MFS® Intermediate High Income Fund
New York Stock Exchange Symbol: CIF
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
LETTER
FROM THE EXECUTIVE CHAIR
Dear Shareholders:
Slowing global growth, low inflation, and trade friction between the United States and China have been hallmarks of the past 12 months. After experiencing an uptick
in
market volatility in late 2018, markets steadied for most of 2019, thanks in large measure to the adoption of a dovish policy stance on the part of global central banks, focused on supporting
economic growth. Negotiations aimed at a phase one trade deal between the U.S. and China are at an advanced stage, boosting investor sentiment, though uncertainty persists. Signs of stability emerging from the global manufacturing sector
have also lifted spirits. Uncertainty over Brexit, along with the ripple effects from the trade conflict, hampered business confidence and investment in the U.K. and Europe, though investors hope that the result of Decembers general election,
which the pro-Brexit Conservative Party won by a comfortable margin, will bring
greater clarity as the U.K. is on pace to leave the EU at the end of January 2020.
Markets expect
that the longest economic expansion in U.S. history will continue for the time being, albeit at a slower pace, especially if trade tensions recede. In an effort to prolong the expansion, the U.S. Federal Reserve lowered interest rates three times
between July and October. Similarly, the European Central Bank loosened policy in September. While the monetary policy environment remains quite accommodative, signs of easing trade tensions and fading global recession fears have helped push global
interest rates modestly higher from the record-low levels posted late in the summer as investors grew less risk averse.
Here at MFS®, we aim to help our clients navigate the growing complexity of the markets and world economies. Our long-term investment philosophy and commitment to the responsible allocation of capital allow us
to tune out the noise and uncover what we believe are the best, most durable investment opportunities in the market. Through our powerful global investment platform, we combine collective expertise, thoughtful risk management and long-term
discipline to create sustainable value for investors.
Respectfully,
Robert J. Manning
Executive Chair
MFS Investment Management
January 15, 2020
The opinions expressed in this letter are
subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
1
PORTFOLIO COMPOSITION
Portfolio structure (i)
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Top five industries (i)
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Cable TV
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12.7%
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Medical & Health Technology & Services
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10.1%
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Telecommunications Wireless
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8.0%
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Building
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7.8%
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Gaming & Lodging
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6.6%
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Composition including fixed income credit quality (a)(i)
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BBB
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5.9%
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BB
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71.0%
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B
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47.6%
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CCC
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14.8%
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CC
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0.2%
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Not Rated
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(3.8)%
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Non-Fixed Income
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0.4%
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Cash & Cash Equivalents (Less Liabilities)
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(39.9)%
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Other
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3.8%
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Portfolio facts (i)
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Average Duration (d)
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3.8
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Average Effective Maturity (m)
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3.5 yrs.
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(a)
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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
and fixed income derivatives, which have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives) and/or commodity-linked
derivatives. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies.
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(d)
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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.
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2
Portfolio Composition continued
(i)
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For purposes of this presentation, the components include the 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 value. The bond component will include any accrued interest amounts.
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(m)
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In determining each 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.
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Where the fund
holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash,
investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the funds cash position and other assets and liabilities.
From time to time Cash & Cash Equivalents may be negative due to borrowings for leverage transactions and/or timing of cash receipts and
disbursements.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions.
Percentages are based on net assets as of November 30, 2019.
The portfolio is actively managed and current holdings may be different.
3
MANAGEMENT REVIEW
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, 2019, shares of the fund provided a
total return of 14.52%, at net asset value and a total return of 29.74%, at market value. This compares with a return of 9.68% for the funds benchmark, the Bloomberg Barclays U.S. High-Yield Corporate Bond 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
Fading fears of a near-term global
recession, hopes for a partial trade deal between the United States and China and dramatically lower odds of a no-deal Brexit helped bolster market sentiment late in the period, causing headwinds experienced
for many months prior to die down. Changes in market sentiment, largely driven by uncertainty over the outcome of trade negotiations between the US and China, contributed to periodic bouts of volatility during the reporting period. The global
economy decelerated, led by weakness in China and Europe, although the pace of the slowdown moderated late in the period amid signs of stabilization in the manufacturing sector.
The deteriorating global growth backdrop, along with declining inflationary pressures, prompted the US Federal Reserve to adopt a more dovish posture beginning in early 2019, resulting in the first interest rate
cut in over a decade at the end of July, followed by additional cuts in September and October. The Feds actions led to a sharp decline in long-term interest rates during the periods second half, causing the inversion of portions of the
US Treasury yield curve for a time. The Fed indicated in October that further rate cuts are unlikely unless the outlook for the economy materially worsens.
Globally, central banks have tilted more dovish as well, with the European Central Bank unveiling a package of easing measures, which included cutting overnight rates further sending them deeper into
negative territory restarting its bond-buying program and lengthening the term of cheap loans to banks to three years from two. The central banks of India and Australia are among those that have cut rates several times in recent months,
although China has been more cautious in increasing liquidity as it continues to attempt to deleverage its economy, cutting rates only marginally.
Emerging markets experienced considerable volatility through the end of 2018, as tighter global financial conditions exposed structural weakness in some countries.
Those conditions improved in 2019 as the Fed became more dovish, but significant trade friction between the US and China weighed on sentiment for much of the year, although hopes for a partial trade deal improved sentiment late in the period.
Idiosyncratic factors negatively impacted some emerging economies, such as Argentina and Turkey.
4
Management Review continued
From a geopolitical perspective, Brexit uncertainty has receded as a UK general
election in early December provided some much needed clarity, assuring that the UK will leave the EU on January 31, 2020, though the two sides have a narrow window in which to negotiate their future trade relationship by the end of next year.
Further boosting risk sentiment was the announcement of a partial trade agreement between China and the US.
Factors Affecting Performance
The funds underweight allocation to the energy sector, particularly within the CCC rated (r) bonds, contributed to performance relative to the Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index. The funds greater exposure to both BB and BBB rated securities also helped in relative terms. Security selection within the consumer
non-cyclicals, energy and technology sectors further supported relative results. Additionally, the funds longer duration (d) stance was another factor supporting relative returns as interest rates generally fell throughout the reporting period.
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 positively impacted performance.
Conversely, the funds lesser exposure to the financial institutions sector and greater exposure to the consumer cyclicals sector, particularly
within BBB rated securities, held back relative results.
Respectfully,
Portfolio Manager(s)
David Cole and Michael Skatrud
(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.
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(r)
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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 the ratings 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.
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The
views expressed in this report are those of the portfolio manager(s) 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 11/30/19
The following chart presents 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
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Date
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Price
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Year Ended 11/30/19
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Net Asset Value
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11/30/19
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$2.56
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11/30/18
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$2.46
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New York Stock Exchange Price
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11/30/19
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$2.70
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11/08/19
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(high) (t)
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$2.77
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12/21/18
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(low) (t)
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$2.04
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11/30/18
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$2.29
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Total Returns vs Benchmark(s)
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Year Ended 11/30/19
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MFS Intermediate High Income Fund at
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New York Stock Exchange Price (r)
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29.74%
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Net Asset Value (r)
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14.52%
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Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index (f)
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9.68%
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(f)
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Source: FactSet Research Systems Inc.
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(r)
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Includes reinvestment of all distributions.
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(t)
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For the period December 1, 2018 through November 30, 2019.
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Benchmark Definition(s)
Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer
Capped Index a component of the Bloomberg 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%. BLOOMBERG® is a
trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively Bloomberg). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, Barclays), used under
license. Bloomberg or Bloombergs licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any
information herein, or makes any warranty, express or implied,
6
Performance Summary continued
as to the results to be obtained therefrom, and, to the maximum extent allowed by law,
neither shall have any liability or responsibility for injury or damages arising in connection therewith.
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 shares, and shares purchased at a premium would receive less than the amount paid
for them in the event of the funds concurrent liquidation.
The funds target annual distribution rate is calculated based on an annual rate
of 9.50% of the funds average monthly net asset value, not a fixed share price, and the funds dividend amount will fluctuate with changes in the funds average monthly net assets.
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 MANAGERS PROFILES
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Portfolio Manager
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Primary Role
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Since
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Title and Five Year History
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David Cole
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Portfolio
Manager
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2007
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Investment Officer of MFS; employed in the investment management area of MFS since 2004.
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Michael Skatrud
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Portfolio
Manager
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2018
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Investment Officer of MFS; employed in the investment management area of MFS since 2013.
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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. The tax status of dividends and capital gain distributions does not change 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.
If your shares are held directly with the Plan Agent, you may withdraw from the Plan at any time by going to the Plan Agents website at
www.computershare.com/investor, 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 505005, Louisville, KY 40233-5005. 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/investor, or by writing to the Plan Agent at P.O. Box 505005, Louisville, KY 40233-5005.
9
PORTFOLIO OF INVESTMENTS
11/30/19
The Portfolio of Investments is a
complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
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Bonds - 135.7%
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Issuer
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Shares/Par
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Value ($)
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Aerospace - 2.7%
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Bombardier, Inc., 7.5%, 3/15/2025 (n)
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$
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283,000
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$
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286,537
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F-Brasile S.p.A./F-Brasile U.S. LLC, 7.375%, 8/15/2026 (n)
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200,000
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211,000
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TransDigm, Inc., 6.5%, 7/15/2024
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215,000
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221,719
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TransDigm, Inc., 6.25%, 3/15/2026 (n)
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200,000
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214,750
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TransDigm, Inc., 6.375%, 6/15/2026
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185,000
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194,428
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TransDigm, Inc., 5.5%, 11/15/2027 (n)
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220,000
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220,000
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$
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1,348,434
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Automotive - 3.2%
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Allison Transmission, Inc., 5%, 10/01/2024 (n)
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$
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625,000
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$
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639,844
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Allison Transmission, Inc., 4.75%, 10/01/2027 (n)
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50,000
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51,375
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Allison Transmission, Inc., 5.875%, 6/01/2029 (n)
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20,000
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21,575
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Dana, Inc., 5.375%, 11/15/2027
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98,000
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99,245
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IAA Spinco, Inc., 5.5%, 6/15/2027 (n)
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230,000
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241,869
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KAR Auction Services, Inc., 5.125%, 6/01/2025 (n)
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230,000
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233,737
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Panther BR Aggregator 2 LP/Panther Finance Co., Inc., 8.5%, 5/15/2027 (n)
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310,000
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316,587
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$
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1,604,232
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Broadcasting - 5.6%
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Diamond Sports Group, LLC/Diamond Sports Finance Co., 6.625%, 8/15/2027 (n)
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$
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260,000
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$
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253,424
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iHeartCommunications, Inc., 6.375%, 5/01/2026 (n)
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35,000
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37,800
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iHeartCommunications, Inc., 5.25%, 8/15/2027 (n)
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55,000
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56,510
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Liberty Media Corp. - Liberty Formula One, 8.5%, 7/15/2029
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170,000
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172,975
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Lions Gate Capital Holding Co., 5.875%, 11/01/2024
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80,000
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77,018
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Match Group, Inc., 6.375%, 6/01/2024
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295,000
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310,119
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Match Group, Inc., 5%, 12/15/2027 (n)
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200,000
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205,000
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Motion Bondco DAC, 6.625%, 11/15/2027 (n)
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200,000
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206,000
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National CineMedia, LLC, 5.875%, 4/15/2028 (n)
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150,000
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156,375
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Netflix, Inc., 5.875%, 2/15/2025
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415,000
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454,529
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Netflix, Inc., 5.875%, 11/15/2028
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160,000
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174,800
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Nexstar Escrow Corp., 5.625%, 7/15/2027 (n)
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235,000
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247,544
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WMG Acquisition Corp., 5%, 8/01/2023 (n)
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65,000
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66,462
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WMG Acquisition Corp., 4.875%, 11/01/2024 (n)
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330,000
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340,725
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WMG Acquisition Corp., 5.5%, 4/15/2026 (n)
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65,000
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68,575
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$
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2,827,856
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Brokerage & Asset Managers - 0.7%
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LPL Holdings, Inc., 4.625%, 11/15/2027 (n)
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$
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365,000
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$
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369,562
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10
Portfolio of Investments continued
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Issuer
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Shares/Par
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Value ($)
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Bonds - continued
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Building - 7.7%
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ABC Supply Co., Inc., 5.875%, 5/15/2026 (n)
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$
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275,000
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$
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291,844
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ABC Supply Co., Inc., 4%, 1/15/2028 (n)
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355,000
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355,444
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Beacon Escrow Corp., 4.875%, 11/01/2025 (n)
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273,000
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265,151
|
|
Beacon Roofing Supply, Inc., 4.5%, 11/15/2026 (n)
|
|
|
105,000
|
|
|
|
106,050
|
|
Core & Main LP, 8.625%, (8.625% cash or 9.375% PIK) 9/15/2024 (p)
|
|
|
85,000
|
|
|
|
87,763
|
|
Core & Main LP, 6.125%, 8/15/2025 (n)
|
|
|
180,000
|
|
|
|
184,050
|
|
HD Supply, Inc., 5.375%, 10/15/2026 (n)
|
|
|
355,000
|
|
|
|
376,300
|
|
James Hardie International Finance Ltd., 4.75%, 1/15/2025 (n)
|
|
|
200,000
|
|
|
|
206,940
|
|
James Hardie International Finance Ltd., 5%, 1/15/2028 (n)
|
|
|
300,000
|
|
|
|
313,875
|
|
NCI Building Systems, Inc., 8%, 4/15/2026 (n)
|
|
|
145,000
|
|
|
|
147,175
|
|
New Enterprise Stone & Lime Co., Inc., 10.125%, 4/01/2022 (n)
|
|
|
150,000
|
|
|
|
157,688
|
|
New Enterprise Stone & Lime Co., Inc., 6.25%, 3/15/2026 (n)
|
|
|
216,000
|
|
|
|
226,260
|
|
Patrick Industries, Inc., 7.5%, 10/15/2027 (n)
|
|
|
115,000
|
|
|
|
121,245
|
|
PriSo Acquisition Corp., 9%, 5/15/2023 (n)
|
|
|
213,000
|
|
|
|
197,557
|
|
Standard Industries, Inc., 5.375%, 11/15/2024 (n)
|
|
|
360,000
|
|
|
|
370,350
|
|
Standard Industries, Inc., 6%, 10/15/2025 (n)
|
|
|
115,000
|
|
|
|
120,319
|
|
Summit Materials LLC/Summit Materials Finance Co., 6.125%, 7/15/2023
|
|
|
335,000
|
|
|
|
340,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,868,873
|
|
Business Services - 4.0%
|
|
|
|
|
|
|
|
|
Ascend Learning LLC, 6.875%, 8/01/2025 (n)
|
|
$
|
225,000
|
|
|
$
|
236,250
|
|
CDK Global, Inc., 4.875%, 6/01/2027
|
|
|
285,000
|
|
|
|
298,569
|
|
Equinix, Inc., 5.75%, 1/01/2025
|
|
|
195,000
|
|
|
|
201,094
|
|
Equinix, Inc., 5.875%, 1/15/2026
|
|
|
95,000
|
|
|
|
100,700
|
|
Financial & Risk U.S. Holdings, Inc., 8.25%, 11/15/2026 (n)
|
|
|
100,000
|
|
|
|
111,875
|
|
Iron Mountain, Inc., REIT, 4.875%, 9/15/2027 (n)
|
|
|
120,000
|
|
|
|
123,300
|
|
MSCI, Inc., 5.75%, 8/15/2025 (n)
|
|
|
170,000
|
|
|
|
178,500
|
|
MSCI, Inc., 4.75%, 8/01/2026 (n)
|
|
|
545,000
|
|
|
|
572,250
|
|
MSCI, Inc., 4%, 11/15/2029 (n)
|
|
|
17,000
|
|
|
|
17,085
|
|
Verscend Escrow Corp., 9.75%, 8/15/2026 (n)
|
|
|
175,000
|
|
|
|
188,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,027,748
|
|
Cable TV - 12.2%
|
|
|
|
|
|
|
|
|
CCO Holdings LLC/CCO Holdings Capital Corp., 5.75%, 1/15/2024
|
|
$
|
26,000
|
|
|
$
|
26,552
|
|
CCO Holdings LLC/CCO Holdings Capital Corp., 5.375%, 5/01/2025 (n)
|
|
|
230,000
|
|
|
|
238,050
|
|
CCO Holdings LLC/CCO Holdings Capital Corp., 5.75%, 2/15/2026 (n)
|
|
|
585,000
|
|
|
|
617,883
|
|
CCO Holdings LLC/CCO Holdings Capital Corp., 5.875%, 5/01/2027 (n)
|
|
|
360,000
|
|
|
|
383,400
|
|
CCO Holdings LLC/CCO Holdings Capital Corp., 4.75%, 3/01/2030 (n)
|
|
|
310,000
|
|
|
|
318,525
|
|
CSC Holdings LLC, 5.5%, 5/15/2026 (n)
|
|
|
200,000
|
|
|
|
211,282
|
|
CSC Holdings LLC, 5.5%, 4/15/2027 (n)
|
|
|
800,000
|
|
|
|
851,000
|
|
DISH DBS Corp., 5.875%, 11/15/2024
|
|
|
165,000
|
|
|
|
164,794
|
|
Intelsat Connect Finance, 9.5%, 2/15/2023 (n)
|
|
|
145,000
|
|
|
|
84,825
|
|
Intelsat Jackson Holdings S.A., 5.5%, 8/01/2023
|
|
|
360,000
|
|
|
|
286,092
|
|
11
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
Cable TV - continued
|
|
|
|
|
|
|
|
|
LCPR Senior Secured Financing DAC, 6.75%, 10/15/2027 (n)
|
|
$
|
200,000
|
|
|
$
|
206,250
|
|
Sirius XM Holdings, Inc., 4.625%, 7/15/2024 (n)
|
|
|
380,000
|
|
|
|
398,050
|
|
Sirius XM Holdings, Inc., 5.5%, 7/01/2029 (n)
|
|
|
105,000
|
|
|
|
112,744
|
|
Sirius XM Radio, Inc., 4.625%, 5/15/2023 (n)
|
|
|
135,000
|
|
|
|
137,025
|
|
Sirius XM Radio, Inc., 5.375%, 4/15/2025 (n)
|
|
|
165,000
|
|
|
|
170,775
|
|
Telenet Finance Luxembourg S.A., 5.5%, 3/01/2028 (n)
|
|
|
200,000
|
|
|
|
212,000
|
|
Telesat Holdings, Inc., 6.5%, 10/15/2027 (n)
|
|
|
195,000
|
|
|
|
201,084
|
|
Videotron Ltd., 5.375%, 6/15/2024 (n)
|
|
|
80,000
|
|
|
|
87,400
|
|
Videotron Ltd., 5.125%, 4/15/2027 (n)
|
|
|
570,000
|
|
|
|
605,257
|
|
Virgin Media Finance PLC, 5.75%, 1/15/2025 (n)
|
|
|
200,000
|
|
|
|
206,000
|
|
Virgin Media Secured Finance PLC, 5.5%, 5/15/2029 (n)
|
|
|
210,000
|
|
|
|
220,500
|
|
Ziggo Bond Finance B.V., 5.875%, 1/15/2025 (n)
|
|
|
400,000
|
|
|
|
412,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,151,488
|
|
Chemicals - 3.0%
|
|
|
|
|
|
|
|
|
Axalta Coating Systems Co., 4.875%, 8/15/2024 (n)
|
|
$
|
600,000
|
|
|
$
|
621,750
|
|
Consolidated Energy Finance S.A., 6.875%, 6/15/2025 (n)
|
|
|
200,000
|
|
|
|
189,000
|
|
Element Solutions, Inc., 5.875%, 12/01/2025 (n)
|
|
|
100,000
|
|
|
|
104,000
|
|
SPCM S.A., 4.875%, 9/15/2025 (n)
|
|
|
375,000
|
|
|
|
387,187
|
|
Starfruit Finance Co./Starfruit U.S. Holding Co. LLC, 8%, 10/01/2026 (n)
|
|
|
225,000
|
|
|
|
234,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,535,937
|
|
Computer Software - 1.5%
|
|
|
|
|
|
|
|
|
Diamond 1 Finance Corp./Diamond 2 Finance Corp., 5.875%, 6/15/2021 (n)
|
|
$
|
155,000
|
|
|
$
|
157,325
|
|
Diamond 1 Finance Corp./Diamond 2 Finance Corp., 6.02%, 6/15/2026 (n)
|
|
|
205,000
|
|
|
|
234,255
|
|
VeriSign, Inc., 5.25%, 4/01/2025
|
|
|
265,000
|
|
|
|
291,580
|
|
VeriSign, Inc., 4.75%, 7/15/2027
|
|
|
85,000
|
|
|
|
90,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
773,515
|
|
Computer Software - Systems - 3.6%
|
|
|
|
|
|
|
|
|
CDW LLC/CDW Finance Corp., 4.25%, 4/01/2028
|
|
$
|
275,000
|
|
|
$
|
287,293
|
|
Fair Isaac Corp., 5.25%, 5/15/2026 (n)
|
|
|
420,000
|
|
|
|
457,800
|
|
JDA Software Group, Inc., 7.375%, 10/15/2024 (n)
|
|
|
200,000
|
|
|
|
207,000
|
|
Sabre GLBL, Inc., 5.375%, 4/15/2023 (n)
|
|
|
495,000
|
|
|
|
507,375
|
|
SS&C Technologies Holdings, Inc., 5.5%, 9/30/2027 (n)
|
|
|
315,000
|
|
|
|
337,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,796,502
|
|
Conglomerates - 5.0%
|
|
|
|
|
|
|
|
|
Amsted Industries Co., 5.625%, 7/01/2027 (n)
|
|
$
|
260,000
|
|
|
$
|
274,300
|
|
BWX Technologies, Inc., 5.375%, 7/15/2026 (n)
|
|
|
360,000
|
|
|
|
379,800
|
|
CFX Escrow Corp., 6.375%, 2/15/2026 (n)
|
|
|
190,000
|
|
|
|
205,200
|
|
EnerSys, 5%, 4/30/2023 (n)
|
|
|
275,000
|
|
|
|
283,938
|
|
12
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
Conglomerates - continued
|
|
|
|
|
|
|
|
|
Gates Global LLC, 6%, 7/15/2022 (n)
|
|
$
|
133,000
|
|
|
$
|
133,000
|
|
Gates Global LLC, 6.25%, 1/15/2026 (n)
|
|
|
285,000
|
|
|
|
285,031
|
|
Granite Holdings U.S. Acquisition Co., 11%, 10/01/2027 (n)
|
|
|
100,000
|
|
|
|
93,000
|
|
MTS Systems Corp., 5.75%, 8/15/2027 (n)
|
|
|
230,000
|
|
|
|
239,775
|
|
Stevens Holding Co., Inc., 6.125%, 10/01/2026 (n)
|
|
|
220,000
|
|
|
|
238,150
|
|
TriMas Corp., 4.875%, 10/15/2025 (n)
|
|
|
405,000
|
|
|
|
414,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,546,306
|
|
Construction - 1.7%
|
|
|
|
|
|
|
|
|
Mattamy Group Corp., 6.5%, 10/01/2025 (n)
|
|
$
|
270,000
|
|
|
$
|
288,225
|
|
Mattamy Group Corp., 5.25%, 12/15/2027 (n)
|
|
|
95,000
|
|
|
|
96,753
|
|
Toll Brothers Finance Corp., 4.875%, 11/15/2025
|
|
|
190,000
|
|
|
|
206,340
|
|
Toll Brothers Finance Corp., 4.35%, 2/15/2028
|
|
|
255,000
|
|
|
|
264,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
856,040
|
|
Consumer Products - 1.8%
|
|
|
|
|
|
|
|
|
Coty, Inc., 6.5%, 4/15/2026 (n)
|
|
$
|
190,000
|
|
|
$
|
196,175
|
|
Energizer Holdings, Inc., 6.375%, 7/15/2026 (n)
|
|
|
305,000
|
|
|
|
325,588
|
|
Mattel, Inc., 6.75%, 12/31/2025 (n)
|
|
|
120,000
|
|
|
|
125,700
|
|
Mattel, Inc., 5.875%, 12/15/2027 (n)
|
|
|
204,000
|
|
|
|
206,570
|
|
Prestige Brands, Inc., 5.125%, 1/15/2028 (n)
|
|
|
40,000
|
|
|
|
40,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
894,983
|
|
Consumer Services - 2.8%
|
|
|
|
|
|
|
|
|
Allied Universal Holdco LLC, 9.75%, 7/15/2027 (n)
|
|
$
|
175,000
|
|
|
$
|
184,188
|
|
Cimpress N.V., 7%, 6/15/2026 (n)
|
|
|
300,000
|
|
|
|
318,750
|
|
Frontdoor, Inc., 6.75%, 8/15/2026 (n)
|
|
|
205,000
|
|
|
|
223,942
|
|
GW B-CR Security Corp., 9.5%, 11/01/2027 (n)
|
|
|
111,000
|
|
|
|
115,440
|
|
NVA Holdings, Inc., 6.875%, 4/01/2026 (n)
|
|
|
120,000
|
|
|
|
129,600
|
|
Realogy Group LLC, 9.375%, 4/01/2027 (n)
|
|
|
220,000
|
|
|
|
221,100
|
|
ServiceMaster Co. LLC, 5.125%, 11/15/2024 (n)
|
|
|
210,000
|
|
|
|
217,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,410,632
|
|
Containers - 5.0%
|
|
|
|
|
|
|
|
|
ARD Finance S.A., 6.5%, (6.5% cash or 6.5% PIK) 6/30/2027 (p)
|
|
$
|
200,000
|
|
|
$
|
199,290
|
|
Crown American LLC, 4.5%, 1/15/2023
|
|
|
326,000
|
|
|
|
340,833
|
|
Crown Americas LLC/Crown Americas Capital Corp. V, 4.25%, 9/30/2026
|
|
|
290,000
|
|
|
|
300,150
|
|
Crown Americas LLC/Crown Americas Capital Corp. VI, 4.75%, 2/01/2026
|
|
|
140,000
|
|
|
|
146,825
|
|
Flex Acquisition Co., Inc., 6.875%, 1/15/2025 (n)
|
|
|
235,000
|
|
|
|
223,838
|
|
Reynolds Group, 5.75%, 10/15/2020
|
|
|
125,984
|
|
|
|
126,135
|
|
Reynolds Group, 5.125%, 7/15/2023 (n)
|
|
|
180,000
|
|
|
|
184,050
|
|
Reynolds Group, 7%, 7/15/2024 (n)
|
|
|
70,000
|
|
|
|
72,450
|
|
13
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
Containers - continued
|
|
|
|
|
|
|
|
|
Sealed Air Corp., 4.875%, 12/01/2022 (n)
|
|
$
|
335,000
|
|
|
$
|
352,587
|
|
Silgan Holdings, Inc., 4.75%, 3/15/2025
|
|
|
235,000
|
|
|
|
240,287
|
|
Silgan Holdings, Inc., 4.125%, 2/01/2028 (n)
|
|
|
112,000
|
|
|
|
112,211
|
|
Trivium Packaging Finance B.V., 8.5%, 8/15/2027 (n)
|
|
|
200,000
|
|
|
|
217,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,516,156
|
|
Electrical Equipment - 0.7%
|
|
|
|
|
|
|
|
|
CommScope Technologies LLC, 6%, 6/15/2025 (n)
|
|
$
|
160,000
|
|
|
$
|
154,400
|
|
CommScope Technologies LLC, 5%, 3/15/2027 (n)
|
|
|
235,000
|
|
|
|
206,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
360,617
|
|
Electronics - 2.8%
|
|
|
|
|
|
|
|
|
Entegris, Inc., 4.625%, 2/10/2026 (n)
|
|
$
|
275,000
|
|
|
$
|
284,204
|
|
Qorvo, Inc., 5.5%, 7/15/2026
|
|
|
335,000
|
|
|
|
356,356
|
|
Sensata Technologies B.V., 5.625%, 11/01/2024 (n)
|
|
|
310,000
|
|
|
|
341,000
|
|
Sensata Technologies B.V., 5%, 10/01/2025 (n)
|
|
|
375,000
|
|
|
|
405,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,387,498
|
|
Energy - Independent - 3.0%
|
|
|
|
|
|
|
|
|
Callon Petroleum Co., 6.375%, 7/01/2026
|
|
$
|
180,000
|
|
|
$
|
167,850
|
|
CrownRock LP/CrownRock Finance, Inc., 5.625%, 10/15/2025 (n)
|
|
|
215,000
|
|
|
|
212,447
|
|
Highpoint Operating Corp., 7%, 10/15/2022
|
|
|
65,000
|
|
|
|
59,313
|
|
Jagged Peak Energy LLC, 5.875%, 5/01/2026
|
|
|
135,000
|
|
|
|
136,384
|
|
Laredo Petroleum, Inc., 6.25%, 3/15/2023
|
|
|
25,000
|
|
|
|
21,549
|
|
Magnolia Oil & Gas Operating LLC/Magnolia Oil & Gas Finance Corp., 6%, 8/01/2026 (n)
|
|
|
170,000
|
|
|
|
168,938
|
|
Montage Resources Corp., 8.875%, 7/15/2023
|
|
|
65,000
|
|
|
|
52,975
|
|
Parsley Energy LLC/Parsley Finance Corp., 5.625%, 10/15/2027 (n)
|
|
|
190,000
|
|
|
|
196,412
|
|
Range Resources Corp., 4.875%, 5/15/2025
|
|
|
60,000
|
|
|
|
48,900
|
|
Sanchez Energy Corp., 6.125%, 1/15/2023 (a)(d)
|
|
|
210,000
|
|
|
|
7,350
|
|
SM Energy Co., 6.75%, 9/15/2026
|
|
|
170,000
|
|
|
|
154,700
|
|
Southwestern Energy Co., 6.2%, 1/23/2025
|
|
|
35,000
|
|
|
|
30,451
|
|
WPX Energy, Inc., 5.75%, 6/01/2026
|
|
|
240,000
|
|
|
|
246,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,503,564
|
|
Entertainment - 2.5%
|
|
|
|
|
|
|
|
|
AMC Entertainment Holdings, Inc., 5.75%, 6/15/2025
|
|
$
|
120,000
|
|
|
$
|
111,600
|
|
Live Nation Entertainment, Inc., 4.875%, 11/01/2024 (n)
|
|
|
95,000
|
|
|
|
98,325
|
|
Live Nation Entertainment, Inc., 5.625%, 3/15/2026 (n)
|
|
|
430,000
|
|
|
|
457,950
|
|
Live Nation Entertainment, Inc., 4.75%, 10/15/2027 (n)
|
|
|
55,000
|
|
|
|
56,650
|
|
Six Flags Entertainment Corp., 4.875%, 7/31/2024 (n)
|
|
|
505,000
|
|
|
|
522,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,247,200
|
|
14
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
Financial Institutions - 4.5%
|
|
|
|
|
|
|
|
|
Avation Capital S.A., 6.5%, 5/15/2021 (n)
|
|
$
|
200,000
|
|
|
$
|
207,500
|
|
Avolon Holdings Funding Ltd., 5.125%, 10/01/2023
|
|
|
195,000
|
|
|
|
209,605
|
|
Avolon Holdings Funding Ltd., 3.95%, 7/01/2024 (n)
|
|
|
130,000
|
|
|
|
134,797
|
|
Global Aircraft Leasing Co. Ltd., 6.5%, (6.5% cash or 7.25% PIK) 9/15/2024 (p)
|
|
|
385,000
|
|
|
|
393,778
|
|
OneMain Financial Corp., 6.875%, 3/15/2025
|
|
|
160,000
|
|
|
|
182,725
|
|
OneMain Financial Corp., 7.125%, 3/15/2026
|
|
|
170,000
|
|
|
|
195,925
|
|
Park Aerospace Holdings Ltd., 5.5%, 2/15/2024 (n)
|
|
|
565,000
|
|
|
|
618,336
|
|
Springleaf Finance Corp., 5.375%, 11/15/2029
|
|
|
80,000
|
|
|
|
82,400
|
|
Wand Merger Corp., 8.125%, 7/15/2023 (n)
|
|
|
240,000
|
|
|
|
256,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,281,866
|
|
Food & Beverages - 5.0%
|
|
|
|
|
|
|
|
|
Cott Holdings, Inc., 5.5%, 4/01/2025 (n)
|
|
$
|
310,000
|
|
|
$
|
324,725
|
|
JBS USA LLC/JBS USA Finance, Inc., 6.75%, 2/15/2028 (n)
|
|
|
345,000
|
|
|
|
380,759
|
|
JBS USA Lux S.A./JBS USA Finance, Inc., 5.875%, 7/15/2024 (n)
|
|
|
232,000
|
|
|
|
239,192
|
|
Lamb Weston Holdings, Inc., 4.625%, 11/01/2024 (n)
|
|
|
485,000
|
|
|
|
512,282
|
|
Lamb Weston Holdings, Inc., 4.875%, 11/01/2026 (n)
|
|
|
120,000
|
|
|
|
126,900
|
|
Performance Food Group Co., 5.5%, 10/15/2027 (n)
|
|
|
200,000
|
|
|
|
212,500
|
|
Pilgrims Pride Corp., 5.75%, 3/15/2025 (n)
|
|
|
100,000
|
|
|
|
103,750
|
|
Pilgrims Pride Corp., 5.875%, 9/30/2027 (n)
|
|
|
220,000
|
|
|
|
237,600
|
|
U.S. Foods Holding Corp., 5.875%, 6/15/2024 (n)
|
|
|
370,000
|
|
|
|
381,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,519,163
|
|
Gaming & Lodging - 6.5%
|
|
|
|
|
|
|
|
|
CCM Merger, Inc., 6%, 3/15/2022 (n)
|
|
$
|
230,000
|
|
|
$
|
234,600
|
|
GLP Capital LP/GLP Financing II, Inc., 5.375%, 11/01/2023
|
|
|
155,000
|
|
|
|
169,299
|
|
GLP Capital LP/GLP Financing II, Inc., 5.25%, 6/01/2025
|
|
|
220,000
|
|
|
|
241,457
|
|
GLP Capital LP/GLP Financing II, Inc., 5.375%, 4/15/2026
|
|
|
115,000
|
|
|
|
126,722
|
|
Hilton Domestic Operating Co., Inc., 5.125%, 5/01/2026
|
|
|
305,000
|
|
|
|
321,012
|
|
Hilton Worldwide Finance LLC, 4.625%, 4/01/2025
|
|
|
405,000
|
|
|
|
416,137
|
|
MGM Growth Properties LLC, 4.5%, 9/01/2026
|
|
|
340,000
|
|
|
|
357,850
|
|
Scientific Games Corp., 8.25%, 3/15/2026 (n)
|
|
|
230,000
|
|
|
|
248,998
|
|
Vici Properties, REIT, 4.25%, 12/01/2026 (n)
|
|
|
190,000
|
|
|
|
193,800
|
|
Vici Properties, REIT, 4.625%, 12/01/2029 (n)
|
|
|
75,000
|
|
|
|
77,336
|
|
Wyndham Hotels Group LLC, 5.375%, 4/15/2026 (n)
|
|
|
460,000
|
|
|
|
485,300
|
|
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., 5.5%, 3/01/2025 (n)
|
|
|
150,000
|
|
|
|
159,938
|
|
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., 5.25%, 5/15/2027 (n)
|
|
|
45,000
|
|
|
|
46,913
|
|
Wynn Macau Ltd., 5.5%, 10/01/2027 (n)
|
|
|
200,000
|
|
|
|
206,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,286,112
|
|
15
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
Insurance - Health - 1.1%
|
|
|
|
|
|
|
|
|
Centene Corp., 6.125%, 2/15/2024
|
|
$
|
185,000
|
|
|
$
|
192,285
|
|
Centene Corp., 5.375%, 6/01/2026 (n)
|
|
|
205,000
|
|
|
|
217,556
|
|
Centene Corp., 4.25%, 12/15/2027 (n)
|
|
|
135,000
|
|
|
|
138,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
548,722
|
|
Insurance - Property & Casualty - 1.4%
|
|
|
|
|
|
|
|
|
Alliant Holdings Intermediate LLC, 6.75%, 10/15/2027 (n)
|
|
$
|
190,000
|
|
|
$
|
200,925
|
|
AssuredPartners, Inc., 7%, 8/15/2025 (n)
|
|
|
200,000
|
|
|
|
199,500
|
|
Hub International Ltd., 7%, 5/01/2026 (n)
|
|
|
315,000
|
|
|
|
322,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
723,300
|
|
Machinery & Tools - 0.5%
|
|
|
|
|
|
|
|
|
Ashtead Capital, Inc., 5.625%, 10/01/2024 (n)
|
|
$
|
265,000
|
|
|
$
|
272,420
|
|
|
|
|
Major Banks - 1.7%
|
|
|
|
|
|
|
|
|
Barclays PLC, 7.875%, 12/29/2049
|
|
$
|
200,000
|
|
|
$
|
214,250
|
|
Credit Suisse Group AG, 7.25%, 12/31/2099 (n)
|
|
|
200,000
|
|
|
|
221,500
|
|
UBS Group AG, 6.875% to 8/07/2025, FLR (Swap Rate - 5yr. + 4.59%) to 12/29/2049
|
|
|
400,000
|
|
|
|
439,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
874,750
|
|
Medical & Health Technology & Services - 9.6%
|
|
|
|
|
|
|
|
|
Avantor, Inc., 9%, 10/01/2025 (n)
|
|
$
|
350,000
|
|
|
$
|
389,375
|
|
BCPE Cycle Merger Sub II, Inc., 10.625%, 7/15/2027 (n)
|
|
|
75,000
|
|
|
|
71,063
|
|
DaVita, Inc., 5%, 5/01/2025
|
|
|
260,000
|
|
|
|
268,237
|
|
Encompass Health Corp., 5.75%, 9/15/2025
|
|
|
120,000
|
|
|
|
126,000
|
|
Encompass Health Corp., 4.5%, 2/01/2028
|
|
|
80,000
|
|
|
|
82,000
|
|
HCA, Inc., 7.5%, 2/15/2022
|
|
|
345,000
|
|
|
|
382,087
|
|
HCA, Inc., 5.375%, 2/01/2025
|
|
|
525,000
|
|
|
|
580,125
|
|
HCA, Inc., 5.875%, 2/15/2026
|
|
|
375,000
|
|
|
|
423,281
|
|
HCA, Inc., 5.625%, 9/01/2028
|
|
|
45,000
|
|
|
|
50,850
|
|
HealthSouth Corp., 5.125%, 3/15/2023
|
|
|
385,000
|
|
|
|
393,181
|
|
Heartland Dental LLC, 8.5%, 5/01/2026 (n)
|
|
|
170,000
|
|
|
|
169,457
|
|
IQVIA Holdings, Inc., 5%, 5/15/2027 (n)
|
|
|
600,000
|
|
|
|
630,000
|
|
MPH Acquisition Holdings LLC, 7.125%, 6/01/2024 (n)
|
|
|
180,000
|
|
|
|
163,350
|
|
Polaris, 8.5%, (8.5% cash or 8.5% PIK) 12/01/2022 (p)
|
|
|
120,000
|
|
|
|
99,570
|
|
Regional Care/LifePoint Health, Inc., 9.75%, 12/01/2026 (n)
|
|
|
295,000
|
|
|
|
324,500
|
|
Team Health Holdings, Inc., 6.375%, 2/01/2025 (n)
|
|
|
60,000
|
|
|
|
31,800
|
|
Tenet Healthcare Corp., 6.75%, 6/15/2023
|
|
|
200,000
|
|
|
|
216,000
|
|
Tenet Healthcare Corp., 4.875%, 1/01/2026 (n)
|
|
|
255,000
|
|
|
|
264,881
|
|
West Street Merger Sub, Inc., 6.375%, 9/01/2025 (n)
|
|
|
200,000
|
|
|
|
190,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,855,757
|
|
16
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
Medical Equipment - 1.4%
|
|
|
|
|
|
|
|
|
Hill-Rom Holdings, Inc., 4.375%, 9/15/2027 (n)
|
|
$
|
240,000
|
|
|
$
|
246,000
|
|
Teleflex, Inc., 4.875%, 6/01/2026
|
|
|
105,000
|
|
|
|
109,725
|
|
Teleflex, Inc., 4.625%, 11/15/2027
|
|
|
340,000
|
|
|
|
359,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
715,275
|
|
Metals & Mining - 4.4%
|
|
|
|
|
|
|
|
|
Baffinland Iron Mines Corp./Baffinland Iron Mines LP, 8.75%, 7/15/2026 (n)
|
|
$
|
175,000
|
|
|
$
|
175,438
|
|
Compass Minerals International Co., 6.75%, 12/01/2027 (n)
|
|
|
150,000
|
|
|
|
155,250
|
|
Freeport-McMoRan Copper & Gold, Inc., 5.4%, 11/14/2034
|
|
|
190,000
|
|
|
|
188,575
|
|
Freeport-McMoRan, Inc., 5%, 9/01/2027
|
|
|
190,000
|
|
|
|
194,987
|
|
Freeport-McMoRan, Inc., 5.25%, 9/01/2029
|
|
|
185,000
|
|
|
|
190,319
|
|
Grinding Media, Inc./Moly-Cop AltaSteel Ltd., 7.375%, 12/15/2023 (n)
|
|
|
95,000
|
|
|
|
94,817
|
|
Harsco Corp., 5.75%, 7/31/2027 (n)
|
|
|
195,000
|
|
|
|
205,237
|
|
Kaiser Aluminum Corp., 4.625%, 3/01/2028 (n)
|
|
|
277,000
|
|
|
|
284,314
|
|
Northwest Acquisitions ULC/Dominion Finco, Inc., 7.125%, 11/01/2022 (n)
|
|
|
255,000
|
|
|
|
164,316
|
|
Novelis Corp., 5.875%, 9/30/2026 (n)
|
|
|
260,000
|
|
|
|
272,350
|
|
SunCoke Energy Partners LP/SunCoke Energy Partners Finance Corp., 7.5%, 6/15/2025 (n)
|
|
|
90,000
|
|
|
|
81,450
|
|
TMS International Corp., 7.25%, 8/15/2025 (n)
|
|
|
245,000
|
|
|
|
208,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,215,303
|
|
Midstream - 2.7%
|
|
|
|
|
|
|
|
|
Cheniere Energy Partners LP, 5.25%, 10/01/2025
|
|
$
|
470,000
|
|
|
$
|
484,100
|
|
Cheniere Energy, Inc., 4.5%, 10/01/2029 (n)
|
|
|
115,000
|
|
|
|
115,610
|
|
Genesis Energy LP/Genesis Energy Finance Co., 6.25%, 5/15/2026
|
|
|
80,000
|
|
|
|
69,744
|
|
Targa Resources Partners LP/Targa Resources Finance Corp., 5.25%, 5/01/2023
|
|
|
170,000
|
|
|
|
171,488
|
|
Targa Resources Partners LP/Targa Resources Finance Corp., 5.125%, 2/01/2025 (n)
|
|
|
280,000
|
|
|
|
287,672
|
|
Targa Resources Partners LP/Targa Resources Finance Corp., 5.375%, 2/01/2027
|
|
|
245,000
|
|
|
|
249,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,377,901
|
|
Network & Telecom - 0.8%
|
|
|
|
|
|
|
|
|
C&W Senior Financing DAC, 6.875%, 9/15/2027 (n)
|
|
$
|
200,000
|
|
|
$
|
211,125
|
|
Zayo Group LLC/Zayo Capital, Inc., 5.75%, 1/15/2027 (n)
|
|
|
170,000
|
|
|
|
173,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
384,525
|
|
Oil Services - 0.9%
|
|
|
|
|
|
|
|
|
Apergy Corp., 6.375%, 5/01/2026
|
|
$
|
200,000
|
|
|
$
|
198,000
|
|
Diamond Offshore Drill Co., 5.7%, 10/15/2039
|
|
|
175,000
|
|
|
|
96,687
|
|
Ensign Drilling, Inc., 9.25%, 4/15/2024 (n)
|
|
|
60,000
|
|
|
|
52,725
|
|
Nabors Industries, Inc., 5.75%, 2/01/2025
|
|
|
135,000
|
|
|
|
105,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
452,712
|
|
17
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
Oils - 1.2%
|
|
|
|
|
|
|
|
|
Parkland Fuel Corp., 6%, 4/01/2026 (n)
|
|
$
|
290,000
|
|
|
$
|
310,155
|
|
PBF Holding Co. LLC/PBF Finance Corp., 7%, 11/15/2023
|
|
|
50,000
|
|
|
|
51,953
|
|
PBF Holding Co. LLC/PBF Finance Corp., 7.25%, 6/15/2025
|
|
|
225,000
|
|
|
|
237,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
600,045
|
|
Pharmaceuticals - 2.1%
|
|
|
|
|
|
|
|
|
Eagle Holding Co. II LLC, 7.625%, 5/15/2022 (n)
|
|
$
|
200,000
|
|
|
$
|
202,500
|
|
Eagle Holding Co. II LLC, 7.75%, 5/15/2022 (n)
|
|
|
50,000
|
|
|
|
50,813
|
|
Endo Finance LLC/Endo Finco, Inc., 5.375%, 1/15/2023 (n)
|
|
|
140,000
|
|
|
|
87,500
|
|
Valeant Pharmaceuticals International, Inc., 5.5%, 3/01/2023 (n)
|
|
|
120,000
|
|
|
|
120,900
|
|
Valeant Pharmaceuticals International, Inc., 6.125%, 4/15/2025 (n)
|
|
|
585,000
|
|
|
|
608,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,070,095
|
|
Pollution Control - 0.9%
|
|
|
|
|
|
|
|
|
Covanta Holding Corp., 5.875%, 3/01/2024
|
|
$
|
235,000
|
|
|
$
|
242,050
|
|
Covanta Holding Corp., 6%, 1/01/2027
|
|
|
50,000
|
|
|
|
52,375
|
|
GFL Environmental, Inc., 8.5%, 5/01/2027 (n)
|
|
|
150,000
|
|
|
|
159,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
454,071
|
|
Printing & Publishing - 0.7%
|
|
|
|
|
|
|
|
|
Nielsen Co. Lux S.à r.l., 5%, 2/01/2025 (n)
|
|
$
|
60,000
|
|
|
$
|
60,225
|
|
Nielsen Finance LLC, 5%, 4/15/2022 (n)
|
|
|
272,000
|
|
|
|
273,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
333,925
|
|
Real Estate - Healthcare - 1.0%
|
|
|
|
|
|
|
|
|
MPT Operating Partnership LP/MPT Financial Co., REIT, 5.25%, 8/01/2026
|
|
$
|
280,000
|
|
|
$
|
297,559
|
|
MPT Operating Partnership LP/MPT Financial Co., REIT, 5%, 10/15/2027
|
|
|
185,000
|
|
|
|
194,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
491,809
|
|
Real Estate - Other - 2.3%
|
|
|
|
|
|
|
|
|
CyrusOne LP/CyrusOne Finance Corp., REIT, 5%, 3/15/2024
|
|
$
|
385,000
|
|
|
$
|
397,243
|
|
CyrusOne LP/CyrusOne Finance Corp., REIT, 5.375%, 3/15/2027
|
|
|
215,000
|
|
|
|
236,500
|
|
Ryman Hospitality Properties, Inc., REIT, 5%, 4/15/2023
|
|
|
200,000
|
|
|
|
204,500
|
|
Ryman Hospitality Properties, Inc., REIT, 4.75%, 10/15/2027 (n)
|
|
|
296,000
|
|
|
|
304,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,143,123
|
|
Restaurants - 1.9%
|
|
|
|
|
|
|
|
|
Golden Nugget, Inc., 6.75%, 10/15/2024 (n)
|
|
$
|
165,000
|
|
|
$
|
170,363
|
|
KFC Holding Co./Pizza Hut Holdings LLC/Taco Bell of America LLC, 5.25%, 6/01/2026 (n)
|
|
|
575,000
|
|
|
|
609,557
|
|
Yum! Brands, Inc., 4.75%, 1/15/2030 (n)
|
|
|
150,000
|
|
|
|
155,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
935,170
|
|
18
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
Retailers - 1.7%
|
|
|
|
|
|
|
|
|
DriveTime Automotive Group, Inc., 8%, 6/01/2021 (n)
|
|
$
|
210,000
|
|
|
$
|
213,150
|
|
EG Global Finance PLC, 6.75%, 2/07/2025 (n)
|
|
|
200,000
|
|
|
|
197,500
|
|
L Brands, Inc., 5.25%, 2/01/2028
|
|
|
330,000
|
|
|
|
306,075
|
|
Sally Beauty Holdings, Inc., 5.625%, 12/01/2025
|
|
|
120,000
|
|
|
|
124,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
841,075
|
|
Specialty Chemicals - 0.7%
|
|
|
|
|
|
|
|
|
Koppers, Inc., 6%, 2/15/2025 (n)
|
|
$
|
165,000
|
|
|
$
|
167,063
|
|
Univar Solutions USA, Inc., 5.125%, 12/01/2027 (n)
|
|
|
196,000
|
|
|
|
200,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
367,512
|
|
Specialty Stores - 0.8%
|
|
|
|
|
|
|
|
|
Penske Automotive Group Co., 5.375%, 12/01/2024
|
|
$
|
145,000
|
|
|
$
|
148,987
|
|
Penske Automotive Group Co., 5.5%, 5/15/2026
|
|
|
175,000
|
|
|
|
183,750
|
|
PetSmart, Inc., 5.875%, 6/01/2025 (n)
|
|
|
55,000
|
|
|
|
53,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
386,637
|
|
Supermarkets - 0.9%
|
|
|
|
|
|
|
|
|
Albertsons Cos. LLC/Safeway, Inc., 6.625%, 6/15/2024
|
|
$
|
97,000
|
|
|
$
|
101,755
|
|
Albertsons Cos. LLC/Safeway, Inc., 5.75%, 3/15/2025
|
|
|
150,000
|
|
|
|
153,000
|
|
Albertsons Cos. LLC/Safeway, Inc., 4.625%, 1/15/2027 (n)
|
|
|
195,000
|
|
|
|
192,582
|
|
Albertsons Cos. LLC/Safeway, Inc., 5.875%, 2/15/2028 (n)
|
|
|
15,000
|
|
|
|
15,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
463,031
|
|
Telecommunications - Wireless - 7.9%
|
|
|
|
|
|
|
|
|
Altice France S.A., 8.125%, 2/01/2027 (n)
|
|
$
|
400,000
|
|
|
$
|
443,000
|
|
Altice France S.A., 5.5%, 1/15/2028 (n)
|
|
|
200,000
|
|
|
|
202,000
|
|
Altice Luxembourg S.A., 7.625%, 2/15/2025 (n)
|
|
|
400,000
|
|
|
|
416,500
|
|
SBA Communications Corp., 4%, 10/01/2022
|
|
|
360,000
|
|
|
|
366,750
|
|
SBA Communications Corp., 4.875%, 9/01/2024
|
|
|
330,000
|
|
|
|
342,131
|
|
SFR Group S.A., 7.375%, 5/01/2026 (n)
|
|
|
200,000
|
|
|
|
213,500
|
|
Sprint Corp., 7.875%, 9/15/2023
|
|
|
375,000
|
|
|
|
412,266
|
|
Sprint Corp., 7.125%, 6/15/2024
|
|
|
530,000
|
|
|
|
571,075
|
|
Sprint Nextel Corp., 6%, 11/15/2022
|
|
|
155,000
|
|
|
|
163,138
|
|
T-Mobile USA, Inc., 6.5%, 1/15/2024
|
|
|
95,000
|
|
|
|
98,325
|
|
T-Mobile USA, Inc., 5.125%, 4/15/2025
|
|
|
195,000
|
|
|
|
201,581
|
|
T-Mobile USA, Inc., 6.5%, 1/15/2026
|
|
|
195,000
|
|
|
|
208,650
|
|
T-Mobile USA, Inc., 5.375%, 4/15/2027
|
|
|
310,000
|
|
|
|
331,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,970,228
|
|
Utilities - Electric Power - 3.6%
|
|
|
|
|
|
|
|
|
Clearway Energy Operating LLC, 5.75%, 10/15/2025
|
|
$
|
525,000
|
|
|
$
|
551,250
|
|
Drax Finco PLC, 6.625%, 11/01/2025 (n)
|
|
|
220,000
|
|
|
|
232,936
|
|
NextEra Energy Operating Co., 4.25%, 9/15/2024 (n)
|
|
|
430,000
|
|
|
|
441,825
|
|
NextEra Energy Operating Co., 4.5%, 9/15/2027 (n)
|
|
|
120,000
|
|
|
|
122,400
|
|
19
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
Utilities - Electric Power - continued
|
|
|
|
|
|
|
|
|
NextEra Energy, Inc., 4.25%, 7/15/2024 (n)
|
|
$
|
140,000
|
|
|
$
|
143,825
|
|
TerraForm Global Operating LLC, 6.125%, 3/01/2026 (n)
|
|
|
80,000
|
|
|
|
83,200
|
|
Terraform Power Operating Co., 5%, 1/31/2028 (n)
|
|
|
210,000
|
|
|
|
218,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,793,706
|
|
Total Bonds (Identified Cost, $66,521,123)
|
|
|
|
|
|
$
|
68,385,376
|
|
|
|
|
Floating Rate Loans (r) - 2.0%
|
|
|
|
|
|
|
|
|
Broadcasting - 0.4%
|
|
|
|
|
|
|
|
|
iHeartCommunications, Inc., Term Loan, 5/01/2026 (o)
|
|
$
|
52,395
|
|
|
$
|
52,722
|
|
Nexstar Broadcasting, Inc., Term Loan B4, 9/18/2026 (o)
|
|
|
64,000
|
|
|
|
64,217
|
|
WMG Acquisition Corp., Term Loan F, 3.827%, 11/01/2023 (o)
|
|
|
105,000
|
|
|
|
105,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
222,127
|
|
Cable TV - 0.1%
|
|
|
|
|
|
|
|
|
CSC Holdings LLC, Term Loan B, 4/15/2027 (o)
|
|
$
|
64,000
|
|
|
$
|
64,027
|
|
|
|
|
Chemicals - 0.3%
|
|
|
|
|
|
|
|
|
Axalta Coating Systems US, Term Loan B3, 6/01/2024 (o)
|
|
$
|
61,000
|
|
|
$
|
60,989
|
|
Platform Specialty Products Corp., Term Loan, 1/30/2026 (o)
|
|
|
64,000
|
|
|
|
64,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125,069
|
|
Computer Software - Systems - 0.4%
|
|
|
|
|
|
|
|
|
Sabre GLBL Inc., Term Loan B, 2/22/2024 (o)
|
|
$
|
128,000
|
|
|
$
|
128,320
|
|
SS&C Technologies Inc., Term Loan B5, 4/16/2025 (o)
|
|
|
64,000
|
|
|
|
64,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
192,616
|
|
Conglomerates - 0.2%
|
|
|
|
|
|
|
|
|
Gates Global LLC, Term Loan B2, 4.452%, 4/01/2024 (o)
|
|
$
|
112,505
|
|
|
$
|
112,139
|
|
|
|
|
Food & Beverages - 0.1%
|
|
|
|
|
|
|
|
|
U.S. Foods, Inc., Term Loan B, 3.701%, 6/27/2023
|
|
$
|
40,580
|
|
|
$
|
40,589
|
|
|
|
|
Medical & Health Technology & Services - 0.3%
|
|
|
|
|
|
|
|
|
DaVita, Inc., Term Loan B, 8/12/2026 (o)
|
|
$
|
64,000
|
|
|
$
|
64,320
|
|
Jaguar Holding Company II, Term Loan, 8/18/2022 (o)
|
|
|
64,000
|
|
|
|
64,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
128,373
|
|
Pharmaceuticals - 0.1%
|
|
|
|
|
|
|
|
|
Bausch Health Companies Inc., Term Loan B, 11/27/2025 (o)
|
|
$
|
64,000
|
|
|
$
|
64,228
|
|
|
|
|
Printing & Publishing - 0.1%
|
|
|
|
|
|
|
|
|
Nielsen Finance LLC, Term Loan B4, 10/04/2023 (o)
|
|
$
|
64,000
|
|
|
$
|
63,806
|
|
Total Floating Rate Loans (Identified Cost, $1,009,955)
|
|
|
|
|
|
$
|
1,012,974
|
|
20
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
Common Stocks - 0.2%
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Construction - 0.0%
|
|
|
|
|
|
|
|
|
ICA Tenedora, S.A. de C.V. (a)
|
|
|
11,385
|
|
|
$
|
20,105
|
|
|
|
|
Oil Services - 0.2%
|
|
|
|
|
|
|
|
|
LTRI Holdings LP (a)(u)
|
|
|
200
|
|
|
$
|
101,158
|
|
Total Common Stocks (Identified Cost, $92,261)
|
|
|
|
|
|
$
|
121,263
|
|
|
|
|
Convertible Bonds - 0.2%
|
|
|
|
|
|
|
|
|
Cable TV - 0.2%
|
|
|
|
|
|
|
|
|
DISH Network Corp., 3.375%, 8/15/2026 (Identified Cost, $81,979)
|
|
$
|
90,000
|
|
|
$
|
84,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strike Price
|
|
|
First Exercise
|
|
|
|
|
|
|
|
Warrants - 0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forest & Paper Products - 0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appvion Holdings Corp. - Tranche A (1 share for 1 warrant) (a)
|
|
$
|
27.17
|
|
|
|
8/24/18
|
|
|
|
84
|
|
|
$
|
21
|
|
Appvion Holdings Corp. - Tranche B (1 share for 1 warrant) (a)
|
|
|
31.25
|
|
|
|
8/24/18
|
|
|
|
84
|
|
|
|
11
|
|
Total Warrants (Identified Cost, $0)
|
|
|
|
|
|
|
|
|
|
|
$
|
32
|
|
|
|
|
|
Investment Companies (h) - 2.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds - 2.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MFS Institutional Money Market Portfolio, 1.73% (v)
(Identified Cost, $1,034,300)
|
|
|
|
1,034,401
|
|
|
$
|
1,034,504
|
|
|
|
|
|
Other Assets, Less Liabilities - (40.2)%
|
|
|
|
|
|
|
|
|
|
|
|
(20,252,203
|
)
|
Net Assets - 100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,386,827
|
|
(a)
|
Non-income producing security.
|
(h)
|
An affiliated issuer, which 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. At period end, the aggregate values of the funds investments in affiliated issuers and in unaffiliated issuers were $1,034,504 and $69,604,526, respectively.
|
(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 $46,526,283, representing 92.3% 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 (PIK) security for which interest income may be received
in additional securities and/or cash.
|
21
Portfolio of Investments continued
(r)
|
The remaining maturities of floating rate loans may be less than the 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. The interest rate shown represents the weighted average of the floating interest rates on settled contracts within the loan facility
at period end, unless otherwise indicated. The floating interest rates on settled contracts are determined periodically by reference to a base lending rate and a spread.
|
(u)
|
The security was valued using significant unobservable inputs and is considered level 3 under the fair value hierarchy. For further information about
the funds level 3 holdings, please see Note 2 in the Notes to Financial Statements.
|
(v)
|
Affiliated issuer 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.
|
The following abbreviations are used in
this report and are defined:
FLR
|
|
Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The
period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted.
|
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:
Derivative Contracts at 11/30/19
Forward Foreign Currency Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Purchased
|
|
|
Currency
Sold
|
|
Counterparty
|
|
Settlement
Date
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
EUR
|
|
|
236,580
|
|
|
USD
|
|
263,147
|
|
UBS AG
|
|
|
12/13/2019
|
|
|
|
$(2,330
|
)
|
USD
|
|
|
227,563
|
|
|
EUR
|
|
206,766
|
|
Merrill Lynch International
|
|
|
12/13/2019
|
|
|
|
(386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$(2,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Long/
Short
|
|
|
Currency
|
|
|
Contracts
|
|
|
Notional
Amount
|
|
|
Expiration
Date
|
|
|
Value/
Unrealized
Appreciation
(Depreciation)
|
|
Asset Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Futures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro-Bobl 5 yr
|
|
|
Short
|
|
|
|
EUR
|
|
|
|
1
|
|
|
|
$147,994
|
|
|
|
December - 2019
|
|
|
|
$2,521
|
|
U.S. Treasury Note 5 yr
|
|
|
Short
|
|
|
|
USD
|
|
|
|
15
|
|
|
|
1,784,531
|
|
|
|
March - 2020
|
|
|
|
2,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 30, 2019, the fund had cash collateral of $11,765 to cover any collateral or margin obligations for certain
derivative contracts. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised of cash collateral.
See
Notes to Financial Statements
22
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 11/30/19
This statement represents your funds balance sheet, which details the assets and
liabilities comprising the total value of the fund.
|
|
|
|
|
Assets
|
|
|
|
|
Investments in unaffiliated issuers, at value (identified cost, $67,705,318)
|
|
|
$69,604,526
|
|
Investments in affiliated issuers, at value (identified cost, $1,034,300)
|
|
|
1,034,504
|
|
Cash
|
|
|
55,060
|
|
Deposits with brokers for
|
|
|
|
|
Futures contracts
|
|
|
11,765
|
|
Receivables for
|
|
|
|
|
Investments sold
|
|
|
287,679
|
|
Interest
|
|
|
928,041
|
|
Other assets
|
|
|
1,964
|
|
Total assets
|
|
|
$71,923,539
|
|
|
|
Liabilities
|
|
|
|
|
Notes payable
|
|
|
$20,000,000
|
|
Payables for
|
|
|
|
|
Forward foreign currency exchange contracts
|
|
|
2,716
|
|
Net daily variation margin on open futures contracts
|
|
|
24
|
|
Investments purchased
|
|
|
1,379,389
|
|
Payable to affiliates
|
|
|
|
|
Investment adviser
|
|
|
14,490
|
|
Administrative services fee
|
|
|
164
|
|
Transfer agent and dividend disbursing costs
|
|
|
694
|
|
Payable for independent Trustees compensation
|
|
|
14
|
|
Accrued interest expense
|
|
|
35,726
|
|
Accrued expenses and other liabilities
|
|
|
103,495
|
|
Total liabilities
|
|
|
$21,536,712
|
|
Net assets
|
|
|
$50,386,827
|
|
|
|
Net assets consist of
|
|
|
|
|
Paid-in capital
|
|
|
$54,060,831
|
|
Total distributable earnings (loss)
|
|
|
(3,674,004
|
)
|
Net assets
|
|
|
$50,386,827
|
|
Shares of beneficial interest outstanding
|
|
|
19,653,547
|
|
Net asset value per share (net assets of $50,386,827 / 19,653,547 shares of beneficial interest
outstanding)
|
|
|
$2.56
|
|
See Notes to Financial Statements
23
Financial Statements
STATEMENT OF OPERATIONS
Year ended 11/30/19
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 (loss)
|
|
|
|
|
Income
|
|
|
|
|
Interest
|
|
|
$3,892,937
|
|
Dividends from affiliated issuers
|
|
|
37,557
|
|
Dividends
|
|
|
4,397
|
|
Other
|
|
|
4,236
|
|
Total investment income
|
|
|
$3,939,127
|
|
Expenses
|
|
|
|
|
Management fee
|
|
|
$437,716
|
|
Transfer agent and dividend disbursing costs
|
|
|
15,308
|
|
Administrative services fee
|
|
|
17,500
|
|
Independent Trustees compensation
|
|
|
12,728
|
|
Stock exchange fee
|
|
|
23,749
|
|
Custodian fee
|
|
|
7,292
|
|
Shareholder communications
|
|
|
52,562
|
|
Audit and tax fees
|
|
|
84,918
|
|
Legal fees
|
|
|
2,348
|
|
Interest expense and fees
|
|
|
571,699
|
|
Miscellaneous
|
|
|
45,964
|
|
Total expenses
|
|
|
$1,271,784
|
|
Reduction of expenses by investment adviser
|
|
|
(33,349
|
)
|
Net expenses
|
|
|
$1,238,435
|
|
Net investment income (loss)
|
|
|
$2,700,692
|
|
|
|
Realized and unrealized gain (loss)
|
|
|
|
|
Realized gain (loss) (identified cost basis)
|
|
|
|
|
Unaffiliated issuers
|
|
|
$(649,496
|
)
|
Affiliated issuers
|
|
|
619
|
|
Futures contracts
|
|
|
(95,895
|
)
|
Forward foreign currency exchange contracts
|
|
|
37,450
|
|
Foreign currency
|
|
|
128
|
|
Net realized gain (loss)
|
|
|
$(707,194
|
)
|
Change in unrealized appreciation or depreciation
|
|
|
|
|
Unaffiliated issuers
|
|
|
$4,718,014
|
|
Affiliated issuers
|
|
|
(154
|
)
|
Futures contracts
|
|
|
9,143
|
|
Forward foreign currency exchange contracts
|
|
|
(12,370
|
)
|
Translation of assets and liabilities in foreign currencies
|
|
|
35
|
|
Net unrealized gain (loss)
|
|
|
$4,714,668
|
|
Net realized and unrealized gain (loss)
|
|
|
$4,007,474
|
|
Change in net assets from operations
|
|
|
$6,708,166
|
|
See Notes to Financial Statements
24
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.
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
11/30/19
|
|
|
11/30/18
|
|
Change in net assets
|
|
|
|
|
|
|
|
|
|
From operations
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
$2,700,692
|
|
|
|
$2,853,110
|
|
Net realized gain (loss)
|
|
|
(707,194
|
)
|
|
|
(556,265
|
)
|
Net unrealized gain (loss)
|
|
|
4,714,668
|
|
|
|
(3,910,198
|
)
|
Change in net assets from operations
|
|
|
$6,708,166
|
|
|
|
$(1,613,353
|
)
|
Distributions to shareholders
|
|
|
$(2,778,691
|
)
|
|
|
$(3,000,689
|
)
|
Tax return of capital distributions to shareholders
|
|
|
$(1,936,826
|
)
|
|
|
$(1,972,890
|
)
|
Change in net assets from fund share transactions
|
|
|
$(113,342
|
)
|
|
|
$144,505
|
|
Total change in net assets
|
|
|
$1,879,307
|
|
|
|
$(6,442,427
|
)
|
|
|
|
Net assets
|
|
|
|
|
|
|
|
|
At beginning of period
|
|
|
48,507,520
|
|
|
|
54,949,947
|
|
At end of period
|
|
|
$50,386,827
|
|
|
|
$48,507,520
|
|
See Notes to Financial Statements
25
Financial Statements
STATEMENT OF CASH FLOWS
Year ended 11/30/19
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
|
|
|
$6,708,166
|
|
|
|
Adjustments to reconcile change in net assets from operations to net cash provided by operating activities:
|
|
|
|
|
Purchase of investment securities
|
|
|
(39,904,337
|
)
|
Proceeds from disposition of investment securities
|
|
|
40,788,064
|
|
Proceeds from disposition of short-term investments, net
|
|
|
1,265,993
|
|
Realized gain/loss on investments
|
|
|
662,172
|
|
Unrealized appreciation/depreciation on investments
|
|
|
(4,717,860
|
)
|
Unrealized appreciation/depreciation on foreign currency contracts
|
|
|
12,370
|
|
Net amortization/accretion of income
|
|
|
28,429
|
|
Decrease in interest receivable
|
|
|
61,165
|
|
Increase in accrued expenses and other liabilities
|
|
|
12,712
|
|
Decrease in payable for net daily variation margin on open futures contracts
|
|
|
(996
|
)
|
Increase in other assets
|
|
|
(6
|
)
|
Decrease in interest payable
|
|
|
(12,799
|
)
|
Net cash provided by operating activities
|
|
|
$4,903,073
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Distributions paid in cash
|
|
|
(4,588,132
|
)
|
Repurchase of shares of beneficial interest
|
|
|
(257,528
|
)
|
Net cash used by financing activities
|
|
|
$(4,845,660
|
)
|
Net increase in cash and restricted cash (a)
|
|
|
$57,413
|
|
|
|
Cash and restricted cash:
|
|
|
|
|
Beginning of period
|
|
|
$9,412
|
|
End of period
|
|
|
$66,825
|
|
(a)
|
See Note 2 for more information on presentational changes to the Statement of Cash Flows that were effective with the beginning of the current reporting
period.
|
Supplemental disclosure of cash flow information:
Non-cash financing activities not included herein consist of reinvestment of dividends and distributions of $144,186.
Cash paid during the year ended November 30, 2019 for interest was $584,498.
See Notes to Financial
Statements
26
Financial Statements
FINANCIAL HIGHLIGHTS
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 that 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
|
|
|
11/30/19
|
|
|
11/30/18
|
|
|
11/30/17
|
|
|
11/30/16
|
|
|
11/30/15
|
|
Net asset value, beginning of period
|
|
|
$2.46
|
|
|
|
$2.79
|
|
|
|
$2.77
|
|
|
|
$2.70
|
|
|
|
$3.09
|
|
|
|
Income (loss) from investment operations
|
|
|
|
|
|
Net investment income (loss) (d)
|
|
|
$0.14
|
|
|
|
$0.14
|
(c)
|
|
|
$0.16
|
|
|
|
$0.19
|
|
|
|
$0.20
|
|
Net realized and unrealized gain (loss)
|
|
|
0.20
|
|
|
|
(0.22
|
)
|
|
|
0.12
|
|
|
|
0.14
|
|
|
|
(0.33
|
)
|
Total from investment operations
|
|
|
$0.34
|
|
|
|
$(0.08
|
)
|
|
|
$0.28
|
|
|
|
$0.33
|
|
|
|
$(0.13
|
)
|
|
|
|
Less distributions declared to shareholders
|
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
$(0.14
|
)
|
|
|
$(0.15
|
)
|
|
|
$(0.17
|
)
|
|
|
$(0.20
|
)
|
|
|
$(0.21
|
)
|
From tax return of capital
|
|
|
(0.10
|
)
|
|
|
(0.10
|
)
|
|
|
(0.10
|
)
|
|
|
(0.06
|
)
|
|
|
(0.05
|
)
|
Total distributions declared to shareholders
|
|
|
$(0.24
|
)
|
|
|
$(0.25
|
)
|
|
|
$(0.27
|
)
|
|
|
$(0.26
|
)
|
|
|
$(0.26
|
)
|
Net increase from repurchase of capital shares
|
|
|
$0.00
|
(w)
|
|
|
$
|
|
|
|
$0.01
|
|
|
|
$0.00
|
(w)
|
|
|
$0.00
|
(w)
|
Net asset value, end of period (x)
|
|
|
$2.56
|
|
|
|
$2.46
|
|
|
|
$2.79
|
|
|
|
$2.77
|
|
|
|
$2.70
|
|
Market value, end of period
|
|
|
$2.70
|
|
|
|
$2.29
|
|
|
|
$2.75
|
|
|
|
$2.48
|
|
|
|
$2.32
|
|
Total return at market value (%)
|
|
|
29.74
|
|
|
|
(8.21
|
)
|
|
|
22.30
|
|
|
|
18.72
|
|
|
|
(6.15
|
)
|
Total return at net asset value (%) (j)(r)(s)(x)
|
|
|
14.52
|
|
|
|
(2.81
|
)(c)
|
|
|
11.09
|
|
|
|
13.94
|
|
|
|
(3.50
|
)
|
|
|
Ratios (%) (to average net assets)
and Supplemental data:
|
|
|
|
|
|
Expenses before expense reductions (f)
|
|
|
2.56
|
|
|
|
2.50
|
(c)
|
|
|
2.15
|
|
|
|
2.07
|
|
|
|
1.77
|
|
Expenses after expense reductions (f)
|
|
|
2.49
|
|
|
|
2.41
|
(c)
|
|
|
2.05
|
|
|
|
1.84
|
|
|
|
1.70
|
|
Net investment income (loss)
|
|
|
5.43
|
|
|
|
5.50
|
(c)
|
|
|
5.75
|
|
|
|
6.97
|
|
|
|
6.63
|
|
Portfolio turnover
|
|
|
56
|
|
|
|
45
|
|
|
|
49
|
|
|
|
34
|
|
|
|
34
|
|
Net assets at end of period (000 omitted)
|
|
|
$50,387
|
|
|
|
$48,508
|
|
|
|
$54,950
|
|
|
|
$56,785
|
|
|
|
$56,362
|
|
|
|
|
|
|
|
Supplemental Ratios (%):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios of expenses to average net assets after expense reductions and excluding interest expense
and fees (f)
|
|
|
1.34
|
|
|
|
1.33
|
(c)
|
|
|
1.34
|
|
|
|
1.34
|
|
|
|
1.35
|
|
|
|
|
|
|
|
Senior Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable outstanding (000 omitted)
|
|
|
$20,000
|
|
|
|
$20,000
|
|
|
|
$22,000
|
|
|
|
$22,000
|
|
|
|
$22,000
|
|
Asset coverage per $1,000 of indebtedness (k)
|
|
|
$3,519
|
|
|
|
$3,425
|
|
|
|
$3,498
|
|
|
|
$3,581
|
|
|
|
$3,562
|
|
27
Financial Highlights continued
(c)
|
Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net
investment income and performance would be lower and expenses would be higher.
|
(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 and total returns at net asset value 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
28
NOTES TO FINANCIAL STATEMENTS
(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 diversified closed-end management investment company.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification Topic 946 Financial Services Investment Companies.
(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 below investment grade quality securities can involve a substantially
greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher
quality debt instruments. 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 market, economic, industrial, political, regulatory, geopolitical, and other conditions.
In November 2016, the FASB issued Accounting
Standards Update 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash (ASU 2016-18), which is effective for fiscal years beginning after
December 15, 2017 and interim periods within those fiscal years. The fund adopted ASU 2016-18 effective with the beginning of the current reporting period, which resulted in changes to the presentation of
restricted cash in the funds Statement of Cash Flows and additional disclosures regarding the nature of the restrictions on cash and restricted cash.
In March 2017, the FASB issued Accounting Standards Update 2017-08, Receivables Nonrefundable Fees and Other Costs (Subtopic
310-20) Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08). For entities that purchased callable debt securities at a premium,
ASU 2017-08 requires that the premium be amortized to the earliest call date. ASU 2017-08 will be effective for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years. Management has evaluated the potential impacts of ASU 2017-08 and believes that adoption of ASU 2017-08 will not have a
material effect on the funds overall financial position or its overall results of operations.
29
Notes to Financial Statements continued
Balance Sheet Offsetting 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 International Swaps and Derivatives Association (ISDA) Master Agreement, or similar 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. The funds right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the
particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the funds Significant Accounting Policies note
under the captions for each of the funds in-scope financial instruments and transactions.
Investment
Valuations Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for
which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted
debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market
value. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally
valued at the closing bid quotation on their primary exchange as 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. 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. In determining values, 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
30
Notes to Financial Statements continued
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 halt 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 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, such as futures contracts and forward foreign currency exchange
contracts. The following is a summary of the levels used as of November 30, 2019 in valuing the funds assets or liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
$
|
|
|
|
$32
|
|
|
|
$101,158
|
|
|
|
$101,190
|
|
Mexico
|
|
|
|
|
|
|
20,105
|
|
|
|
|
|
|
|
20,105
|
|
U.S. Corporate Bonds
|
|
|
|
|
|
|
56,529,499
|
|
|
|
|
|
|
|
56,529,499
|
|
Foreign Bonds
|
|
|
|
|
|
|
11,940,758
|
|
|
|
|
|
|
|
11,940,758
|
|
Floating Rate Loans
|
|
|
|
|
|
|
1,012,974
|
|
|
|
|
|
|
|
1,012,974
|
|
Mutual Funds
|
|
|
1,034,504
|
|
|
|
|
|
|
|
|
|
|
|
1,034,504
|
|
Total
|
|
|
$1,034,504
|
|
|
|
$69,503,368
|
|
|
|
$101,158
|
|
|
|
$70,639,030
|
|
|
|
|
|
|
Other Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts Assets
|
|
|
$4,607
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$4,607
|
|
Forward Foreign Currency Exchange Contracts Liabilities
|
|
|
|
|
|
|
(2,716
|
)
|
|
|
|
|
|
|
(2,716
|
)
|
31
Notes to Financial Statements continued
For further information regarding security characteristics, see the Portfolio of Investments.
The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The table presents the activity of
level 3 securities held at the beginning and the end of the period.
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
Balance as of 11/30/18
|
|
|
$177,884
|
|
Change in unrealized appreciation or depreciation
|
|
|
(76,726
|
)
|
Balance as of 11/30/19
|
|
|
$101,158
|
|
The net change in unrealized appreciation or depreciation from investments held as level 3 at November 30, 2019 is $(76,726).
At November 30, 2019, the fund held one level 3 security.
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 primarily to increase or decrease exposure to a
particular market or segment of the market, or security, to increase or decrease interest rate 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 during the period were futures contracts and
forward foreign currency exchange contracts. Depending on the type of derivative, the fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative
counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. 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.
32
Notes to Financial Statements continued
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, 2019 as reported in the Statement of Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value (a)
|
|
|
|
|
|
Risk
|
|
Derivative Contracts
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
Interest Rate
|
|
Interest Rate Futures
|
|
|
$4,607
|
|
|
|
$
|
|
Foreign Exchange
|
|
Forward Foreign Currency Exchange Contracts
|
|
|
|
|
|
|
(2,716
|
)
|
Total
|
|
|
|
|
$4,607
|
|
|
$
|
(2,716
|
)
|
(a)
|
Values presented in this table for futures contracts correspond to the values reported in the funds Portfolio of Investments. Only the current day
net variation margin for futures contracts is separately reported within the funds Statement of Assets and Liabilities.
|
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, 2019 as reported in the Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
Risk
|
|
Futures
Contracts
|
|
|
Forward
Foreign
Currency
Exchange
Contracts
|
|
Interest Rate
|
|
|
$(95,895
|
)
|
|
|
$
|
|
Foreign Exchange
|
|
|
|
|
|
|
37,450
|
|
Total
|
|
|
$(95,895
|
)
|
|
|
$37,450
|
|
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on
derivatives held by the fund for the year ended November 30, 2019 as reported in the Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
Risk
|
|
Futures
Contracts
|
|
|
Forward
Foreign
Currency
Exchange
Contracts
|
|
Interest Rate
|
|
|
$9,143
|
|
|
|
$
|
|
Foreign Exchange
|
|
|
|
|
|
|
(12,370
|
)
|
Total
|
|
|
$9,143
|
|
|
|
$(12,370
|
)
|
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On
certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the
agreement the right to terminate all transactions traded under such agreement if there is a specified 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 agreement to one net amount payable by one party to the other. This right to close out
and net payments
33
Notes to Financial Statements continued
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. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the
fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form
of cash and securities, is held in segregated accounts with the funds custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements
are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the funds
collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities
pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are
included in Interest expense and fees in the Statement of Operations.
Futures Contracts The fund entered into futures
contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified
price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an
initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract,
and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits
of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchanges clearinghouse guarantees payments to the broker, there is still
counterparty credit risk due to the insolvency of the broker. The funds maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures
contracts.
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
34
Notes to Financial Statements continued
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 forward foreign currency exchange contracts.
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, a multicurrency cash settlement system for the
centralized settlement of foreign transactions. 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, where applicable, by the posting of
collateral by the counterparty to the fund to cover the funds exposure to the counterparty under such ISDA Master Agreement.
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 contractually obligate the fund to
supply additional cash to the borrower on demand. The fund generally provides this financial support in order to preserve its existing investment or to obtain a more senior secured interest in the assets of the borrower. 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 or restricted cash is presented in the Statement of Cash Flows. Cash as presented in the funds Statement of Assets and Liabilities includes cash on hand at the funds
custodian bank and does not include any short-term investments. Restricted cash is presented in the funds Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives and
represents cash that has been segregated or delivered to cover the funds collateral or margin obligations under derivative contracts.
The
following table provides a reconciliation of cash and restricted cash reported within the Statement of Assets and Liabilities with that shown in the Statement of Cash Flows:
|
|
|
|
|
|
|
|
|
11/30/19
|
|
Cash
|
|
|
$55,060
|
|
Restricted cash
|
|
|
|
|
Restricted cash included in deposits with brokers
|
|
|
11,765
|
|
Total cash and restricted cash in the Statement of Cash Flows
|
|
|
$66,825
|
|
35
Notes to Financial Statements continued
The beginning of period cash and restricted cash balance in the Statement of Cash Flows is comprised of cash of $755, restricted cash of
$0, and restricted cash included in deposits with brokers of $8,657.
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.
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. Management
has analyzed the funds tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. 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.
36
Notes to Financial Statements continued
Distributions to shareholders are recorded on the ex-dividend date. The fund seeks to pay monthly
distributions based on an annual rate of 9.50% of the funds average monthly net asset value. As a result, distributions may exceed actual earnings which may result in a tax return of capital. 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.
During the year ended November 30, 2019, there were no significant adjustments due to differences
between book and tax accounting.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
|
|
|
11/30/19
|
|
|
11/30/18
|
|
Ordinary income (including any short-term capital gains)
|
|
|
$2,778,691
|
|
|
|
$3,000,689
|
|
Tax return of capital (b)
|
|
|
1,936,826
|
|
|
|
1,972,890
|
|
|
|
|
Total distributions
|
|
|
$4,715,517
|
|
|
|
$4,973,579
|
|
(b)
|
Distributions in excess of tax basis earnings and profits are reported in the financial statements as a tax return of capital.
|
The federal tax cost and the tax basis components of distributable earnings were as follows:
|
|
|
|
|
|
|
As of 11/30/19
|
|
|
|
|
|
Cost of investments
|
|
|
$68,812,009
|
|
Gross appreciation
|
|
|
2,487,710
|
|
|
|
Gross depreciation
|
|
|
(658,798
|
)
|
Net unrealized appreciation (depreciation)
|
|
|
$1,828,912
|
|
|
|
Capital loss carryforwards
|
|
|
(5,502,916
|
)
|
As of November 30, 2019, the fund had capital loss carryforwards available to offset future realized gains. These net capital
losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
|
|
|
|
|
Short-Term
|
|
|
$(317,724
|
)
|
Long-Term
|
|
|
(5,185,192
|
)
|
Total
|
|
|
$(5,502,916
|
)
|
(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
37
Notes to Financial Statements continued
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, MFS will reduce its management fee by an amount equivalent to the percentage
indicated of the funds net leverage income. The management fee incurred for the year ended November 30, 2019 was equivalent to an annual effective rate of 0.88% 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, excluding interest, taxes, extraordinary expenses,
brokerage and transaction costs, and investment-related expenses, such that 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, 2020. For the year ended November 30, 2019, this reduction amounted to $33,349, which is included in the 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, 2019, these fees paid to MFSC
amounted to $2,858.
Administrator MFS provides certain financial, legal, shareholder communications, compliance, and other administrative
services to the fund. Under an administrative services agreement, the fund 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, 2019 was equivalent to an annual effective rate of 0.0352% 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 from MFS for their services to the fund. Certain officers and Trustees of
the fund are officers or directors of MFS and MFSC.
Other This fund and certain other funds managed by MFS (the funds) had entered into a
service agreement (the ISO Agreement) which provided for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino served as the ISO and was
an officer of the funds and the sole member of Tarantino LLC. Effective June 30, 2019, Mr. Tarantino retired from his position as ISO for the funds, and the ISO Agreement was terminated. For the year ended November 30, 2019, the
fee paid by the fund under this agreement was $67 and is included in Miscellaneous expense in the Statement of Operations. MFS had agreed to bear all expenses associated with office space, other administrative support, and supplies
provided to the ISO.
38
Notes to Financial Statements continued
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. This money market fund does not pay a management fee to MFS.
(4) Portfolio Securities
For the year ended November 30, 2019, purchases and sales of investments, other than short-term obligations, aggregated $38,271,358 and $37,702,418,
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. The fund repurchased 117,869 shares of beneficial interest during the year ended November 30, 2019 at an average price per share of $2.18 and
a weighted average discount of 10.05% per share. During the year ended November 30, 2018, the fund did not repurchase any shares. Transactions in fund shares were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
11/30/19
|
|
|
Year ended
11/30/18
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Shares issued to shareholders in
reinvestment of distributions
|
|
|
56,233
|
|
|
|
$144,186
|
|
|
|
54,110
|
|
|
|
$144,505
|
|
Capital shares repurchased
|
|
|
(117,869
|
)
|
|
|
(257,528
|
)
|
|
|
|
|
|
|
|
|
Net change
|
|
|
(61,636
|
)
|
|
|
$(113,342
|
)
|
|
|
54,110
|
|
|
|
$144,505
|
|
(6) Loan Agreement
The fund
has a credit agreement with a bank for a revolving secured line of credit that can be drawn upon up to $23,000,000. Prior to May 10, 2019, the maximum amount available under the line of credit was $25,000,000. At November 30, 2019, the
fund had outstanding borrowings under this agreement in the amount of $20,000,000, which 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 August 19, 2020. Borrowings under the 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 with the option to choose LIBOR periods of overnight, 1, 2, 3, or 6 months, or at the option of the borrower an alternate base rate plus an agreed upon spread. The fund
incurred interest expense of $566,482 during the period, which is included in Interest expense and fees in the Statement of Operations. The fund may also be charged a commitment fee based on the average daily unused portion of the line
of credit. The fund paid a commitment fee of $4,899 during the period, which is included in Interest expense and fees in the Statement of Operations. For the year ended November 30, 2019, the average loan balance was $20,000,000 at
a weighted average annual interest rate of 2.83%. The fund is subject to certain covenants including, but not limited to, requirements with respect to asset coverage, portfolio diversification and liquidity.
39
Notes to Financial Statements continued
(7) Investments in 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 following were
affiliated issuers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliated Issuers
|
|
Beginning
Value
|
|
|
Purchases
|
|
|
Sales
Proceeds
|
|
|
Realized
Gain
(Loss)
|
|
|
Change in
Unrealized
Appreciation or
Depreciation
|
|
|
Ending
Value
|
|
MFS Institutional Money Market Portfolio
|
|
|
$2,300,651
|
|
|
|
$20,634,146
|
|
|
|
$21,900,758
|
|
|
|
$619
|
|
|
|
$(154
|
)
|
|
|
$1,034,504
|
|
|
|
|
|
|
|
|
Affiliated Issuers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
Income
|
|
|
Capital Gain
Distributions
|
|
MFS Institutional Money Market Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$37,557
|
|
|
|
$
|
|
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Trustees of MFS Intermediate High Income Fund
Opinion on the Financial Statements
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, 2019, 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, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the financial statements). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Fund at November 30, 2019, 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.
Basis for Opinion
These financial statements are the responsibility of the Funds management. Our
responsibility is to express an opinion on the Funds financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Funds internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of
November 30, 2019, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included
41
Report of Independent Registered Public Accounting Firm continued
evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more MFS investment companies since 1993.
Boston, Massachusetts
January 15, 2020
42
RESULTS OF SHAREHOLDER MEETING
(unaudited)
At the annual meeting of shareholders
of MFS Intermediate High Income Fund, which was held on October 3, 2019, the following action was taken:
Item 1: To elect the following
individuals as Trustees:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Nominee
|
|
For
|
|
|
Withheld Authority
|
|
Maureen R. Goldfarb
|
|
|
15,824,708.634
|
|
|
|
584,658.793
|
|
Robert J. Manning
|
|
|
15,747,043.634
|
|
|
|
662,323.793
|
|
Maryanne L. Roepke
|
|
|
15,836,044.427
|
|
|
|
573,323.000
|
|
Laurie J. Thomsen
|
|
|
15,816,862.427
|
|
|
|
592,505.000
|
|
43
TRUSTEES AND OFFICERS IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of January 1, 2020, 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)
Held
with Fund
|
|
Trustee/
Officer
Since (h)
|
|
Term
Expiring
|
|
Number
of MFS
Funds
overseen
by the
Trustee
|
|
Principal
Occupations
During
the Past
Five Years
|
|
Other
Directorships
During
the Past
Five Years
(j)
|
INTERESTED TRUSTEES
|
Robert J. Manning (k)
(age 56)
|
|
Trustee
|
|
February 2004
|
|
2022
|
|
133
|
|
Massachusetts Financial Services Company, Executive Chairman (since January 2017); Director; Chairman of the Board; Chief Executive Officer (until 2015);
Co-Chief Executive Officer (2015-2016)
|
|
N/A
|
|
|
|
|
|
|
|
Robin A. Stelmach (k)
(age 58)
|
|
Trustee
|
|
January 2014
|
|
2021
|
|
133
|
|
Massachusetts Financial Services Company, Vice Chair (since January 2017); Chief Operating Officer and Executive Vice President (until January 2017)
|
|
N/A
|
INDEPENDENT TRUSTEES
|
John P. Kavanaugh
(age 65)
|
|
Trustee and Chair of Trustees
|
|
January 2009
|
|
2020
|
|
133
|
|
Private investor
|
|
N/A
|
|
|
|
|
|
|
|
Steven E. Buller
(age 68)
|
|
Trustee
|
|
February 2014
|
|
2020
|
|
133
|
|
Financial Accounting Standards Advisory Council, Chairman (2014-2015); Public Company Accounting Oversight Board, Standing Advisory Group, Member (until 2014); BlackRock, Inc. (investment
management), Managing Director (until 2014), BlackRock Finco UK (investment management), Director (until 2014)
|
|
N/A
|
44
Trustees and Officers continued
|
|
|
|
|
|
|
|
|
|
|
|
|
Name, Age
|
|
Position(s)
Held
with Fund
|
|
Trustee/
Officer
Since (h)
|
|
Term
Expiring
|
|
Number
of MFS
Funds
overseen
by the
Trustee
|
|
Principal
Occupations
During
the Past
Five Years
|
|
Other
Directorships
During
the Past
Five Years
(j)
|
John A. Caroselli
(age 65)
|
|
Trustee
|
|
March 2017
|
|
2021
|
|
133
|
|
JC Global Advisors, LLC (management consulting), President (since 2015); First Capital Corporation (commercial finance), Executive Vice President (until 2015)
|
|
N/A
|
|
|
|
|
|
|
|
Maureen R. Goldfarb
(age 64)
|
|
Trustee
|
|
January 2009
|
|
2022
|
|
133
|
|
Private investor
|
|
N/A
|
|
|
|
|
|
|
|
Peter D. Jones
(age 64)
|
|
Trustee
|
|
January 2019
|
|
2020
|
|
133
|
|
Franklin Templeton Distributors, Inc. (investment management), President (until 2015); Franklin Templeton Institutional, LLC (investment management), Chairman (until 2015)
|
|
N/A
|
|
|
|
|
|
|
|
James W. Kilman, Jr.
(age 58)
|
|
Trustee
|
|
January 2019
|
|
2021
|
|
133
|
|
Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016); Morgan
Stanley & Co. (financial services), Vice Chairman of Investment Banking, Co-Head of Diversified Financials Coverage Financial Institutions Investment Banking Group (until 2016)
|
|
Alpha-En Corporation,
Director
(2016 until 2019)
|
45
Trustees and Officers continued
|
|
|
|
|
|
|
|
|
|
|
|
|
Name, Age
|
|
Position(s)
Held
with Fund
|
|
Trustee/
Officer
Since (h)
|
|
Term
Expiring
|
|
Number
of MFS
Funds
overseen
by the
Trustee
|
|
Principal
Occupations
During
the Past
Five Years
|
|
Other
Directorships
During
the Past
Five Years
(j)
|
Clarence Otis, Jr.
(age 63)
|
|
Trustee
|
|
March 2017
|
|
2021
|
|
133
|
|
Darden Restaurants, Inc., Chief Executive Officer (until 2014)
|
|
VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director; Federal Reserve Bank of Atlanta, Director (until 2015)
|
|
|
|
|
|
|
|
Maryanne L. Roepke
(age 63)
|
|
Trustee
|
|
May 2014
|
|
2022
|
|
133
|
|
American Century Investments (investment management), Senior Vice President and Chief Compliance Officer (until 2014)
|
|
N/A
|
|
|
|
|
|
|
|
Laurie J. Thomsen
(age 62)
|
|
Trustee
|
|
March 2005
|
|
2022
|
|
133
|
|
Private investor
|
|
The Travelers Companies, Director; Dycom Industries, Inc., Director (since 2015)
|
|
|
|
|
|
|
|
|
|
|
|
Name, Age
|
|
Position(s)
Held
with Fund
|
|
Trustee/Officer
Since (h)
|
|
Term
Expiring
|
|
Number of
MFS Funds
for
which
the Person is
an Officer
|
|
Principal
Occupations During
the Past Five Years
|
OFFICERS
|
Christopher R. Bohane (k)
(age 45)
|
|
Assistant Secretary and Assistant Clerk
|
|
July 2005
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President and Assistant General Counsel
|
|
|
|
|
|
|
Kino Clark (k)
(age 51)
|
|
Assistant
Treasurer
|
|
January 2012
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President
|
|
|
|
|
|
|
John W. Clark, Jr. (k)
(age 52)
|
|
Assistant Treasurer
|
|
April 2017
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head Treasurers Office (until February
2017)
|
46
Trustees and Officers continued
|
|
|
|
|
|
|
|
|
|
|
Name, Age
|
|
Position(s)
Held
with Fund
|
|
Trustee/Officer
Since (h)
|
|
Term
Expiring
|
|
Number of
MFS Funds
for
which
the Person is
an Officer
|
|
Principal
Occupations During
the Past Five Years
|
Thomas H. Connors (k)
(age 60)
|
|
Assistant
Secretary and Assistant
Clerk
|
|
September 2012
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President and Senior Counsel
|
|
|
|
|
|
|
David L. DiLorenzo (k)
(age 51)
|
|
President
|
|
July 2005
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Senior Vice President
|
|
|
|
|
|
|
Heidi W. Hardin (k)
(age 52)
|
|
Secretary and Clerk
|
|
April 2017
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (from September 2015 to
January 2017); Janus Capital Management LLC (investment management), Senior Vice President and General Counsel (until September 2015)
|
|
|
|
|
|
|
Brian E. Langenfeld (k)
(age 46)
|
|
Assistant Secretary and Assistant Clerk
|
|
June 2006
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President and Senior Counsel
|
|
|
|
|
|
|
Amanda S. Mooradian (k)
(age 40)
|
|
Assistant Secretary and Assistant Clerk
|
|
September 2018
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Assistant Vice President and Counsel
|
|
|
|
|
|
|
Susan A. Pereira (k)
(age 49)
|
|
Assistant Secretary and Assistant Clerk
|
|
July 2005
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President and Assistant General Counsel
|
|
|
|
|
|
|
Kasey L. Phillips (k)
(age 49)
|
|
Assistant Treasurer
|
|
September 2012
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President
|
|
|
|
|
|
|
Matthew A. Stowe (k)
(age 45)
|
|
Assistant Secretary and Assistant Clerk
|
|
October 2014
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President and Assistant General Counsel
|
47
Trustees and Officers continued
|
|
|
|
|
|
|
|
|
|
|
Name, Age
|
|
Position(s)
Held
with Fund
|
|
Trustee/Officer
Since (h)
|
|
Term
Expiring
|
|
Number of
MFS Funds
for
which
the Person is
an Officer
|
|
Principal
Occupations During
the Past Five Years
|
Martin J. Wolin (k)
(age 52)
|
|
Chief Compliance Officer
|
|
July 2015
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer (since July 2015); Mercer (financial service provider), Chief Risk and Compliance Officer, North
America and Latin America (until June 2015)
|
|
|
|
|
|
|
James O. Yost (k)
(age 58)
|
|
Treasurer
|
|
September 1990
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Senior Vice President
|
(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. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds,
respectively.
|
(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 a 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. Under the terms of the Boards retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the
earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trusts Audit Committee.
48
Trustees and Officers continued
Each of the Interested Trustees and certain Officers hold comparable officer positions
with certain affiliates of MFS.
|
|
|
Investment Adviser
|
|
Custodian
|
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, MA 02199-7618
|
|
State Street Bank and Trust Company
1 Lincoln
Street
Boston, MA 02111-2900
|
Portfolio Manager(s)
|
|
Independent Registered Public Accounting Firm
|
David Cole
|
|
Ernst & Young LLP
|
Michael Skatrud
|
|
200 Clarendon Street
|
|
|
Boston, MA 02116
|
49
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, 2019 (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 Senior Officer, a 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 Broadridge Financial Solutions, Inc. (Broadridge), an independent third party, on the investment performance (based on net asset value) of the
Fund for various time periods ended December 31, 2018 and the investment performance (based on net asset value) of a group of funds with substantially similar investment classifications/ objectives (the Broadridge performance
universe), (ii) information provided by Broadridge on the Funds advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment
classification/category (the Broadridge expense group and universe), (iii) information provided by MFS on the advisory fees of 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
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Board Review of Investment Advisory Agreement continued
MFS, including information about MFS senior management and other personnel
providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge 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 Broadridge and MFS,
the Trustees reviewed the Funds total return investment performance as well as the Broadridge performance universe 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 Broadridge performance universe over the five-year period ended December 31, 2018, which the Trustees believed was a long enough period to reflect differing market conditions. The total
return performance of the Funds common shares ranked 10th out of a total of 26 funds in the Broadridge performance universe for this five-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 22nd out of a total of 34
funds for the one-year period and 19th out of a total of 29 funds for the three-year period ended December 31, 2018. Given the size of the Broadridge performance
universe and information previously provided by MFS regarding differences between the Fund and other funds in its Broadridge performance universe, the Trustees also reviewed the Funds performance in comparison to the Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index. The Fund outperformed the Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index for each of the three- and five-year periods ended
December 31, 2018 and underperformed the Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index for the one-year period ended December 31, 2018
(one-year: -5.2% total return for the Fund versus -2.1% total return for the benchmark;
three-year: 7.4% total return for the Fund versus 7.2% total return for the benchmark; five-year: 4.0% total return for the Fund versus 3.8% 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.
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Board Review of Investment Advisory Agreement continued
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 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 the Broadridge expense group based on information provided by Broadridge. 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 data provided by Broadridge (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 was lower than the Broadrdige expense group median and the Funds total expense ratio was higher than the Broadridge
expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS
(separate accounts) and unaffiliated investment companies for which MFS serves as subadviser (subadvised funds) that have comparable investment strategies to the Fund, if any. 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, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised
funds.
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,
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Board Review of Investment Advisory Agreement continued
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.
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 considered so-called fall-out benefits to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that, effective January 3, 2018, MFS had discontinued
its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds and would thereafter directly pay for or voluntarily reimburse a Fund, if applicable, for the costs of external research acquired
through the use of the Funds portfolio brokerage commissions.
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, 2019.
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PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, 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
by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SECs Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of
portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q or as an exhibit to its reports on Form N-PORT (for first and third fiscal quarters ending March 31, 2019
or after). The funds Form N-Q or Form N-PORT reports are available on the SECs website at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the funds fiscal year
at mfs.com/closedendfunds by choosing the funds name and then selecting the Resources tab and clicking on Prospectus and Reports.
FURTHER INFORMATION
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 at https://www.mfs.com/en-us/what-we-do/announcements.html or at mfs.com/closedendfunds by choosing the funds name.
Additional information about the fund (e.g. performance, dividends and the funds price history) is also available by clicking on the funds name under
Closed-End Funds in the Products section of mfs.com.
INFORMATION ABOUT FUND
CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, transfer agent, and custodian
who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder
right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trusts By-Laws, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth
of Massachusetts.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2019 income tax forms in January 2020.
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rev. 3/16
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FACTS
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WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION?
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Why?
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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.
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What?
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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.
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How?
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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.
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Reasons we can share your
personal information
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Does
MFS
share?
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Can you limit
this sharing?
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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
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Yes
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No
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For our marketing purposes
to offer our products and services to you
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No
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We dont share
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For joint marketing with other
financial companies
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No
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We dont share
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For our affiliates everyday business purposes
information about your transactions and experiences
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No
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We dont share
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For our affiliates everyday business purposes
information about your creditworthiness
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No
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We dont share
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For nonaffiliates to market to you
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No
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We dont share
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Questions?
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Call 800-225-2606 or go to mfs.com.
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Who we are
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Who is providing this notice?
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MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust
Company.
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What we do
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How does MFS protect my
personal information?
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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.
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How does MFS collect my personal information?
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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, or other companies.
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Why cant I limit all sharing?
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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.
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Definitions
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Affiliates
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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.
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Nonaffiliates
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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.
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Joint marketing
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A formal agreement between nonaffiliated financial
companies that together market financial products or services to you.
MFS doesnt jointly market.
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Other important information
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If you own an MFS product or receive an
MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.
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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 505005
Louisville, KY 40233-5005
New York Stock Exchange Symbol: CIF