Dear Shareholders:
After a period of euphoria mixed with shock in the world's bond markets which
coincided with the first six months of the Trust's fiscal year, the global
news for financial assets for the last six months has been mostly favorable.
Inflation, one of the biggest risks to stocks and bonds, has been on a
downward trend in Europe, Asia, and North America, and interest rates in most
countries have fallen or remained stable. As a result, the markets have been
willing to take greater risk in return for more yield. Although yield may be
much sought after, it is hard to find, and the distribution rate on this
Trust is likely to fall in the coming months. For the 12 months ended October
31, 1996, the Trust had a total return of 19.32%, based on beginning and
ending stock market prices and assuming the reinvestment of all distributions
paid during the period. The Trust's total return based on net asset value
(NAV) was 10.78% for the same period.
We believe the difference in the Trust's strong market price total return
relative to its NAV return has resulted from the Trust's innovative share
repurchase program. This program, which was implemented in April 1996,
authorizes the Trust to repurchase annually up to 10% of its outstanding
shares. With its regular monthly distribution the Trust pays its shareholders
the difference between its NAV and its market price, which it then recaptures
when it repurchases its shares. The extra distribution paid to shareholders
has added approximately 75 basis points (0.75%) to the Trust's distribution
rate at both NAV and market price for the six-month period ending October 31.
We believe this higher distribution rate attracted new investors to the
Trust, which helped move its market price from $6.875 on April 30 to $7.125
as of October 31.
The Trust derives much of its diversification from investing in bonds other
than U.S. government bonds, such as international, corporate, and emerging
market bonds. This has provided a favorable mix of assets that has helped us
cushion the move in U.S. interest rates while providing a measure of
stability to the Trust's NAV. The following gives a general review of these
specific markets and how our strategies differ for each.
U.S. Government Sector
Our caution toward the U.S. interest rate environment stems from our concern
that the U.S. economy has momentum for further growth and that wage and price
pressures could appear in this, the sixth year of the U.S. expansion. This
conservative view has been expressed in the portfolio as we reduced the U.S.
sector to 25% of total assets, its lowest level in years. Further, our
duration, or sensitivity to interest rate changes, has remained short during
much of the past six months. We look to remain overweighted in mortgages in
this sector in the hope that this could provide some protection in the event
of a downturn in bond prices. We will become aggressive only when it is clear
that the economy and inflation are under no pressure to rise.
Corporate Bond Sector
Broad support for this market has come from traditionally conservative buyers
as well as the growing population dedicated to high-yield bond funds. We
believe this market support, driven by better earnings, better balance
sheets, and deep economic strength, is likely to continue into 1997. Yield
spreads in the high-yield markets have narrowed to a point where we believe
the risk to the portfolio is greatly reduced, and the returns have been
better than for more highly rated (investment-grade) markets. While new
issues dominate this market, we continue to be selective and guide our bond
purchases by dedicated research. This sector represents the Trust's largest
weighting.
International Bond Sector
In the past several months, we have pursued a "European convergence"
strategy, favoring higher yielding sovereign bonds in Spain, Italy, France,
and Sweden whose yields have seemed the likeliest to converge toward the
prevailing lower rates in Germany. During the third quarter, this happened,
boosting bond prices in this sector, which was overweighted in the portfolio.
We see interest rates falling further in Europe before growth turns upward.
In
1
<PAGE>
the near term the dollar appears to us to be strong against the Japanese yen
and has only recently weakened versus the German mark.
The Trust has maintained its maximum weighting of 10% in the emerging market
sector for some time. Emerging market debt, including Brady bonds, has
outperformed all other fixed-income markets in 1996 and has eclipsed most
equity markets. Better credit fundamentals and a worldwide search for yield
have fueled these markets and created great optimism and bond price
appreciation. Emerging market holdings in the portfolio include Mexico,
Argentina, Poland, and Brazil.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
/s/ James T. Swanson
James T. Swanson
Portfolio Manager
November 12, 1996
In accordance with Section 23(c) of the Investment Company Act of 1940, the
Trust hereby gives notice that it may from time to time repurchase shares of
the Trust in the open market at the option of the Board of Trustees and on
such terms as the Trustees shall determine.
Performance Summary
(For the year ended October 31, 1996)
Net Asset Value Per Share
October 31, 1996 $7.71
October 31, 1995 $7.57
New York Stock Exchange Price
October 31, 1996 $7.125
October 31, 1996 (high)* $7.125
January 16, 1996 (low)* $6.375
October 31, 1995 $6.500
*For the period November 1, 1995 through October 31, 1996.
Federal Income Tax Information
on Distributions
(For the year ended October 31, 1996)
Distribution Sources
The Trust made no long-term capital gain distributions for tax purposes
during the year ended October 31, 1996.
Distributions eligible for the 70%
dividends-received deduction
for corporations 0%
Tax Form Summary
In January 1997, shareholders will be mailed a tax form summary reporting the
federal tax status of all distributions paid during the calendar year 1996.
Number of Shareholders
As of October 31, 1996, our records indicate that there are 19,731 registered
shareholders and approximately 19,154 shareholders owning Trust shares in
"street" name, such as through brokers, banks, and other financial
intermediaries.
2
<PAGE>
Results of Shareholder Meeting
At the annual meeting of shareholders of MFS Multimarket Income Trust, which
was held on October 17, 1996, the following actions were taken:
Item 1. The election of A. Keith Brodkin, Richard B. Bailey, Charles W.
Schmidt, and Elaine R. Smith as Trustees of the Trust.
Number of Shares
Nominee For Withhold Authority
A. Keith Brodkin 86,825,950.714 1,548,427.926
Richard B. Bailey 86,792,926.911 1,581,451.728
Charles W. Schmidt 86,790,424.472 1,583,954.168
Elaine R. Smith 86,667,006.748 1,707,371.891
Trustees continuing in office who were not subject to re-election at this
meeting are Peter G. Harwood, J. Atwood Ives, Lawrence T. Perera, William J.
Poorvu, Arnold D. Scott, Jeffrey L. Shames, and David B. Stone.
Item 2. The ratification of the election of Ernst & Young LLP as the
independent public accountants to be employed by the Trust for the fiscal
year ended October 31, 1996.
Number of Shares
For 86,599,108.678
Against 575,292.266
Abstain 1,199,977.696
Number of Employees
The Trust is organized as a Massachusetts business trust and is registered
under the Investment Company Act of 1940, as amended, as a closed-end,
non-diversified, management investment company and has no employees.
New York Stock Exchange Symbol
The New York Stock Exchange symbol is MMT.
Investment Objective and Policy
The investment objective of MFS(R) Multimarket Income Trust is to provide a
high level of current income through investments in fixed-income securities.
The Trust will attempt to achieve this objective by allocating portfolio
assets among various categories of fixed- income securities. The investment
adviser will monitor the Trust's portfolio performance on an ongoing basis
and will reallocate assets in response to actual and anticipated market and
economic changes. In pursuing this objective, preservation of capital will be
a consideration, although capital appreciation, if any, will be incidental.
The Trust may also enter into options and futures transactions and forward
foreign currency exchange contracts and purchase securities on a
"when-issued" basis.
Dividend Reinvestment and
Cash Purchase Plan
The Trust offers a Dividend Reinvestment and Cash Purchase Plan which allows
you to reinvest either all of the distributions or only the long-term capital
gains paid by the Trust. Unless the shares are trading at a premium
(exceeding net asset value), purchases are made at the market price.
Otherwise, purchases will be made at a discounted price of either the net
asset value or 95% of the market price, whichever is greater. You can also
buy shares of the Trust. Investments from $100 to $500 can be made in January
and July on the 15th of the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank or other nominee,
you can ask the firm or nominee to participate in the Plan on your behalf. If
the nominee does not offer the Plan, you may wish to request that your shares
be re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the Trust. However, when shares are
bought on the New York Stock Exchange or otherwise on the open market, each
participant pays a pro rata share of the commissions. A service fee of $0.75
is charged for each cash purchase as well as a pro rata share of the
brokerage commissions, if any. The automatic reinvestment of distributions
does not relieve you of any income tax that may be payable (or required to be
withheld) on the distributions.
To enroll in or withdraw from the Plan or to receive a brochure providing a
complete description of the Plan, please contact the Plan agent at the
address and telephone number located on the back cover of this report. Please
have available the name of the Trust and your account and Social Security
numbers. For certain types of registrations, such as corporate accounts,
instructions must be submitted in writing. When you withdraw from the Plan,
you can receive the value of the reinvested shares in one of two ways: a
check for the value of the full and fractional shares, or a certificate for
the full shares and a check for the fractional shares.
3
<PAGE>
Portfolio of Investments -- October 31, 1996
Bonds -- 91.1%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Dollar Denominated -- 73.3%
Corporate Asset-Backed -- 0.1%
Merrill Lynch Mortgage Investors, 8.227s, 2023+ $ 1,200 $ 997,500
---------------
Financial Institutions -- 3.1%
Americo Life, Inc., 9.25s, 2005 $ 2,650 $ 2,570,500
Auburn Hills Trust, 12s, 2020 5,000 7,541,200
First Nationwide Escrow Co., 10.625s, 2003## 200 210,000
Leucadia National Corp., 8.25s, 2005 3,000 3,061,590
Leucadia National Corp., 7.75s, 2013 9,585 9,373,555
---------------
$22,756,845
---------------
Foreign -- U.S. Dollar Denominated -- 8.6%
Banco Nacional de Commerce, 7.25s, 2004 $ 1,000 $ 837,500
Banco Nacional de Commerce, 8s, 2000 2,500 2,385,000
Central Transportation Rental Group PLC, 9.5s, 2003 1,431 1,327,254
Empresas ICA Sociedad S.A., 11.875s, 2001 4,500 4,649,063
Federal Republic of Brazil, 6.875s, 2001 1,820 1,747,200
Federal Republic of Brazil, 8s, 2014 4,956 3,394,973
GPO Electra, 12.75s, 2001 3,500 3,666,250
Gulf Canada Resources Ltd., 9.25s, 2004 2,400 2,490,000
Hidroelectrica Alicura, 8.375s, 1999## 1,500 1,458,750
Mexico Discount Notes,
6.25s, 2019 1,500 1,040,625
National Power Corp., 7.625s, 2000 2,000 1,984,000
Republic of Argentina, 9.25s, 2001 3,500 3,426,500
Republic of Argentina, 6.625s, 2005 2,940 2,410,800
Republic of Argentina, 6.4375s, 2023 14,000 9,542,500
Republic of Colombia, 8.66s, 2016 1,000 1,020,000
Republic of Ecuador, 6.5s, 2015 2,115 1,178,990
Telecom Argentina, 12s, 2002 5,000 5,400,000
United Mexican States, 4.242s, 2019 4,750 3,900,938
United Mexican States, 6.39062s, 2019 $ 4,334 $ 3,559,298
United Mexican States, 11.5s, 2026 8,000 7,996,000
---------------
$63,415,641
---------------
Industrials -- 30.6%
Aerospace -- 0.2%
CHC Helicopter, 11.5s, 2002 $ 1,425 $ 1,421,438
---------------
Airlines -- 0.1%
GPA Plc, 10.875s, 2019 $ 250 $ 271,250
K & F Industries, Inc., 11.875s, 2003 725 783,000
---------------
$ 1,054,250
---------------
Automotive -- 0.9%
Exide Corp., 10s, 2005 $ 1,100 $ 1,116,500
Harvard Industries, Inc., 12s, 2004 900 828,000
Harvard Industries, Inc., 11.125s, 2005 750 675,000
Lear Corp., 9.5s, 2006 1,725 1,837,125
SPX Corp., 11.75s, 2002 2,000 2,205,000
---------------
$ 6,661,625
---------------
Building -- 2.2%
American Standard, Inc., 10.5s, 2005 $ 7,175 $ 6,636,875
Building Materials Corp., 11.75s, 2004 3,313 2,724,531
Nortek, Inc., 9.875s, 2004 2,750 2,736,250
Schuller International Group, Inc., 10.875s, 2004 1,000 1,100,000
USG Corp., 9.25s, 2001 3,150 3,327,188
UDC Homes, Inc., "C", 14.5s, 2000 29 27,073
---------------
$16,551,917
---------------
Cellular Telephones -- 0.5%
Millicom International Cellular, 13.5s, 2006## $ 500 $ 283,750
Rogers Cantel, 9.375s, 2008 3,150 3,165,750
---------------
$ 3,449,500
---------------
Chemicals -- 1.3%
Arcadian Partners LP, 10.75s, 2005 $ 2,225 $ 2,447,500
Indspec Chemical Corp., 11.5s, 2003 3,250 2,892,500
NL Industries, Inc., 11.75s, 2003 1,105 1,139,531
4
<PAGE>
U.S. Dollar Denominated -- continued
Industrials -- continued
Chemicals -- continued
UCC Investors Holdings, Inc., 10.5s, 2002 $1,850 $ 1,984,125
UCC Investors Holdings, Inc., 12s, 2005 1,250 1,093,750
---------------
$ 9,557,406
---------------
Consumer Goods and Services -- 2.2%
Consolidated Cigar Corp., 10.5s, 2003 $1,000 $ 1,040,000
International Semi-Tech Microelectronics, Inc., 11.5s,
2003 3,000 1,830,000
Ithaca Industries, Inc., 11.125s, 2002** 1,000 590,000
Reeves Industries, Inc., 11s, 2002 2,000 1,880,000
Remington Arms, Inc., 9.5s, 2003## 300 250,500
Revlon Consumer Products Corp., 10.5s, 2003 3,750 3,900,000
Samsonite Corp., 11.125s, 2005 1,000 1,060,000
Sealy Corp., 9.5s, 2003 1,250 1,243,750
Westpoint Stevens, Inc., 9.375s, 2005 4,500 4,545,000
---------------
$16,339,250
---------------
Containers -- 2.0%
Calmar, Inc., 11.5s, 2005 $1,000 $ 1,023,750
Gaylord Container Co., 11.5s, 2001 1,000 1,062,500
Gaylord Container Co., 12.75s, 2005 1,150 1,262,125
Ivex Packaging Corp., 12.5s, 2002 2,550 2,741,250
Owens-Illinois, Inc., 11s, 2003 3,500 3,845,625
Owens-Illinois, Inc., 9.95s, 2004 1,000 1,047,500
Plastic Container, Inc., 10.75s, 2001 500 525,000
Silgan Corp., 11.75s, 2002 1,700 1,819,000
Stone Container Corp., 9.875s, 2001 500 496,250
Stone Container Corp., 10.75s, 2002 1,000 1,050,000
---------------
$14,873,000
---------------
Defense Electronics -- 0.2%
Alliant Techsystems, Inc., 11.75s, 2003 $1,100 $ 1,199,000
---------------
Entertainment -- 1.7%
ACT III Theatres, Inc., 11.875s, 2003 $2,300 $ 2,530,000
Albritton Communications Corp., 11.5s, 2004 500 520,000
Cinemark USA, Inc., 9.625s, 2008## 900 886,500
SCI Television, Inc., 11s, 2005 2,150 2,300,500
Turner Broadcasting Systems, Inc., 8.375s, 2013 5,000 5,096,550
United Artist Theater Circuit, Inc., 11.5s, 2002 1,000 1,060,000
---------------
$12,393,550
---------------
Financial Institutions -- 0.2%
American Life Holdings Co., 11.25s, 2004 $1,250 $ 1,421,875
Intermedia Capital Partners, 11.25s, 2006## 300 300,000
---------------
$ 1,721,875
---------------
Food and Beverage Products -- 0.8%
Coca-Cola Bottling Group Southwest, Inc., 9s, 2003 $1,000 $ 1,010,000
Nabisco, Inc., 7.55s, 2015 2,965 2,922,452
Specialty Foods Corp., 10.25s, 2001 1,350 1,242,000
Texas Bottling Group, Inc., 9s, 2003 1,000 1,012,500
---------------
$ 6,186,952
---------------
Forest and Paper Products -- 0.2%
Fort Howard Corp., 9.25s, 2001 $1,650 $ 1,699,500
---------------
Machinery -- 0.2%
AGCO Corp., 8.5s, 2006 $1,500 $ 1,515,000
---------------
Medical and Health Technology and Services -- 0.7%
Beverly Enterprises, Inc., 9s, 2006 $1,100 $ 1,083,500
OrNda Healthcorp, 12.25s, 2002 1,200 1,285,500
Quorum Health Group, Inc., 8.75s, 2005 200 202,000
Tenet Healthcare Corp., 10.125s, 2005 2,500 2,743,750
---------------
$ 5,314,750
---------------
Metals and Minerals -- 0.7%
Commonwealth Aluminum Corp., 10.75s, 2006## $1,000 $ 1,015,000
5
<PAGE>
U.S. Dollar Denominated -- continued
Industrials -- continued
Metals and Minerals -- continued
Haynes International, Inc., 11.625s, 2004 $ 500 $ 520,000
Jorgensen (Earle M.) Co., 10.75s, 2000 1,350 1,363,500
Kaiser Aluminum & Chemical Corp., 9.875s, 2002 1,640 1,623,600
Republic Engineered Steel, 9.875s, 2001 460 427,800
---------------
$ 4,949,900
---------------
Oil Services -- 1.2%
AmeriGas Partners LP, 10.125s, 2007 $ 600 $ 628,500
Clark USA, Inc., 10.875s, 2005 1,000 1,030,000
Falcon Drilling Co., 8.875s, 2003 1,750 1,706,250
Ferrell Gas LP, 10s, 2001 1,600 1,648,000
Global Marine, Inc., 12.75s, 1999 1,400 1,508,500
Noble Drilling Corp., 9.125s, 2006 1,225 1,292,375
Tuboscope Vetco International, Inc., 10.75s, 2003 650 689,000
---------------
$ 8,502,625
---------------
Printing and Publishing -- 0.3%
Day International Group, Inc., 11.125s, 2005 $1,000 $ 1,045,000
Golden Books Publishing, Inc., 7.65s, 2002 575 494,500
Newsquest Capital Plc, 11s, 2006## 750 765,000
---------------
$ 2,304,500
---------------
Special Products and Services -- 2.9%
AAF-McQuay, Inc., 8.875s, 2003 $2,000 $ 1,985,000
Blount, Inc., 9s, 2003 1,250 1,268,750
Fairfield Manufacturing, 11.375s, 2001 1,850 1,914,750
Idex Corp., 9.75s, 2002 1,000 1,040,000
IMO Industries, Inc., 11.75s, 2006 1,650 1,699,500
Interlake Corp., 12s, 2001 750 795,000
Interlake Corp., 12.125s, 2002 1,400 1,435,000
Interlake Revolver, "B", 5.75s, 1997## 232 230,045
Loewen Group, Inc., 7.5s, 2001 $3,000 $ 3,011,250
Mark IV Industries, Inc., 8.75s, 2003 2,750 2,818,750
Newflo Corp., 13.25s, 2002 750 826,875
Polymer Group, Inc., 12.25s, 2002 834 909,060
Spreckels Industries, Inc., 11.5s, 2000 200 212,000
Synthetic Industries, Inc., 12.75s, 2002 900 976,500
Thermadyne Holdings Corp., 10.75s, 2003 2,250 2,317,500
---------------
$21,439,980
---------------
Steel -- 0.7%
AK Steel Holdings Corp., 10.75s, 2004 $2,078 $ 2,244,240
Armco, Inc., 11.375s, 1999 1,000 1,040,000
WCI Steel, Inc., 10.5s, 2002 1,550 1,728,250
---------------
$ 5,012,490
---------------
Stores -- 1.6%
Eckerd (Jack) Corp., 9.25s, 2004 $1,000 $ 1,030,000
Finlay Enterprises, Inc., 12s, 2005 950 788,500
Finlay Fine Jewelry, 10.625s, 2003 2,760 2,794,500
Limited, Inc., 7.5s, 2023 3,500 3,176,250
Pathmark Stores, Inc., 11.625s, 2002 2,050 2,106,375
Pathmark Stores, Inc., 9.625s, 2003 1,650 1,612,875
---------------
$11,508,500
---------------
Supermarkets -- 0.7%
Carr-Gottstein Foods Co., 12s, 2005 $1,000 $ 1,050,000
Dominick's Finer Foods, Inc., 10.875s, 2005 1,500 1,655,625
Grand Union Co., 12s, 2004 1,250 1,262,500
Ralphs Grocery Co., 10.45s, 2004 800 808,000
---------------
$ 4,776,125
---------------
Telecommunications -- 9.3%
American Radio Systems Corp., 9s, 2006 $1,500 $ 1,432,500
6
<PAGE>
U.S. Dollar Denominated -- continued
Industrials -- continued
Telecommunications -- continued
Bell Cablemedia Plc, 11.875s, 2005 $ 4,625 $ 3,353,125
Brooks Fiber Properties, 10.875s, 2006 1,500 877,500
Cablevision Industries Corp., 9.25s, 2008 1,150 1,217,333
Charter Communication LP, 11.25s, 2000 1,000 1,015,000
Comcast Corp., 9.375s, 2005 3,040 3,024,800
Continental Cablevision, Inc., 9.5s, 2013 5,000 5,625,000
Continental Cablevision, Inc., 8.3s, 2006 4,325 4,584,500
Diamond Cable Communication Plc, 11.75s, 2005 2,000 1,315,000
EchoStar Communication Corp., 12.875s, 2004 1,250 990,625
EchoStar Communication Corp., 13.125s, 2004 2,000 1,410,000
Falcon Holdings Group, Inc., 11s, 2003 3,825 3,480,543
Granite Broadcasting Corp., 10.375s, 2005 2,000 1,990,000
ICG Holdings, Inc., 12.5s, 2006 3,500 2,117,500
Jones Intercable, Inc., 9.625s, 2002 250 256,250
Jones Intercable, Inc., 11.5s, 2004 1,400 1,533,000
Jones Intercable, Inc., 10.5s, 2008 500 527,500
K-III Communications Corp., 10.625s, 2002 2,875 3,029,531
Marcus Cable Operating Co., 13.5s, 2004 4,250 3,261,875
MFS Communications, Inc., 9.375s, 2004 300 255,000
MFS Communications, Inc., 8.875s, 2006 2,650 1,874,875
Mobile Telecommunication Technologies Corp., 13.5s, 2002 1,000 1,015,000
Mobilemedia Communications, Inc. 10.5s, 2003 525 252,000
MobileMedia Corp., 9.375s, 2007 2,900 1,595,000
Paging Network, Inc., 8.875s, 2006 $ 4,500 $ 4,173,750
PanAmSat Corp., 0s, 2003 4,500 4,140,000
Park Broadcasting, Inc. 11.75s, 2004 1,000 1,155,000
ProNet, Inc., 11.875s, 2005 700 644,000
Rifkin Acquisition Partners LP, 11.125s, 2006 500 510,000
Rogers Cablesystems Ltd., 9.625s, 2002 800 816,000
Rogers Cablesystems Ltd., 10.125s, 2012 1,500 1,485,000
Sprint Spectrum LP, 0s, 2006 3,000 1,725,000
Sprint Spectrum LP, 12.5s, 2006 300 302,250
Teleport Communications Group, Inc., 11.125s, 2007 1,400 896,000
Total Access Communications Public Co. Ltd., 8.375s,
2006## 2,500 2,512,500
Turner Broadcasting System, Inc., 8.4s, 2024 3,000 2,930,790
USA Mobile Communication, 9.5s, 2004 1,375 1,278,750
---------------
$ 68,602,497
---------------
Total Industrials $227,035,630
---------------
Transportation -- 0.1%
Moran Transportation Co., 11.75s, 2004 $ 600 $ 636,000
---------------
U.S. Federal Agencies -- 4.2%
Federal National Mortgage Assn., 7s, 2026 $ 6,781 $ 6,651,695
Federal National Mortgage Assn., 7.5s, 2010 7,803 7,925,062
Federal National Mortgage Assn., Stripped Mortgage Backed
Security, 7s, 2023 4,090 1,376,480
Financing Corp., 9.4s, 2018 12,000 15,069,360
---------------
$ 31,022,597
---------------
U.S. Government Guaranteed -- 21.0%
Government National Mortgage Association -- 8.0%
GNMA, 8.5s, 2026 $14,807 $ 15,371,918
GNMA, 8s, 2026 9,702 9,920,296
GNMA, 7.5s, 2010-2025 12,884 13,010,811
GNMA, 7s, 2025 21,145 20,735,184
---------------
$ 59,038,209
---------------
7
<PAGE>
U.S. Dollar Denominated -- continued
U.S. Treasury Obligations -- 13.0%
U.S. Treasury Note, 9.125s, 1999 $ 16,500 $ 17,753,010
U.S. Treasury Note, 13.375s, 2001 6,400 8,307,008
U.S. Treasury Bond, 12s, 2005 7,900 10,809,412
U.S. Treasury Bond, 6.5s, 2006 4,400 4,434,829
U.S. Treasury Bond, 10.375s, 2012 25,000 32,386,750
U.S. Treasury Bond, 8.125s, 2019 10,200 11,817,618
U.S. Treasury Bond, 6.75s, 2026 10,000 10,118,700
---------------
$ 95,627,327
---------------
Total U.S. Government Guaranteed $154,665,536
---------------
Utilities -- Electric -- 5.3%
BVPS II Funding Corp., 8.68s, 2017 $ 1,000 $ 991,480
Cleveland Electric Illuminating, 9s, 2023 1,000 984,020
El Paso Electric Co., 8.9s, 2006 4,000 4,134,520
First PV Funding Corp., 10.3s, 2014 1,880 1,995,150
First PV Funding Corp., 10.15s, 2016 2,875 3,061,875
Midland Cogeneration Venture Corp., 10.33s, 2002 6,484 6,857,325
Midland Funding Corp. II, 13.25s, 2006 3,500 4,061,295
Niagra Mohawk Power Corp., 8.77s, 2018 6,438 6,134,062
Texas & New Mexico Power Co., 12.5s, 1999 6,700 7,335,160
Texas & New Mexico Power Co., 10.75s, 2003 3,290 3,446,275
---------------
$ 39,001,162
---------------
Utilities -- Gas -- 0.4%
Maxus Energy Corp., 9.875s, 2002 $ 2,000 $ 2,040,000
Maxus Energy Corp., 11.25s, 2013 1,150 1,175,875
---------------
$ 3,215,875
---------------
Total U.S. Dollar Denominated $542,746,786
---------------
Foreign -- Non-U.S. Dollar Denominated -- 17.8%
Australia -- 4.1%
Commonwealth of Australia, 8.75s, 2001 AUD 8,000 $ 6,747,841
Commonwealth of Australia, 10s, 2002 9,550 8,595,352
Commonwealth of Australia, 9.5s, 2003 17,300 15,338,944
---------------
$ 30,682,137
---------------
Canada -- 2.1%
Canada Government, 7.5s, 2003 CAD 5,300 $ 4,280,678
Canada Government, 9s, 2004 10,000 8,781,544
Canada Government, 8.75s, 2005 2,550 2,216,638
---------------
$ 15,278,860
---------------
Denmark -- 4.1%
Kingdom of Denmark, 6s, 1999 DKK 24,183 $ 4,273,128
Kingdom of Denmark, 9s, 2000 49,000 9,482,082
Kingdom of Denmark , 8s, 2001 79,514 14,923,113
Kingdom of Denmark , 7s, 2007 11,746 2,009,420
---------------
$ 30,687,743
---------------
Ireland -- 1.1%
Republic of Ireland, 8s, 2000 IEP 4,700 $ 8,114,517
---------------
Spain -- 2.5%
Spanish Government, 8.4s, 2001 ESP 1,122,800 $ 9,232,594
Spanish Government, 10.9s, 2003 981,800 9,029,643
---------------
$ 18,262,237
---------------
Sweden -- 0.7%
Kingdom of Sweden, 10.25s, 2000 SEK 28,100 $ 4,825,261
---------------
United Kingdom -- 3.2%
United Kingdom Treasury, 8s, 2000 GBP 10,725 $ 17,983,939
United Kingdom Treasury, 9s, 2000 1,600 2,754,485
United Kingdom Treasury, 9.75s, 2002 1,600 2,889,471
---------------
23,627,895
---------------
Total Foreign --
Non-U.S. Dollar Denominated $131,478,650
---------------
Total Bonds
(Identified Cost, $659,612,157) $674,225,436
---------------
</TABLE>
8
<PAGE>
Common Stocks -- 0.5%
Issuer Shares Value
Consumer Goods and Services
Central Transportation Rental
Group 702 $ 197,372
RJR Nabisco Holdings Corp. 6,908 199,468
Long Island Lighting Co. 125,000 3,125,000
---------------
Total Common Stocks
(Identified Cost, $3,662,959) $ 3,521,840
---------------
Preferred Stocks -- 1.2%
Cablevision Systems Corp. 49,433 $ 4,510,761
First Nationwide Bank 10,000 1,147,500
K-III Communications Corp. 1,294 128,706
Supermarkets General Holdings
Corp. 22,827 639,156
Time Warner## 2,411 2,552,646
---------------
Total Preferred Stocks
(Identified Cost, $8,609,167) $ 8,978,769
---------------
Total Stocks
(Identified Cost, $12,272,126) $ 12,500,609
---------------
Short-Term Obligations -- 2.9%
Principal Amount
(000 omitted)
Argentina Treasury Bill, due
1/17/97 $ 2,500 $ 2,456,500
Eurolira Time Deposit, due
11/11/96 12,395,000 8,165,349
Eurolira Time Deposit, due
4/21/97 11,770,000 7,766,029
Russia Note, due 12/27/96+ 3,000 2,926,688
---------------
Total Short-Term Obligations
(Identified Cost, $20,926,039) $ 21,314,566
---------------
Repurchase Agreement -- 4.0%
Goldman Sachs Group L.P.,
dated 10/31/96, due 11/01/96,
total to be received
$29,424,536 (secured by various
U.S. government securities in a
jointly traded account), at
Cost $ 29,420 $ 29,420,000
---------------
Total Investments
(Identified Cost, $722,230,322) $737,460,611
---------------
Other Assets,
Less Liabilities -- 0.3% 2,421,441
---------------
Net Assets -- 100.0% $739,882,052
===============
+ Restricted security.
## SEC Rule 144A restriction.
** Non-income producing security in default.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. Dollar. A list of abbreviations is shown
below.
AUD = Australian Dollars
CAD = Canadian Dollars
CHF = Swiss Francs
DEM = Deutsche Marks
DKK = Danish Kroner
ESP = Spanish Pesetas
GBP = British Pounds
IEP = Irish Punts
ITL = Italian Lire
SEK = Swedish Kronor
THB = Thailand Baht
See notes to financial statements
9
<PAGE>
Statement of Assets and Liabilities -- October 31, 1996
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $722,230,322) $737,460,611
Receivable for interest rate swaps 308,337
Receivable for investments sold 14,867,000
Interest receivable 18,462,774
Other assets 84,198
---------------
Total assets $771,182,920
---------------
Liabilities:
Cash overdraft $ 5,262
Distributions payable 5,002,338
Payable for Trust shares reacquired 1,774,962
Payable for investments purchased 21,997,761
Net payable for forward foreign currency exchange contracts purchased 406,636
Net payable for forward foreign currency exchange contracts sold 694,663
Net payable for forward foreign currency exchange contracts 243,643
Payable to affiliates -- Management fee 32,706
Accrued expenses and other liabilities 1,142,897
---------------
Total liabilities $ 31,300,868
---------------
Net assets $739,882,052
===============
Net assets consist of:
Paid-in capital $731,618,368
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 14,213,181
Accumulated distributions in excess of net realized gain on investments
and foreign currency transactions (6,984,847)
Accumulated undistributed net investment income 1,035,350
---------------
Total $739,882,052
===============
Shares of beneficial interest outstanding 95,932,452
===============
Net asset value per share (net assets / shares of beneficial interest
outstanding) $7.71
===============
</TABLE>
See notes to financial statements
10
<PAGE>
Statement of Operations -- Year Ended October 31, 1996
<TABLE>
<S> <C>
Net investment income:
Income --
Interest $65,745,791
Dividends 98,425
---------------
Total investment income $65,844,216
---------------
Expenses --
Management fee $ 6,125,243
Trustees' compensation 177,379
Custodian fee 511,911
Transfer and dividend disbursing agent fee 331,675
Investor communications cost 576,118
Printing 76,323
Postage 74,579
Auditing fees 56,513
Legal fees 4,152
Miscellaneous 601,984
---------------
Total expenses $ 8,535,877
Fees paid indirectly (51,693)
---------------
Net expenses $ 8,484,184
---------------
Net investment income $57,360,032
---------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions $15,135,783
Written option transactions 277,963
Foreign currency transactions 983,509
Futures contracts (882,474)
---------------
Net realized gain on investments and foreign currency transactions $15,514,781
---------------
Change in unrealized appreciation --
Investments $(3,942,219)
Written options (117,330)
Translation of assets and liabilities in foreign currencies (519,431)
---------------
Net unrealized loss on investments $(4,578,980)
---------------
Net realized and unrealized gain on investments and foreign currency $10,935,801
---------------
Increase in net assets from operations $68,295,833
===============
</TABLE>
See notes to financial statements
11
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Increase in net assets:
From operations --
Net investment income $ 57,360,032 $ 63,939,117
Net realized gain (loss) on investments and foreign currency
transactions 15,514,781 (9,707,694)
Net unrealized gain (loss) on investments and foreign
currency transactions (4,578,980) 53,683,280
---------------- ----------------
Increase in net assets from operations $ 68,295,833 $107,914,703
---------------- ----------------
Distributions declared to shareholders --
From net investment income $(59,181,274) $(58,599,920)
From net realized gain on investments and foreign currency
transactions -- --
From paid-in capital -- (3,650,802)
---------------- ----------------
Total distributions declared to shareholders $(59,181,274) $(62,250,722)
---------------- ----------------
Trust share (principal) transactions --
Net asset value of shares reacquired from shareholders $(50,147,707) $(94,104,508)
---------------- ----------------
Decrease in net assets from Trust share transactions $(50,147,707) $(94,104,508)
---------------- ----------------
Total decrease in net assets $(41,033,148) $(48,440,527)
Net assets:
At beginning of period 780,915,200 829,355,727
---------------- ----------------
At end of period (including accumulated undistributed net
investment income (accumulated distributions in excess of
net investment income) of $1,035,350 and ($3,588,841),
respectively) $739,882,052 $780,915,200
================ ================
</TABLE>
See notes to financial statements
12
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------------------------------------------
Per share data (for a
share outstanding
throughout each period): 1996 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period $ 7.57 $ 7.06 $ 7.90 $ 7.69 $ 7.93 $ 7.54
----------- ----------- ----------- ----------- ----------- ------------
Income from investment operations# --
Net investment income(section mark) $ 0.57 $ 0.59 $ 0.55 $ 0.63 $ 0.68 $ 0.72
Net realized and unrealized gain on
investments and foreign currency
transactions 0.16 0.49 (0.82) 0.31 -- 0.90
----------- ----------- ----------- ----------- ----------- ------------
Total from investment operations $ 0.73 $ 1.08 $ (0.27) $ 0.94 $ 0.68 $ 1.62
----------- ----------- ----------- ----------- ----------- ------------
Less distributions declared to shareholders
From net investment income $ (0.59) $ (0.53) $ (0.21) $ (0.51) $ (0.65) $ (0.70)
From net realized gain on investment and
foreign currency transactions -- -- (0.01) (0.17) -- --
In excess of net realized gain on investments
and foreign currency transactions -- -- -- (0.05) -- --
From paid in capital -- (0.04) (0.35) -- (0.27) (0.53)
----------- ----------- ----------- ----------- ----------- ------------
Total distributions declared to shareholders $ (0.59) $ (0.57) $ (0.57) $ (0.73) $ (0.92) $ (1.23)
----------- ----------- ----------- ----------- ----------- ------------
Net asset value -- end of period $ 7.71 $ 7.57 $ 7.06 $ 7.90 $ 7.69 $ 7.93
=========== =========== =========== =========== =========== ============
Per share market value -- end of period $ 7.125 $ 6.500 $ 6.125 $ 7.375 $ 7.625 $ 7.750
=========== =========== =========== =========== =========== ============
Total return 19.32% 15.69% (9.57)% 6.49% 10.25% 36.98%
Ratios (to average net assets)/Supplemental
data(section mark):
Interest expense -- 0.09% 0.08% 0.08% 0.24% 0.23%
Other expenses## 1.11% 1.10% 1.06% 1.03% 1.11% 1.11%
Net investment income 7.49% 8.13% 7.51% 8.14% 8.69% 9.22%
Portfolio turnover 214% 189% 133% 415% 425% 740%
Net assets at end of period
(000 omitted) $739,882 $780,915 $829,356 $947,314 $947,292 $968,813
Leverage analysis:
Debt outstanding at end of period (000 omitted) $ -- $ -- $ 90,000 $ -- $ -- $ --
Average daily balance of debt outstanding
(000 omitted) -- 10,750 9,616 15,304 39,230 24,409
Average daily number of shares outstanding
(000 omitted) 100,810 108,970 117,774 123,067 122,612 121,698
Average debt per share 0 $ 0.10 $ 0.08 $ 0.12 $ 0.32 $ 0.20
# Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Trust's expenses are calculated without reduction for fees paid indirectly.
(section mark) The investment adviser did not impose a poriton of its management fee for the periods indicated. If this fee had
been incurred by the Trust, the expenses would have changed by less than $0.01 per share and the ratios would have
been:
Ratios (to average daily net assets):
Other expenses## --% 1.11% 1.07% 1.06% 1.14% 1.13%
Net investment income --% 8.11% 7.50% 8.11% 8.66% 9.20%
</TABLE>
See notes to financial statements
13
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------
Per share data (for a
share outstanding
throughout each period): 1990 1989 1988 1987*
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value -- beginning of period $ 8.66 $ 9.01 $ 8.81 $ 9.40
----------- ----------- ----------- ------------
Income from investment operations# --
Net investment income(section mark) $ 0.86 $ 0.94 $ 0.90 $ 0.57
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (0.75) (0.06) 0.53 (0.55)
----------- ----------- ----------- ------------
Total from investment operations $ 0.11 $ 0.88 $ 1.43 $ 0.02
----------- ----------- ----------- ------------
Less distributions declared to shareholders
From net investment income $ (0.79) $ (1.11) $ (0.74) $ (0.46)
From net realized gain on investment and foreign
currency transactions -- -- -- (0.13)
From paid in capital (0.44) (0.12) (0.49) (0.02)
----------- ----------- ----------- ------------
Total distributions declared to shareholders $ (1.23) $ (1.23) $ (1.23) $ (0.61)
----------- ----------- ----------- ------------
Net asset value -- end of period $ 7.54 $ 8.66 $ 9.01 $ 8.81
=========== =========== =========== ============
Per share market value -- end of period $ 6.625 $ 9.000 $ 10.000 $ 9.125
=========== =========== =========== ============
Total return (14.08)% 2.68% 24.57% (3.99)%+
Ratios (to average net assets)/Supplemental
data(section mark):
Interest expense 0.45% -- -- --
Other expenses## 1.19% 1.23% 1.12% 1.08%+
Net investment loss 10.61% 10.90% 9.96% 9.94%+
Portfolio turnover 365% 423% 159% 58%
Net assets at end of period
(000 omitted) $917,522 $1,056,536 $1,086,400 $1,052,274
Leverage analysis:
Average daily balance of debt outstanding
(000 omitted) $ 43,956 $ -- $ -- $ --
Average daily number of shares outstanding
(000 omitted) 122,431 -- -- --
Average debt per share $ 0.36 $ -- $ -- $ --
+ Annualized.
# Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Trust's expenses are calculated without reduction for fees paid indirectly.
* For the period from commencement of investment operations March 12, 1987 to October 31, 1987.
(section mark) The investment adviser did not impose a portion of its management fee for the periods
indicated. If this fee had been incurred by the Trust, the expenses would have changed by less than
$0.01 per share and the ratios would have been:
Ratios (to average daily net assets):
Other expenses## 1.23% -- -- --
Net investment income 10.57% -- -- --
</TABLE>
See notes to financial statements
14
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Multimarket Income Trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company.
(2) Significant Accounting Policies
General -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Investments in foreign securities are vulnerable to the effects of
changes in the relative values of the local currency and the U.S. dollar and
to the effects of changes in each country's legal, political and economic
environment.
Investment Valuations -- Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, are valued on the
basis of valuations furnished by dealers or by a pricing service with
consideration to factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon
exchange or over-the-counter prices. Short-term obligations, which mature in
60 days or less, are valued at amortized cost, which approximates market
value. Futures contracts, options and options on futures contracts listed on
commodities exchanges are valued at closing settlement prices.
Over-the-counter options are valued by brokers through the use of a pricing
model which takes into account closing bond valuations, implied volatility
and short-term repurchase rates. Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sales
price. Unlisted equity securities or listed equity securities for which last
sales price are not available are valued at last quoted bid prices.
Securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the
Trustees.
Repurchase Agreements -- The Trust may enter into repurchase agreements with
institutions that the Trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Trust
requires that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the Trust to
obtain those securities in the event of a default under the repurchase
agreement. The Trust monitors, on a daily basis, the value of the securities
transferred to ensure that the value, including accrued interest, of the
securities under each repurchase agreement is greater than the amounts owed
to the Trust under each separate repurchase agreement. The Trust, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
Foreign Currency Translation -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that result from fluctuations in foreign currency
exchange rates is not separately disclosed.
15
<PAGE>
Notes to Financial Statements -- continued
Written Options -- The Trust may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Trust. The Trust, as writer of an option, may have
no control over whether the underlying securities may be sold (call) or
purchased (put) and, as a result, bears the market risk of an unfavorable
change in the price of the securities underlying the written option. In
general, written call options may serve as a partial hedge against decreases
in value in the underlying securities to the extent of the premium received.
Written options may also be used as part of an income producing strategy
reflecting the view of the Trust's management on the direction of interest
rates.
Futures Contracts -- The Trust may enter into futures contracts for the
delayed delivery of securities, currency or contracts based on financial
indices at a fixed price on a future date. In entering such contracts, the
Trust is required to deposit either in cash or securities an amount equal to
a certain percentage of the contract amount. Subsequent payments are made or
received by the Trust each day, dependent on the daily fluctuations in value
of the underlying security, and are recorded for financial statement purposes
as unrealized gains or losses by the Trust. The Trust's investment in futures
contracts is designed to hedge against anticipated future changes in interest
or exchange rates or securities prices. Investment in interest rate futures
for purposes other than hedging may be made to modify the duration of the
portfolio without incurring the additional transaction costs involved in
buying and selling the underlying securities. Investments in currency futures
for purposes other than hedging may be made to change the Trust's relative
position in one or more currencies without buying and selling portfolio
assets. Investments in equity index contracts, or contracts on related
options, for purposes other than hedging may be made when the Trust has cash
on hand and wishes to participate in anticipated market appreciation while
the cash is being invested. Should interest or exchange rates or securities
prices move unexpectedly, the Trust may not achieve the anticipated benefits
of the futures contracts and may realize a loss.
Forward Foreign Currency Exchange Contracts -- The Trust may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
Trust will enter into forward contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the Trust may enter into
contracts to deliver or receive foreign currency it will receive from or
require for its normal investment activities. The Trust may also use
contracts in a manner intended to protect foreign currency-denominated
securities from declines in value due to unfavorable exchange rate movements.
For non-hedging purposes, the Trust may enter into contracts with the intent
of changing the relative exposure of the Trust's portfolio of securities to
different currencies to take advantage of anticipated changes. The forward
foreign currency exchange contracts are adjusted by the daily exchange rate
of the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the contract settlement date.
Swap Agreements -- The Trust may enter into swap agreements. A swap is an
exchange of cash payments between the Trust and another party which is based
on a specific financial index. Cash payments are exchanged at specified
intervals and the expected income or expense is recorded on the accrual
basis. The value of the swap is adjusted daily and the change in value is
recorded as unrealized appreciation or depre-
16
<PAGE>
ciation. Risks may arise upon entering into these agreements from the
potential inability of counterparties to meet the terms of their contract and
from unanticipated changes in the value of the financial index on which the
swap agreement is based. The Trust uses swaps for both hedging and
non-hedging purposes. For hedging purposes, the Trust may use swaps to reduce
its exposure to interest and foreign exchange rate fluctuations. For
non-hedging purposes, the Trust may use swaps to take a position on
anticipated changes in the underlying financial index.
Investment Transactions and Income -- Investment transactions are recorded
on the trade date. Interest income is recorded on the accrual basis. All
premium and original issue discount are amortized or accreted for financial
statement and tax reporting purposes as required by federal income tax
regulations. Dividend income is recorded on the the ex-dividend date for
dividends received in cash. Dividend and interest payments received in
additional securities are recorded on the ex-dividend or ex-interest date in
an amount equal to the value of the security on such date.
The Trust invests in high-yield securities rated below investment grade.
Investments in high-yield securities are accompanied by a greater degree of
credit risk and the risk tends to be more sensitive to economic conditions
than that of higher-rated securities.
The Trust uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds, whereby interest income on PIK bonds is recorded
ratably by the Trust at a constant yield to maturity. Legal fees and other
related expenses incurred to preserve and protect the value of a security
owned are added to the cost of the security; other legal fees are expensed.
Capital infusions, which are generally non-recurring, incurred to protect or
enhance the value of high-yield debt securities, are reported as an addition
to the cost basis of the security. Costs that are incurred to negotiate the
terms or conditions of capital infusions or that are expected to result in a
plan of reorganization are reported as realized losses. Ongoing costs
incurred to protect or enhance an investment, or costs incurred to pursue
other claims or legal actions, are reported as operating expenses.
Fees Paid Indirectly -- The Trust's custodian bank calculates its fee based
on the Trust's average daily net assets. The fee is reduced according to a
fee arrangement, which provides for custody fees to be reduced based on a
formula developed to measure the value of cash deposited with the custodian
by the Trust. This amount is shown as a reduction of expenses on the
Statement of Operations.
Tax Matters and Distributions -- The Trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
The Trust files a tax return annually using tax accounting methods required
under provisions of the Code which may differ from generally accepted
accounting principles, the basis on which these financial statements are
prepared. Accordingly, the amount of net investment income and net realized
gain reported on these financial statements may differ from that reported on
the Trust's tax return and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV. Foreign taxes have been provided
for on interest and dividend income earned on foreign investments in
accordance with the applicable country's tax rates and to the extent
unrecoverable are recorded as a reduction of investment income. Distributions
to shareholders are recorded on the ex-dividend date.
Distributions paid by each Fund from net interest received on tax-exempt
municipal bonds are not includable by shareholders as gross income for
federal income tax purposes because each Fund intends to meet certain
17
<PAGE>
Notes to Financial Statements -- continued
requirements of the Code applicable to regulated investment companies, which
will enable each Fund to pay exempt-interest dividends. The portion of such
interest, if any, earned on private activity bonds issued after August 7,
1986 may be considered a tax-preference item to shareholders.
The Trust distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return
of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains. During the year ended October 31, 1996, $6,445,433 was
reclassified from accumulated distributions in excess of net realized gains
on investments and foreign currency transactions to accumulated undistributed
net investment income due to differences between book and tax accounting for
currency transactions. This change had no effect on the net assets or net
asset value per share.
At October 31, 1996, the Trust, for federal income tax purposes, had a
capital loss carryforward of ($6,746,855), which may be applied against any
net taxable realized gains of each succeeding year until the earlier of its
utilization or expiration on October 31, 2003.
(3) Transactions with Affiliates
Investment Adviser -- The Trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate
of 0.34% of the Trust's average daily net assets and 5.40% of investment
income. The investment adviser did not impose a portion of its fee, which is
reflected as a reduction of expenses in the Statement of Operations.
The Trust pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Trust, all of whom receive
remuneration for their services to the Trust from MFS. Certain of the
officers and Trustees of the Trust are officers or directors of MFS and MFS
Service Center, Inc. (MFSC). The Trust has an unfunded defined benefit plan
for all its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $ 57,879 for the year ended
October 31, 1996.
Transfer Agent -- MFSC acts as registrar and dividend disbursing agent for
the Trust. The agreement provides that the Trust will pay MFSC an account
maintenance fee and a dividend services fee and will reimburse MFSC for
reasonable out-of-pocket expenses. The account maintenance fee is computed as
follows:
Total Number of Accounts Annual Account Fee
- -------------------------- --------------------
Less than 75,000 $9.00
75,000 and over $8.00
The dividend services fee is $0.75 per dividend reinvestment and $0.75 per
cash infusion.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations were as follows:
Purchases Sales
----------------------------------------------- -------------- --------------
U.S. government securities $596,470,302 $603,916,744
============== ==============
Investments (non-U.S. government securities) $840,898,447 $865,118,710
============== ==============
18
<PAGE>
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Trust, as computed on a federal income tax basis,
are as follows:
Aggregate cost $722,292,726
===============
Gross unrealized appreciation
Gross unrealized depreciation
---------------
Net unrealized appreciation $ 15,167,885
===============
(5) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
------------------------------- --------------------------------
Shares Amount Shares Amount
- -------------------------- -------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Treasury shares acquired (7,224,500) $(50,147,707) (14,383,300) $(94,104,508)
-------------- ---------------- --------------- ----------------
Net decrease (7,224,500) $(50,147,707) (14,383,300) $(94,104,508)
============== ================ =============== ================
</TABLE>
In accordance with the provisions of the Trust's prospectus, shares of
beneficial interest were purchased by the Trust during the year ended October
31, 1996 at an average price per share of $6.94 and a weighted average
discount of 14.41% per share. The Trust repurchased 14,383,300 shares of
beneficial interest during the year ended October 31, 1995, at an average
price per share of $6.54 and a weighted average discount of 5.10% per share.
(6) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Net Realized and Net Increase (Decrease)
Unrealized Gain (Loss) in Net Assets Resulting
Quarterly Period Investment Income Net Investment Income on Investments from Operations
- ----------------- ---------------------- ---------------------- --------------------------- --------------------------
Per Per Per Per
Fiscal 1996 Amount Share Amount Share Amount Share Amount Share
- ----------------- -------------- --------------------- ------- ---------------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 31 $16,495,557 $0.16 $14,350,401 $0.14 $ 19,679,715 $ 0.20 $ 34,030,116 $ 0.34
April 30 16,601,752 0.16 14,485,304 0.14 (24,135,299) (0.23) (9,649,995) (0.09)
July 31 16,755,119 0.17 14,614,808 0.15 (4,561,296) (0.03) 10,053,512 0.11
October 31 15,991,788 0.16 13,909,519 0.14 19,952,681 0.22 33,862,200 0.37
-------------- --------------------- ------- ---------------- --------- --------------- ----------
$65,844,216 $0.65 $57,360,032 $0.57 $ 10,935,801 $ 0.16 $ 68,295,833 $ 0.73
============== ===================== ======= ================ ========= =============== ==========
Fiscal 1995
- -----------------
January 31 $19,940,462 $0.17 $17,058,034 $0.15 $(15,938,110) $(0.19) $ 1,119,924 $(0.04)
April 30 18,208,468 0.16 16,170,160 0.14 33,437,151 0.40 49,607,311 0.54
July 31 18,223,432 0.17 15,990,698 0.16 90,372,326 0.90 106,363,024 1.06
October 31 16,901,679 0.16 14,720,225 0.14 (63,895,781) (0.62) (49,175,556) (0.48)
-------------- --------------------- ------- ---------------- --------- --------------- ----------
$73,274,041 $0.66 $63,939,117 $0.59 $ 43,975,586 $ 0.49 $107,914,703 $ 1.08
============== ===================== ======= ================ ========= =============== ==========
</TABLE>
(7) Line of Credit
The Trust entered into an agreement for an unsecured line of credit with
several banks which allowed the Trust to borrow up to $150 million to invest
in accordance with the investment practices of the Trust.
19
<PAGE>
Notes to Financial Statements -- continued
During the period, the Trust did not borrow any amounts on the line of
credit. Interest rates on the amounts borrowed vary depending upon the source
and are based upon either the bank's base rate, the bank's adjusted
certificate of deposit rate or the Eurodollar rate.
The Trust was charged a commitment fee of $188,811, which is based on the
average daily unused portion of the line of credit.
(8) Financial Instruments
The Trust trades financial instruments with off-balance sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates.
These financial instruments include written options, forward foreign currency
exchange contracts and futures contracts. The notional or contractual amounts
of these instruments represent the investment the Trust has in particular
classes of financial instruments and does not necessarily represent the
amounts potentially subject to risk. The measurement of the risks associated
with these instruments is meaningful only when all related and offsetting
transactions are considered. A summary of obligations under these financial
instruments at October 31, 1996 is as follows:
Written Option Transactions
<TABLE>
<CAPTION>
1996 Calls 1996 Puts
------------------------------ ------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
----------------------------------------------- ----------------------------- ----------------- ------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period --
Australian Dollars 12,707 $ 137,669 12,284 $ 145,560
Deutsche Marks -- -- 12,529 33,470
Deutsche Marks/British Pounds 14,941 90,634 -- --
Japanese Yen -- -- 303,000 33,082
Options written--
Australian Dollars 9,333 55,219 4,658 28,468
Canadian Dollars -- -- 7,885 17,649
Deutsche Marks -- -- -- --
Deutsche Marks/British Pounds 17,824 79,249 -- --
Japanese Yen 696,000 96,285 524,000 64,475
Italian Lire/Deutsche Marks -- -- -- --
Options terminated in closing transactions--
Australian Dollars (22,040) (192,888) (11,762) (107,617)
Deutsche Marks -- -- (12,529) (33,470)
Deutsche Marks/British Pounds (23,852) (130,259) -- --
Japanese Yen (696,000) (96,285) (827,000) (97,557)
Options exercised--
Options expired--
Australian Dollars -- -- (5,180) (66,411)
Canadian Dollars -- -- (7,885) (17,649)
Deutsche Marks/British Pounds (8,913) (39,624) -- --
----------------------------- ----------------- ------------
Outstanding, end of period 0 $ 0 0 $ 0
============================= ================= ============
</TABLE>
20
<PAGE>
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Net Unrealized
Contracts to Contracts Appreciation
Settlement Date Deliver/Receive In Exchange for at Value (Depreciation)
------------ -------------------- --------------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Sales 2/20/97 AUD 19,757,066 $ 15,408,008 $ 15,597,532 $(189,524)
2/20/97 CAD 29,474,664 22,061,874 22,153,216 (91,342)
11/04/96 - 11/25/96 DEM 63,828,022 42,221,887 42,062,820 159,067
2/03/97 DKK 183,827,861 32,226,756 31,683,467 543,289
11/15/96 ESP 2,294,792,973 18,003,036 17,933,807 69,229
11/06/96 - 02/24/97 GBP 29,535,303 47,001,005 47,983,571 (982,566)
2/24/97 IEP 5,137,600 8,258,949 8,356,964 (98,015)
11/06/96 - 12/12/96 ITL 50,563,151,278 33,180,852 33,270,554 (89,702)
2/03/97 SEK 30,336,244 4,606,870 4,621,969 (15,099)
---------------- --------------- ----------------
$222,969,237 $223,663,900 $(694,663)
================ =============== ================
Purchases 2/20/97 AUD 5,341,164 $ 4,222,083 $ 4,216,667 $ (5,416)
2/07/97 CHF 1,605,663 1,347,654 1,276,422 (71,232)
11/04/96 - 12/12/96 DEM 74,563,877 49,473,067 49,161,022 (312,045)
11/06/96 GBP 14,767,652 24,006,664 24,018,537 11,873
11/06/96 ITL 25,281,575,639 16,687,509 16,660,558 (26,951)
11/12/96 - 12/24/96 THB 283,000,000 11,056,005 11,053,140 (2,865)
---------------- --------------- ----------------
$106,792,982 $106,386,346 $(406,636)
================ =============== ================
</TABLE>
Forward foreign currency purchases and sales under master netting
arrangements and closed forward
foreign currency exchange contracts, excluded from above, amounted to a net
payable of $243,643 at October 31, 1996.
At October 31, 1996, the Trust had sufficient cash and/or securities to cover
any commitments under these contracts.
Interest Rate Swaps
<TABLE>
<CAPTION>
Notional Principal Cash Flows Cash Flows Unrealized
Expiration Amount of Contract Paid by the Fund Received by the Fund Appreciation
------------- ------------------- ----------------- --------------------- ---------------
<S> <C> <C> <C> <C>
10/22/01 ITL 11,770,000 Fixed -- 8.055% Floating -- 6M Libor $185,544
11/12/01 ITL 11,790,000 Fixed -- 8.058% Floating -- 6M Libor 122,793
---------------
$308,337
===============
</TABLE>
(9) Restricted Securities
The Trust may invest not more than 10% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At October 31,
1996, the Trust owned the following restricted securities (constituting 0.5%
of net assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). The Trust does not have the right to
demand that such securities be registered. The value of these securities is
determined by valuations supplied by a pricing service or brokers or, if not
available, in good faith by or at the direction of the Trustees. Certain of
these securities may be offered and sold to "qualified institutional buyers"
under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
Date of Par Amount/
Description Acquisition Shares Cost Value
- -------------------------------------------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Merrill Lynch Mortgage Investors, 8.227s, 2023 6/22/96 $1,200,000 $ 831,750 $ 997,500
Russia Note, 0s, 1996 10/07/96 3,000,000 2,900,241 2,926,688
------------
$3,924,188
============
</TABLE>
21
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Trustees and Shareholders of MFS Multimarket Income Trust:
We have audited the accompanying statement of assets and liabilities of MFS
Multimarket Income Trust, including the schedule of portfolio investments, as
of October 31, 1996, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the three
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each
of the six years in the period ended October 31, 1993 and for the period from
March 12, 1987 (commencement of investment operations) to October 31, 1987
were audited by other auditors whose report dated December 17, 1993 expressed
an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned at October 31, 1996, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Multimarket Income Trust at October 31, 1996, the results of its operations
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
three years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 12, 1996
22
<PAGE>
[blank page]
<PAGE>
MFS(R) Multimarket Income Trust
Trustees
A. Keith Brodkin*
Chairman and President
Richard B. Bailey*(2)
Private Investor; Former Chairman and
Director (until 1991), Massachusetts
Financial Services Company;
Director, Cambridge Bancorp;
Director, Cambridge Trust Company
Peter G. Harwood(1)
Private Investor
J. Atwood Ives(1)
Chairman and Chief Executive Officer
Eastern Enterprises
Lawrence T. Perera(2)
Partner, Hemenway & Barnes
William J. Poorvu(1)
Adjunct Professor, Harvard University
Graduate School of Business
Administration
Charles W. Schmidt(1)
Private Investor
Arnold D. Scott*
Senior Executive Vice President,
Director and Secretary,
Massachusetts Financial
Services Company
Jeffrey L. Shames*
President and Director,
Massachusetts Financial
Services Company
Elaine R. Smith(1)
Independent Consultant
David B. Stone(1)(2)
Chairman, North American
Management Corp.
(investment advisers)
*Affiliated with the Investment Adviser
(1)Member of Audit Committee
(2)Member of Portfolio Trading Committee MMTCE-2-12/96 90M
Portfolio Manager
James T. Swanson*
Treasurer
W. Thomas London*
Assistant Treasurer
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
Transfer Agent,
Registrar and Dividend
Disbursing Agent
MFS Service Center, Inc.
P.O. Box 9024
Boston, MA 02205-9824
1-800-637-2304
Custodian
State Street Bank and
Trust Company
Independent Auditors
Ernst & Young LLP
Investment Adviser
Massachusetts Financial
Services Company
500 Boylston Street
Boston, MA 02116-3741
[front cover]
[mfs logo]
MFS(SM)
INVESTMENT MANAGEMENT
MFS(R) Multimarket Income Trust
Annual Report
for Year Ended
October 31, 1996
[silhouette graphic]
