[MFS ANNIVERSARY LOGO]
MFS
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND[Registration Mark]
[END OF LOGO]
MFS[Registration Mark] Multimarket Income Trust
Annual Report
for Year Ended
October 31, 1998
[Silhouette of man and woman in front of large window]
<PAGE>
Letter from the Chairman
Dear Shareholders,
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual
fund -- our Massachusetts Investors Trust (MIT) -- was introduced to the public
on March 21, 1924. Since then, MFS Investment Management[RegTM], the company
that grew out of that original fund, has helped guide shareholders through many
economic and investment cycles, primarily by focusing on the long-term
opportunities created by an expanding global economy. As of October 31, 1998,
MFS manages nearly $87 billion, and the firm's 2,000 people serve 3.8 million
investors and their financial advisers worldwide, while MIT's assets have grown
to over $10 billion.
A major factor in our growth was the development of one of the industry's first
in-house research departments in 1932. Unlike many other companies that rely on
Wall Street research reports, which can be used by many investors at the same
time, MIT's managers built its long-term track record by visiting companies,
talking to managers and competitors, and "kicking the tires" so they could
judge the quality and potential of each company's products and services for
themselves. Today, MFS has more than 100 full-time portfolio managers, stock
analysts, and credit analysts who track the equity and bond markets. That
number includes nearly 40 equity analysts who specialize in industries such as
aviation, media, technology, automobiles, and utilities.
While MIT was the first mutual fund, it was not our only invention. We also
established the nation's first global bond fund, first high-yield municipal
bond fund, and first high-yield municipal closed-end bond fund.
We are proud of the record of MIT and of the funds offered by MFS, but we are
also proud of our long-standing relationship with financial advisers. Not only
do we believe investors can benefit from the advice of these experts but, as
was shown during the market volatility of 1998, people who work with financial
advisers are less likely to abandon their carefully designed, long-term
investment strategies.
Our ability to service your investment and information needs is also extremely
important to us. Today, the MFS Service Center handles millions of transactions
and phone calls every year. Supporting the work of financial advisers, promptly
sending out statements and confirmations, and answering hundreds of investors'
questions every day are crucial elements in maintaining long-term relationships
with our fund shareholders.
If there is a common thread running through these milestones, it is our
always-increasing commitment to providing you with the best possible investment
management and shareholder service, just as we have done for the past 75 years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your investment
needs in the next century. We appreciate your confidence and welcome any
questions or comments you may have.
Respectfully,
[Signature of Jeffrey L. Shames]
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management[RegTM]
November 16, 1998
Management Review and Outlook
Dear Shareholders,
For the 12 months ended October 31, 1998, the Trust had a total return of
- -1.89%, based on its beginning and ending stock market prices and assuming the
reinvestment of all distributions paid during the period. The Trust's total
return based on its net asset value (NAV) was -0.06% for the same period.
The Trust's primary objective is to seek high current income and, secondarily,
capital appreciation. We employ a disciplined allocation process through which
1
<PAGE>
all investments and asset classes are reviewed every two weeks to reassess
portfolio risk and performance. Sectors are only adjusted as needed.
Economic events such as Russia's default on its debt, currency problems in
Brazil, and continuing bad economic news from Japan caused capital flight from
all of the higher-yielding markets toward high-quality U.S. Treasury securities
during the period. (Principal value and interest on Treasury securities are
guaranteed by the U.S. government if held to maturity.)
Currently, the portfolio is allocated 35.9% in high-yield bonds, 20.0% U.S.
government securities, 10.0% high-grade corporate securities, 13.1%
international securities (primarily in the developed nations of the
Organization of Economic Cooperation and Development), and 17.7% emerging
market debt. The portfolio is actively managed, and current holdings may be
different.
Corporate Bond Sector
The Trust's heaviest weighting remains high-yield corporate bonds. The recent
volatility in the world's equity markets has negatively impacted this asset
class. Though we believe investors have oversold these bonds, we are prepared
for weak performance should the market's volatility continue. However, this
should create some bargains, and we are looking for selected high-yield
investments to add to the portfolio. The Trust also has approximately 10.2% of
assets in high-grade corporate bonds, which continue to perform fairly well.
U.S. Government Sector
We've increased the duration, or sensitivity to changes in interest rates, of
our Treasury securities in response to low U.S. economic growth forecasts. This
move should help us capture some of the flight to quality, as global investors
(especially hedge fund and mutual fund managers) replace riskier securities
with higher-quality Treasury investments. The Trust is underweighted in the
mortgage investment class because of the current prepayment risk stemming from
declining interest rates in the United States.
Foreign and Emerging Market Sector
As a result of the economic crises in many emerging markets, we have reduced
our allocation in this class from 24% to 17.7%. We are looking for high-quality
investments in these regions and will gradually add to the allocation when we
find appropriate investments. However, emerging markets currently are in a very
depressed state. For them to become attractive again, investors will have to be
assured that there won't be another major default on the scale of the Russian
debacle. In Brazil, fiscal reform by the government, an International Monetary
Fund aid package, and possibly a reworking of the world's currency markets will
be required before that country is considered a less risky investment. Japan,
another hot spot for investors, will need additional banking reform before it
can right its economy. Increasing commodity prices will be a prerequisite for
boosting the fortunes of emerging market nations that rely on commodity exports
for economic health. I also believe that the world's central banks must
continue to add liquidity to their economies by lowering interest rates to
stimulate borrowing and spending.
Going forward, we view the long-term outlook for fixed-income markets
positively. The aging populations of the major industrialized nations are
driving demand for fixed-income investments. At the same time, the U.S.
government is producing surpluses instead of deficits, so the supply of
Treasury bonds is falling as demand is heightening. With inflation on the
decline around the world and interest rates falling, investors are searching
for ways to generate yield as a means of replacing lost savings interest. Taken
together, these factors point to a healthy climate for bond investing.
Respectfully,
[Signature of James T. Swanson]
James T. Swanson
Portfolio Manager
November 14, 1998
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
2
<PAGE>
The manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
----------------------------------------------
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, 1998)
<TABLE>
<S> <C>
Net Asset Value Per Share
October 31, 1997 $7.79
October 31, 1998 $7.17
New York Stock Exchange Price
October 31, 1997 $7.1250
February 6, 1998 (high)* $7.4375
August 31, 1998 (low)* $5.8750
October 30, 1998 $6.4375
- --------------------------------------------------------------------------------
</TABLE>
*For the period November 1, 1997, through October 30, 1998.
Federal Tax Information
(for the year ended October 31, 1998)
In January 1999, shareholders will be mailed a Form 1099 reporting the federal
tax status of all distributions paid during the calendar year 1998.
For the year ended October 31, 1998, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
0.76%.
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, nondiversified,
management investment company and has no employees.
Number of Shareholders
As of October 31, 1998, our records indicate that there are 15,194 registered
shareholders and approximately 67,800 shareholders owning Trust shares in
"street" name, such as through brokers, banks, and other financial
intermediaries.
If you are a "street" name shareholder and wish to directly receive our
reports, which contain important information about the Trust, please write or
call:
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
1-800-637-2304
New York Stock Exchange Symbol
The New York Stock Exchange symbol is MMT.
Results of Shareholder Meeting
At the annual meeting of shareholders of MFS[RegTM] Multimarket Income Trust,
which was held on October 22, 1998, the following actions were taken:
Item 1. The election of Peter G. Harwood, J. Atwood Ives, and Lawrence T.
Perera as Trustees of the Trust.
<TABLE>
<CAPTION>
Number of Shares
Nominee For Withhold Authority
- -------------------- -------------------- -------------------
<S> <C> <C>
Peter G. Harwood 80,137,639.0231 1,766,215.4173
J. Atwood Ives 80,403,317.6253 1,500,536.8151
Lawrence T. Perera 80,428,279.6534 1,475,574.7870
</TABLE>
Trustees continuing in office who were not subject to re-election at this
meeting are Richard B. Bailey, William J. Poorvu, Charles W. Schmidt, Jeffrey
L. Shames, Elaine R. Smith, Arnold D. Scott, and David B. Stone.
Item 2. The ratification of the selection of Ernst & Young LLP as the
independent accountants to be employed by the Trust for the fiscal
year ending October 31, 1999.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 80,432,010.9122
Against 497,191.4959
Abstain 974,652.0323
</TABLE>
Investment Objective and Policy
The investment objective of the Trust is to provide a high level of current
income through investments in fixed-income securities.
3
<PAGE>
The Trust will attempt to achieve this objective by allocating portfolio assets
among various categories of fixed-income securities. MFS 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 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
MFS offers a Dividend Reinvestment and Cash Purchase Plan which allows you to
reinvest either all of the distributions paid by the Trust or only the long-term
capital gains. Purchases are made at the market price unless that price exceeds
the net asset value (the shares are trading at a premium). If the shares are
trading at a premium, purchases will be made at a discounted price of either
the net asset value or 95% of the market price, whichever is greater. Twice
each year you can also buy shares. Investments 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. 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, call 1-800-637-2304 any business day
from 8 a.m. to 8 p.m. Eastern time. Please have available the name of the Trust
and your account and Social Security numbers. For certain types of
registrations, such as corporate accounts, instructions must be submitted in
writing. Please call for additional details. When you withdraw, 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.
If you have any questions or would like a brochure providing a complete
description of the Plan, please call 1-800-637-2304 any business day from 8
a.m. to 8 p.m. Eastern time.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
4
<PAGE>
Portfolio of Investments -- October 31, 1998
Bonds -- 93.0%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- 60.7%
Advertising -- 0.2%
Outdoor Systems, Inc.,
8.875s, 2007 ..................................................... $1,525 $1,563,125
----------
Aerospace -- 0.4%
Argo Tech Corp., 8.625s, 2007 $ 300 $ 276,000
B E Aerospace, Inc., 8s, 2008 2,500 2,337,500
K & F Industries, Inc., 9.25s,
2007 ............................................................. 200 190,000
----------
$2,803,500
----------
Automotive -- 0.4%
Lear Corp., 9.5s, 2006 ............................................. $1,725 $1,863,000
Titan Wheel International, Inc.,
8.75s, 2007 ...................................................... 1,050 924,000
----------
$2,787,000
----------
Banks and Credit
Companies -- 0.4%
BNP US Funding L L C,
7.738s to 2007, 8.4875 to
2049## ........................................................... $2,900 $2,657,009
----------
Broadcasting -- 0.6%
American Radio Systems
Corp., 9s, 2006 .................................................. $ 750 $ 802,500
Cumulus Media, Inc., 10.375s,
2008 ............................................................. 1,000 1,020,000
Granite Broadcasting Corp.,
8.875s, 2008 ..................................................... 2,220 1,909,200
----------
$3,731,700
----------
Building -- 1.1%
AAF-McQuay, Inc., 8.875s,
2003 ............................................................. $2,075 $1,914,187
American Standard, Inc.,
7.375s, 2008 ..................................................... 1,050 1,034,250
Building Materials Corporation
of America, "B", 8s, 2007 ........................................ 1,100 1,045,000
Nortek, Inc., 9.875s, 2004 ......................................... 2,600 2,574,000
Nortek, Inc., "B", 9.25s, 2007 775 771,125
UDC Homes, Inc., 14.5s,
2000 ............................................................. 29 16,115
----------
$7,354,677
----------
Building Materials -- 0.3%
Grove Worldwide LLC, 9.25s,
2008## ........................................................... $2,000 $1,715,000
----------
Business Services -- 0.6%
Iron Mountain, Inc., 8.75s,
2009 ............................................................. $1,600 $1,592,000
Iron Mountain, Inc., 10.125s,
2006 ............................................................. 150 158,250
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Business Services -- continued
Pierce Leahy Corp., 11.125s,
2006 ............................................................. $2,000 $2,140,000
----------
$3,890,250
----------
Chemicals -- 0.6%
NL Industries, Inc., 11.75s,
2003 ............................................................. $2,355 $2,431,538
UCAR Global Enterprises, Inc.,
12s, 2005 ........................................................ 1,700 1,717,000
----------
$4,148,538
----------
Computer Hardware --
Systems -- 0.2%
Anacomp, Inc., 10.875s, 2004 $1,250 $1,237,500
----------
Computer Software --
Services -- 0.5%
Unisystem Corp., 7.875s,
2008 ............................................................. $3,250 $3,282,500
----------
Consumer Goods and
Services -- 0.6%
Hayes Wheels International,
Inc., "B", 9.125s, 2007 .......................................... $2,000 $2,010,000
Kindercare Learning Centers,
Inc., "B", 9.5s, 2009 ............................................ 350 334,250
Reeves Industries, Inc., 11s,
2002 ............................................................. 402 381,729
Reeves Industries, Inc., 13s,
2004 ............................................................. 391 215,168
Williams Scotsman, Inc.,
9.875s, 2007 ..................................................... 1,250 1,250,000
----------
$4,191,147
----------
Containers -- 1.1%
Gaylord Container Corp.,
9.875s, 2008 ..................................................... $1,200 $ 558,000
Gaylord Container Corp., "B",
9.75s, 2007 ...................................................... 1,200 900,000
Owens Illinois, Inc., 7.8s, 2018 1,750 1,764,122
Silgan Holdings, Inc., 9s, 2009..................................... 1,500 1,425,000
Synthetic Industries, Inc., "B",
9.25s, 2007 ...................................................... 2,750 2,750,000
----------
$7,397,122
----------
Defense Electronics -- 0.2%
United Defense Industries,
Inc., 8.75s, 2007 ................................................ $1,550 $1,546,125
----------
Energy -- 0.1%
AmeriGas Partners, LP, "B",
10.125s, 2007 .................................................... $ 600 $ 576,000
----------
</TABLE>
5
<PAGE>
Portfolio of Investments -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Entertainment -- 1.1%
AMC Entertainment, Inc., 9.5s,
2009 ............................................................. $2,400 $ 2,304,000
Cinemark USA, Inc., "B",
9.625s, 2008 ..................................................... 750 761,250
Time Warner Entertainment
Company LP, 8.375s, 2033 1,645 1,923,318
Time Warner
Telecommunications, Inc.,
9.75s, 2008 ...................................................... 2,500 2,500,000
-----------
$ 7,488,568
-----------
Financial Institutions -- 4.0%
APP Global Finance, 3.5s,
2003 ............................................................. $ 500 $ 279,375
APP Global Finance VII
Mauritius Ltd., 3.5s, 2003## 2,750 1,536,563
Chase Manhattan Corp.,
6.375s, 2008 ..................................................... 3,000 3,051,630
Constellation Finance LLC,
9.8s, 2001 ....................................................... 4,250 4,175,625
DTI Holdings, Inc., 0s to 2003,
12.5s to , 2008 .................................................. 3,825 1,224,000
Lehman Brothers Holdings
Inc., 6.25s, 2003 ................................................ 2,000 1,934,420
Leucadia Capital Trust, 8.65s,
2027 ............................................................. 1,500 1,641,690
Leucadia National Corp.,
7.75s, 2013 ...................................................... 9,585 9,571,485
Leucadia National Corp.,
8.25s, 2005 ...................................................... 2,000 2,190,560
Merrill Lynch Mortgage
Investors, Inc., 8.139s,
2022+ ............................................................ 1,200 1,195,500
-----------
$26,800,848
-----------
Financial Services -- 0.4%
Americo Life, Inc., 9.25s, 2005 $2,650 $ 2,626,813
-----------
Food and Beverage
Products -- 0.7%
Borden, Inc., 9.2s, 2021 ........................................... $2,500 $ 2,483,350
Borden, Inc., 9.25s, 2019 .......................................... 750 782,797
Specialty Foods Corp.,
10.25s, 2001 ..................................................... 1,350 1,154,250
-----------
$ 4,420,397
-----------
Forest and Paper
Products -- 0.8%
U.S. Timberlands, 9.625s,
2007 ............................................................. $1,700 $ 1,595,875
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Forest and Paper
Products -- continued
Waterford 3 Funding Corp.,
8.09s, 2017 ...................................................... $3,500 $ 3,828,860
-----------
$ 5,424,735
-----------
Industrial -- 1.1%
AGCO Corp., 8.5s, 2006 ............................................. $2,625 $ 2,336,250
Day International Group, Inc.,
"B", 11.125s, 2005 ............................................... 1,000 1,035,000
IMO Industries, Inc., 11.75s,
2006 ............................................................. 1,650 1,716,000
Interlake Revolver Corp., 12s,
2001 ............................................................. 750 772,500
Interlake Revolver Corp.,
12.125s, 2002 .................................................... 1,400 1,358,000
-----------
$ 7,217,750
-----------
Information, Paging and
Technology -- 1.1%
NEXTEL Communications,
Inc., 0s to 2002, 9.75s to
2007, ............................................................ $ 300 $ 162,000
NEXTEL Communications,
Inc., 0s to 1999, 9.75s to
2004 ............................................................. 1,950 1,639,500
NEXTEL International, Inc., 0s
to 2003, 12.125s to 2008 ......................................... 2,750 1,017,500
Orion Network Systems, Inc.,
0s to 2002, 12.5s, 2007 .......................................... 700 469,000
Paging Network, Inc., 8.875s,
2006 ............................................................. 4,100 3,772,000
-----------
$ 7,060,000
-----------
Machinery -- 0.2%
Numatics, Inc., 9.625s, 2008 ....................................... $1,600 $ 1,500,000
-----------
Media -- 1.0%
Charter Communication LP,
11.25s, 2006 ..................................................... $1,000 $ 1,080,000
Echostar Communications
Corp., 0s to 1999, 12.875s,
2004 ............................................................. 1,750 1,688,750
Echostar Satellite
Broadcasting Corp.,
Principal Stripped, 0s to
2000, 13.125s, 2004, ............................................. 750 660,000
Fox/Liberty Networks LLC,
Inc., 8.875s, 2007 ............................................... 2,450 2,376,500
Golden Books Publishing, Inc.,
7.65s, 2002 (In default) ......................................... 705 183,300
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Media -- continued
Lenfest Communications, Inc.,
10.5s, 2006 ...................... $ 500 $ 565,000
-----------
$ 6,553,550
-----------
Medical and Health
Products -- 0.2%
Polymer Group, Inc., "B", 9s,
2007 ............................. $1,645 $ 1,542,188
-----------
Medical and Health Technology
and Services -- 0.3%
Beverly Enterprises, Inc., 9s,
2006 ............................. $1,100 $ 1,045,000
Quorum Health Group, Inc.,
8.75s, 2005 ...................... 200 190,000
Tenet Healthcare Corp.,
8.625s, 2007 ..................... 450 466,875
-----------
$ 1,701,875
-----------
Metals and Minerals -- 1.6%
Commonwealth Aluminum
Corp., 10.75s, 2006 .............. $1,000 $ 920,000
Haynes International, Inc.,
11.625s, 2004 .................... 2,200 2,090,000
Kaiser Aluminum & Chemical
Corp., 9.875s, 2002 .............. 2,640 2,508,000
Metal Management, Inc., 10s,
2008## ........................... 2,000 1,160,000
P & L Coal Holdings Corp.,
9.625s, 2008## ................... 1,750 1,745,625
Thermadyne Manufacturing
LLC / Capital Corp., 9.875s,
2008 ............................. 1,500 1,350,000
Wheeling Pittsburgh Corp.,
9.25s, 2007 ...................... 1,000 900,000
-----------
$10,673,625
-----------
Oil Services -- 1.3%
Clark USA, Inc., "B", 10.875s,
2005 ............................. $ 995 $ 935,300
Continental Resources, Inc.,
10.25s, 2008## ................... 1,000 800,000
Noble Drilling Corp., 9.125s,
2006 ............................. 800 895,288
Triton Energy Limited, 8.75s,
2002 ............................. 3,000 2,776,800
Triton Energy Limited, 9.25s,
2005 ............................. 2,500 2,400,225
Triton PCS, Inc., 0s to 2003,
11s to 2008## .................... 2,450 931,000
-----------
$ 8,738,613
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Printing and Publishing -- 0.3%
Hollinger International
Publishing, Inc., 9.25s, 2007 $1,950 $ 2,028,000
-----------
Real Estate -- 1.1%
Dynex Capital, Inc., 7.875s,
2002 ............................. $3,000 $ 1,948,110
George Town Real Estate Ltd.,
5.9s, 2007+ ...................... 4,000 4,120,000
Mosaic RE Limited, 7.915s,
1999+ ............................ 1,000 990,000
-----------
$ 7,058,110
-----------
Restaurants and Lodging -- 0.3%
Friendly Ice Cream Corp.,
10.5s, 2007 ...................... $ 500 $ 451,250
Red Roof Inns, Inc., 9.625s,
2003 ............................. 1,750 1,710,625
-----------
$ 2,161,875
-----------
Retail -- 0.8%
Cole National Group, Inc.,
8.625s, 2007 ..................... $1,300 $ 1,209,000
J.Crew Operating Corp.,
10.375s, 2007 .................... 680 510,000
Musicland Group, Inc., 9.875s,
2008 ............................. 600 570,000
Revlon Consumer Products
Corp., 8.125s, 2006 .............. 550 530,750
Revlon Consumer Products
Corp., 8.625s, 2008 .............. 1,400 1,260,000
Samsonite Corp., 10.75s, 2008 1,400 980,000
-----------
$ 5,059,750
-----------
Special Products and
Services -- 0.6%
Buckeye Cellulose Corp.,
9.25s, 2008 ...................... $2,150 $ 2,236,000
Fairfield Manufacturing Corp.,
11.375s, 2001 .................... 1,780 1,780,000
-----------
$ 4,016,000
-----------
Steel -- 0.8%
Alaska Steel Holdings Corp.,
9.125s, 2006 ..................... $ 750 $ 772,500
Alaska Steel Holdings Corp.,
10.75s, 2004 ..................... 2,078 2,181,900
Keystone Consolidated
Industries, Inc., 9.625s, 2007 700 629,125
WCI Steel, Inc., 10s, 2004 ......... 2,000 1,860,000
-----------
$ 5,443,525
-----------
</TABLE>
7
<PAGE>
Portfolio of Investments -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Telecommunications -- 8.7%
Adelphia Communications
Corp., "B", 9.875s, 2007 ......................................... $ 575 $ 612,375
Allbritton Communications
Co., "B", 9.75s, 2007 ............................................ 1,005 1,015,050
Allegiance
Telecommunications, Inc.,
12.875s, 2008 .................................................... 2,000 1,850,000
Americian Cellular Corp.,
10.5s, 2008## .................................................... 1,800 1,692,000
Century Communications
Corporation, 9.5s, 2005 .......................................... 450 483,750
Chancellor Media Corp., "B",
8.75s, 2007 ...................................................... 1,000 990,000
Chancellor Media Corp.,
Louisiana, 8.125s, 2007 .......................................... 1,000 955,000
Comcast Corp., 9.375s, 2005 2,740 2,944,404
Continental Cablevision, Inc.,
9.5s, 2013 ....................................................... 5,000 5,782,300
Frontiervision Operating
Partnership LP, 11s, 2006 ........................................ 2,000 2,210,000
Global Crossing Holdings Ltd.,
9.625s, 2008## ................................................... 1,325 1,291,875
Globalstar Telecommunications
LP, 11.375s, 2004 ................................................ 1,150 764,750
ICG Holdings, Inc., 0s to
2001, 12.5s, 2006 ................................................ 3,500 2,415,000
Intermedia Capital Partners IV,
LP, 11.25s, 2006 ................................................. 1,300 1,423,500
Intermedia Communications,
Inc., "B", 0s to 2002,
11.25s to 2007 ................................................... 2,875 1,919,063
ITC Deltacom, Inc., 11s, 2007....................................... 2,945 3,158,512
Jones Intercable, Inc., 8.875s,
2007 ............................................................. 1,500 1,567,500
Level 3 Communications Inc.,
9.125s, 2008 ..................................................... 2,050 1,927,000
Mobile Telecommunication
Technologies Corp., 13.5s,
2002 ............................................................. 1,900 2,042,500
NTL, Inc., 0s to 2003, 9.75s
to 2008## ........................................................ 1,860 1,011,375
Orion Network Systems, Inc.,
11.25s, 2007 ..................................................... 1,625 1,614,844
Pagemart Wireless, Inc., 0s to
2003, 11.25s to 2008 ............................................. 1,025 527,875
Qwest Communications
International, Inc., 0s to
2003, 8.29s to 2008 .............................................. 3,575 2,618,687
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Telecommunications -- continued
Qwest Communications
International, Inc., 10.875s,
2007 ............................................................. $ 750 $ 855,000
Spectrasite Holdings, Inc.,
0s to 2003, 12s to 2008## ........................................ 2,750 1,072,500
Sprint Spectrum LP, 0s to
2001, 12.5s to 2006 .............................................. 2,000 1,755,000
Sprint Spectrum LP, 11s, 2006 300 339,000
TCI Communications
Financing III, 9.65s, 2027 ....................................... 5,000 5,960,450
Turner Broadcasting Systems,
Inc., 8.4s, 2024 ................................................. 3,000 3,283,710
United International Holdings,
Inc., 0s to 2003, 10.75s to
2008 ............................................................. 3,200 1,440,000
Western Wireless Corp.,
10.5s, 2007 ...................................................... 1,500 1,548,750
WorldCom, Inc., 8.875s, 2006 ....................................... 900 986,292
-----------
$58,058,062
-----------
Textiles -- 0.3%
Galey & Lord, Inc., 9.125s,
2008 ............................................................. $ 2,000 $ 1,770,000
-----------
Transportation -- 0.1%
Moran Transportation Co.,
11.75s, 2004 ..................................................... $ 600 $ 648,750
-----------
U.S. Federal Agencies -- 10.3%
Financing Corp., 9.4s, 2018 ........................................ $12,000 $17,133,720
FNMA, 6.5s, 2013 ................................................... 3,993 4,051,322
GNMA, 6.5s, 2028 ................................................... 2,885 2,916,899
GNMA, 7s, 2011 ..................................................... 21,413 21,928,266
GNMA, 7.5s, 2002 ................................................... 10,525 10,832,065
GNMA, 8s, 2025 ..................................................... 11,222 11,636,040
-----------
$68,498,312
-----------
U.S. Government Guaranteed -- 9.4%
U. S. Treasury Notes, 4.5s,
2028 ............................................................. $11,000 $11,030,745
U.S. Treasury Bonds, 6.125s,
2027 ............................................................. 3,000 3,375,930
U.S. Treasury Bonds, 6.375s,
2027 ............................................................. 4,050 4,666,977
U.S. Treasury Bonds, 9.875s,
2015 ............................................................. 7,325 11,099,646
U.S. Treasury Bonds, 12s,
2005 ............................................................. 14,000 19,770,660
U.S. Treasury Notes, 5.625s,
2008 ............................................................. 12,000 12,935,640
-----------
Total U.S. Government Guaranteed ....................................................... $62,879,598
-----------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Utilities -- Electric -- 6.9%
Beaver Valley Funding Corp.,
9s, 2017 ........................... $4,624 $ 5,112,063
BVPS II Funding Corp., 8.68s,
2017 ............................... 1,000 1,160,420
Cheasapeake Energy, 9.625s,
2005 ............................... 1,250 1,062,500
Cleveland Electric Illuminating
Co., 9s, 2023 ...................... 2,000 2,187,800
El Paso Electric Co., "D", 8.9s,
2006 ............................... 3,425 3,820,553
El Paso Electric Co., "E", 9.4s,
2011 ............................... 3,000 3,508,980
Midland Cogeneration Venture
Corp., 10.33s, 2002 ................ 6,344 6,885,919
Midland Funding Corp. I,
10.33s, 2002 ....................... 2,596 2,741,848
Niagara Mohawk Power Corp.,
7.25s, 2002 ........................ 1,900 1,932,338
Texas & New Mexico Power
Co., 10.75s, 2003 .................. 13,990 15,277,360
Toledo Edison Company, 8.7s,
2002 ............................... 2,192 2,325,164
------------
$ 46,014,945
------------
Total U.S. Bonds ............................ $404,267,082
------------
Foreign Bonds -- 32.3%
Argentina -- 3.7%
Autopistas Del Sol SA "B",
10.25s, 2009 (Industrial)## ........ $4,500 $ 2,745,000
Cia Latino Americana SA,
11.625s, 2004## .................... 1,500 1,089,525
Compania De Transporte
Energia, 9.25s, 2008
(Utilities -- Electric) ............ 300 239,625
Hidroelectrica Alicura, 8.375s,
1999 (Utilities -- Electric)## ..... 2,400 2,316,000
Industrias Metalurgicas
Pescarm, 9.5s, 2002
(Utilities -- Electric)## .......... 750 478,868
Republic of Argentina, 6.188s,
2005 ............................... 5,640 4,667,100
Republic of Argentina, 9.015s,
2005 ............................... 2,000 2,005,000
Republic of Argentina, 9.75s,
2027 ............................... 3,844 3,320,447
Republic of Argentina, 11.75s,
2007## ............................. 1,500 1,350,000
Supercanal Holdings SA,
11.5s, 2005
(Telecommunications)## ............. 2,000 1,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- continued
Argentina -- continued
Telecom Argentina, 12s, 2002
(Telecommunications) ............... $5,000 $ 5,250,000
------------
$ 24,461,565
------------
Australia -- 0.4%
Commonwealth of Australia,
9.5s, 2003 ......................... AUD 3,565 $ 2,694,590
------------
Bermuda -- 0.4%
Flag Limited, 8.25s, 2008
(Telecommunications) ............... $2,700 $ 2,470,500
------------
Brazil -- 2.6%
Banco BMG SA, 9.625s, 2005
(Commercial Bank)## ................ $2,000 $ 1,620,000
BNDS 10.8s, 2008 (Banks) ............. 1,000 705,000
Brazil Media Trust, 6.25s,
2007 (Telecommunications) .......... 433 248,857
CEMiG, 9.125s, 2004
(Utilities -- Electric)## .......... 3,500 2,721,250
CEMiG , 9.125s, 2004
(Utilities -- Electric)## .......... 500 388,750
COPEL, 9.75s, 2005
(Uitilites -- Electric) ............ 2,000 1,520,000
COPEL, 9.75s, 2005
(Utilities -- Electric) ## ......... 1,250 965,625
Federal Republic of Brazil, 5s,
2014 ............................... 3,238 2,003,956
Federal Republic of Brazil,
6.188s, 2009 ....................... 3,420 1,909,646
Federal Republic of Brazil,
6.75s, 2001 ........................ 1,230 1,080,924
Federal Republic of Brazil,
10.125s, 2027 ...................... 4,802 3,301,375
Leasing Bank Boston/Brazil,,
8.375s, 2004 (Finance)## ........... 750 630,000
------------
$ 17,095,383
------------
Bulgaria -- 0.7%
National Republic of Bulgaria,
2.5s, 2012 ......................... $7,000 $ 3,850,000
National Republic of Bulgaria,
6.688s, 2011 ....................... 1,000 662,500
------------
$ 4,512,500
------------
Canada -- 1.3%
Gulf Canada Resources Ltd.,
9.25s, 2004 (Oil Services) ......... $ 400 $ 407,692
Metronet Communications
Corp., 0s to 2003, 9.95s to
2008 (Telecommunications) .......... 4,150 2,241,000
</TABLE>
9
<PAGE>
Portfolio of Investments -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- continued
Canada -- continued
PCI Chemicals Canada, Inc.,
9.25s, 2007 (Chemicals) .......................................... $1,500 $ 1,155,000
Repap New Brunswick, Inc.,
10.625s, 2005 (Forest and
Paper Products) .................................................. 650 422,500
Rogers Cablesystems, Inc.,
9.625s, 2002
(Telecommunications) ............................................. 800 840,000
Rogers Cablesystems, Inc.,
10.125s, 2012
(Telecommunications) ............................................. 1,500 1,620,000
Rogers Cantel, Inc., 9.375s,
2008 (Telecommunications) ........................................ 1,800 1,809,000
-----------
$ 8,495,192
-----------
China -- 0.4%
Dao Heng Bank Ltd., 7.75s,
2007 (Banks)## ................................................... $3,500 $ 2,524,620
-----------
Colombia
Republic of Colombia, 7.625s,
2007 ............................................................. $ 400 $ 307,000
-----------
Denmark -- 0.5%
Kingdom of Denmark, 7s,
2007 ............................................................. DKK 18,192 $ 3,371,189
-----------
Greece -- 1.2%
Antenna TV SA, 9s, 2007
(Telecommunciations) ............................................. $1,000 $ 820,000
Fage Dairy Industries SA, 9s,
2007 (Food and Beverage
Products) ........................................................ 5,000 3,750,000
Hellenic Republic, 5.75s, 2008 ..................................... ECU 3,026 3,697,272
-----------
$ 8,267,272
-----------
Hong Kong -- 0.3%
Guangzhou Shen
Superhighway Holdings,
10.25s, 2007 (Construction) ...................................... $5,000 $ 1,950,000
-----------
India -- 0.2%
Power Finance Corp. Ltd.,
7.5s, 2009
(Utilities -- Electric)## ........................................ $1,500 $ 1,151,250
-----------
Indonesia -- 0.1%
Indah Kiat Finance Mauritius
Limited, 10s, 2007
(Textiles) ....................................................... $1,750 $ 910,000
-----------
Italy -- 0.6%
Republic of Italy, 5.75s, 2002 .....................................ITL 6,585,000 $ 4,290,105
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- continued
Luxembourg -- 0.1%
Millicom International Cellular
Communications Corp., 0s
to 2001, 13.5s to 2006
(Telecommunications) ............................................. $ 700 $ 399,000
-----------
Mexico -- 6.6%
Banco Nacional de
Commerce, 8s, 2000
(Banks) .......................................................... $2,500 $ 2,428,750
Empresas ICA Sociedad SA,
5s, 2004 (Construction) .......................................... 2,500 1,650,000
Empresas ICA Sociedad SA,
11.875s, 2001
(Construction) ................................................... 3,750 3,693,750
Espirit Telecom Group PLC,
10.875s, 2008
(Telecommunications) ............................................. 700 617,750
Espirito Santo Centrais
Eletricas SA, 10s, 2007
(Utilities -- Electric) .......................................... 3,750 2,212,500
Grupo Industrial Durango SA
De C V, 12s, 2001 (Forest
Products) ........................................................ 1,750 1,312,500
Grupo Industrial Durango SA
De CV, 12.625s, 2003
(Forest Products) ................................................ 3,850 2,887,500
Sanluis Corp, 8.875s, 2008
(Mining) ......................................................... 1,500 1,087,500
Sanluis Corp. SA De Cv,
8.875s, 2008 (Mining)## .......................................... 3,500 2,537,500
Satelites Mexicanos SA De
C.V., 10.125s, 2004
(Telecommunications)## ........................................... 1,250 815,625
TFM SA De C V, 0s to 2002,
11.75s to 2009 (Railroad) ........................................ 2,500 1,221,875
United Mexican States, 6.25s,
2019 ............................................................. 10,000 7,463,000
United Mexican States,
8.625s, 2008 ..................................................... 4,650 4,068,750
United Mexican States,
11.375s, 2016 .................................................... 2,000 1,933,000
United Mexican States, 11.5s,
2026 ............................................................. 8,000 8,240,000
United Mexican States, "B",
6.477s, 2019 ..................................................... 1,334 1,040,520
United Mexican States, "C",
6.617s, 2019 ..................................................... 333 259,740
United Mexican States, "D",
6.602s, 2019 ..................................................... 917 715,260
-----------
$44,185,520
-----------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- continued
New Zealand -- 2.0%
Government of New Zealand,
8s, 2001 ......................................................... NZD 22,430 $ 13,303,023
------------
Panama -- 1.4%
Republic of Panama, 7.875s,
2002 ............................................................. $ 3,500 $ 3,344,250
Republic of Panama, 8.25s,
2008 ............................................................. 1,000 900,000
Republic of Panama, 8.875s,
2027 ............................................................. 5,316 4,864,140
------------
$ 9,108,390
------------
Philippines -- 0.8%
National Power Corp., 7.625s,
2000 (Utilities -- Electric) ..................................... $ 2,000 $ 1,786,000
National Power Corp., 9.625s,
2028 (Utilities -- Electric) ..................................... 1,000 670,000
Philippines Republic, 8.875s,
2008 ............................................................. 3,000 2,745,000
------------
$ 5,201,000
------------
Russia -- 0.5%
CSFB Gazprom Note, 13.5s,
2000+ ............................................................ $ 3,000 $ 510,900
Ministry of Finance, 10s, 2007 670 157,450
Russia Principal Loans,
3.313s, 2020+ .................................................... 22,250 1,697,675
St. Petersburg Russia, 9.5s,
2002## ........................................................... 2,750 515,625
Vnesheconombank USSR,
6.625s, 2015 (Bank and
Credit Companies) ................................................ 7,582 720,284
------------
$ 3,601,934
------------
South Korea -- 0.1%
Republic of Korea, 8.875s,
2008 ............................................................. $ 500 $ 457,410
------------
Thailand -- 0.3%
Krung Thai Bank Public Co
Ltd, 6.52s, 2006 (Banks) ......................................... $ 3,500 $ 1,855,000
------------
United Kingdom -- 8.1%
Colt Telecom Group, 2s, 2005
(Telecommunications) ............................................. DEM 1,500 $ 808,180
Colt Telecom Group PLC, 0s
to 2001,12s to 2006
(Telecommunications)## ........................................... $ 500 390,000
Colt Telecom Group PLC,
8.875s, 2007
(Telecommunications) ............................................. DEM 1,000 591,609
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- continued
United Kingdom -- continued
Diamond Cable
Communication Corp. PLC,
0s to 2001, 11.75 to 2005,
(Telecommunications) ............................................. $ 2,000 $ 1,480,000
Dolphin Telecom PLC, 0s to
2003, 11.5s to 2008
(Telecommunications)## ........................................... 2,515 704,200
GPA PLC, 10.875s, 2019
(Airlines)+ ...................................................... 250 265,747
HMV Media Group PLC,
10.25s, 2008 (Retail)## .......................................... 1,500 1,275,000
Telewest PLC, 9.625s, 2006
(Telecommunications) ............................................. 2,000 1,945,000
United Kingdom Treasury,
6.5s, 2003 ....................................................... GBP 456 816,290
United Kingdom Treasury,
7.25s, 2007 ...................................................... 9,217 17,918,076
United Kingdom Treasury,
8.5s, 2005 ....................................................... 11,675 23,468,014
United Kingdom Treasury,
9s, 2008 ......................................................... 2,138 4,667,818
------------
$ 54,329,934
------------
Venezuela
Republic of Venezuela--DCB,
6.625s, 2007 ..................................................... VEB 452 $ 273,690
------------
Total Foreign Bonds ........................................................ $215,216,067
------------
Total Bonds
(Identified Cost, $661,266,096) ........................................ $619,483,149
------------
Stocks
Shares
Ithaca Industries, Inc., (Apparel
and Textiles)* ................................................... 32,000 $ 64,000
RJR Nabisco Holdings Corp.,
(Consumer Goods and
Services) ........................................................ 6,908 197,310
------------
Total Stocks
(Identified Cost, $402,716) ............................................ $ 261,310
------------
Convertible Preferred Stock -- 0.2%
IXC Communications, Inc.,
(Telecommunications),
(Identified Cost, $804,375) ...................................... $27,500 $ 952,187
------------
Preferred Stock -- 1.4%
Issuer Shares
CSC Holdings, Inc.,
(Telecommunications) ............................................. 61,564 $ 6,710,476
Primedia, Inc., (Printing and
Publishing)* ..................................................... 20,000 1,800,000
</TABLE>
11
<PAGE>
Portfolio of Investments -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Preferred Stock -- continued
Primedia, Inc., (Printing and
Publishing) ......................... $ 1,360 $ 133,280
Supermarkets General
Holdings Corp.* ..................... 22,827 433,713
------------
Total Preferred Stock
(Identified Cost, $7,143,327) ................. $ 9,077,469
------------
Convertible Bond -- 0.7%
Loews Corp, 3.125s,
2007 (Retail) ....................... $ 1,000 $ 822,500
Silicon Graphics, Inc., 5.25s,
2004 (Computer
Hardware -- Systems) ................ 300 241,875
Tenet Healthcare Corp., 6s,
2005 (Medical and Health
Technology and Services) ............ 4,250 3,686,875
------------
Total Convertible Bond
(Identified Cost, $4,711,774) ................. $ 4,751,250
------------
Rights
Issuer Shares
United Mexican States*,
(Identified Cost, $0) ............... 4,475,000 $ 0
------------
Warrants*
Colt Telecom Group PLC,
(Telecommunications) ................ 500 $ 168,235
DTI Holdings, Inc. (Financial
Institutions) ....................... 19,125 19,125
Loral Orion Network Systems,
Inc., (Telecommunications) .......... 1,625 13,000
Loral Orion Network Systems,
Inc., (Telecommunications) .......... 700 12,600
------------
Total Warrants
(Identified Cost, $153,534) ................. $ 212,960
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Contingent Promissory
Note -- 1.5%
Cargill, Inc., COLT (Commodity
Option Linked Trading) due
2002+ (Identified cost
$10,807,971) ........................ $ 10,000 $ 9,971,431
------------
Repurchase Agreement -- 1.6%
Goldman Sachs Group, LP
dated 10/30/98 due
11/2/98, total to be received
$10,700,795 (secured by
various U.S. government
securities is a jointly traded
account), at cost ................... $ 10,696 $ 10,696,000
------------
Total Investments
(Identified Cost, $695,985,793) ............. $655,405,756
------------
Other Assets,
Less Liabilities -- 1.6% ........................ 10,474,849
------------
Net Assets -- 100.0% .............................. $665,880,605
------------
</TABLE>
* Non-income producing security.
## SEC Rule 144A restriction.
+ Restricted security.
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.
<TABLE>
<S> <C>
AUD = Australian Dollars
CAD = Canadian Dollars
CHF = Swiss Francs
DEM = Deutsche Marks
DKK = Danish Kroner
ECU = European Currency Unit
GBP = British Pounds
ITL = Italian Lire
JPY = Japanese Yen
NZD = New Zealand Dollars
VEB = Venezuelan Bolivar
</TABLE>
See notes to financial statements
12
<PAGE>
Statement of Assets and Liabilities -- October 31, 1998
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $695,985,793) ................................... $ 655,405,756
Cash .................................................................................... 149,319
Net receivable for forward foreign currency exchange contracts to purchase .............. 4,860,808
Net receivable for forward foreign currency exchange contracts subject to master netting 841,347
agreements
Receivable for investments sold ......................................................... 13,999,335
Interest and dividends receivable ....................................................... 14,798,341
Other assets ............................................................................ 4,816
-------------
Total assets .......................................................................... $ 690,059,722
-------------
Liabilities:
Distributions payable ................................................................... 430,284
Payable for investments purchased ....................................................... 17,937,292
Net payable for forward foreign currency exchange contracts to sell ..................... 5,255,741
Payable to affiliates-
Management fee ......................................................................... 31,321
Shareholder servicing agent fee ........................................................ 24,024
Administrative fee ..................................................................... 738
Accrued expenses and other liabilities .................................................. 499,717
-------------
Total liabilities ..................................................................... $ 24,179,117
-------------
Net assets ............................................................................... $ 665,880,605
=============
Net assets consist of:
Paid-in capital ......................................................................... $ 709,999,123
Unrealized depreciation on investments and translation of assets and liabilities in
foreign currencies ..................................................................... (40,130,524)
Accumulated net realized loss on investments and foreign currency transactions .......... (4,912,689)
Accumulated undistributed net investment income ......................................... 924,695
-------------
Total ................................................................................. $ 665,880,605
=============
Shares of beneficial interest outstanding (124,846,052 issued less 31,965,700 treasury
shares) 92,880,352
=============
Net asset value per share (net assets [divided by] shares of beneficial interest
outstanding) $7.17
=====
</TABLE>
See notes to financial statements
13
<PAGE>
Statement of Operations -- Year Ended October 31, 1998
<TABLE>
<S> <C>
Net investment income:
Income --
Interest ................................................................... $ 62,238,590
Dividends .................................................................. 394,291
-------------
Total investment income .................................................. $ 62,632,881
-------------
Expenses --
Management fee ............................................................. $ 5,820,559
Trustees' compensation ..................................................... 173,006
Custodian fee .............................................................. 299,457
Transfer and dividend disbursing agent fee ................................. 288,311
Administrative fee ......................................................... 101,577
Auditing fees .............................................................. 55,881
Legal fees ................................................................. 10,445
Postage .................................................................... 87,064
Printing ................................................................... 53,987
Stock exchange fee ......................................................... 105,162
Commitment fee ............................................................. 185,813
Miscellaneous .............................................................. 357,098
-------------
Total expenses ............................................................ $ 7,538,360
Fees paid indirectly ....................................................... (150,176)
-------------
Net expenses .............................................................. $ 7,388,184
-------------
Net investment income .................................................... $ 55,244,697
-------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions .................................................. $ (2,398,958)
Written option transactions .............................................. (338,075)
Foreign currency transactions ............................................ 4,125,472
Swap transactions ........................................................ 64,509
-------------
Net realized gain on investments and foreign currency transactions ...... $ 1,452,948
-------------
Change in unrealized appreciation (depreciation) -- .......................
Investments .............................................................. $ (57,740,826)
Written options .......................................................... 621,429
Translation of assets and liabilities in foreign currencies .............. (2,965,940)
Swap transactions ........................................................ (47,636)
-------------
Net unrealized loss on investments ...................................... $ (60,132,973)
-------------
Net realized and unrealized loss on investments and foreign currency ... $ (58,680,025)
-------------
Decrease in net assets from operations ................................ $ (3,435,328)
=============
</TABLE>
See notes to financial statements
14
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------
1998 1997
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations --
Net investment income ........................................................... $ 55,244,697 $ 55,755,879
Net realized gain on investments and foreign currency transactions .............. 1,452,948 1,779,630
Net unrealized gain (loss) on investments and foreign currency translation ...... (60,132,973) 5,789,268
------------- -------------
Increase (decrease) in net assets from operations .............................. $ (3,435,328) $ 63,324,777
------------- -------------
Distributions declared to shareholders --
From net investment income ...................................................... $ (54,333,485) $ (57,910,460)
------------- -------------
Trust share (principal) transactions --
Net asset value of shares reacquired from shareholders .......................... $ -- $ (21,646,951)
------------- -------------
Total decrease in net assets .................................................. $ (57,768,813) $ (16,232,634)
------------- -------------
Net assets:
At beginning of year ............................................................ 723,649,418 739,882,052
------------- -------------
At end of year (including accumulated undistributed net investment income and
accumulated distributions in excess of
net investment income of $924,695 and ($2,531,101), respectively) .............. $ 665,880,605 $ 723,649,418
============= =============
</TABLE>
See notes to financial statements
15
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------
1998 1997
Per share data (for a share outstanding throughout each year): ---------------- -------------
<S> <C> <C>
Net asset value --
beginning of year .................................................... $ 7.79 $ 7.71
------- --------
Income from investment operations -- ..................................
Net investment incomes[sec] .......................................... $ 0.59 $ 0.59
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ............................................... (0.63) 0.11
------- --------
Total from investment operations .................................... $ (0.04) $ 0.70
------- --------
Less distributions declared to shareholders ...........................
From net investment income .......................................... $ (0.58) $ (0.62)
From net realized gain on investments and foreign currency
transactions ........................................................ -- --
From paid in capital ................................................ -- --
------- --------
Total distributions declared to shareholders ....................... $ (0.58) $ (0.62)
------- --------
Net asset value -- end of year ....................................... $ 7.17 $ 7.79
======= ========
Per share market value -- end of year ................................ $ 6.438 $ 7.125
Total return ......................................................... (1.89)% 8.93%
Ratios (to average net assets)/Supplemental data[sec]. ...............
Interest Expense .................................................... -- 0.18%
Other Expenses ## ................................................... 1.05% 0.93%
Total Expense ....................................................... 1.05% 1.11%
Net investment income ............................................... 7.70% 7.64%
Portfolio turnover ................................................... 155% 172%
Net assets at end of year
(000 omitted) ....................................................... $665,881 $723,649
Leverage analysis ....................................................
Debt outstanding at end of year (000's omitted) ..................... $ -- $ --
Average daily balance of debt outstanding (000's omitted) ........... $ -- $ 18,854
Average daily balance of shares outstanding (000's omitted) ......... 92,880 93,951
Average debt per share .............................................. $ -- $ 0.20
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Trust has had an expense offset arrangement
which reduces the trust's custodian fee based upon the amount of cash maintained by the fund with
its custodian and dividend disbursing agent. The trust's expenses are calculated without reduction
for this expense offset arrangement.
[section mark] The investment adviser voluntarily waived a portion of their management fee for certain of the
periods indicated.
If the fee had been incurred by the Trust, the net investment income per share would have changed by
less than $0.01 and the ratios would have been:
Ratios (to average net assets)
Expenses## .......................................................... -- --
Net investment income ............................................... -- --
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------------
1996 1995 1994
Per share data (for a share outstanding throughout each year): ------------- ------------- ----------------
<S> <C> <C> <C>
Net asset value --
beginning of year .................................................... $ 7.57 $ 7.06 $ 7.90
-------- -------- ---------
Income from investment operations -- ..................................
Net investment incomes[sec] .......................................... $ 0.57 $ 0.59 $ 0.55
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ............................................... 0.16 0.49 (0.82)
-------- -------- ---------
Total from investment operations .................................... $ 0.73 $ 1.08 $ (0.27)
-------- -------- ---------
Less distributions declared to shareholders ...........................
From net investment income .......................................... $ (0.59) $ (0.53) $ (0.21)
From net realized gain on investments and foreign currency
transactions ........................................................ -- -- ( 0.01)
From paid in capital ................................................ -- ( 0.04) ( 0.35)
-------- --------- ---------
Total distributions declared to shareholders ....................... $ (0.59) $ (0.57) $ (0.57)
-------- --------- ---------
Net asset value -- end of year ....................................... $ 7.71 $ 7.57 $ 7.06
======== ========= =========
Per share market value -- end of year ................................ $ 7.125 $ 6.500 $ 6.125
Total return ......................................................... 19.32% 15.69% ( 9.57)%
Ratios (to average net assets)/Supplemental data[sec]. ...............
Interest Expense .................................................... -- 0.09% 0.08%
Other Expenses ## ................................................... 1.11% 1.10% 1.06%
Total Expense ....................................................... 1.11% 1.19% 1.14%
Net investment income ............................................... 7.49% 8.13% 7.51%
Portfolio turnover ................................................... 214% 189% 133%
Net assets at end of year
(000 omitted) ....................................................... $739,882 $ 780,915 $829,356
Leverage analysis ....................................................
Debt outstanding at end of year (000's omitted) ..................... $ -- $ -- $ 90,000
Average daily balance of debt outstanding (000's omitted) ........... $ -- $ 10,750 $ 9,616
Average daily balance of shares outstanding (000's omitted) ......... 100,810 108,970 117,774
Average debt per share .............................................. $ -- $ 0.10 $ 0.08
#Per share data are based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Trust has had an expense offset arrangement which reduces the
trust's custodian fee based upon the amount of cash maintained by the fund with its custodian and dividend disbursing
agent. The trust's expenses are calculated without reduction for this expense offset arrangement.
[section mark] The investment adviser voluntarily waived a portion of their management fee for certain of the periods
indicated.
If the fee had been incurred by the Trust, the net investment income per share would have changed by less than $0.01
and the ratios would have been:
Ratios (to average net assets)
Expenses## .......................................................... -- 1.11 % 1.07 %
Net investment income ............................................... -- 8.11 % 7.50 %
</TABLE>
See notes to financial statements
16
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Multimarket Income Trust (the Trust) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a non-diversified, closed-end management investment company.
(2) Significant Accounting Policies
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.
Investment Valuations -- Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, forward contracts,
and swap agreements, are valued on the basis of valuations furnished by dealers
or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Non-U.S. dollar denominated
short-term obligations are valued at amortized cost as calculated in the
foreign currency and translated into U.S. dollars at the closing daily exchange
rate. Futures contracts, options, and options on futures contracts listed on
commodities exchanges are reported at market value using closing settlement
prices. Over-the-counter options on securities are valued by brokers.
Over-the-counter currency options are valued through the use of a pricing model
which takes into account foreign currency exchange spot and forward rates,
implied volatility, and short-term repurchase rates. Equity securities listed
on securities exchanges or reported through the NASDAQ system are reported at
market value using last sale prices. Unlisted equity securities or listed
equity securities for which last sale prices are not available are reported at
market value using 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 collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the Trust to obtain those
securities in the event of a default under the repurchase agreement. The Trust
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the Trust
under each such repurchase agreement. The Trust, 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 results from fluctuations in foreign currency exchange rates
is not separately disclosed.
17
<PAGE>
Notes to Financial Statements -- continued
Written Options -- The Trust may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the options contract. When a written option
expires, the Trust realizes a gain equal to the amount of the premium received.
When a written call option is exercised or closed, the premium received is
offset against the proceeds to determine the realized gain or loss. When a
written 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 Fund's management on the direction of interest rates.
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 as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
Swap Agreements -- The Trust may enter into swap agreements. A swap is an
exchange of cash payments between the Trust and another party 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 depreciation. 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
discount is amortized or accreted for financial statement and tax reporting
purposes as required by federal income tax regulations. Dividends received in
cash are recorded on 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.
The Fund uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds.
18
<PAGE>
Fees Paid Indirectly -- The Trust's custody fee is calculated as a percentage
of the Trust's month end net assets. The fee is reduced according to an
arrangement that measures 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 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.
Distributions to shareholders are recorded on the ex-dividend date. The Trust
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a 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 net realized gains. During
the year ended October 31, 1998, $2,544,584 was reclassified from accumulated
net realized loss on investments to accumulated undistributed net investment
income due to differences between book and tax accounting for mortgage-backed
securities and currency transactions. This change had no effect on the net
assets or net asset value per share.
At October 31, 1998, the Trust, for federal income tax purposes, had a capital
loss carryforward of $2,641,705 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 annual rate of 0.34% of
average daily net assets and 5.40% of investment income.
The Trust pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Trust, all of whom receive
remuneration for their services to the Trust from MFS. Certain 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 of its
independent Trustees and Mr. Bailey. Included in Trustees' compensation is a
net periodic pension expense of $52,556 for the year ended October 31, 1998.
19
<PAGE>
Notes to Financial Statements -- continued
Administrator -- The Trust has an administrative services agreement with MFS to
provide the Trust with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Trust pays MFS an administrative fee
at the following annual percentages of the Trust's average daily net assets:
<TABLE>
<S> <C>
First $1 billion .................. 0.0150%
Next $1 billion ................... 0.0125%
Next $1 billion ................... 0.0100%
In excess of $3 billion ........... 0.0000%
</TABLE>
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 of no more than $9.00 and a dividend services fee of $0.75 per
reinvestment and will reimburse MFSC for reasonable out-of-pocket expenses.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
U.S. government securities ............................ $266,518,695 $268,705,341
============ ============
Investments (non-U.S. government securities) .......... $804,720,968 $800,382,758
============ ============
</TABLE>
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Trust, as computed on a federal income tax basis, are
as follows:
<TABLE>
<S> <C>
Aggregate cost ........................ $ 698,256,777
=============
Gross unrealized appreciation ......... $ 20,913,762
Gross unrealized depreciation ......... $ (63,764,783)
-------------
Net unrealized depreciation .......... $ (42,851,021)
=============
</TABLE>
(5) Shares of Beneficial Interest
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
------------------- -----------------------------------
Shares Amount Shares Amount
-------- -------- --------------- -----------------
<S> <C> <C> <C> <C>
Treasury shares acquired ......... -- $ -- (3,052,100) $(21,646,951)
Net decrease ..................... -- $ -- (3,052,100) $(21,646,951)
</TABLE>
The Trust repurchased 3,052,100 shares of beneficial interest during the year
ended October 31, 1997, at an average price per share of $7.09 and a weighted
average discount of 8.77% per share. During the year ended October 31, 1998,
the Trust did not repurchase any shares.
(6) 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. The Trust had no loans
outstanding during the year ended October 31, 1998. 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. A commitment fee of $185,813 which is based on the average
daily unused portion of the line of credit was paid by the Trust in connection
with the line of credit.
20
<PAGE>
(7) 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, swap agreements, 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.
Written Option Transactions
- ---------------------------
<TABLE>
<CAPTION>
1998 Calls 1998 Puts
----------------------------------- ---------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period
Swiss Francs/Deutsche Marks ............ 22,128 $154,313 -- $ --
Options written
Canadian Dollars ....................... -- -- 8,482 31,734
Deutsche Marks ......................... -- -- 22,119 127,157
Japanese Government Bonds .............. 431,000 6,622 863,200 24,402
Japanese Yen ........................... 7,174,275 87,819 -- --
United Kingdom Treasury ................ 3,409 46,171 -- --
Options expired
Japanese Yen ........................... (3,580,382) (43,233) -- --
Options terminated in closing transactions
Canadian Dollars ....................... -- -- (8,482) (31,734)
Deutsche Marks ......................... -- -- (22,119) (127,157)
Japanese Government Bonds .............. (431,000) (6,622) (863,200) (24,402)
Japanese Yen ........................... (3,593,893) (44,586) -- --
Swiss Francs/Deutsche Marks ............ (22,128) (154,313) -- --
United Kingdom Treasury ................ (3,409) (46,171) -- --
--------- --------
Outstanding, end of period ............... $ -- $ --
========= ========
</TABLE>
21
<PAGE>
Notes to Financial Statements -- continued
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 12/15/98 .......... AUD 895,017 $ 530,718 $ 560,342 $ (29,624)
12/15/98 .......... CAD 45,018,713 29,512,270 29,205,748 306,522
12/15/98 .......... DEM 26,473,917 15,737,676 16,014,335 (276,659)
12/15/98 .......... DKK 56,089,078 8,689,110 8,915,012 (225,902)
12/15/98 .......... ITL 1,565,312,574 982,434 956,058 26,376
12/15/98 .......... JPY 3,692,295,804 27,145,242 31,946,493 (4,801,251)
12/15/98 .......... NZD 22,609,154 11,721,433 11,976,636 (255,203)
------------ ------------ ------------
$ 94,318,883 $ 99,574,624 $ (5,255,741)
============ ============ ============
Purchases 12/15/98 .......... AUD 17,152,639 $ 10,202,389 $ 10,738,731 $ 536,342
12/15/98 .......... CAD 26,563,003 17,183,984 17,232,664 48,680
12/15/98 .......... CHF 21,732,045 15,737,675 16,126,929 389,254
12/15/98 .......... DEM 45,081,510 26,949,375 27,270,252 320,877
12/15/98 .......... DKK 30,744,460 4,941,409 4,886,642 (54,767)
12/15/98 .......... GBP 6,639,902 11,235,379 11,084,180 (151,199)
12/15/98 .......... JPY 3,546,810,896 27,095,576 30,687,728 3,592,152
12/15/98 .......... NZD 10,895,197 5,591,989 5,771,458 179,469
------------ ------------ ------------
$118,937,776 $123,798,584 $ 4,860,808
============ ============ ============
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net receivable of $1,307,661 with First Boston and
$208,980 with Merrill Lynch and a net payable of $675,294 with Deutsche Bank at
October 31, 1998.
At October 31, 1998, the Trust had sufficient cash and/or securities to cover
any commitments under these contracts.
(8) 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,
1998, the Trust owned the following restricted securities (constituting 2.8% of
net assets) which may not be publicly sold without registration under the
Securities Act of 1933. The Trust does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations furnished by dealers or by a pricing service, or if not available,
are valued at fair value as determined in good faith by or at the direction of
the Trustees.
<TABLE>
<CAPTION>
Date of
Description Acquisition Shares Cost Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CSFB Gazprom Note, 13.5s,
2000 ............................. 4/25/97 3,000,000 $ 3,000,000 $ 510,900
Cargill, Inc. COLT, 2002 .......... 8/29/97 10,000,000 10,807,971 9,971,431
George Town Real Estate Ltd.,
5.9s, 2007 ....................... 12/20/96 4,000,000 4,000,000 4,120,000
Russia Principal Loans 3.313s,
2020 ............................. 12/12/97 22,250,000 13,643,125 1,697,675
Mosaic RE Limited 7.915s, 1999..... 7/15/98 1,000,000 1,000,000 990,000
GPA PLC, 10.875s, 2019 ............ 3/13/96 250,000 250,000 265,747
Merrill Lynch Mortgage
Investors, Inc. 8.139s, 2022 ..... 6/22/96 1,200,000 831,750 1,195,500
-----------
$18,751,253
===========
</TABLE>
22
<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, 1998, 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 five 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.
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 and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998 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 the
MFS Multimarket Income Trust at October 31, 1998, 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 the financial highlights for each of the
five years in the period then ended, in conformity with generally accepted
accounting principles.
[Signature of Ernest & Young LLP]
Boston, Massachusetts
December 9, 1998
23
<PAGE>
MFS[Registration Mark] Multimarket Income Trust
Trustees
Richard B. Bailey* (2)
Private Investor; Former Chairman and
Director (until 1991), MFS Investment Management
Peter G. Harwood(1)
Private Investor
J. Atwood Ives(2)
Chairman and Chief Executive Officer,
Eastern Enterprises
(diversified services company)
Lawrence T. Perera(2)
Partner, Hemenway & Barnes
(attorneys)
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,
MFS Investment Management
Jeffrey L. Shames*
Chairman, Chief Executive Officer,
and Director, MFS Investment
Management
Elaine R. Smith(1)
Independent Consultant
David B. Stone(1)(2)
Chairman and Director,
North American
Management Corp.
(investment advisers)
Portfolio Manager
James T. Swanson*
Treasurer
W. Thomas London*
Assistant Treasurers
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
Transfer Agent,
Registrar, and Dividend
Disbursing Agent
State Street Bank and
Trust Company
c/o 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
* Affiliated with the Investment Adviser.
(1) Member of Audit Committee.
(2) Member of Portfolio Trading Committee.
[recycle logo] This report is printed on recycled paper. MMTCE-2 12/98 84M
