Dear Shareholders:
The past year has been one of the best years for bonds on record, with rising
prices around the world contributing to positive performance for the Trust.
The Trust follows a pattern of fixed allocations among three investment
classes: international bonds, U.S. Government bonds, and high-yield corporate
bonds. The policy of the Trust is to distribute income from bonds and
interest-bearing instruments as they are earned. The Trust's distribution
rate varied little during the year, despite falling interest rates. Over this
period, the net asset value of the Trust rose from $9.60 per share on
November 30, 1994 to $10.50 on November 30, 1995, while the market price on
the New York Stock Exchange rose from $8.719 to $9.125. For the period from
November 30, 1994 to November 30, 1995, the Trust achieved a total return of
+18.97%, based on its net asset value, and +13.84% based on the market price.
These returns assume 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
During the Trust's fiscal year we have consistently followed a policy of
positive interest rate exposure in the U.S. Government sector. Our investment
actions have been based on our view that bond prices will rise, benefiting
from the current deflationary trends in the United States. Our view that
tight monetary policy will result in subdued inflation and moderate economic
growth over an extended period of time has yielded the hoped-for results.
Furthermore, positions we have taken during the year based on expected
changes in the shape of the yield curve (the term structure of interest
rates) have also benefited the Trust.
High-Yield Corporate Bonds
This segment of the portfolio has been a consistent performer over the past
12 months, providing modest capital gains in addition to providing a yield
approximately four percentage points greater than that of 10-year Treasury
bonds (although principal value and interest on Treasury securities are
guaranteed by the U.S. Government if held to maturity). We rotated emphasis
in company selection during the year from steady earners to cyclical credits,
but then moved back out of some cyclically sensitive credits as the economy
began to show signs of weakness. While we do not foresee a high risk of
recession over the next few quarters, slower economic growth could trim the
earnings potential of some high-yielding company credits. Our focus in this
sector will be on credit selection through active research, while shifts
among industry groups will reflect our conservative approach to this market.
International Sector
Our exposure to Japanese bonds and currency helped the Trust's performance
early in the year as Japanese disinflation turned to deflation and interest
rates in that country fell dramatically. We later removed our yen exposure
and reduced our Japanese bond positions, with positive results. In addition,
our large positions in Europe changed in a sequence which first favored core
European economies, including Germany, Britain, and the Netherlands, then
favored the high-yielding countries such as Italy, Sweden and Spain, then
shifted back again to emphasize core Europe. International bonds have
generally followed the course of U.S. interest rates, rising in price as
world interest rates have continued to decline in response to falling rates
of inflation.
<PAGE>
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
- -----------------------------
A. Keith Brodkin
Chairman and President
/s/ James T. Swanson
- -----------------------------
James T. Swanson
Portfolio Manager
December 13, 1995
-----------------------------
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.
Number of Shareholders
As of November 30, 1995, our records indicate that there are 11,302
registered shareholders and approximately 55,500 shareholders owning Trust
shares in "street" name, such as through brokers, banks and other financial
intermediaries.
New York Stock Exchange Symbol
The New York Stock Exchange symbol is MCR.
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.
- --------------------------------------------------------------------------------
Performance Summary
(For the year ended November 30, 1995)
Net Asset Value Per Share
November 30, 1994 $ 9.60
November 30, 1995 $10.50
New York Stock Exchange Price
November 30, 1994 $8.719
June 14, 1995 (high)* $9.375
December 23, 1994 (low)* $8.250
November 30, 1995 $9.125
*For the period December 1, 1994 through November 30, 1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tax Form Summary
In January 1996, shareholders will be mailed a Tax
Form Summary reporting the federal tax status of all
distributions paid during the calendar year 1995.
- --------------------------------------------------------------------------------
Investment Objective and Policy
MFS(R) Charter Income Trust's investment objective is to maximize current
income.
The Trust will seek to achieve this objective by investing approximately
one-third of its assets in each of the following sectors of the fixed-income
securities markets: U.S. Government securities and related options; debt
obligations of foreign governments and other foreign issuers; and
high-yielding corporate fixed-income securities, some of which may involve
equity features. During periods of unusual market or economic conditions, the
Trust may invest up to 50% of its assets in any one sector and may choose not
to invest in a sector in order to achieve its investment objective. The Trust
may also enter into options and futures transactions and forward foreign
currency exchange contracts and purchase securities on a "when-issued" basis.
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.
Results of Shareholder Meeting
At the annual meeting of shareholders of MFS Charter Income Trust, which was
held on October 30, 1995, the following actions were taken:
Item 1. The election of The Hon. Sir J. David
Gibbons and Walter Robb, III as
Trustees of the Trust.
Number of Shares
Nominee For Withhold Authority
- ------- --- ------------------
The Hon. Sir
J. David Gibbons 65,123,216.529 3,567,548.238
Walter E. Robb, III 65,328,812.207 3,361,952.560
Trustees continuing in office who were not subject to re-election at this
meeting are Richard B. Bailey, A. Keith Brodkin, Marshall N. Cohan, Lawrence
H. Cohn, Abby M. O'Neill, Arnold D. Scott, Jeffrey L. Shames, J. Dale
Sherratt, and Ward Smith.
Item 2. The ratification of 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.
Number of Shares
------------------
For 65,595,243.979
Against 1,302,020.319
Abstain 1,793,500.469
3
<PAGE>
Portfolio of Investments -- November 30, 1995
Bonds -- 92.6%
Principal Amount
Issuer (000 Omitted) Value
U.S. Dollar Denominated -- 66.0%
Financial Institutions -- 1.6%
American Annuity Group, Inc.,
9.5s, 2001 $2,000 $ 2,080,000
American Annuity Group, Inc.,
11.125s, 2003 1,000 1,080,000
American Life Holdings Co.,
11.25s, 2004 2,000 2,120,000
Americo Life, Inc.,
9.25s, 2005 300 282,750
Leucadia National Corp.,
8.25s, 2005 3,000 3,118,050
Merrill Lynch Mortgage
Investors, 8.227s, 2023+ 1,500 1,170,703
Phoenix RE Corp.,
9.75s, 2003 750 801,563
Tiphook Finance Corp.,
8s, 2000 2,056 1,552,280
-----------
$12,205,346
-----------
Foreign -- U.S. Dollar Denominated -- 1.6%
Federal Republic of Brazil,
8.75s, 2001 $ 475 $ 403,750
Federal Republic of Brazil,
4s, 2014 1,592 843,660
Korea Electric Power Corp.,
7.75s, 2013 3,220 3,376,975
Republic of Argentina,
0s, 2005 2,000 1,307,500
Republic of Argentina,
0s, 2023 7,000 3,831,250
United States of Mexico,
6.25s, 2019 4,000 2,455,000
-----------
$12,218,135
-----------
Industrials -- 28.6%
Apparel and Textiles -- 0.1%
Guess, Inc., 9.5s, 2003 $ 750 $ 731,250
-----------
Automotive -- 1.0%
Exide Corp., 10s, 2005 $1,750 $ 1,881,250
Harvard Industries, Inc.,
12s, 2004 3,250 3,420,625
SPX Corp., 11.75s, 2002 2,750 2,928,750
-----------
$ 8,230,625
-----------
Building -- 1.9%
American Standard, Inc.,
10.5s, 2005 $5,500 $ 4,626,875
Atlantic Gulf Communities
Corp., 12s, 1996 365 320,971
Atlantic Gulf Communities
Corp., 13s, 1998 392 203,565
Principal Amount
Issuer (000 Omitted) Value
U.S. Dollar Denominated -- continued
Industrials -- continued
Building -- continued
Congoleum Corp., 9s, 2001 $1,350 $ 1,329,750
Nortek, Inc., 9.875s, 2004 2,150 1,978,000
Schuller International
Group, Inc., 10.875s,
2004 2,500 2,790,625
USG Corp., 9.25s, 2001 3,300 3,481,500
-----------
$14,731,286
-----------
Chemicals -- 1.4%
Arcadian Partners LP,
10.75s, 2005 $ 800 $ 876,000
Koppers Industries, Inc.,
8.5s, 2004 500 480,000
NL Industries, Inc.,
11.75s, 2003 2,360 2,501,600
OSI Specialties Holding
Co., 11.5s, 2004 2,650 2,305,500
Rexene Corp., 11.75s, 2004 1,750 1,855,000
UCC Investors Holdings,
Inc., 10.5s, 2002 2,500 2,568,750
UCC Investors Holdings,
Inc., 0s, 2005 1,000 747,500
-----------
$11,334,350
-----------
Conglomerates -- 0.7%
Bell & Howell Co.,
10.75s, 2002 $1,700 $ 1,802,000
News America Holdings,
Inc., 10.125s, 2012 3,000 3,580,530
-----------
$ 5,382,530
-----------
Consumer Goods and Services -- 2.7%
ADT Operations, Inc.,
9.25s, 2003 $2,250 $ 2,396,250
Fieldcrest Cannon, Inc.,
11.25s, 2004 2,000 1,980,000
International Semi-Tech
Microelectronics, Inc.,
0s, 2003 3,500 1,802,500
Ithaca Industries, Inc.,
11.125s, 2002 1,600 1,328,000
Remington Arms, Inc.,
9.5s, 2003## 600 528,000
Revlon Consumer Products
Corp., 10.5s, 2003 5,000 5,100,000
Samsonite Corp.,
11.125s, 2005 1,500 1,402,500
Sealy Corp., 9.5s, 2003 2,500 2,487,500
Westpoint Stevens, Inc.,
9.375s, 2005 4,000 4,020,000
-----------
$21,044,750
-----------
4
<PAGE>
Principal Amount
Issuer (000 Omitted) Value
U.S. Dollar Denominated -- continued
Industrials -- continued
Containers -- 2.7%
Calmar, Inc., 11.5s,
2005## $1,000 $ 1,027,500
Container Corp. of
America, 9.75s, 2003 1,500 1,473,750
Gaylord Container Co.,
12.75s, 2005 2,350 2,261,875
Ivex Packaging Corp.,
12.5s, 2002 1,800 1,908,000
Owens-Illinois, Inc., 11s,
2003 2,000 2,232,500
Owens-Illinois, Inc.,
9.75s, 2004 1,750 1,820,000
Owens-Illinois, Inc.,
9.95s, 2004 1,000 1,047,500
Plastic Containers, Inc.,
10.75s, 2001 500 522,500
SD Warren Co., 12s, 2004 2,600 2,873,000
Silgan Corp., 11.75s, 2002 2,150 2,279,000
Stone Consolidated Corp.,
10.25s, 2000 1,600 1,712,000
Stone Container Corp.,
9.875s, 2001 2,325 2,263,969
-----------
$21,421,594
-----------
Defense Electronics -- 0.1%
Alliant Techsystems, Inc.,
11.75s, 2003 $ 600 $ 657,000
-----------
Entertainment -- 0.7%
ACT III Theatres, Inc.,
11.875s, 2003 $1,000 $ 1,070,000
SCI Television, Inc., 11s,
2005 2,450 2,597,000
United Artists Theater
Circuit, Inc., 11.5s,
2002 1,700 1,819,000
-----------
$ 5,486,000
-----------
Food and Beverage Products -- 0.6%
Coca-Cola Bottling Group
Southwest, Inc., 9s,
2003 $ 750 $ 750,000
Specialty Foods Corp.,
10.25s, 2001 2,000 1,850,000
Texas Bottling Group, Inc.,
9s, 2003 2,500 2,481,250
-----------
$ 5,081,250
-----------
Forest and Paper Products -- 0.1%
Repap New Brunswick,
10.625s, 2005 $ 500 $ 500,000
-----------
Machinery -- 0.1%
Fairfield Manufacturing,
11.375s, 2001 $ 500 $ 485,000
-----------
Medical and Health Products -- 0.4%
Tenet Healthcare Corp.,
10.125s, 2005 $3,050 $ 3,309,250
-----------
Principal Amount
Issuer (000 Omitted) Value
U.S. Dollar Denominated -- continued
Industrials -- continued
Medical and Health Technology and Services 1.5%
Community Health System,
10.25s, 2003 $3,450 $ 3,700,125
Integrated Health
Services, Inc., 10.75s,
2004 2,750 2,921,875
OrNda Healthcorp,
12.25s, 2002 2,950 3,230,250
Quorum Health Group, Inc.,
8.75s, 2005 1,800 1,813,500
-----------
$11,665,750
-----------
Metals and Minerals -- 0.6%
Easco Corp., 10s, 2001 $ 950 $ 931,000
Jorgensen (Earle M.) Co.,
10.75s, 2000 1,500 1,380,000
Kaiser Aluminum & Chemical
Corp., 9.875s, 2002 2,100 2,142,000
-----------
$ 4,453,000
-----------
Oil Services -- 0.7%
AmeriGas Partners LP,
10.125s, 2007 $ 600 $ 645,000
Ferrell Gas LP, 10s, 2001 2,600 2,743,000
Global Marine, Inc.,
12.75s, 1999 1,500 1,657,500
Tuboscope Vetco
International, Inc.,
10.75s, 2003 550 541,750
-----------
$ 5,587,250
-----------
Oils -- 0.4%
Gulf Canada, 9.25s, 2004 $2,900 $ 2,936,250
-----------
Printing and Publishing -- 0.3%
Day International Group,
Inc., 11.125s, 2005## $ 600 $ 601,500
World Color Press, Inc.,
9.125s, 2003 1,450 1,486,250
-----------
$ 2,087,750
-----------
Restaurants and Lodging -- 0.1%
Harrah's Operating, Inc.,
10.875s, 2002 $1,000 $ 1,072,500
-----------
Special Products and Services -- 3.2%
Blount, Inc., 9s, 2003 $1,250 $ 1,312,500
Buckeye Cellulose Corp.,
8.5s, 2005 290 293,625
Eagle Industries, Inc.,
0s, 2003 2,950 2,389,500
Gillett Holdings, Inc.,
12.25s, 2002 660 693,077
IMO Industries, Inc.,
12s, 2001 3,290 3,355,800
Idex Corp., 9.75s, 2002 1,350 1,434,375
Interlake Corp., 12s, 2001 750 746,250
5
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
U.S. Dollar Denominated -- continued
Industrials -- continued
Special Products and Services -- continued
Interlake Corp., 12.125s,
2002 $1,500 $ 1,395,000
Interlake Revolver, "B",
5.75s, 1997 158 156,834
K & F Industries, Inc.,
11.875s, 2003 1,100 1,182,500
Mark IV Industries, Inc.,
8.75s, 2003 3,500 3,613,750
Newflo Corp., 13.25s, 2002 700 724,500
OSI Specialties, Inc.,
9.25s, 2003 2,000 2,240,000
Polymer Group, Inc.,
12.25s, 2002 2,000 2,060,000
Spreckels Industries,
Inc., 11.5s, 2000 450 432,000
Synthetic Industries,
Inc., 12.75s, 2002 950 921,500
Talley Manufacturing &
Technology, Inc.,
10.75s, 2003 1,200 1,206,000
Wolverine Tube, Inc.,
10.125s, 2002 1,000 1,060,000
-----------
$25,217,211
-----------
Steel -- 0.6%
AK Steel Holdings Corp.,
10.75s, 2004 $1,500 $ 1,657,500
Sheffield Steel Corp.,
12s, 2001, 800 732,000
UCAR Global Enterprises,
Inc., 12s, 2005 800 908,000
WCI Steel, Inc., 10.5s,
2002 1,150 1,102,562
-----------
$ 4,400,062
-----------
Stores -- 1.3%
Eckerd (Jack) Corp.,
9.25s, 2004 $1,800 $ 1,890,000
Finlay Fine Jewelry,
10.625s, 2003 2,750 2,715,625
Parisian, Inc., 9.875s,
2003 550 467,500
Pathmark Stores, Inc.,
11.625s, 2002 5,250 5,105,625
Pathmark Stores, Inc.,
9.625s, 2003 250 233,125
-----------
$10,411,875
-----------
Supermarkets -- 1.1%
Bruno's, Inc., 10.5s, 2005 $ 850 $ 817,063
Dominick's Finer Foods,
10.875s, 2005 2,250 2,362,500
Grand Union Co., 12s, 2004 800 702,000
Kroger Co., 8.5s, 2003 500 520,000
Principal Amount
Issuer (000 Omitted) Value
U.S. Dollar Denominated -- continued
Industrials -- continued
Supermarkets -- continued
Kroger Co., 9.25s, 2005 $ 500 $ 540,000
Ralphs Grocery, 11s, 2005 2,600 2,496,000
Safeway Stores, Inc.,
9.875s, 2007 750 866,250
-----------
$ 8,303,813
-----------
Telecommunications -- 6.2%
ACT III Broadcasting,
9.625s, 2003 $1,000 $ 1,035,000
Albritton Communications
Corp., 11.5s, 2004 500 522,500
American Communications
Services, Inc., 0s, 2005 1,000 537,500
Bell Cablemedia PLC,
0s, 2005 1,250 756,250
Cablevision Industries
Corp., 10.75s, 2002 3,400 3,680,500
Cablevision Systems Corp.,
10.75s, 2004 2,750 2,901,250
Cablevision Systems Corp.,
9.25s, 2005 1,000 1,022,500
Century Communications,
9.5s, 2005 3,700 3,774,000
Comcast Corp., 9.375s,
2005 2,000 2,090,000
Continental Cablevision,
Inc., 8.875s, 2005 1,000 1,040,000
Falcon Holdings Group,
Inc., 11s, 2003# 3,516 3,375,113
Infinity Broadcasting
Corp., 10.375s, 2002 600 642,000
Jones Intercable, Inc.,
10.5s, 2008 4,000 4,360,000
K-III Communications
Corp., 10.625s, 2002 2,650 2,809,000
MFS Communications, Inc.,
0s, 2004 6,250 4,835,938
Marcus Cable Operating
Co., 0s, 2004 1,000 730,000
Metrocall, Inc., 10.375s,
2007 800 830,000
Mobilemedia
Communications, Inc.,
0s, 2003 2,000 1,520,000
Paging Network, Inc.,
8.875s, 2006 4,050 4,075,313
ProNet, Inc., 11.875s,
2005 1,800 1,944,000
Rogers Cablesystems Ltd.,
10.125s, 2012 3,050 3,156,750
USA Mobile Communication,
9.5s, 2004 1,975 1,935,500
Videotron Holdings PLC,
0s, 2005 2,650 1,563,500
-----------
$49,136,614
-----------
6
<PAGE>
Principal Amount
Issuer (000 Omitted) Value
U.S. Dollar Denominated -- continued
Industrials -- continued
Miscellaneous -- 0.1%
Reeves Industries, Inc.,
11s, 2002 $ 1,200 $ 1,020,000
-----------
Total Industrials $224,686,960
-----------
Transportation -- 0.1%
Eastern Airlines, Inc.,
12.75s, 1996** $ 3,000 $ 150,000
Eastern Airlines, Inc.,
11.75s, 1999** 5,000 125
Moran Transportation Co.,
11.75s, 2004 700 654,500
-----------
$ 804,625
-----------
U.S. Federal Agencies -- 5.4%
Financing Corp., 0s, 2014 $35,119 $ 10,280,569
Federal Home Loan Mortgage
Corp., 9.5s, 2025 6,871 7,283,072
Federal National Mortgage
Assn., 7.5s, 2010 23,100 23,633,697
Federal National Mortgage
Assn., 9.5s, 2025 44 46,401
Federal National Mortgage
Assn., Stripped
Mortgage-
Backed Security, 7s,
2023 7,940 2,359,589
-----------
$ 43,603,328
-----------
U.S. Government Guaranteed -- 27.5%
Government Aid Bonds -- 0.6%
State of Israel, 5.75s,
2000 $ 4,865 $ 4,874,487
-----------
Government National Mortgage Association -- 9.3%
GNMA, 7s, 2022-2025 $22,298 $ 22,347,053
GNMA, 7.5s, 2022-2025 24,548 25,054,551
GNMA, 9s, 2024-2025 19,508 20,562,682
GNMA, 10.5s, 2020 4,209 4,688,674
-----------
$ 72,652,960
-----------
U.S. Treasury Obligations -- 17.6%
U.S. Treasury Note,
6.125s, 1997 $10,000 $ 10,100,000
U.S. Treasury Note,
6.875s, 1999 25,000 26,113,250
U.S. Treasury Note, 0s,
2001 20,000 15,020,800
U.S. Treasury Note, 0s,
2003 25,000 16,656,500
U.S. Treasury Note,
7.25s, 2004 21,500 23,599,690
U.S. Treasury Note,
6.5s, 2005 10,000 10,523,400
U.S. Treasury Bond,
12.75s, 2010 11,500 17,347,060
Principal Amount
Issuer (000 Omitted) Value
U.S. Dollar Denominated -- continued
U.S. Government Guaranteed -- continued
U.S. Treasury Obligations -- continued
U.S. Treasury Bond,
8.5s, 2020 $15,000 $ 19,134,300
-----------
$138,495,000
-----------
Total U.S. Government Guaranteed $216,022,447
-----------
Utilities -- Electric 1.2%
CMS Energy Corp.,
9.875s, 1999 $ 1,000 $ 1,030,000
Kenetech Corp.,
12.75s, 2002 1,000 640,000
Midland Cogeneration
Venture Corp., 10.33s,
2002 4,905 5,101,157
Midland Funding Corp. II,
"A", 11.75s, 2005 2,250 2,356,920
-----------
$ 9,128,077
-----------
Total U.S. Dollar Denominated $518,668,918
-----------
Foreign Bonds -- 26.6%
Australia -- 3.8%
Commonwealth of Australia,
8.75s, 2001 AUD 32,600 $ 25,168,388
Commonwealth of Australia,
9.5s, 2003 5,500 4,405,510
-----------
$ 29,573,898
-----------
Canada -- 1.6%
Canadian Government,
8.75s, 2005 CAD 15,000 $ 12,272,827
-----------
Denmark -- 3.9%
Kingdom of Denmark,
9s, 1998 DKK 33,558 $ 6,485,703
Kingdom of Denmark,
6s, 1999 28,000 4,993,554
Kingdom of Denmark,
9s, 2000 70,850 13,966,325
Kingdom of Denmark,
8s, 2001 26,052 4,942,926
-----------
$ 30,388,508
-----------
France -- 1.2%
Government of France,
7.75s, 2000 FRF 45,900 $ 9,746,269
-----------
Germany -- 4.3%
Deutschland Republic,
6.875s, 2005 DEM 11,300 $ 8,190,840
German Unity Fund,
8.5s, 2001 32,700 25,805,082
-----------
$ 33,995,922
-----------
7
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Foreign Bonds -- continued
Ireland -- 3.0%
Irish Gilts, 8s, 2000 IEP 14,455 $ 23,930,715
-----------
Italy -- 2.0%
Republic of Italy, 8.5s,
2004 ITL 8,250,000 $ 4,426,502
Republic of Italy, 8.5s,
1999 14,485,000 8,563,191
Republic of Italy, 9.5s,
1999 4,160,000 2,489,232
-----------
$ 15,478,925
-----------
Netherlands -- 2.9%
Netherlands Government,
6.25s, 1998 NLG 2,840 $ 1,834,324
Netherlands Government,
8.25s, 2007 29,767 21,203,034
-----------
$ 23,037,358
-----------
New Zealand -- 1.1%
Government of New Zealand,
8s, 2001 NZD 12,900 $ 8,730,304
-----------
Spain -- 1.8%
Government of Spain,
10.5s, 2003 ESP 535,000 $ 4,418,263
Government of Spain,
8s, 2004 1,350,000 9,644,265
-----------
$ 14,062,528
-----------
United Kingdom -- 1.0%
United Kingdom Treasury
Bonds, 8s, 2000 GBP 5,000 $ 8,009,520
-----------
Total Foreign Bonds $209,226,774
-----------
Total Bonds (Identified Cost,
$707,821,561) $727,895,692
-----------
Common Stocks and Warrants -- 0.3%*
Shares
Atlantic Gulf Communities
Corp., Warrants 2,269 $ 71
Forest Oil Corp., Warrants 32,705 18,397
Gillett Holdings, Inc.+ 33,891 711,711
Thermadyne Industries
Holdings Corp. 1,609 25,543
Triton Group Ltd. 383,601 1,222,728
-----------
Total Common Stocks and Warrants
(Identified Cost, $3,112,320) $ 1,978,450
-----------
Preferred Stock -- 0.2%*
Issuer Shares Value
K-III Communications Corp.#
(Identified Cost,
$1,174,700) 13,555 $1,341,945
--------------
Convertible Preferred Stock*
UDC Homes, Inc., Cv.
(Identified Cost,
$107,107) 13,396 $ 20,089
--------------
Repurchase Agreement -- 2.4%
Principal Amount
Issuer (000 Omitted)
Prudential, dated
11/30/95, due 12/01/95,
total to be received
$18,578,008 (secured by
$11,845,000 U.S.
Treasury Bond) at Cost $18,575 $18,575,000
------------
Call Options Purchased -- 0.1%
Principal Amount
Description/Expiration of Contracts
Month/Strike Price (000 Omitted)
Deutsche Marks
December/1.378 DEM 20,900 $ 1,651
Italian Lire/Deutsche Marks
January/1085 ITL 17,088,750 51,266
Japanese Yen
December/112.062 JPY 401,000 60,952
Japanese Yen
March/107.489 744,000 109,368
Japanese Yen/Deutsche Marks
January/69.4 6,821,263 586,629
Swedish Kronor/Deutsche
Marks
February/4.535 SEK 162,774 291,853
---------
Total Call Options Purchased
(Premiums Paid, $1,183,508) $1,101,719
---------
8
<PAGE>
Put Options Purchased
Principal
Amount
Description/Expiration of Contracts
Month/Strike Price (000 Omitted) Value
Australian Dollar
January/.745 AUD 6,848 $ 93,501
Deutsche Marks/British Pounds
January/2.23 DEM 32,335 207,494
-----------
Total Put Options Purchased
(Premiums Paid, $287,730) $ 300,995
-----------
Total Investments
(Identified Cost, $732,261,926) $751,213,890
-----------
Call Options Written
Australian Dollars
February/.763 AUD 5,259 $ (33,452)
Deutsche Marks
January/2.124 DEM 30,795 (47,763)
-----------
Total Call Options Written
(Premiums Received, $231,100) $ (81,215)
-----------
Put Options Written (0.1%)
Australian Dollars
January/.745 AUD 6,848 $ (93,501)
February/.720 4,966 (30,346)
Japanese Bonds
December/112.062 JPY 401,000 (6,015)
March/104.489 744,000 (101,184)
Japanese Yen
January/74.40 7,116,131 (249,066)
-----------
Total Put Options Written
(Premiums Received, $518,529) $ (480,112)
-----------
Other Assets,
Less Liabilities -- 4.5% $ 35,603,264
-----------
Net Assets -- 100.0% $786,255,827
===========
+ Restricted security.
# Payment-in-kind bond.
## SEC Rule 144A restriction.
* Non-income producing security.
** Non-income producing security - in default.
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
FIM = Finnish Markkaa
FRF = French Francs
GBP = British Pounds
IEP = Irish Punts
ITL = Italian Lire
JPY = Japanese Yen
NLG = Dutch Guilders
NZD = New Zealand Dollars
SEK = Swedish Kronor
See notes to financial statements
9
<PAGE>
Statement of Assets and Liabilities -- November 30, 1995
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $732,261,926) $751,213,890
Cash 205,461
Net receivable for forward foreign currency exchange contracts 3,846,709
Net receivable for forward foreign currency exchange contracts sold 7,009,552
Premium receivable on options written 63,797
Receivable for investments sold 20,604,968
Interest receivable 15,484,146
Other assets 32,407
-------
Total assets $798,460,930
-------
Liabilities:
Distributions payable to dividend disbursing agent $ 437,199
Payable for investments purchased 4,057,546
Written options outstanding, at value (premiums received, $749,629) 561,327
Net payable for forward foreign currency exchange contracts purchased 6,964,975
Payable to affiliates --
Management fee 14,943
Shareholder servicing agent fee 15,074
Accrued expenses and other liabilities 154,039
-------
Total liabilities $ 12,205,103
-------
Net assets $786,255,827
=======
Net assets consist of:
Paid-in capital $786,498,274
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 22,955,549
Accumulated net realized loss on investments and foreign currency transactions (26,053,008)
Accumulated undistributed net investment income 2,855,012
-------
Total $786,255,827
=======
Shares of beneficial interest outstanding 74,877,239
=======
Net asset value per share (net assets / shares of beneficial interest
outstanding) $10.50
=======
</TABLE>
See notes to financial statements
10
<PAGE>
Statement of Operations -- Year Ended November 30, 1995
<TABLE>
<S> <C>
Net investment income:
Interest income $ 68,994,549
-----------
Expenses --
Management fee $ 5,699,041
Trustees' compensation 148,879
Custodian fee 451,553
Transfer and dividend disbursing agent fee 187,597
Postage 89,737
Auditing fees 55,580
Printing 53,088
Legal fees 25,381
Miscellaneous 565,280
-----------
Total expenses $ 7,276,136
Fees paid indirectly (15,888)
-----------
Net expenses $ 7,260,248
-----------
Net investment income $ 61,734,301
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions $ 11,607,199
Written option transactions 3,759,439
Foreign currency transactions (12,305,400)
Futures contracts (214,965)
-----------
Net realized gain on investments and foreign currency
transactions $ 2,846,273
-----------
Change in unrealized appreciation --
Investments $ 53,088,635
Written option transactions 354,698
Translation of assets and liabilities in foreign currencies 3,918,782
Futures contracts 69,192
-----------
Net unrealized gain on investments $ 57,431,307
-----------
Net realized and unrealized gain on investments and
foreign currency $ 60,277,580
-----------
Increase in net assets from operations $122,011,881
===========
</TABLE>
See notes to financial statements
11
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------
Increase (decrease) in net assets: 1995 1994
---------- -----------
<S> <C> <C>
From operations --
Net investment income $ 61,734,301 $ 64,513,588
Net realized gain (loss) on investments and foreign currency
transactions 2,846,273 (67,052,926)
Net unrealized gain (loss) on investments and foreign currency
translation 57,431,307 (26,248,899)
---------- -----------
Increase (decrease) in net assets from operations $122,011,881 $ (28,788,237)
---------- -----------
Distributions declared to shareholders --
From net investment income $(59,963,107) $ (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 $(59,963,107) $ (66,051,866)
---------- -----------
Trust share (principal) transactions --
Net asset value of shares reacquired from shareholders $(80,182,474) $ (20,250,465)
---------- -----------
Decrease in net assets from Trust share transactions $(80,182,474) $ (20,250,465)
---------- -----------
Total decrease in net assets $(18,133,700) $(115,090,568)
Net assets:
At beginning of year 804,389,527 919,480,095
---------- -----------
At end of year (including accumulated undistributed net
investment income (accumulated distributions in excess of
net investment income) of $2,855,012 and $(6,137,621),
respectively) $786,255,827 $ 804,389,527
========== ===========
</TABLE>
See notes to financial statements
12
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Per share data (for shares outstanding Year Ended November 30,
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 incomeS. $ 0.79 $ 0.76 $ 0.85 $ 0.95 $ 1.06 $ 1.17 $ 0.43
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.88 (1.07) 0.55 (0.15) 1.10 (0.73) (0.21)
----- ----- ----- ----- ----- ----- --------
Total from investment operations $ 1.67 $(0.31) $ 1.40 $ 0.80 $ 2.16 $ 0.44 $ 0.22
----- ----- ----- ----- ----- ----- --------
Less distributions declared to shareholders
From net investment income $(0.77) $(0.35) $(0.72) $(0.90) $(1.06) $(1.22) $(0.38)
From net realized gain on investments and
foreign currency transactions -- (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 $(0.77) $(0.77) $(0.95) $(1.16) $(1.50) $(1.51) $(0.38)
----- ----- ----- ----- ----- ----- --------
Net asset value -- end of period $10.50 $ 9.60 $10.68 $10.23 $10.59 $ 9.93 $11.00
===== ===== ===== ===== ===== ===== ========
Per share market value -- end of period $ 9.125 $ 8.719 $ 9.625 $ 9.875 $10.875 $ 9.125 $11.000
===== ===== ===== ===== ===== ===== ========
Total return 13.84% (1.35)% 6.92% 1.39% 37.96% (3.32)% (14.15)%+
Ratios (to average net assets)/Supplemental dataS.:
Expenses## 0.92% 0.86% 0.90% 0.98% 1.02% 1.08% 0.74%+
Net investment income 7.84% 7.50% 8.04% 9.27% 10.34% 11.32% 11.32%+
Portfolio turnover 183% 153% 397% 198% 416% 184% 480%
Net assets at end of period (000 omitted) $786,256 $804,390 $919,480 $898,756 $923,287 $864,254 $977,875
+ Annualized.
* For the period from commencement of investment operations, July 20, 1989 to November 30, 1989.
# Per share data for the periods subsequent to November 30, 1993, is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Trust's expenses are calculated without reduction for fees paid
indirectly.
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:
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
13
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Charter Income Trust (the Trust) is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as a 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, 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
14
<PAGE>
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 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 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 statement purposes as
unrealized gains or losses by the Trust. The Trust's investment in futures
contracts is designed to hedge against anticipated future changes in interest
or exchange rates or securities prices. Investments in interest rate futures
for purposes other than hedging may be made to modify the duration of the
portfolio without incurring the additional transaction costs involved in
buying and selling the underlying securities. Investments in currency futures
for purposes other than hedging may be made to change the Trust's relative
position in one or more currencies without buying and selling portfolio
assets. Investments in equity-index contracts, or contracts on related
options for purposes other than hedging may be made when the Trust has cash
on hand and wishes to participate in anticipated market appreciation while
the cash is being invested. Should interest or exchange rates or securities
prices move unexpectedly, the Trust may not achieve the anticipated benefits
of the futures contracts and may realize a loss.
Security Loans -- 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 November 30, 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 into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
Trust 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 both financial
statement and tax reporting purposes as required by federal income tax
regulations.
15
<PAGE>
Notes to Financial Statements -- continued
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, 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.
Fees Paid Indirectly -- The Trust's custodian bank calculates its fee based on
the Trust's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the
Trust. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions -- The Trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
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. During the year ended November 30, 1995, $7,221,439 was
reclassified from accumulated net realized loss on investments and foreign
currency transactions to accumulated undistributed net investment income, and
$126,005 was reclassified from accumulated net realized loss on investments
and foreign currency transactions to paid-in-capital, due to differences
between book and tax accounting for mortgage-backed securities and currency
transactions. This change had no effect on the net assets or net asset value
per share. At November 30, 1995, accumulated undistributed net investment
income and realized gain on investments and foreign currency transactions
under book accounting were different from tax accounting due to temporary
differences in accounting for foreign currency contracts and options,
defaulted bonds, capital losses, and distributions payable by the Trust.
16
<PAGE>
At November 30, 1995, the Trust, for federal income tax purposes, had a
capital loss carryforward of $29,830,401, 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 ($24,340,000) and November 30,
2003 ($5,490,401).
(3) Transactions with Affiliates
Investment Adviser -- The Trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.32%
of average daily net assets and 4.57% of investment income.
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 and MFS
Service Center, Inc. (MFSC). The Trust has an unfunded defined benefit plan
for all its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $17,379 for the year ended
November 30, 1995.
Transfer Agent -- MFSC acts as registrar and dividend disbursing agent for
the Trust under an agreement which 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:
Total Number of Annual Account
Accounts Fee
----------------------- -----------------
Less than 75,000 $9.00
75,000 and over $8.00
The dividend services fee is $0.75 per dividend reinvestment and $0.75 per
cash infusion.
(4) Portfolio Securities
<TABLE>
<CAPTION>
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows: Purchases Sales
---------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government securities $848,256,503 $822,471,703
========= ===========
Investments (non-U.S. Government securities) $524,231,984 $626,485,527
========= ===========
</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>
<S> <C>
Aggregate cost $732,720,583
===========
Gross unrealized appreciation $ 24,925,054
Gross unrealized depreciation (6,431,747)
-----------
Net unrealized appreciation $ 18,493,307
===========
</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>
Year Ended November 30,
------------------------------------------------------------
1995 1994
---------------------------------------------------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Treasury shares acquired (8,908,300) $(80,182,474) (2,275,100) $(20,250,465)
-------- ----------- ---------- ------------
Net decrease (8,908,300) $(80,182,474) (2,275,100) $(20,250,465)
======== =========== ========== ============
</TABLE>
17
<PAGE>
Notes to Financial Statements -- continued
In accordance with the provisions of the Trust's prospectus, 8,908,300 and
2,275,100 shares of beneficial interest were purchased by the Trust during
fiscal years ended November 30, 1995 and 1994, respectively, at an average
price per share of $9.00 and $8.90 and a weighted average discount of 9.82%
and 10.17% per share, respectively.
(6) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Net Realized and Net Increase
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 $ 0.30 $ 36,448,095 $ 0.49
May 31, 1995 17,446,967 0.23 15,482,169 0.20 34,562,460 0.48 50,044,629 0.68
August 31, 1995 17,558,133 0.23 15,759,926 0.21 (7,979,553) (0.08) 7,780,373 0.13
November 30, 1995 16,345,031 0.22 14,565,557 0.19 13,173,227 0.18 27,738,784 0.37
-------- -- -------- -- ---------- ---- ---------- -----
$68,994,549 $0.89 $61,734,301 $0.79 $ 60,277,580 $ 0.88 $122,011,881 $ 1.67
======== == ======== == ========== ==== ========== =====
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>
(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
year ended November 30, 1995 was $10,442.
(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 November 30, 1995, is as
follows:
18
<PAGE>
Written Option Transactions
<TABLE>
<CAPTION>
1995 Calls 1995 Puts
-------------------------------------------------------------------------------------------
Principal Amount of Principal Amount of
Contracts (000 Omitted) Premiums Contracts (000 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 26,208 240,007 26,842 291,717
British Pounds 10,601 182,926 9,890 182,926
Canadian Dollars 15,877 33,300 31,122 123,158
Deutsche Marks 293,748 1,999,580 150,347 1,092,846
Deutsche Marks/British Pounds 48,361 311,717 -- --
Finnish Markkaa/Deutsche Marks -- -- 28,738 21,020
Italian Lire/Deutsche Marks -- -- 30,522,126 327,367
Japanese Yen 1,060,358 135,726 9,895,981 641,555
Japanese Yen/Deutsche Marks -- -- 7,116,131 253,690
Spanish Pesetas/Deutsche Marks -- -- 969,186 63,515
U.S. Dollars 4,000 20,625 -- --
Options terminated in closing
transactions --
Australian Dollars (29,262) (264,745) (15,028) (173,588)
British Pounds (10,601) (182,926) -- --
Canadian Dollars (15,877) (33,300) (37,987) (158,975)
Deutsche Marks (128,919) (877,086) (115,240) (850,872)
Deutsche Marks/British Pounds (17,566) (114,067) -- --
Italian Lire/Deutsche Marks -- -- (6,848,265) (51,239)
Japanese Yen (1,060,358) (135,726) (7,595,190) (439,712)
Japanese Yen/Deutsche Marks -- -- (3,086,126) (371,650)
Spanish Pesetas/Deutsche Marks -- -- (969,186) (63,515)
Options exercised --
Italian Lire/Deutsche Marks -- -- (15,449,612) (210,079)
Swiss Francs/Deutsche Marks -- -- (14,743) (52,007)
U.S. Dollars (4,000) (20,625) -- --
Options expired --
British Pounds -- -- (9,890) (182,926)
Deutsche Marks (164,829) (1,122,494) (74,119) (459,538)
Finnish Markkaa/Deutsche Marks -- -- (28,738) (21,020)
Italian Lire/Deutsche Marks -- -- (8,224,249) (66,049)
Japanese Yen -- -- (1,155,791) (55,132)
----------- ----------- -----------
Outstanding, end of period 36,054 $ 231,100 8,272,945 $ 518,529
=========== =========== ===========
Options outstanding at end of
period consist of:
Australian Dollars 5,259 $ 33,450 11,814 $118,129
Deutsche Marks/British Pounds 30,795 197,650 -- --
Japanese Yen -- -- 1,145,000 146,711
Japanese Yen/Deutsche Marks -- -- 7,116,131 253,689
----------- ----------- -----------
Outstanding, end of period 36,054 $ 231,100 8,272,945 $ 518,529
=========== =========== ===========
</TABLE>
At November 30, 1995, the Trust had sufficient cash and/or securities at
least equal to the value of the written options.
19
<PAGE>
Notes to Financial Statements -- continued
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Net Unrealized
Contracts to Contracts at Appreciation
Settlement Date Deliver/Receive In Exchange for Value (Depreciation)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 12/07/95 AUD 55,593,614 $ 41,432,900 $ 41,279,982 $ 152,918
1/30/96-- 2/26/96 CAD 17,920,574 13,227,289 13,189,440 37,849
12/14/95-- 5/31/96 CHF 52,112,019 45,689,443 44,816,177 873,266
12/07/95-- 5/31/96 DEM 332,252,698 232,724,314 230,305,129 2,419,185
12/07/95-- 4/12/96 DKK 194,537,282 35,569,727 34,760,661 809,066
12/07/95 ESP 2,076,618,468 16,422,159 16,837,223 (415,064)
12/15/95 FIM 20,259,195 4,605,409 4,715,105 (109,696)
12/18/95-- 4/12/96 FRF 205,003,750 41,458,584 41,099,530 359,054
1/30/96 GBP 5,125,261 7,964,656 7,842,844 121,812
12/06/95-- 1/08/96 IEP 28,110,801 45,038,844 44,563,715 475,129
12/07/95--12/21/95 ITL 109,198,486,351 67,442,870 68,242,688 (799,818)
12/01/95-- 6/07/96 JPY 19,173,563,693 193,376,837 190,180,525 3,196,312
12/14/95-- 1/22/96 NLG 52,540,828 33,500,708 32,536,652 964,056
12/20/95 NZD 24,408,462 15,886,698 15,903,212 (16,514)
12/11/95--12/21/95 SEK 301,171,810 44,838,068 45,896,071 (1,058,003)
-------------- --------- ------------
$839,178,506 $832,168,954 $ 7,009,552
============== ========= ============
Purchases 12/07/95 AUD 14,999,534 $ 11,047,307 $ 11,137,619 $ 90,312
2/26/96 CAD 8,857,224 6,545,391 6,516,684 (28,707)
12/14/95--12/18/95 CHF 37,123,817 32,173,790 31,648,590 (525,200)
12/01/95-- 5/31/96 DEM 455,840,044 320,753,635 315,566,426 (5,187,209)
12/07/95-- 4/12/96 DKK 144,671,546 26,151,665 25,864,486 (287,179)
12/07/95 ESP 282,564,509 2,261,330 2,291,033 29,703
12/14/95 FIM 19,784,850 4,609,769 4,604,528 (5,241)
12/27/95-- 5/31/96 FRF 259,456,508 52,870,940 51,949,425 (921,515)
12/06/95 IEP 14,055,400 22,311,543 22,278,625 (32,918)
12/07/95-- 1/31/96 ITL 72,940,758,434 45,071,620 45,537,149 465,529
12/07/95-- 3/27/96 JPY 20,418,622,127 203,287,527 201,747,270 (1,540,257)
12/14/95 NLG 15,099,282 9,642,312 9,334,950 (307,362)
12/20/95 NZD 4,617,717 3,028,299 3,008,651 (19,648)
12/15/95 SEK 117,821,713 16,651,195 17,955,912 1,304,717
-------------- --------- ------------
$756,406,323 $749,441,348 $(6,964,975)
============== ========= ============
</TABLE>
Forward foreign currency purchases and sales under master netting
arrangements and closed forward foreign currency exchange contracts, excluded
from above, amounted to a net receivable of $3,846,709 at November 30, 1995.
At November 30, 1995, the Trust had sufficient cash and/or securities to
cover any commitments under these contracts.
20
<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 November 30,
1995, the Trust owned the following restricted securities (constituting 0.51%
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>
Calmar, Inc., 11.5s, 2005 8/03/95 1,000,000 $1,000,000 $1,027,500
Day International Group, Inc., 11.125s, 2005 5/28/95 600,000 599,500 601,500
Gillett Holdings, Inc. 10/8/92 33,891 320,040 711,711
Merrill Lynch Mortgage Investors, 8.227s,
2023 6/22/94 1,500,000 1,039,687 1,170,703
Remington Arms, Inc., 9.5s, 2003 11/19/93 600,000 596,250 528,000
---------
$4,039,414
==========
</TABLE>
21
<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 November
30, 1995, and the related statement of operations for the year then ended and
the statement of changes in net assets and financial highlights for each of
the two years in the period then ended. 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 November 30, 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 at November 30, 1995, the results of its operations for
the year then ended and the changes in its net assets and financial
highlights for each of the two years in the period then ended, in conformity
with generally accepted accounting principles.
Boston, Massachusetts /s/ Ernst & Young LLP
January 5, 1996
22
<PAGE>
MFS(R) Charter Income Trust
Trustees Portfolio Manager
A. Keith Brodkin*, James T. Swanson*
Chairman and President
Treasurer
W. Thomas London*
Richard B. Bailey*,(2)
Private Investor; Former Chairman and Assistant Treasurer
Director (until 1991), Massachusetts James O. Yost*
Financial Services Company;
Director, Cambridge Bancorp; Secretary
Director, Cambridge Trust Company Stephen E. Cavan*
Marshall N. Cohan,(1) Assistant Secretary
Private Investor James R. Bordewick, Jr.*
Lawrence H. Cohn, M.D.(2) Transfer Agent, Registrar,
Chief of Cardiac Surgery, Dividend Disbursing Agent
Brigham and Women's Hospital; and Plan Agent
Professor of Surgery, Harvard MFS Service Center, Inc.
Medical School P.O. Box 9024
Boston, MA 02205-9824
The Hon. Sir J. David 1-800-637-2304
Gibbons, KBE(2)
Chief Executive Officer, Custodian
Edmund Gibbons Ltd.; State Street Bank and
Chairman, Bank of N.T. Trust Company
Butterfield & Son Ltd.,
Hamilton, Bermuda Auditors
Ernst & Young llp
Abby M. O'Neill,(2)
Private Investor; Director, Investment Adviser
Rockefeller Financial Services, Inc. Massachusetts Financial
(investment advisers) Services Company
500 Boylston Street
Walter E. Robb, III,(1) Boston, MA 02116-3741
President and Treasurer,
Benchmark Advisors, Inc.
(corporate financial consultants);
President, Benchmark Consulting
Group, Inc. (office services); Trustee,
Landmark Funds (mutual funds)
Arnold D. Scott*
Senior Executive Vice President,
Director and Secretary,
Massachusetts Financial Services
Company
Jeffrey L. Shames*
President and Director,
Massachusetts Financial Services
Company
J. Dale Sherratt(1)
President, Insight Resources, Inc.
Ward Smith(1)
Former Chairman (until 1994),
NACCO Industries;
Director, Sundstrand Corporation
*Affiliated with the Investment Adviser
(1)Member of Audit Committee
(2)Member of Portfolio Trading Committee MCICE-2 1/96 77M
[MFS logo]
MFS(R) Charter Income Trust
Annual Report
November 30, 1995
[silhouette of two men in front of window talking]
