UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5822
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MFS CHARTER INCOME TRUST
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: November 30
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Date of reporting period: May 31, 2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) CHARTER INCOME TRUST
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
SEMIANNUAL REPORT
5/31/07
MCR-SEM
MFS(R) CHARTER INCOME TRUST
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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PORTFOLIO MANAGERS' PROFILES 4
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PERFORMANCE SUMMARY 5
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN 7
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PORTFOLIO OF INVESTMENTS 8
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STATEMENT OF ASSETS AND LIABILITIES 26
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STATEMENT OF OPERATIONS 27
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STATEMENTS OF CHANGES IN NET ASSETS 28
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FINANCIAL HIGHLIGHTS 29
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NOTES TO FINANCIAL STATEMENTS 30
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 40
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 41
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PROXY VOTING POLICIES AND INFORMATION 41
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QUARTERLY PORTFOLIO DISCLOSURE 41
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CONTACT INFORMATION BACK COVER
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TRUST OBJECTIVE: The Trust seeks to maximize
current income.
New York Stock Exchange Symbol: MCR
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NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
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LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. As of mid-May 2007, it
had returned another 8% and continued to reach new highs. But the Dow's upward
rise has not been without hiccups. After hitting new records in February, the
Dow lost 5.8% between February 20 and March 5, as stocks were sold off around
the globe. As we have said before, markets are volatile, and investors should
make sure they have an investment plan that can carry them through the peaks
and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short-term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss. Investing
and planning for the long term require diligence and patience, two traits that
in our experience are essential to capitalizing on the many opportunities the
financial markets can offer -- through both up and down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
July 16, 2007
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE (i)
Bonds 91.9%
Floating Rate Loans 0.7%
Cash & Other Net Assets 7.4%
FIXED INCOME SECTORS (i)
Non U.S. Government Bonds 18.0%
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High Yield Corporates 16.0%
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High Grade Corporates 15.4%
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Mortgage-Backed Securities 14.4%
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U.S. Treasury Securities 11.0%
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Emerging Market Bonds 10.5%
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Commercial Mortgage-Backed
Securities 5.0%
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Asset-Backed Securities 1.5%
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Floating Rate Loans 0.7%
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Residential Mortgage-Backed Securities 0.1%
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CREDIT QUALITY OF BONDS (r)
AAA 49.6%
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AA 4.5%
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A 5.6%
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BBB 18.2%
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BB 11.8%
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B 8.6%
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CCC 1.4%
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Not Rated 0.3%
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PORTFOLIO FACTS
Average Duration (d,i) 5.4
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Average Life (i,m) 8.0 yrs.
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Average Maturity (i,m) 12.9 yrs.
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Average Credit Quality of
Rated Securities (long-term) (a) A
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Average Credit Quality of
Rated Securities (short-term) (a) A-1
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COUNTRY WEIGHTINGS (i)
United States 67.4%
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Japan 4.9%
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Germany 3.4%
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France 2.5%
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Russia 2.5%
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Netherlands 2.5%
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Canada 1.7%
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Ireland 1.6%
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United Kingdom 1.5%
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Other Countries 12.0%
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(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a bond
with a 5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this presentation, the bond component includes both accrued
interest amounts and the equivalent exposure from any derivative holdings,
if applicable.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which
have been pre- refunded or pre-paid to an earlier date or which have a
mandatory put date prior to the stated maturity. The average life shown
takes into account these earlier dates.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based
on the rating assigned by Fitch, Inc. For those portfolios that hold a
security which is not rated by any of the three agencies, the security is
considered Not Rated. Holdings in U.S. Treasuries and government agency
mortgage-backed securities, if any, are included in the "AAA"-rating
category. Percentages are based on the total market value of investments as
of 05/31/07.
Percentages are based on net assets as of 05/31/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
PORTFOLIO MANAGERS' PROFILES
Richard O. Hawkins, CFA, is an Investment Officer of MFS Investment
Management(R) (MFS(R)) and portfolio manager of the firm's investment grade and
multi-sector bond portfolios. Richard joined the firm in 1988 and was named
portfolio manager in 1996. Richard earned a bachelor's degree from Brown
University and a Master's of Business Administration from the University of
Pennsylvania. He is a member of the Association for Investment Management and
Research (AIMR) and holds the Chartered Financial Analyst (CFA) designation.
John F. Addeo, CFA, is an Investment Officer of MFS Investment Management(R)
(MFS(R)) and portfolio manager of the high-yield bond portfolios of our mutual
funds, variable annuities, offshore accounts and closed-end funds. He is also a
manager of the MFS(R) Diversified Income Fund. John joined MFS as a research
analyst in 1998. He became associate portfolio manager in 2000 and portfolio
manager in 2001. He was named Associate Director of Fixed Income Research in
2004. Previously, he was a quantitative analyst and a vice president in the
high-yield groups of several major investment companies. He received a Bachelor
of Science degree from Siena College in 1984. He holds the Chartered Financial
Analyst (CFA) designation.
David P. Cole, CFA, is an Investment Officer of MFS Investment Management(R)
(MFS(R)). He is also a co-portfolio manager on the firm's high-yield portfolios
and the high-yield segment of the MFS Diversified Income Fund. David joined MFS
in 2004 after working for five years as a High Yield Analyst for Franklin
Templeton Investments. Prior to this, he served as a Financial
Economist/Treasury Market Analyst for Thomson Financial Services and three
years as an Economist for Standard and Poor's. David has a bachelor's degree
from Cornell University and an M.B.A from University of California, Berkeley.
He holds the Chartered Financial Analyst (CFA) designation.
Matthew W. Ryan, CFA, is an Investment Officer of MFS Investment Management(R)
(MFS(R)) and portfolio manager of the firm's emerging market debt, strategic
income and high yield bond portfolios. He is also a manager of the MFS(R)
Diversified Income Fund. Before joining the firm in 1997, Matt worked for four
years as an economist at the International Monetary Fund and for five years as
an international economist with the U.S. Treasury Department. He was named a
portfolio manager of MFS in 1998. He is a graduate of Williams College and
earned a master's degree in international economics and foreign policy from
Johns Hopkins University. Matt also holds the Chartered Financial Analyst (CFA)
designation.
Note to Shareholders: Effective October 9, 2006, David Cole became a co-
manager of the portfolio with John Addeo, Richard Hawkins and Matthew Ryan. He
replaced Scott Richards.
PERFORMANCE SUMMARY THROUGH 5/31/07
All results are historical. Investment return and principal value will
fluctuate, and shares, when sold, may be worth more or less than their
original cost. More recent returns may be more or less than those shown. Past
performance is no guarantee of future results.
PRICE SUMMARY
Date Price
Six months ended 5/31/07
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Net Asset Value 5/31/07 $9.52
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11/30/06 $9.64
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New York Stock Exchange Price 5/31/07 $8.53
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5/04/07 (high) (t) $8.60
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1/23/07 (low) (t) $8.43
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11/30/06 $8.51
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TOTAL RETURNS VS BENCHMARKS
Six months ended 5/31/07
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New York Stock Exchange Price (r) 3.04%
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Net Asset Value (r) 1.52%
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Citigroup World Government Bond Non-Dollar Hedged Index (f) (0.04)%
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JPMorgan EMBI Global (f) 3.57%
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Lehman Brothers U.S. Credit Bond Index (f) 0.37%
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Lehman Brothers U.S. Government/Mortgage Bond Index (f) 0.83%
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Lehman Brothers U.S. High-Yield Corporate Bond Index (f) 5.92%
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(f) Source: FactSet Research Systems Inc.
(r) Includes reinvestment of dividends and capital gain distributions.
(t) For the period December 1, 2006 through May 31, 2007.
INDEX DEFINITIONS
Citigroup World Government Bond Non-Dollar Hedged Index - a market
capitalization-weighted index that tracks the currency-hedged performance of
the major government bond markets, excluding the United States. Country
eligibility is determined based upon market capitalization and investability
criteria.
JPMorgan Emerging Markets Bond Index Global (EMBI Global) - tracks total
returns for U.S.-dollar-denominated debt instruments issued by emerging market
sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds.
Lehman Brothers U.S. Credit Bond Index - measures publicly issued, SEC-
registered, U.S. corporate and specified foreign debentures and secured notes
that meet specified maturity, liquidity, and quality requirements.
Lehman Brothers U.S. Government/Mortgage Bond Index - measures debt issued by
the U.S. Government, and its agencies, as well as mortgage-backed pass-through
securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
Lehman Brothers U.S. High-Yield Corporate Bond Index - measures the universe of
non-investment grade, fixed rate debt. Eurobonds and debt issues from countries
designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are
excluded.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
The trust's shares may trade at a discount to net asset value. Shareholders do
not have the right to cause the trust to repurchase their shares at net asset
value. When trust shares trade at a premium, buyers pay more than the net asset
value underlying trust shares, and shares purchased at a premium would receive
less than the amount paid for them in the event of the trust's liquidation. As
a result, the total returns that are calculated based on the net asset value
and New York Stock Exchange prices can be different.
The trust's monthly distributions may include a return of capital to
shareholders. Distributions that are treated for federal income tax purposes as
a return of capital will reduce each shareholder's basis in his or her shares
and, to the extent the return of capital exceeds such basis, will be treated as
gain to the shareholder from a sale of shares. Returns of shareholder capital
have the effect of reducing the trust's assets and may increase the trust's
expense ratio.
From time to time the trust may receive proceeds from litigation settlements,
without which performance would be lower.
In accordance with Section 23(c) of the Investment Company Act of 1940, the
trust hereby gives notice that it may from time to time repurchase shares of
the trust in the open market at the option of the Board of Trustees and on such
terms as the Trustees shall determine.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The trust offers a Dividend Reinvestment and Cash Purchase Plan that allows you
to reinvest either all of the distributions paid by the trust or only the
long-term capital gains. Purchases are made at the market price unless that
price exceeds the net asset value (the shares are trading at a premium). If the
shares are trading at a premium, purchases will be made at a discounted price
of either the net asset value or 95% of the market price, whichever is greater.
Twice each year you can also buy shares. Investments may be made in any amount
over $100 in January and July on the 15th of the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee, you
can ask the firm or nominee to participate in the plan on your behalf. If the
nominee does not offer the plan, you may wish to request that your shares be
re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the trust. However, when shares are
bought on the New York Stock Exchange or otherwise on the open market, each
participant pays a pro rata share of the transaction expenses, including
commissions. The automatic reinvestment of distributions does not relieve you
of any income tax that may be payable (or required to be withheld) on the
distributions.
To enroll in or withdraw from the plan, or if you have any questions, call
1-800-637-2304 any business day from 9 a.m. to 5 p.m. Eastern time. Please have
available the name of the trust and your account and Social Security numbers.
For certain types of registrations, such as corporate accounts, instructions
must be submitted in writing. Please call for additional details. When you
withdraw from the plan, you can receive the value of the reinvested shares in
one of two ways: a check for the value of the full and fractional shares, or a
certificate for the full shares and a check for the fractional shares.
Effective May 1, 2007, Computershare Trust Company, N.A. (the Transfer Agent
for the trust) became the agent for the plan.
PORTFOLIO OF INVESTMENTS
5/31/07 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Bonds - 95.2%
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ISSUER SHARES/PAR VALUE ($)
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Aerospace - 0.4%
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Bombardier, Inc., 8%, 2014 (n) $ 987,000 $ 1,051,155
DRS Technologies, Inc., 7.625%, 2018 175,000 181,344
Hawker Beechcraft Acquisition Corp., 8.5%, 2015 (z) 400,000 422,000
Hawker Beechcraft Acquisition Corp., 9.75%, 2017 (n) 245,000 262,150
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$ 1,916,649
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Airlines - 0.2%
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Continental Airlines, Inc., 7.566%, 2020 $ 995,352 $ 1,007,793
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Asset Backed & Securitized - 6.6%
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Asset Securitization Corp., FRN, 7.8664%, 2029 $ 2,000,000 $ 2,133,156
Bayview Financial Acquisition Trust, FRN, 5.483%, 2041 404,000 401,181
Bayview Financial Revolving Mortgage Loan Trust, FRN, 6.12%, 2040 (z) 1,160,000 1,159,995
Bear Stearns Commercial Mortgage Securities, Inc., FRN, 5.116%, 2041 1,120,248 1,086,706
Citigroup Commercial Mortgage Trust, 5.462%, 2049 1,588,110 1,556,193
Citigroup/Deutsche Bank Commercial Mortgage Trust, "H", FRN, 5.693%, 2049 398,224 372,865
Citigroup/Deutsche Bank Commercial Mortgage Trust, "J", FRN, 5.693%, 2049 530,000 483,957
Citigroup/Deutsche Bank Commercial Mortgage Trust, FRN, 5.366%, 2049 860,000 835,940
Countrywide Asset-Backed Certificates, FRN, 5.147%, 2035 2,000,000 1,986,118
Credit Suisse Mortgage Capital Certificate, 5.343%, 2039 1,391,000 1,351,679
Crest Ltd., 7%, 2040 (n) 2,000,000 1,863,000
DLJ Commercial Mortgage Corp., 6.04%, 2031 2,000,000 2,013,936
First Union-Lehman Brothers Bank of America, FRN,
0.4979%, 2035 (i) 61,020,139 851,188
First Union-Lehman Brothers Commercial Mortgage Trust, 7%, 2029 (n) 850,000 906,959
First Union-Lehman Brothers Commercial Mortgage Trust, FRN,
7.5%, 2029 3,000,000 3,275,175
JPMorgan Chase Commercial Mortgage Securities Corp., 5.372%, 2047 940,000 913,152
Morgan Stanley Capital I, Inc., 5.168%, 2042 1,532,020 1,489,425
Mortgage Capital Funding, Inc., FRN, 0.6431%, 2031 (i) 13,231,791 58,442
New Century Home Equity Loan Trust, FRN, 4.532%, 2035 2,500,000 2,463,559
Spirit Master Funding LLC, 5.05%, 2023 (z) 1,838,514 1,740,392
Structured Asset Securities Corp., FRN, 4.67%, 2035 2,156,554 2,132,794
TIAA Real Estate CDO Ltd., 7.17%, 2032 (n) 506,304 507,072
Wachovia Bank Commercial Mortgage Trust, 5.339%, 2048 1,571,000 1,526,932
Wachovia Bank Commercial Mortgage Trust, FRN, 5.383%, 2043 2,640,000 2,568,080
Wachovia Bank Commercial Mortgage Trust, FRN, 5.8267%, 2043 810,000 765,582
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$ 34,443,478
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Automotive - 0.8%
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DaimlerChrysler N.A. Holdings Corp., 8.5%, 2031 $ 400,000 $ 510,887
Ford Motor Credit Co., 7%, 2013 1,038,000 993,362
Ford Motor Credit Co., 8%, 2016 310,000 307,709
Ford Motor Credit Co. LLC, 9.75%, 2010 590,000 625,390
Ford Motor Credit Co., FRN, 8.105%, 2012 190,000 190,926
General Motors Corp., 8.375%, 2033 712,000 662,160
Goodyear Tire & Rubber Co., 9%, 2015 570,000 624,150
TRW Automotive, Inc., 7%, 2014 (n) 465,000 465,581
TRW Automotive, Inc., 7.25%, 2017 (n) 50,000 50,125
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$ 4,430,290
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Broadcasting - 1.9%
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Allbritton Communications Co., 7.75%, 2012 $ 535,000 $ 551,719
CBS Corp., 6.625%, 2011 1,036,000 1,069,239
Clear Channel Communications, Inc., 6.25%, 2011 1,240,000 1,206,673
Clear Channel Communications, Inc., 5.5%, 2014 640,000 556,693
Grupo Televisa S.A., 8.5%, 2032 962,000 1,202,017
Intelsat Bermuda Ltd., 9.25%, 2016 1,440,000 1,594,800
Intelsat Bermuda Ltd., 11.25%, 2016 250,000 285,625
Intelsat Subsidiary Holding Co. Ltd., 8.625%, 2015 340,000 364,225
Lamar Media Corp., 7.25%, 2013 675,000 693,563
News America Holdings, 7.7%, 2025 1,140,000 1,275,098
News America, Inc., 6.2%, 2034 542,000 516,971
Univision Communications, Inc., 9.75%, 2015 (n)(p) 575,000 595,125
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$ 9,911,748
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Brokerage & Asset Managers - 1.0%
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Goldman Sachs Group, Inc., 5.625%, 2017 $ 3,387,000 $ 3,315,124
INVESCO PLC, 5.625%, 2012 1,440,000 1,430,836
Morgan Stanley, 5.75%, 2016 662,000 656,534
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$ 5,402,494
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Building - 0.1%
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Nortek Holdings, Inc., 8.5%, 2014 $ 405,000 $ 401,963
----------------------------------------------------------------------------------------------------------------
Business Services - 0.5%
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Iron Mountain, Inc., 7.75%, 2015 $ 175,000 $ 180,250
SunGard Data Systems, Inc., 10.25%, 2015 485,000 530,469
Xerox Corp., 6.4%, 2016 2,000,000 2,034,644
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$ 2,745,363
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Cable TV - 0.6%
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CCH II Holdings LLC, 10.25%, 2010 $ 255,000 $ 271,575
CCO Holdings LLC, 8.75%, 2013 480,000 504,000
Rogers Cable, Inc., 5.5%, 2014 1,025,000 1,003,830
TCI Communications, Inc., 9.8%, 2012 1,169,000 1,360,994
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$ 3,140,399
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Chemicals - 0.9%
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Equistar Chemicals LP, 10.125%, 2008 $ 214,000 $ 225,235
Momentive Performance Materials, Inc., 11.5%, 2016 (n) 550,000 577,500
Mosaic Co., 7.625%, 2016 (n) 1,725,000 1,832,813
Nalco Co., 8.875%, 2013 45,000 48,263
Yara International A.S.A., 5.25%, 2014 (n) 2,000,000 1,906,438
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$ 4,590,249
----------------------------------------------------------------------------------------------------------------
Computer Software - 0.2%
----------------------------------------------------------------------------------------------------------------
Seagate Technology HDD Holdings, 6.375%, 2011 $ 1,200,000 $ 1,188,000
----------------------------------------------------------------------------------------------------------------
Conglomerates - 0.2%
----------------------------------------------------------------------------------------------------------------
Kennametal, Inc., 7.2%, 2012 $ 1,140,000 $ 1,200,631
----------------------------------------------------------------------------------------------------------------
Construction - 0.1%
----------------------------------------------------------------------------------------------------------------
Beazer Homes USA, Inc., 6.875%, 2015 $ 485,000 $ 453,475
----------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.5%
----------------------------------------------------------------------------------------------------------------
Corrections Corp. of America, 6.25%, 2013 $ 305,000 $ 301,569
Fortune Brands, Inc., 5.125%, 2011 1,150,000 1,126,235
Jarden Corp., 7.5%, 2017 445,000 453,900
Service Corp. International, 7.625%, 2018 120,000 127,200
Service Corp. International, 7%, 2017 540,000 536,625
Visant Holding Corp., 8.75%, 2013 261,000 272,745
------------
$ 2,818,274
----------------------------------------------------------------------------------------------------------------
Containers - 0.7%
----------------------------------------------------------------------------------------------------------------
Berry Plastics Holding Corp., 8.875%, 2014 $ 250,000 $ 256,250
Crown Americas LLC, 7.75%, 2015 565,000 590,425
Greif, Inc., 6.75%, 2017 (n) 1,220,000 1,232,200
Owens-Brockway Glass Container, Inc., 8.875%, 2009 378,000 386,505
Owens-Brockway Glass Container, Inc., 8.25%, 2013 865,000 912,575
------------
$ 3,377,955
----------------------------------------------------------------------------------------------------------------
Defense Electronics - 1.1%
----------------------------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 4.75%, 2010 (n) $ 790,000 $ 772,608
BAE Systems Holdings, Inc., 5.2%, 2015 (n) 2,000,000 1,927,476
L-3 Communications Corp., 5.875%, 2015 1,350,000 1,316,250
L-3 Communications Corp., 6.375%, 2015 1,500,000 1,496,250
------------
$ 5,512,584
----------------------------------------------------------------------------------------------------------------
Electronics - 0.1%
----------------------------------------------------------------------------------------------------------------
NXP B.V./NXP Funding LLC, 7.875%, 2014 (n) $ 300,000 $ 309,000
----------------------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 1.7%
----------------------------------------------------------------------------------------------------------------
Banco do Brasil S.A., 7.95%, 2049 (n) $ 161,000 $ 167,038
Corporacion Nacional del Cobre, 5.625%, 2035 1,900,000 1,788,945
Gazprom International S.A., 7.201%, 2020 1,054,852 1,104,325
Gazprom International S.A., 6.51%, 2022 (n) 1,300,000 1,322,750
Majapahit Holding B.V., 7.75%, 2016 (n) 119,000 125,545
Pemex Project Funding Master Trust, 8.625%, 2022 1,218,000 1,534,680
Ras Laffan Liquefied Natural Gas Co. Ltd., 8.294%, 2014 (n) 2,490,000 2,743,268
------------
$ 8,786,551
----------------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 2.7%
----------------------------------------------------------------------------------------------------------------
Federative Republic of Brazil, 6%, 2017 $ 3,170,000 $ 3,190,605
Peru Enhanced Pass-Through Trust, 0%, 2018 (z) 250,000 170,000
Republic of Argentina, FRN, 10.125%, 2007 ARS 3,833,000 1,257,116
Republic of Argentina, FRN, 5.475%, 2012 2,515,500 2,413,203
Republic of Colombia, FRN, 7.16%, 2015 1,520,000 1,649,200
Republic of Indonesia, 6.875%, 2017 (n) 171,000 181,688
Republic of Panama, 9.375%, 2029 1,121,000 1,525,681
Republic of Panama, 6.7%, 2036 580,000 609,000
Republic of Philippines, 9.375%, 2017 449,000 553,393
Republic of South Africa, 5.875%, 2022 1,516,000 1,523,580
United Mexican States, 6.75%, 2034 1,093,000 1,216,509
------------
$ 14,289,975
----------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.6%
----------------------------------------------------------------------------------------------------------------
Chaparral Energy, Inc., 8.875%, 2017 (n) $ 380,000 $ 385,700
Chesapeake Energy Corp., 6.875%, 2016 1,070,000 1,086,050
Hilcorp Energy I LP, 7.75%, 2015 (n) 135,000 135,675
Newfield Exploration Co., 6.625%, 2014 480,000 482,400
Plains Exploration & Production Co., 7%, 2017 425,000 422,875
Quicksilver Resources, Inc., 7.125%, 2016 400,000 397,000
------------
$ 2,909,700
----------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.4%
----------------------------------------------------------------------------------------------------------------
Petroleum Co. of Trinidad & Tobago Ltd., 6%, 2022 (z) $ 860,000 $ 845,638
TNK-BP Finance S.A., 7.5%, 2016 (n) 1,211,000 1,270,339
------------
$ 2,115,977
----------------------------------------------------------------------------------------------------------------
Entertainment - 0.4%
----------------------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 11%, 2016 $ 200,000 $ 228,250
Turner Broadcasting System, Inc., 8.375%, 2013 1,784,000 2,006,297
------------
$ 2,234,547
----------------------------------------------------------------------------------------------------------------
Financial Institutions - 2.0%
----------------------------------------------------------------------------------------------------------------
Capmark Financial Group, Inc., 5.875%, 2012 (z) $ 940,000 $ 933,355
Countrywide Financial Corp., 6.25%, 2016 1,250,000 1,257,661
General Motors Acceptance Corp., 5.85%, 2009 1,842,000 1,827,667
General Motors Acceptance Corp., 6.875%, 2011 1,875,000 1,889,141
General Motors Acceptance Corp., 6.75%, 2014 1,186,000 1,182,198
GMAC LLC, 6.125%, 2008 234,000 233,483
HSBC Finance Corp., 5.5%, 2016 1,481,000 1,452,569
Residential Capital LLC, 6.5%, 2012 450,000 447,530
Residential Capital LLC, 6.875%, 2015 1,510,000 1,517,770
------------
$ 10,741,374
----------------------------------------------------------------------------------------------------------------
Food & Beverages - 0.6%
----------------------------------------------------------------------------------------------------------------
ARAMARK Corp., 8.5%, 2015 (n) $ 610,000 $ 641,263
B&G Foods Holding Corp., 8%, 2011 170,000 172,975
Dean Foods Co., 7%, 2016 545,000 543,638
Del Monte Corp., 6.75%, 2015 125,000 125,000
Tyson Foods, Inc., 6.85%, 2016 1,520,000 1,573,142
------------
$ 3,056,018
----------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.5%
----------------------------------------------------------------------------------------------------------------
Buckeye Technologies, Inc., 8.5%, 2013 $ 460,000 $ 481,850
MDP Acquisitions PLC, 9.625%, 2012 29,000 30,595
Norske Skog Canada Ltd., 7.375%, 2014 695,000 655,906
Stora Enso Oyj, 6.404%, 2016 (n) 1,560,000 1,571,575
------------
$ 2,739,926
----------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.2%
----------------------------------------------------------------------------------------------------------------
Caesars Entertainment, Inc., 8.125%, 2011 $ 730,000 $ 772,888
Great Canadian Gaming Corp., 7.25%, 2015 (n) 430,000 435,375
Harrah's Entertainment, Inc., 5.75%, 2017 260,000 215,800
Host Marriott LP, 6.75%, 2016 1,000,000 1,013,750
Mandalay Resort Group, 9.375%, 2010 450,000 482,625
MGM Mirage, Inc., 8.375%, 2011 1,155,000 1,206,975
MGM Mirage, Inc., 6.75%, 2013 230,000 225,975
Scientific Games Corp., 6.25%, 2012 380,000 373,350
Station Casinos, Inc., 6.5%, 2014 430,000 398,288
Wimar Opco LLC, 9.625%, 2014 (n) 585,000 590,850
Wyndham Worldwide Corp., 6%, 2016 (n) 270,000 262,964
Wynn Las Vegas LLC, 6.625%, 2014 365,000 366,369
------------
$ 6,345,209
----------------------------------------------------------------------------------------------------------------
Industrial - 0.1%
----------------------------------------------------------------------------------------------------------------
JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 $ 310,000 $ 323,950
----------------------------------------------------------------------------------------------------------------
Insurance - 0.0%
----------------------------------------------------------------------------------------------------------------
American International Group, Inc., 6.25%, 2037 $ 210,000 $ 202,966
----------------------------------------------------------------------------------------------------------------
Insurance - Health - 0.0%
----------------------------------------------------------------------------------------------------------------
Centene Corp., 7.25%, 2014 (n) $ 215,000 $ 217,150
----------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 1.2%
----------------------------------------------------------------------------------------------------------------
AXIS Capital Holdings Ltd., 5.75%, 2014 $ 1,689,000 $ 1,654,659
Fund American Cos., Inc., 5.875%, 2013 1,351,000 1,332,128
USI Holdings Corp., FRN, 9.23%, 2014 (n) 1,005,000 1,007,513
ZFS Finance USA Trust V, FRN, 6.5%, 2037 (z) 2,490,000 2,455,557
------------
$ 6,449,857
----------------------------------------------------------------------------------------------------------------
International Market Quasi-Sovereign - 5.7%
----------------------------------------------------------------------------------------------------------------
Canada Housing Trust, 4.6%, 2011 CAD 654,000 $ 610,123
Development Bank of Japan, 1.75%, 2010 JPY 307,000,000 2,568,615
Development Bank of Japan, 1.4%, 2012 JPY 462,000,000 3,807,060
Development Bank of Japan, 1.05%, 2023 JPY 654,000,000 4,592,293
Development Bank of Japan, 2.3%, 2026 JPY 190,000,000 1,589,169
Japan Finance Corp. for Municipal Enterprises, 1.55%, 2012 JPY 463,000,000 3,850,183
Japan Finance Corp. for Municipal Enterprises, 2%, 2016 JPY 850,000,000 7,136,843
KfW Bankengruppe, 1.35%, 2014 JPY 723,000,000 5,870,013
------------
$ 30,024,299
----------------------------------------------------------------------------------------------------------------
International Market Sovereign - 12.0%
----------------------------------------------------------------------------------------------------------------
Commonwealth of Australia, 6%, 2017 AUD 566,000 $ 468,000
Federal Republic of Germany, 5.25%, 2010 EUR 3,351,000 4,614,418
Federal Republic of Germany, 3.75%, 2015 EUR 1,686,000 2,172,519
Federal Republic of Germany, 6.25%, 2030 EUR 2,593,000 4,300,478
Government of Canada, 5.5%, 2009 CAD 1,305,000 1,241,535
Government of Canada, 4.5%, 2015 CAD 216,000 202,147
Government of Canada, 8%, 2023 CAD 132,000 172,868
Government of Canada, 5.75%, 2033 CAD 236,000 267,016
Kingdom of Denmark, 4%, 2015 DKK 6,915,000 1,210,353
Kingdom of Netherlands, 3.75%, 2009 EUR 6,183,000 8,209,912
Kingdom of Netherlands, 3.75%, 2014 EUR 1,787,000 2,306,847
Kingdom of Netherlands, 4%, 2016 EUR 1,321,000 1,719,167
Kingdom of Spain, 5.35%, 2011 EUR 4,570,000 6,367,291
Republic of Austria, 4.65%, 2018 EUR 4,347,000 5,935,873
Republic of France, 4.75%, 2012 EUR 1,281,000 1,749,339
Republic of France, 5%, 2016 EUR 2,150,000 3,013,632
Republic of France, 6%, 2025 EUR 874,000 1,381,898
Republic of France, 4.75%, 2035 EUR 3,517,000 4,858,431
Republic of Ireland, 3.25%, 2009 EUR 2,640,000 3,478,709
Republic of Ireland, 4.6%, 2016 EUR 3,420,000 4,654,032
United Kingdom Treasury, 8%, 2015 GBP 486,000 1,136,529
United Kingdom Treasury, 8%, 2021 GBP 534,000 1,357,133
United Kingdom Treasury, 4.25%, 2036 GBP 1,346,000 2,502,209
------------
$ 63,320,336
----------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.2%
----------------------------------------------------------------------------------------------------------------
Case Corp., 7.25%, 2016 $ 470,000 $ 493,500
Case New Holland, Inc., 7.125%, 2014 380,000 397,100
Manitowoc Co., Inc., 10.5%, 2012 331,000 350,033
------------
$ 1,240,633
----------------------------------------------------------------------------------------------------------------
Major Banks - 0.8%
----------------------------------------------------------------------------------------------------------------
BNP Paribas, 5.186% to 2015, FRN to 2049 (n) $ 1,667,000 $ 1,577,886
HBOS Capital Funding LP, 6.071% to 2014, FRN to 2049 (n) 1,330,000 1,339,721
MUFG Capital Finance 1 Ltd., 6.346% to 2016, FRN to 2049 1,408,000 1,412,223
------------
$ 4,329,830
----------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 2.0%
----------------------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc., 7.5%, 2017 (n) $ 345,000 $ 340,256
Cooper Cos., Inc., 7.125%, 2015 (n) 655,000 668,100
DaVita, Inc., 6.625%, 2013 170,000 170,850
DaVita, Inc., 7.25%, 2015 555,000 568,875
Fisher Scientific International, Inc., 6.125%, 2015 1,500,000 1,492,374
HCA, Inc., 8.75%, 2010 630,000 669,375
HCA, Inc., 6.375%, 2015 160,000 141,200
HCA, Inc., 9.25%, 2016 (n) 780,000 855,075
Hospira, Inc., 5.55%, 2012 360,000 357,862
Hospira, Inc., 6.05%, 2017 1,091,000 1,087,671
Omnicare, Inc., 6.875%, 2015 670,000 659,950
Owens & Minor, Inc., 6.35%, 2016 970,000 964,077
Tenet Healthcare Corp., 9.25%, 2015 2,635,000 2,628,413
------------
$ 10,604,078
----------------------------------------------------------------------------------------------------------------
Metals & Mining - 1.3%
----------------------------------------------------------------------------------------------------------------
Arch Western Finance LLC, 6.75%, 2013 $ 630,000 $ 627,638
Chaparral Steel Co., 10%, 2013 515,000 574,225
FMG Finance Ltd., 10.625%, 2016 (n) 650,000 780,813
Freeport-McMoRan Copper & Gold, Inc., 8.25%, 2015 370,000 399,138
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 2017 640,000 699,200
International Steel Group, Inc., 6.5%, 2014 1,300,000 1,335,538
Ispat Inland ULC, 9.75%, 2014 1,200,000 1,325,725
Peabody Energy Corp., 5.875%, 2016 425,000 409,594
Peabody Energy Corp., "B", 6.875%, 2013 465,000 470,813
U.S. Steel Corp., 9.75%, 2010 413,000 435,715
------------
$ 7,058,399
----------------------------------------------------------------------------------------------------------------
Mortgage Backed - 14.4%
----------------------------------------------------------------------------------------------------------------
Fannie Mae, 3.81%, 2013 $ 568,777 $ 525,629
Fannie Mae, 4.1%, 2013 919,669 862,053
Fannie Mae, 4.19%, 2013 783,380 735,851
Fannie Mae, 4.845%, 2013 247,698 241,125
Fannie Mae, 4.545%, 2014 734,716 704,286
Fannie Mae, 4.6%, 2014 748,369 714,699
Fannie Mae, 4.666%, 2014 1,304,543 1,258,869
Fannie Mae, 4.77%, 2014 583,822 563,699
Fannie Mae, 4.56%, 2015 313,775 297,421
Fannie Mae, 4.665%, 2015 254,180 242,315
Fannie Mae, 4.7%, 2015 242,545 231,699
Fannie Mae, 4.74%, 2015 599,291 575,975
Fannie Mae, 4.78%, 2015 701,087 671,730
Fannie Mae, 4.815%, 2015 600,000 578,804
Fannie Mae, 4.87%, 2015 512,296 494,133
Fannie Mae, 4.89%, 2015 170,946 165,127
Fannie Mae, 4.925%, 2015 1,906,705 1,860,708
Fannie Mae, 6%, 2016 - 2037 7,355,190 7,396,121
Fannie Mae, 5.5%, 2019 - 2035 45,822,697 44,927,079
Fannie Mae, 4.88%, 2020 544,282 532,720
Fannie Mae, 6.5%, 2032 - 2033 2,809,958 2,880,298
Freddie Mac, 5%, 2024 340,648 338,181
Freddie Mac, 5.5%, 2034 7,023,336 6,877,127
Freddie Mac, 6%, 2034 1,908,974 1,917,723
------------
$ 75,593,372
----------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.2%
----------------------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 7.25%, 2015 $ 470,000 $ 479,400
AmeriGas Partners LP, 7.125%, 2016 175,000 177,188
Inergy LP, 6.875%, 2014 270,000 267,300
------------
$ 923,888
----------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.5%
----------------------------------------------------------------------------------------------------------------
Atlas Pipeline Partners LP, 8.125%, 2015 $ 1,080,000 $ 1,123,200
CenterPoint Energy Resources Corp., 7.875%, 2013 1,600,000 1,764,194
El Paso Performance-Linked Trust, CLN, 7.75%, 2011 (n) 1,060,000 1,120,950
Intergas Finance B.V., 6.375%, 2017 (z) 700,000 688,100
Magellan Midstream Partners LP, 5.65%, 2016 311,000 302,830
Spectra Energy Capital LLC, 8%, 2019 1,350,000 1,515,179
Williams Cos., Inc., 8.75%, 2032 1,010,000 1,201,900
Williams Partners LP, 7.25%, 2017 370,000 392,200
------------
$ 8,108,553
----------------------------------------------------------------------------------------------------------------
Network & Telecom - 1.7%
----------------------------------------------------------------------------------------------------------------
Citizens Communications Co., 9.25%, 2011 $ 815,000 $ 900,575
Citizens Communications Co., 9%, 2031 405,000 438,413
Nordic Telephone Co. Holdings, 8.875%, 2016 (n) 305,000 330,544
Qwest Corp., 7.875%, 2011 860,000 909,450
Qwest Corp., 8.875%, 2012 450,000 493,875
Telefonica Europe B.V., 7.75%, 2010 1,000,000 1,063,659
TELUS Corp., 8%, 2011 1,299,000 1,389,518
Verizon New York, Inc., 6.875%, 2012 2,542,000 2,648,856
Windstream Corp., 8.625%, 2016 495,000 540,788
Windstream Corp., 7%, 2019 (n) 180,000 179,325
------------
$ 8,895,003
----------------------------------------------------------------------------------------------------------------
Oil Services - 0.2%
----------------------------------------------------------------------------------------------------------------
Basic Energy Services, Inc., 7.125%, 2016 $ 295,000 $ 292,050
Compagnie Generale de Geophysique-Veritas, 7.75%, 2017 370,000 390,350
GulfMark Offshore, Inc., 7.75%, 2014 435,000 445,875
------------
$ 1,128,275
----------------------------------------------------------------------------------------------------------------
Oils - 0.7%
----------------------------------------------------------------------------------------------------------------
Premcor Refining Group, Inc., 7.5%, 2015 $ 3,550,000 $ 3,701,972
----------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 3.5%
----------------------------------------------------------------------------------------------------------------
Alfa Diversified Payment Rights Finance Co., FRN,
7.2549%, 2011 (n) $ 2,366,450 $ 2,366,450
Banco BMG S.A., 9.15%, 2016 (n) 982,000 1,063,015
Banco de Credito del Peru, FRN, 6.95%, 2021 (n) 347,000 347,162
Banco do Estado de Sao Paulo S.A., 8.7%, 2049 (n) 1,400,000 1,483,300
Banco Mercantil del Norte S.A., 5.875% to 2009, FRN to 2014 (n) 808,000 810,020
Bosphorus Financial Services Ltd., FRN, 7.16%, 2012 (z) 1,500,000 1,515,147
DFS Funding Corp., FRN, 7.3549%, 2010 (z) 1,750,000 1,750,000
HSBK Europe B.V., 7.25%, 2017 (n) 1,483,000 1,449,633
ICICI Bank Ltd., FRN, 6.375%, 2022 (n) 141,000 137,492
Mizuho Capital Investment 1 Ltd., 6.686% to 2016, FRN to 2049 (n) 3,800,000 3,834,177
Resona Bank Ltd., 5.85% to 2016, FRN to 2049 (n) 655,000 642,086
Russian Standard Finance S.A., 8.125%, 2008 (n) 682,000 686,092
Russian Standard Finance S.A., 7.5%, 2010 (n) 176,000 173,941
Russian Standard Finance S.A., 8.625%, 2011 (n) 498,000 507,338
Woori Bank, 6.125% to 2011, FRN to 2016 (n) 1,490,000 1,506,687
------------
$ 18,272,540
----------------------------------------------------------------------------------------------------------------
Precious Metals & Minerals - 0.6%
----------------------------------------------------------------------------------------------------------------
Alrosa Finance S.A., 8.875%, 2014 $ 2,880,000 $ 3,287,808
----------------------------------------------------------------------------------------------------------------
Printing & Publishing - 1.1%
----------------------------------------------------------------------------------------------------------------
American Media Operations, Inc., 10.25%, 2009 $ 375,000 $ 367,969
Dex Media West LLC, 9.875%, 2013 1,527,000 1,658,704
Idearc, Inc., 8%, 2016 (n) 2,130,000 2,207,213
R.H. Donnelley Corp., 8.875%, 2016 1,535,000 1,653,963
------------
$ 5,887,849
----------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.4%
----------------------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 9.375%, 2012 $ 2,100,000 $ 2,268,000
----------------------------------------------------------------------------------------------------------------
Real Estate - 0.7%
----------------------------------------------------------------------------------------------------------------
HRPT Properties Trust, REIT, 6.25%, 2016 $ 1,422,000 $ 1,444,790
Kimco Realty Corp., REIT, 5.783%, 2016 710,000 708,564
Simon Property Group LP, REIT, 5.875%, 2017 1,260,000 1,267,757
------------
$ 3,421,111
----------------------------------------------------------------------------------------------------------------
Retailers - 0.6%
----------------------------------------------------------------------------------------------------------------
Couche-Tard, Inc., 7.5%, 2013 $ 420,000 $ 434,700
Dollar General Corp., 8.625%, 2010 315,000 335,081
Federated Retail Holdings, Inc., 5.35%, 2012 200,000 196,761
Gap, Inc., 9.8%, 2008 940,000 995,233
Home Depot, Inc., 5.4%, 2016 1,250,000 1,203,550
------------
$ 3,165,325
----------------------------------------------------------------------------------------------------------------
Specialty Stores - 0.1%
----------------------------------------------------------------------------------------------------------------
GSC Holdings Corp., 8%, 2012 $ 220,000 $ 234,300
Payless ShoeSource, Inc., 8.25%, 2013 65,000 66,950
------------
$ 301,250
----------------------------------------------------------------------------------------------------------------
Supermarkets - 0.1%
----------------------------------------------------------------------------------------------------------------
Stater Brothers Holdings, Inc., 7.75%, 2015 (n) $ 220,000 $ 228,800
SUPERVALU, Inc., 7.5%, 2014 315,000 330,750
------------
$ 559,550
----------------------------------------------------------------------------------------------------------------
Supranational - 0.3%
----------------------------------------------------------------------------------------------------------------
Central American Bank, 4.875%, 2012 (n) $ 1,426,000 $ 1,372,708
----------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.5%
----------------------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 8.75%, 2031 $ 1,500,000 $ 1,921,577
Centennial Communications Corp., 10.125%, 2013 240,000 259,500
Cingular Wireless LLC, 6.5%, 2011 1,700,000 1,770,113
Globo Comunicacoes Participacao, 7.25%, 2022 (z) 100,000 99,250
Nextel Communications, Inc., 5.95%, 2014 1,295,000 1,257,540
OJSC Vimpel Communications, 8.25%, 2016 2,036,000 2,186,868
Rogers Wireless, Inc., 7.5%, 2015 450,000 490,181
------------
$ 7,985,029
----------------------------------------------------------------------------------------------------------------
Telephone Services - 0.3%
----------------------------------------------------------------------------------------------------------------
Embarq Corp., 7.082%, 2016 $ 1,740,000 $ 1,772,343
----------------------------------------------------------------------------------------------------------------
Transportation - Services - 0.2%
----------------------------------------------------------------------------------------------------------------
Hertz Corp., 8.875%, 2014 $ 315,000 $ 339,019
Stena AB, 7%, 2016 305,000 306,525
Westinghouse Air Brake Technologies Corp., 6.875%, 2013 370,000 373,700
------------
$ 1,019,244
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 14.1%
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 10.625%, 2015 $ 3,350,000 $ 4,635,824
U.S. Treasury Bonds, 6.25%, 2023 (f) 8,000,000 8,998,128
U.S. Treasury Bonds, 5.375%, 2031 477,000 497,459
U.S. Treasury Bonds, 4.5%, 2036 158,000 145,446
U.S. Treasury Bonds, 4.75%, 2037 4,977,000 4,774,421
U.S. Treasury Notes, 12%, 2013 4,500,000 4,868,087
U.S. Treasury Notes, 4.25%, 2013 13,765,000 13,316,564
U.S. Treasury Notes, 4.25%, 2014 2,500,000 2,401,953
U.S. Treasury Notes, 4.125%, 2015 1,285,000 1,220,047
U.S. Treasury Notes, 9.875%, 2015 5,025,000 6,742,530
U.S. Treasury Notes, 4.5%, 2016 9,433,000 9,177,281
U.S. Treasury Notes, 6.375%, 2027 2,350,000 2,724,165
U.S. Treasury Notes, TIPS, 2%, 2014 11,285,944 10,935,019
U.S. Treasury Notes, TIPS, 1.625%, 2015 3,876,955 3,638,282
------------
$ 74,075,206
----------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.7%
----------------------------------------------------------------------------------------------------------------
AES Corp., 9.375%, 2010 $ 425,000 $ 465,375
Allegheny Energy Supply Co. LLC, 8.25%, 2012 (n) 370,000 402,375
Edison Mission Energy, 7.625%, 2027 (n) 105,000 106,313
Empresa Nacional de Electricidad S.A., 8.35%, 2013 1,269,000 1,416,370
Enersis S.A., 7.375%, 2014 1,273,000 1,359,252
Exelon Generation Co. LLC, 6.95%, 2011 2,486,000 2,595,561
FirstEnergy Corp., 6.45%, 2011 1,699,000 1,755,798
HQI Transelec Chile S.A., 7.875%, 2011 1,500,000 1,589,724
ISA Capital do Brasil S.A., 7.875%, 2012 (n) 461,000 470,796
ISA Capital do Brasil S.A., 8.8%, 2017 (n) 754,000 811,493
Mirant Americas Generation LLC, 8.3%, 2011 100,000 106,500
Mirant North American LLC, 7.375%, 2013 710,000 750,825
NorthWestern Corp., 5.875%, 2014 1,435,000 1,404,048
NRG Energy, Inc., 7.375%, 2016 2,630,000 2,728,625
Reliant Resources, Inc., 9.25%, 2010 200,000 209,750
System Energy Resources, Inc., 5.129%, 2014 (n) 2,029,752 1,965,327
TXU Energy Co., 7%, 2013 1,220,000 1,257,753
------------
$ 19,395,885
----------------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $503,880,047) $500,976,031
----------------------------------------------------------------------------------------------------------------
Floating Rate Loans - 0.7% (g)(r)
----------------------------------------------------------------------------------------------------------------
Automotive - 0.1%
----------------------------------------------------------------------------------------------------------------
Ford Motor Co., Term Loan B, 8.36%, 2013 $ 560,922 $ 565,216
----------------------------------------------------------------------------------------------------------------
Broadcasting - 0.0%
----------------------------------------------------------------------------------------------------------------
Gray Television, Inc., Delayed Draw Term Loan, 6.8517%, 2014 $ 189,537 $ 189,260
----------------------------------------------------------------------------------------------------------------
Cable TV - 0.1%
----------------------------------------------------------------------------------------------------------------
Charter Communications Operating LLC, Term Loan, 7.35%, 2013 $ 87,744 $ 87,737
CSC Holdings, Inc., Incremental Term Loan, 7.07%, 2013 336,967 337,437
Mediacom Illinois LLC, Term Loan A, 6.855%, 2012 302,299 300,284
------------
$ 725,458
----------------------------------------------------------------------------------------------------------------
Chemicals - 0.1%
----------------------------------------------------------------------------------------------------------------
Celanese AG, Term Loan B, 7.0994%, 2014 $ 361,539 $ 363,572
----------------------------------------------------------------------------------------------------------------
Food & Beverages - 0.1%
----------------------------------------------------------------------------------------------------------------
Dean Foods Co., Term Loan B, 6.875%, 2014 $ 284,165 $ 284,876
----------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.1%
----------------------------------------------------------------------------------------------------------------
HCA, Inc., Term Loan B, 7.6%, 2013 $ 310,224 $ 313,590
----------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.0%
----------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 2014 (o) $ 100,462 $ 100,964
----------------------------------------------------------------------------------------------------------------
Pollution Control - 0.1%
----------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., Credit Linked Deposit, 7.07%, 2014 $ 134,879 $ 135,602
Allied Waste North America, Inc., Term Loan, 7.0943%, 2014 271,172 272,528
------------
$ 408,130
----------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.1%
----------------------------------------------------------------------------------------------------------------
Idearc, Inc., Term Loan B, 7.35%, 2014 $ 449,758 $ 452,957
----------------------------------------------------------------------------------------------------------------
TOTAL FLOATING RATE LOANS (IDENTIFIED COST, $3,392,758) $ 3,404,023
----------------------------------------------------------------------------------------------------------------
Common Stocks - 0.0%
----------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.0%
----------------------------------------------------------------------------------------------------------------
Golden Books Family Entertainment, Inc. (Identified Cost, $0) (a) 3,683 $ 0
----------------------------------------------------------------------------------------------------------------
Repurchase Agreements - 2.6%
----------------------------------------------------------------------------------------------------------------
Merrill Lynch, 5.31%, dated 5/31/07, due 6/01/07, total to be
received $13,850,043 (secured by various U.S. Treasury and
Federal Agency obligations and Mortgage Backed securities in a
jointly traded account), at Cost $ 13,848,000 $ 13,848,000
----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $521,120,805) (k) $518,228,054
----------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.5% 7,972,573
----------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $526,200,627
----------------------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(f) All or a portion of the security has been segregated as collateral for an open futures contract.
(g) The rate shown represents a weighted average coupon rate on settled positions at period end.
(i) Interest only security for which the trust receives interest on notional principal (Par amount). Par amount
shown is the notional principal and does not reflect the cost of the security.
(k) As of May 31, 2007, the trust held securities fair valued in accordance with the policies adopted by the
Board of Trustees, aggregating $490,500,558 and 94.65% of market value. An independent pricing service
provided an evaluated bid for 93.64% of the market value.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be
sold in the ordinary course of business in transactions exempt from registration, normally to qualified
institutional buyers. At period end, the aggregate value of these securities was $55,082,983, representing
10.5% of net assets.
(o) All or a portion of this position has not settled. Upon settlement date, interest rates will be determined.
(p) Payment-in-kind security.
(r) Remaining maturities of floating rate loans may be less than stated maturities shown as a result of
contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty.
These loans may be subject to restrictions on resale. Floating rate loans generally have rates of interest
which are determined periodically by reference to a base lending rate plus a premium.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal
restrictions on resale. These securities generally may be resold in transactions exempt from registration
or to the public if the securities are subsequently registered. Disposal of these securities may involve
time-consuming negotiations and prompt sale at an acceptable price may be difficult. The trust holds the
following restricted securities:
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
RESTRICTED SECURITIES DATE COST VALUE NET ASSETS
------------------------------------------------------------------------------------------------------------
Bayview Financial Revolving Mortgage Loan
Trust, FRN, 6.12%, 2040 3/01/06 $1,160,000 $1,159,995
Bosphorus Financial Services Ltd., FRN,
7.16%, 2012 3/08/05 1,500,000 1,515,147
Capmark Financial Group, Inc.,
5.875%, 2012 5/03/07 939,596 933,355
DFS Funding Corp., FRN, 7.3549%, 2010 6/24/05 1,750,000 1,750,000
Globo Comunicacoes Participacao,
7.25%, 2022 4/19/07 100,000 99,250
Hawker Beechcraft Acquisition Corp.,
8.5%, 2015 5/30/07 423,000 422,000
Intergas Finance B.V., 6.375%, 2017 5/03/07 693,637 688,100
Peru Enhanced Pass-Through Trust,
0%, 2018 12/14/06 160,025 170,000
Petroleum Co. of Trinidad & Tobago Ltd.,
6%, 2022 5/01/07 856,379 845,638
Spirit Master Funding LLC, 5.05%, 2023 7/15/05 1,837,972 1,740,392
ZFS Finance USA Trust V, FRN, 6.5%, 2037 5/03/07 2,503,058 2,455,557
------------------------------------------------------------------------------------------------------------
Total Restricted Securities $11,779,434 2.2%
=======================
The following abbreviations are used in this report and are defined:
CLN Credit-Linked Note
CDO Collateralized Debt Obligation
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.
REIT Real Estate Investment Trust
TIPS Treasury Inflation Protected Security
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S.
dollars unless otherwise indicated. A list of abbreviations is shown below:
ARS Argentine Peso
AUD Australian Dollar
CAD Canadian Dollar
CHF Swiss Franc
CNY Chinese Yuan Renminbi
DKK Danish Krone
EUR Euro
GBP British Pound
JPY Japanese Yen
MXN Mexican Peso
SGD Singapore Dollar
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AT 5/31/07
Appreciation and Depreciation in the table below are reported by currency.
NET
UNREALIZED
CONTRACTS TO SETTLEMENT IN EXCHANGE CONTRACTS APPRECIATION
TYPE CURRENCY DELIVER/RECEIVE DATE RANGE FOR AT VALUE (DEPRECIATION)
------------------------------------------------------------------------------------------------------------------
APPRECIATION
------------------------------------------------------------------------------------------------------------------
BUY AUD 535,309 6/04/2007 $ 440,045 $ 443,269 $ 3,224
SELL AUD 175,189 6/04/2007 146,283 145,067 1,216
BUY CAD 120,500 7/23/2007 112,370 112,848 478
BUY CHF 1,609,543 8/03/2007 1,318,918 1,320,602 1,684
SELL EUR 1,951,722 6/20/2007 2,659,615 2,627,894 31,721
SELL GBP 5,820,703 6/20/2007 11,667,134 11,520,711 146,423
BUY MXN 15,003,236 6/04/2007 1,376,127 1,396,521 20,394
SELL MXN 15,003,236 6/04/2007 1,396,949 1,396,521 428
---------
$ 205,568
=========
DEPRECIATION
------------------------------------------------------------------------------------------------------------------
BUY AUD 3,612,235 6/04/2007 $3,000,719 $2,991,158 $ (9,561)
6/04/2007 -
SELL AUD 4,507,663 8/03/2007 3,702,607 3,731,920 (29,313)
SELL CAD 2,853,547 7/23/2007 2,636,339 2,672,350 (36,011)
BUY CHF 1,609,543 6/04/2007 1,329,807 1,314,091 (15,716)
SELL CHF 1,609,543 6/04/2007 1,312,520 1,314,091 (1,571)
BUY CNY 42,072,400 7/30/2007 5,545,327 5,540,868 (4,459)
BUY DKK 875,300 6/13/2007 160,000 158,168 (1,832)
SELL DKK 7,825,347 6/13/2007 1,412,263 1,414,054 (1,791)
BUY EUR 330,000 6/20/2007 449,927 444,328 (5,599)
SELL EUR 40,096,864 6/20/2007 53,540,540 53,988,390 (447,850)
BUY GBP 3,218,527 6/20/2007 6,452,902 6,370,317 (82,585)
6/20/2007 -
BUY JPY 256,152,554 7/17/2007 2,135,145 2,113,064 (22,081)
BUY MXN 15,003,236 7/5/2007 1,394,456 1,394,007 (449)
BUY SGD 3,931,076 6/07/2007 2,587,767 2,572,260 (15,507)
---------
$(674,325)
=========
At May 31, 2007, forward foreign currency purchases and sales under master netting agreements excluded above
amounted to a net receivable of $408,239 with Merrill Lynch International Bank.
FUTURES CONTRACTS OUTSTANDING AT 5/31/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note 10 yr (Short) 260 $27,657,500 Sep-07 $88,465
U.S. Treasury Note 30 yr (Long) 97 10,585,125 Sep-07 (13,980)
-------
$74,485
=======
SWAP AGREEMENTS AT 5/31/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------
CREDIT DEFAULT SWAPS
6/20/09 USD 200,000 JPMorgan Chase Bank 4.1% (1) $(1,429)
(fixed rate)
4/20/12 USD 1,320,000 Morgan Stanley (2) 2.08% (14,547)
Capital Services, Inc. (fixed rate)
3/20/17 USD 1,350,000 JPMorgan Chase Bank 0.49% (3) (3,092)
(fixed rate)
3/20/17 USD 1,350,000 JPMorgan Chase Bank (4) 0.38% 13,994
(fixed rate)
3/20/17 USD 1,040,000 Goldman Sachs International (5) 0.40% (86)
(fixed rate)
6/20/17 USD 2,500,000 Merrill Lynch International (6) 0.91% (14,165)
(fixed rate)
3/20/17 USD 1,350,000 Merrill Lynch International (7) 0.37% 6,377
(fixed rate)
3/20/17 USD 1,250,000 Merrill Lynch International (8) 0.81% 84
(fixed rate)
--------
$(12,864)
========
(1) Trust to pay notional amount upon a defined credit default event by Abitibi Consolidated,
8.375%, 4/1/15.
(2) Trust to receive notional amount upon a defined credit default event by Argentine Republic.,
8.28%, 12/31/33.
(3) Trust to pay notional amount upon a defined credit default event by Burlington Northern Santa
Fe Corp., 6.75%, 7/15/11.
(4) Trust to receive notional amount upon a defined credit default event by PPG Industries, Inc.,
7.05%, 8/15/09.
(5) Trust to receive notional amount upon a defined credit default event by Dover Corp., 6.25%, 6/1/08.
(6) Trust to receive notional amount upon a defined credit default event by New York Times Co.,
4.61%, 9/26/12.
(7) Trust to receive notional amount upon a defined credit default event by Rohm and Haas Co.,
7.85%, 7/15/29.
(8) Trust to receive notional amount upon a defined credit default event by Waste Management,
Inc., 7.375%, 8/1/10.
At May, 31, 2007, the trust had sufficient cash and/or other liquid securities to cover any commitments under
these derivative contracts.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 5/31/07 (unaudited)
This statement represents your trust's balance sheet, which details the assets and liabilities
comprising the total value of the trust.
ASSETS
------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $521,120,805) $518,228,054
Cash 698,875
Foreign currency, at value (identified cost, $31,855) 31,855
Receivable for forward foreign currency exchange contracts 205,568
Receivable for forward foreign currency exchange contracts
subject to master netting agreements 408,239
Receivable for daily variation margin on open futures contracts 28,438
Receivable for investments sold 4,550,399
Interest receivable 7,125,784
Unrealized appreciation on credit default swaps 20,455
Other Assets 53,581
------------------------------------------------------------------------------------------------------
Total assets $531,351,248
------------------------------------------------------------------------------------------------------
LIABILITIES
------------------------------------------------------------------------------------------------------
Distributions payable $154,171
Payable for forward foreign currency exchange contracts 674,325
Payable for investments purchased 3,909,741
Unrealized depreciation on credit default swaps 33,319
Payable to affiliates
Management fee 14,650
Transfer agent and dividend disbursing costs 35,788
Administrative services fee 553
Payable for independent trustees' compensation 168,228
Accrued expenses and other liabilities 159,846
------------------------------------------------------------------------------------------------------
Total liabilities $5,150,621
------------------------------------------------------------------------------------------------------
Net assets $526,200,627
------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
------------------------------------------------------------------------------------------------------
Paid-in capital $585,060,773
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies (2,860,211)
Accumulated net realized gain (loss) on investments and foreign
currency transactions (56,800,122)
Undistributed net investment income 800,187
------------------------------------------------------------------------------------------------------
Net assets $526,200,627
------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding (59,865,883 issued,
less 4,601,344 treasury shares) 55,264,539
------------------------------------------------------------------------------------------------------
Net asset value per share (net assets of $526,200,627/
55,264,539 shares of beneficial interest outstanding) $9.52
------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Six months ended 5/31/07 (unaudited)
This statement describes how much your trust earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by trust operations.
NET INVESTMENT INCOME
-------------------------------------------------------------------------------------------------------
Income
Interest $14,689,559
Foreign taxes withheld (14,136)
-------------------------------------------------------------------------------------------------------
Total investment income $14,675,423
-------------------------------------------------------------------------------------------------------
Expenses
Management fee $1,561,903
Transfer agent and dividend disbursing costs 59,252
Administrative services fee 50,585
Independent trustees' compensation 44,807
Custodian fee 84,184
Shareholder communications 48,019
Auditing fees 27,900
Legal fees 6,078
Miscellaneous 41,556
-------------------------------------------------------------------------------------------------------
Total expenses $1,924,284
-------------------------------------------------------------------------------------------------------
Fees paid indirectly (3,037)
Reduction of expenses by investment adviser (1,324)
-------------------------------------------------------------------------------------------------------
Net expenses $1,919,923
-------------------------------------------------------------------------------------------------------
Net investment income $12,755,500
-------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
-------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $2,291,187
Futures contracts 178,602
Swap transactions (51,962)
Foreign currency transactions (3,723,520)
-------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $(1,305,693)
-------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(10,057,052)
Futures contracts 24,081
Swap transactions 2,493
Translation of assets and liabilities in foreign currencies 5,056,143
-------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(4,974,335)
-------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $(6,280,028)
-------------------------------------------------------------------------------------------------------
Change in net assets from operations $6,475,472
-------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
5/31/07 11/30/06
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
------------------------------------------------------------------------------------------------------
Net investment income $12,755,500 $24,422,786
Net realized gain (loss) on investments and
foreign currency transactions (1,305,693) (4,389,884)
Net unrealized gain (loss) on investments and
foreign currency translation (4,974,335) 9,439,705
------------------------------------------------------------------------------------------------------
Change in net assets from operations $6,475,472 $29,472,607
------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------
From net investment income $(13,097,742) $(27,468,629)
------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $-- $(8,672,032)
------------------------------------------------------------------------------------------------------
Total change in net assets $(6,622,270) $(6,668,054)
------------------------------------------------------------------------------------------------------
NET ASSETS
------------------------------------------------------------------------------------------------------
At beginning of period 532,822,897 539,490,951
At end of period (including undistributed net investment
income of $800,187 and $1,142,429, respectively) $526,200,627 $532,822,897
------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the trust's financial performance for the semiannual period
and the past 5 fiscal years. Certain information reflects financial results for a single trust share. The total returns in the
table represent the rate by which an investor would have earned (or lost) on an investment in the trust share class (assuming
reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 11/30
ENDED ------------------------------------------------------------------------
5/31/07 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $9.64 $9.58 $9.71 $9.58 $9.09 $9.17
-------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
-------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.23 $0.44 $0.45 $0.49 $0.49 $0.52
Net realized and unrealized
gain (loss) on investments and
foreign currency (0.11) 0.09 (0.09) 0.17 0.51 (0.03)
-------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.12 $0.53 $0.36 $0.66 $1.00 $0.49
-------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
-------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.24) $(0.49) $(0.51) $(0.55) $(0.53) $(0.49)
From paid-in capital $-- $-- $-- $-- $-- $(0.09)
-------------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.24) $(0.49) $(0.51) $(0.55) $(0.53) $(0.58)
-------------------------------------------------------------------------------------------------------------------------------
Net increase from repurchase of
capital shares $-- $0.02 $0.02 $0.02 $0.02 $0.01
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.52 $9.64 $9.58 $9.71 $9.58 $9.09
-------------------------------------------------------------------------------------------------------------------------------
Per share market value,
end of period $8.53 $8.51 $8.43 $8.71 $8.78 $8.26
-------------------------------------------------------------------------------------------------------------------------------
Total return at market value (%) 3.04(n) 6.98 2.57 5.52 13.02 5.99
-------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET
ASSETS AND SUPPLEMENTAL DATA:
-------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.73(a) 0.76 0.79 0.80 0.83 0.85
Expenses after expense reductions (f) 0.73(a) 0.76 0.79 0.80 N/A N/A
Net investment income 4.83(a) 4.62 4.64 5.11 5.21 5.80
Portfolio turnover 35 57 73 70 129 137
Net assets at end of period
(000 omitted) $526,201 $532,823 $539,491 $558,440 $561,900 $546,281
-------------------------------------------------------------------------------------------------------------------------------
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(n) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Charter Income Trust (the trust) is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as a closed-end diversified management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The trust
can invest in foreign securities, including securities of emerging market
issuers. Investments in foreign securities are vulnerable to the effects of
changes in the relative values of the local currency and the U.S. dollar and to
the effects of changes in each country's legal, political, and economic
environment. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - Debt instruments (other than short-term instruments),
including restricted debt instruments, are generally valued at an evaluated or
composite bid as reported by an independent pricing service. Equity securities,
including restricted equity securities, are generally valued at the last sale
or official closing price as reported by an independent pricing service on the
market or exchange on which they are primarily traded. For securities for which
there were no sales reported that day, equity securities are generally valued
at the last quoted daily bid quotation as reported by an independent pricing
service on the market or exchange on which they are primarily traded. For
securities held short for which there were no sales reported for the day, the
position is generally valued at the last quoted daily ask quotation as reported
by an independent pricing service on the market or exchange on which such
securities are primarily traded. Short-term instruments with a maturity at
issuance of 60 days or less may be valued at amortized cost, which approximates
market value. Futures contracts are generally valued at last posted settlement
price as reported by an independent pricing service on the market on which they
are primarily traded. Futures contracts for which there were no trades that day
for a particular position are generally valued at the closing bid quotation as
reported by an independent pricing service on the market on which such futures
contracts are primarily traded. Forward foreign currency contracts are
generally valued at the mean of bid and asked prices for the time period
interpolated from rates reported by an independent pricing service for
proximate time periods. Swaps are generally valued at an evaluated bid as
reported by an independent pricing service. Securities and other assets
generally valued on the basis of information from an independent pricing
service may also be valued at a broker-dealer bid quotation. The values of
foreign securities and other assets and liabilities expressed in foreign
currencies are converted to U.S. dollars using the mean of bid and asked prices
for rates reported by an independent pricing service.
The Board of Trustees has delegated primary responsibility for determining or
causing to be determined the value of the trust's investments (including any
fair valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the trust's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. In addition, investments may be valued at fair
value if the adviser determines that an investment's value has been materially
affected by events occurring after the close of the exchange or market on which
the investment is principally traded (such as foreign exchange or market) and
prior to the determination of the trust's net asset value, or after the halting
of trading of a specific security where trading does not resume prior to the
close of the exchange or market on which the security is principally traded.
The adviser may rely on independent pricing services or other information (such
as the correlation with price movements of similar securities in the same or
other markets; the type, cost and investment characteristics of the security;
the business and financial condition of the issuer; and trading and other
market data) to assist in determining whether to fair value and at what value
to fair value an investment. The value of an investment for purposes of
calculating the trust's net asset value can differ depending on the source and
method used to determine value. When fair valuation is used, the value of
investments used to determine the trust's net asset value may differ from
quoted or published prices for the same investments.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the trust, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the trust's financial statements.
REPURCHASE AGREEMENTS - The trust may enter into repurchase agreements with
institutions that the trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The trust requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the trust to obtain those
securities in the event of a default under the repurchase agreement. The trust
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the trust
under each such repurchase agreement. The trust and other funds managed by
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
INFLATION-ADJUSTED DEBT SECURITIES - The trust invests in inflation-adjusted
debt securities issued by the U.S. Treasury. The trust may also invest in
inflation-adjusted debt securities issued by U.S. Government agencies and
instrumentalities other than the U.S. Treasury and by other entities such as
U.S. and foreign corporations and foreign governments. The principal value of
these debt securities is adjusted by references to changes in the Consumer
Price Index or another general price or wage index. These debt securities
typically pay a fixed rate of interest, but this fixed rate is applied to the
inflation-adjusted principal amount. The principal paid at maturity of the debt
security is typically equal to the inflation-adjusted principal amount, or the
security's original par value, whichever is greater. Other types of
inflation-adjusted securities may use other methods to adjust for other
measures of inflation.
FOREIGN CURRENCY TRANSLATION - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
DERIVATIVE RISK - The trust may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the trust uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include futures contracts, forward foreign currency
exchange contracts, and swap agreements.
FUTURES CONTRACTS - The trust may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the trust is
required to deposit with the broker either in cash or securities an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the trust each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes as
unrealized gains or losses by the trust. Upon entering into such contracts, the
trust bears the risk of interest or exchange rates or securities prices moving
unexpectedly, in which case, the trust may not achieve the anticipated benefits
of the futures contracts and may realize a loss.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The trust may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of the contract. The trust may enter into forward foreign currency exchange
contracts for hedging purposes as well as for non-hedging purposes. For hedging
purposes, the trust may enter into contracts to deliver or receive foreign
currency it will receive from or require for its normal investment activities.
The trust may also use contracts in a manner intended to protect foreign
currency denominated securities from declines in value due to unfavorable
exchange rate movements. For non-hedging purposes, the trust may enter into
contracts with the intent of changing the relative exposure of the trust's
portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
SWAP AGREEMENTS - The trust may enter into swap agreements. A swap is an
exchange of cash payments between the trust and another party. Net cash
payments are exchanged at specified intervals and are recorded as a realized
gain or loss in the Statement of Operations. The value of the swap is adjusted
daily and the change in value, including accruals of periodic amounts of
interest to be paid or received, is recorded as unrealized appreciation or
depreciation in the Statement of Operations. A liquidation payment received or
made upon early termination is recorded as a realized gain or loss in the
Statement of Operations. Collateral, in the form of cash or securities, may be
required to be held in segregated accounts with the trust's custodian in
connection with these agreements. Risk of loss may exceed amounts recognized on
the Statement of Assets and Liabilities. These risks include the possible lack
of a liquid market, failure of the counterparty to perform under the terms of
the agreements, and unfavorable market movement of the underlying instrument.
All swap agreements entered into by the trust with the same counterparty are
generally governed by a single master agreement, which provides for the netting
of all amounts owed by the parties under the agreement upon the occurrence of
an event of default, thereby reducing the credit risk to which such party is
exposed.
The fund holds credit default swaps in which one party makes a stream of
payments based on a fixed percentage applied to the notional amount to another
party in exchange for the right to receive a specified return in the event of a
default by a third party, such as a corporate issuer or foreign issuer, on its
obligation. The trust may enter into credit default swaps to limit or to reduce
its risk exposure to defaults of corporate and sovereign issuers or to create
direct or synthetic short or long exposure to corporate debt securities or
certain sovereign debt securities to which it is not otherwise exposed.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS - The trust may invest in loans and
loan participations or other receivables. These investments may include standby
financing commitments, including revolving credit facilities, which obligate
the trust to supply additional cash to the borrower on demand. Loan
participations involve a risk of insolvency of the lending bank or other
financial intermediary.
INDEMNIFICATIONS - Under the trust's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the trust. Additionally, in the
normal course of business, the trust enters into agreements with service
providers that may contain indemnification clauses. The trust's maximum
exposure under these agreements is unknown as this would involve future claims
that may be made against the trust that have not yet occurred.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. The trust earns certain fees in connection with its floating rate
loan purchasing activities. These fees are in addition to interest payments
earned and may include amendment fees, commitment fees, facility fees, consent
fees, and prepayment fees. These fees are recorded on an accrual basis as
income in the accompanying financial statements.
The trust may receive proceeds from litigation settlements. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
trust. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income on the Statement of Operations.
FEES PAID INDIRECTLY - The trust's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
trust. This amount, for the six months ended May 31, 2007, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The trust intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue Code,
and to distribute all of its taxable income, including realized capital gains.
Accordingly, no provision for federal income tax is required in the financial
statements. Foreign taxes, if any, have been accrued by the trust in the
accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from U.S. generally accepted accounting
principles. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These adjustments have no impact on net assets or net asset value
per share. Temporary differences which arise from recognizing certain items of
income, expense, gain or loss in different periods for financial statement and
tax purposes will reverse at some time in the future. Distributions in excess
of net investment income or net realized gains are temporary overdistributions
for financial statement purposes resulting from differences in the recognition
or classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to amortization and accretion of debt
securities, defaulted bonds, straddle loss deferrals, foreign currency
transactions, and derivative transactions.
The tax character of distributions made during the current period will be
determined at fiscal year end. The tax character of distributions declared to
shareholders is as follows:
11/30/06
Ordinary income (including any short term
capital gains) $27,468,629
----------------------------------------------------------
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 5/31/07
Cost of investments $525,287,626
----------------------------------------------------------
Gross appreciation 5,209,975
Gross depreciation (12,269,547)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $(7,059,572)
AS OF 11/30/06
Undistributed ordinary income 467,478
Capital loss carryforwards (50,784,403)
Other temporary differences (4,488,672)
Net unrealized appreciation (depreciation) 2,567,721
The aggregate cost above includes prior fiscal year end tax adjustments.
As of November 30, 2006, the trust had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
11/30/09 $(21,374,410)
11/30/10 (23,905,212)
11/30/14 (5,504,781)
----------------------------------------------------------
$(50,784,403)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management
has evaluated the application of the Interpretation to the trust, and has
determined that there is no impact resulting from the adoption of this
Interpretation on the trust's financial statements.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The trust has an investment advisory agreement with MFS to
provide overall investment management and related administrative services and
facilities to the trust. The management fee is computed daily and paid monthly
at an annual rate of 0.32% of the trust's average daily net assets and 4.57% of
gross income. Gross income is calculated based on tax elections that generally
include the accretion of discount and exclude the amortization of premium,
which may differ from investment income reported in the Statement of
Operations. The management fee, from net assets and gross income, incurred for
the six months ended May 31, 2007 was equivalent to an annual effective rate of
0.59% of the trust's average daily net assets.
TRANSFER AGENT - Prior to December 18, 2006, MFS Service Center, Inc. (MFSC), a
wholly-owned subsidiary of MFS, received a fee from the trust for its services
as registrar and dividend-disbursing agent. Pursuant to a written agreement,
the trust paid MFSC an account maintenance fee of no more than $9.00 and a
dividend services fee of $0.75 per reinvestment. Effective December 18, 2006,
the trust has engaged Computershare Trust Company, N.A. ("Computershare") as
the sole transfer agent for the trust. MFSC will continue to monitor and
supervise the activities of Computershare for an agreed upon fee approved by
the Board of Trustees. For the six months ended May 31, 2007, these fees paid
to MFSC amounted to $14,587. MFSC also receives payment from the trust for
out-of-pocket expenses paid by MFSC on behalf of the trust. For the six months
ended May 31, 2007, these costs amounted to $23,859.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the trust.
Under an administrative services agreement, the trust partially reimburses MFS
the costs incurred to provide these services. The trust is charged a fixed
amount plus a fee based on calendar year average net assets. The trust's annual
fixed amount is $17,500.
The administrative services fee incurred for the six months ended May 31, 2007
was equivalent to an annual effective rate of 0.0192% of the trust's average
daily net assets.
TRUSTEES' AND OFFICERS' COMPENSATION - The trust pays compensation to
independent trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The trust does not pay
compensation directly to trustees or to officers of the trust who are also
officers of the investment adviser, all of whom receive remuneration for their
services to the trust from MFS. Certain officers and trustees of the trust are
officers or directors of MFS and MFSC.
The trust has an unfunded, defined benefit plan for certain retired independent
trustees which resulted in a pension expense of $2,267. The trust also has an
unfunded retirement benefit deferral plan for certain independent trustees
which resulted in an expense of $2,679. Both amounts are included in
independent trustees' compensation for the six months ended May 31, 2007. The
liability for deferred retirement benefits payable to certain independent
trustees under both plans amounted to $154,325 at May 31, 2007, and is included
in payable for independent trustees' compensation.
DEFERRED TRUSTEE COMPENSATION - Under a Deferred Compensation Plan (the Plan)
independent trustees previously were allowed to elect to defer receipt of all
or a portion of their annual compensation. Trustees are no longer allowed to
defer compensation under the Plan. Amounts previously deferred are treated as
though equivalent dollar amounts had been invested in shares of certain MFS
funds selected by the trustee. Deferred amounts represent an unsecured
obligation of the trust until distributed in accordance with the Plan. Included
in other assets and payable for independent trustees' compensation is $13,740
of deferred trustees' compensation.
OTHER - This trust and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the six months ended May 31, 2007, the fee paid to Tarantino LLC
was $2,048. MFS has agreed to reimburse the trust for a portion of the payments
made by the funds to Tarantino LLC in the amount of $1,324, which is shown as a
reduction of total expenses in the Statement of Operations. Additionally, MFS
has agreed to bear all expenses associated with office space, other
administrative support, and supplies provided to the ICCO.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $29,082,997 $19,185,112
Investments (non-U.S. government securities) $150,546,209 $159,570,222
(5) SHARES OF BENEFICIAL INTEREST
The trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. The Trustees have
authorized the repurchase by the trust of up to 10% annually of its own shares
of beneficial interest. During the six months ended May 31, 2007, the trust
did not repurchase any shares. The trust repurchased and retired 1,029,300
shares of beneficial interest during the year ended November 30, 2006 at an
average price per share of $8.43 and a weighted average discount of 10.94% per
share. Transactions in trust shares were as follows:
PERIOD ENDED YEAR ENDED
5/31/07 11/30/06
SHARES AMOUNT SHARES AMOUNT
Treasury shares reacquired -- $-- (1,029,300) $(8,672,032)
(6) LINE OF CREDIT
The trust and other funds managed by MFS participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the trust and other funds managed by MFS have
established uncommitted borrowing arrangements with certain banks. Borrowings
may be made for temporary financing needs. Interest is charged to each fund,
based on its borrowings, generally at a rate equal to the Federal Reserve
funds rate plus 0.30%. In addition, a commitment fee, based on the average
daily, unused portion of the committed line of credit, is allocated among the
participating funds at the end of each calendar quarter. For the six months
ended May 31, 2007, the trust's commitment fee and interest expense were
$1,405 and $1,258, respectively, and are included in miscellaneous expense on
the Statement of Operations.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Shareholders of the MFS Charter Income Trust:
We have reviewed the accompanying statement of assets and liabilities
of the MFS Charter Income Trust (the Trust), including the portfolio of
investments, as of May 31, 2007, and the related statements of operations,
changes in net assets, and financial highlights for the six-month period ended
May 31, 2007. These interim financial statements are the responsibility of the
Trust's management.
We conducted our review in accordance with the standards of the Public
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States),
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying interim financial statements for them to be
in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the statement of changes
in net assets for the year ended November 30, 2006, and financial highlights
for each of the five years in the period ended November 30, 2006, and in our
report dated January 18, 2007, we expressed an unqualified opinion on such
statement of changes in net assets and financial highlights.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
July 10, 2007
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
trust's investment advisory agreement is available by clicking on the trust's
name under "Select a fund" on the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the trust voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The trust will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The trust's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The trust's Form N-Q is
available on the EDGAR database on the Commission's Internet Web site at
http://www.sec.gov, and copies of this information may be obtained, upon
payment of a duplicating fee, by electronic request at the following e-mail
address: publicinfo@sec.gov or by writing the Public Reference Section at the
above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
CONTACT INFORMATION AND NUMBER OF SHAREHOLDERS
INVESTOR INFORMATION
Transfer Agent, Registrar and Dividend Disbursing Agent
Call 1-800-637-2304 any business day from 9 a.m. to 5 p.m. Eastern
time
Write to: Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
Effective December 18, 2006, Computershare Trust Company, N.A. became the
Transfer Agent and Registrar and Computershare Shareholder Services, Inc.
became the Dividend Disbursing Agent, succeeding MFS Service Center, Inc.
NUMBER OF SHAREHOLDERS
As of May 31, 2007, our records indicate that there are 3,389 registered
shareholders and approximately 30,567 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:
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
1-800-637-2304
M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street, Boston, MA 02116
ITEM 2. CODE OF ETHICS.
The Registrant has not amended any provision in its Code of Ethics (the "Code")
that relates to any element of the Code's definition enumerated in paragraph
(b) of Item 2 of this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable for semi-annual reports.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments for each series of the Registrant is included as part
of the report to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable for semi-annual reports.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
=====================================================================================================================
MFS CHARTER INCOME TRUST
---------------------------------------------------------------------------------------------------------------------
(D) MAXIMUM NUMBER
(C) TOTAL NUMBER OF (OR APPROXIMATE
SHARES PURCHASED AS DOLLAR VALUE) OF
(B) AVERAGE PART OF PUBLICLY SHARES THAT MAY YET
(A) TOTAL NUMBER OF PRICE PAID ANNOUNCED PLANS BE PURCHASED UNDER
PERIOD SHARES PURCHASED PER SHARE OR PROGRAMS THE PLANS OR PROGRAMS
=====================================================================================================================
11/1/06 - 11/30/06 0 N/A N/A 4,859,554
---------------------------------------------------------------------------------------------------------------------
12/1/06 - 12/31/06 0 N/A N/A 4,859,554
---------------------------------------------------------------------------------------------------------------------
1/1/07 - 1/31/07 0 N/A N/A 4,859,554
---------------------------------------------------------------------------------------------------------------------
2/1/07 - 2/28/07 0 N/A N/A 4,859,554
---------------------------------------------------------------------------------------------------------------------
3/1/07 - 3/31/07 0 N/A N/A 5,526,454
---------------------------------------------------------------------------------------------------------------------
4/1/07 - 4/30/07 0 N/A N/A 5,526,454
---------------------------------------------------------------------------------------------------------------------
TOTAL 0 N/A N/A
---------------------------------------------------------------------------------------------------------------------
Note: The Board of Trustees approves procedures to repurchase Fund shares
annually. The notification to shareholders of the program is included in the
semi-annual and annual reports sent to shareholders. These annual programs
begin on March 1st of each year. The programs conform to the conditions of Rule
10b-18 of the Securities Exchange Act of 1934 and limit the aggregate number of
Fund shares that may be repurchased in each annual period (March 1 through the
following February 28) to 10% of the Registrant's outstanding shares as of the
first day of the plan year (March 1). The aggregate number of Fund shares
available for repurchase for the March 1, 2007 plan year is 5,526,454.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 407(c)(2)(iv) of Regulation S-K (as required by Item
22(b)(15) of Schedule 14A), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the effectiveness of the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act")) as conducted within 90 days of
the filing date of this report on Form N-CSR, the registrant's principal
financial officer and principal executive officer have concluded that
those disclosure controls and procedures provide reasonable assurance that
the material information required to be disclosed by the registrant on
this report is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules
and forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter of the period covered by the report that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item 2 requirements through filing of an
exhibit.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C.
78r), or otherwise subject to the liability of that section. Such
certification will not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Exchange Act, except to the
extent that the registrant specifically incorporates it by reference:
Attached hereto.
NOTICE
A copy of the Amended and Restated Declaration of Trust of the Registrant is on
file with the Secretary of State of The Commonwealth of Massachusetts and
notice is hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant as an officer and not individually
and the obligations of or arising out of this instrument are not binding upon
any of the Trustees or shareholders individually, but are binding only upon the
assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS CHARTER INCOME TRUST
------------------------------------------------------------------
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: July 11, 2007
-------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President (Principal Executive
Officer)
Date: July 11, 2007
-------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: July 11, 2007
-------------
* Print name and title of each signing officer under his or her signature.