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 811-05567
MFS INTERMEDIATE HIGH INCOME FUND
(Exact name of registrant as specified in charter)
111 Huntington Avenue, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, Massachusetts 02199
(Name and address of agents for service)
Registrants telephone number, including area code: (617) 954-5000
Date of fiscal year end: November 30
Date of reporting period: November 30, 2013
ITEM 1. | REPORTS TO STOCKHOLDERS. |
ANNUAL REPORT
November 30, 2013
MFS® INTERMEDIATE HIGH INCOME FUND
CIH-ANN
MFS® INTERMEDIATE HIGH INCOME FUND
New York Stock Exchange Symbol: CIF
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholders:
The global economy continues to grow at a modest pace. U.S. job growth has picked up in recent months, and gross domestic product growth has accelerated each quarter.
The U.K. and eurozone economies are expanding again. Chinas economy has regained traction, while Japans government and central bank have revived a once-struggling economy.
However, challenges still exist. The eurozone recovery remains uneven, with France at risk of sliding back into recession, and unemployment rates among the regions northern countries differ substantially with rates in the south. China faces risks in its pursuit of greater domestic consumption. Japan is bracing itself for the national sales tax increase in April. The U.S. Federal Reserve remains a key focus for investors. As the nations
economy improves, there are rising expectations that the Fed may start to shift away from its accommodative monetary policy.
Managing risk in the face of uncertainty is always a top priority for investors. At MFS®, our collaborative process employs integrated, global research and active risk management. Our team of investment professionals shares ideas and evaluates opportunities that span continents, investment disciplines and asset classes. Our goal is to build better insights, and ultimately better results, for our clients.
We understand and appreciate the economic challenges investors face, and we believe in the value of maintaining a long-term view and employing time-tested principles, such as asset allocation and diversification. We are confident that our unique approach can serve investors well as they work with their financial advisors to identify and pursue the most suitable opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
January 15, 2014
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
(a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moodys, Fitch, and Standard & Poors rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. Not Rated includes fixed income securities, including fixed income futures contracts, which have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives) and commodities. Cash & Other includes cash, other assets less liabilities, offsets to derivative positions, and short-term securities. The fund may not hold all of these instruments. The fund is not rated by these agencies. |
(d) | Duration is a measure of how much a bonds 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 due to the interest rate move. |
2
Portfolio Composition continued
(i) | For purposes of this presentation, the components include the market value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolios ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. The bond component will include any accrued interest amounts. |
(m) | In determining an instruments effective maturity for purposes of calculating the funds dollar-weighted average effective maturity, MFS uses the instruments stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instruments stated maturity. |
From time to time Cash & Other Net Assets may be negative due to borrowings for leverage transactions, timing of cash receipts, and/or equivalent exposure from any derivative holdings.
Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio.
Percentages are based on net assets as of 11/30/13.
The portfolio is actively managed and current holdings may be different.
3
Summary of Results
MFS Intermediate High Income Fund (fund) is a closed-end fund. The funds investment objective is to seek high current income, but may also consider capital appreciation. MFS normally invests at least 80% of the funds net assets, including borrowings for investment purposes, in high income debt instruments.
For the twelve months ended November 30, 2013, shares of the MFS Intermediate High Income Fund provided a total return of 9.75%, at net asset value and a total return of 1.49%, at market value. This compares with a return of 8.54% for the funds benchmark, the Barclays U.S. High-Yield Corporate 2% Issuer Capped Index.
The performance commentary below is based on the net asset value performance of the fund which reflects the performance of the underlying pool of assets held by the fund. The total return at market value represents the return earned by owners of the shares of the fund which are traded publicly on the exchange.
Market Environment
At the beginning of the period, year-end fiscal cliff negotiations between the Republicans in the US Congress and President Obama were a particular source of market attention, where uncertainty surrounding the fiscal negotiations continued right up to the end-of-year deadline. A last minute political agreement averted the worst-case scenario and markets gravitated towards risk assets again, though the implementation of the US budget sequester, combined with concerns surrounding the Italian election results, was a source of uncertainty which lingered throughout the first half of the period.
The more dominant features of the first few months of 2013 included a marked improvement in market sentiment as global macroeconomic indicators improved, monetary easing by the Bank of Japan accelerated and fears of fiscal austerity in the US waned. In the middle of the period, concerns that the US Federal Reserve (Fed) would begin tapering its quantitative easing (QE) program caused sovereign bond yields to spike, credit spreads to widen, and equity valuations to fall. Equities subsequently outperformed fixed income in response to the improved economic fundamentals.
Toward the end of the period, the Feds decision to postpone QE tapering surprised markets. Favorable market reactions were tempered, however, by tense negotiations over US fiscal policy which resulted in a 16-day partial shutdown of the federal government and a short-term extension in the debt ceiling. The volatility was short-lived, however, as an extension of budget and debt ceiling deadlines allowed the government to re-open, and subsequent economic data reflected moderate but resilient US growth. Also well-received was the decision by the European Central Bank to cut its policy rate as inflation pressures waned in the region. In addition, equity investors appeared to have concluded that there would be no major change in US monetary policy as a result of the nomination of Janet Yellen as the new Fed Chair for a term beginning in early 2014.
Contributors to Performance
The portion of the funds return derived from yield, which was greater than that of the Barclays U.S. High-Yield Corporate 2% Issuer Capped Index, was a major driver of
4
Management Review continued
positive relative performance. A greater exposure to corporate bonds in the finance sector contributed to relative results as this market sector turned in strong performance for the period. A greater exposure to BB rated (r) bonds, which outperformed higher-rated securities during the reporting period, also benefited relative returns.
Security selection further supported relative returns. Individual securities that were among the funds top relative contributors included the debt of financial services firm Bank of America, financial planning consultancy company Abbey National, global financial services firm JPMorgan Chase, steel products distribution company Edgen Murray and arms and weapons manufacturer Heckler & Koch (Germany).
The fund employs leverage which has been created through the use of loan agreements with a bank. To the extent that investments are purchased through the use of leverage, the funds net asset value will increase or decrease at a greater rate than a comparable unleveraged fund. During the reporting period, the funds use of leverage enhanced its absolute positive returns.
Detractors from Performance
Yield curve (y) positioning in the U.S., particularly the funds greater exposure to shifts in the long portion of the yield curve (centered around maturities of 10 years), detracted from relative performance. Individual bond holdings that were among the funds top relative detractors for the reporting period included the debt of oil and natural gas company El Paso Energy, insurance company MetLife, independent oil and natural gas exploration and production company QEP Resources, deathcare products and services company Service Corp. and commercial financial and leasing products company CIT Group.
Respectfully,
William Adams | David Cole | |
Portfolio Manager | Portfolio Manager |
(r) | Bonds rated BBB, Baa, or higher are considered investment grade; bonds rated BB, Ba, or below are considered non-investment grade. The source for bond quality ratings is Moodys Investors Service, Standard & Poors and Fitch, Inc. and are applied using the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). For securities which are not rated by any of the three agencies, the security is considered Not Rated. |
(y) | A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates. |
The views expressed in this report are those of the portfolio managers only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolios current or future investments.
5
PERFORMANCE SUMMARY THROUGH 11/30/13
The following chart represents the funds historical performance in comparison to its benchmark(s). Investment return and principal value will fluctuate, and shares, when sold, may be worth more or less than their original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the sale of fund shares. Performance data shown represents past performance and is no guarantee of future results.
Price Summary for MFS Intermediate High Income Fund
Year Ended 11/30/13
Date | Price | |||||||||
Net Asset Value | 11/30/13 | $3.16 | ||||||||
11/30/12 | $3.12 | |||||||||
New York Stock Exchange Price | 11/30/13 | $2.80 | ||||||||
1/28/13 | (high) (t) | $3.31 | ||||||||
8/19/13 | (low) (t) | $2.65 | ||||||||
11/30/12 | $3.08 |
Total Returns vs Benchmark
Year Ended 11/30/13
MFS Intermediate High Income Fund at | ||||||
New York Stock Exchange Price (r) |
(1.49)% | |||||
Net Asset Value (r) |
9.75% | |||||
Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index (f) | 8.54% |
(f) | Source: FactSet Research Systems Inc. |
(r) | Includes reinvestment of dividends and capital gain distributions. |
(t) | For the period December 1, 2012 through November 30, 2013. |
Benchmark Definition
Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index a component of the Barclays U.S. High-Yield Corporate Bond Index, which measures performance of non-investment grade, fixed rate debt. The index limits the maximum exposure to any one issuer to 2%.
It is not possible to invest directly in an index.
Notes to Performance Summary
The funds shares may trade at a discount or premium to net asset value. When fund shares trade at a premium, buyers pay more than the net asset value underlying fund
6
Performance Summary continued
shares, and shares purchased at a premium would receive less than the amount paid for them in the event of the funds liquidation.
The funds monthly distributions may include a return of capital to shareholders to the extent that distributions are in excess of the funds net investment income and net capital gains, determined in accordance with federal income tax regulations. Distributions that are treated for federal income tax purposes as a return of capital will reduce each shareholders 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 funds assets and increasing the funds expense ratio.
Net asset values and performance results based on net asset value per share do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the Statement of Assets and Liabilities or the Financial Highlights.
From time to time the fund 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 fund hereby gives notice that it may from time to time repurchase shares of the fund in the open market at the option of the Board of Trustees and on such terms as the Trustees shall determine.
7
Portfolio Manager | Primary Role | Since | Title and Five Year History | |||
William Adams | Lower Quality Debt Instruments Portfolio Manager |
2011 | Investment Officer of MFS; employed in the investment management area of MFS since 2009; Credit Analyst at MFS from 1997 to 2005. | |||
David Cole | Portfolio Manager | 2007 | Investment Officer of MFS; employed in the investment management area of MFS since 2004. |
8
DIVIDEND REINVESTMENT AND CASH
PURCHASE PLAN
The fund offers a Dividend Reinvestment and Cash Purchase Plan (the Plan) that allows common shareholders to reinvest either all of the distributions paid by the fund or only the long-term capital gains. Generally, 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 price of either the net asset value or 95% of the market price, whichever is greater. You can also buy shares on a quarterly basis in any amount $100 and over. The Plan Agent will purchase shares under the Cash Purchase Plan on the 15th of January, April, July, and October or shortly thereafter.
If shares are registered in your own name, new shareholders will automatically participate in the Plan, unless you have indicated that you do not wish to participate. 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 fund. 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. Dividends and capital gains distributions are taxable whether received in cash or reinvested in additional shares 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.
You may withdraw from the Plan at any time by going to the Plan Agents website at www.computershare.com, by calling 1-800-637-2304 any business day from 9 a.m. to 5 p.m. Eastern time or by writing to the Plan Agent at P.O. Box 43078, Providence, RI 02940 - 3078. Please have available the name of the fund and your account number. 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 three ways: your full shares will be held in your account, the Plan Agent will sell your shares and send the proceeds to you, or you may transfer your full shares to your investment professional who can hold or sell them. Additionally, the Plan Agent will sell your fractional shares and send the proceeds to you.
If you have any questions or for further information or a copy of the Plan, contact the Plan Agent Computershare Trust Company, N.A. (the Transfer Agent for the fund) at 1-800-637-2304, at the Plan Agents website at www.computershare.com, or by writing to the Plan Agent at P.O. Box 43078, Providence, RI 02940 - 3078.
9
11/30/13
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Bonds - 124.3% | ||||||||
Issuer | Shares/Par | Value ($) | ||||||
Aerospace - 3.0% | ||||||||
Alliant Techsystems, Inc., 5.25%, 2021 (n) | $ | 85,000 | $ | 85,425 | ||||
Bombardier, Inc., 7.5%, 2018 (n) | 235,000 | 266,725 | ||||||
Bombardier, Inc., 7.75%, 2020 (n) | 135,000 | 153,560 | ||||||
Bombardier, Inc., 6.125%, 2023 (n) | 200,000 | 199,000 | ||||||
CPI International, Inc., 8%, 2018 | 250,000 | 258,750 | ||||||
Huntington Ingalls Industries, Inc., 7.125%, 2021 | 405,000 | 441,450 | ||||||
Kratos Defense & Security Solutions, Inc., 10%, 2017 | 555,000 | 600,788 | ||||||
|
|
|||||||
$ | 2,005,698 | |||||||
Apparel Manufacturers - 1.4% | ||||||||
Hanesbrands, Inc., 6.375%, 2020 | $ | 225,000 | $ | 245,813 | ||||
Jones Group, Inc., 6.875%, 2019 | 215,000 | 219,838 | ||||||
PVH Corp., 7.375%, 2020 | 335,000 | 365,988 | ||||||
PVH Corp., 4.5%, 2022 | 145,000 | 136,300 | ||||||
|
|
|||||||
$ | 967,939 | |||||||
Asset-Backed & Securitized - 0.5% | ||||||||
Banc of America Commercial Mortgage, Inc., FRN, 6.438%, 2051 (z) | $ | 450,000 | $ | 187,605 | ||||
Citigroup Commercial Mortgage Trust, FRN, 5.893%, 2049 | 275,000 | 34,672 | ||||||
G-Force LLC, CDO, A2, 4.83%, 2036 (z) | 12,743 | 12,986 | ||||||
JPMorgan Chase Commercial Mortgage Securities Corp., C, FRN, 6.191%, 2051 | 155,000 | 82,352 | ||||||
|
|
|||||||
$ | 317,615 | |||||||
Automotive - 4.0% | ||||||||
Accuride Corp., 9.5%, 2018 | $ | 385,000 | $ | 382,113 | ||||
Allison Transmission, Inc., 7.125%, 2019 (n) | 385,000 | 414,838 | ||||||
General Motors Financial Co., Inc., 4.75%, 2017 (n) | 75,000 | 79,500 | ||||||
General Motors Financial Co., Inc., 6.75%, 2018 | 245,000 | 277,463 | ||||||
General Motors Financial Co., Inc., 4.25%, 2023 (n) | 130,000 | 123,825 | ||||||
Goodyear Tire & Rubber Co., 6.5%, 2021 | 345,000 | 365,700 | ||||||
Goodyear Tire & Rubber Co., 7%, 2022 | 85,000 | 91,588 | ||||||
Jaguar Land Rover PLC, 7.75%, 2018 (n) | 150,000 | 162,000 | ||||||
Jaguar Land Rover PLC, 8.125%, 2021 (n) | 345,000 | 390,713 | ||||||
Jaguar Land Rover PLC, 5.625%, 2023 (n) | 150,000 | 148,875 | ||||||
Lear Corp., 8.125%, 2020 | 152,000 | 167,960 | ||||||
Lear Corp., 4.75%, 2023 (n) | 65,000 | 61,913 | ||||||
|
|
|||||||
$ | 2,666,488 |
10
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Broadcasting - 6.0% | ||||||||
AMC Networks, Inc., 7.75%, 2021 | $ | 311,000 | $ | 349,875 | ||||
Clear Channel Communications, Inc., 9%, 2021 | 253,000 | 255,530 | ||||||
Clear Channel Worldwide Holdings, Inc., 6.5%, 2022 | 45,000 | 46,350 | ||||||
Clear Channel Worldwide Holdings, Inc., 6.5%, 2022 | 205,000 | 212,175 | ||||||
Clear Channel Worldwide Holdings, Inc., A, 7.625%, 2020 | 10,000 | 10,450 | ||||||
Clear Channel Worldwide Holdings, Inc., B, 7.625%, 2020 | 185,000 | 195,175 | ||||||
Hughes Network Systems LLC, 7.625%, 2021 | 215,000 | 237,038 | ||||||
IAC/InterActive Corp., 4.875%, 2018 (z) | 45,000 | 45,956 | ||||||
IAC/InterActive Corp., 4.75%, 2022 | 165,000 | 152,625 | ||||||
Inmarsat Finance PLC, 7.375%, 2017 (n) | 165,000 | 171,600 | ||||||
Intelsat Jackson Holdings S.A., 6.625%, 2022 (n) | 215,000 | 219,300 | ||||||
Intelsat Jackson Holdings S.A., 6.625%, 2022 | 195,000 | 198,900 | ||||||
Intelsat S.A., 8.125%, 2023 (n) | 365,000 | 385,075 | ||||||
LBI Media, Inc., 13.5% to 2015, 11.5% to 2020 (n)(p) | 102,841 | 60,676 | ||||||
Liberty Media Corp., 8.5%, 2029 | 250,000 | 265,930 | ||||||
Liberty Media Corp., 8.25%, 2030 | 10,000 | 10,613 | ||||||
Netflix, Inc., 5.375%, 2021 (n) | 250,000 | 254,375 | ||||||
Nexstar Broadcasting, Inc., 6.875%, 2020 | 185,000 | 195,637 | ||||||
SIRIUS XM Radio, Inc., 4.25%, 2020 (n) | 55,000 | 52,525 | ||||||
SIRIUS XM Radio, Inc., 5.875%, 2020 (n) | 30,000 | 30,935 | ||||||
SIRIUS XM Radio, Inc., 5.25%, 2022 (n) | 35,000 | 35,438 | ||||||
Univision Communications, Inc., 6.875%, 2019 (n) | 280,000 | 301,700 | ||||||
Univision Communications, Inc., 7.875%, 2020 (n) | 150,000 | 166,875 | ||||||
Univision Communications, Inc., 8.5%, 2021 (n) | 135,000 | 149,513 | ||||||
|
|
|||||||
$ | 4,004,266 | |||||||
Brokerage & Asset Managers - 0.8% | ||||||||
E*TRADE Financial Corp., 6.375%, 2019 | $ | 485,000 | $ | 518,950 | ||||
Building - 4.1% | ||||||||
Allegion U.S. Holding Co., Inc., 5.75%, 2021 (n) | $ | 120,000 | $ | 124,500 | ||||
Boise Cascade Co., 6.375%, 2020 | 125,000 | 131,250 | ||||||
Building Materials Holding Corp., 6.875%, 2018 (n) | 185,000 | 197,488 | ||||||
Building Materials Holding Corp., 7%, 2020 (n) | 115,000 | 123,625 | ||||||
Building Materials Holding Corp., 6.75%, 2021 (n) | 160,000 | 172,400 | ||||||
CEMEX Espana S.A., 9.25%, 2020 (n) | 205,000 | 222,681 | ||||||
CEMEX S.A.B. de C.V., 9.25%, 2020 | 170,000 | 184,660 | ||||||
Gibraltar Industries, Inc., 6.25%, 2021 | 80,000 | 82,400 | ||||||
HD Supply, Inc., 8.125%, 2019 | 115,000 | 128,369 | ||||||
HD Supply, Inc., 7.5%, 2020 | 330,000 | 349,800 | ||||||
Nortek, Inc., 8.5%, 2021 | 290,000 | 320,450 | ||||||
Roofing Supply Group LLC/Roofing Supply Finance, Inc., 10%, 2020 (n) | 157,000 | 176,625 | ||||||
USG Corp., 6.3%, 2016 | 304,000 | 326,800 |
11
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Building - continued | ||||||||
USG Corp., 7.875%, 2020 (n) | $ | 110,000 | $ | 121,825 | ||||
USG Corp., 5.875%, 2021 (n) | 60,000 | 62,100 | ||||||
|
|
|||||||
$ | 2,724,973 | |||||||
Business Services - 2.4% | ||||||||
Equinix, Inc., 4.875%, 2020 | $ | 135,000 | $ | 134,663 | ||||
Equinix, Inc., 5.375%, 2023 | 70,000 | 68,775 | ||||||
Fidelity National Information Services, Inc., 5%, 2022 | 170,000 | 173,825 | ||||||
First Data Corp., 10.625%, 2021 (n) | 230,000 | 248,400 | ||||||
iGate Corp., 9%, 2016 | 319,000 | 340,931 | ||||||
Iron Mountain, Inc., 8.375%, 2021 | 187,000 | 201,960 | ||||||
Iron Mountain, Inc., 6%, 2023 | 170,000 | 173,400 | ||||||
Lender Processing Services, Inc., 5.75%, 2023 | 70,000 | 72,800 | ||||||
NeuStar, Inc., 4.5%, 2023 | 220,000 | 197,450 | ||||||
|
|
|||||||
$ | 1,612,204 | |||||||
Cable TV - 4.7% | ||||||||
CCO Holdings LLC, 8.125%, 2020 | $ | 395,000 | $ | 431,538 | ||||
CCO Holdings LLC, 7.375%, 2020 | 75,000 | 81,563 | ||||||
CCO Holdings LLC, 6.5%, 2021 | 350,000 | 365,313 | ||||||
CCO Holdings LLC/CCO Capital Corp., 5.75%, 2024 | 95,000 | 89,538 | ||||||
Cequel Communications Holdings, 6.375%, 2020 (n) | 190,000 | 196,175 | ||||||
Cequel Communications Holdings I LLC, 5.125%, 2021 (n) | 55,000 | 52,250 | ||||||
DISH DBS Corp., 7.875%, 2019 | 70,000 | 81,025 | ||||||
DISH DBS Corp., 6.75%, 2021 | 175,000 | 188,563 | ||||||
DISH DBS Corp., 5%, 2023 | 90,000 | 85,725 | ||||||
Lynx I Corp., 5.375%, 2021 (n) | 200,000 | 203,500 | ||||||
ONO Finance ll PLC, 10.875%, 2019 (n) | 150,000 | 162,750 | ||||||
Telenet Finance Luxembourg, 6.375%, 2020 (n) | EUR | 200,000 | 291,398 | |||||
Time Warner Cable, Inc., 4.5%, 2042 | $ | 170,000 | 125,765 | |||||
UPC Holding B.V., 9.875%, 2018 (n) | 200,000 | 214,750 | ||||||
UPCB Finance III Ltd., 6.625%, 2020 (n) | 354,000 | 377,010 | ||||||
Ziggo Bond Co. B.V., 8%, 2018 (n) | EUR | 135,000 | 195,318 | |||||
|
|
|||||||
$ | 3,142,181 | |||||||
Chemicals - 3.7% | ||||||||
Celanese U.S. Holdings LLC, 6.625%, 2018 | $ | 95,000 | $ | 102,006 | ||||
Celanese U.S. Holdings LLC, 5.875%, 2021 | 137,000 | 146,248 | ||||||
Celanese U.S. Holdings LLC, 4.625%, 2022 | 90,000 | 86,400 | ||||||
Flash Dutch 2 B.V./U.S. Coatings Acquisition, 7.375%, 2021 (n) | 150,000 | 159,000 | ||||||
Hexion U.S. Finance Corp., 6.625%, 2020 | 110,000 | 112,063 | ||||||
Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, 8.875%, 2018 | 245,000 | 254,494 | ||||||
Huntsman International LLC, 8.625%, 2021 | 375,000 | 420,000 |
12
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Chemicals - continued | ||||||||
INEOS Finance PLC, 8.375%, 2019 (n) | $ | 400,000 | $ | 444,500 | ||||
INEOS Group Holdings S.A., 6.125%, 2018 (n) | 200,000 | 201,250 | ||||||
NOVA Chemicals Corp., 5.25%, 2023 (n) | 145,000 | 149,350 | ||||||
Polypore International, Inc., 7.5%, 2017 | 90,000 | 95,400 | ||||||
Tronox Finance LLC, 6.375%, 2020 | 280,000 | 280,350 | ||||||
|
|
|||||||
$ | 2,451,061 | |||||||
Computer Software - 1.2% | ||||||||
Infor (US), Inc., 11.5%, 2018 | $ | 215,000 | $ | 248,325 | ||||
Syniverse Holdings, Inc., 9.125%, 2019 | 325,000 | 355,063 | ||||||
VeriSign, Inc., 4.625%, 2023 | 190,000 | 181,925 | ||||||
|
|
|||||||
$ | 785,313 | |||||||
Computer Software - Systems - 1.1% | ||||||||
Audatex North America, Inc., 6%, 2021 (n) | $ | 290,000 | $ | 303,050 | ||||
Audatex North America, Inc., 6.125%, 2023 (n) | 50,000 | 51,625 | ||||||
CDW LLC/CDW Finance Corp., 12.535%, 2017 | 19,000 | 19,903 | ||||||
CDW LLC/CDW Finance Corp., 8.5%, 2019 | 300,000 | 333,375 | ||||||
|
|
|||||||
$ | 707,953 | |||||||
Conglomerates - 3.1% | ||||||||
Amsted Industries, Inc., 8.125%, 2018 (n) | $ | 375,000 | $ | 395,625 | ||||
BC Mountain LLC, 7%, 2021 (n) | 140,000 | 139,300 | ||||||
Dynacast International LLC, 9.25%, 2019 | 200,000 | 220,000 | ||||||
Griffon Corp., 7.125%, 2018 | 365,000 | 389,638 | ||||||
Renaissance Acquisition, 6.875%, 2021 (n) | 350,000 | 350,875 | ||||||
Rexel S.A., 6.125%, 2019 (n) | 200,000 | 208,000 | ||||||
Silver II Borrower, 7.75%, 2020 (n) | 300,000 | 316,500 | ||||||
WESCO Distribution, Inc., 5.375%, 2021 (z) | 35,000 | 35,263 | ||||||
|
|
|||||||
$ | 2,055,201 | |||||||
Construction - 0.1% | ||||||||
Empresas ICA S.A.B. de C.V., 8.9%, 2021 | $ | 45,000 | $ | 42,975 | ||||
Consumer Products - 1.3% | ||||||||
Elizabeth Arden, Inc., 7.375%, 2021 | $ | 280,000 | $ | 305,550 | ||||
Jarden Corp., 7.5%, 2020 | 295,000 | 319,338 | ||||||
Prestige Brands, Inc., 8.125%, 2020 | 79,000 | 87,789 | ||||||
Spectrum Brands Escrow Corp., 6.375%, 2020 (n) | 165,000 | 175,725 | ||||||
|
|
|||||||
$ | 888,402 | |||||||
Consumer Services - 1.5% | ||||||||
ADT Corp., 6.25%, 2021 (n) | $ | 140,000 | $ | 146,125 | ||||
ADT Corp., 4.125%, 2023 | 85,000 | 75,253 |
13
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Consumer Services - continued | ||||||||
Monitronics International, Inc., 9.125%, 2020 | $ | 45,000 | $ | 47,475 | ||||
Monitronics International, Inc., 9.125%, 2020 (n) | 175,000 | 184,625 | ||||||
QVC, Inc., 7.375%, 2020 (n) | 125,000 | 135,257 | ||||||
Service Corp. International, 7%, 2017 | 365,000 | 409,713 | ||||||
|
|
|||||||
$ | 998,448 | |||||||
Containers - 3.9% | ||||||||
Ardagh Packaging Finance PLC, 7.375%, 2017 (n) | $ | 200,000 | $ | 215,000 | ||||
Ardagh Packaging Finance PLC, 9.125%, 2020 (n) | 400,000 | 430,000 | ||||||
Ball Corp., 5%, 2022 | 134,000 | 132,325 | ||||||
Ball Corp., 4%, 2023 | 15,000 | 13,463 | ||||||
Berry Plastics Group, Inc., 9.5%, 2018 | 65,000 | 70,200 | ||||||
Berry Plastics Group, Inc., 9.75%, 2021 | 100,000 | 116,375 | ||||||
Crown American LLC, 4.5%, 2023 | 345,000 | 319,988 | ||||||
Exopack Holdings S.A., 7.875%, 2019 (n) | 200,000 | 201,000 | ||||||
Greif, Inc., 6.75%, 2017 | 170,000 | 188,488 | ||||||
Reynolds Group, 7.125%, 2019 | 225,000 | 240,750 | ||||||
Reynolds Group, 9.875%, 2019 | 100,000 | 111,000 | ||||||
Reynolds Group, 5.75%, 2020 | 130,000 | 133,250 | ||||||
Reynolds Group, 8.25%, 2021 | 385,000 | 405,213 | ||||||
|
|
|||||||
$ | 2,577,052 | |||||||
Defense Electronics - 0.3% | ||||||||
Ducommun, Inc., 9.75%, 2018 | $ | 186,000 | $ | 207,390 | ||||
Electrical Equipment - 0.2% | ||||||||
Avaya, Inc., 9.75%, 2015 | $ | 120,000 | $ | 120,000 | ||||
Avaya, Inc., 7%, 2019 (n) | 45,000 | 43,763 | ||||||
|
|
|||||||
$ | 163,763 | |||||||
Electronics - 1.4% | ||||||||
Freescale Semiconductor, Inc., 9.25%, 2018 | $ | 234,000 | $ | 252,422 | ||||
Nokia Corp., 5.375%, 2019 | 65,000 | 67,356 | ||||||
Nokia Corp., 6.625%, 2039 | 65,000 | 64,350 | ||||||
NXP B.V., 5.75%, 2023 (n) | 245,000 | 250,513 | ||||||
Sensata Technologies B.V., 6.5%, 2019 (n) | 305,000 | 328,638 | ||||||
|
|
|||||||
$ | 963,279 | |||||||
Energy - Independent - 11.0% | ||||||||
Antero Resources Finance Corp., 6%, 2020 | $ | 90,000 | $ | 94,275 | ||||
Antero Resources Finance Corp., 5.375%, 2021 (n) | 135,000 | 136,350 | ||||||
BreitBurn Energy Partners LP, 8.625%, 2020 | 85,000 | 90,950 | ||||||
BreitBurn Energy Partners LP, 7.875%, 2022 | 320,000 | 327,200 | ||||||
Carrizo Oil & Gas, Inc., 8.625%, 2018 | 160,000 | 173,800 |
14
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Energy - Independent - continued | ||||||||
Carrizo Oil & Gas, Inc., 7.5%, 2020 | $ | 85,000 | $ | 93,075 | ||||
Chaparral Energy, Inc., 7.625%, 2022 | 150,000 | 162,375 | ||||||
Concho Resources, Inc., 6.5%, 2022 | 280,000 | 303,100 | ||||||
Concho Resources, Inc., 5.5%, 2023 | 175,000 | 177,625 | ||||||
Continental Resources, Inc., 8.25%, 2019 | 180,000 | 197,550 | ||||||
Continental Resources, Inc., 7.375%, 2020 | 65,000 | 72,800 | ||||||
Continental Resources, Inc., 4.5%, 2023 | 189,000 | 187,110 | ||||||
Denbury Resources, Inc., 8.25%, 2020 | 270,000 | 298,013 | ||||||
Energy XXI Gulf Coast, Inc., 9.25%, 2017 | 295,000 | 328,925 | ||||||
Energy XXI Gulf Coast, Inc., 7.5%, 2021 (n) | 175,000 | 183,310 | ||||||
EP Energy LLC, 6.875%, 2019 | 75,000 | 80,813 | ||||||
EP Energy LLC, 9.375%, 2020 | 285,000 | 327,750 | ||||||
EP Energy LLC, 7.75%, 2022 | 365,000 | 410,625 | ||||||
EPL Oil & Gas, Inc., 8.25%, 2018 | 255,000 | 273,806 | ||||||
Halcon Resources Corp., 8.875%, 2021 | 210,000 | 213,150 | ||||||
Harvest Operations Corp., 6.875%, 2017 | 345,000 | 372,600 | ||||||
Hilcorp Energy I/Hilcorp Finance Co., 8%, 2020 (n) | 105,000 | 113,663 | ||||||
Laredo Petroleum, Inc., 9.5%, 2019 | 170,000 | 189,550 | ||||||
LINN Energy LLC, 8.625%, 2020 | 40,000 | 42,800 | ||||||
LINN Energy LLC, 7.75%, 2021 | 194,000 | 201,275 | ||||||
MEG Energy Corp., 6.5%, 2021 (n) | 105,000 | 109,200 | ||||||
MEG Energy Corp., 7%, 2024 (n) | 110,000 | 112,200 | ||||||
Oasis Petroleum, Inc., 6.875%, 2022 (n) | 125,000 | 134,375 | ||||||
QEP Resources, Inc., 6.875%, 2021 | 410,000 | 435,625 | ||||||
Range Resources Corp., 8%, 2019 | 185,000 | 197,025 | ||||||
Range Resources Corp., 5%, 2022 | 160,000 | 157,200 | ||||||
Samson Investment Co., 10.5%, 2020 (n) | 175,000 | 189,219 | ||||||
SandRidge Energy, Inc., 8.125%, 2022 | 360,000 | 379,350 | ||||||
SM Energy Co., 6.5%, 2021 | 235,000 | 251,450 | ||||||
Whiting Petroleum Corp., 6.5%, 2018 | 240,000 | 255,000 | ||||||
Whiting Petroleum Corp., 5%, 2019 | 75,000 | 76,685 | ||||||
|
|
|||||||
$ | 7,349,819 | |||||||
Engineering - Construction - 0.3% | ||||||||
BakerCorp International, Inc., 8.25%, 2019 | $ | 195,000 | $ | 193,538 | ||||
Entertainment - 1.8% | ||||||||
Activision Blizzard, Inc., 6.125%, 2023 (n) | $ | 120,000 | $ | 125,700 | ||||
AMC Entertainment, Inc., 8.75%, 2019 | 210,000 | 224,700 | ||||||
Cedar Fair LP, 9.125%, 2018 | 115,000 | 125,350 | ||||||
Cedar Fair LP, 5.25%, 2021 (n) | 180,000 | 176,400 | ||||||
Cinemark USA, Inc., 5.125%, 2022 | 165,000 | 159,019 | ||||||
Cinemark USA, Inc., 4.875%, 2023 | 140,000 | 131,250 |
15
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Entertainment - continued | ||||||||
Six Flags Entertainment Corp., 5.25%, 2021 (n) | $ | 250,000 | $ | 245,000 | ||||
|
|
|||||||
$ | 1,187,419 | |||||||
Financial Institutions - 7.4% | ||||||||
Aviation Capital Group, 4.625%, 2018 (n) | $ | 140,000 | $ | 143,355 | ||||
Aviation Capital Group, 6.75%, 2021 (n) | 120,000 | 129,966 | ||||||
CIT Group, Inc., 5.25%, 2018 | 225,000 | 242,438 | ||||||
CIT Group, Inc., 6.625%, 2018 (n) | 319,000 | 360,470 | ||||||
CIT Group, Inc., 5.5%, 2019 (n) | 280,000 | 301,700 | ||||||
CIT Group, Inc., 5%, 2022 | 400,000 | 396,000 | ||||||
Credit Acceptance Corp., 9.125%, 2017 | 225,000 | 237,094 | ||||||
Icahn Enterprises LP, 8%, 2018 | 429,000 | 447,769 | ||||||
Icahn Enterprises LP, 6%, 2020 (n) | 90,000 | 92,363 | ||||||
International Lease Finance Corp., 8.625%, 2015 | 80,000 | 89,100 | ||||||
International Lease Finance Corp., 7.125%, 2018 (n) | 246,000 | 284,438 | ||||||
Nationstar Mortgage LLC/Capital Corp., 10.875%, 2015 | 120,000 | 123,300 | ||||||
Nationstar Mortgage LLC/Capital Corp., 6.5%, 2018 | 140,000 | 142,450 | ||||||
Nationstar Mortgage LLC/Capital Corp., 7.875%, 2020 | 525,000 | 544,688 | ||||||
PHH Corp., 7.375%, 2019 | 235,000 | 253,800 | ||||||
PHH Corp., 6.375%, 2021 | 115,000 | 115,719 | ||||||
SLM Corp., 8.45%, 2018 | 185,000 | 215,525 | ||||||
SLM Corp., 8%, 2020 | 585,000 | 663,975 | ||||||
SLM Corp., 7.25%, 2022 | 145,000 | 153,700 | ||||||
|
|
|||||||
$ | 4,937,850 | |||||||
Food & Beverages - 1.4% | ||||||||
B&G Foods, Inc., 4.625%, 2021 | $ | 110,000 | $ | 105,050 | ||||
Constellation Brands, Inc., 3.75%, 2021 | 35,000 | 32,988 | ||||||
Constellation Brands, Inc., 4.25%, 2023 | 215,000 | 202,100 | ||||||
Hawk Acquisition Sub, Inc., 4.25%, 2020 (n) | 175,000 | 168,438 | ||||||
Sun Merger Sub, Inc., 5.875%, 2021 (n) | 175,000 | 181,125 | ||||||
TreeHouse Foods, Inc., 7.75%, 2018 | 215,000 | 226,288 | ||||||
|
|
|||||||
$ | 915,989 | |||||||
Forest & Paper Products - 1.2% | ||||||||
Appvion, Inc., 9%, 2020 (z) | $ | 175,000 | $ | 171,063 | ||||
Graphic Packaging Holding Co., 7.875%, 2018 | 125,000 | 135,625 | ||||||
Smurfit Kappa Group PLC, 4.875%, 2018 (n) | 200,000 | 206,500 | ||||||
Smurfit Kappa Group PLC, 7.75%, 2019 (n) | EUR | 120,000 | 177,904 | |||||
Tembec Industries, Inc., 11.25%, 2018 | $ | 110,000 | 120,725 | |||||
|
|
|||||||
$ | 811,817 |
16
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Gaming & Lodging - 3.2% | ||||||||
Caesars Entertainment Operating Co., Inc., 8.5%, 2020 | $ | 95,000 | $ | 91,438 | ||||
Chester Downs & Marina LLC, 9.25%, 2020 (n) | 95,000 | 95,000 | ||||||
GLP Capital LP/GLP Financing II, Inc., 4.375%, 2018 (n) | 95,000 | 96,900 | ||||||
Hilton Worldwide Finance Co., 5.625%, 2021 (n) | 130,000 | 132,600 | ||||||
Isle of Capri Casinos, Inc., 8.875%, 2020 | 170,000 | 181,050 | ||||||
Isle of Capri Casinos, Inc., 5.875%, 2021 | 35,000 | 33,950 | ||||||
MGM Resorts International, 11.375%, 2018 | 195,000 | 249,113 | ||||||
MGM Resorts International, 6.625%, 2021 | 180,000 | 189,450 | ||||||
Pinnacle Entertainment, Inc., 8.75%, 2020 | 165,000 | 182,325 | ||||||
PNK Finance Corp., 6.375%, 2021 (n) | 130,000 | 134,225 | ||||||
Ryman Hospitality Properties, Inc., REIT, 5%, 2021 | 105,000 | 102,900 | ||||||
Seven Seas Cruises S. DE R.L., 9.125%, 2019 | 310,000 | 342,163 | ||||||
Wynn Las Vegas LLC, 7.75%, 2020 | 260,000 | 289,900 | ||||||
|
|
|||||||
$ | 2,121,014 | |||||||
Health Maintenance Organizations - 0.1% | ||||||||
Wellcare Health Plans, Inc., 5.75%, 2020 | $ | 50,000 | $ | 51,375 | ||||
Industrial - 1.6% | ||||||||
Dematic S.A., 7.75%, 2020 (n) | $ | 310,000 | $ | 330,925 | ||||
Howard Hughes Corp., 6.875%, 2021 (n) | 175,000 | 181,560 | ||||||
Hyva Global B.V., 8.625%, 2016 (n) | 200,000 | 202,500 | ||||||
Mueller Water Products, Inc., 8.75%, 2020 | 126,000 | 141,435 | ||||||
SPL Logistics Escrow LLC, 8.875%, 2020 (n) | 175,000 | 185,938 | ||||||
|
|
|||||||
$ | 1,042,358 | |||||||
Insurance - 0.7% | ||||||||
MetLife, Inc., 9.25% to 2038, FRN to 2068 (n) | $ | 370,000 | $ | 473,600 | ||||
Insurance - Property & Casualty - 0.7% | ||||||||
XL Group PLC, 6.5% to 2017, FRN to 2049 | $ | 490,000 | $ | 480,200 | ||||
International Market Quasi-Sovereign - 0.2% | ||||||||
Eksportfinans A.S.A., 5.5%, 2016 | $ | 60,000 | $ | 63,000 | ||||
Eksportfinans A.S.A., 5.5%, 2017 | 95,000 | 99,869 | ||||||
|
|
|||||||
$ | 162,869 | |||||||
Machinery & Tools - 3.1% | ||||||||
Case New Holland, Inc., 7.875%, 2017 | $ | 620,000 | $ | 733,150 | ||||
CNH America LLC, 7.25%, 2016 | 90,000 | 99,000 | ||||||
CNH Capital LLC, 3.625%, 2018 | 140,000 | 141,400 | ||||||
H&E Equipment Services Co., 7%, 2022 | 230,000 | 251,275 | ||||||
NESCO LLC/NESCO Holdings Corp., 11.75%, 2017 (n) | 280,000 | 315,700 | ||||||
RSC Equipment Rental, Inc., 8.25%, 2021 | 240,000 | 273,000 |
17
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Machinery & Tools - continued | ||||||||
United Rentals North America, Inc., 5.75%, 2018 | $ | 115,000 | $ | 123,481 | ||||
United Rentals North America, Inc., 7.625%, 2022 | 117,000 | 131,040 | ||||||
|
|
|||||||
$ | 2,068,046 | |||||||
Major Banks - 2.1% | ||||||||
Bank of America Corp., FRN, 5.2%, 2049 | $ | 245,000 | $ | 220,500 | ||||
Barclays Bank PLC, 7.625%, 2022 | 400,000 | 420,500 | ||||||
JPMorgan Chase & Co., 6% to 2023, FRN to 2049 | 380,000 | 365,750 | ||||||
Royal Bank of Scotland Group PLC, 6.99% to 2017, FRN to 2049 (n) | 100,000 | 105,750 | ||||||
Royal Bank of Scotland Group PLC, 7.648% to 2031, FRN to 2049 | 275,000 | 286,688 | ||||||
|
|
|||||||
$ | 1,399,188 | |||||||
Medical & Health Technology & Services - 6.9% | ||||||||
AmSurg Corp., 5.625%, 2020 | $ | 150,000 | $ | 156,000 | ||||
Davita, Inc., 6.375%, 2018 | 505,000 | 530,250 | ||||||
Davita, Inc., 6.625%, 2020 | 190,000 | 203,300 | ||||||
Fresenius Medical Care AG & Co. KGaA, 9%, 2015 (n) | 165,000 | 183,975 | ||||||
Fresenius Medical Care Capital Trust III, 5.625%, 2019 (n) | 170,000 | 183,600 | ||||||
Fresenius Medical Care Capital Trust III, 5.875%, 2022 (n) | 145,000 | 154,788 | ||||||
HCA, Inc., 8.5%, 2019 | 455,000 | 486,281 | ||||||
HCA, Inc., 7.5%, 2022 | 380,000 | 422,750 | ||||||
HCA, Inc., 5.875%, 2022 | 170,000 | 176,375 | ||||||
HealthSouth Corp., 8.125%, 2020 | 425,000 | 467,500 | ||||||
IASIS Healthcare LLC/IASIS Capital Corp., 8.375%, 2019 | 220,000 | 232,650 | ||||||
Kinetic Concepts, Inc., 12.5%, 2019 | 190,000 | 209,950 | ||||||
Lifepoint Hospitals, Inc., 5.5%, 2021 (z) | 165,000 | 165,825 | ||||||
Tenet Healthcare Corp., 8%, 2020 | 245,000 | 267,050 | ||||||
Tenet Healthcare Corp., 4.5%, 2021 | 210,000 | 200,550 | ||||||
Tenet Healthcare Corp., 8.125%, 2022 | 135,000 | 146,475 | ||||||
Universal Health Services, Inc., 7%, 2018 | 130,000 | 139,100 | ||||||
Universal Health Services, Inc., 7.625%, 2020 | 245,000 | 257,250 | ||||||
|
|
|||||||
$ | 4,583,669 | |||||||
Medical Equipment - 1.0% | ||||||||
Biomet, Inc., 6.5%, 2020 | $ | 230,000 | $ | 243,800 | ||||
Physio-Control International, Inc., 9.875%, 2019 (n) | 128,000 | 143,360 | ||||||
Teleflex, Inc., 6.875%, 2019 | 275,000 | 288,750 | ||||||
|
|
|||||||
$ | 675,910 | |||||||
Metals & Mining - 3.9% | ||||||||
ArcelorMittal S.A., 6.75%, 2022 | $ | 60,000 | $ | 65,025 | ||||
ArcelorMittal S.A., 7.25%, 2041 | 145,000 | 137,750 | ||||||
Arch Coal, Inc., 7.25%, 2020 | 135,000 | 101,925 | ||||||
Century Aluminum Co., 7.5%, 2021 (n) | 170,000 | 165,325 |
18
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Metals & Mining - continued | ||||||||
Commercial Metals Co., 4.875%, 2023 | $ | 130,000 | $ | 121,225 | ||||
Consol Energy, Inc., 8%, 2017 | 170,000 | 179,775 | ||||||
Consol Energy, Inc., 8.25%, 2020 | 180,000 | 195,750 | ||||||
First Quantum Minerals Ltd., 7.25%, 2019 (n) | 400,000 | 386,000 | ||||||
Fortescue Metals Group Ltd., 8.25%, 2019 (n) | 180,000 | 201,150 | ||||||
Peabody Energy Corp., 7.375%, 2016 | 350,000 | 394,625 | ||||||
Peabody Energy Corp., 6%, 2018 | 110,000 | 116,875 | ||||||
Peabody Energy Corp., 6.25%, 2021 | 110,000 | 112,475 | ||||||
TMS International Corp., 7.625%, 2021 (n) | 155,000 | 163,525 | ||||||
Walter Energy, Inc., 9.5%, 2019 (n) | 60,000 | 62,700 | ||||||
Walter Energy, Inc., 8.5%, 2021 | 195,000 | 164,288 | ||||||
|
|
|||||||
$ | 2,568,413 | |||||||
Municipals - 0.1% | ||||||||
New Jersey Tobacco Settlement Financing Corp., 1-A, 4.5%, 2023 | $ | 90,000 | $ | 83,288 | ||||
Natural Gas - Distribution - 0.9% | ||||||||
AmeriGas Finance LLC, 6.75%, 2020 | $ | 310,000 | $ | 337,900 | ||||
Ferrellgas LP/Ferrellgas Finance Corp., 6.5%, 2021 | 230,000 | 234,025 | ||||||
Ferrellgas LP/Ferrellgas Finance Corp., 6.75%, 2022 (n) | 55,000 | 55,963 | ||||||
|
|
|||||||
$ | 627,888 | |||||||
Natural Gas - Pipeline - 4.8% | ||||||||
Access Midstream Partners Co., 5.875%, 2021 | $ | 75,000 | $ | 80,250 | ||||
Access Midstream Partners Co., 4.875%, 2023 | 345,000 | 338,100 | ||||||
Atlas Pipeline Partners LP, 4.75%, 2021 (n) | 70,000 | 64,750 | ||||||
Atlas Pipeline Partners LP, 5.875%, 2023 (n) | 135,000 | 130,950 | ||||||
Colorado Interstate Gas Co., 6.8%, 2015 | 91,000 | 101,118 | ||||||
Crestwood Midstream Partners LP, 6.125%, 2022 (n) | 55,000 | 56,238 | ||||||
Crosstex Energy, Inc., 8.875%, 2018 | 270,000 | 284,850 | ||||||
Crosstex Energy, Inc., 7.125%, 2022 | 20,000 | 22,800 | ||||||
El Paso Corp., 7%, 2017 | 175,000 | 198,048 | ||||||
El Paso Corp., 7.75%, 2032 | 455,000 | 465,566 | ||||||
Energy Transfer Equity LP, 7.5%, 2020 | 290,000 | 330,600 | ||||||
Enterprise Products Partners LP, 7.034% to 2018, FRN to 2068 | 13,000 | 14,333 | ||||||
Inergy Midstream LP, 6%, 2020 (n) | 235,000 | 240,581 | ||||||
MarkWest Energy Partners LP, 5.5%, 2023 | 170,000 | 173,400 | ||||||
MarkWest Energy Partners LP, 4.5%, 2023 | 135,000 | 127,913 | ||||||
Sabine Pass Liquefaction, 5.625%, 2021 (n) | 100,000 | 98,750 | ||||||
Sabine Pass Liquefaction, 5.625%, 2023 (n) | 350,000 | 331,625 | ||||||
Summit Midstream Holdings LLC, 7.5%, 2021 (n) | 130,000 | 135,850 | ||||||
|
|
|||||||
$ | 3,195,722 |
19
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Network & Telecom - 1.4% | ||||||||
Centurylink, Inc., 6.45%, 2021 | $ | 40,000 | $ | 41,700 | ||||
Centurylink, Inc., 7.65%, 2042 | 175,000 | 157,938 | ||||||
Citizens Communications Co., 9%, 2031 | 160,000 | 161,200 | ||||||
Frontier Communications Corp., 8.125%, 2018 | 95,000 | 109,725 | ||||||
Qwest Corp., 7.5%, 2014 | 1,000 | 1,052 | ||||||
TW Telecom Holdings, Inc., 5.375%, 2022 | 120,000 | 119,550 | ||||||
TW Telecom Holdings, Inc., 5.375%, 2022 (n) | 70,000 | 69,732 | ||||||
Windstream Corp., 8.125%, 2018 | 45,000 | 48,488 | ||||||
Windstream Corp., 7.75%, 2020 | 135,000 | 144,450 | ||||||
Windstream Corp., 7.75%, 2021 | 55,000 | 58,713 | ||||||
|
|
|||||||
$ | 912,548 | |||||||
Oil Services - 2.3% | ||||||||
Bristow Group, Inc., 6.25%, 2022 | $ | 285,000 | $ | 301,388 | ||||
Dresser-Rand Group, Inc., 6.5%, 2021 | 80,000 | 84,800 | ||||||
Edgen Murray Corp., 8.75%, 2020 (n) | 235,000 | 272,013 | ||||||
Pacific Drilling S.A., 5.375%, 2020 (n) | 235,000 | 237,350 | ||||||
Shale-Inland Holdings LLC/Finance Co., 8.75%, 2019 (n) | 330,000 | 335,775 | ||||||
Unit Corp., 6.625%, 2021 | 265,000 | 278,250 | ||||||
|
|
|||||||
$ | 1,509,576 | |||||||
Other Banks & Diversified Financials - 1.5% | ||||||||
Groupe BPCE S.A., 12.5% to 2019, FRN to 2049 (n) | $ | 225,000 | $ | 292,500 | ||||
LBG Capital No. 1 PLC, 7.875%, 2020 (n) | 410,000 | 439,520 | ||||||
UBS AG, 7.625%, 2022 | 250,000 | 285,934 | ||||||
|
|
|||||||
$ | 1,017,954 | |||||||
Pharmaceuticals - 1.7% | ||||||||
Capsugel FinanceCo. SCA, 9.875%, 2019 (n) | EUR | 200,000 | $ | 303,964 | ||||
Capsugel S.A., 7%, 2019 (n)(p) | $ | 70,000 | 71,225 | |||||
Endo Health Solutions, Inc., 7.25%, 2022 | 135,000 | 146,138 | ||||||
Valeant Pharmaceuticals International, Inc., 7%, 2020 (n) | 310,000 | 332,475 | ||||||
Valeant Pharmaceuticals International, Inc., 7.25%, 2022 (n) | 105,000 | 113,138 | ||||||
Vantage Point Imaging, 7.5%, 2021 (n) | 125,000 | 137,500 | ||||||
|
|
|||||||
$ | 1,104,440 | |||||||
Precious Metals & Minerals - 0.7% | ||||||||
Eldorado Gold Corp., 6.125%, 2020 (n) | $ | 175,000 | $ | 171,500 | ||||
IAMGOLD Corp., 6.75%, 2020 (n) | 354,000 | 314,175 | ||||||
|
|
|||||||
$ | 485,675 | |||||||
Printing & Publishing - 0.9% | ||||||||
American Media, Inc., 13.5%, 2018 (z) | $ | 28,207 | $ | 30,323 | ||||
Gannett Co., Inc., 6.375%, 2023 (n) | 150,000 | 156,375 |
20
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Printing & Publishing - continued | ||||||||
Gannett Co., Inc., 5.125%, 2020 (n) | $ | 110,000 | $ | 112,200 | ||||
Lamar Media Corp., 5%, 2023 | 165,000 | 157,575 | ||||||
Nielsen Finance LLC, 7.75%, 2018 | 165,000 | 179,438 | ||||||
|
|
|||||||
$ | 635,911 | |||||||
Railroad & Shipping - 0.2% | ||||||||
Kansas City Southern de Mexico S.A. de C.V., 6.125%, 2021 | $ | 16,000 | $ | 17,760 | ||||
Watco Cos. LLC, 6.375%, 2023 (n) | 145,000 | 144,638 | ||||||
|
|
|||||||
$ | 162,398 | |||||||
Real Estate - 1.8% | ||||||||
Aviv Healthcare Properties LP, 6%, 2021 (n) | $ | 160,000 | $ | 164,000 | ||||
CNL Lifestyle Properties, Inc., REIT, 7.25%, 2019 | 135,000 | 139,388 | ||||||
DuPont Fabros Technology, Inc., REIT, 5.875%, 2021 (n) | 180,000 | 185,400 | ||||||
ERP Properties, REIT, 7.75%, 2020 | 200,000 | 230,138 | ||||||
ERP Properties, REIT, 5.75%, 2022 | 50,000 | 51,546 | ||||||
Felcor Lodging LP, REIT, 5.625%, 2023 | 100,000 | 97,500 | ||||||
MPT Operating Partnership LP, REIT, 6.875%, 2021 | 150,000 | 160,875 | ||||||
MPT Operating Partnership LP, REIT, 6.375%, 2022 | 165,000 | 169,950 | ||||||
|
|
|||||||
$ | 1,198,797 | |||||||
Retailers - 2.3% | ||||||||
Academy Ltd., 9.25%, 2019 (n) | $ | 95,000 | $ | 104,975 | ||||
Burlington Coat Factory Warehouse Corp., 10%, 2019 | 210,000 | 235,463 | ||||||
CST Brands, Inc., 5%, 2023 (n) | 60,000 | 57,750 | ||||||
J. Crew Group, Inc., 8.125%, 2019 | 41,000 | 43,204 | ||||||
Jo-Ann Stores Holdings, Inc., 9.75%, 2019 (n)(p) | 185,000 | 193,325 | ||||||
Limited Brands, Inc., 6.9%, 2017 | 85,000 | 97,538 | ||||||
Limited Brands, Inc., 7%, 2020 | 50,000 | 56,250 | ||||||
Limited Brands, Inc., 6.95%, 2033 | 175,000 | 173,250 | ||||||
Rite Aid Corp., 9.25%, 2020 | 310,000 | 357,663 | ||||||
Sally Beauty Holdings, Inc., 6.875%, 2019 | 135,000 | 149,344 | ||||||
William Carter Co., 5.25%, 2021 (n) | 45,000 | 45,782 | ||||||
|
|
|||||||
$ | 1,514,544 | |||||||
Specialty Chemicals - 0.5% | ||||||||
Chemtura Corp., 5.75%, 2021 | $ | 195,000 | $ | 197,438 | ||||
Koppers, Inc., 7.875%, 2019 | 105,000 | 113,925 | ||||||
|
|
|||||||
$ | 311,363 | |||||||
Specialty Stores - 0.3% | ||||||||
Michaels Stores, Inc., 11.375%, 2016 | $ | 81,000 | $ | 83,026 | ||||
Michaels Stores, Inc., 7.75%, 2018 | 105,000 | 113,663 | ||||||
|
|
|||||||
$ | 196,689 |
21
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Telecommunications - Wireless - 6.0% | ||||||||
Crown Castle International Corp., 7.125%, 2019 | $ | 345,000 | $ | 373,600 | ||||
Crown Castle International Corp., 5.25%, 2023 | 90,000 | 88,875 | ||||||
Digicel Group Ltd., 8.25%, 2017 (n) | 235,000 | 244,694 | ||||||
Digicel Group Ltd., 10.5%, 2018 (n) | 100,000 | 107,750 | ||||||
Eileme 2 AB, 11.625%, 2020 (n) | 200,000 | 240,500 | ||||||
MetroPCS Wireless, Inc., 7.875%, 2018 | 205,000 | 220,888 | ||||||
MetroPCS Wireless, Inc., 6.25%, 2021 (n) | 200,000 | 208,000 | ||||||
Sprint Capital Corp., 6.875%, 2028 | 185,000 | 175,750 | ||||||
Sprint Corp., 7.875%, 2023 (n) | 300,000 | 328,500 | ||||||
Sprint Nextel Corp., 8.375%, 2017 | 390,000 | 452,400 | ||||||
Sprint Nextel Corp., 9%, 2018 (n) | 100,000 | 121,000 | ||||||
Sprint Nextel Corp., 6%, 2022 | 205,000 | 203,463 | ||||||
T-Mobile USA, Inc, 6.5%, 2024 | 95,000 | 96,188 | ||||||
T-Mobile USA, Inc., 6.125%, 2022 | 35,000 | 35,656 | ||||||
T-Mobile USA, Inc., 5.25%, 2018 (n) | 100,000 | 104,250 | ||||||
T-Mobile USA, Inc., 6.464%, 2019 | 50,000 | 53,250 | ||||||
T-Mobile USA, Inc., 6.633%, 2021 | 55,000 | 57,610 | ||||||
Wind Acquisition Finance S.A., 11.75%, 2017 (n) | 150,000 | 159,375 | ||||||
Wind Acquisition Finance S.A., 12.25%, 2017 (n)(p) | 300,000 | 295,560 | ||||||
Wind Acquisition Finance S.A., 7.25%, 2018 (n) | 410,000 | 430,500 | ||||||
|
|
|||||||
$ | 3,997,809 | |||||||
Telephone Services - 0.6% | ||||||||
Cogent Communications Group, Inc., 8.375%, 2018 (n) | $ | 100,000 | $ | 109,000 | ||||
Level 3 Financing, Inc., 9.375%, 2019 | 155,000 | 173,213 | ||||||
Level 3 Financing, Inc., 8.625%, 2020 | 80,000 | 89,600 | ||||||
|
|
|||||||
$ | 371,813 | |||||||
Transportation - Services - 3.9% | ||||||||
Aguila American Resources Ltd., 7.875%, 2018 (n) | $ | 300,000 | $ | 318,375 | ||||
Avis Budget Car Rental LLC, 8.25%, 2019 | 130,000 | 141,700 | ||||||
Avis Budget Car Rental LLC, 9.75%, 2020 | 95,000 | 111,150 | ||||||
CEVA Group PLC, 8.375%, 2017 (n) | 365,000 | 383,250 | ||||||
Jack Cooper Finance Co., 9.25%, 2020 (n) | 180,000 | 193,500 | ||||||
Navios Maritime Acquisition Corp., 8.125%, 2021 (n) | 195,000 | 197,438 | ||||||
Navios Maritime Holding, Inc., 7.375%, 2022 (z) | 175,000 | 175,875 | ||||||
Navios South American Logistics, Inc., 9.25%, 2019 | 217,000 | 234,360 | ||||||
Swift Services Holdings, Inc., 10%, 2018 | 485,000 | 540,169 | ||||||
Syncreon Group BV/Syncre, 8.625%, 2021 (n) | 200,000 | 207,500 | ||||||
Ultrapetrol (Bahamas) Ltd., 8.875%, 2021 (n) | 19,000 | 20,283 | ||||||
Ultrapetrol (Bahamas) Ltd., 8.875%, 2021 (n) | 90,000 | 96,075 | ||||||
|
|
|||||||
$ | 2,619,675 |
22
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Utilities - Electric Power - 3.1% | ||||||||
AES Corp., 8%, 2017 | $ | 29,000 | $ | 34,003 | ||||
AES Corp., 7.375%, 2021 | 195,000 | 220,350 | ||||||
Calpine Corp., 7.875%, 2020 (n) | 172,000 | 188,340 | ||||||
Calpine Corp., 6%, 2022 (n) | 35,000 | 35,963 | ||||||
Covanta Holding Corp., 7.25%, 2020 | 265,000 | 289,448 | ||||||
Energy Future Holdings Corp., 10%, 2020 | 333,000 | 353,813 | ||||||
Energy Future Holdings Corp., 10%, 2020 (n) | 200,000 | 212,000 | ||||||
InterGen N.V., 7%, 2023 (n) | 200,000 | 206,500 | ||||||
NRG Energy, Inc., 8.25%, 2020 | 280,000 | 311,500 | ||||||
NRG Energy, Inc., 6.625%, 2023 | 90,000 | 92,250 | ||||||
Texas Competitive Electric Holdings Co. LLC, 11.5%, 2020 (n) | 125,000 | 91,563 | ||||||
|
|
|||||||
$ | 2,035,730 | |||||||
Total Bonds (Identified Cost, $80,177,665) | $ | 82,806,045 | ||||||
Floating Rate Loans (g)(r) - 2.6% | ||||||||
Aerospace - 0.1% | ||||||||
TransDigm, Inc., Term Loan C, 3.75%, 2020 | $ | 97,549 | $ | 97,969 | ||||
Conglomerates - 0.1% | ||||||||
Silver II U.S. Holdings LLC, Term Loan, 4%, 2019 | $ | 95,976 | $ | 95,902 | ||||
Consumer Services - 0.1% | ||||||||
Realogy Corp., Extended Term Loan, 4.5%, 2020 | $ | 63,617 | $ | 64,200 | ||||
Energy - Independent - 0.2% | ||||||||
MEG Energy Corp., Term Loan B, 3.75%, 2020 | $ | 120,268 | $ | 120,982 | ||||
Entertainment - 0.1% | ||||||||
Cedar Fair LP, Term Loan B, 3.25%, 2020 | $ | 81,450 | $ | 81,603 | ||||
Food & Beverages - 0.5% | ||||||||
Aramark Corp., Term Loan D, 4%, 2019 | $ | 98,080 | $ | 98,447 | ||||
Darling International, Inc., Bridge Term Loan, 2014 (o) | 182,994 | 182,994 | ||||||
H.J. Heinz Co., Term Loan B2, 3.5%, 2020 | 59,256 | 59,626 | ||||||
|
|
|||||||
$ | 341,067 | |||||||
Gaming & Lodging - 0.2% | ||||||||
Hilton Worldwide Finance LLC, Term Loan B2, 4%, 2020 | $ | 119,546 | $ | 119,919 | ||||
Metals & Mining - 0.2% | ||||||||
FMG Resources Ltd., New Term Loan B, 4.25%, 2019 (o) | $ | 109,400 | $ | 110,397 |
23
Portfolio of Investments continued
Issuer | Shares/Par | Value ($) | ||||||
Floating Rate Loans (g)(r) - continued | ||||||||
Retailers - 0.3% | ||||||||
Rite Aid Corp., 2nd Lien Term Loan, 4.87%, 2021 | $ | 79,361 | $ | 80,352 | ||||
Toys R Us Property Co. I LLC, Term Loan B, 6%, 2019 | 156,073 | 151,625 | ||||||
|
|
|||||||
$ | 231,977 | |||||||
Transportation - Services - 0.5% | ||||||||
Commercial Barge Line Co., 1st Lien Term Loan, 7.5%, 2019 | $ | 308,659 | $ | 305,186 | ||||
Utilities - Electric Power - 0.3% | ||||||||
Calpine Construction Finance Co., Term Loan B1, 3%, 2020 | $ | 203,827 | $ | 201,570 | ||||
Total Floating Rate Loans (Identified Cost, $1,770,942) | $ | 1,770,772 | ||||||
Convertible Bonds - 0.2% | ||||||||
Network & Telecom - 0.2% | ||||||||
Nortel Networks Corp., 2.125%, 2014 (Identified Cost, $133,688) (a)(d) |
$ | 135,000 | $ | 132,975 | ||||
Preferred Stocks - 0.4% | ||||||||
Other Banks & Diversified Financials - 0.4% | ||||||||
Ally Financial, Inc., 7% (z) | 100 | $ | 96,097 | |||||
GMAC Capital Trust I, 8.125% | 5,675 | 152,317 | ||||||
Total Preferred Stocks (Identified Cost, $237,049) | $ | 248,414 | ||||||
Common Stocks - 0.1% | ||||||||
Automotive - 0.0% | ||||||||
Accuride Corp. (a) | 4,099 | $ | 14,387 | |||||
Printing & Publishing - 0.1% | ||||||||
American Media Operations, Inc. (a) | 7,229 | $ | 35,350 | |||||
Total Common Stocks (Identified Cost, $167,543) | $ | 49,737 | ||||||
Money Market Funds - 4.0% | ||||||||
MFS Institutional Money Market Portfolio, 0.09%, at Cost and Net Asset Value (v) |
2,662,511 | $ | 2,662,511 | |||||
Total Investments (Identified Cost, $85,149,398) | $ | 87,670,454 | ||||||
Other Assets, Less Liabilities - (31.6)% | (21,041,386 | ) | ||||||
Net Assets - 100.0% | $ | 66,629,068 |
(a) | Non-income producing security. |
(d) | In default. Interest and/or scheduled principal payment(s) have been missed. |
(g) | The rate shown represents a weighted average coupon rate on settled positions at period end, unless otherwise indicated. |
24
Portfolio of Investments continued
(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 $29,227,634 representing 43.9% of net assets. |
(o) | All or a portion of this position has not settled. Upon settlement date, interest rates for unsettled amounts will be determined. The rate shown, if any, represents the weighted average coupon rate for settled amounts. |
(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. |
(v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
(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 fund holds the following restricted securities: |
Restricted Securities | Acquisition Date |
Cost | Value | |||||||
Ally Financial, Inc., 7% (Preferred Stock) | 4/13/11-4/14/11 | $93,750 | $96,097 | |||||||
American Media, Inc., 13.5%, 2018 | 12/22/10 | 28,530 | 30,323 | |||||||
Appvion, Inc., 9%, 2020 | 11/13/13 | 172,387 | 171,063 | |||||||
Banc of America Commercial Mortgage, Inc., FRN, 6.438%, 2051 | 6/19/08 | 331,037 | 187,605 | |||||||
G-Force LLC, CDO, A2, 4.83%, 2036 | 1/20/11 | 12,391 | 12,986 | |||||||
IAC/InterActive Corp., 4.875%, 2018 | 11/12/13 | 45,000 | 45,956 | |||||||
Lifepoint Hospitals, Inc., 5.5%, 2021 | 11/21/13-11/22/13 | 165,150 | 165,825 | |||||||
Navios Maritime Holding, Inc., 7.375%, 2022 | 11/14/13 | 175,000 | 175,875 | |||||||
WESCO Distribution, Inc., 5.375%, 2021 | 11/21/13 | 35,000 | 35,263 | |||||||
Total Restricted Securities | $920,993 | |||||||||
% of Net assets | 1.4% |
The following abbreviations are used in this report and are defined:
CDO | Collateralized Debt Obligation |
FRN | Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end. |
PLC | Public Limited Company |
REIT | Real Estate Investment Trust |
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:
EUR | Euro |
25
Portfolio of Investments continued
Derivative Contracts at 11/30/13
Forward Foreign Currency Exchange Contracts at 11/30/13
Type | Currency | Counter- party |
Contracts to Deliver/ |
Settlement Date Range |
In Exchange for |
Contracts at Value |
Net Unrealized Appreciation (Depreciation) |
|||||||||||||||||
Asset Derivatives | ||||||||||||||||||||||||
BUY | EUR | Goldman Sachs International | 116,768 | 1/17/14 | $157,838 | $158,631 | $793 | |||||||||||||||||
|
|
|||||||||||||||||||||||
Liability Derivatives | ||||||||||||||||||||||||
SELL | EUR | Deutsche Bank AG | 416,590 | 1/17/14 | $562,368 | $565,944 | $(3,576 | ) | ||||||||||||||||
SELL | EUR | JPMorgan Chase Bank N.A. | 416,590 | 1/17/14 | 562,368 | 565,944 | (3,576 | ) | ||||||||||||||||
|
|
|||||||||||||||||||||||
$(7,152 | ) | |||||||||||||||||||||||
|
|
Swap Agreements at 11/30/13
Expiration | Notional Amount |
Counterparty | Cash Flows to Receive |
Cash Flows to Pay |
Fair Value |
|||||||||||||
Asset Derivatives | ||||||||||||||||||
Credit Default Swap Agreements | ||||||||||||||||||
12/20/17 | USD | 690,000 | Goldman Sachs International (a) | 5.0% (fixed rate) | (1) | $69,072 | ||||||||||||
|
|
(1) | Fund, as protection seller, to pay notional amount upon a defined credit event by a reference obligation specified in the CDX. NA. HY.19 Index, a B+ rated credit default index. The fund entered into the contract to manage market/sector exposure. |
(a) | Net unamortized premiums paid by the fund amounted to $25,109. |
The credit ratings presented here are an indicator of the current payment/performance risk of the related swap agreement, the reference obligation for which may be either a single security or, in the case of a credit default index, a basket of securities issued by corporate or sovereign issuers. Ratings are assigned to each reference security, including each individual security within a reference basket of securities, utilizing ratings from Moodys, Fitch, and Standard & Poors rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). The ratings for a credit default index are calculated by MFS as a weighted average of the external credit ratings of the individual securities that compose the indexs reference basket of securities.
See Notes to Financial Statements
26
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 11/30/13
This statement represents your funds balance sheet, which details the assets and liabilities comprising the total value of the fund.
Assets | ||||
Investments- |
||||
Non-affiliated issuers, at value (identified cost, $82,486,887) |
$85,007,943 | |||
Underlying affiliated funds, at cost and value |
2,662,511 | |||
Total investments, at value (identified cost, $85,149,398) |
$87,670,454 | |||
Cash |
161,693 | |||
Receivables for |
||||
Forward foreign currency exchange contracts |
793 | |||
Investments sold |
23,242 | |||
Interest |
1,391,599 | |||
Swaps, at value (net unamortized premiums paid, $25,109) |
69,072 | |||
Other assets |
1,955 | |||
Total assets |
$89,318,808 | |||
Liabilities | ||||
Notes payable |
$22,000,000 | |||
Payables for |
||||
Distributions |
16,497 | |||
Forward foreign currency exchange contracts |
7,152 | |||
Investments purchased |
513,878 | |||
Payable to affiliates |
||||
Investment adviser |
27,956 | |||
Transfer agent and dividend disbursing costs |
805 | |||
Payable for independent Trustees compensation |
21 | |||
Accrued interest expense |
33,647 | |||
Accrued expenses and other liabilities |
89,784 | |||
Total liabilities |
$22,689,740 | |||
Net assets |
$66,629,068 | |||
Net assets consist of | ||||
Paid-in capital |
$79,253,786 | |||
Unrealized appreciation (depreciation) on investments and translation of |
2,558,761 | |||
Accumulated net realized gain (loss) on investments and foreign currency |
(15,221,015 | ) | ||
Undistributed net investment income |
37,536 | |||
Net assets |
$66,629,068 | |||
Shares of beneficial interest outstanding |
21,092,613 | |||
Net asset value per share (net assets of $66,629,068 / 21,092,613 shares of |
$3.16 |
See Notes to Financial Statements
27
Financial Statements
Year ended 11/30/13
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
Net investment income | ||||
Income |
||||
Interest |
$5,902,619 | |||
Dividends |
23,256 | |||
Dividends from underlying affiliated funds |
3,198 | |||
Foreign taxes withheld |
(3,186 | ) | ||
Total investment income |
$5,925,887 | |||
Expenses |
||||
Management fee |
$696,324 | |||
Transfer agent and dividend disbursing costs |
12,786 | |||
Administrative services fee |
19,488 | |||
Independent Trustees compensation |
12,460 | |||
Stock exchange fee |
23,924 | |||
Custodian fee |
13,209 | |||
Interest expense |
213,149 | |||
Shareholder communications |
40,044 | |||
Audit and tax fees |
77,787 | |||
Legal fees |
7,530 | |||
Miscellaneous |
20,129 | |||
Total expenses |
$1,136,830 | |||
Fees paid indirectly |
(120 | ) | ||
Reduction of expenses by investment adviser |
(32,264 | ) | ||
Net expenses |
$1,104,446 | |||
Net investment income |
$4,821,441 | |||
Realized and unrealized gain (loss) on investments and foreign currency | ||||
Realized gain (loss) (identified cost basis) |
||||
Investments |
$1,982,159 | |||
Swap agreements |
13,776 | |||
Foreign currency |
(46,476 | ) | ||
Net realized gain (loss) on investments and foreign currency |
$1,949,459 | |||
Change in unrealized appreciation (depreciation) |
||||
Investments |
$(940,584 | ) | ||
Swap agreements |
43,963 | |||
Translation of assets and liabilities in foreign currencies |
1,935 | |||
Net unrealized gain (loss) on investments and foreign currency translation |
$(894,686 | ) | ||
Net realized and unrealized gain (loss) on investments and foreign currency |
$1,054,773 | |||
Change in net assets from operations |
$5,876,214 |
See Notes to Financial Statements
28
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.
Years ended 11/30 | ||||||||
2013 | 2012 | |||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income |
$4,821,441 | $5,416,041 | ||||||
Net realized gain (loss) on investments and foreign currency |
1,949,459 | (695,478 | ) | |||||
Net unrealized gain (loss) on investments and foreign currency translation |
(894,686 | ) | 7,183,445 | |||||
Change in net assets from operations |
$5,876,214 | $11,904,008 | ||||||
Distributions declared to shareholders | ||||||||
From net investment income |
$(5,069,865 | ) | $(6,023,250 | ) | ||||
Change in net assets from fund share transactions |
$136,596 | $394,240 | ||||||
Total change in net assets |
$942,945 | $6,274,998 | ||||||
Net assets | ||||||||
At beginning of period |
65,686,123 | 59,411,125 | ||||||
At end of period (including undistributed net investment income of $37,536 and $13,936, respectively) |
$66,629,068 | $65,686,123 |
See Notes to Financial Statements
29
Financial Statements
Year ended 11/30/13
This statement provides a summary of cash flows from investment activity for the fund.
Cash flows from operating activities: | ||||
Change in net assets from operations |
$5,876,214 | |||
Adjustments to reconcile change in net assets from operations to net cash provided by operating activities: | ||||
Purchase of investment securities |
(48,359,663 | ) | ||
Proceeds from disposition of investment securities |
48,727,806 | |||
Proceeds from swap agreements |
13,776 | |||
Purchases of short-term investments, net |
(739,818 | ) | ||
Realized gain/loss on investments |
(1,982,159 | ) | ||
Realized gain/loss on swap agreements |
(13,776 | ) | ||
Unrealized appreciation/depreciation on investments |
940,584 | |||
Unrealized appreciation/depreciation on foreign currency contracts |
(2,024 | ) | ||
Unrealized appreciation/depreciation on swaps |
(43,963 | ) | ||
Net amortization/accretion of income |
212,366 | |||
Decrease in interest and dividends receivable |
166,804 | |||
Increase in accrued expenses and other liabilities |
6,946 | |||
Decrease in other assets |
1,545 | |||
Decrease in interest payable |
(6,644 | ) | ||
Net cash provided by operating activities |
$4,797,994 | |||
Cash flows from financing activities: | ||||
Distributions paid in cash |
$(4,917,111 | ) | ||
Net decrease in cash |
$(119,117 | ) | ||
Cash: | ||||
Beginning of period |
$280,810 | |||
End of period |
$161,693 |
Supplemental disclosure of cash flow information:
Non-cash financing activities not included herein consist of reinvestment of dividends and distributions of $136,596.
Cash paid during the year ended November 30, 2013 for interest was $219,793.
See Notes to Financial Statements
30
Financial Statements
The financial highlights table is intended to help you understand the funds financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
Years ended 11/30 | ||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
Net asset value, beginning of period |
$3.12 | $2.84 | $3.02 | $2.72 | $1.72 | |||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||
Net investment income (d) |
$0.23 | $0.26 | $0.27 | $0.29 | $0.28 | |||||||||||||||
Net realized and unrealized gain (loss) |
0.05 | 0.31 | (0.14 | ) | 0.28 | 1.01 | ||||||||||||||
Total from investment operations |
$0.28 | $0.57 | $0.13 | $0.57 | $1.29 | |||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||
From net investment income |
$(0.24 | ) | $(0.29 | ) | $(0.31 | ) | $(0.27 | ) | $(0.29 | ) | ||||||||||
Net increase from repurchase of capital shares |
$ | $ | $ | $ | $0.00 | (w) | ||||||||||||||
Net asset value, end of period (x) |
$3.16 | $3.12 | $2.84 | $3.02 | $2.72 | |||||||||||||||
Market value, end of period |
$2.80 | $3.08 | $2.85 | $3.01 | $2.42 | |||||||||||||||
Total return at market value (%) |
(1.49 | ) | 18.81 | 4.90 | 36.61 | 107.88 | ||||||||||||||
Total return at net asset value (%) (j)(r)(s)(x) |
9.75 | 20.77 | 4.19 | 21.94 | 83.39 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
||||||||||||||||||||
Expenses before expense reductions (f) |
1.72 | 1.89 | 1.92 | 2.31 | 2.85 | |||||||||||||||
Expenses after expense reductions (f) |
1.67 | 1.73 | 1.81 | 1.88 | 2.16 | |||||||||||||||
Net investment income |
7.28 | 8.55 | 8.83 | 9.85 | 12.69 | |||||||||||||||
Portfolio turnover |
46 | 38 | 60 | 57 | 45 | |||||||||||||||
Net assets at end of period (000 omitted) |
$66,629 | $65,686 | $59,411 | $63,092 | $56,684 | |||||||||||||||
Supplemental Ratios (%): | ||||||||||||||||||||
Ratio of expenses to average net assets after expense reductions and excluding interest expense (f) |
1.35 | 1.35 | 1.35 | 1.03 | 1.08 | |||||||||||||||
Senior Securities: | ||||||||||||||||||||
Total notes payable outstanding (000 omitted) |
$22,000 | $22,000 | $22,000 | $22,000 | $21,000 | |||||||||||||||
Asset coverage per $1,000 of indebtedness (k) |
$4,029 | $3,986 | $3,701 | $3,868 | $3,699 |
31
Financial Highlights continued
(d) | Per share data is based on average shares outstanding. |
(f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
(j) | Total return at net asset value is calculated using the net asset value of the fund, not the publicly traded price and therefore may be different than the total return at market value. |
(k) | Calculated by subtracting the funds total liabilities (not including notes payable) from the funds total assets and dividing this number by the notes payable outstanding and then multiplying by 1,000. |
(r) | Certain expenses have been reduced without which performance would have been lower. |
(s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
(w) | Per share amount was less than $0.01. |
(x) | The net asset values per share and total returns at net asset value per share have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
32
(1) Business and Organization
MFS Intermediate High Income Fund (the fund) is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company.
(2) Significant Accounting Policies
General The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the funds Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in high-yield securities rated below investment grade. Investments in high-yield securities involve greater degrees of credit and market risk than investments in higher-rated securities and tend to be more sensitive to economic conditions. The fund invests in foreign securities. 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 countrys legal, political, and economic environment.
In January 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2013-01 (ASU 2013-01) entitled Balance Sheet (Topic 210) Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities which is intended to clarify the scope of Accounting Standards Update 2011-11 (ASU 2011-11), Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities. Consistent with the effective date for ASU 2011-11, ASU 2013-01 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. ASU 2013-01 limits the scope of ASU 2011-11s disclosure requirements on offsetting to financial assets and financial liabilities related to derivatives, repurchase and reverse repurchase agreements, and securities lending and securities borrowing transactions. Although still evaluating the potential impact of these two ASUs to the fund, management expects that the impact of the funds adoption will be limited to additional financial statement disclosures.
In June 2013, FASB issued Accounting Standards Update 2013-08 Financial Services Investment Companies (Topic 946) Amendments to the Scope, Measurement, and Disclosure Requirements (ASU 2013-08) which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013. ASU 2013-08 sets forth a methodology for determining whether an entity should be characterized as an investment company and prescribes fair value accounting for an investment companys non-controlling ownership interest in another investment company. FASB has determined that a fund registered under the Investment Company Act of 1940 automatically meets ASU 2013-08s criteria for an investment company. Although still evaluating the potential impacts of ASU 2013-08 to the fund, management expects that the impact of the funds adoption will be limited to additional financial statement disclosures.
33
Notes to Financial Statements continued
Investment Valuations Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as provided by a third-party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as provided by a third-party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swap agreements are generally valued at valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the funds 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 funds valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investments 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 funds 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 generally relies on third-party pricing services
34
Notes to Financial Statements continued
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 funds net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the funds net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the funds assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investments level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The funds assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the advisers own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as forward foreign currency exchange contracts and swap agreements. The following is a summary of the levels used as of November 30, 2013 in valuing the funds assets or liabilities:
Investments at Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities | $166,704 | $96,097 | $35,350 | $298,151 | ||||||||||||
Non-U.S. Sovereign Debt | | 162,869 | | 162,869 | ||||||||||||
Municipal Bonds | | 83,288 | | 83,288 | ||||||||||||
U.S. Corporate Bonds | | 67,359,647 | | 67,359,647 | ||||||||||||
Commercial Mortgage-Backed Securities | | 304,629 | | 304,629 | ||||||||||||
Asset-Backed Securities (including CDOs) | | 12,986 | | 12,986 | ||||||||||||
Foreign Bonds | | 15,015,601 | | 15,015,601 | ||||||||||||
Floating Rate Loans | | 1,770,772 | | 1,770,772 | ||||||||||||
Mutual Funds | 2,662,511 | | | 2,662,511 | ||||||||||||
Total Investments | $2,829,215 | $84,805,889 | $35,350 | $87,670,454 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Swap Agreements | $ | $69,072 | $ | $69,072 | ||||||||||||
Forward Foreign Currency Exchange Contracts | | (6,359 | ) | | (6,359 | ) |
For further information regarding security characteristics, see the Portfolio of Investments.
35
Notes to Financial Statements continued
The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The funds policy is to recognize transfers between the levels as of the end of the period. The table presents the activity of level 3 securities held at the beginning and the end of the period.
Equity Securities |
||||
Balance as of 11/30/12 | $34,338 | |||
Change in unrealized appreciation (depreciation) |
1,012 | |||
Balance as of 11/30/13 | $35,350 |
The net change in unrealized appreciation (depreciation) from investments still held as level 3 at November 30, 2013 is $1,012.
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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.
Derivatives The fund uses derivatives for different purposes, primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivatives original cost.
The derivative instruments used by the fund were purchased options, forward foreign currency exchange contracts, and swap agreements. The funds period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at November 30, 2013 as reported in the Statement of Assets and Liabilities:
Fair Value | ||||||||||
Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives | |||||||
Foreign Exchange | Forward Foreign Currency Exchange | $793 | $(7,152) | |||||||
Credit | Credit Default Swaps | 69,072 | | |||||||
Total | $69,865 | $(7,152) |
36
Notes to Financial Statements continued
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended November 30, 2013 as reported in the Statement of Operations:
Risk | Swap Agreements |
Foreign Currency |
Investments (Purchased Options) |
|||||||||
Foreign Exchange | $ | $(47,389 | ) | $ | ||||||||
Equity | | | 115,074 | |||||||||
Credit | 13,776 | | | |||||||||
Total | $13,776 | $(47,389 | ) | $115,074 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the year ended November 30, 2013 as reported in the Statement of Operations:
Risk | Swap Agreements |
Translation of Assets and Liabilities in Foreign Currencies |
Investments (Purchased Options) |
|||||||||
Foreign Exchange | $ | $2,024 | $ | |||||||||
Equity | | | (1,232 | ) | ||||||||
Credit | 43,963 | | | |||||||||
Total | $43,963 | $2,024 | $(1,232 | ) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the funds credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. Margin requirements are set by the broker or clearing house for cleared derivatives (i.e., futures contracts, cleared swaps, and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, uncleared swap agreements, and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated to cover the funds collateral or margin obligations under derivative contracts, if any, will
37
Notes to Financial Statements continued
be reported separately in the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
The funds accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Purchased Options The fund purchased call options for a premium. Purchased call options entitle the holder to buy a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing call options may hedge against an anticipated increase in the dollar cost of securities or currency to be acquired or increase the funds exposure to an underlying instrument.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequently marked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased call options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased call option, the premium paid is added to the cost of the security or financial instrument purchased.
Whether or not the option is exercised, the funds maximum risk of loss from purchasing an option is the amount of premium paid. All option contracts involve credit risk if the counterparty to the option contract fails to perform. For over-the-counter options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the funds exposure to the counterparty under such ISDA Master Agreement.
Forward Foreign Currency Exchange Contracts The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the funds currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the funds portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on foreign currency.
38
Notes to Financial Statements continued
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the funds maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, an industry accepted settlement system. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the funds exposure to the counterparty under such ISDA Master Agreement.
Swap Agreements During the period the fund entered into swap agreements. Effective June 10, 2013, certain types of swaps (cleared swaps) are required to be centrally cleared under provisions of the Dodd-Frank Regulatory Reform Bill. In a cleared swap transaction, the swap agreement is novated to a central counterparty (the clearinghouse) immediately following execution of the swap contract with an executing broker. Thereafter, throughout the term of the cleared swap, the fund interfaces indirectly with the clearinghouse through a clearing broker.
A swap agreement is generally an exchange of cash payments, at specified intervals or upon the occurrence of specified events, between the fund and a counterparty. The net cash payments exchanged are recorded as a realized gain or loss on swap agreements in the Statement of Operations. The value of the swap agreement, which is adjusted daily and includes any related interest accruals to be paid or received by the fund, is recorded in the Statement of Assets and Liabilities, as Swaps, at value for uncleared swaps and is included in Due from brokers or Due to brokers for cleared swaps. The daily change in value, including any related interest accruals to be paid or received, is recorded as unrealized appreciation or depreciation on swap agreements in the Statement of Operations. The daily change in valuation of centrally cleared swaps is recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities. Amounts paid or received at the inception of the swap agreement are reflected as premiums paid or received in the Statement of Assets and Liabilities and are amortized using the effective interest method over the term of the agreement. A liquidation payment received or made upon early termination is recorded as a realized gain or loss on swap agreements in the Statement of Operations.
Risks related to swap agreements include the possible lack of a liquid market, unfavorable market and interest rate movements of the underlying instrument and the failure of the counterparty to perform under the terms of the agreements. To address counterparty risk, swap agreements are limited to only highly-rated counterparties. For uncleared swaps, that risk is further reduced by having an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and by the posting of collateral by the counterparty to the fund to cover the funds exposure to the counterparty under such ISDA Master Agreement. Although not covered by an ISDA Master Agreement, the funds counterparty risk due to cleared swaps is mitigated by the clearinghouses margining requirements and financial safeguards in the event of a clearing broker default.
The fund entered into credit default swap agreements in order to manage its exposure to the market or certain sectors of the market, to reduce its credit risk exposure to
39
Notes to Financial Statements continued
defaults of corporate and sovereign issuers or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. In a credit default swap agreement, the protection buyer can make an upfront payment and will make a stream of payments based on a fixed percentage applied to the agreement notional amount to the protection seller in exchange for the right to receive a specified return upon the occurrence of a defined credit event on the reference obligation (which may be either a single security or a basket of securities issued by corporate or sovereign issuers) and, with respect to the rare cases where physical settlement applies, the delivery by the buyer to the seller of a defined deliverable obligation. Although agreement-specific, credit events generally consist of a combination of the following: bankruptcy, failure to pay, restructuring, obligation acceleration, obligation default, or repudiation/moratorium, each as defined in the 2003 ISDA Credit Derivatives Definitions as amended by the relevant agreement. Restructuring is generally not applicable when the reference obligation is issued by a North American corporation and obligation acceleration, obligation default, or repudiation/moratorium are generally only applicable when the reference obligation is issued by a sovereign entity or an entity in an emerging country. Upon determination of the final price for the deliverable obligation (or upon delivery of the deliverable obligation in the case of physical settlement), the difference between the value of the deliverable obligation and the swap agreements notional amount is recorded as realized gain or loss on swap agreements in the Statement of Operations.
Credit default swap agreements are considered to have credit-risk-related contingent features since they trigger payment by the protection seller to the protection buyer upon the occurrence of a defined credit event. The maximum amount of future, undiscounted payments that the fund, as protection seller, could be required to make is equal to the swap agreements notional amount. The protection sellers payment obligation would be offset to the extent of the value of the agreements deliverable obligation. At November 30, 2013, the fund did not hold any credit default swap agreements at an unrealized loss where it is the protection seller.
The funds maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the agreement. For uncleared swaps, counterparty risk is reduced by having an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and by the posting of collateral by the counterparty to the fund to cover the funds exposure to the counterparty under such ISDA Master Agreement. For cleared swaps, the funds counterparty risk is mitigated by the clearinghouses margining requirements and financial safeguards in the event of a clearing broker default.
Loans and Other Direct Debt Instruments The fund invests in loans and loan participations or other receivables. These investments may include standby financing commitments, including revolving credit facilities, which obligate the fund to supply additional cash to the borrower on demand. Loan participations involve a risk of insolvency of the lending bank or other financial intermediary.
Statement of Cash Flows Information on financial transactions which have been settled through the receipt or disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is the amount
40
Notes to Financial Statements continued
included within the funds Statement of Assets and Liabilities and includes cash on hand at its custodian bank and does not include any short term investments.
Indemnifications Under the funds organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The funds maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund 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. The fund 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. Commitment fees are recorded on an accrual basis as income in the accompanying financial statements. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date. Debt obligations may be placed on non-accrual status or set to accrue at a rate of interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by the write-off of the related interest receivables when deemed uncollectible.
The fund 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 fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly The funds custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the year ended November 30, 2013, is shown as a reduction of total expenses in the Statement of Operations.
Tax Matters and Distributions The fund 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. As a result, no provision for federal income tax is required. The funds federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
41
Notes to Financial Statements continued
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.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
11/30/13 | 11/30/12 | |||||||
Ordinary income (including any short-term capital gains) | $5,069,865 | $6,023,250 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 11/30/13 | ||||
Cost of investments | $85,411,846 | |||
Gross appreciation | 3,330,068 | |||
Gross depreciation | (1,071,460 | ) | ||
Net unrealized appreciation (depreciation) | $2,258,608 | |||
Undistributed ordinary income | 85,685 | |||
Capital loss carryforwards | (14,536,659 | ) | ||
Post-October capital loss deferral | (415,008 | ) | ||
Other temporary differences | (17,344 | ) |
Under the Regulated Investment Company Modernization Act of 2010 (the Act), net capital losses recognized for fund fiscal years beginning after November 30, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses (post-enactment losses). Previously, net capital losses were carried forward for eight years and treated as short-term losses (pre-enactment losses). As a transition rule, the Act requires that all post-enactment net capital losses be used before pre-enactment net capital losses.
As of November 30, 2013, the fund had capital loss carryforwards available to offset future realized gains. Such pre-enactment losses expire as follows:
11/30/14 | $(1,121,832 | ) | ||
11/30/16 | (5,956,332 | ) | ||
11/30/17 | (6,983,828 | ) | ||
11/30/18 | (474,667 | ) | ||
Total | $(14,536,659 | ) |
42
Notes to Financial Statements continued
(3) Transactions with Affiliates
Investment Adviser The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.65% of the funds average daily net assets. The fund pays the adviser a monthly fee equal to 20% of the funds leverage income after deducting the expenses of leveraging (Net leverage income); provided, however, if the funds net leverage income is less than zero, the adviser pays the fund the percentage indicated of the funds net leverage income.
The management fee incurred for the year ended November 30, 2013 was equivalent to an annual effective rate of 1.05% of the funds average daily net assets.
The investment adviser has agreed in writing to pay a portion of the funds total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses, such that the total fund operating expenses do not exceed 1.34% annually of the funds average daily net assets. This written agreement will continue until modified by the funds Board of Trustees, but such agreement will continue at least until November 30, 2014. For the year ended November 30, 2013, this reduction amounted to $32,093 and is reflected as a reduction of total expenses in the Statement of Operations.
Transfer Agent The fund engages Computershare Trust Company, N.A. (Computershare) as the sole transfer agent for the fund. MFS Service Center, Inc. (MFSC) monitors and supervises the activities of Computershare for an agreed upon fee approved by the Board of Trustees. For the year ended November 30, 2013, these fees paid to MFSC amounted to $2,711.
Administrator MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended November 30, 2013 was equivalent to an annual effective rate of 0.0294% of the funds average daily net assets.
Trustees and Officers Compensation The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS and MFSC.
Deferred Trustee Compensation Prior to MFS appointment as investment adviser to the fund, the funds former independent Trustees participated in a Deferred Compensation Plan (the Former Colonial Trustees Plan or Plan). The funds current independent Trustees are not allowed to defer compensation under the Former Colonial Trustees Plan. Amounts deferred under the Plan are invested in shares of certain non-MFS funds selected by the former independent Trustees as notional
43
Notes to Financial Statements continued
investments. Deferred amounts represent an unsecured obligation of the fund until distributed in accordance with the Plan. During the year ended November 30, 2013, the final payment of $1,605 was distributed in accordance with the Plan. At November 30, 2013, the fund had no unsecured obligation under this plan. There is no current year expense associated with the Former Colonial Trustees Plan.
Other This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the year ended November 30, 2013, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $442 and are included in Miscellaneous expense in the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $171, 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 and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. Income earned on this investment is included in Dividends from underlying affiliated funds in the Statement of Operations. This money market fund does not pay a management fee to MFS.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and short-term obligations, aggregated $39,832,480 and $38,945,853, respectively.
(5) Shares of Beneficial Interest
The funds 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 fund of up to 10% annually of its own shares of beneficial interest. During the years ended November 30, 2013 and November 30, 2012, the fund did not repurchase any shares. Transactions in fund shares were as follows:
Year ended 11/30/13 |
Year ended 11/30/12 |
|||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares issued to shareholders in reinvestment of distributions |
43,147 | $136,596 | 130,712 | $394,240 |
(6) Loan Agreement
The fund had a credit agreement with a bank for a revolving secured line of credit that could be drawn upon up to $30,000,000. This credit agreement matured on January 11, 2013. The Trustees approved the renewal of the revolving secured line of credit up to the amount of $25,000,000 on substantially similar terms for an additional 364 day period which matures on January 10, 2014. At November 30, 2013, the fund had outstanding borrowings under this agreement in the amount of $22,000,000, which
44
Notes to Financial Statements continued
are secured by a lien on the funds assets. The loans carrying value in the funds Statement of Assets and Liabilities approximates its fair value. The loan value as of the reporting date is considered Level 2 under the fair value hierarchy. The credit agreement matures on January 10, 2014. Subsequent to fiscal year end, the Trustees approved the renewal of the revolving secured line of credit up to the amount of $25,000,000 on substantially similar terms for an additional 364 day period. Borrowing under this agreement can be made for liquidity or leverage purposes. Interest is charged at a rate per annum equal to LIBOR plus an agreed upon spread or an alternate rate, at the option of the borrower, stated as the greater of Overnight LIBOR or the Federal Funds Rate each plus an agreed upon spread. The fund incurred interest expense in the amount of $213,149 during the period in connection with this loan agreement. The fund paid a commitment fee of $3,637 based on the average daily unused portion of the revolving secured line of credit which is reported in Miscellaneous expense in the Statement of Operations. For the year ended November 30, 2013, the average loan balance was $22,000,000 at a weighted average annual interest rate of 0.97%. The fund is subject to certain covenants including, but not limited to, requirements with respect to asset coverage, portfolio diversification and liquidity.
(7) Transactions in Underlying Affiliated Funds-Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
Underlying Affiliated Fund | Beginning Shares/Par Amount |
Acquisitions Shares/Par Amount |
Dispositions Shares/Par Amount |
Ending Shares/Par Amount |
||||||||||||
MFS Institutional Money Market Portfolio |
1,922,693 | 22,920,982 | (22,181,164 | ) | 2,662,511 | |||||||||||
Underlying Affiliated Fund | Realized Gain (Loss) |
Capital Gain Distributions |
Dividend Income |
Ending Value |
||||||||||||
MFS Institutional Money Market Portfolio |
$ | $ | $3,198 | $2,662,511 |
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of MFS Intermediate High Income Fund:
We have audited the accompanying statement of assets and liabilities of MFS Intermediate High Income Fund (the Fund), including the portfolio of investments, as of November 30, 2013, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2013, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of MFS Intermediate High Income Fund at November 30, 2013, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
January 15, 2014
46
RESULTS OF SHAREHOLDER MEETING
(unaudited)
At the annual meeting of shareholders of MFS Intermediate High Income Fund, which was held on October 3, 2013, the following action was taken:
Item 1: To elect the following individuals as Trustees:
Number of Shares | ||||||||
Nominee |
For |
Withheld Authority |
||||||
Maureen R. Goldfarb | 14,094,235.425 | 692,962.411 | ||||||
Robert J. Manning | 14,131,995.425 | 655,202.411 | ||||||
Laurie J. Thomsen | 14,145,365.425 | 641,832.411 |
47
IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of January 1, 2014, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
Name, Age |
Position(s) with Fund |
Trustee/Officer Since (h) |
Term Expiring |
Principal the Past Five Years |
Other Directorships (j) | |||||
INTERESTED TRUSTEES | ||||||||||
Robert J. Manning (k) (age 50) |
Trustee | February 2004 | 2016 | Massachusetts Financial Services Company, Chairman, Chief Executive Officer and Director; President (until 2009); Chief Investment Officer (until 2010) | N/A | |||||
Robin A. Stelmach (k) (age 52) |
Trustee | January 2014 | 2015 | Massachusetts Financial Services Company, Executive Vice President and Chief Operating Officer |
N/A | |||||
INDEPENDENT TRUSTEES | ||||||||||
David H. Gunning (age 71) |
Trustee and Chair of Trustees | January 2004 | 2015 | Private investor | Lincoln Electric Holdings, Inc. (welding equipment manufacturer), Director; Development Alternatives, Inc. (consulting), Director/Non-Executive Chairman | |||||
Robert E. Butler (age 72) |
Trustee | January 2006 | 2015 | Consultant investment company industry regulatory and compliance matters | N/A | |||||
Maureen R. Goldfarb (age 58) |
Trustee | January 2009 | 2016 | Private investor | N/A | |||||
William R. Gutow (age 72) |
Trustee | December 1993 | 2014 | Private investor and real estate consultant; Capitol Entertainment Management Company (video franchise), Vice Chairman | Texas Donuts (donut franchise), Vice Chairman (until 2010) |
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Trustees and Officers continued
Name, Age |
Position(s) with Fund |
Trustee/Officer Since (h) |
Term Expiring |
Principal the Past Five Years |
Other Directorships (j) | |||||
Michael Hegarty (age 69) |
Trustee | December 2004 | 2014 | Private investor | Brookfield Office Properties, Inc. (real estate), Director; Rouse Properties Inc. (real estate), Director; Capmark Financial Group Inc. (real estate), Director | |||||
John P. Kavanaugh (age 59) |
Trustee | January 2009 | 2014 | Private investor | N/A | |||||
Laurie J. Thomsen (age 56) |
Trustee | March 2005 | 2016 | Private investor; New Profit, Inc. (venture philanthropy), Executive Partner (until 2010) | The Travelers Companies (insurance), Director | |||||
Robert W. Uek (age 72) |
Trustee | January 2006 | 2014 | Consultant to investment company industry | N/A | |||||
OFFICERS | ||||||||||
John M. Corcoran (k) (age 48) |
President | October 2008 | N/A | Massachusetts Financial Services Company, Senior Vice President | N/A | |||||
Christopher R. Bohane (k) (age 39) |
Assistant Secretary and Assistant Clerk | July 2005 | N/A | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | N/A | |||||
Kino Clark (k) (age 45) |
Assistant Treasurer |
January 2012 | N/A | Massachusetts Financial Services Company, Vice President |
N/A | |||||
Thomas H. Connors (k) (age 54) |
Assistant Secretary and Assistant Clerk |
September 2012 | N/A | Massachusetts Financial Services Company, Vice President and Senior Counsel; Deutsche Investment Management Americas Inc. (financial service provider), Director and Senior Counsel (until 2012) | N/A |
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Trustees and Officers continued
Name, Age |
Position(s) with Fund |
Trustee/Officer Since (h) |
Term Expiring |
Principal the Past Five Years |
Other Directorships (j) | |||||
Ethan D. Corey (k) (age 50) |
Assistant Secretary and Assistant Clerk | July 2005 | N/A | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | N/A | |||||
David L. DiLorenzo (k) (age 45) |
Treasurer | July 2005 | N/A | Massachusetts Financial Services Company, Senior Vice President | N/A | |||||
Robyn L. Griffin (age 38) |
Assistant Independent Chief Compliance Officer | August 2008 | N/A | Griffin Compliance LLC (provider of compliance services), Principal | N/A | |||||
Brian E. Langenfeld (k) (age 40) |
Assistant Secretary and Assistant Clerk | June 2006 | N/A | Massachusetts Financial Services Company, Vice President and Senior Counsel | N/A | |||||
Susan S. Newton (k) (age 63) |
Assistant Secretary and Assistant Clerk | May 2005 | N/A | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | N/A | |||||
Susan A. Pereira (k) (age 43) |
Assistant Secretary and Assistant Clerk | July 2005 | N/A | Massachusetts Financial Services Company, Vice President and Senior Counsel | N/A | |||||
Kasey L. Phillips (k) (age 43) |
Assistant Treasurer | September 2012 | N/A | Massachusetts Financial Services Company, Vice President; Wells Fargo Funds Management, LLC, Senior Vice President, Fund Treasurer (until 2012) | N/A | |||||
Mark N. Polebaum (k) (age 61) |
Secretary and Clerk | January 2006 | N/A | Massachusetts Financial Services Company, Executive Vice President, General Counsel and Secretary | N/A |
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Trustees and Officers continued
Name, Age |
Position(s) with Fund |
Trustee/Officer Since (h) |
Term Expiring |
Principal the Past Five Years |
Other Directorships (j) | |||||
Frank L. Tarantino (age 69) |
Independent Chief Compliance Officer | June 2004 | N/A | Tarantino LLC (provider of compliance services), Principal | N/A | |||||
Richard S. Weitzel (k) (age 43) |
Assistant Secretary and Assistant Clerk | October 2007 | N/A | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | N/A | |||||
James O. Yost (k) (age 53) |
Deputy Treasurer | September 1990 | N/A | Massachusetts Financial Services Company, Senior Vice President | N/A |
(h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. For the period October 2008, until January 2012, Mr. Corcoran served as Treasurer of the Funds. Prior to January 2012, Messrs. DiLorenzo and Yost served as Assistant Treasurers of the Funds. |
(j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., public companies). |
(k) | Interested person of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
The Trust holds annual shareholder meetings for the purpose of electing Trustees, and Trustees are elected for fixed terms. The Board of Trustees is currently divided into three classes, each having a term of three years which term expires on the date of the third annual meeting following the election to office of the Trustees class. Each year the term of one class expires. Each Trustee and officer will serve until next elected or his or her earlier death, resignation, retirement or removal.
Messrs. Butler, Kavanaugh, and Uek and Ms. Thomsen are members of the Funds Audit Committee.
Each of the Funds Trustees and officers holds comparable positions with certain other funds of which MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with certain affiliates of MFS. As of January 1, 2014, the Trustees served as board members of 142 funds within the MFS Family of Funds.
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Trustees and Officers continued
The Statement of Additional Information for the Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
Investment Adviser | Custodian | |
Massachusetts Financial Services Company | State Street Bank and Trust Company | |
111 Huntington Avenue | 1 Lincoln Street | |
Boston, MA 02199-7618 | Boston, MA 02111-2900 | |
Portfolio Managers | Independent Registered Public Accounting Firm | |
William Adams | Ernst & Young LLP | |
David Cole | 200 Clarendon Street | |
Boston, MA 02116 |
52
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (independent) Trustees, voting separately, annually approve the continuation of the Funds investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2013 (contract review meetings) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the MFS Funds). The independent Trustees were assisted in their evaluation of the Funds investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by the MFS Funds Independent Chief Compliance Officer, a full-time senior officer appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Lipper Inc., an independent third party, on the investment performance (based on net asset value) of the Fund for various time periods ended December 31, 2012 and the investment performance (based on net asset value) of a group of funds with substantially similar investment classifications/objectives (the Lipper performance universe), (ii) information provided by Lipper Inc. on the Funds advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Lipper Inc. (the Lipper expense group), (iii) information provided by MFS on the advisory fees of comparable portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee breakpoints are observed for the Fund, (v) information regarding MFS financial results and financial condition, including MFS and certain of its affiliates estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS institutional business, (vi) MFS views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS senior management and other personnel providing investment
53
Board Review of Investment Advisory Agreement continued
advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Lipper Inc. was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed the Funds total return investment performance as well as the performance of peer groups of funds over various time periods. The Trustees placed particular emphasis on the total return performance of the Funds common shares in comparison to the performance of funds in its Lipper performance universe over the three-year period ended December 31, 2012, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Funds common shares ranked 15th out of a total of 38 funds in the Lipper performance universe for this three-year period (a ranking of first place out of the total number of funds in the performance universe indicating the best performer and a ranking of last place out of the total number of funds in the performance universe indicating the worst performer). The total return performance of the Funds common shares ranked 25th out of a total of 39 funds for the one-year period and 12th out of a total of 38 funds for the five-year period ended December 31, 2012. Given the size of the Lipper performance universe and information previously provided by MFS regarding differences between the Fund and other funds in its Lipper performance universe, the Trustees also reviewed the Funds performance in comparison to the Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index. The Fund out-performed the Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index for each of the one- and three-year periods ended December 31, 2012 (one-year: 18.7% total return for the Fund versus 15.8% total return for the benchmark; three-year: 14.5% total return for the Fund versus 11.8% total return for the benchmark) and under-performed the Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index for the five-year period ended December 31, 2012 (9.4% total return for the Fund versus 10.4% total return for the benchmark). Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Funds performance. After reviewing these and
54
Board Review of Investment Advisory Agreement continued
related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS responses and efforts relating to investment performance.
In assessing the reasonableness of the Funds advisory fee, the Trustees considered, among other information, the Funds advisory fee and the total expense ratio of the Funds common shares as a percentage of average daily net assets and the advisory fee and total expense ratios of peer groups of funds based on information provided by Lipper Inc. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees approval. The Trustees also considered that, according to the Lipper data (which takes into account any fee reductions or expense limitations that were in effect during the Funds last fiscal year), the Funds effective advisory fee rate and total expense ratio were each lower than the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to any comparable institutional accounts. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund in comparison to institutional accounts and the impact on MFS and expenses associated with the more extensive regulatory regime to which the Fund is subject in comparison to institutional accounts.
The Trustees considered that, as a closed-end fund, the Fund is unlikely to experience meaningful asset growth. As a result, the Trustees did not view the potential for realization of economies of scale as the Funds assets grow to be a material factor in their deliberations. The Trustees noted that they would consider economies of scale in the future in the event the Fund experiences significant asset growth, such as through an offering of preferred shares (which is not currently contemplated), or a material increase in the market value of the Funds portfolio securities.
The Trustees also considered information prepared by MFS relating to MFS costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
55
Board Review of Investment Advisory Agreement continued
The Trustees also considered the nature, quality, cost, and extent of administrative services provided to the Fund by MFS under agreements other than the investment advisory agreement. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Funds behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees also considered benefits to MFS from the use of the Funds portfolio brokerage commissions, if applicable, to pay for investment research and various other factors. Additionally, the Trustees considered so-called fall-out benefits to MFS such as reputational value derived from serving as investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Funds investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2013.
A discussion regarding the Boards most recent review and renewal of the funds Investment Advisory Agreement with MFS is available by clicking on the funds name under Closed-End Funds in the Products section of the MFS Web site (mfs.com).
56
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 SECs Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SECs Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The funds Form N-Q is also available on the EDGAR database on the Commissions Internet Web site at http://www.sec.gov, and 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 1-800-SEC-0330. Copies of the Funds Form N-Q also 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.
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the News & Commentary section of mfs.com or by clicking on the funds name under Closed-End Funds in the Products section of mfs.com.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2013 income tax forms in January 2014.
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rev. 3/11
|
WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
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Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include:
Social Security number and account balances Account transactions and transaction history Checking account information and wire transfer instructions
When you are no longer our customer, we continue to share your information as described in this notice. |
How? | All financial companies need to share customers personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your personal information |
Does MFS share? |
Can you limit this sharing? | ||
For our everyday business purposes such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus |
Yes | No | ||
For our marketing purposes to offer our products and services to you |
No | We dont share | ||
For joint marketing with other financial companies | No | We dont share | ||
For our affiliates everyday business purposes information about your transactions and experiences |
No | We dont share | ||
For our affiliates everyday business purposes information about your creditworthiness |
No | We dont share | ||
For nonaffiliates to market to you | No | We dont share |
Questions? | Call 800-225-2606 or go to mfs.com. |
58
Page 2 |
Who we are | ||
Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., MFS Fund Distributors, Inc., MFS Heritage Trust Company, and MFS Service Center, Inc. |
What we do | ||
How does MFS protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. | |
How does MFS collect my personal information? | We collect your personal information, for example, when you
open an account or provide account information direct us to buy securities or direct us to sell your securities make a wire transfer
We also collect your personal information from others, such as credit bureaus, affiliates and other companies. | |
Why cant I limit all sharing? | Federal law gives you the right to limit only
sharing for affiliates everyday business purposes information about your creditworthiness affiliates from using your information to market to you sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing. |
Definitions | ||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. | |
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
MFS does not share with nonaffiliates so they can market to you. | |
Joint Marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
MFS doesnt jointly market. |
Other important information | ||
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59
CONTACT US
TRANSFER AGENT, REGISTRAR, AND
DIVIDEND DISBURSING AGENT
CALL
1-800-637-2304
9 a.m. to 5 p.m. Eastern time
WRITE
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
New York Stock Exchange Symbol: CIF
ITEM 2. | CODE OF ETHICS. |
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the Registrants principal executive officer and principal financial and accounting officer. During the period covered by this report, the Registrant has not amended any provision in its Code of Ethics (the Code) that relates to an element of the Codes definitions enumerated in paragraph (b) of Item 2 of this Form N-CSR. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.
A copy of the Code of Ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Messrs. Robert E. Butler, John P. Kavanaugh and Robert W. Uek and Ms. Laurie J. Thomsen, members of the Audit Committee, have been determined by the Board of Trustees in their reasonable business judgment to meet the definition of audit committee financial expert as such term is defined in Form N-CSR. In addition, Messrs. Butler, Kavanaugh and Uek and Ms. Thomsen are independent members of the Audit Committee (as such term has been defined by the Securities and Exchange Commission in regulations implementing Section 407 of the Sarbanes-Oxley Act of 2002). The Securities and Exchange Commission has stated that the designation of a person as an audit committee financial expert pursuant to this Item 3 on the Form N-CSR does not impose on such a person any duties, obligations or liability that are greater than the duties, obligations or liability imposed on such person as a member of the Audit Committee and the Board of Trustees in the absence of such designation or identification.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Items 4(a) through 4(d) and 4(g):
The Board of Trustees has appointed Ernst & Young LLP (E&Y) to serve as independent accountants to the Registrant (hereinafter the Registrant or the Fund). The tables below set forth the audit fees billed to the Fund as well as fees for non-audit services provided to the Fund and/or to the Funds investment adviser, Massachusetts Financial Services Company (MFS), and to various entities either controlling, controlled by, or under common control with MFS that provide ongoing services to the Fund (MFS Related Entities).
For the fiscal years ended November 30, 2013 and 2012, audit fees billed to the Fund by E&Y were as follows:
Audit Fees | ||||||||
2013 | 2012 | |||||||
Fees billed by E&Y: |
||||||||
MFS Intermediate High Income Fund |
55,293 | 51,774 |
For the fiscal years ended November 30, 2013 and 2012, fees billed by E&Y for audit-related, tax and other services provided to the Fund and for audit-related, tax and other services provided to MFS and MFS Related Entities were as follows:
Audit-Related Fees1 | Tax Fees2 | All Other Fees3 | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
Fees billed by E&Y: |
||||||||||||||||||||||||
To MFS Intermediate High Income Fund |
10,714 | 10,504 | 9,894 | 9,753 | 0 | 0 | ||||||||||||||||||
Audit-Related Fees1 | Tax Fees2 | All Other Fees3 | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
Fees billed by E&Y: |
||||||||||||||||||||||||
To MFS and MFS Related Entities of MFS Intermediate High Income Fund* |
0 | 0 | 0 | 0 | 0 | 0 |
Aggregate Fees for Non-audit Services |
||||||||
2013 | 2012 | |||||||
Fees Billed by E&Y: |
||||||||
To MFS Intermediate High Income Fund, MFS and MFS Related Entities# |
78,608 | 60,257 |
* | This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to the operations and financial reporting of the Fund (portions of which services also related to the operations and financial reporting of other funds within the MFS Funds complex). |
# | This amount reflects the aggregate fees billed by E&Y for non-audit services rendered to the Fund and for non-audit services rendered to MFS and the MFS Related Entities. |
1 | The fees included under Audit-Related Fees are fees related to assurance and related services that are reasonably related to the performance of the audit or review of financial statements, but not reported under Audit Fees, including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters and internal control reviews. |
2 | The fees included under Tax Fees are fees associated with tax compliance, tax advice and tax planning, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews and tax distribution and analysis. |
3 | The fees under All Other Fees are fees for products and services provided by E&Y other than those reported under Audit Fees, Audit-Related Fees and Tax Fees. |
Item 4(e)(1):
Set forth below are the policies and procedures established by the Audit Committee of the Board of Trustees relating to the pre-approval of audit and non-audit related services:
To the extent required by applicable law, pre-approval by the Audit Committee of the Board is needed for all audit and permissible non-audit services rendered to the Fund and all permissible non-audit services rendered to MFS or MFS Related Entities if the services relate directly to the operations and financial reporting of the Registrant. Pre-approval is currently on an engagement-by-engagement basis. In the event pre-approval of such
services is necessary between regular meetings of the Audit Committee and it is not practical to wait to seek pre-approval at the next regular meeting of the Audit Committee, pre-approval of such services may be referred to the Chair of the Audit Committee for approval; provided that the Chair may not pre-approve any individual engagement for such services exceeding $50,000 or multiple engagements for such services in the aggregate exceeding $100,000 between such regular meetings of the Audit Committee. Any engagement pre-approved by the Chair between regular meetings of the Audit Committee shall be presented for ratification by the entire Audit Committee at its next regularly scheduled meeting.
Item 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and All Other Fees paid by the Fund and MFS and MFS Related Entities relating directly to the operations and financial reporting of the Registrant disclosed above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C) of Rule 2-01 of Regulation S-X (which permits audit committee approval after the start of the engagement with respect to services other than audit, review or attest services, if certain conditions are satisfied).
Item 4(f): Not applicable.
Item 4(h): The Registrants Audit Committee has considered whether the provision by a Registrants independent registered public accounting firm of non-audit services to MFS and MFS Related Entities that were not pre-approved by the Committee (because such services were provided prior to the effectiveness of SEC rules requiring pre-approval or because such services did not relate directly to the operations and financial reporting of the Registrant) was compatible with maintaining the independence of the independent registered public accounting firm as the Registrants principal auditors.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
The Registrant has an Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee are Messrs. Robert E. Butler, John P. Kavanaugh, and Robert W. Uek and Ms. Laurie J. Thomsen.
ITEM 6. | SCHEDULE OF INVESTMENTS |
A schedule of investments of the Registrant is included as part of the report to shareholders of the Registrant under Item 1 of this Form N-CSR.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
MASSACHUSETTS FINANCIAL SERVICES COMPANY
PROXY VOTING POLICIES AND PROCEDURES
March 1, 2012
Massachusetts Financial Services Company, MFS Institutional Advisors, Inc., MFS International (UK) Limited, MFS Heritage Trust Company, McLean Budden Limited and MFS other subsidiaries that perform discretionary investment management activities (collectively, MFS) have adopted proxy voting policies and procedures, as set forth below (MFS Proxy Voting Policies and Procedures), with respect to securities owned by the clients for which MFS serves as investment adviser and has the power to vote proxies, including the pooled investment vehicles sponsored by MFS (the MFS Funds). References to clients in these policies and procedures include the MFS Funds and other clients of MFS, such as funds organized offshore, sub-advised funds and separate account clients, to the extent these clients have delegated to MFS the responsibility to vote proxies on their behalf under the MFS Proxy Voting Policies and Procedures.
The MFS Proxy Voting Policies and Procedures include:
A. | Voting Guidelines; |
B. | Administrative Procedures; |
C | Records Retention; and |
D. | Reports. |
A. | VOTING GUIDELINES |
1. | General Policy; Potential Conflicts of Interest |
MFS policy is that proxy voting decisions are made in what MFS believes to be the best long-term economic interests of MFS clients, and not in the interests of any other party or in MFS corporate interests, including interests such as the distribution of MFS Fund shares and institutional client relationships.
In developing these proxy voting guidelines, MFS reviews corporate governance issues and proxy voting matters that are presented for shareholder vote by either management or shareholders of public companies. Based on the overall principle that all votes cast by MFS on behalf of its clients must be in what MFS believes to be the best long-term economic interests of such clients, MFS has adopted proxy voting guidelines, set forth below, that govern how MFS generally will vote on specific matters presented for shareholder vote.
As a general matter, MFS votes consistently on similar proxy proposals across all shareholder meetings. However, some proxy proposals, such as certain excessive executive compensation, environmental, social and governance matters, are analyzed on a case-by-case basis in light of all the relevant facts and circumstances of the proposal. Therefore, MFS may vote similar proposals differently at different shareholder meetings based on the specific facts and circumstances of the issuer or the terms of the proposal. In addition, MFS also reserves the right to override the guidelines with respect to a particular proxy proposal when such an override is, in MFS best judgment, consistent with the overall principle of voting proxies in the best long-term economic interests of MFS clients.
MFS also generally votes consistently on the same matter when securities of an issuer are held by multiple client accounts, unless MFS has received explicit voting instructions to vote differently from a client for its own account. From time to time, MFS may also receive comments on the MFS Proxy Voting Policies and Procedures from its clients. These comments are carefully considered by MFS when it reviews these guidelines and revises them as appropriate.
These policies and procedures are intended to address any potential material conflicts of interest on the part of MFS or its subsidiaries that are likely to arise in connection with the voting of proxies on behalf of MFS clients. If such potential material conflicts of interest do arise, MFS will analyze, document and report on such potential material conflicts of interest (see Sections B.2 and D below), and shall ultimately vote the relevant proxies in what MFS believes to be the best long-term economic interests of its clients. The MFS Proxy Voting Committee is responsible for monitoring and reporting with respect to such potential material conflicts of interest.
MFS is also a signatory to the United Nations Principles for Responsible Investment. In developing these guidelines, MFS considered environmental, social and corporate governance issues in light of MFS fiduciary obligation to vote proxies in the best long-term economic interest of its clients.
2. | MFS Policy on Specific Issues |
Election of Directors
MFS believes that good governance should be based on a board with at least a simple majority of directors who are independent of management, and whose key committees (e.g., compensation, nominating, and audit committees) are comprised entirely of independent directors. While MFS generally supports the boards nominees in uncontested or non-contentious elections, we will not support a nominee to a board of a U.S. issuer (or issuer listed on a U.S. exchange) if, as a result of such nominee being elected to the board, the board would be comprised of a simple majority of members who are not independent or, alternatively, the compensation, nominating (including instances in which the full board serves as the compensation or nominating committee) or audit committees would include members who are not independent.
MFS will also not support a nominee to a board if we can determine that he or she attended less than 75% of the board and/or relevant committee meetings in the previous year without a valid reason stated in the proxy materials or other company communications. In addition, MFS may not support all nominees standing for re-election to a board if we can determine: (1) the board or its compensation committee has re-priced or exchanged underwater stock options since the last annual meeting of shareholders and without shareholder approval; (2) the board or relevant committee has not taken adequately responsive action to an issue that received majority support or opposition from shareholders, including MFS; (3) the board has implemented a poison pill without shareholder approval since the last annual meeting and such poison pill is not on the subsequent shareholder meetings agenda, (including those related to net-operating loss carryforwards); or (4) there are severe governance concerns at the issuer.
MFS may not support certain board nominees of U.S. issuers under certain circumstances where MFS deems compensation to be egregious due to pay-for-performance issues and/or poor pay practices. Please see the section below titled MFS Policy on Specific Issues Advisory Votes on Executive Compensation for further details.
MFS evaluates a contested or contentious election of directors on a case-by-case basis considering the long-term financial performance of the company relative to its industry, managements track record, the qualifications of all nominees, and an evaluation of what each side is offering shareholders.
Majority Voting and Director Elections
MFS votes for reasonably crafted proposals calling for directors to be elected with an affirmative majority of votes cast and/or the elimination of the plurality standard for electing directors (including binding resolutions requesting that the board amend the companys bylaws), provided the proposal includes a carve-out for a plurality voting standard when there are more director nominees than board seats (e.g., contested elections) (Majority Vote Proposals).
Classified Boards
MFS generally supports proposals to declassify a board (e.g. a board in which only one-third of board members is elected each year) for all issuers other than for certain closed-end investment companies. MFS generally opposes proposals to classify a board for issuers other than for certain closed-end investment companies.
Proxy Access
MFS analyzes proposals seeking the ability of qualifying shareholders to nominate a certain number of directors on the companys proxy statement (Proxy Access) on a case-by-case basis. In its analysis, MFS will consider the proposed ownership criteria for qualifying shareholders (such as ownership threshold and holding period) as well as the proponents rationale for seeking Proxy Access.
Stock Plans
MFS opposes stock option programs and restricted stock plans that provide unduly generous compensation for officers, directors or employees, or that could result in excessive dilution to other shareholders. As a general guideline, MFS votes against restricted stock, stock option, non-employee director, omnibus stock plans and any other stock plan if all such plans for a particular company involve potential dilution, in the aggregate, of more than 15%. However, MFS will also vote against stock plans that involve potential dilution, in aggregate, of more than 10% at U.S. issuers that are listed in the Standard and Poors 100 index as of December 31 of the previous year.
MFS also opposes stock option programs that allow the board or the compensation committee to re-price underwater options or to automatically replenish shares without shareholder approval. MFS also votes against stock option programs for officers, employees or non-employee directors that do not require an investment by the optionee, that give free rides on the stock price, or that permit grants of stock options with an exercise price below fair market value on the date the options are granted. MFS will consider proposals to exchange existing options for newly issued options, restricted stock or cash on a case-by-case basis, taking into account certain factors, including, but not limited to, whether there is a reasonable value-for-value exchange and whether senior executives are excluded from participating in the exchange.
MFS supports the use of a broad-based employee stock purchase plans to increase company stock ownership by employees, provided that shares purchased under the plan are acquired for no less than 85% of their market value and do not result in excessive dilution.
Shareholder Proposals on Executive Compensation
MFS believes that competitive compensation packages are necessary to attract, motivate and retain executives. However, MFS also recognizes that certain executive compensation practices can be excessive and not in the best, long-term economic interest of a companys shareholders. We believe that the election of an issuers board of directors (as outlined above), votes on stock plans (as outlined above) and advisory votes on pay (as outlined below) are typically the most effective mechanisms to express our view on a companys compensation practices.
MFS generally opposes shareholder proposals that seek to set rigid restrictions on executive compensation as MFS believes that compensation committees should retain some flexibility to determine the appropriate pay package for executives. Although we support linking executive stock option grants to a companys performance, MFS also opposes shareholder proposals that mandate a link of performance-based pay to a specific metric. MFS generally supports reasonably crafted shareholder proposals that (i) require the issuer to adopt a policy to recover the portion of performance-based bonuses and awards paid to senior executives that were not earned based upon a significant negative restatement of earnings unless the company already has adopted a satisfactory policy on the matter, or (ii) expressly prohibit the backdating of stock options.
Advisory Votes on Executive Compensation
MFS will analyze advisory votes on executive compensation on a case-by-case basis. MFS will vote against an advisory vote on executive compensation if MFS determines that the issuer has adopted excessive executive compensation practices and will vote in favor of an advisory vote on executive compensation if MFS has not determined that the issuer has adopted excessive executive compensation practices. Examples of excessive executive compensation practices may include, but are not limited to, a pay-for-performance disconnect, employment contract terms such as guaranteed bonus provisions, unwarranted pension payouts, backdated stock options, overly generous hiring bonuses for chief executive officers, unnecessary perquisites, or the potential reimbursement of excise taxes to an executive in regards to a severance package. In cases where MFS (i) votes against consecutive advisory pay votes, or (ii) determines that a particularly egregious excessive executive compensation practice has occurred, then MFS may also vote against certain or all board nominees. MFS may also vote against certain or all board nominees if an advisory pay vote for a U.S. issuer is not on the agenda, or the company has not implemented the advisory vote frequency supported by a plurality/ majority of shareholders.
MFS generally supports proposals to include an advisory shareholder vote on an issuers executive compensation practices on an annual basis.
Golden Parachutes
From time to time, MFS may evaluate a separate, advisory vote on severance packages or golden parachutes to certain executives at the same time as a vote on a proposed merger or acquisition. MFS will support an advisory vote on a severance package on a on a case-by-case basis, and MFS may vote against the severance package regardless of whether MFS supports the proposed merger or acquisition.
Shareholders of companies may also submit proxy proposals that would require shareholder approval of severance packages for executive officers that exceed certain predetermined thresholds. MFS votes in favor of such shareholder proposals when they would require shareholder approval of any severance package for an executive officer that exceeds a certain multiple of such officers annual compensation that is not determined in MFS judgment to be excessive.
Anti-Takeover Measures
In general, MFS votes against any measure that inhibits capital appreciation in a stock, including proposals that protect management from action by shareholders. These types of proposals take many forms, ranging from poison pills and shark repellents to super-majority requirements.
MFS generally votes for proposals to rescind existing poison pills and proposals that would require shareholder approval to adopt prospective poison pills, unless the company already has adopted a clearly satisfactory policy on the matter. MFS may consider the adoption of a prospective poison pill or the continuation of an existing poison pill if we can determine that the following two conditions are met: (1) the poison pill allows MFS clients to hold an aggregate position of up to 15% of a companys total voting securities (and of any class of voting securities); and (2) either (a) the poison pill has a term of not longer than five years, provided that MFS will consider voting in favor of the poison pill if the term does not exceed seven years and the poison pill is linked to a business strategy or purpose that MFS believes is likely to result in greater value for shareholders; or (b) the terms of the poison pill allow MFS clients the opportunity to accept a fairly structured and attractively priced tender offer (e.g. a chewable poison pill that automatically dissolves in the event of an all cash, all shares tender offer at a premium price). MFS will also consider on a case-by-case basis proposals designed to prevent tenders which are disadvantageous to shareholders such as tenders at below market prices and tenders for substantially less than all shares of an issuer.
MFS will consider any poison pills designed to protect a companys net-operating loss carryforwards on a case-by-case basis, weighing the accounting and tax benefits of such a pill against the risk of deterring future acquisition candidates.
Reincorporation and Reorganization Proposals
When presented with a proposal to reincorporate a company under the laws of a different state, or to effect some other type of corporate reorganization, MFS considers the underlying purpose and ultimate effect of such a proposal in determining whether or not to support such a measure. MFS generally votes with management in regards to these types of proposals, however, if MFS believes the proposal is in the best long-term economic interests of its clients, then MFS may vote against management (e.g. the intent or effect would be to create additional inappropriate impediments to possible acquisitions or takeovers).
Issuance of Stock
There are many legitimate reasons for the issuance of stock. Nevertheless, as noted above under Stock Plans, when a stock option plan (either individually or when aggregated with other plans of the same company) would substantially dilute the existing equity (e.g. by approximately 10-15% as described above), MFS generally votes against the plan. In addition, MFS typically votes against proposals where management is asking for authorization to issue common or preferred stock with no reason stated (a blank check) because the unexplained authorization could work as a potential anti-takeover device. MFS may also vote against the authorization or issuance of common or preferred stock if MFS determines that the requested authorization is excessive or not warranted.
Repurchase Programs
MFS supports proposals to institute share repurchase plans in which all shareholders have the opportunity to participate on an equal basis. Such plans may include a company acquiring its own shares on the open market, or a company making a tender offer to its own shareholders.
Cumulative Voting
MFS opposes proposals that seek to introduce cumulative voting and for proposals that seek to eliminate cumulative voting. In either case, MFS will consider whether cumulative voting is likely to enhance the interests of MFS clients as minority shareholders. In our view, shareholders should provide names of qualified candidates to a companys nominating committee, which, in our view, should be comprised solely of independent directors.
Written Consent and Special Meetings
The right to call a special meeting or act by written consent can be a powerful tool for shareholders. As such, MFS supports proposals requesting the right for shareholders who hold at least 10% of the issuers outstanding stock to call a special meeting. MFS also supports proposals requesting the right for shareholders to act by written consent.
Independent Auditors
MFS believes that the appointment of auditors for U.S. issuers is best left to the board of directors of the company and therefore supports the ratification of the boards selection of an auditor for the company. Some shareholder groups have submitted proposals to limit the non-audit activities of a companys audit firm or prohibit any non-audit services by a companys auditors to that company. MFS opposes proposals recommending the prohibition or limitation of the performance of non-audit services by an auditor, and proposals recommending the removal of a companys auditor due to the performance of non-audit work for the company by its auditor. MFS believes that the board, or its audit committee, should have the discretion to hire the companys auditor for specific pieces of non-audit work in the limited situations permitted under current law.
Other Business
MFS generally votes against other business proposals as the content of any such matter is not known at the time of our vote.
Adjourn Shareholder Meeting
MFS generally supports proposals to adjourn a shareholder meeting if we support the other ballot items on the meetings agenda. MFS generally votes against proposals to adjourn a meeting if we do not support the other ballot items on the meetings agenda.
Environmental, Social and Governance (ESG) Issues
MFS believes that a companys ESG practices may have an impact on the companys long-term economic financial performance and will generally support proposals relating to ESG issues that MFS believes are in the best long-term economic interest of the companys shareholders. For those ESG proposals for which a specific policy has not been adopted, MFS considers such ESG proposals on a case-by-case basis. As a result, it may vote similar proposals differently at various shareholder meetings based on the specific facts and circumstances of such proposal.
MFS generally supports proposals that seek to remove governance structures that insulate management from shareholders (i.e., anti-takeover measures) or that seek to enhance shareholder rights. Many of these governance-related issues, including compensation issues, are outlined within the context of the above guidelines. In addition, MFS typically supports proposals that
require an issuer to reimburse successful dissident shareholders (who are not seeking control of the company) for reasonable expenses that such dissident incurred in soliciting an alternative slate of director candidates. MFS also generally supports reasonably crafted shareholder proposals requesting increased disclosure around the companys use of collateral in derivatives trading. MFS typically does not support proposals to separate the chairman and CEO positions as we believe that the most beneficial leadership structure of a company should be determined by the companys board of directors. For any governance-related proposal for which an explicit guideline is not provided above, MFS will consider such proposals on a case-by-case basis and will support such proposals if MFS believes that it is in the best long-term economic interest of the companys shareholders.
MFS generally supports proposals that request disclosure on the impact of environmental issues on the companys operations, sales, and capital investments. However, MFS may not support such proposals based on the facts and circumstances surrounding a specific proposal, including, but not limited to, whether (i) the proposal is unduly costly, restrictive, or burdensome, (ii) the company already provides publicly-available information that is sufficient to enable shareholders to evaluate the potential opportunities and risks that environmental matters pose to the companys operations, sales and capital investments, or (iii) the proposal seeks a level of disclosure that exceeds that provided by the companys industry peers. MFS will analyze all other environmental proposals on a case-by-case basis and will support such proposals if MFS believes such proposal is in the best long-term economic interest of the companys shareholders.
MFS will analyze social proposals on a case-by-case basis. MFS will support such proposals if MFS believes that such proposal is in the best long-term economic interest of the companys shareholders. Generally, MFS will support shareholder proposals that (i) seek to amend a companys equal employment opportunity policy to prohibit discrimination based on sexual orientation and gender identity; and (ii) request additional disclosure regarding a companys political contributions (including trade organizations and lobbying activity) (unless the company already provides publicly-available information that is sufficient to enable shareholders to evaluate the potential opportunities and risks that such contributions pose to the companys operations, sales and capital investments).
The laws of various states or countries may regulate how the interests of certain clients subject to those laws (e.g. state pension plans) are voted with respect to social issues. Thus, it may be necessary to cast ballots differently for certain clients than MFS might normally do for other clients.
Foreign Issuers
MFS generally supports the election of a director nominee standing for re-election in uncontested or non-contentious elections unless it can be determined that (1) he or she failed to attend at least 75% of the board and/or relevant committee meetings in the previous year without a valid reason given in the proxy materials; (2) since the last annual meeting of shareholders and without shareholder approval, the board or its compensation committee has re-priced underwater stock options; or (3) since the last annual meeting, the board has either implemented a poison pill without shareholder approval or has not taken responsive action to a majority shareholder approved resolution recommending that the poison pill be rescinded. Also, certain markets outside of the U.S. have adopted best practice guidelines relating to corporate governance matters (e.g. the United Kingdoms Corporate Governance Code). Many of these guidelines operate on a comply or explain basis. As such, MFS will evaluate any explanations by companies relating to their compliance with a particular corporate governance guideline on a case-by-case basis and may vote against the board nominees or other relevant ballot item if such explanation is not satisfactory.
MFS generally supports the election of auditors, but may determine to vote against the election of a statutory auditor in certain markets if MFS reasonably believes that the statutory auditor is not truly independent.
Some international markets have also adopted mandatory requirements for all companies to hold shareholder votes on executive compensation. MFS will not support such proposals if MFS determines that a companys executive compensation practices are excessive, considering such factors as the specific markets best practices that seek to maintain appropriate pay-for-performance alignment and to create long-term shareholder value.
Many other items on foreign proxies involve repetitive, non-controversial matters that are mandated by local law. Accordingly, the items that are generally deemed routine and which do not require the exercise of judgment under these guidelines (and therefore voted with management) for foreign issuers include, but are not limited to, the following: (i) receiving financial statements or other reports from the board; (ii) approval of declarations of dividends; (iii) appointment of shareholders to sign board meeting minutes; (iv) discharge of management and supervisory boards; and (v) approval of share repurchase programs (absent any anti-takeover or other concerns). MFS will evaluate all other items on proxies for foreign companies in the context of the guidelines described above, but will generally vote against an item if there is not sufficient information disclosed in order to make an informed voting decision.
In accordance with local law or business practices, some foreign companies or custodians prevent the sales of shares that have been voted for a certain period beginning prior to the shareholder meeting and ending on the day following the meeting (share blocking). Depending on the country in which a company is domiciled, the blocking period may begin a stated number of days prior or subsequent to the meeting (e.g. one, three or five days) or on a date established by the company. While practices vary, in many countries the block period can be
continued for a longer period if the shareholder meeting is adjourned and postponed to a later date. Similarly, practices vary widely as to the ability of a shareholder to have the block restriction lifted early (e.g. in some countries shares generally can be unblocked up to two days prior to the meeting whereas in other countries the removal of the block appears to be discretionary with the issuers transfer agent). Due to these restrictions, MFS must balance the benefits to its clients of voting proxies against the potentially serious portfolio management consequences of a reduced flexibility to sell the underlying shares at the most advantageous time. For companies in countries with share blocking periods or in markets where some custodians may block shares, the disadvantage of being unable to sell the stock regardless of changing conditions generally outweighs the advantages of voting at the shareholder meeting for routine items. Accordingly, MFS will not vote those proxies in the absence of an unusual, significant vote that outweighs the disadvantage of being unable to sell the stock.
In limited circumstances, other market specific impediments to voting shares may limit our ability to cast votes, including, but not limited to, late delivery of proxy materials, power of attorney and share re-registration requirements, or any other unusual voting requirements. In these limited instances, MFS votes securities on a best efforts basis in the context of the guidelines described above.
B. | ADMINISTRATIVE PROCEDURES |
1. | MFS Proxy Voting Committee |
The administration of these MFS Proxy Voting Policies and Procedures is overseen by the MFS Proxy Voting Committee, which includes senior personnel from the MFS Legal and Global Investment Support Departments. The Proxy Voting Committee does not include individuals whose primary duties relate to client relationship management, marketing, or sales. The MFS Proxy Voting Committee:
a. | Reviews these MFS Proxy Voting Policies and Procedures at least annually and recommends any amendments considered to be necessary or advisable; |
b. | Determines whether any potential material conflict of interest exists with respect to instances in which MFS (i) seeks to override these MFS Proxy Voting Policies and Procedures; (ii) votes on ballot items not governed by these MFS Proxy Voting Policies and Procedures; (iii) evaluates an excessive executive compensation issue in relation to the election of directors; or (iv) requests a vote recommendation from an MFS portfolio manager or investment analyst (e.g. mergers and acquisitions); and |
c. | Considers special proxy issues as they may arise from time to time. |
2. | Potential Conflicts of Interest |
The MFS Proxy Voting Committee is responsible for monitoring potential material conflicts of interest on the part of MFS or its subsidiaries that could arise in connection with the voting of proxies on behalf of MFS clients. Due to the client focus of our investment management business, we believe that the potential for actual material conflict of interest issues is small. Nonetheless, we have developed precautions to assure that all proxy votes are cast in the best long-term economic interest of shareholders.1 Other MFS internal policies require all MFS employees to avoid actual and potential conflicts of interests between personal activities and MFS client activities. If an employee identifies an actual or potential conflict of interest with respect to any voting decision, then that employee must recuse himself/herself from participating in the voting process. Additionally, with respect to decisions concerning all Non-Standard Votes, as defined below, MFS will review the securities holdings reported by investment professionals that participate in such decisions to determine whether such person has a direct economic interest in the decision, in which case such person shall not further participate in making the decision. Any significant attempt by an employee of MFS or its subsidiaries to unduly influence MFS voting on a particular proxy matter should also be reported to the MFS Proxy Voting Committee.
In cases where proxies are voted in accordance with these MFS Proxy Voting Policies and Procedures, no material conflict of interest will be deemed to exist. In cases where (i) MFS is considering overriding these MFS Proxy Voting Policies and Procedures, (ii) matters presented for vote are not governed by these MFS Proxy Voting Policies and Procedures, (iii) MFS evaluates a potentially excessive executive compensation issue in relation to the election of directors or advisory pay or severance package vote, or (iv) a vote recommendation is requested from an MFS portfolio manager or investment analyst (e.g. mergers and acquisitions) (collectively, Non-Standard Votes); the MFS Proxy Voting Committee will follow these procedures:
a. | Compare the name of the issuer of such proxy against a list of significant current (i) distributors of MFS Fund shares, and (ii) MFS institutional clients (the MFS Significant Client List); |
b. | If the name of the issuer does not appear on the MFS Significant Client List, then no material conflict of interest will be deemed to exist, and the proxy will be voted as otherwise determined by the MFS Proxy Voting Committee; |
1 | For clarification purposes, note that MFS votes in what we believe to be the best, long-term economic interest of our clients entitled to vote at the shareholder meeting, regardless of whether other MFS clients hold short positions in the same issuer. |
c. | If the name of the issuer appears on the MFS Significant Client List, then the MFS Proxy Voting Committee will be apprised of that fact and each member of the MFS Proxy Voting Committee will carefully evaluate the proposed vote in order to ensure that the proxy ultimately is voted in what MFS believes to be the best long-term economic interests of MFS clients, and not in MFS corporate interests; and |
d. | For all potential material conflicts of interest identified under clause (c) above, the MFS Proxy Voting Committee will document: the name of the issuer, the issuers relationship to MFS, the analysis of the matters submitted for proxy vote, the votes as to be cast and the reasons why the MFS Proxy Voting Committee determined that the votes were cast in the best long-term economic interests of MFS clients, and not in MFS corporate interests. A copy of the foregoing documentation will be provided to MFS Conflicts Officer. |
The members of the MFS Proxy Voting Committee are responsible for creating and maintaining the MFS Significant Client List, in consultation with MFS distribution and institutional business units. The MFS Significant Client List will be reviewed and updated periodically, as appropriate.
If an MFS client has the right to vote on a matter submitted to shareholders by Sun Life Financial, Inc. or any of its affiliates (collectively Sun Life), MFS will cast a vote on behalf of such MFS client pursuant to the recommendations of Institutional Shareholder Services, Inc.s (ISS) benchmark policy, or as required by law.
Except as described in the MFS Funds prospectus, from time to time, certain MFS Funds (the top tier fund) may own shares of other MFS Funds (the underlying fund). If an underlying fund submits a matter to a shareholder vote, the top tier fund will generally vote its shares in the same proportion as the other shareholders of the underlying fund. If there are no other shareholders in the underlying fund, the top tier fund will vote in what MFS believes to be in the top tier funds best long-term economic interest. If an MFS client has the right to vote on a matter submitted to shareholders by a pooled investment vehicle advised by MFS, MFS will cast a vote on behalf of such MFS client in the same proportion as the other shareholders of the pooled investment vehicle.
3. | Gathering Proxies |
Most proxies received by MFS and its clients originate at Broadridge Financial Solutions, Inc. (Broadridge). Broadridge and other service providers, on behalf of custodians, send proxy related material to the record holders of the shares beneficially owned by MFS clients, usually to the clients proxy voting administrator or, less commonly, to the client itself. This material will include proxy ballots reflecting the shareholdings of Funds and of clients on the record dates for such shareholder meetings, as well as proxy materials with the issuers explanation of the items to be voted upon.
MFS, on behalf of itself and certain of its clients (including the MFS Funds) has entered into an agreement with an independent proxy administration firm pursuant to which the proxy administration firm performs various proxy vote related administrative services such as vote processing and recordkeeping functions. Except as noted below, the proxy administration firm for MFS and its clients, including the MFS Funds, is ISS. The proxy administration firm for MFS Development Funds, LLC is Glass, Lewis & Co., Inc. (Glass Lewis; Glass Lewis and ISS are each hereinafter referred to as the Proxy Administrator).
The Proxy Administrator receives proxy statements and proxy ballots directly or indirectly from various custodians, logs these materials into its database and matches upcoming meetings with MFS Fund and client portfolio holdings, which are input into the Proxy Administrators system by an MFS holdings data-feed. Through the use of the Proxy Administrator system, ballots and proxy material summaries for all upcoming shareholders meetings are available on-line to certain MFS employees and members of the MFS Proxy Voting Committee.
It is the responsibility of the Proxy Administrator and MFS to monitor the receipt of ballots. When proxy ballots and materials for clients are received by the Proxy Administrator, they are input into the Proxy Administrators on-line system. The Proxy Administrator then reconciles a list of all MFS accounts that hold shares of a companys stock and the number of shares held on the record date by these accounts with the Proxy Administrators list of any upcoming shareholders meeting of that company. If a proxy ballot has not been received, the Proxy Administrator contacts the custodian requesting the reason as to why a ballot has not been received.
4. | Analyzing Proxies |
Proxies are voted in accordance with these MFS Proxy Voting Policies and Procedures. The Proxy Administrator, at the prior direction of MFS, automatically votes all proxy matters that do not require the particular exercise of discretion or judgment with respect to these MFS Proxy Voting Policies and Procedures as determined by MFS. With respect to proxy matters that require the particular exercise of discretion or judgment, the MFS Proxy Voting Committee considers and votes on those proxy matters. MFS also receives research and recommendations from the Proxy Administrator which it may take into account in deciding how to vote. MFS uses the research of ISS to identify (i) circumstances in which a board may have approved excessive executive compensation, (ii) environmental and social proposals that warrant consideration or (iii) circumstances in which a non-U.S. company is not in compliance with local governance or compensation best practices. In those situations where the only
MFS fund that is eligible to vote at a shareholder meeting has Glass Lewis as its Proxy Administrator, then we will rely on research from Glass Lewis to identify such issues. Representatives of the MFS Proxy Voting Committee review, as appropriate, votes cast to ensure conformity with these MFS Proxy Voting Policies and Procedures.
As a general matter, portfolio managers and investment analysts have little or no involvement in most votes taken by MFS. This is designed to promote consistency in the application of MFS voting guidelines, to promote consistency in voting on the same or similar issues (for the same or for multiple issuers) across all client accounts, and to minimize the potential that proxy solicitors, issuers, or third parties might attempt to exert inappropriate influence on the vote. In limited types of votes (e.g. mergers and acquisitions, capitalization matters, potentially excessive executive compensation issues, or shareholder proposals relating to environmental and social issues), a representative of MFS Proxy Voting Committee may consult with or seek recommendations from MFS portfolio managers or investment analysts.2 However, the MFS Proxy Voting Committee would ultimately determine the manner in which all proxies are voted.
As noted above, MFS reserves the right to override the guidelines when such an override is, in MFS best judgment, consistent with the overall principle of voting proxies in the best long-term economic interests of MFS clients. Any such override of the guidelines shall be analyzed, documented and reported in accordance with the procedures set forth in these policies.
5. | Voting Proxies |
In accordance with its contract with MFS, the Proxy Administrator also generates a variety of reports for the MFS Proxy Voting Committee, and makes available on-line various other types of information so that the MFS Proxy Voting Committee may review and monitor the votes cast by the Proxy Administrator on behalf of MFS clients.
6. | Securities Lending |
From time to time, the MFS Funds or other pooled investment vehicles sponsored by MFS may participate in a securities lending program. In the event MFS or its agent receives timely notice of a shareholder meeting for a U.S. security, MFS and its agent will attempt to recall any securities on loan before the meetings record date so that MFS will be entitled to vote these shares. However, there may be instances in which MFS is unable to timely recall securities on loan
2 | From time to time, due to travel schedules and other commitments, an appropriate portfolio manager or research analyst may not be available to provide a vote recommendation. If such a recommendation cannot be obtained within a reasonable time prior to the cut-off date of the shareholder meeting, the MFS Proxy Voting Committee may determine to abstain from voting. |
for a U.S. security, in which cases MFS will not be able to vote these shares. MFS will report to the appropriate board of the MFS Funds those instances in which MFS is not able to timely recall the loaned securities. MFS generally does not recall non-U.S. securities on loan because there may be insufficient advance notice of proxy materials, record dates, or vote cut-off dates to allow MFS to timely recall the shares in certain markets. As a result, non-U.S. securities that are on loan will not generally be voted. If MFS receives timely notice of what MFS determines to be an unusual, significant vote for a non-U.S. security whereas MFS shares are on loan, and determines that voting is in the best long-term economic interest of shareholders, then MFS will attempt to timely recall the loaned shares.
7. | Engagement |
The MFS Proxy Voting Policies and Procedures are available on www.mfs.com and may be accessed by both MFS clients and the companies in which MFS clients invest. From time to time, MFS may determine that it is appropriate and beneficial for representatives from the MFS Proxy Voting Committee to engage in a dialogue or written communication with a company or other shareholders regarding certain matters on the companys proxy statement that are of concern to shareholders, including environmental, social and governance matters. A company or shareholder may also seek to engage with representatives of the MFS Proxy Voting Committee in advance of the companys formal proxy solicitation to review issues more generally or gauge support for certain contemplated proposals.
C. | RECORDS RETENTION |
MFS will retain copies of these MFS Proxy Voting Policies and Procedures in effect from time to time and will retain all proxy voting reports submitted to the Board of Trustees and Board of Managers of the MFS Funds for the period required by applicable law. Proxy solicitation materials, including electronic versions of the proxy ballots completed by representatives of the MFS Proxy Voting Committee, together with their respective notes and comments, are maintained in an electronic format by the Proxy Administrator and are accessible on-line by the MFS Proxy Voting Committee. All proxy voting materials and supporting documentation, including records generated by the Proxy Administrators system as to proxies processed, including the dates when proxy ballots were received and submitted, and the votes on each companys proxy issues, are retained as required by applicable law.
D. | REPORTS |
MFS Funds
MFS publicly discloses the proxy voting records of the MFS Funds on an annual basis, as required by law. MFS will also report the results of its voting to the Board of Trustees and Board of Managers of the MFS Funds. These reports will include: (i) a summary of how votes were cast (including advisory votes on pay and golden parachutes); (ii) a summary of votes against managements recommendation; (iii) a review of situations where MFS did not vote in accordance with the guidelines and the rationale therefore; (iv) a review of the procedures used by MFS to identify material conflicts of interest and any matters identified as a material conflict of interest; (v) a review of these policies and the guidelines; (vi) a review of our proxy engagement activity; (vii) a report and impact assessment of instances in which the recall of loaned securities of a U.S. issuer was unsuccessful; and (viii) as necessary or appropriate, any proposed modifications thereto to reflect new developments in corporate governance and other issues. Based on these reviews, the Trustees and Managers of the MFS Funds will consider possible modifications to these policies to the extent necessary or advisable.
All MFS Advisory Clients
MFS may publicly disclose the proxy voting records of certain clients or the votes it casts with respect to certain matters as required by law. At any time, a report can also be printed by MFS for each client who has requested that MFS furnish a record of votes cast. The report specifies the proxy issues which have been voted for the client during the year and the position taken with respect to each issue and, upon request, may identify situations where MFS did not vote in accordance with the MFS Proxy Voting Policies and Procedures.
Except as described above, MFS generally will not divulge actual voting practices to any party other than the client or its representatives because we consider that information to be confidential and proprietary to the client. However, as noted above, MFS may determine that it is appropriate and beneficial to engage in a dialogue with a company regarding certain matters. During such dialogue with the company, MFS may disclose the vote it intends to cast in order to potentially effect positive change at a company in regards to environmental, social or governance issues.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Information regarding the portfolio manager(s) of the MFS Intermediate High Income Fund (the Fund) is set forth below. Each portfolio manager is primarily responsible for the day-to-day management of the Fund.
Portfolio Manager |
Primary Role |
Since |
Title and Five Year History | |||
William J. Adams |
Lower Quality Debt Instruments Portfolio Manager |
2011 | Investment Officer of MFS; employed in the investment area of MFS since 2009, Credit Analyst at MFS from 1997 to 2005. | |||
David P. Cole |
Portfolio Manager | 2007 | Investment Officer of MFS; employed in the investment area of MFS since 2004. |
Compensation
Portfolio manager compensation is reviewed annually. As of December 31, 2012, portfolio manager total cash compensation is a combination of base salary and performance bonus:
Base Salary Base salary represents a smaller percentage of portfolio manager total cash compensation than performance bonus.
Performance Bonus Generally, the performance bonus represents more than a majority of portfolio manager total cash compensation.
The performance bonus is based on a combination of quantitative and qualitative factors, generally with more weight given to the former and less weight given to the latter.
The quantitative portion is based on the pre-tax performance of assets managed by the portfolio manager over one-, three-, and five-year periods relative to peer group universes and/or indices (benchmarks). As of December 31, 2012, the following benchmarks were used to measure the following portfolio managers performance for the Fund:
Fund | Portfolio Manager | Benchmark(s) | ||
MFS Intermediate High Income Fund |
William J. Adams | Barclays U.S. High-Yield Corporate Bond Index | ||
David P. Cole | Barclays U.S. High-Yield Corporate Bond Index |
Additional or different benchmarks, including versions of indices, custom indices, and linked indices that combine performance of different indices for different portions of the time period, may also be used. Primary weight is given to portfolio performance over a three-year time period with lesser consideration given to portfolio performance over one- and five-year periods (adjusted as appropriate if the portfolio manager has served for less than five years).
The qualitative portion is based on the results of an annual internal peer review process (conducted by other portfolio managers, analysts, and traders) and managements assessment of overall portfolio manager contributions to investor relations and the investment process (distinct from fund and other account performance). This performance bonus may be in the form of cash and/or a deferred cash award, at the discretion of management. A deferred cash award is issued for a cash value and becomes payable over a three-year vesting period if the portfolio manager remains in the continuous employ of MFS or its affiliates. During the vesting period, the value of the unfunded deferred cash award will fluctuate as though the portfolio manager had invested the cash value of the award in an MFS Fund(s) selected by the portfolio manager. A selected fund may be, but is not required to be, a fund that is managed by the portfolio manager.
Portfolio managers also typically benefit from the opportunity to participate in the MFS Equity Plan. Equity interests and/or options to acquire equity interests in MFS or its parent company are awarded by management, on a discretionary basis, taking into account tenure at MFS, contribution to the investment process, and other factors.
Finally, portfolio managers also participate in benefit plans (including a defined contribution plan and health and other insurance plans) and programs available generally to other employees of MFS. The percentage such benefits represent of any portfolio managers compensation depends upon the length of the individuals tenure at MFS and salary level, as well as other factors.
Ownership of Fund Shares
The following table shows the dollar range of equity securities of the Fund beneficially owned by the Funds portfolio manager(s) as of the Funds fiscal year ended November 30, 2013. The following dollar ranges apply:
N. None
A. $1 - $10,000
B. $10,001 - $50,000
C. $50,001 - $100,000
D. $100,001 - $500,000
E. $500,001 - $1,000,000
F. Over $1,000,000
Name of Portfolio Manager |
Dollar Range of Equity Securities in Fund |
|||
William J. Adams |
N | |||
David P. Cole |
N |
Other Accounts
In addition to the Fund, the portfolio manager of the Fund is named as a portfolio manager of certain other accounts managed or subadvised by MFS or an affiliate. The number and assets of these accounts were as follows as of November 30, 2013:
Registered Investment Companies* |
Other Pooled Investment Vehicles |
Other Accounts | ||||||||||||||||||||||
Name |
Number of Accounts |
Total Assets |
Number of Accounts |
Total Assets |
Number of Accounts |
Total Assets |
||||||||||||||||||
William J. Adams |
12 | $ | 7.5 billion | 3 | $ | 1.3 billion | 1 | $ | 102.3 million | |||||||||||||||
David P. Cole |
12 | $ | 7.5 billion | 1 | $ | 920.9 million | 1 | $ | 102.3 million |
* | Includes the Fund. |
Advisory fees are not based upon performance of any of the accounts identified in the table above.
Potential Conflicts of Interest
The Adviser seeks to identify potential conflicts of interest resulting from a portfolio managers management of both the Fund and other accounts, and has adopted policies and procedures designed to address such potential conflicts.
The management of multiple funds and accounts (including proprietary accounts) gives rise to potential conflicts of interest if the funds and accounts have different objectives and strategies, benchmarks, time horizons and fees as a portfolio manager must allocate his or
her time and investment ideas across multiple funds and accounts. In certain instances there are securities which are suitable for the Funds portfolio as well as for accounts of the Adviser or its subsidiaries with similar investment objectives. The Funds trade allocation policies may give rise to conflicts of interest if the Funds orders do not get fully executed or are delayed in getting executed due to being aggregated with those of other accounts of the Adviser or its subsidiaries. A portfolio manager may execute transactions for another fund or account that may adversely affect the value of the Funds investments. Investments selected for funds or accounts other than the Fund may outperform investments selected for the Fund.
When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed by the Adviser to be fair and equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as the Fund is concerned. In most cases, however, the Adviser believes that the Funds ability to participate in volume transactions will produce better executions for the Fund.
The Adviser and/or a portfolio manager may have a financial incentive to allocate favorable or limited opportunity investments or structure the timing of investments to favor accounts other than the Fund, for instance, those that pay a higher advisory fee and/or have a performance adjustment and/or include an investment by the portfolio manager.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
MFS Intermediate High Income Fund | ||||||||||||||||
Period |
(a) Total number of Shares Purchased |
(b) Average Price Paid per Share |
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs |
||||||||||||
12/01/12-12/31/12 |
0 | N/A | 0 | 2,095,336 | ||||||||||||
1/01/13-1/31/13 |
0 | N/A | 0 | 2,095,336 | ||||||||||||
2/01/13-2/28/13 |
0 | N/A | 0 | 2,095,336 | ||||||||||||
3/01/13-3/31/13 |
0 | N/A | 0 | 2,107,020 | ||||||||||||
4/01/13-4/30/13 |
0 | N/A | 0 | 2,107,020 | ||||||||||||
5/01/13-5/31/13 |
0 | N/A | 0 | 2,107,020 | ||||||||||||
6/01/13-6/30/13 |
0 | N/A | 0 | 2,107,020 | ||||||||||||
7/01/13-7/31/13 |
0 | N/A | 0 | 2,107,020 | ||||||||||||
8/01/13-8/31/13 |
0 | N/A | 0 | 2,107,020 | ||||||||||||
9/1/13-9/30/13 |
0 | N/A | 0 | 2,107,020 | ||||||||||||
10/1/13-10/31/13 |
0 | N/A | 0 | 2,107,020 | ||||||||||||
11/1/13-11/30/13 |
0 | N/A | 0 | 2,107,020 | ||||||||||||
|
|
|
|
|||||||||||||
Total |
0 | 0 | ||||||||||||||
|
|
|
|
Note: The Board of Trustees approves procedures to repurchase shares annually. The notification to shareholders of the program is part of the semi-annual and annual reports sent to shareholders. These annual programs begin on March 1st of each year. The programs conform to the conditions of Rule 10b-18 of the Securities Exchange Act of 1934 and limit the aggregate number of shares that may be purchased in each annual period (March 1 through the following February 28) to 10% of the Registrants outstanding shares as of the first day of the plan year (March 1). The aggregate number of shares available for purchase for the March 1, 2013 plan year is 2,107,020.
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 Registrants 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 or this Item.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | Based upon their evaluation of the registrants disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the Act)) as conducted within 90 days of the filing date of this Form N-CSR, the registrants 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 Commissions rules and forms. |
(b) | There were no changes in the registrants internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter covered by the report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. |
ITEM 12. | EXHIBITS. |
(a) | File the exhibits listed below as part of this form. Letter or number the exhibits in the sequence indicated. |
(1) | Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Code of Ethics attached hereto. |
(2) | A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto. |
(3) | Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the Registrant to 10 or more persons. Not applicable. |
(b) | If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed filed for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: Attached hereto. |
Notice
A copy of the Agreement and Declaration of Trust, as amended, 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 INTERMEDIATE HIGH INCOME FUND
By (Signature and Title)* | JOHN M. CORCORAN | |
John M. Corcoran, President |
Date: January 15, 2014
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)* | JOHN M. CORCORAN | |
John M. Corcoran, President (Principal Executive Officer) |
Date: January 15, 2014
By (Signature and Title)* | DAVID L. DILORENZO | |
David L. DiLorenzo, Treasurer (Principal Financial Officer and Accounting Officer) |
Date: January 15, 2014
* | Print name and title of each signing officer under his or her signature. |
EX-99.COE
Code of Ethics for Principal Executive and Principal Financial Officers
Owner: |
Effective Date: February 22, 2010 | |
General Counsel/Chief Legal Officer |
Replaces Policy Version Dated: September 2003, last revised January 1, 2012 | |
Contact Person: Mark Polebaum Susan Newton |
Policy Committee Approval: January 12, 2012 |
Applicability: MFS Funds
I. | Policy Purpose and Summary |
Section 406 of the Sarbanes-Oxley Act requires that the each MFS Fund registered under the Investment Company Act of 1940 adopt a code of ethics for senior financial officers, applicable to its principal financial officer and principal accounting officer.
II. | Overview |
A. | Covered Officers/Purpose of the Code |
This code of ethics (this Code) has been adopted by the funds (collectively, Funds and each, Fund) under supervision of the MFS Funds Board (the Board) and applies to the Funds Principal Executive Officer and Principal Financial Officer (the Covered Officers each of whom is set forth in Exhibit A) for the purpose of promoting:
| honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| full, fair, accurate, timely and understandable disclosure in reports and documents that the Funds file with, or submit to, the Securities and Exchange Commission (SEC) and in other public communications made by the Funds; |
| compliance by the Funds with applicable laws and governmental rules and regulations; |
| the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and |
| accountability for adherence to the Code. |
B. | Conduct Guidelines |
Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. In addition, each Covered Officer should not place his or her personal interests ahead of the Funds interests and should endeavor to act honestly and ethically. In furtherance of the foregoing, each Covered Officer must:
| not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting for any Fund whereby the Covered Officer would benefit personally to the detriment of the Fund; and |
| not cause a Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the Fund. |
The following activities, which could create the appearance of a conflict of interest, are permitted only with the approval of the Funds Chief Legal Officer (CLO):
| service as a director on the board of any for profit company; |
| running for political office; |
| the receipt of any Fund business-related gift in excess of $300; |
| the receipt of any entertainment from any company with which a Fund has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; |
| any material ownership interest in, or any consulting or employment relationship with, any Fund service providers (e.g., custodian banks, audit firms), other than the Funds investment adviser, principal underwriter, administrator or any affiliated person thereof; |
| a direct or indirect financial interest in commissions, transaction charges or spreads paid by a Fund for effecting portfolio transactions or for selling or redeeming shares, other than an interest arising from the Covered Officers employment or securities ownership. |
C. | Disclosure and Compliance |
| Each Covered Officer should familiarize himself or herself with the disclosure requirements generally applicable to the Funds; |
| each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about a Fund to others, whether within or outside the Fund, including to the Funds trustees and auditors, and to governmental regulators and self-regulatory organizations; |
| each Covered Officer should, to the extent appropriate within his or her area of Fund responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and |
| it is the responsibility of each Covered Officer to promote compliance within his or her area of Fund responsibility with the standards and restrictions imposed by applicable laws, rules and regulations. |
D. | Reporting and Accountability |
Each Covered Officer must:
| upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he or she has received, read, and understands the Code; |
| annually thereafter affirm to the Boards that he or she has complied with the requirements of the Code; |
| annually report to the CLO affiliations and relationships which are or may raise the appearance of a conflict of interest with the Covered Officers duties to the Funds, as identified in the annual Trustee and Officer Questionnaire; |
| not retaliate against any other Covered Officer or any officer or employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and |
| notify the CLO promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. |
The CLO is responsible for applying this Code to specific situations in which questions are presented under it, granting waivers upon consultation with the appropriate Board or its designee, investigating violations, and has the authority to interpret this Code in any particular situation. The CLO will report requests for waivers to the appropriate Board (or a designee thereof) promptly upon receipt of a waiver request and will periodically report to the appropriate Board any approvals granted since the last report.
The CLO will take all appropriate action to investigate any potential violations reported to him or her and to report any violations to the appropriate Board. If the Board concurs that a violation has occurred, it will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer.
Any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules.
E. | Confidentiality |
All reports and records prepared or maintained pursuant to this Code and under the direction of the CLO will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Funds Board, its counsel, counsel to the Boards independent trustees and senior management and the board of directors of the Funds investment adviser and its counsel.
F. | Internal Use |
The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion.
III. | Supervision |
The Board of Trustees of the Fund, including a majority of the Trustees who are not interested persons (as defined in the 1940 Act) of the Fund, shall review no less frequently than annually, a report from the CLO regarding the affirmations of the principal executive officer and the principal financial officer as to compliance with this Code.
IV. | Interpretation and Escalation |
Breaches of the Code are reviewed by the CLO and communicated to the Board of Trustees of the affected Fund(s). Interpretations of this Policy shall be made from time to time by the CLO, as needed, and questions regarding the application of this Policy to a specific set of facts are escalated to the CLO.
V. | Authority |
Section 406 of the Sarbanes-Oxley Act.
VI. | Monitoring |
Adherence to this policy is monitored by the CLO.
VII. | Related Policies |
This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds and their investment advisers codes of ethics under Rule 17j-1 under the Investment Company Act and any other codes or policies or procedures adopted by the Funds or their investment adviser or other service providers are separate requirements and are not part of this Code.
VIII. | Amendment |
Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of each Board, including a majority of independent trustees.
IX. | Recordkeeping |
All required books, records and other documentation shall be retained in accordance with MFS related record retention policy.
Additional procedures may need to be implemented by departments to properly comply with this policy.
Exhibit A
As of January 1, 2012
Persons Covered by this Code of Ethics
Funds Principal Executive Officer: John M. Corcoran
Funds Principal Financial Officer: David L. DiLorenzo
EX-99.302CERT
MFS INTERMEDIATE HIGH INCOME FUND
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, David L. DiLorenzo, certify that:
1. | I have reviewed this report on Form N-CSR of MFS Intermediate High Income Fund; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
d. | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: January 15, 2014 | DAVID L. DILORENZO | |||
David L. DiLorenzo Treasurer (Principal Financial Officer and Accounting Officer) |
EX-99.302CERT
MFS INTERMEDIATE HIGH INCOME FUND
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, John M. Corcoran, certify that:
1. | I have reviewed this report on Form N-CSR of MFS Intermediate High Income Fund; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
d. | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: January 15, 2014 | JOHN M. CORCORAN | |||
John M. Corcoran President (Principal Executive Officer) |
EX-99.906CERT
MFS INTERMEDIATE HIGH INCOME FUND
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
I, David L. DiLorenzo, certify that, to my knowledge:
1. | The Form N-CSR (the Report) of MFS Intermediate High Income Fund (the Registrant) fully complies for the period covered by the Report with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
Date: January 15, 2014 | DAVID L. DILORENZO | |||
David L. DiLorenzo Treasurer (Principal Financial Officer and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.
EX-99.906CERT
MFS INTERMEDIATE HIGH INCOME FUND
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
I, John M. Corcoran, certify that, to my knowledge:
1. | The Form N-CSR (the Report) of MFS Intermediate High Income Fund (the Registrant) fully complies for the period covered by the Report with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
Date: January 15, 2014 | JOHN M. CORCORAN | |||
John M. Corcoran President (Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.
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