, 2001 3,290 3,388,700
Idex Corp., 9.75s, 2002 1,350 1,404,000
Interlake Corp., 6.062s, 1996 472 465,508
Interlake Corp., 12.125s, 2002 1,500 1,530,000
Interlake Revolver, "B", 5.75s, 1997 250 245,000
K & F Industries, Inc., 11.875s, 2003 1,100 1,133,000
Mark IV Industries, Inc., 8.75s, 2003 3,500 3,535,000
Newflo Corp., 13.25s, 2002 700 696,500
OSI Specialties, Inc., 9.25s, 2003 2,000 2,000,000
Polymer Group, Inc., 12.75s, 2002 2,000 2,015,000
Spreckels Industries, Inc., 11.5s, 2000 450 447,750
Synthetic Industries, 12.75s, 2002 950 940,500
Talley Manufacturing & Technology, Inc.,
10.75s, 2003 1,200 1,176,000
Wolverine Tube, Inc., 10.125s, 2002 1,000 1,055,000
-----------
$27,256,531
-----------
Steel -- 1.3%
AK Steel Holdings Corp., 10.75s, 2004 $1,500 $ 1,580,625
Bayou Steel Corp., 10.25s, 2001 1,250 1,193,750
Geneva Steel Co., 9.5s, 2004 1,400 1,134,000
Sheffield Steel Corp., 12s, 2001 800 772,000
UCAR Global Enterprises, 12s, 2005## 1,500 1,623,750
WCI Steel, 10.5s, 2002 1,400 1,417,500
Wheeling Pittsburgh, 9.375s, 2003 3,000 2,797,500
-----------
$10,519,125
-----------
Stores -- 1.7%
Eckerd (Jack) Corp., 9.25s, 2004 $1,800 $ 1,845,000
Finlay Fine Jewelry, 10.625s, 2003 2,750 2,640,000
Pathmark Stores, Inc., 11.625s, 2002 5,500 5,720,000
Payless Cashways, Inc., 9.125s, 2003 2,450 2,070,250
Woodward & Lothrop, Inc., 12s, 1995** 1,001 941,166
-----------
$13,216,416
-----------
Supermarkets -- 0.8%
Dominick's Finer Foods, 10.875s, 2005## $ 500 $ 502,500
Kroger Co., 8.5s, 2003 900 922,500
Kroger Co., 9.25s, 2005 500 535,000
Ralphs Grocery Co., 10.25s, 2002 2,600 2,600,000
Safeway Stores, Inc., 10s, 2002 500 565,000
Safeway Stores, Inc., 9.875s, 2007 1,000 1,110,000
-----------
$ 6,235,000
-----------
6
<PAGE>
U.S. Dollar Denominated -- continued
Industrials -- continued
Telecommunications -- 5.0%
ACT III Broadcasting, 9.625s, 2003 $ 1,000 $ 1,015,000
Albritton Communications Corp., 11.5s, 2004 500 525,000
Cablevision Industries Corp., 10.75s, 2002 3,400 3,672,000
Cablevision Systems Corp., 10.75s, 2004 3,250 3,412,500
Century Communications, 9.5s, 2005 4,200 4,158,000
Continental Cablevision, Inc., 8.875s, 2005 1,000 1,000,000
Falcon Holdings Group, Inc., 11s, 2003# 3,332 3,065,861
Infinity Broadcasting Corp., 10.375s, 2002 1,250 1,318,750
Jones Intercable, Inc., 10.5s, 2008 4,000 4,145,000
K-III Communications Corp., 10.625s, 2002 2,650 2,782,500
MFS Communications, Inc., 0s, 2004 6,250 4,250,000
Mobilemedia Communications, Inc., 0s, 2003 2,000 1,300,000
Paging Network, Inc., 8.875s, 2006 3,650 3,367,125
Rogers Cablesystems Ltd., 10.125s, 2012 3,500 3,517,500
USA Mobile Communication, 9.5s, 2004 1,975 1,747,875
-----------
$ 39,277,111
-----------
Miscellaneous -- 0.2%
Reeves Industries, Inc., 11s, 2002 $ 1,200 $ 1,248,000
-----------
Total Industrials $241,519,079
-----------
Transportation -- 0.4%
Eastern Airlines, Inc., 11.75s, 1993** $ 5,000 $ 950,000
Eastern Airlines, Inc., 12.75s, 1996** 3,000 1,500,000
Moran Transportation Co., 11.75s, 2004 700 658,000
-----------
$ 3,108,000
-----------
U.S. Government and Agencies -- 34.4%
U.S. Federal Agencies -- 2.5%
Federal Home Loan Mortgage Corp., 7s, 1999 $ 5,907 $ 5,983,019
Financing Corp. Coupon Fico Strip, 0s, 2014 35,119 8,837,714
lsrael Aid, 5.75s, 2000 4,865 4,763,078
-----------
$ 19,583,811
-----------
Federal National Mortgage Association --
4.0%
FNMA, 7s, 2023 $ 8,227 $ 2,622,469
FNMA, 8s, 1996 10,000 10,206,200
FNMA, 8.5s, 2005 10,000 10,778,100
FNMA, 9.5s, 2025 7,895 8,262,441
-----------
$ 31,869,210
-----------
Government National Mortgage Association
-- 9.5%
GNMA, 7s, 2024 $33,513 $ 32,979,122
GNMA, 8s, 2008 10,607 10,945,401
GNMA, 9s, 2020 12,123 12,709,609
GNMA, 9.5s, 2025 8,913 9,403,258
GNMA, 10.5s, 2020 4,726 5,173,246
GNMA, 11s, 2021 3,789 4,191,439
-----------
$ 75,402,075
-----------
U.S. Treasury Obligations -- 18.4%
U.S. Treasury Notes, 6.25s, 1996 $ 4,500 $ 4,518,990
U.S. Treasury Notes, 6.875s, 1996 9,000 9,120,960
U.S. Treasury Notes, 7.375s, 1996 16,900 17,127,136
7
<PAGE>
U.S. Dollar Denominated -- continued
U.S. Government and Agencies -- continued
U.S. Treasury Obligations -- continued
U.S. Treasury Notes, 5.5s, 1997 $ 10,000 $ 9,923,400
U.S. Treasury Notes, 8.25s, 1998 22,500 23,948,325
U.S. Treasury Bonds, 12s, 2013 26,500 38,963,215
U.S. Treasury Bonds, 9.125s, 2018 15,000 19,031,250
U.S. Treasury Bonds, 8.875s, 2019 19,500 24,216,465
-----------
$146,849,741
-----------
Total U.S. Government and Agencies $273,704,837
-----------
Utilities -- Electric -- 1.2%
CMS Energy Corp., 0s, 1999 $ 2,500 $ 2,508,775
Kenetech Corp., 12.75s, 2002 1,000 1,010,000
Midland Cogeneration Venture Corp., 10.33s,
2002 3,914 3,972,940
Midland Funding Corp., 11.75s, 2005 2,250 2,289,803
-----------
$ 9,781,518
-----------
Total U.S. Dollar Denominated $555,573,151
-----------
Foreign Bonds -- 27.2%
Australia -- 5.0%
Australian Government, 10s, 2002 AUD 10,000 $ 7,673,583
Treasury Corp. of Victoria, 12s, 1998 5,500 4,396,323
Treasury Corp. of Victoria, 10.25s, 1999 36,395 27,862,630
-----------
$ 39,932,536
-----------
Canada -- 1.4%
Canadian Government, 8.5s, 2000 CAD 15,000 $ 11,381,877
-----------
Denmark -- 3.8%
Danish Government Bullet, 6s, 1999 DKK 28,000 $ 4,814,236
Kingdom of Denmark, 9s, 1998 59,610 11,329,389
Kingdom of Denmark, 9s, 2000 70,850 13,570,927
-----------
$ 29,714,552
-----------
France -- 1.5%
Government of France, 8s, 1998 FRF 19,420 $ 4,038,248
Government of France, 7s, 1999 20,040 4,045,975
Government of France, 7.75s, 2000 20,050 4,161,168
-----------
$ 12,245,391
-----------
Germany -- 3.4%
Deutschland Republic, 8.5s, 2000 DEM 11,520 $ 8,992,612
Deutschland Republic, 6.875s, 2005 11,300 8,120,326
German Unity Fund, 8.5s, 2001 3,840 3,008,408
Treuhandanstalt Obligationen, 6.375s, 1999 9,860 7,138,556
-----------
$ 27,259,902
-----------
Ireland -- 2.3%
Irish Gilts, 8s, 2000 IEP 6,505 $ 10,432,717
Republic of Ireland, 9.25s, 2003 4,350 7,438,108
-----------
$ 17,870,825
-----------
Italy -- 1.2%
Republic of Italy, 9.5s, 1999 ITL 5,190,000 $ 2,926,310
Republic of Italy, 8.5s, 2004 10,780,000 5,360,367
Republic of Italy, 9.5s, 2005 2,610,000 1,375,153
-----------
$ 9,661,830
-----------
8
<PAGE>
Foreign Bonds -- continued
Netherlands -- 3.2%
Dutch State Loan, 6.25s, 1998 NLG 2,840 $ 1,836,780
Netherlands Government, 7.75s, 2005 12,510 8,482,765
Netherlands Government, 8.25s, 2007 21,280 14,880,648
-----------
$ 25,200,193
-----------
New Zealand -- 1.4%
Government of New Zealand, 8s, 1995 NZD 10,010 $ 6,619,720
Government of New Zealand, 9s, 1996 7,300 4,890,610
-----------
$ 11,510,330
-----------
Spain -- 1.3%
Government of Spain, 10.25s, 1998 ESP 1,350,000 $ 10,660,859
-----------
United Kingdom -- 2.7%
United Kingdom Gilts, 9s, 2000 GBP 12,600 $ 21,001,566
-----------
Total Foreign Bonds $216,439,861
-----------
Total Bonds (Identified Cost $748,675,573) $772,013,012
-----------
Common Stocks and Warrants -- 0.2%*
Shares
Ampex Corp. 11,668 $ 28,441
Atlantic Gulf Communities Corp. 2,461 19,380
Atlantic Gulf Communities Corp., Warrants 2,269 1,135
Calton, Inc. 408,600 204,300
Forest Oil Corp., Warrants 48,240 15,075
Gillett Holdings, Inc.+ 33,891 745,602
OSI Specialties, Inc. 1,500 3,000
Protection One, Warrant 14,000 77,000
Thermadyne Industries Holdings Corp. 3,109 43,137
Thrifty Payless Holdings 14,250 53,438
Triton Group Ltd. 388,523 728,481
-----------
Total Common Stocks and Warrants
(Identified Cost, $4,180,853) $ 1,918,989
-----------
Preferred Stock -- 0.2%*
K-III Communications Corp. (Identified
Cost, $1,174,700) 12,800 $ 1,241,646
-----------
Convertible Preferred Stock*
UDC Homes, Inc. (Identified Cost, $76,572) 13,396 $ 18,420
-----------
Principal Amount
(000 Omitted)
Floating Rate Demand Note -- 0.1%
Weirton Steel Corp., 10.875s, 1999
(Identified Cost, $542,866) $ 550 $ 559,625
-----------
Short-Term Obligation -- 0.5%
New Zealand Treasury Bill, due 7/17/95
(Amortized Cost, $3,972,980) NZD 6,500 $ 3,972,980
-----------
Repurchase Agreement -- 0.6%
Prudential, dated 5/31/95, due 6/01/95,
total to be received $4,839,000
(secured by $4,805,000 U.S. Treasury Note)
at Cost $ 4,839 $ 4,839,000
-----------
9
<PAGE>
Call Options Purchased -- 0.1%
Principal
Amount of
Contracts (000
Description/Expiration Month/Strike Price Omitted) Value
Canadian Dollars/August/1.34 CAD 9,599 $ 15,800
Japanese Bonds/September/108.284023 JPY 559,000 209,625
Japanese Bonds/September/111.15 802,000 231,778
-----------
Total Call Options Purchased (Premiums Paid, $283,419) $ 457,203
-----------
Put Options Purchased -- 0.2%
Deutsche Marks/British Pounds/July/2.29 DEM 19,030 $ 71,305
Deutsche Marks/June/1.401 54,968 534,175
Deutsche Marks/August/1.45 71,649 767,571
-----------
Total Put Options Purchased (Premiums Paid, $1,474,187) $ 1,373,051
-----------
Total Investments (Identified Cost, $765,220,150) $786,393,926
-----------
Call Options Written -- (0.1)%
British Pounds/September/1.640 GBP 10,601 $ (97,908)
Deutsche Marks/August/1.38 DEM 68,190 (886,807)
Deutsche Marks/June/1.34 52,574 (1,998)
Deutsche Marks/British Pounds/July/2.1139 17,566 (9,310)
-----------
Total Call Options Written (Premiums Received, $1,197,574) $ (996,023)
-----------
Put Options Written -- (0.1)%
British Pounds/September/1.530 GBP 9,890 $ (96,423)
Canadian Dollars/August/1.373 CAD 9,836 (77,171)
Deutsche Marks/August/1.50 DEM 74,119 (343,617)
Japanese Bonds/September/108.284023 JPY 559,000 (41,925)
-----------
Total Put Options Written (Premiums Received, $788,542) $ (559,136)
-----------
Other Assets, Less Liabilities -- 1.4% $ 11,513,102
-----------
Net Assets -- 100.0% $796,351,869
===========
</TABLE>
+ Restricted security.
* Non-income producing security.
** Non-income producing security -- in default.
# Payment-in-kind bond.
## SEC rule 144A restriction.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. dollar. A list of abbreviations is shown
below.
AUD = Australian Dollars
CAD = Canadian Dollars
CHF = Swiss Francs
DEM = Deutsche Marks
DKK = Danish Kroner
ESP = Spanish Pesetas
FRF = French Francs
GBP = British Pounds
IEP = Irish Punts
ITL = Italian Lire
JPY = Japanese Yen
NLG = Dutch Guilders
NZD = New Zealand Dollars
See notes to financial statements
10
<PAGE>
Statement of Assets and Liabilities -- May 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (identified cost, $765,220,150) $786,393,926
Cash 14,600
Foreign currency, at value (identified cost, $16,251) 8,984
Net receivable for forward foreign currency exchange contracts 1,981,800
Receivable for investments sold 618,924
Interest receivable 17,361,064
Other assets 12,847
-----------
Total assets $806,392,145
-----------
Liabilities:
Distributions payable to dividend disbursing agent $ 491,970
Payable for investments purchased 537,031
Payable for Trust shares reacquired 1,335,673
Payable for daily variation margin on open futures contracts 6,250
Written options outstanding, at value (premiums received, $1,986,116) 1,555,159
Net payable for forward foreign currency exchange contracts purchased 187,702
Net payable for forward foreign currency exchange contracts sold 5,675,916
Payable to affiliates --
Management fee 16,127
Shareholder servicing agent fee 16,582
Accrued expenses and other liabilities 217,866
-----------
Total liabilities $ 10,040,276
-----------
Net assets $796,351,869
===========
Net assets consist of:
Paid-in capital $802,369,784
Unrealized appreciation on investments and translation of assets and liabilities in foreign
currencies 17,867,134
Accumulated net realized loss on investments and foreign currency transactions (18,810,823)
Accumulated distributions in excess of net investment income (5,074,226)
-----------
Total $796,351,869
===========
Shares of beneficial interest outstanding 76,577,739
===========
Net asset value per share (net assets / shares of beneficial interest outstanding) $ 10.40
===========
</TABLE>
See notes to financial statements
11
<PAGE>
Statement of Operations -- Six Months Ended May 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Net investment income:
Interest income $35,091,385
----------
Expenses --
Management fee $ 2,870,049
Trustees' compensation 65,470
Custodian fee 197,789
Transfer and dividend disbursing agent fee 98,858
Postage 51,092
Auditing fees 27,280
Printing 23,868
Legal fees 11,329
Miscellaneous 336,832
----------
Total expenses $ 3,682,567
----------
Net investment income $31,408,818
----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions $ (739,795)
Written option transactions 1,214,516
Foreign currency transactions 2,241,793
Futures contracts 24,500
----------
Net realized gain on investments $ 2,741,014
----------
Change in unrealized appreciation (depreciation) --
Investments $55,310,445
Written option transactions 597,353
Translation of assets and liabilities in foreign currencies (3,506,653)
Futures contracts (58,253)
----------
Net unrealized gain on investments $52,342,892
----------
Net realized and unrealized gain on investments and foreign
currency $55,083,906
----------
Increase in net assets from operations $86,492,724
==========
</TABLE>
See notes to financial statements
12
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Year Ended
Ended November 30,
May 31, 1995 1994
------------ -------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations --
Net investment income $ 31,408,818 $ 64,513,588
Net realized gain (loss) on investments and foreign currency
transactions 2,741,014 (67,052,926)
Net unrealized gain (loss) on investments and foreign currency 52,342,892 (26,248,899)
---------- -----------
Increase (decrease) in net assets from operations $ 86,492,724 $ (28,788,237)
---------- -----------
Distributions declared to shareholders --
From net investment income $(30,345,423) $ (29,597,078)
From net realized gain on investments and foreign currency transactions -- (2,844,895)
From paid-in capital -- (33,609,893)
---------- -----------
Total distributions declared to shareholders $(30,345,423) $ (66,051,866)
---------- -----------
Trust share (principal) transactions --
Net asset value of shares reacquired from shareholders $(64,184,959) $ (20,250,465)
---------- -----------
Decrease in net assets from Trust share transactions $(64,184,959) $ (20,250,465)
---------- -----------
Total decrease in net assets $ (8,037,658) $(115,090,568)
Net assets:
At beginning of year 804,389,527 919,480,095
---------- -----------
At end of year (including distributions in excess of net investment
income of $(5,074,226) and $(6,137,621), respectively) $796,351,869 $ 804,389,527
=========== ===========
</TABLE>
See notes to financial statements
13
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Six
Months
Ended Year Ended November 30,
Per share data (for shares outstanding May 31, ---------------------------------------------------------------
throughout each period): 1995(++) 1994(++) 1993 1992 1991 1990 1989*
------- ----- ----- ----- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period $ 9.60 $ 10.68 $ 10.23 $ 10.59 $ 9.93 $ 11.00 $ 11.16
------- ----- ----- ----- ----- ----- --------
Income from investment operations --
Net investment income $ 0.39 $ 0.76 $ 0.85 $ 0.95 $ 1.06 $ 1.17S. $ 0.43S.
Net realized and unrealized gain (loss)
on investments 0.79 (1.07) 0.55 (0.15) 1.10 (0.73) (0.21)
------- ----- ----- ----- ----- ----- --------
Total from investment operations $ 1.18 $ (0.31) $ 1.40 $ 0.80 $ 2.16 $ 0.44 $ 0.22
------- ----- ----- ----- ----- ----- --------
Less distributions declared to shareholders --
From net investment income $ (0.38) $ (0.35) $ (0.72) $ (0.90) $ (1.06) $ (1.22) $ (0.38)
From net realized gain on investments -- (0.03) (0.23) (0.15) -- (0.07) --
From paid-in capital -- (0.39) -- (0.11) (0.44) (0.22) --
------- ----- ----- ----- ----- ----- --------
Total distributions declared to
shareholders $ (0.38) $ (0.77) $ (0.95) $ (1.16) $ (1.50) $ (1.51) $ (0.38)
======= ===== ===== ===== ===== ===== ========
Net asset value -- end of period $ 10.40 $ 9.60 $ 10.68 $ 10.23 $ 10.59 $ 9.93 $ 11.00
======= ===== ===== ===== ===== ===== ========
Per share market value -- end of period $ 9.25 $ 8.719 $ 9.625 $ 9.875 $ 10.875 $ 9.125 $ 11.000
======= ===== ===== ===== ===== ===== ========
Total return 10.62% (1.35)% 6.92% 1.39% 37.96% (3.32)% (14.15)%+
Ratios (to average net assets)/Supplemental data:
Expenses 0.93%+ 0.86% 0.90% 0.98% 1.02% 1.08%S. 0.74%S.+
Net investment income 7.92%+ 7.50% 8.04% 9.27% 10.34% 11.32%S. 11.32%S.+
Portfolio turnover 97% 153% 397% 198% 416% 184% 480%
Net assets at end of period
(000 omitted) $796,352 $804,390 $919,480 $898,756 $923,287 $864,254 $977,875
</TABLE>
+ Annualized.
* For the period from the commencement of investment operations, July 20, 1989
to November 30, 1989.
++ Per share income from investment operations for the year was calculated
using the average share method.
S. The investment advisor did not impose a portion of its management fee for
the periods indicated. If this fee had been incurred by the Trust, the net
investment income per share and the ratios would have been:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income -- -- -- -- -- $1.17 $0.42
Ratios (to average net assets):
Expenses -- -- -- -- -- 1.10% 1.02%
Net investment income -- -- -- -- -- 11.30% 11.04%
</TABLE>
See notes to financial statements
14
<PAGE>
(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 non-diversified, closed-end management investment company.
(2) Significant Accounting Policies
Investment Valuations -- Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues and forward
contracts, are valued on the basis of valuations furnished by dealers or by a
pricing service with consideration to factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data, without exclusive
reliance upon exchange or over-the-counter prices. Short-term obligations,
which mature in 60 days or less, are valued at amortized cost, which
approximates market value. Non-U.S. dollar denominated short-term obligations
are valued at amortized cost as calculated in the base currency and translated
into U.S. dollars at the closing daily exchange rate. Futures contracts,
options and options on futures contracts listed on commodities exchanges are
valued at closing settlement prices. Over-the-counter options are valued by
brokers through the use of a pricing model which takes into account closing
bond valuations, implied volatility and short-term repurchase rates. Equity
securities listed on securities exchanges or reported through the NASDAQ system
are valued at last sale prices. Unlisted equity securities or listed equity
securities for which last sale prices are not available are valued at last
quoted bid prices. Securities for which there are no such quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the 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 purchased 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 securities transferred to ensure that the
value, including accrued interest, of the securities under each repurchase
agreement is greater than amounts owed to the Trust under each such repurchase
agreement.
Foreign Currency Translation -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments and 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.
Written Options -- The Trust may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Trust. The Trust, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may
15
<PAGE>
serve as a partial hedge against decreases in value in the underlying
securities to the extent of the premium received. Written options may also be
used as a part of an income producing strategy reflecting the view of the
Trust's management on the direction of interest rates.
Futures Contracts -- The Trust may enter into futures contracts for the delayed
delivery of securities, 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 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 underlying
security, and are recorded for financial statement purposes as unrealized gains
or losses by the Trust. The Trust's investment in futures contracts is designed
to hedge against anticipated future changes in interest or exchange rates or
securities prices. For example, interest rate futures may be used in modifying
the duration of the portfolio without incurring the additional transaction
costs involved in buying and selling the underlying securities. Should interest
or exchange rates or securities prices move unexpectedly, the Trust may not
achieve the anticipated benefits of the futures contracts and may realize a
loss.
Security Loans -- The Trust may lend its securities to member banks of the
Federal Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by cash or
securities with a market value at least equal to the market value of securities
loaned. As with other extensions of credit, the Trust bears the risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Trust receives compensation for lending its
securities in the form of fees or from all or a portion of the income from
investment of the collateral. The Trust would also continue to earn income on
the securities loaned. At May 31, 1995, the Trust had no securities on loan.
Forward Foreign Currency Exchange Contracts -- The Trust may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparties to meet
the terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar. The Trust will enter into forward
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.
It 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 for financial statement purposes as unrealized until the
contract settlement date.
Investment Transactions and Income -- Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. 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 uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds, whereby interest income on PIK bonds is recorded
ratably by the Trust at a constant yield to maturity. Legal fees and other
related expenses incurred to preserve and protect the value of a security owned
are added to the cost of the security; other legal fees are expensed. Capital
infusions, which are generally non-recurring,
16
<PAGE>
incurred to protect or enhance the value of high-yield debt securities, are
reported as an addition to the cost basis of the security. Costs that are
incurred to negotiate the terms or conditions of capital infusions or that are
expected to result in a plan of reorganization are reported as realized losses.
Ongoing costs incurred to protect or enhance an investment, or costs incurred
to pursue other claims or legal actions, are reported as operating expenses.
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.
The Trust files a tax return annually using tax accounting methods required
under provisions of the Code which may differ from generally accepted
accounting principles, the basis on which these financial statements are
prepared. Accordingly, the amount of net investment income and net realized
gain reported on these financial statements may differ from that reported on
the Trust's tax return and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that reported
to shareholders on Form 1099-DIV. Foreign taxes have been provided for on
interest income earned on foreign investments in accordance with the applicable
country's tax rates and to the extent unrecoverable are recorded as a reduction
of investment income. 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 requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
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 accumulated net realized
gains.
At November 30, 1994, the Trust, for federal income tax purposes, had a capital
loss carryforward of $24,340,000, which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on November 30, 2002.
(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, computed daily and paid monthly at an effective annual rate of
0.32% of average daily net assets and 4.57% of investment income, amounted to
$2,870,049 for the six months ended May 31, 1995.
The Trust pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Trust, all of whom receive
remuneration for their services to the Trust from MFS. Certain of the officers
and Trustees of the Trust are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Trust has an
unfunded defined benefit plan for all its independent Trustees. Included in
Trustees' compensation is a net periodic pension expense of $9,470 for the six
months ended May 31, 1995.
Transfer Agent -- The MFS Service Center, Inc. (MFSC) acts as registrar and
dividend disbursing agent for the Trust. The agreement provides that the Trust
will pay MFSC an account maintenance fee and a dividend services fee and will
reimburse MFSC for reasonable out-of-pocket expenses. The account maintenance
fee is computed as follows:
17
<PAGE>
<TABLE>
<CAPTION>
Total Number of Accounts Annual Account Fee
- --------------------------- -------------------
<S> <C>
Less than 75,000 ............. $9.00
75,000 and over .............. $8.00
</TABLE>
The dividend service fee is $0.75 per dividend reinvestment and $0.75 per cash
infusion.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
- -------------------------------------------- ----------- -------------
<S> <C> <C>
U.S. government securities $466,841,095 $446,747,129
=========== ===========
Investments (non-U.S. government securities) $272,054,202 $310,323,700
=========== ===========
</TABLE>
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Trust, as computed on a federal income tax basis, are
as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate cost $765,715,293
==========
Gross unrealized appreciation $ 29,028,517
Gross unrealized depreciation (8,349,884)
-----------
Net unrealized appreciation $ 20,678,633
===========
</TABLE>
(5) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
May 31, 1995 November 30, 1994
- ------------------------------------------ ---------------- --------------------
<S> <C> <C>
Treasury shares acquired -- Net decrease (7,207,800) (2,275,100)
================ ====================
</TABLE>
In accordance with the provisions of the Trust's prospectus, 7,207,800 and
2,275,100 shares of beneficial interest were purchased by the Trust during the
six months ended May 31, 1995 and the year ended November 30, 1994, at an
average price per share of $8.90 and a weighted average discount of 9.88% and
10.17% per share, respectively.
(6) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Net Realized and Net Increase (Decrease)
Net Investment Unrealized Gain (Loss) in Net Assets Resulting
Quarterly Period Investment Income Income on Investments from Operations
- ---------------- ------------------ ------------------ ---------------------- -----------------------
Per Per Per Per
Fiscal 1995 Amount Share Amount Share Amount Share Amount Share
- ---------------- ---------- ---- ---------- ---- ------------ ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
February 28,
1995 $17,644,418 $0.21 $15,926,649 $0.19 $ 20,521,446 $ 0.31 $ 36,448,095 $ 0.50
May 31, 1995 17,446,967 0.23 15,482,169 0.20 34,562,460 0.48 50,044,629 0.68
---------- ---- ---------- ---- ---------- ---- ---------- -----
$35,091,385 $0.44 $31,408,818 $0.39 $ 55,083,906 $ 0.79 $ 86,492,724 $ 1.18
========== ==== ========== ==== ========== ==== ========== =====
Fiscal 1994
- ----------------
February 28,
1994 $17,037,002 $0.20 $15,303,844 $0.18 $ (8,290,789) $(0.09) $ 7,013,055 $ 0.09
May 31, 1994 17,735,385 0.21 15,755,834 0.18 (54,227,431) (0.63) (38,471,597) (0.45)
August 31, 1994 18,216,955 0.21 16,449,052 0.20 (12,329,851) (0.15) 4,119,201 0.05
November 30,
1994 18,962,913 0.22 17,004,858 0.20 (18,453,754) (0.20) (1,448,896) 0.00
---------- ---- ---------- ---- ---------- ---- ---------- -----
$71,952,255 $0.84 $64,513,588 $0.76 $(93,301,825) $(1.07) $(28,788,237) $(0.31)
========== ==== ========== ==== ========== ==== ========== =====
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Net Increase
Net Realized and (Decrease)
Unrealized Gain in Net Assets
Net Investment (Loss) Resulting
Quarterly Period Investment Income Income on Investments from Operations
- ----------------- ------------------ ------------------ -------------------- ---------------------
Per Per Per Per
Fiscal 1993 Amount Share Amount Share Amount Share Amount Share
- ----------------- ---------- ---- ---------- ---- ----------- ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
February 28, 1993 $20,086,094 $0.23 $18,090,275 $0.21 $ 5,850,955 $ 0.31 $ 23,941,230 $0.52
May 31, 1993 24,439,583 0.28 22,259,064 0.25 26,729,722 0.06 48,988,786 0.31
August 31, 1993 19,385,124 0.22 17,404,945 0.20 25,060,048 0.29 42,464,993 0.49
November 30, 1993 18,319,414 0.21 16,235,950 0.19 (10,166,556) (0.11) 6,069,394 0.08
---------- ---- ---------- ---- --------- ---- --------- ----
$82,230,215 $0.94 $73,990,234 $0.85 $ 47,474,169 $ 0.55 $121,464,403 $1.40
========== ==== ========== ==== ========== ==== =========== ====
</TABLE>
(7) Line of Credit
The Trust entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the acquisition of Treasury shares. Interest is charged to
each fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Trust for the six months ended May
31, 1995 was $5,985.
(8) Financial Instruments
The Trust trades financial instruments with off-balance sheet risk in the
normal course of its investing activities in order to manage exposure to market
risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency
exchange contracts and futures contracts. The notional or contractual amounts
of these instruments represent the investment the Trust has in particular
classes of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting transactions are
considered. A summary of obligations under these financial instruments at May
31, 1995, is as follows:
19
<PAGE>
Written Option Transactions
<TABLE>
<CAPTION>
1995 Calls 1995 Puts
--------------------------------- ----------------------------------
Principal Amounts of Principal Amounts of
Contracts (000 Contracts (000
Omitted) Premiums Omitted) Premiums
- ------------------------------------------- -------------------- --------- -------------------- ----------
<S> <C> <C> <C> <C>
Outstanding, beginning of period --
Australian Dollars 8,313 $ 58,188 -- $ --
Canadian Dollars -- -- 6,865 35,817
Deutsche Marks -- -- 39,012 217,564
Japanese Yen/Deutsche Marks -- -- 3,086,126 371,649
Swiss Francs/Deutsche Marks -- -- 14,743 52,007
Options written --
Australian Dollars 6,704 51,139 15,027 173,588
British Pounds 10,601 182,926 9,890 182,926
Canadian Dollars -- -- 22,007 90,544
Deutsche Marks 225,124 1,716,098 109,610 809,457
Deutsche Marks/British Pounds 17,566 114,073 -- --
Finnish Markkaa/Deutsche Marks -- -- 28,738 21,020
Japanese Yen -- -- 6,132,190 242,472
Spanish Pesetas/Deutsche Marks -- -- 969,186 63,515
U.S. Dollars 4,000 20,625 -- --
Options terminated in closing transactions
--
Australian Dollars (15,017) (109,327) (15,027) (173,588)
Canadian Dollars -- -- (19,036) (76,387)
Deutsche Marks (56,000) (480,889) (74,503) (567,482)
Japanese Yen -- -- (5,573,190) (146,369)
Japanese Yen/Deutsche Marks -- -- (3,086,126) (371,649)
Spanish Pesetas/Deutsche Marks -- -- (969,186) (63,515)
Options exercised --
Swiss Francs/Deutsche Marks -- -- (14,743) (52,007)
U.S. Dollars (4,000) (20,625) -- --
Options expired --
Deutsche Marks (48,361) (334,634) -- --
Finnish Markkaa/Deutsche Marks -- -- (28,738) (21,020)
------- --------
Outstanding, end of period --
British Pounds 10,601 $ 182,926 9,890 $ 182,926
Canadian Dollars -- -- 9,836 49,974
Deutsche Marks 120,763 900,575 74,119 459,539
Deutsche Marks/British Pounds 17,566 114,073 -- --
Japanese Yen -- -- 559,000 96,103
------- --------
$1,197,574 $ 788,542
========= ========
</TABLE>
At May 31, 1995, the Trust had sufficient cash and/or securities at least equal
to the value of the written options.
20
<PAGE>
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Contracts to In Exchange Contracts at Net Unrealized
Settlement Date Deliver/Receive for Value Appreciation (Depreciation)
- ---------- ---------------- ----------------- ------------ ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 6/09/95 -
9/01/95 AUD 61,451,255 $ 45,173,466 $ 44,122,648 $ 1,050,818
6/09/95 -
7/21/95 CAD 15,471,616 11,244,521 11,275,601 (31,080)
7/19/95 CHF 12,755,819 11,097,807 10,988,437 109,370
6/01/95 -
8/30/95 DEM 82,223,735 129,393,113 129,153,984 239,129
6/08/95 DKK 152,058,972 28,004,525 27,552,933 451,592
6/21/95 -
7/05/95 ESP 3,325,289,430 25,526,659 27,145,583 (1,618,924)
7/19/95 -
8/02/95 FRF 136,483,041 27,978,448 27,446,422 532,026
7/07/95 GBP 6,382,133 10,181,065 10,119,496 61,569
8/04/95 IEP 10,652,443 17,363,482 17,241,352 122,130
6/05/95 -
9/11/95 ITL 32,186,609,212 19,463,400 19,537,272 (73,872)
7/07/95 -
8/25/95 JPY 6,363,864,843 69,330,792 75,783,072 (6,452,280)
6/26/95 NLG 34,165,398 21,913,418 21,645,215 268,203
6/09/95 -
11/15/95 NZD 26,313,128 17,066,260 17,400,857 (334,597)
---------- ----------- -----------------
$433,736,956 $439,412,872 $(5,675,916)
========== =========== =================
Purchases 7/05/95 -
8/25/95 AUD 12,687,122 $ 9,454,639 $ 9,097,271 $ (357,368)
7/07/95 CAD 6,166,792 4,373,394 4,492,687 119,293
7/12/95 CHF 11,319,266 10,077,515 9,745,934 (331,581)
6/01/95 -
9/05/95 DEM 329,879,373 235,957,909 233,844,892 (2,113,017)
6/21/95 -
7/05/95 ESP 1,660,122,563 12,903,124 13,547,831 644,707
8/02/95 FRF 78,756,506 15,533,933 15,837,461 303,528
6/21/95 GBP 5,384,126 8,572,412 8,538,201 (34,211)
8/04/95 IEP 466,690 748,571 755,354 6,783
8/05/95 ITL 16,093,304,606 9,852,038 9,833,009 (19,029)
6/16/95 -
8/01/95 JPY 4,901,321,685 56,678,833 58,355,200 1,676,367
6/26/95 NLG 1,089,440 692,323 690,206 (2,117)
6/09/95 -
11/15/95 NZD 17,349,897 11,531,081 11,450,024 (81,057)
---------- ----------- ----------------
$376,375,772 $376,188,070 $ (187,702)
========== =========== ================
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
and closed forward foreign currency exchange contracts excluded above amounted
to a net receivable of $1,981,800 at May 31, 1995.
At May 31, 1995, the Trust had sufficient cash and/or securities to cover any
commitments under these contracts.
Futures Contracts
<TABLE>
<CAPTION>
Unrealized
Expiration Contracts Position Depreciation
<S> <C> <C> <C>
- ------------------------ ---------------------------- ----- -----------
September 1995 100 U.S. Treasury Bonds Short $(127,445)
===========
</TABLE>
At May 31, 1995, the Trust had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
21
<PAGE>
(9) Restricted Securities
The Trust may invest not more than 20% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At May 31, 1995,
the Trust owned the following restricted securities (constituting 1.40% of net
assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). The Trust does not have the right to
demand that such securities be registered. The value of these securities is
determined by valuations supplied by a pricing service or brokers or, if not
available, in good faith by or at the direction of the Trustees. Certain of
these securities may be offered and sold to "qualified institutional buyers"
under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
Date of Share/Par
Description Acquisition Amount Cost Value
- ---------------------------------------------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C>
Alliant Techsystems, Inc., 11.75s, 2003 3/07/95 600,000 $ 600,000 $ 633,000
Americo Life, Inc., 9.25s, 2005 5/19/93 500,000 500,000 460,000
Amerigas Partners, 10.125s, 2007 4/12/95 600,000 600,000 619,500
Arcadian Partners L.P., 10.75s, 2005 3/04/94 800,000 802,250 816,000
Day International Group, 11.125s, 2005 5/26/95 400,000 400,000 404,250
Dominick's Finer Foods, 10.875s, 2005 4/27/95 500,000 500,000 502,500
Exide Corp., 10s, 2005 4/21/95 750,000 750,000 765,000
Gillett Holdings, Inc. 10/08/92 33,891 320,040 745,602
Merrill Lynch Mortgage Investors, 8.227s, 2021 6/22/94 1,500,000 1,039,687 1,136,445
Remington Arms, Inc., 9.5s, 2003 11/19/93 600,000 596,250 561,000
SD Warren Co., 12s, 2004 12/13/94 2,600,000 2,600,000 2,847,000
UCAR Global Enterprises, 12s, 2005 1/20/95 1,500,000 1,500,000 1,623,750
----------
$11,114,047
----------
</TABLE>
22
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
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, including the portfolio of investments, as of May 31,
1995, the related statement of operations for the six-month period then ended
and the statement of changes in net assets and financial highlights for the
six-month period then ended and for the year ended November 30, 1994. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
financial highlights for each of the four years in the period ended November
30, 1993 and for the period from July 21, 1989 (commencement of operations) to
November 30, 1989 were audited by other auditors whose report dated January 19,
1994 expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the custodian and brokers or by other
appropriate auditing procedures where replies from brokers were not received.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Charter Income Trust as of May 31, 1995, the results of its operations for the
six-month period then ended, and the changes in its net assets and financial
highlights for the six- month period then ended and for the year ended November
30, 1994, in conformity with generally accepted accounting principles.
(Signature of Ernst & Young)
Boston, Massachusetts
July 7, 1995
