[front cover]
[MFS logo]
MFS(SM)
INVESTMENT MANAGEMENT
MFS(R) Multimarket Income Trust
Annual Report
for Year Ended
October 31, 1997
<PAGE>
Dear Shareholders:
For the 12 months ended October 31, 1997, the Trust had a total return of 8.93%,
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 10.01% for the same period. In
March, the Trust celebrated its 10th anniversary. For the 10 years ended October
31, 1997, annual returns to shareholders on an NAV basis exceeded 10% (10.51%).
We believe the Trust continues to benefit from its innovative share repurchase
program. This program, which was implemented in April 1996 and reinstated in
March 1997, authorizes the Trust to repurchase up to 10% of its outstanding
shares annually. The Trust captures the difference between its NAV and its
market price when it repurchases shares and pays the captured value to its
shareholders with their regular monthly distributions.
The past year has seen an astonishing shrinkage in bond yield levels across the
world's fixed-income markets. With these falling yields, we have also witnessed
a rapid shrinkage in yield premiums, or the advantages usually inherent in
lower-rated bond categories. These two events are symptomatic of a world
financial system awash in excess funds. Fed by Japan's lethargic economy and its
remarkably low government bond rates, and by continued accommodation in European
monetary policy, this liquidity wave has propelled prices of corporate and
emerging market bonds upward in every category. Furthermore, the U.S. economy
has continued to expand, with no signs of inflation. Emboldened investors
seeking yield have gone abroad with great confidence. The only global concerns
arose in Asia, which was mired in a widespread currency crisis. Especially hard
hit were Thailand and Malaysia, two countries in which we owned no bonds. Only
2% of the Trust's assets were in Asia at the time of the August crisis, and
those bonds were in two solid companies in Indonesia.
The Trust has been able to take advantage of these conditions for another fiscal
year. The Trust's mandate allows us the flexibility to sort and rearrange assets
with changes as they occur in the markets. The following gives a general
overview of these specific markets and how our strategies differ for each.
U.S. Government Sector
Earlier this year we abandoned our cautious view on U.S. Treasuries and went to
a strategy of trading "the range," which is to say we would sell U.S. government
bonds near yields of 6.25% and buy them back when they approached yields of
6.75%. This reflected our view that no major change in interest-rate levels was
under way. On October 31, 1997, the Trust's weighting in U.S. Treasuries,
mortgages, and government agencies was 19.3% of assets.
Corporate Bond Sector
Once again, this market has confounded skeptics and posted impressive returns.
Spurred by growing mutual fund interest and favorable takeovers in the
telecommunications industry, returns again were in double digits. Research
remains the key to success in this sector. Our current weighting is at
approximately 41.5%.
International Bond Sector
A year ago, we began shifting assets away from this sector and are now close to
a 13.4% weighting. Of the world's major bond markets, this sector has been the
worst-performing market thus far in 1997.
Crossover Bonds
These bonds, falling neither in the categories of high yield nor investment
grade, have been the source of considerable capital gains for the Trust this
year. Almost exclusively comprised of utility bonds, one after another has been
upgraded by rating agencies and has improved in price. We are now 11% invested
in crossover credits.
Emerging Market Sector
The star performer again this year, large returns have been seen in Brazil,
Argentina, Mexico, and Eastern Europe. We are limited to a 19.5%
1
<PAGE>
exposure in this area but have been using the maximum allowable to take
advantage of what we regard as cheap bond valuations. Several upgrades by rating
agencies have occurred in this sector in 1997. These holdings are all in U.S.
dollars.
We remain committed to achieving relatively low volatility of both returns and
NAVs for the Trust by employing many fixed-income asset classes and changing the
mix of assets in a disciplined manner. We focus primarily on seeking relative
value in a risk-adjusted framework, while continuing to rely on deep analysis
and research in selecting securities.
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 14, 1997
- -------------------------------------------------------------------------------
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, 1997)
Net Asset Value Per Share
October 31, 1996 $7.79
October 31, 1997 $7.71
New York Stock Exchange Price
October 31, 1996 $7.125
December 17, 1996 (low)* $6.500
July 22, 1997 (high)* $7.500
October 31, 1997 $7.125
*For the period November 1, 1996, through October 31, 1997.
Federal Income Tax Information on
Distributions
(for the year ended October 31, 1997)
The Trust has made no long-term capital gain distributions for tax purposes
during the year end October 31, 1997.
Distributions eligible for the 70% dividends-received deduction for
corporations came to 0.82%.
Tax Form Summary
In January 1998, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1997.
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, 1997, our records indicate that there are 17,107 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
2
<PAGE>
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(R) Multimarket Income Trust,
which was held on October 15, 1997, the following actions were taken:
Item 1. The election of William J. Poorvu, Arnold D. Scott, Jeffrey L. Shames,
and David B. Stone as Trustees of the Trust.
Number of Shares
Nominee For Withhold Authority
- ------------------- ------------ -------------------
William J. Poorvu 70,152,244 1,216,838
Arnold D. Scott 69,984,282 1,384,800
Jeffrey L. Shames 69,725,956 1,643,126
David B. Stone 70,162,364 1,206,718
Trustees continuing in office who were not subject to re-election at this
meeting are A. Keith Brodkin, Richard B. Bailey, Charles W. Schmidt, Elaine R.
Smith, Peter G. Harwood, J. Atwood Ives and Lawrence T. Perera.
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 ended October 31,
1997.
Number of Shares
-----------------
For 70,059,384
Against 402,399
Abstain 907,299
Investment Objective and Policy
The investment objective of MFS 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. 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
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, 1997
Bonds -- 93.0%
Principal Amount
Issuer (000 Omitted) Value
U.S. Bonds -- 60.8%
Advertising -- 0.2%
Outdoor Systems, Inc.,
8.875s, 2007 .................. $1,525 $1,574,562
----------
Aerospace -- 0.4%
Howmet Corp., 10s, 2003 ......... $2,775 $2,969,250
K & F Industries, Inc., 9.25s,
2007## ........................ 200 201,500
----------
$3,170,750
----------
Automotive -- 1.3%
Exide Corp., 10s, 2005 ......... $2,750 $2,887,500
Hayes Wheels International,
Inc., 9.125s, 2007## ......... 2,000 2,060,000
Lear Corp., 9.5s, 2006 ......... 1,725 1,880,250
Titan Wheel International, Inc.,
8.75s, 2007 .................. 2,650 2,742,750
----------
$9,570,500
----------
Banks and Credit
Companies -- 0.2%
Johns Manville International
Group, Inc., 10.875s, 2004 . $1,000 $1,120,000
----------
Broadcasting -- 0.3%
American Radio Systems
Corp., 9s, 2006 ............... $1,700 $1,806,250
----------
Building -- 1.0%
Nortek, Inc., 9.875s, 2004 ...... $2,600 $2,665,000
Nortek, Inc., "B", 9.25s, 2007 775 798,250
UDC Homes, Inc., Trust 14.5s,
2000+ ........................ 29 16,115
USG Corp., 9.25s, 2001 ......... 3,150 3,346,875
----------
$6,826,240
----------
Business Services -- 0.2%
Iron Mountain, Inc., 8.75s,
2009## ........................ $1,600 $1,616,000
Iron Mountain, Inc., 10.125s,
2006 ........................... 150 162,750
----------
$1,778,750
----------
Chemicals -- 0.7%
Harris Chemical North
America, Inc., 10.25s, 2001 $ 775 $ 798,250
NL Industries, Inc., 11.75s,
2003 ........................... 2,105 2,315,500
UCC Investors Holdings, Inc.,
0s to 1998, 12s, 2005 ......... 600 570,000
UCC Investors Holdings, Inc.,
10.5s, 2002 .................. 1,025 1,122,375
----------
$4,806,125
----------
Principal Amount
Issuer (000 Omitted) Value
U.S. Bonds -- continued
Consumer Goods and
Services -- 1.1%
Kindercare Learning Centers,
Inc., "B", 9.5s, 2009 ......... $ 350 $ 343,000
Reeves Industries, Inc., 11s,
2002#* ........................ 700 521,500
Sealy Corp., 10.25s, 2003 ...... 2,250 2,396,250
Westpoint Stevens, Inc.,
9.375s, 2005 .................. 4,525 4,728,625
----------
$7,989,375
----------
Containers -- 1.1%
Building Materials Corp., 8s,
2007## ........................ $1,100 $1,083,500
Gaylord Container Corp.,
12.75s, 2005 .................. 170 184,875
Gaylord Container Corp., "B",
9.75s, 2007 .................. 2,400 2,418,000
Silgan Holdings Inc., 9s, 2009 1,500 1,522,500
Stone Container Corp.,
9.875s, 2001 .................. 750 761,250
Synthetic Industries, Inc., "B",
9.25s, 2007 .................. 1,750 1,811,250
----------
$7,781,375
----------
Defense Electronics -- 0.4%
Alliant Techsystem, Inc.,
11.75s, 2003 .................. $1,100 $1,199,000
United Defense Industries,
Inc., 8.75s, 2007## ............ 1,550 1,550,000
----------
$2,749,000
----------
Electrical Equipment
Keystone Consolidated
Industries, Inc., 9.625s,
2007## ........................ $ 400 $ 414,000
----------
Electronics
E & S Holdings Corp.,
10.375s, 2006 .................. $ 375 $ 318,750
----------
Entertainment -- 1.2%
AMC Entertainment, Inc., 9.5s,
2009 ........................... $2,400 $2,460,000
Cinemark USA, Inc., 9.625s,
2008 ........................... 750 765,000
Turner Broadcasting Systems,
Inc., 8.375s, 2013 ............ 5,000 5,454,100
----------
$8,679,100
----------
Financial Institutions -- 2.9%
Americo Life, Inc., 9.25s,
2005 ........................... $2,650 $2,706,312
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Principal Amount
Issuer (000 Omitted) Value
U.S. Bonds -- continued
Financial Institutions -- continued
APP Global Finance V Ltd.,
2s, 2000## ..................... $1,000 $ 940,000
Jefferies Group, Inc., 7.5s,
2007## ........................... 2,500 2,543,750
Leucadia Capital Trust,
8.65s, 2027 ..................... 1,500 1,604,775
Leucadia National Corp.,
7.75s, 2013 ..................... 9,585 9,942,904
Leucadia National Corp.,
8.25s, 2005 ..................... 2,000 2,148,140
Merrill Lynch Mortgage
Investors, Inc., 8.103s,
2023+ ........................... 1,200 1,125,938
-----------
$21,011,819
-----------
Food and Beverage
Products -- 1.1%
Borden, Inc., 8.375s, 2016 ......... $3,750 $ 3,833,437
Borden, Inc., 9.25s, 2019 ......... 750 781,298
Coca-Cola Bottling Group,
Inc., 9s, 2003 .................. 1,000 1,020,000
Specialty Foods Corp.,
10.25s, 2001 ..................... 1,350 1,343,250
Texas Bottling Group, Inc.,
9s, 2003 ........................ 1,000 1,015,000
-----------
$ 7,992,985
-----------
Forest and Paper
Products -- 0.2%
Calmar, Inc., 11.5s, 2005 ......... $1,000 $ 1,090,000
-----------
Information, Paging, and
Technology -- 1.1%
NEXTEL Communications,
Inc., 0s to 1999, 9.75,
2004 ........................... $1,500 $ 1,260,000
NEXTEL Communications,
Inc., 0s to 2002, 9.75s,
2007## ........................... 300 171,000
Paging Network, Inc., 8.875s,
2006 ........................... 4,100 3,936,000
Sprint Spectrum LP, 0s to
2001, 12.5s, 2006 ............... 3,000 2,280,000
Sprint Spectrum LP, 11s,
2006 ........................... 300 333,000
-----------
$ 7,980,000
-----------
Insurance -- 0.3%
Residential Reinsurance Ltd.
"A", 8.363s, 2008+ ............... $2,000 $ 2,026,250
-----------
Principal Amount
Issuer (000 Omitted) Value
U.S. Bonds -- continued
Machinery -- 0.4%
AGCO Corp., 8.5s, 2006 ............ $2,750 $ 2,846,250
-----------
Medical and Health
Products -- 0.2%
Polymer Group, Inc., "B",
9s, 2007 ........................ $1,645 $ 1,628,550
-----------
Medical and Health Technology
and Services -- 0.4%
Beverly Enterprises, Inc.,
9s, 2006 ........................ $1,100 $ 1,144,000
Quorum Health Group, 8.75s,
2005 ........................... 200 208,000
Tenet Healthcare Corp.,
8.625s, 2007 ..................... 450 461,250
Tenet Healthcare Corp.,
10.125s, 2005 .................. 1,050 1,144,500
-----------
$ 2,957,750
-----------
Metals and Minerals -- 0.9%
Commonwealth Aluminum
Corp., 10.75s, 2006 ............ $1,000 $ 1,075,000
Haynes International, Inc.,
11.625s, 2004 .................. 2,200 2,530,000
Kaiser Aluminum & Chemical
Corp., 9.875s, 2002 ............ 2,640 2,719,200
-----------
$ 6,324,200
-----------
Oil Services -- 2.0%
AmeriGas Partners, LP,
10.125s, 2007 .................. $ 600 $ 642,000
Clark Oil Refining Corp.,
10.5s, 2001 ..................... 2,000 2,070,000
Clark USA, Inc., 10.875s, 2005 . 995 1,079,575
Enserch Exploration, Inc.,
7.54s, 2009## .................. 3,500 3,532,900
Falcon Drilling, Inc., 8.875s,
2003 ........................... 1,750 1,850,625
Falcon Holdings Group, Inc.,
11s, 2003 ........................ 2,675 2,808,294
Ferrell Gas LP, 10s, 2001 ......... 1,600 1,704,000
Noble Drilling Corp., 9.125s,
2006 ........................... 800 888,336
-----------
$14,575,730
-----------
Printing and Publishing -- 0.2%
Day International Group, Inc.,
11.125s, 2005 .................. $1,000 $ 1,065,000
Golden Books Publishing, Inc.,
7.65s, 2002 ..................... 575 546,250
-----------
$ 1,611,250
-----------
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Portfolio of Investments -- continued
Principal Amount
Issuer (000 Omitted) Value
U.S. Bonds -- continued
Real Estate -- 1.0%
Dynex Capital, Inc., 7.875s,
2002 ........................... $3,000 $ 3,044,070
George Town Real Estate Ltd.,
5.9s, 2007+ .................. 4,000 4,066,000
-----------
$ 7,110,070
-----------
Restaurants and Lodging -- 0.2%
Red Roof Inns, Inc., 9.625s,
2003 ........................... $1,750 $ 1,811,250
-----------
Retail -- 1.2%
Cole National Group, Inc.,
8.625s, 2007## ............... $1,300 $ 1,274,000
Finlay Fine Jewelry Corp.,
10.625s, 2003 .................. 2,760 2,904,900
Parisian, Inc., 9.875s, 2003 ... 400 423,000
Revlon Consumer Products
Corp., 10.5s, 2003 ............ 3,550 3,763,000
Shoppers Food Warehouse
Corp., 9.75s, 2004## ......... 785 785,000
-----------
$ 9,149,900
-----------
Special Products and
Services -- 1.8%
AAF-McQuay, Inc., 8.875s,
2003 ........................... $2,075 $ 2,069,812
Blount, Inc., 9s, 2003 ......... 1,250 1,300,000
Fairfield Manufacturing Corp.,
11.375s, 2001 .................. 1,780 1,891,250
Idex Corp., 9.75s, 2002 ......... 860 890,100
IMO Industries, Inc., 11.75s,
2006 ........................... 1,650 1,815,000
Interlake Revolver Corp., 12s,
2001 ........................... 750 825,000
Interlake Revolver Corp.,
12.125s, 2002 .................. 1,400 1,463,000
Interlake Revolver Corp., "B",
8.438s, 1999## ............... 189 188,308
Thermadyne Industries
Holdings Corp., 10.75s,
2003 ........................... 2,250 2,385,000
-----------
$12,827,470
-----------
Steel -- 0.8%
Alaska Steel Holdings Corp.,
10.75s, 2004 .................. $2,078 $ 2,223,460
Alaska Steel Holdings Corp.,
9.125s, 2006 .................. 1,500 1,560,000
WCI Steel, Inc., 10s, 2004 ...... 2,000 2,080,000
-----------
$ 5,863,460
-----------
Principal Amount
Issuer (000 Omitted) Value
U.S. Bonds -- continued
Stores -- 0.3%
Pathmark Stores, Inc., 9.625s,
2003 ........................... $2,400 $ 2,232,000
-----------
Supermarkets -- 0.3%
Carr-Gottstein Foods Co., 12s,
2005 ........................... $1,000 $ 1,105,000
Ralph's Grocery Co., 10.45s,
2004 ........................... 1,000 1,102,500
-----------
$ 2,207,500
-----------
Telecommunications -- 9.0%
Adelphia Communications
Corp. "B", 9.875s, 2007 ...... $ 575 $ 577,875
Allbritton Communications Co.
"B", 9.75s, 2007 ............... 1,005 1,012,538
Brooks Fiber Properties, Inc.,
0s to 2001, 10.875s,
2006 ........................... 2,390 1,947,850
Brooks Fiber Properties, Inc.,
10s, 2007 ..................... 200 227,000
Cablevision Industries Corp.,
9.25s, 2008 .................. 1,150 1,257,548
Chancellor Media Corp.,
8.75s, 2007## .................. 1,000 1,005,000
Charter Communication LP,
11.25s, 2006 .................. 1,000 1,080,000
Comcast Corp., 9.375s, 2005 . 3,040 3,192,000
Continental Cablevision, Inc.,
9.5s, 2013 ..................... 5,000 5,735,850
Echostar Communications
Corp., 0s to 1999,
12.875s, 2004 .................. 1,450 1,290,500
Echostar Satellite
Broadcasting Corp., 0s to
2000, 13.125s, 2004 ............ 750 603,750
Fox/Liberty Networks LLC,
Inc., 8.875s, 2007## ......... 1,450 1,450,000
Globalstar Telecommunications
LP, 11.375s, 2004 ............ 1,500 1,488,750
Granite Broadcasting Corp.,
10.375s, 2005 .................. 2,220 2,242,200
ICG Holdings, Inc., 0s to
2001, 12.5s, 2006 ............ 3,500 2,572,500
Intermedia Capital Partners IV,
LP, 11.25s, 2006 ............... 1,300 1,423,500
ITC Deltacom, Inc., 11s,
2007 ........................... 300 322,500
Jones Intercable, Inc.,
8.875s, 2007 .................. 1,500 1,530,000
6
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Principal Amount
Issuer (000 Omitted) Value
U.S. Bonds -- continued
Telecommunications -- continued
Lenfest Communications, Inc.,
10.5s, 2006 .................. $ 500 $ 542,500
Marcus Cable Operating Co.,
0s to 1999, 13.5s, 2004 ...... 4,250 3,846,250
Millicom International Cellular
Communications Corp., 0s
to 2001, 13.5s, 2006 ......... 700 525,000
Mobile Telecommunication
Technologies Corp., 13.5s,
2002 ........................ 1,000 1,132,500
Orion Network Systems, Inc.,
11.25s, 2007 .................. 1,625 1,852,500
Orion Network Systems, Inc.,
12.5s, 2007 .................. 700 511,000
PanAmSat LP/Capital Corp.,
12.75s, 2005[dbldag] ......... 3,827 4,439,320
PanAmSat LP/Capital Corp.,
0s to 1998, 11.375s,
2003 ........................ 8,000 7,980,960
Qwest Communications
International, Inc. "B",
10.875s, 2007 ............... 750 847,500
T/SF Communications Corp.,
10.375s, 2007## ............... 800 784,000
TCI Communications
Financing III, 9.65s, 2027 ... 5,000 5,744,350
Teleport Communications
Group, Inc., 0s to 2001,
11.125s, 2007 ............... 2,875 2,249,687
Turner Broadcasting Systems,
Inc., 8.4s, 2024 ............ 3,000 3,157,590
Western Wireless Corp., "A",
10.5s, 2007 .................. 1,500 1,608,750
WorldCom, Inc., 8.875s,
2006 ........................ 900 981,639
-----------
$65,162,907
-----------
Transportation -- 0.3%
CHC Helicopter Corp.,
11.5s, 2002 .................. $ 1,425 $ 1,519,406
Moran Transportation Co.,
11.75s, 2004 .................. 600 674,250
-----------
$ 2,193,656
-----------
U.S. Federal Agencies -- 12.4%
Financing Corp., 9.4s,
2018 ........................ $12,000 $15,988,080
Federal Home Loan Mortgage
Corp., 7.5s, 2027 ............ 11,741 12,001,132
Principal Amount
Issuer (000 Omitted) Value
U.S. Bonds -- continued
U.S. Federal Agencies -- continued
Federal National Mortgage
Assn., 7s, 2026 ............... $ 6,327 $ 6,346,879
GNMA, 7s, 2022 -- 2024 ......... 18,137 18,278,124
GNMA, 7.5s, 2002 -- 2027 ...... 12,901 13,219,599
GNMA, 8s, 2026 -- 2026 ......... 9,178 9,525,124
GNMA, 8.5s, 2026 ............... 13,541 14,196,297
-----------
Total U.S. Federal Agencies ........................ $89,555,235
-----------
U.S. Government
Guaranteed -- 6.9%
U.S. Treasury Bonds, 6.375s,
2027 ........................ $19,550 $20,148,621
U.S. Treasury Bonds, 11.25s,
2015 ........................ 6,820 10,517,736
U.S. Treasury Bonds, 12s,
2005 ........................ 14,000 19,129,740
-----------
Total U.S. Government Guaranteed .................. $49,796,097
-----------
Utilities -- Electric -- 8.5%
Beaver Valley Funding Corp.,
9s, 2017 ..................... $ 4,624 $ 5,124,825
BVPS II Funding Corp., 8.68s,
2017 ........................ 1,000 1,086,910
Cleveland Electric Illuminating
Co., 9s, 2023 ............... 2,000 2,201,240
El Paso Electric Co., 8.9s,
2006 ........................ 3,425 3,731,092
El Paso Electric Co., 9.4s,
2011 ........................ 3,000 3,379,500
First PV Funding Corp.,
10.15s, 2016 .................. 2,820 3,030,485
First PV Funding Corp., 10.3s,
2014 ........................ 1,772 1,938,904
Midland Cogeneration Venture
Corp., 10.33s, 2002 ......... 5,651 6,201,869
Niagara Mohawk Power Corp.,
8.77s, 2018 .................. 9,085 9,708,504
Niagara Mohawk Power Corp.,
9.75s, 2005 .................. 4,000 4,550,200
North Atlantic Energy, 9.05s,
2002 ........................ 1,835 1,864,342
Northeast Utilities "B", 8.38s,
2005 ........................ 126 126,232
Texas & New Mexico Power
Co., 10.75s, 2003 ............ 6,790 7,401,100
Texas & New Mexico Power
Co., 12.5s, 1999 ............ 6,700 7,136,639
Waterford 3 Funding Corp.,
8.09s, 2017 .................. 3,500 3,675,315
-----------
$61,157,157
-----------
7
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Portfolio of Investments -- continued
Principal Amount
Issuer (000 Omitted) Value
U.S. Bonds -- continued
Utilities -- Gas -- 0.3%
Maxus Energy Corp., 9.875s,
2002 ........................ $2,000 $ 2,148,140
------------
Total U.S. Bonds ................................. $439,844,403
------------
Foreign Bonds -- 32.2%
Argentina -- 4.1%
Republic of Argentina, 6.75s,
2005 ........................ $5,280 $ 4,501,200
Republic of Argentina, 9.75s,
2027 ........................ 16,105 12,610,215
Republic of Argentina, 11.75s,
2007## ........................ 1,500 1,222,500
Telecom Argentina, 12s, 2002
(Telecommunications) ......... 5,000 5,662,500
Autopistas Del Sol SA "B",
10.25s, 2009## ............... 3,000 2,700,000
Hidroelectrica Alicura, 8.375s,
1999 (Electric Utilities)## ... 2,400 2,376,000
Industrias Metalurgicas
Pescarm, 9.5s, 2002
(Electric Utilities)## ...... 750 699,375
------------
$ 29,771,790
------------
Australia -- 2.2%
Commonwealth of Australia,
7.5s, 2005 ................. AUD 14,430 $ 11,101,991
Commonwealth of Australia,
9.5s, 2003 .................. 5,410 4,482,607
------------
$ 15,584,598
------------
Brazil -- 3.0%
Banco BMG SA, 9.625s, 2005
(Commercial Bank)## ......... $2,000 $ 1,860,000
CSN Iron SA, 9.125s,
2007## ........................ 1,050 895,912
Espirito Santo Centrais
Escelsa, 10s, 2007 (Electric
Utilities)## .................. 1,500 1,326,390
Federal Republic of Brazil,
10.125s, 2027 ............... 6,602 5,058,783
Companhia Energetica de
Minas, 9.125s, 2004
(Electric Utilities)## ...... 3,500 3,185,000
Federal Republic of Brazil,
6.688s, 2006 .................. 39 30,723
Federal Republic of Brazil,
6.813s, 2001 .................. 1,570 1,426,737
Federal Republic of Brazil,
6.875s, 2009 .................. 7,000 5,171,250
Principal Amount
Issuer (000 Omitted) Value
Foreign Bonds -- continued
Brazil -- continued
Leasing Bank Boston/Brazil,
8.375s, 2004 (Finance)## ...... $ 750 $ 750,000
Voto Votorantim Overseas
Trading, 8.5s, 2005
(Finance)## .................. 1,750 1,592,500
------------
$ 21,297,295
------------
Canada -- 1.4%
Gulf Canada Resources Ltd.,
9.25s, 2004 (Oil Services) ... $2,400 $ 2,539,200
Repap New Brunswick, Inc.,
10.625s, 2005 (Forest
Products) ..................... 1,800 1,773,000
Rogers Cantel, Inc.,
9.375s, 2008
(Telecommunications) ......... 3,150 3,331,125
Rogers Cablesystems, Inc.,
9.625s, 2002
(Telecommunications) ......... 800 836,000
Rogers Cablesystems, Inc.,
10.125s, 2007##
(Telecommunications) ......... 1,500 1,575,000
------------
$ 10,054,325
------------
Colombia -- 0.1%
Republic of Colombia, 8.66s,
2016## ........................ $1,000 $ 1,023,750
------------
Ecuador -- 1.4%
Republic of Ecuador, 3.25s,
2015 ........................ $3,281 $ 1,919,198
Republic of Ecuador, 11.25s,
2002 ........................ 3,000 2,925,000
Republic of Ecuador, 3.5s,
2025 ........................ 7,000 3,482,500
Republic of Ecuador, 10.813s,
2004## ........................ 2,000 2,020,000
------------
$ 10,346,698
------------
Greece -- 0.4%
Fage Dairy Industries SA, 9s,
2007 (Food and Beverage
Products) ..................... $3,000 $ 2,902,500
------------
Hong Kong -- 0.5%
Guangzhou Shen
Superhighway Holdings,
10.25s, 2007## ............... $4,000 $ 3,760,000
------------
India -- 0.3%
Power Finance Corp. Ltd.,
7.5s, 2009 (Utilities)## ...... $2,000 $ 1,823,125
------------
8
<PAGE>
Principal Amount
Issuer (000 Omitted) Value
Foreign Bonds -- continued
Indonesia -- 1.5%
PT Polysindo Eka Perkasa,
13s, 2001 (Textiles) ............ $ 3,881 $ 4,113,860
Indah Kiat Finance Mautitius
Ltd., 10s, 2007 (Textiles)## ... 1,750 1,590,313
Tjiwi Kimia Finance Mauritius,
10s, 2004 (Finance)## ............ 5,500 4,977,500
------------
$ 10,681,673
------------
Italy -- 2.2%
Republic of Italy, 9.5s, 2006 ..... ITL 7,025,000 $ 5,041,207
Republic of Italy, 9.5s, 1999 ...... 10,965,000 6,758,750
Republic of Italy, 8.5s, 2004 ...... 5,895,000 3,923,966
------------
$ 15,723,923
------------
Mexico -- 4.9%
Banco Nacional de Commerce,
8s, 2000 (Bank) .................. $ 2,500 $ 2,340,000
Empresas ICA Sociedad SA,
11.875s, 2001 (Construction) 5,000 5,372,000
Grupo Industrial Durango SA,
12.625s, 2003 (Forest
Products) ........................ 3,850 4,095,438
TFM SA De CV, 0s to 2002,
11.75s, 2009 (Rail Road)## ...... 2,500 1,578,125
United Mexican States, 6.25s,
2019 ........................... 5,500 4,214,375
United Mexican States,
6.813s, 2019 ..................... 917 820,715
United Mexican States, 6.82s,
2019 ........................... 333 298,035
United Mexican States,
6.836s, 2019 ..................... 1,334 1,193,930
United Mexican States, 11.5s,
2026 ........................... 11,000 11,440,000
United Mexican States "A",
6.25s, 2019 ..................... 5,250 4,022,812
------------
$ 35,375,430
------------
Netherlands -- 0.1%
Polysindo International Finance
Co., 11.375s, 2006 (Finance) $ 750 $ 770,625
------------
New Zealand -- 2.2%
Government of New Zealand,
8s, 2001 ........................ NZD 23,920 $ 15,732,551
------------
Panama -- 1.0%
Republic of Panama, 3.75s,
2014 ........................... $ 2,000 $ 1,400,000
Republic of Panama, 4s, 2016 3,595 2,642,292
Republic of Panama, 7.875s,
2002 ........................... 3,500 3,510,500
------------
$ 7,552,792
------------
Principal Amount
Issuer (000 Omitted) Value
Foreign Bonds -- continued
Philippines -- 0.3%
National Power, 7.625s, 2000
(Utilities) ..................... $ 2,000 $ 2,026,000
------------
Russia -- 1.3%
Russia Interest Note, floating
rate 2049[sec]+ .................. $ 3,500 $ 2,340,625
Russia Interest Notes, floating
rate, 2049[sec]+ ............... 6,000 4,012,500
Russia Principal Loan, 6.625s,
2049[sec] ........................ 2,000 1,201,250
St. Petersburg Russia, 9.5s,
2002## ........................... 1,750 1,745,625
------------
$ 9,300,000
------------
South Korea -- 0.7%
City of Taegu, 7.375s, 2007 ...... $ 4,500 $ 4,218,300
Korea Development Bank,
7.25s, 2006 (Banking) ............ 1,000 903,600
------------
$ 5,121,900
------------
Sweden -- 1.0%
Kingdom of Sweden, 6s, 2005 SEK 13,600 $ 1,790,500
Kingdom of Sweden, 10.25s,
2000 ........................... 29,200 4,312,871
Kingdom of Sweden, 13s, 2001 8,800 1,445,440
------------
$ 7,548,811
------------
United Kingdom -- 3.6%
Colt Telecom Group PLC, 0s
to 2001, 12s, 2006
(Telecommunications) ............ $ 500 $ 380,000
Central Transportation Rental
Finance Corp., 9.5s, 2003
(Construction Services) ......... 1,431 1,525,805
Bell Cablemedia PLC, 0s to
2000, 11.875s, 2005
(Telecommunications) ............ 4,625 4,000,625
Diamond Cable Communications
Corp. PLC, 0s to 2001, 11.75,
2005 (Telecommunications) ...... 4,000 2,750,000
GPA PLC, 10.875s, 2019
(Airlines) ..................... 250 298,878
Newsquest Capital PLC, 11s,
2006 (Telecommunications) ...... 450 499,500
United Kingdom Treasury, 8s,
2003 ........................... GBP 9,530 16,974,607
------------
$ 26,429,415
------------
Total Foreign Bonds ......................................$232,827,201.
------------
Total Bonds (Identified Cost, $657,450,106)
$672,671,604
------------
Contingent Promissory Note -- 1.4%
Cargill, Inc., interest rate linked
to commodity index, matures
in 2002 (Illiquid), (Identified
Cost $10,126,434)+ ............... 10,000 $ 10,129,753
------------
9
<PAGE>
Portfolio of Investments -- continued
Principal Amount
Issuer (000 Omitted) Value
Convertible Bond -- 0.2%
Mexico -- 0.2%
Empresas ICA Sociedad SA,
5s, 2004 (Identified Cost
$1,261,741) ............ $ 1,500 $ 1,125,000
-----------
Number of
Issuer Shares
Stocks -- 0.1%
Ithaca Industries, Inc.* (Apparel
and Textiles) .................. 80,000 $ 400,000
NEXTEL Communications, Inc.
"A"* (Telecommunications) ...... 2,323 60,979
RJR Nabisco Holdings Corp.
(Consumer Goods and Services) . 6,908 218,897
-----------
Total Stocks (Identified Cost, $1,040,201) $ 679,876
-----------
Preferred Stock -- 1.8%
Principal Amount
(000 Omitted)
Cablevision Systems Corp.
(Telecommunications) ............ $ 55,167 $ 6,068,370
Supermarkets General Holdings
Corp.* (Supermarkets) ............ 22,827 368,085
Time-Warner, Inc., "K"
(Entertainment)## ............... 2,666 3,039,240
Long Island Lighting Co.,
7.95s, 2000 (Electric Utilities) 125,000 3,304,688
K-III Communications Corp.,
"D"* (Publishing) ............... 1,360 138,720
K-III Communications Corp.,
"B" (Publishing) ............... 1,333 142,298
-----------
Total Preferred Stock
(Identified Cost, $10,659,182) .......... $13,061,401
-----------
Warrants
Number of
Shares
Globalstar Telecommunications
LP Expiration Date 2/15/04*
(Telecommunications) ............ 1,500 $ 150,000
Orion Network Systems, Inc.
Expiration Date 1/15/07*
(Telecommunications) ............ 1,625 16,250
Orion Network Systems, Inc.
Expiration Date 1/15/07*
(Telecommunications) ............ 700 14,000
-----------
Total Warrants (Identified Cost, $116,434) $ 180,250
-----------
Rights
United Mexican States
Expiration Date 6/30/03*
(Identified Cost, $0) ............ 4,475,000 $ 0
-----------
Principal Amount
Issuer (000 Omitted) Value
Short-Term Obligations -- 0.5%
CSFB Moscow Note, due
12/30/97+
(Identified Cost $3,682,512) $3,750 $ 3,649,515
------------
Issuer
Repurchase Agreement -- 1.7%
Goldman Sachs Group, LP, dated 10/31/97, due 11/3/97, total to be received,
$12,814,084 (secured by various U.S. government securities in a jointly traded
account), at
cost ..................... $12,808 $ 12,808,000
------------
Total Investments
(Identified Cost, $697,144,610 ) ......... $714,305,399
Call Options Principal Amount
Written -- (0.1)% of Contracts
Swiss Francs/Deutsche Marks/
March/0.847 (Premiums
Received, $154,313) ...... CHF 22,128 $ (775,742)
Other Assets,
Less Liabilities -- 1.4% .................... 10,119,761
------------
Net Assets -- 100.0% .......................... $723,649,418
------------
* Non-income producing security.
## SEC Rule 144A restriction.
+ Restricted security.
[dbldag] Payment in kind.
# In default.
[sec] When-issued.
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
ITL = Italian Lire
NZD = New Zealand Dollars
SEK = Swedish Kroner
See notes to financial statements
10
<PAGE>
Statement of Assets and Liabilities -- October 31, 1997
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $697,144,610) .............................. $714,305,399
Cash .............................................................................. 297,253
Net receivable for forward foreign currency exchange contracts to sell ............ 259,238
Net receivable for forward foreign currency exchange contracts to purchase ......... 773,718
Net receivable for forward foreign currency exchange contracts closed or subject to 2,360,309
master netting agreements
Receivable for interest rate swaps ................................................ 47,636
Receivable for investments sold ................................................... 17,392,662
Interest and dividends receivable ................................................ 14,627,992
Other assets ..................................................................... 6,430
------------
Total assets ..................................................................... $750,070,637
------------
Liabilities:
Distributions payable ............................................................ $ 440,827
Payable for investments purchased ................................................ 24,686,490
Written options outstanding, at value (premiums received, $154,313) ............... 775,742
Payable to affiliates -
Management fee .................................................................. 15,935
Shareholder servicing agent fee ................................................... 24,000
Administrative fee ............................................................... 305
Accrued expenses and other liabilities ............................................. 477,920
------------
Total liabilities ............................................................... $ 26,421,219
------------
Net assets ........................................................................ $723,649,418
============
Net assets consist of:
Paid-in capital .................................................................. $709,999,123
Unrealized appreciation on investments and translation of assets and liabilties in 20,002,449
foreign currencies
Accumulated net realized loss on investments and foreign currency transactions ... (3,821,053)
Accumulated distributions in excess of net investment income ..................... (2,531,101)
------------
Total ........................................................................... $723,649,418
============
Shares of beneficial interest outstanding .......................................... 92,880,352
============
Net asset value per share (net assets [divided by] shares of beneficial interest $ 7.79
outstanding) ============
</TABLE>
See notes to financial statements
11
<PAGE>
Statement of Operations -- Year Ended October 31, 1997
<TABLE>
<S> <C>
Net investment income:
Income --
Interest ............................................................... $ 63,295,037
Dividends ............................................................... 531,705
------------
Total investment income ............................................. $ 63,826,742
------------
Expenses --
Management fee ......................................................... $ 5,820,180
Trustees' compensation ................................................ 167,582
Transfer and dividend disbursing agent fee ........................... 297,478
Administrative fee ................................................... 73,518
Interest expense ...................................................... 1,277,581
Custodian fee ......................................................... 372,623
Auditing fees ......................................................... 60,319
Printing ............................................................... 27,987
Legal fees ............................................................ 6,999
Registration Fee ...................................................... 100
Miscellaneous ......................................................... 74,088
------------
Total expenses ...................................................... $ 8,178,455
Fees paid indirectly ................................................... (107,592)
------------
Net expenses ......................................................... $ 8,070,863
------------
Net investment income ................................................ $ 55,755,879
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions ............................................. $ (4,044,403)
Written option transactions .......................................... 141,833
Foreign currency transactions ....................................... 4,859,484
Futures contracts ................................................... (28,095)
Interest rate swaps ................................................... 850,811
------------
Net realized gain on investments and foreign currency transactions ... $ 1,779,630
------------
Change in unrealized appreciation (depreciation) --
Investments ......................................................... $ 1,930,500
Written options ...................................................... (621,429)
Translation of assets and liabilities in foreign currencies ......... 4,740,898
Interest rate swaps ................................................... (260,701)
------------
Net unrealized gain on investments and foreign currency translation $ 5,789,268
------------
Net realized and unrealized gain on investments and foreign currency $ 7,568,898
------------
Increase in net assets from operations ........................... $ 63,324,777
============
</TABLE>
See notes to financial statements
12
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Increase in net assets:
From operations --
Net investment income ............................................................ $ 55,755,879 $ 57,360,033
Net realized gain on investments and foreign currency transactions ............... 1,779,630 15,514,780
Net unrealized gain (loss) on investments and foreign currency transactions ...... 5,789,268 (4,578,980)
------------- -------------
Increase in net assets from operations .......................................... $ 63,324,777 $ 68,295,833
------------- -------------
Distributions declared to shareholders --
From net investment income ...................................................... $ (57,910,460) $ (59,181,273)
------------- -------------
Trust share (principal) transactions --
Net asset value of shares reacquired from shareholders ........................... $ (21,646,951) $ (50,147,707)
------------- -------------
Total decrease in net assets ................................................... $ (16,232,634) $ (41,033,147)
------------- -------------
Net assets:
At beginning of period ......................................................... 739,882,052 780,915,199
------------- -------------
At end of period (including accumulated undistributed investment income and
accumulated distributions in excess of net investment income of ($2,531,101)
and
$1,035,350, respectively) ...................................................... $ 723,649,418 $ 739,882,052
============= =============
</TABLE>
See notes to financial statements
13
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended October 31,
-----------------------
1997 1996
Per share data (for a share outstanding throughout each period): ----------- -----------
<S> <C> <C>
Net asset value --
beginning of period ...................................................... $ 7.71 $ 7.57
--------- ---------
Income from investment operations# --
Net investment income[sec] ................................................ $ 0.59 $ 0.57
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ................................................... 0.11 0.16
--------- ---------
Total from investment operations ....................................... $ 0.70 $ 0.73
--------- ---------
Less distributions declared to shareholders
From net investment income ................................................ $ (0.62) $ (0.59)
From net realized gain on investments and foreign currency transactions . -- --
In excess of net investment income and foreign currency transactions ...... -- --
From paid in capital ...................................................... -- --
--------- ---------
Total distributions declared to shareholders ........................... $ (0.62) $ (0.59)
--------- ---------
Net asset value -- end of period .......................................... $ 7.79 $ 7.71
========= =========
Per share market value -- end of period ................................. $ 7.125 $ 7.125
Total return ............................................................ 8.93% 19.32%
Ratios (to average net assets)/Supplemental data [sec]
Interest Expense ......................................................... 0.18% --
Other Expenses ## ...................................................... 0.93% 1.11%
Net investment income ................................................... 7.64% 7.49%
Portfolio turnover ...................................................... 172% 214%
Net assets at end of period
(000 omitted) ............................................................$723,649 $739,882
Leverage analysis: ......................................................
Debt outstanding at end of period (000 omitted) ........................ $ -- $ --
Average daily balance of debt outstanding (000 omitted) .................. $18,854 $ --
Average daily number of shares outstanding (000 omitted) ............... 93,951 100,810
Average debt per share ................................................... $ 0.20 $ 0
#Per share data for the periods subsequent to October 31, 1993, are 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.
[sec]The investment adviser voluntarily waived a portion of their management fee, for certain of the periods indicated. If the
fee 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>
1995 1994 1993
Per share data (for a share outstanding throughout each period): ------------ ------------ -----------
<S> <C> <C> <C>
Net asset value --
beginning of period ...................................................... $ 7.06 $ 7.90 $ 7.69
-------- ------- ---------
Income from investment operations# --
Net investment income[sec] ................................................ $ 0.59 $ 0.55 $ 0.63
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ................................................... 0.49 ( 0.82) 0.31
-------- -------- ---------
Total from investment operations ....................................... $ 1.08 $ (0.27) $ 0.94
-------- -------- ---------
Less distributions declared to shareholders
From net investment income ................................................ $ (0.53) $ (0.21) $ (0.51)
From net realized gain on investments and foreign currency transactions . -- (0.01) (0.17)
In excess of net investment income and foreign currency transactions ...... -- -- (0.05)
From paid in capital ...................................................... (0.04) (0.35) --
--------- -------- ---------
Total distributions declared to shareholders ........................... $ (0.57) $ (0.57) $ (0.73)
--------- -------- ---------
Net asset value -- end of period .......................................... $ 7.57 $ 7.06 $ 7.90
========= ======== =========
Per share market value -- end of period ................................. $ 6.500 $ 6.125 $ 7.375
Total return ............................................................ 15.69% (9.57)% 6.49%
Ratios (to average net assets)/Supplemental data [sec]
Interest Expense ......................................................... 0.09% 0.08% 0.08%
Other Expenses ## ...................................................... 1.10% 1.06% 1.03%
Net investment income ................................................... 8.13% 7.51% 8.14%
Portfolio turnover ...................................................... 189% 133% 415%
Net assets at end of period
(000 omitted) ............................................................ $780,915 $829,356 $947,314
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
Average daily number of shares outstanding (000 omitted) ............... 108,970 117,774 123,067
Average debt per share ................................................... $ 0.10 $ 0.08 $ 0.12
#Per share data for the periods subsequent to October 31, 1993, are 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.
[sec]The investment adviser voluntarily waived a portion of their management fee, for certain of the periods indicated. If the
fee 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% 1.06%
Net investment income ................................................... 8.11% 7.50% 8.11%
</TABLE>
See notes to financial statements
14
<PAGE>
Financial Highlights -- continued
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------
1992 1991
Per share data (for a share outstanding throughout each period): ------------ ------------
<S> <C> <C>
Net asset value --
beginning of period ...................................................... $ 7.93 $ 7.54
-------- --------
Income from investment operations# --
Net investment income[sec] ................................................ $ 0.68 $ 0.72
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ................................................... -- 0.90
-------- --------
Total from investment operations ....................................... $ 0.68 $ 1.62
-------- --------
Less distributions declared to shareholders
From net investment income ................................................ $ (0.65) $ (0.70)
From net realized gain on investments and foreign currency transactions . -- --
In excess of net investment income and foreign currency transactions ...... -- --
From paid in capital ...................................................... (0.27) (0.53)
--------- ---------
Total distributions declared to shareholders ........................... $ (0.92) $ (1.23)
--------- ---------
Net asset value -- end of period .......................................... $ 7.69 $ 7.93
========= =========
Per share market value -- end of period ................................. $ 7.625 $ 7.750
Total return ............................................................ 10.25% 36.98%
Ratios (to average net assets)/Supplemental data [sec]
Interest Expense ......................................................... 0.24% 0.23%
Other Expenses ## ...................................................... 1.11% 1.11%
Net investment income ................................................... 8.69% 9.22%
Portfolio turnover ...................................................... 425% 740%
Net assets at end of period
(000 omitted) ............................................................ $947,292 $968,813
Leverage analysis: ......................................................
Debt outstanding at end of period (000 omitted) ........................ $ -- $ --
Average daily balance of debt outstanding (000 omitted) .................. $ 39,230 $ 24,409
Average daily number of shares outstanding (000 omitted) ............... 122,612 121,698
Average debt per share ................................................... $ 0.32 $ 0.20
#Per share data for the periods subsequent to October 31, 1993, are 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.
[sec]The investment adviser voluntarily waived a portion of their management fee, for certain of the periods indicated. If the
fee 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## ............................................................... 1.14% 1.13%
Net investment income ................................................... 8.66% 9.20%
</TABLE>
<TABLE>
<CAPTION>
1990 1989 1988
Per share data (for a share outstanding throughout each period): ------------- ------------- ------------
<S> <C> <C> <C>
Net asset value --
beginning of period ...................................................... $ 8.66 $ 9.01 $ 8.81
------- ---------- ----------
Income from investment operations# --
Net investment income[sec] ................................................ $ 0.86 $ 0.94 $ 0.90
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ................................................... (0.75) (0.06) 0.53
-------- ---------- ----------
Total from investment operations ....................................... $ 0.11 $ 0.88 $ 1.43
-------- ---------- ----------
Less distributions declared to shareholders
From net investment income ................................................ $ (0.79) $ (1.11) $ (0.74)
From net realized gain on investments and foreign currency transactions . -- -- --
In excess of net investment income and foreign currency transactions ...... -- -- --
From paid in capital ...................................................... (0.44) (0.12) (0.49)
-------- ---------- ----------
Total distributions declared to shareholders ........................... $ (1.23) $ (1.23) $ (1.23)
-------- ---------- ----------
Net asset value -- end of period .......................................... $ 7.54 $ 8.66 $ 9.01
======== ========== ==========
Per share market value -- end of period ................................. $ 6.625 $ 9.00 $ 10.000
Total return ............................................................ (14.08)% 2.68% 24.57%
Ratios (to average net assets)/Supplemental data [sec]
Interest Expense ......................................................... 0.45% -- --
Other Expenses ## ...................................................... 1.19% 1.23% 1.12%
Net investment income ................................................... 10.61% 10.90% 9.96%
Portfolio turnover ...................................................... 365% 423% 159%
Net assets at end of period
(000 omitted) ............................................................ $917,522 $1,056,536 $1,086,400
Leverage analysis: ......................................................
Debt outstanding at end of period (000 omitted) ........................ $ -- $ -- $ --
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 $ -- $ --
#Per share data for the periods subsequent to October 31, 1993, are 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.
[sec]The investment adviser voluntarily waived a portion of their management fee, for certain of the periods indicated. If the
fee 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## ............................................................... 1.23% -- --
Net investment income ................................................... 10.57% -- --
</TABLE>
See notes to financial statements
15
<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. 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, forward contracts,
and interest rate swaps, 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 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 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
16
<PAGE>
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.
Written Options -- The Trust may also 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 Trust's management on the direction of interest rates.
Futures Contracts -- The Fund may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at a
fixed price on a future date. In entering such contracts, the Fund 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 Fund
each day, depending on the daily fluctuations in the value of the underlying
security, and are recorded for financial statement purposes as unrealized gains
or losses by the Fund. The Fund's investment in futures contracts is designed to
hedge against anticipated future changes in interest or exchange rates or
securities prices. Investments 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 Fund'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 Fund has cash on hand and wishes to participate in anticipated market
appreciation while the cash is being invested. Should intereset or exchange
rates or securities prices move unexpectedly, the Fund 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 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.
17
<PAGE>
Notes to Financial Statements -- continued
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
and original issue 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.
Some government securities may be purchased on a "when-issued" or "forward
delivery" basis, which means that the securities will be delivered to the Trust
at a future date, usually beyond customary settlement time.
The Trust invests in high-yield securities rated below investment grade.
Investments in high-yield securities involve greater degrees of credit and
market risk than investments in higher-rated securities, and tend to be more
sensitive to economic conditions.
The Trust uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds. 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 additions 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 expensed.
Fees Paid Indirectly -- The Trust's custody fee is calculated as a percentage of
the Trust's average daily net assets. The fee is reduced according to an
arrangement which 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 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.
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
18
<PAGE>
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, 1997, $1,384,164 was reclassified from
accumulated distributions in excess of net investment income to accumulated net
realized loss on investments and $27,706 was reclassified from accumulated
distributions in excess of net investment income to paid-in capital 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, 1997, the Trust, for federal income tax purposes, had a capital
loss carryforward of $3,074,429 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.
Administrator -- Effective March 1, 1997, the Trust has an administrative
services agreement with MFS to provide the Trust with certain financial and
other administrative services. As a partial reimbursements for the cost of
providing these services, the Trust pays MFS an administrative fee of up to
0.015% per annum of the Trust's average daily net assets, provided that the
administrative fee is not assessed on Trust assets that exceed $3 billion:
First $1 billion............... 0.0150%
Next $1 billion ............... 0.0125%
Next $1 billion ............... 0.0100%
In excess of $3 billion ...... 0.0000%
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 $46,082 for the year ended October 31, 1997.
Transfer Agent -- MFS Service Center, Inc. (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 ........................ $250,537,781 $296,714,256
============ ============
Investments (non-U.S. government securities) ...... $946,479,630 $894,710,259
============ ============
</TABLE>
19
<PAGE>
Notes to Financial Statements -- continued
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 .................................... $ 697,873,231
=============
Gross unrealized appreciation ..................... 27,597,312
Gross unrealized depreciation ..................... $ (11,165,144)
-------------
Net unrealized appreciation (depreciation) ...... $ 16,432,168
=============
(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, 1997 October 31, 1996
-----------------------------------------------------------------
Shares Amount Shares Amount
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Treasury shares acquired ...... (3,052,100) $ (21,646,951) (7,224,500) $ (50,147,707)
---------- ------------- ---------- -------------
Net decrease .................. (3,052,100) $ (21,646,951) (7,224,500) $ (50,147,707)
========== ============= ========== =============
</TABLE>
In accordance with the provisions of the Trust's prospectus, 3,052,100 shares of
beneficial interest were purchased by the Trust 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. The Trust repurchased 7,224,500 shares of beneficial
interest during the year ended October 31, 1996, at an average price per share
of $6.94 and a weighted average discount of 7.89% per share.
(6) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Net Realized and Net Increase (Decrease)
Unrealized Gain (Loss) on in Net Assets Resulting
Investment Income Net Investment Income Investments from Operations
----------------------------------------------------------------------------------------------------
Per Per Per Per
Fiscal 1997 Amount Share Amount Share Amount Share Amount Share
- ------------------ -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 31 ...... $17,395,070 $ 0.18 $14,444,386 $ 0.15 $ 2,936,077 $ 0.05 $ 17,380,463 $ 0.20
April 30 ......... 15,636,295 0.17 14,193,410 0.15 (10,390,678) (0.11) 3,802,732 0.04
July 31 ......... 15,537,900 0.17 13,618,593 0.15 30,655,864 0.31 44,274,457 0.46
October 31 ...... 15,257,477 0.16 13,499,490 .014 (15,632,365) (0.14) (2,132,875) --
----------- ------ ----------- ------- ------------- ------- ------------ -------
$63,826,742 $ 0.68 $55,755,879 $ 0.59 $ 7,568,898 $ 0.11 $ 63,324,777 $ 0.70
=========== ====== =========== ======= ============= ======= ============ =======
Fiscal 1996
- -------------------
January 31 ...... $16,495,557 $ 0.16 $14,350,401 $ 0.14 $ 19,679,715 $ 0.20 $ 34,030,116 $ 0.34
April 31 ......... 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
=========== ====== =========== ======= ============= ======= ============ =======
</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. During the period, the
maximum amount outstanding was $75 million. There were no outstanding borrowings
at October 31, 1997. 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.
20
<PAGE>
Interest expense incurred on the borrowings amounted to $1,183,534 for the year
ended October 31, 1997, and the weighted average interest rate on these
borrowings was 5.875%. Interest expense includes a commitment fee of $69,732
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, interest rate swap 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.
Written Option Transactions
<TABLE>
<CAPTION>
1997 Calls 1997 Puts
---------------------------------------------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period -- $ -- -- $ --
Options written .................................
Australian Dollars ........................... 8,659 44,701
Deutsche Marks/British Pounds .................. 12,235 25,739
Swiss Francs/Deutsche Marks .................. 31,489 211,527
United States Dollars ........................ 39,000 262,110
Options terminated in closing transactions ......
Australian Dollars ........................... (8,659) (44,701)
Duetsche Marks/British Pounds .................. (12,235) (25,739)
Swiss Francs/Deutsche Marks .................. (9,361) (57,214)
Options expired .................................
United States Dollars ........................ (39,000) (262,110)
------- ---------
Outstanding, end of period Swiss Francs/
Deutsche Marks ................................. 22,128 $ 154,313 -- $ --
======= ========= ======= =========
</TABLE>
At October 31, 1997, the Trust had sufficient cash and/or securities at least
equal to the value of the written options.
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 1/07/98 ......... CAD 3,456,601 $ 2,536,955 $ 2,461,314 $ 75,641
1/07/98 ......... DEM 23,608,685 13,902,182 13,728,049 174,133
1/07/98 ......... ESP 288,635,803 1,992,103 1,982,639 9,464
----------- ----------- ---------
$18,431,240 $18,172,002 $ 259,238
=========== =========== =========
Purchases 1/07/98 ......... CHF 20,328,514 14,470,753 14,608,578 137,825
1/07/98 ......... DKK 36,542,815 5,634,802 5,583,596 (51,206)
1/07/98 ......... ESP 1,972,521,248 13,185,302 13,549,248 363,946
1/07/98 ......... GBP 7,091,841 11,764,592 11,856,964 92,372
1/07/98 ......... ITL 18,279,998,326 10,554,418 10,785,199 230,781
----------- ----------- ---------
$55,609,867 $56,383,585 $ 773,718
=========== =========== =========
</TABLE>
21
<PAGE>
Notes to Financial Statements -- continued
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net receivable of $2,759,038 with Bankers Trust,
$70,644 with C.S. First Boston, $927,810 with Merrill Lynch and a net payable of
$811,756 with Deutsche Bank and $853,746 with Swiss Bank at October 31, 1997.
Closed forward foreign currency exchange contracts excluded above amount to a
net receivable of $268,319 with Goldman Sachs.
At October 31, 1997, the Trust had sufficient cash and/or securities to cover
any commitments under these contracts.
Cross Currency Swaps
<TABLE>
<CAPTION>
Notional Principal Cash Flows Cash Flows Unrealized
Expiration Amount of Contract Paid by the Trust Received by the Trust Appreciation
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9/18/00 ...... ITL 15,000,000,000 DEM Fixed ITL Fixed
DEM 15,390,930 4.565% 5.68% 47,636
==========
</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, 1997, the
Trust owned the following restricted securities (constituting 3.8% 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 supplied
by a pricing service of brokers, or if not available, 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>
Cargil, Inc., 2002 .................. 8/29/97 10,000,000 $10,126,434 $10,129,753
George Town Real Estate Ltd.,
5.9s, 2007 ........................ 12/20/96 4,000,000 4,000,000 4,066,000
Residential Reinsurance, Ltd.,
"A", 8.863s, 2008 .................. 6/6/97 2,000,000 2,000,000 2,026,250
Russia Interest Note floating
rate, 2049 ........................ 3/18/97 6,000,000 4,252,500 4,012,500
Russia Interest Note floating
rate, 2049 ........................ 8/28/97 3,500,000 2,784,687 2,340,625
CSFB Moscow Note, 12/30/97 ......... 4/25/97 3,750,000 3,553,256 3,649,515
Merrill Lynch Mortgage
Investors, Inc., 8.103, 2023 ...... 6/22/96 1,200,000 831,750 1,125,938
UDC Homes, Inc. Trust, 14.5s,
2000 .............................. 4/30/93 29,000 14,650 16,115
-----------
$27,366,696
===========
</TABLE>
22
<PAGE>
Independent Auditors' Report
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, 1997, 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 four 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 the periods prior to the year ended October
31, 1994 indicated herein, 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 and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1997, 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, 1997, 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 four years
in the period then ended, in conformity with generally accepted accounting
principles.
[signature of Ernst & Young LLP]
Boston, Massachusetts
December 12, 1997
23
<PAGE>
[back cover]
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(2)
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)
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 12/97 87M
