[front cover]
[logo MFS
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND[RegTM]]
MFS [RegTM] Multimarket
Income Trust
Semiannual Report o April 30, 1999
<PAGE>
Dear Shareholders,
It has been almost two years since financial turmoil began to rock Asian and
other financial markets, including markets in Russia and Latin America. Even
developed markets such as Europe and the United States were not immune.
Investors in U.S. bond markets, for example, became increasingly risk
conscious, shifting money into U.S. Treasury securities and away from corporate
and municipal bonds and mortgage-backed securities.
Today, the bond market environment in the United States has become much more
favorable. In fact, we think it is approaching the level of relative stability
it enjoyed before the Asian turmoil began.
This May, the Federal Reserve Board (the Fed) indicated a bias toward raising
short-term interest rates. Despite six months of strong economic growth and a
surprisingly high 0.7% increase in the Consumer Price Index in April, the Fed
did not actually raise rates. This is not the first time the Fed has used such
a strategy. Since 1995, the Fed has indicated a bias toward higher interest
rates more than 15 times but has raised rates only twice.
We believe the Fed's bias statement will be good for the bond markets for two
reasons. First, it reassures investors that the Fed will act if economic growth
results in higher inflation and reduced purchasing power. Second, the Fed's
signal, combined with several months of strong growth, has already resulted in
higher interest rates, which could slow the economy enough to dampen inflation
without a need for further Fed action. Although the Fed has not changed
short-term interest rates since October 1998, bond market investors have pushed
up the rate on the 30-year Treasury bond close to 6%, almost a full percentage
point higher than it was a year ago. The effect of this increase can be seen in
the mortgage market, in which interest rates have risen slightly since the
summer of 1998.
April's increase in the Consumer Price Index was higher than analysts had
forecast, but we do not believe it is cause for concern. Most of April's
increase seems to have resulted from a decision by oil-exporting countries to
limit production following more than a year of declining oil prices. If the
increase in oil prices is nothing more than a small reversal of the earlier
decline, April's inflation report may be an aberration rather than the
beginning of a trend toward higher prices. Also, thanks in part to global
competition and the growing use of technology to increase global production,
companies followed by our portfolio managers and analysts report very little
margin to raise prices. As a result, we expect 1999's inflation rate to be
around 2%, which is slightly higher than 1998's but still moderate.
One of the most positive results of the moderate growth and inflation
environment has been a rebound in the major non-Treasury bond markets:
corporate, municipal, and mortgage. Once people saw that the overseas turmoil
had little, if any, effect on the financial strength of most domestic bond
issuers, these markets began to rebound and to present our portfolio managers
with opportunities to find attractive yields.
We will, of course, closely follow domestic and overseas economic growth,
inflation, Fed policy, and government spending in an effort to monitor their
impact on the bond markets. On a more fundamental level, we will continue to
use extensive research and credit analysis to find attractive investment
opportunities. For example, we believe the strong U.S. economy and low
inflation have helped select corporate bond issuers maintain strong balance
sheets and meet their debt payments. And, despite their recent increases,
mortgage rates have not risen enough to slow the housing market significantly,
which has benefited issuers of mortgage-backed securities. We believe the
well-defined strategies and active portfolio management of our fixed-income
funds position them to benefit from opportunities in these and other bond
markets.
1
<PAGE>
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management[RegTM]
May 21, 1999
Management Review and Outlook
Dear Shareholders,
The Trust's stock market price, which stood at $6.44 on October 31, 1998,
decreased to $6.38 on April 30, 1999, while its net asset value (NAV) increased
from $7.17 to $7.40, representing a total return of 3.46% 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 7.82% for the same period.
The Trust's results compare to returns over the same period for the following
unmanaged indices: -4.17% for the J.P. Morgan Non-Dollar Government Bond Index
(the Morgan Index), -0.95% for the Lehman Brothers Government Bond Index, and
8.25% for the Lehman Brothers High Yield Bond Index. The Morgan Index is an
index of actively traded government bonds issued by 12 countries (excluding the
United States) with remaining maturities of at least one year. The Lehman
Brothers Government Bond Index is comprised of all publicly issued debt
obligations of the U.S. Treasury, U.S. government agencies, quasi-federal
corporations, and corporate debt guaranteed by the U.S. government. The Lehman
Brothers High Yield Bond Index is an index of noninvestment-grade corporate
debt.
The Trust's emerging market debt holdings performed well. When we began to see
signs of recovery toward the end of 1998, we selectively bought emerging market
bonds at attractive prices. Since then, bond prices have steadily risen as
countries such as South Korea and Thailand have taken steps toward economic
reform. Also, the Latin American recession was not as bad as people feared.
There had been concern that Brazil was going to default on its debt. That
didn't happen, primarily because the Brazilian government undertook important
economic reforms while keeping inflation in check. As a result, a "Latin
contagion" that could have spread from Brazil to the rest of Latin America
never materialized.
We increased the Trust's allocation to emerging markets, from 17% of assets to
23%. We also have 17% of assets in U.S. government securities (which include
U.S. Treasury, U.S. agency, and mortgage-backed securities), 10% in
international government-issued debt, 12% in U.S. high-grade corporate bonds,
32% in high-yield corporate bonds, and the rest in convertible equities,
preferred stocks, and cash.
The Trust's corporate bond holdings also helped performance. After last
summer's bond default by the Russian government, investor concern about risk
increased, leading to an aggressive sell-off of high-yield and high-grade
corporate bonds. One sector that was hurt was convertible bonds, which can be
exchanged into stock of the companies that issue them. Because of the sell-off,
prices of many convertible bonds fell to levels that were below the value of
their underlying stocks. Because we felt the perception of risk was greater
than the reality, we bought some of these convertible bonds at attractive
prices, including Colt Telecom Systems in the United Kingdom, Singapore
Telephone, and Silicon Graphics, a U.S. company that makes systems to produce
3-D computer images. All these companies have strong businesses, and their
bonds performed very well after we bought them. We have since sold Silicon
Graphics and Singapore Telephone because we believed their prices reflected the
companies' full value, and we now have few convertibles in the portfolio.
2
<PAGE>
We believe the current environment is still very favorable for bonds. The
European Central Bank recently lowered short-term interest rates by half a
percentage point. That move pressured the rest of the world to lower -- or at
least not raise -- rates. In the United States, high productivity and steady
economic growth suggest that inflation is well contained. However,
inflation-adjusted interest rates in the United States are high compared to
other countries, which means there is room for U.S. rates to come down. We
think bond prices in the corporate and emerging market sectors could still
advance because prices of these bonds fell excessively after last year's
crisis.
Finally, while renewed economic growth in Asia and emerging markets could lead
to faster U.S. growth and higher inflation, we do not see this as an immediate
concern. In the past, rapid growth and increased demand have pressured prices.
But we've had almost 10 years of growth in the United States without a
resurgence of inflation, partly due to more competition and better productivity
through technology. This pattern has been repeated around the world, and
companies now have very little room to raise prices. If we see any signs of
inflation, we will increase our holdings of short-maturity bonds in an effort
to make the portfolio's price less sensitive to rising interest rates.
Respectfully,
/s/ James T. Swanson
James T. Swanson
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on the
cover. The manager's views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
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 period ended April 30, 1999)
<TABLE>
<S> <C>
Net Asset Value Per Share
October 31, 1998 $7.17
April 30, 1999 $7.40
New York Stock Exchange Price
October 31, 1998 $6.4375
December 2, 1998 (high)* $7.0000
January 20, 1999 (low)* $6.2500
April 30, 1999 $6.3750
</TABLE>
*For the period November 1, 1998, through April 30, 1999.
- --------------------------------------------------------------------------------
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 April 30, 1999, our records indicate that there are 14,370 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.
Investment Objective and Policies
The investment objective of MFS[RegTM] Multimarket Income 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 or only the long-term capital gains
paid by the Trust. 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, 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, 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 (Unaudited) -- April 30, 1999
Bonds -- 94.8%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- 59.4%
Advertising -- 0.2%
Outdoor Systems, Inc.,
8.875s, 2007 ................... $1,525 $1,624,125
----------
Aerospace -- 0.4%
Argo Tech Corp., 8.625s,
2007 ........................... $ 300 $ 293,250
BE Aerospace, Inc., 8s, 2008 ..... 2,500 2,481,250
K & F Industries, Inc., 9.25s,
2007 ........................... 200 206,500
----------
$2,981,000
----------
Automotive -- 0.3%
Lear Corp., 9.5s, 2006 ........... $1,725 $1,888,875
----------
Banks and Credit
Companies -- 1.4%
Midland Cogeneration Venture
Corp., 10.33s, 2002 ............ $6,230 $6,601,418
Midland Funding Corp. I,
10.33s, 2002 ................... 2,549 2,701,152
----------
$9,302,570
----------
Broadcasting -- 0.3%
American Radio Systems
Corp., 9s, 2006 ................ $ 750 $ 810,000
Cumulus Media, Inc., 10.375s,
2008 ........................... 1,000 1,082,500
----------
$1,892,500
----------
Building -- 1.1%
American Standard, Inc.,
7.375s, 2008 ................... $1,050 $1,039,500
AAF- McQuay, Inc., 8.875s,
2003 ........................... 2,075 2,015,344
Building Materials Corporation
of America, "B", 8s, 2007 ...... 1,100 1,083,500
Nortek, Inc., 9.875s, 2004 ....... 3,250 3,388,125
Nortek, Inc., "B", 9.25s, 2007 125 130,937
UDC Homes, Inc., 14.5s,
2000 ........................... 29 16,115
----------
$7,673,521
----------
Business Services -- 1.1%
Iron Mountain, Inc., 8.75s,
2009## ......................... $1,600 $1,636,000
Iron Mountain, Inc., 10.125s,
2006 ........................... 150 162,375
Pierce Leahy Corp., 11.125s,
2006 ........................... 2,000 2,225,000
Unisystem Corp., 7.875s,
2008 ........................... 3,250 3,404,375
----------
$7,427,750
----------
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Chemicals -- 0.6%
NL Industries, Inc., 11.75s,
2003 ........................... $2,355 $2,513,963
UCAR Global Enterprises, Inc.,
12s, 2005 ...................... 1,700 1,795,625
----------
$4,309,588
----------
Computer Hardware
Systems -- 0.2%
Anacomp, Inc., 10.875s, 2004 $1,250 $1,306,250
----------
Consumer Goods and
Services -- 0.2%
Kindercare Learning Centers,
Inc., "B", 9.5s, 2009 .......... $ 350 $ 371,000
Williams Scotsman, Inc.,
9.875s, 2007 ................... 1,250 1,304,688
----------
$1,675,688
----------
Containers -- 1.0%
Ball Corp., 7.75s, 2006 .......... $ 500 $ 516,250
Gaylord Container Corp.,
9.875s, 2008 ................... 1,200 1,080,000
Gaylord Container Corp., "B",
9.75s, 2007 .................... 1,200 1,155,000
Silgan Holdings, Inc., 9s, 2009 1,500 1,545,000
Synthetic Industries, Inc., "B",
9.25s, 2007 .................... 2,750 2,860,000
----------
$7,156,250
----------
Defense Electronics -- 0.2%
United Defense Industries,
Inc., 8.75s, 2007## ............ $1,550 $1,561,625
----------
Energy -- 0.4%
AmeriGas Partners, LP, "B",
10.125s, 2007 .................. $ 600 $ 625,500
Cheasapeake Energy Corp.,
9.625s, 2005 ................... 1,250 1,087,500
Clark USA, Inc., "B", 10.875s,
2005 ........................... 995 855,700
----------
$2,568,700
----------
Entertainment -- 0.9%
AMC Entertainment, Inc., 9.5s,
2009 ........................... $1,650 $1,625,250
Cinemark USA, Inc., "B",
9.625s, 2008 ................... 750 772,500
Circus Circus Enterprises, Inc.,
6.7s, 2096 ..................... 1,400 1,333,752
Time Warner
Telecommunications LLC,
9.75s, 2008 .................... 2,500 2,700,000
----------
$6,431,502
----------
</TABLE>
5
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Financial Institutions -- 2.4%
Americo Life, Inc., 9.25s, 2005 $2,650 $ 2,709,625
Constellation Finance LLC,
9.8s, 2001 ..................... 4,250 4,080,000
Lehman Brothers Holdings,
Inc., 6.625s, 2004 ............. 2,000 2,005,500
Leucadia Capital Trust, 8.65s,
2027 ........................... 1,500 1,494,300
Leucadia National Corp.,
7.75s, 2013 .................... 3,085 2,933,249
Leucadia National Corp.,
8.25s, 2005 .................... 2,000 2,064,440
Merrill Lynch Mortgage
Investors, Inc., 8.337s,
2022+ .......................... 1,200 1,130,062
-----------
$16,417,176
-----------
Food and Beverage
Products -- 0.5%
Borden, Inc., 9.2s, 2021 ......... $2,500 $ 2,366,525
Borden, Inc., 9.25s, 2019 ........ 750 723,615
-----------
$ 3,090,140
-----------
Forest and Paper
Products -- 0.3%
U.S. Timberlands, 9.625s,
2007 ........................... $1,700 $ 1,734,000
-----------
Industrial -- 1.3%
Day International Group, Inc.,
"B", 11.125s, 2005 ............. $1,000 $ 1,065,000
Hayes Wheels International,
Inc., "B", 9.125s, 2007## ...... 2,000 2,085,000
Haynes International, Inc.,
11.625s, 2004 .................. 2,200 1,892,000
IMO Industries, Inc., 11.75s,
2006 ........................... 1,650 1,730,437
Interlake Revolver Corp., 12s,
2001 ........................... 750 802,500
Numatics, Inc., 9.625s, 2008 ..... 1,600 1,500,000
-----------
$ 9,074,937
-----------
Information, Paging and
Technology -- 0.9%
NEXTEL Communications,
Inc., 0s to 2002, 9.75s to
2007 ........................... $ 300 $ 231,000
NEXTEL Communications,
Inc., 0s to 2003, 9.95s to
2008 ........................... 450 337,500
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Information, Paging and
Technology -- continued
NEXTEL Communications,
Inc., 0s to 1999, 9.75s,
2004 ........................... $1,500 $ 1,560,000
NEXTEL International, Inc., 0s
to 2003, 12.125 to 2008 ........ 2,750 1,457,500
Qwest Communications
International, Inc., 8.29s,
2008 ........................... 3,575 2,762,116
-----------
$ 6,348,116
-----------
Machinery -- 0.2%
Grove Worldwide LLC/Capital,
Inc., 9.25s, 2008## ............ $2,000 $ 1,660,000
-----------
Media -- 2.0%
Chancellor Media Corp., "B",
8.75s, 2007## .................. $1,000 $ 1,027,500
Fox/Liberty Networks LLC,
Inc., 8.875s, 2007 ............. 2,450 2,673,562
Frontiervision LP, 0s to 2001,
11.875s to 2007, 1s, 2007 ...... 500 440,000
Frontiervision Operating
Partnership LP, 11s, 2006 ...... 2,000 2,245,000
Golden Books Publishing, Inc.,
7.65s, 2002** .................. 705 287,288
Granite Broadcasting Corp.,
10.375s, 2005 .................. 2,220 2,314,350
Hollinger International
Publishing, Inc., 9.25s, 2007 1,950 2,037,750
Lenfest Communications, Inc.,
10.5s, 2006 .................... 500 586,250
United International Holdings,
Inc., 10.75s, 2008 ............. 3,200 2,192,000
-----------
$13,803,700
-----------
Medical and Health
Products -- 0.3%
Polymer Group, Inc., "B", 9s,
2007 ........................... $1,645 $ 1,686,125
-----------
Medical and Health Technology
and Services -- 0.1%
Quorum Health Group, Inc.,
8.75s, 2005 .................... $ 200 $ 200,000
Tenet Healthcare Corp.,
8.625s, 2007 ................... 450 454,500
-----------
$ 654,500
-----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Metals and Minerals -- 1.8%
Alaska Steel Holdings Corp.,
9.125s, 2006 .................. $ 750 $ 795,000
Commonwealth Aluminum
Corp., 10.75s, 2006 ........... 1,000 1,035,000
Kaiser Aluminum & Chemical
Corp., 9.875s, 2002 ........... 1,015 1,025,150
Kaiser Aluminum & Chemical
Corp., 10.875s, 2006 .......... 1,625 1,665,625
Metal Management, Inc., 10s,
2008 .......................... 2,000 1,600,000
P&L Coal Holdings Corp.,
9.625s, 2008 .................. 1,750 1,820,000
Thermadyne Manufacturing
Capital Corp., 9.875s, 2008 1,500 1,406,250
WCI Steel, Inc., 10s, 2004 ...... 1,950 2,042,625
Wheeling Pittsburgh Corp.,
9.25s, 2007 ................... 1,000 985,000
-----------
$12,374,650
-----------
Oil Services -- 1.3%
Continental Resources, Inc.,
10.25s, 2008 .................. $1,000 $ 757,500
Oryx Energy Co., 10s, 1999 ...... 2,600 2,611,700
Triton Energy Limited, 8.75s,
2002 .......................... 3,000 2,913,720
Triton Energy Limited, 9.25s,
2005 .......................... 2,500 2,400,125
-----------
$ 8,683,045
-----------
Real Estate -- 1.2%
Dynex Capital, Inc., 7.875s,
2002 .......................... $3,900 $ 2,798,250
George Town Real Estate Ltd.,
4s, 2007+ ..................... 4,000 4,200,000
Mosaic RE Limited, 9.598s,
1999+ ......................... 1,000 1,010,000
-----------
$ 8,008,250
-----------
Restaurants and
Lodging -- 0.3%
Friendly Ice Cream Corp.,
10.5s, 2007 ................... $ 500 $ 471,250
Red Roof Inns, Inc., 9.625s,
2003 .......................... 1,750 1,771,875
-----------
$ 2,243,125
-----------
Retail -- 1.0%
Cole National Group, Inc.,
8.625s, 2007## ................ $ 800 $ 792,000
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Retail -- continued
Cole National Group, Inc.,
9.875s, 2006 .................. $ 500 $ 522,500
J.Crew Operating Corp.,
10.375s, 2007 ................. 1,680 1,633,800
Musicland Group, Inc., 9.875s,
2008 .......................... 600 609,000
Revlon Consumer Products
Corp., 8.125s, 2006 ........... 1,955 1,935,450
Samsonite Corp., 10.75s,
2008 .......................... 1,400 1,043,000
-----------
$ 6,535,750
-----------
Special Products and
Services -- 0.6%
Buckeye Cellulose Corp.,
9.25s, 2008 ................... $2,150 $ 2,246,750
Fairfield Manufacturing Corp.,
11.375s, 2001 ................. 1,780 1,837,850
-----------
$ 4,084,600
-----------
Telecommunications -- 8.6%
Adelphia Communications
Corp., "B", 9.875s, 2007 ...... $1,725 $ 1,888,875
Allbritton Communications
Co., "B", 9.75s, 2007 ......... 1,005 1,070,325
Allegiance
Telecommunications, Inc.,
12.875s, 2008 ................. 2,000 2,260,000
American Celluar Corporation,
10.5s, 2008 ................... 1,800 1,930,500
Century Communications
Corporation, 9.5s, 2005 ....... 450 484,875
Chancellor Media Corp.,
Louisiana, 8.125s, 2007 ....... 2,625 2,651,250
Comcast Corp., 9.375s, 2005 ..... 1,940 2,063,190
Continental Cablevision, Inc.,
9.5s, 2013 .................... 5,000 5,816,700
DTI Holdings, Inc., 0s to 2003,
12.5s to 2008 ................. 3,825 1,491,750
Global Crossings Holdings
Ltd., 9.625s, 2008 ............ 1,325 1,474,063
ICG Holdings, Inc. 0s to 2001,
12.5s, 2006 ................... 3,500 2,940,000
Intermedia Capital Partners IV,
LP, 11.25s, 2006 .............. 1,300 1,478,750
Intermedia Communications,
Inc., "B", 0s to 2002,
11.25s to 2007 ................ 2,875 2,170,625
ITC Deltacom, Inc., 11s, 2007 2,945 3,261,587
</TABLE>
7
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
Telecommunications -- continued
Jones Intercable, Inc., 8.875s,
2007 ................................ $ 1,500 $ 1,638,750
Level 3 Communications Inc.,
9.125s, 2008 ........................ 2,050 2,096,125
Mobile Telecommunication
Technologies Corp., 13.5s,
2002 ................................ 1,900 2,128,000
NTL, Inc., 0s to 2003, 9.75 to
2008 ................................ 1,860 1,304,325
NTL, Inc., 0s to 2003, 12.375s
to 2008## ........................... 1,025 722,625
Pagemart Wireless, Inc., 0s to
2003, 11.25s to 2008 ................ 1,025 379,250
Paging Network, Inc., 8.875s,
2006 ................................ 2,750 2,145,000
Qwest Communications
International, Inc., 10.875s,
2007 ................................ 487 560,332
Spectrasite Holdings, Inc., 0s
to 2003, 12s to 2008## .............. 2,550 1,632,000
Sprint Spectrum LP 0s to
2001, 12.5s to 2006 ................. 2,000 1,820,000
Sprint Spectrum LP, 11s, 2006 300 344,181
TCI Communications
Financing III, 9.65s, 2027 .......... 5,000 6,149,550
Triton PCS, Inc., 0s to 2003,
11s to 2008 ......................... 2,450 1,543,500
Turner Broadcasting Systems,
Inc., 8.4s, 2024 .................... 3,000 3,192,750
Western Wireless Corp.,
10.5s, 2007 ......................... 1,500 1,638,750
WorldCom, Inc., 8.875s, 2006 900 966,816
------------
$ 59,244,444
------------
Textiles -- 0.1%
Galey & Lord, Inc., 9.125s,
2008 ................................ $ 850 $ 654,500
------------
Transportation -- 0.1%
Moran Transportation Co.,
11.75s, 2004 ........................ $ 600 $ 654,750
------------
U.S. Federal Agencies -- 8.9%
Federal Home Loan Banks,
5.125s, 2001 ........................ $ 9,750 $ 9,713,437
Federal Home Loan Mortgage
Corp. TBA, 7.5s, 2099 ............... 3,000 3,083,430
Financing Corp., 9.4s, 2018 ........... 12,000 16,136,280
FNMA, 6s, 2013 ........................ 3,768 3,732,353
GNMA, 7s, 2011 ........................ 13,213 13,432,683
GNMA TBA, 6.5s, 2028 .................. 2,798 2,779,213
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
U.S. Federal Agencies -- continued
GNMA TBA, 7s, 2012-2022 ............... $ 5,968 $ 6,084,916
GNMA TBA, 7.5s, 2025 .................. 5,755 5,930,772
------------
U.S. Government $ 60,893,084
------------
Guaranteed -- 13.3%
U. S. Treasury Notes, 4.75s,
2008 ................................ $26,500 $ 25,311,475
U.S. Treasury Bonds, 3.875s,
2029 ................................ 4,000 4,011,240
U.S. Treasury Bonds, 5.25s,
2029 ................................ 3,000 2,816,250
U.S. Treasury Bonds, 5.5s,
2028 ................................ 1,135 1,081,621
U.S. Treasury Bonds, 6.125s,
2027 ................................ 3,000 3,105,480
U.S. Treasury Bonds, 6.375s,
2027 ................................ 4,050 4,325,279
U.S. Treasury Bonds, 9.875s,
2015 ................................ 7,325 10,382,015
U.S. Treasury Bonds, 12s,
2005 ................................ 14,000 18,698,680
U.S. Treasury Notes, 8.5s,
2000 ................................ 21,250 21,830,975
------------
$ 91,563,015
------------
Utilities -- Electric -- 5.9%
Beaver Valley Funding Corp.,
9s, 2017 ............................ $ 2,124 $ 2,416,156
BVPS II Funding Corp., 8.68s,
2017 ................................ 1,000 1,113,690
Cleveland Electric Illuminating
Co., 9s, 2023 ....................... 2,000 2,191,280
CMS Energy Corp., 6.75s,
2004## .............................. 2,350 2,306,267
El Paso Electric Co., "D", 8.9s,
2006 ................................ 3,425 3,819,834
El Paso Electric Co., "E", 9.4s,
2011 ................................ 3,000 3,445,950
Niagara Mohawk Power Corp.,
7.25s, 2002 ......................... 1,900 1,933,326
Niagara Mohawk Power Corp.,
8.77s, 2018 ......................... 2,500 2,654,450
Texas & New Mexico Power
Co., 10.75s, 2003 ................... 14,240 15,093,403
Toledo Edison Company, 8.7s,
2002 ................................ 2,192 2,284,261
Waterford 3 Funding Energy
Corp., 8.09s, 2017 .................. 3,213 3,374,781
------------
$ 40,633,398
------------
Total U.S. Bonds .................... $407,841,249
------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- 35.4%
Argentina -- 4.0%
Autopistas Del Sol SA "B",
10.25s, 2009 (Industrial) ## $ 4,500 $ 3,825,000
Cia Latino Americana SA,
11.625s, 2004 .................. 2,000 1,285,000
Industrias Metalurgicas
Pescarm, 9.5s, 2002
(Utilities -- Electric) ## ..... 750 367,110
Perez Companc SA, 9s, 2006
(Oils) ## ...................... 3,500 3,475,535
Republic of Argentina, 5.938s,
2004 ........................... 2,500 2,484,375
Republic of Argentina, 9.75s,
2027 ........................... 844 736,390
Republic of Argentina,
11.447s, 2005 .................. 2,000 1,950,000
Republic of Argentina, "L",
5.938s, 2005 ................... 5,580 4,959,504
Supercanal Holdings SA,
11.5s, 2005
(Telecommunications) ........... 2,000 960,000
Telecom Argentina, 12s, 2002
(Telecommunications) ........... 5,000 5,400,000
Telefonica De Argentina,
9.125s, 2008
(Telecommunications) ........... 1,900 1,837,300
-----------
$27,280,214
-----------
Australia -- 2.4%
Commonwealth of Australia,
7.5s, 2009 ..................... AUD 21,645 $16,473,050
-----------
Bermuda -- 0.4%
Flag Ltd., 8.25s, 2008
(Telecommunications) ........... $ 2,700 $ 2,679,750
-----------
Brazil -- 3.8%
BCO Nacional Des, 15.224s,
2008 (Banks and Credit
Companies) ..................... $ 700 $ 617,750
Companhia Energetica de
Minas, 9.125s, 2004
(Utilities -- Electric) ## ..... 1,750 1,575,000
Companhia Energetica de
Minas Gerais (Utilities --
Electric), 9.125s, 2004 ....... 500 431,250
Companhia Paranaense,
9.75s, 2005 (Utilities --
Electric) ## .................. 1,250 1,103,125
Companhia Paranaense,
9.75s, 2005 (Uitilites --
Electric) ..................... 2,000 1,790,000
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- continued
Brazil -- continued
Federal Republic of Brazil,
5.875s, 2006 ................... $ 5,415 $ 4,311,965
Federal Republic of Brazil, 5s,
2014 ........................... 11,218 7,740,215
Federal Republic of Brazil,
5.875s, 2024 ................... 100 65,500
Federal Republic of Brazil,
5.938s, 2009 ................... 2,000 1,425,000
Federal Republic of Brazil,
6.063s, 2001 ................... 1,968 1,867,238
Federal Republic of Brazil,
10.125s, 2027 .................. 5,302 4,215,090
Federal Republic of Brazil,
11.625s, 2004 .................. 1,000 975,000
-----------
$26,117,133
-----------
Canada -- 1.4%
Gulf Canada Resources Ltd.,
9.25s, 2004 (Oil Services) ..... CAD 400 $ 411,232
Metronet Communications
Corp., 0s to 2003, 9.95s to
2008 (Telecommunications) ...... $ 4,150 3,216,250
PCI Chemicals Canada, Inc.,
9.25s, 2007 (Chemicals) ........ 1,500 1,252,500
Rogers Cablesystems, Inc.,
9.625s, 2002
(Telecommunications) ........... 800 858,000
Rogers Cablesystems, Inc.,
10.125s, 2012
(Telecommunications) ........... 1,500 1,668,750
Rogers Cantel, Inc., 9.375s,
2008 (Cellular Telephones) ..... 1,800 1,980,000
-----------
$ 9,386,732
-----------
Cayman Islands -- 0.3%
Sakura Capital Funding,
5.954s, 2049 (Banks and
Credit Companies) .............. $ 2,500 $ 2,000,000
-----------
Colombia -- 0.1%
Republic of Colombia,
10.875s, 2004 .................. $ 1,000 $ 1,050,000
-----------
Denmark -- 0.4%
Kingdom of Denmark, 7s,
2007 ........................... DKK 18,192 $ 3,109,414
-----------
</TABLE>
9
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- continued
Greece -- 2.6%
Fage Dairy Industries S.A., 9s,
2007 (Food and Beverage
Products) ............................ $ 5,000 $ 4,600,000
Hellenic Republic, 5.75s, 2008 EUR 1,089 1,252,215
Hellenic Republic, 8.01s, 2003 GRD 3,500,000 12,267,327
-----------
$18,119,542
-----------
Hong Kong -- 0.5%
Bank Of Ayudhya Public Co.,
5.891s, 2006 (Utilities --
Electric) ........................... $ 1,000 $ 690,000
Guangzhou Shen Superhighway
Holdings, 10.25s, 2007
(Construction) ## .................... 5,500 2,640,000
-----------
$ 3,330,000
-----------
India -- 0.2%
Power Finance Corp. Ltd.,
7.5s, 2009 (Utilities) ## ............ $ 1,500 $ 1,244,310
-----------
Indonesia -- 0.8%
Fuji Bank (Cayman) Ltd.,
5.801s, 2049 (Banks and
Credit Companies) .................... JPY 2,250 $ 1,867,500
Indah Kiat Finance Mauritius
Limited, 10s, 2007
(Textiles) ## ........................ $ 2,250 1,530,000
Tjiwi Kimia International
Finance, 13.25s, 2001
(Forest and Paper Products) 2,500 2,025,000
-----------
$ 5,422,500
-----------
Luxembourg -- 0.1%
Millicom International Cellular
Communications Corp.
0s to 2001, 13.5s to 2006
(Cellular Telephones) ................ $ 700 $ 539,000
-----------
Malaysia -- 0.6%
Tenaga Nasional Berhad,
7.5s, 2096 (Utilities) ............... $ 5,100 $ 3,862,281
-----------
Mexico -- 4.1%
Banco Nacional de
Commerce, 8s, 2000
(Banks and Credit
Companies) ........................... $ 2,500 $ 2,507,500
Empresas ICA Sociedad SA,
5s, 2004 (Construction) .............. 2,500 1,675,000
Empresas ICA Sociedad SA,
11.875s, 2001
(Construction) ....................... 3,000 3,037,500
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- continued
Mexico -- continued
Espirit Telecom Group PLC,
10.875s, 2008
(Telecommunications) ................. $ 700 $ 750,750
Groupo Minero Mexico SA
De CV, 8.25s, 2008 (Metals
and Minerals) ........................ 2,600 2,275,000
Sanluis Corp, 8.875s, 2008
(Mining) ............................. 2,750 2,420,000
Sanluis Corp. SA De CV,
8.875s, 2008 (Mining) ## ............. 3,500 3,080,000
Satelites Mexicanos SA De CV,
10.125s, 2004
(Telecommunications) ................. 1,250 1,065,625
United Mexican States,
6.25s, 2019 .......................... 1,000 791,300
United Mexican States,
8.625s, 2008 ......................... 1,650 1,611,225
United Mexican States, 11.5s,
2026 ................................. 5,750 6,828,125
United Mexican States, "B",
6.039s, 2019 ......................... 1,334 1,155,644
United Mexican States, "D",
6.098s, 2019 ......................... 917 794,397
-----------
$27,992,066
-----------
New Zealand -- 3.9%
Government of New Zealand,
8s, 2006 ............................. NZD 15,705 $10,032,091
Government of New Zealand,
8s, 2004 ............................. 27,010 16,777,421
-----------
$26,809,512
-----------
Panama -- 1.4%
Republic of Panama, 7.875s,
2002 ................................. $ 3,500 $ 3,403,750
Republic of Panama, 8.25s,
2008 ................................. 1,000 945,000
Republic of Panama, 8.875s,
2027 ................................. 5,316 5,023,620
-----------
$ 9,372,370
-----------
Philippines -- 0.9%
National Power Corp., 9.625s,
2028 (Utilities -- Electric) ......... $ 1,000 $ 940,000
Philippine Long Distance
Telephone, 10.5s, 2009
(Telecommunications) ................. 1,000 1,021,250
Philippines Republic, 8.875s,
2008 ................................. 4,000 4,094,000
-----------
$ 6,055,250
-----------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- continued
Poland -- 0.4%
Republic of Poland, 4s, 2024 .......... $ 4,500 $ 3,105,000
------------
Russia -- 0.6%
CSFB Gazprom Note, 13.5s,
2000+ ............................... $ 3,000 $ 897,300
Russia Principal Loans,
3.313s, 2020+ ....................... 20,500 1,410,400
St. Petersburg Russia, 9.5s,
2002## .............................. 1,750 660,625
Vnesheconombank USSR,
5.969s, 2015 (Banks and
Credit Companies) ................... 16,299 1,222,390
------------
$ 4,190,715
------------
South Korea -- 0.8%
Korea Electric Power Corp.,
8s, 2002 (Utilities -- Electric) $ 2,250 $ 2,286,675
Korea First Bank, 5.473s,
1999 (Banks and Credit
Companies) .......................... 3,000 2,947,500
------------
$ 5,234,175
------------
Thailand -- 1.0%
Krung Thai Bank Public Co
Ltd, 5.814s, 2006 (Banks
and Credit Companies) ............... $ 3,750 $ 2,850,000
Siam City Bank Public Co.,
7.375s, 2001 (Banks and
Credit Companies) ................... 4,900 4,312,000
------------
$ 7,162,000
------------
United Kingdom -- 3.7%
Colt Telecom Group PLC,
0s to 2001, 12s to 2006
(Telecommunications) ................ $ 1,500 $ 1,282,500
Colt Telecom Group PLC,
8.875s, 2007
(Telecommunications) ................ DEM 1,000 571,629
Diamond Cable Communication
Corp. PLC 0s to 2001,
11.75, 2005 (Media) ................. $ 2,000 1,805,000
Dolphin Telecom PLC, 0s to
2003, 11.5s to 2008
(Telecommunications) ................ 2,515 1,461,844
GPA PLC, 10.875s, 2019
(Airlines) + ........................ 250 253,305
Telewest PLC, 9.625s, 2006
(Media) ............................. 2,000 2,145,000
U.K. Treasury, 6.5s, 2003 ............. GBP 456 783,940
U.K. Treasury, 6.75s, 2004 ............ 9,767 17,199,487
------------
$ 25,502,705
------------
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- continued
Uruguay -- 0.3%
Banco Central De Uruguay,
6.75s, 2021 (Banks and
Credit Companies) ................... $ 1,250 $ 1,087,500
Banco Central De Uruguay
"A", 6.75s, 2021 (Banks and
Credit Companies) ................... 1,250 1,087,500
------------
$ 2,175,000
------------
Venezuela -- 0.7%
Republic of Venezuela, 9.25s,
2027 ................................ $ 5,640 $ 4,074,900
Republic of Venezuela -- DCB,
5.938s, 2007 ........................ VEB 1,286 1,031,782
------------
$ 5,106,682
------------
Total Foreign Bonds ................. $243,319,401
------------
Total Bonds (Identified Cost, $662,092,084)
$651,160,650
------------
<CAPTION>
Shares
<S> <C> <C>
Preferred Stock -- 1.6%
CSC Holdings, Inc., 11.125%
(Telecommunications)* ............... 65,035 $ 7,544,060
Equitable Iowa Cos Capital
Trust, 8.70% (Banks and
Credit Companies) ................... 20,000 520,000
Primedia, Inc., 10.00%
(Printing and Publishing) ........... 1,360 141,610
Primedia, Inc., 8.625%
(Printing and Publishing)* .......... 20,000 1,920,000
Supermarkets General Holdings
Corp., 14.125% (Supermarkets)* 22,827 824,626
------------
Total Preferred Stock
(Identified Cost, $7,663,327) ..... $ 10,950,296
------------
<CAPTION>
Principal Amount
(000 Omitted)
<S> <C> <C>
Convertible Bond -- 0.8%
Bea Systems, Inc., 4s, 2005
(Computer Software) ................. $ 1,000 $ 780,000
Fullerton Global Corp., 0s,
2003 (Conglomerates) ................ 750 768,750
Tenet Healthcare Corp., 6s,
2005 (Medical and Health
Technology and Services) ............ 4,250 3,527,500
------------
Total Convertible Bond
(Identified Cost, $5,185,267) ..... $ 5,076,250
------------
<CAPTION>
Shares
<S> <C> <C>
Stocks
RJR Nabisco Holdings Corp.
(Consumer Goods and Services)
(Identified Cost, $2,716) ........... 6,908 $ 177,881
------------
</TABLE>
11
<PAGE>
Portfolio of Investments (Unaudited) -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Rights
United Mexican States*
(Identified Cost, $0) ........... 4,475,000 $ --
------------
Warrants*
Colt Telecom Group PLC,
Expire 12/31/06
(Telecommunications) ## ......... 252 $ 140,810
Loral Orion Network Systems,
Inc., Expire 1/15/07
(Telecommunications) ............ 1,625 13,000
Loral Orion Network Systems,
Inc., Expire 1/15/07
(Telecommunications) ............ 700 12,600
Republic of Argentina, Expire
9/19/27 ......................... 3,000 90,000
DTI Holdings, Inc., Expire
3/1/08 (Financial Institutions) 19,125 956
------------
Total Warrants (Identified Cost, $177,228) $ 257,366
------------
Principal Amount
(000 Omitted)
Short-Term Obligations -- 0.4%
Federal Agricultural Mortgage
Corporation Discount Note,
due 5/17/99 at Amortized
Cost ............................ $ 3,000 $ 2,993,747
------------
Repurchase Agreement -- 0.6%
Goldman Sachs, dated 4/30/99,
due 5/03/99, total to be
received $4,201,712
(secured by various U.S.
Treasury and Federal
Agency obligations in a
jointly traded account), at
Cost ............................ $ 4,200 $ 4,200,000
------------
Total Investments
(Identified Cost, $682,314,369) ................. $674,816,190
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted) Value
<S> <C> <C>
Put Options Written
Australian Dollars/May/.6245/
May/0.6245 (Premiums
Received, $37,875) ................. AUD 4,684 $ --
------------
Other Assets,
Less Liabilities -- 1.8% ............................. 12,075,496
------------
Net Assets -- 100.0% ................................... $686,891,686
------------
</TABLE>
* Non-income producing security.
** Non-income producing security -- in default.
## 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.
AUD = Australian Dollars
CAD = Canadian Dollars
DEM = Deutsche Marks
DKK = Danish Kroner
EUR = Euro
GBP = British Pounds
GRD = Greek Drachma
JPY = Japanese Yen
NZD = New Zealand Dollars
VEB = Venezuelan Bolivar
See notes to financial statements
12
<PAGE>
Statement of Asset and Liabilities (Unaudited) -- April 30, 1999
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $682,314,369) ................................... $ 674,816,190
Cash .................................................................................... 657,763
Net receivable for forward foreign currency exchange contracts to purchase .............. 661,757
Receivable for swap agreements .......................................................... 44,793
Receivable for investments sold ......................................................... 13,842,243
Interest and dividends receivable ....................................................... 14,265,249
Other assets ............................................................................ 9,164
-------------
Total assets .......................................................................... $ 704,297,159
-------------
Liabilities:
Distributions payable ................................................................... 413,046
Payable for investments purchased ....................................................... 14,287,808
Written options outstanding, at value (premiums received, $37,875) ...................... --
Net payable for forward currency exchange contracts subject to master
netting agreements ..................................................................... 322,617
Net payable for forward foreign currency exchange contracts to sell ..................... 1,869,054
Payable to affiliates -
Management fee ......................................................................... 5,160
Transfer and dividend disbursing agent fee ............................................. 23,000
Administrative fee ..................................................................... 474
Accrued expenses and other liabilities .................................................. 484,314
-------------
Total liabilities ..................................................................... $ 17,405,473
-------------
Net assets ............................................................................... $ 686,891,686
=============
Net assets consist of:
Paid-in capital ......................................................................... $ 709,999,123
Unrealized depreciation on investments and translation of assets and liabilties in
foreign currencies ..................................................................... (8,941,311)
Accumulated net realized loss on investments and foreign currency transactions .......... (14,072,955)
Accumulated distributions in excess of net investment income ............................ (93,171)
-------------
Total ................................................................................. $ 686,891,686
=============
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) ........................................................................... $7.40
=====
</TABLE>
See notes to financial statements
13
<PAGE>
Statement of Operations (Unaudited) -- Six Months Ended April 30, 1999
<TABLE>
<S> <C>
Net investment income:
Income --
Interest ................................................................... $ 29,378,456
Dividends .................................................................. 100,120
------------
Total investment income .................................................. $ 29,478,576
------------
Expenses --
Management fee ............................................................ $ 2,724,642
Trustees' compensation .................................................... 124,700
Custodian fee ............................................................. 143,319
Transfer and dividend disbursing agent fee ................................ 134,103
Administrative fee ........................................................ 33,798
Auditing fees ............................................................. 19,000
Legal fees ................................................................ 4,304
Postage ................................................................... 23,250
Printing .................................................................. 22,686
Investor communication cost ............................................... 204,148
Stock Exchange fee ........................................................ 105,262
Commitment fee ............................................................ 51,444
Miscellaneous ............................................................. 17,864
------------
Total expenses ........................................................... $ 3,608,520
Fees paid indirectly ...................................................... (47,205)
------------
Net expenses ............................................................. $ 3,561,315
------------
Net investment income ................................................... $ 25,917,261
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions .................................................. $ (8,642,654)
Written option transactions .............................................. 606,695
Foreign currency transactions ............................................ (1,124,307)
------------
Net realized loss on investments and foreign currency transactions ...... $ (9,160,266)
------------
Change in unrealized appreciation (depreciation) --
Investments .............................................................. $ 33,081,858
Written options .......................................................... 37,875
Translation of assets and liabilities in foreign currencies .............. (1,975,313)
Swap transactions ........................................................ 44,793
------------
Net unrealized gain on investments and foreign currency translations .... $ 31,189,213
------------
Net realized and unrealized gain on investments and foreign currency ... $ 22,028,947
------------
Increase in net assets from operations ................................ $ 47,946,208
============
</TABLE>
See notes to financial statements
14
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
April 30, 1999 Year Ended
(Unaudited) October 31, 1998
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations --
Net investment income .................................................................. $ 25,917,261 $ 55,244,697
Net realized gain (loss) on investments and foreign currency transactions .............. (9,160,266) 1,452,948
Net unrealized gain (loss) on investments and foreign currency transactions ............ 31,189,213 (60,132,973)
------------- -------------
Increase (decrease) in net assets from operations ..................................... $ 47,946,208 $ (3,435,328)
------------- -------------
Distributions declared to shareholders --
From net investment income ............................................................. $ (26,935,127) $ (54,333,485)
------------- -------------
Total increase in net assets ......................................................... $ 21,011,081 $ (57,768,813)
------------- -------------
Net assets:
At beginning of period ................................................................. 665,880,605 723,649,418
------------- -------------
At end of period (including accumulated distributions in excess of net investment
income of $93,171 and $924,695, respectively) ......................................... $ 686,891,686 $ 665,880,605
============= =============
</TABLE>
See notes to financial statements
15
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Six Months
ended
April 30, For the Year Ended October 31,
1999 ------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -- beginning of period ................ $ 7.17 $ 7.79 $ 7.71 $ 7.57 $ 7.06 $ 7.90
-------- -------- -------- -------- -------- --------
Income from investment operations# --
Net investment income[sec] ........................... $ 0.28 $ 0.59 $ 0.59 $ 0.57 $ 0.59 $ 0.55
Net realized and unrealized gain (loss)
on investments and foreign currency transactions .... 0.24 (0.63) 0.11 0.16 0.49 (0.82)
-------- -------- -------- -------- -------- --------
Total from investment operations .................... $ 0.52 $ (0.04) $ 0.70 $ 0.73 $ 1.08 $ (0.27)
-------- -------- -------- -------- -------- --------
Less distributions declared to shareholders
From net investment income ........................... $ (0.29) $ (0.58) $ (0.62) $ (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 ........ $ (0.29) $ (0.58) $ (0.62) $ (0.59) $ (0.57) $ (0.57)
-------- -------- -------- -------- -------- --------
Net asset value -- end of period ...................... $ 7.40 $ 7.17 $ 7.79 $ 7.71 $ 7.57 $ 7.06
======== ======== ======== ======== ======== ========
Per share market value -- end of period ............... $ 6.375 $ 6.438 $ 7.125 $ 7.125 $ 6.500 $ 6.125
Total return at market value ......................... 3.46%++ (1.89)% 8.93% 19.32% 15.69% (9.57)%
Ratios (to average net assets)/Supplemental data[sec]
Interest Expense .................................... -- % -- % 0.18% -- % 0.09% 0.08%
Other Expenses## .................................... 1.08%+ 1.05% 0.93% 1.11% 1.10% 1.06%
Total Expense ....................................... 1.08%+ 1.05% 1.11% 1.11% 1.19% 1.14%
Net investment income ............................... 7.72%+ 7.70% 7.64% 7.49% 8.13% 7.51%
Portfolio turnover ................................... 58% 155% 172% 214% 189% 133%
Net assets at end of period
(000 omitted) ....................................... $686,892 $665,881 $723,649 $739,882 $780,915 $829,356
Leverage analysis
Debt outstanding at end of period (000 omitted) ..... $ -- $ -- $ -- $ -- $ -- $ 90,000
Average daily balance of debt outstanding
(000 omitted) ..................................... $ -- $ -- $ 18,854 $ -- $ 10,750 $ 9,616
Average daily balance of shares outstanding
(000 omitted) ..................................... 92,880 92,880 93,951 100,810 108,970 117,774
Average debt per share .............................. $ -- $ -- $ 0.20 $ -- $ 0.10 $ 0.08
+Annualized.
++Not annualized.
#Per share data is based on average shares outstanding.
##The Trust has an expense offset arrangement which reduces the Trust's
custodian fee based upon the amount of cash maintained by the Trust with
its custodian and dividend disbursing agent. For fiscal years ending after
September 1, 1995, the Trust's expenses are calculated without reduction
for this expense offset arrangement.
[sec]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 (Unaudited)
(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. Options 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 (Unaudited) -- 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 Trust'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 may 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 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 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 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 distributions from paid-in
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.
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
the Trust's 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 $32,150 for the six months ended April 30,
1999.
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.
19
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
(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 ............................ $165,235,726 $125,505,326
============ ============
Investments (non-U.S. government securities) .......... $210,605,310 $384,616,736
============ ============
</TABLE>
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Trust, as computed on a federal income tax basis, are
as follows:
<TABLE>
<S> <C>
Aggregate cost ........................ $ 684,585,353
=============
Gross unrealized appreciation ......... 24,105,206
Gross unrealized depreciation ......... $ (33,874,369)
-------------
Net unrealized depreciation .......... $ (9,769,163)
=============
</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. During the six
months ended April 30, 1998, there were no transactions in Trust shares and the
Trust did not repurchase any shares.
(6) Line of Credit
The Trust and other affiliated funds participate in a $720 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Trust shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Trust for the six months ended April 30, 1999, was $51,444. The Trust had
no borrowings during the period.
(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.
20
<PAGE>
Written Option Transactions
<TABLE>
<CAPTION>
1999 Calls 1999 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 ..................... 23,085 191,778 14,584 119,250
Euro ................................... 26,680 250,122 -- --
Euro/British Pounds .................... 11,426 132,245 10,991 60,682
Japanese Yen ........................... 5,204,864 706,206 2,957,309 330,036
Options terminated in closing transactions
Australian Dollars ..................... (13,856) (138,528) (9,900) (81,375)
Euro ................................... (26,680) (250,122) -- --
Euro/British Pounds .................... (11,426) (132,245) (10,991) (60,682)
Japanese Yen ........................... (2,602,432) (300,463) -- --
Options expired
Australian Dollars ..................... (9,229) (53,250) -- --
Japanese Yen ........................... (2,602,432) (405,743) (2,957,309) (330,036)
----------- -----------
Outstanding, end of period ............... -- $ -- -- $ 37,875
---------- ----------- ---------- -----------
Australian Dollars ..................... -- $ -- 4,684 $ 37,875
</TABLE>
At April 30, 1999, 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 6/16/99 .......... AUD 36,767,121 $23,419,353 $24,323,212 $ (903,859)
6/16/99 .......... DKK 21,415,796 3,147,947 3,051,285 96,662
6/16/99 .......... NZD 42,762,842 22,878,120 23,939,977 (1,061,857)
----------- ----------- ------------
$49,445,420 $51,314,474 $ (1,869,054)
=========== =========== ============
Purchases 6/16/99 .......... AUD 31,698,258 $20,133,493 $20,969,916 $ 836,423
6/16/99 .......... GBP 4,653,338 7,570,515 7,480,143 (90,372)
6/16/99 .......... JPY 1,104,558,184 9,390,306 9,306,012 (84,294)
----------- ----------- ------------
$37,094,314 $37,756,071 $ 661,757
=========== =========== ============
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net payable of $40,550 with Merrill Lynch and
$394,140 with C.S, First Boston and a net receivable of $112,073 with Deutsche
Bank at April 30, 1999.
At April 30, 1999, the Trust had sufficient cash and/or securities to cover any
commitments under these contracts.
Interest Rate Swaps
<TABLE>
<CAPTION>
Cash Flows Unrealized
Notional Principal Cash Flows Paid Received by the Appreciation
Expiration Amount of Contract by the Fund Fund (Depreciation)
- ------------ -------------------- ----------------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
3/22/2003 SEK ............... 106,700,000 Fixed - 4.38% Floating - 3M STIBOR
3/22/2003 EUR ............... 11,560,000 Floating - 6M EURIBOR Fixed - 3.76% $44,793
</TABLE>
21
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
(8) Restricted Securities
The Trust may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At April 30, 1999,
the Trust owned the following restricted securities (except securities issued
under Rule 144A) constituting 1.29% 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 Share/Par
Description Acquisition Amount Cost Value
- --------------------------------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
CSFB Gazprom Note, 13.5s,
2000 ................................. 4/25/97 3,000,000 $3,000,000 $ 897,300
George Town Real Estate Ltd.,
4s, 2007 ............................. 12/20/96 4,000,000 4,000,000 4,200,000
GPA PLC, 10.875s, 2019 ................ 3/13/96 250,000 250,000 253,305
Merrill Lynch Mortgage
Investors, Inc. 8.337s, 2022 ......... 6/22/96 1,200,000 831,750 1,130,062
Mosaic RE Limited 9.598s, 1999 7/15/98 1,000,000 1,000,000 1,010,000
Russia Principal Loans 3.313s,
2020 ................................. 12/12/97 20,500,000 7,823,245 1,410,400
----------
$8,901,067
==========
</TABLE>
22
<PAGE>
[back cover]
MFS[RegTM] 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(1)
Partner, Hemenway & Barnes
(attorneys)
William J. Poorvu(1)
Adjunct Professor, Harvard University
Graduate School of Business
Administration
Charles W. Schmidt(2)
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
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 symbol] This report is printed on recycled paper. MMTCE-3 6/99 83M
