[logo] M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
MFS(R) MULTIMARKET
INCOME TRUST
ANNUAL REPORT o OCTOBER 31, 2001
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Results of Shareholder Meeting ............................................ 10
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 23
Notes to Financial Statements ............................................. 27
Independent Auditors' Report .............................................. 35
Trustees and Officers ..................................................... 37
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MFS(R) PRIVACY POLICY
At MFS(R), we are committed to protecting your privacy.
On behalf of the MFS Family of Funds(R), the MFS(R) Institutional Trusts, the
Vertex(SM) Funds, Massachusetts Financial Services Company, and certain
affiliates(1) (collectively, "MFS," "we," "us" or "our"), this privacy policy
outlines certain of our policies designed to maintain the privacy of your
nonpublic personal information.
Nonpublic personal information includes much of the information you provide to
us and the related information about you and your transactions involving your
MFS investment product or service. Examples of nonpublic personal information
include the information you provide on new account applications for MFS
investment products or services, your share balance or transactional history,
and the fact that you are a customer of MFS.
We may collect nonpublic personal information about you from the following
sources:
o information we receive from you on applications or other forms
o information about your transactions with us, our affiliates, or others, and
o information we receive from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may disclose all of
the information we collect, as described above, to companies that perform
marketing services on our behalf or to other financial institutions with whom
we have joint marketing arrangements.
We restrict access to nonpublic personal information about you to personnel
who are necessary or appropriate to provide products or services to you. We
maintain physical, electronic, and procedural safeguards that comply with
federal regulations to guard your nonpublic personal information.
Our privacy policy applies only to individual MFS investors who have a direct
relationship with us. If you own MFS products or receive MFS investment
services in the name of a third-party broker-dealer, bank, investment adviser
or other financial service provider, that third-party's privacy policies may
apply to you and our privacy policy may not.
If you have any questions with respect to MFS' privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
(1) MFS Institutional Advisors, Inc., Vertex Investment Management, Inc., MFS
Original Research Advisors, LLC, MFS Original Research Partners, LLC,
MFS(R) Heritage Trust Company(SM), and MFS Fund Distributors, Inc.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
As I write this letter, it's been just over two months since the events of
September 11, among the most tragic events ever to occur on U.S. soil. The
human dimensions of September 11 have rightfully overshadowed all else, but
the terrorist attacks were also unprecedented in terms of a market event.
POTENTIAL RECOVERY PUSHED OUT
Prior to September 11, we felt that the market was approaching bottom and
might be on a slow, uneven, but upward trend toward recovery. On September 11
political uncertainty was added to the issues buffeting the economy, and the
market subsequently hit new lows. Due largely to a decrease in air travel and
the ripple effects in a large number of industries, companies announced a huge
number of employee layoffs in the weeks following the attacks.
On October 31, the U.S. Commerce Department announced that gross domestic
product (GDP) declined 0.4% in the third quarter, the first drop in GDP since
1993. With most economists expecting GDP growth to be negative in the fourth
quarter as well, this announcement virtually assured that the economy has
entered a recession. (A recession is generally defined as two or more
consecutive quarters of declining GDP growth.)
We think the implication for investors is that the current economic downturn may
last longer than we had previously expected, with a potential recovery pushed
out farther into the future. However, it is important to note that the equity
market had experienced a significant downturn prior to September 11, with many
stocks already factoring in a slow growth environment.
ENCOURAGING SIGNS AMID A DOWNTURN
We do, however, have a strong belief that the U.S. economy and economies
around the globe will indeed recover over time and perhaps emerge even
stronger. In our view, the U.S. economy is already demonstrating a tremendous
resiliency. After an initial slide when the market reopened after September
11, we witnessed a market rally that seemed amazing in light of the
enormity of the tragedy: as of November 14, the Dow Jones Industrial Average
is up 19%, the Standard & Poor's 500 Stock Index is up 18%, and the NASDAQ
Composite Index is up 34%, compared to their post-September 11 lows. And all
three indices are above their September 10 levels.(1)
Consumer spending, which accounts for about two-thirds of GDP, is certainly
down and may remain so for a while. However, it does appear to be recovering
slowly from the sharp drop we experienced immediately after September 11. In
fact, a Commerce Department report released on November 13 reported that
retail and food services sales jumped 7.1% in October, far exceeding
economists' projections of a 2% increase over September sales.(2)
Prior to September 11, corporations were responding to the economic slowdown
by trimming capacity, expenses, and payrolls, and the attacks accelerated that
trend. Our experience in previous downturns has been that this type of
environment, although painful in the short term, allows the best firms in
various industries to emerge leaner and stronger, setting the stage for a
healthier economy. A recent example is the economic slowdown of 1990 - 1991, a
period that included the Gulf War. Corporate earnings fell, and the markets
witnessed a large selloff; yet a short time later we began a nearly decade-
long climb to all-time highs in both earnings and stock prices.
GOVERNMENT IS DOING ITS PART
Also encouraging is the urgency with which the U.S. government has stepped in
to bolster the economy. As of November 14, the Federal Reserve Board (the Fed)
has cut interest rates three times since the attacks, bringing rates to their
lowest level in four decades. By decreasing the cost of borrowing money, rate
cuts encourage buying by both corporations and consumers. Rate cuts also make
interest rates on money market funds and certificates of deposit less
attractive. This may stimulate investors to move money off the sidelines and
into potentially higher-yielding investments -- such as corporate bonds and
stocks -- that may do more to drive the economy.
President Bush and Congress also seem determined to help bolster the economy,
and as of mid-November, several economic stimulus packages appear to be
working their way through the legislative process.
INVESTING IN UNCERTAIN TIMES
The events of September 11 have not changed what we do on a day-to-day basis.
Our investment approach is still based on our own in-depth, fundamental
research into companies and other issuers of securities. We remain bottom-up
investors, building our portfolios one stock or bond at a time. In equity
investing, we continue to believe that, over the long term, stock prices
follow earnings. We also remain convinced that valuation, or a stock's price
in relation to factors such as earnings and cash flow, is important. In our
view, a good company selling at an overly high price is not a good stock.
If anything, we think our investment approach is more valid than ever in the
current environment. Although September 11 changed the near-term outlook for
many companies, our experience has been that companies we believed were good
investments before that date are still, for the most part, good investments.
By lowering valuations somewhat indiscriminately across the market, the post-
attack downturn made some stocks even more attractive. From a long-term
valuation standpoint, one could argue that it may be less risky to be in the
market today than it has been in a long time.
At the present time, we see economic markets in the midst of tremendous short-
term uncertainty. But we also see the seeds of economic recovery beginning to
take root, and we believe that our fundamental, bottom-up investment process
continues to benefit long-term investors. For further guidance in these
difficult times, we believe it is critical for you to consult with your
investment professional. As always, we appreciate your confidence in MFS 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(R)
November 14, 2001
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
It is not possible to invest directly in an index.
(1) Source: Lipper Inc. and MFS research. The Dow Jones Industrial Average
(DJIA) is a price-weighted average of 30 blue-chip stocks that are
generally the leaders in their industry. The NASDAQ Composite Index is an
unmanaged, market-weighted index of all over-the-counter common stocks
traded on the National Association of Securities Dealers Automated
Quotation system. The Standard & Poor's 500 Stock Index is an unmanaged but
commonly used measure of common stock total return performance.
(2) Source: The Wall Street Journal Online, November 14, 2001.
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Steven E. Nothern]
Steven E. Nothern
Dear Shareholders,
For the 12 months ended October 31, 2001, the trust provided a total return of
9.83% based on its beginning and ending stock market prices and assuming the
reinvestment of any distributions paid during the period. The trust's total
return based on its net asset value (NAV) was 7.28%. The trust's results compare
to returns over the same period for the following benchmarks: 10.38% for the
J.P. Morgan Non-Dollar Government Bond Index (the Morgan Index), 15.08% for the
Lehman Brothers Government Bond Index, and -0.16% for the Lehman Brothers High
Yield Bond Index. The Morgan Index is an unmanaged aggregate 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 unmanaged and 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 includes all fixed- income securities having a maximum quality rating
from Moody's Investors Service of "Ba1," a minimum amount outstanding of $150
million, and at least one year to maturity. Defaulted bonds are excluded from
the index.
Throughout this 12-month period the Federal Reserve Board (the Fed) became
more aggressive in trying to support economic growth, by cutting short-term
interest rates from 6.5% at the beginning of the year to 2.5% at the end of
the period. These moves were a response to the gradual deceleration of the
economy that began about a year ago and was further weakened after the tragic
events of September 11.
Of the trust's holdings across the six sectors in which we invest, we generally
favored high-quality government and corporate holdings. Overall, we increased
our investments in U.S. Treasuries and high-quality corporate bonds. High-grade
corporate bonds have tended to do well in a slower economy because they are
generally from more stable companies, therefore, consumers have been more
confident that interest and principal payments will be made. They have also been
more liquid. We have conservatively increased exposure to higher- quality
companies whose bonds have been trading at their widest spread levels for the
year -- the yield difference between Treasuries and corporate bonds. (Principal
and interest of U.S. Treasury securities are guaranteed by the U.S. government
if held to maturity.)
During the period, sharp declines in short-term interest rates caused the
yield curve -- a representation of the difference between short- and long-term
rates -- to steepen. To take advantage of this environment earlier in the
year, we exposed the portfolio to bonds with maturities in the one-to three-
year range. Now that the bulk of the Fed easing cycle may be over, we believe
it is the right time to move up the curve and extend the durations of our
holdings. In our opinion, this means intermediate-maturity Treasuries (three-
to seven-year securities) are poised to outperform. We have positioned the
portfolio accordingly by increasing our intermediate-term exposure.
We reduced our allocation to high-yield bonds during the period since this
asset class has tended to perform poorly in a slowing economy. This sector
detracted slightly from relative performance over the year. Earlier in the
year, this sector was one of the best-performing areas of the market because
the bond market was anticipating a recovery. We believe market fundamentals
continue to remain poor for this sector as the default rate has continued to
climb and have thus decreased our exposure to this sector. Longer term,
however, we believe there are many companies and industries in this sector
with strong balance sheets and cash flows and will continue to look for
opportunities. Research has continued to be the key in monitoring those high-
yield names that have remained in the portfolio.
Although we have increased our international exposure, we have continued to
invest overseas only if we feel these opportunities would outperform domestic
bonds. Abroad, we have also seen signs of economic deceleration with a sharp
decline in Asian regions and moderating of growth in Europe. This can be
positive for bonds in those countries. We have invested mainly in bonds
offered by the dollar-bloc countries, including the United States, New
Zealand, and Canada. Due to their more stable economies, these holdings
contributed positively to performance in 2001. In addition, we have also
invested a small portion of the portfolio in Europe.
Emerging market bonds have been a strong performing sector over the period but
we have become more cautious with regard to this sector, given the decline in
oil prices and the global economic slowdown. We've thus reduced exposure to
Russia and increased diversification. We continue to put our small emerging
market holdings in countries that have performed well because their geo-
political situation has been improving, and as a result, they have become
upgrade candidates. When a bond's rating is upgraded -- crosses over from
below-investment grade to investment grade -- the bond is considered less
risky and, therefore, its price usually rises.
Although we feel the economic recovery will take longer than initially
anticipated, we think the fundamentals are positive for an increase in
economic growth in the future. Interest rates have remained low, inflation has
been low, and recent tax cuts and fiscal stimulus packages have put more money
in the hands of consumers. An economic recovery would suggest a change in our
interest-rate outlook, and we could expect to make portfolio changes
accordingly.
Respectfully,
/s/ Steven E. Nothern
Steven E. Nothern
Portfolio Manager
Note to Shareholders: Effective September 10, 2001, Steven E. Nothern became
portfolio manager of the fund replacing James T. Swanson.
The opinions expressed in this report are those of MFS and are current only
through the end of the period of the report as stated on the cover. These
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.
The portfolio is actively managed, and current holdings may be different.
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PORTFOLIO MANAGER'S PROFILE
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STEVEN E. NOTHERN, CFA, IS SENIOR VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R)
(MFS(R)). HE IS PORTFOLIO MANAGER OF THE GOVERNMENT SECURITIES PORTFOLIOS OF OUR
MUTUAL FUNDS, VARIABLE ANNUITIES, OFFSHORE INVESTMENT PRODUCTS, AND CLOSED-END
FUNDS.
STEVE JOINED MFS IN 1986 IN THE FIXED INCOME DEPARTMENT AND WAS NAMED VICE
PRESIDENT IN 1989, PORTFOLIO MANAGER IN 1991, AND SENIOR VICE PRESIDENT IN 1993.
HE IS A GRADUATE OF MIDDLEBURY COLLEGE AND HOLDS A MASTER OF BUSINESS
ADMINISTRATION DEGREE FROM BOSTON UNIVERSITY. HE HOLDS THE CHARTERED FINANCIAL
ANALYST (CFA) DESIGNATION AND IS A MEMBER OF THE BOSTON SECURITY ANALYSTS
SOCIETY, INC.
ALL PORTFOLIO MANAGERS AT MFS ARE SUPPORTED BY AN INVESTMENT STAFF OF OVER 160
PROFESSIONALS UTILIZING MFS ORIGINAL RESEARCH(R), A GLOBAL, SECURITY-ORIENTED,
BOTTOM-UP PROCESS OF SELECTING SECURITIES.
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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.
OBJECTIVE: To provide a high level of current income through investments in
fixed-income securities.
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NEW YORK STOCK EXCHANGE SYMBOL: MMT
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PERFORMANCE SUMMARY
For the year ended October 31, 2001
NET ASSET VALUE PER SHARE
October 31, 2000 $6.69
October 31, 2001 $6.60
NEW YORK STOCK EXCHANGE PRICE
October 31, 2000 $6.00
March 2, 2001 (high)* $6.74
September 21, 2001 (low)* $5.53
October 31, 2001 $6.06
*For the period November 1, 2000, through October 31, 2001.
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RISK CONSIDERATIONS
Government guarantees apply to individual securities only and not to prices
and yields of shares in a managed portfolio.
As a nondiversified portfolio, the portfolio invests in a limited number of
companies and may have more risk because a change in one security's value may
have a more significant effect on the trust's net asset value. An investment
in the trust is not a complete investment program.
Investments in foreign securities may be unfavorably affected by interest-rate
and currency-exchange-rate changes, as well as by market, economic, and
political conditions of the countries where investments are made. There may be
greater returns but also greater risk than with U.S. investments.
Investments in lower-rated securities may provide greater returns but may have
greater-than-average risk.
The portfolio may invest in derivative securities, which may include futures
and options. These types of hedging instruments can increase price
fluctuation.
These risks may increase share price volatility. See the prospectus for
details.
NUMBER OF SHAREHOLDERS
As of October 31, 2001, our records indicate that there are 10,926 registered
shareholders and approximately 44,900 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
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
MFS offers a Dividend Reinvestment and Cash Purchase Plan that allows you to
reinvest either all of the distributions paid by the trust or only the long-
term capital gains. Purchases are made at the market price unless that price
exceeds the net asset value (the shares are trading at a premium). If the
shares are trading at a premium, purchases will be made at a discounted price
of either the net asset value or 95% of the market price, whichever is
greater. Twice each year you can also buy shares. Investments from $100 to
$2,500 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. 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 if you have any questions, 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.
RESULTS OF SHAREHOLDER MEETING (Unaudited)
At the annual meeting of shareholders of MFS Multimarket Income Trust, which
was held on October 12, 2001, the following actions were taken:
ITEM 1. Trustees of the trust were elected as follows:
NUMBER OF SHARES
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NOMINEE FOR WITHHOLD AUTHORITY
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Jeffrey L. Shames 118,084,164.339 1,713,289.047
John W. Ballen 118,095,849.339 1,701,604.047
Lawrence H. Cohn 118,005,913.198 1,791,540.188
J. David Gibbons 117,895,363.724 1,902,089.662
William R. Gutow 118,071,477.099 1,725,976.287
J. Atwood Ives 118,180,911.697 1,616,541.689
Abby M. O'Neill 117,922,361.557 1,875,091.829
Lawrence T. Perera 118,207,940.568 1,589,512.818
William J. Poorvu 118,174,432.327 1,623,021.059
Arnold D. Scott 118,220,493.991 1,576,959.395
J. Dale Sherratt 118,070,989.131 1,726,464.255
Elaine R. Smith 118,203,409.470 1,594,043.916
Ward Smith 117,986,226.561 1,811,226.825
ITEM 2. The authorization of the Trustees to adopt an Amended and Restated
Declaration of Trust.
NUMBER OF SHARES
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For 86,825,756.695
Against 3,268,322.890
Abstain 1,766,190.801
Broker Non-votes 27,937,183.000
ITEM 3. The amendment or removal of certain fundamental investment policies.
NUMBER OF SHARES
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For 86,562,461.645
Against 3,269,278.303
Abstain 2,028,530.438
Broker Non-votes 27,937,183.000
ITEM 4. The approval of a new investment advisory agreement with Massachusetts
Financial Services Company.
NUMBER OF SHARES
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For 115,703,152.803
Against 2,300,967.132
Abstain 1,793,333.451
ITEM 5. The ratification of the election of Ernst & Young LLP as the
independent public accountants to be employed by the trust for the
fiscal year ending October 31, 2001.
NUMBER OF SHARES
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For 117,961,707.912
Against 811,793.481
Abstain 1,023,951.993
PORTFOLIO OF INVESTMENTS -- October 31, 2001
Bonds - 94.1%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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U.S. Bonds - 68.1%
Aerospace - 0.1%
Argo Tech Corp., 8.625s, 2007 $ 165 $ 107,250
BE Aerospace, Inc., 8s, 2008 620 458,800
K & F Industries, Inc., 9.25s, 2007 200 189,000
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$ 755,050
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Apparel & Textiles - 0.3%
Synthetic Industries, Inc., 13s, 2008 (In default) $ 2,600 $ 1,170,000
Westpoint Stevens, Inc., 7.875s, 2008 1,225 370,563
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$ 1,540,563
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Automotive
Hayes Wheels International, Inc., 9.125s, 2007
(In default) $ 2,100 $ 47,250
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Banks & Credit Cos. - 1.0%
Bank America Corp., 7.4s, 2011 $ 4,932 $ 5,421,205
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Building - 0.9%
AAF-McQuay, Inc., 8.875s, 2003 $ 1,925 $ 1,915,375
American Standard, Inc., 7.375s, 2008 1,050 1,065,750
Building Materials Corp., 8s, 2007 1,100 825,000
Nortek, Inc., 8.875s, 2008 1,215 1,166,400
Nortek, Inc., 9.25s, 2007 125 121,250
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$ 5,093,775
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Business Services - 0.3%
Iron Mountain, Inc., 8.75s, 2009 $ 1,600 $ 1,664,000
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Chemicals - 0.6%
Huntsman ICI Holdings LLC, 10.125s, 2009 $ 1,025 $ 820,000
Lyondell Chemical Co., 10.875s, 2009 1,750 1,461,250
Sterling Chemicals, Inc., 12.375s, 2006 (In default) 1,285 1,040,850
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$ 3,322,100
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Consumer Goods & Services - 0.4%
Kindercare Learning Centers, Inc., 9.5s, 2009 $ 350 $ 341,250
Samsonite Corp., 10.75s, 2008 1,400 952,000
Williams Scotsman, Inc., 9.875s, 2007 1,250 1,175,000
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$ 2,468,250
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Containers - 0.4%
Ball Corp., 7.75s, 2006 $ 500 $ 510,000
Silgan Holdings, Inc., 9s, 2009 1,500 1,492,500
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$ 2,002,500
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Corporate Asset-Backed - 3.1%
Airplane Pass-Through Trust, 10.875s, 2019 $ 247 $ 99,770
Commercial Mortgage Asset Trust, 6.25s, 2013## 3,500 2,628,281
Continental Airlines Pass-Through Trust, Inc.,
6.545s, 2019 2,572 2,324,733
DLJ Mortgage Acceptance Corp., 8s, 2003 5,750 5,735,635
GMAC Commercial Mortgage Security, Inc., 6.02s, 2033 5,800 4,592,875
Mortgage Capital Funding, Inc., 7.214s, 2007 2,250 2,025,907
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$ 17,407,201
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Energy - 1.1%
Continental Resources, Inc., 10.25s, 2008 $ 1,000 $ 870,000
P&L Coal Holdings Corp., 9.625s, 2008 1,411 1,502,715
Triton Energy Ltd., 9.25s, 2005 3,500 3,876,250
------------
$ 6,248,965
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Energy - Integrated - 0.3%
Chesapeake Energy Corp., 8.125s, 2011## $ 1,620 $ 1,583,550
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Entertainment - 0.6%
Turner Broadcasting Systems, Inc., 8.4s, 2024 $ 3,000 $ 3,158,280
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Financial Institutions - 4.6%
Beaver Valley Funding Corp. II, 9s, 2017 $ 1,491 $ 1,718,497
Commercial Mortgage Acceptance Corp., 5.44s, 2013 8,000 5,713,539
Ford Motor Credit Co., 5.625s, 2004 375 341,583
Ford Motor Credit Co., 7.375s, 2011 5,350 5,448,226
General Motors Acceptance Corp., 6s, 2006 375 339,817
Morgan Stanley Capital, Inc., 7.731s, 2039 5,560 5,004,269
Nationslink Funding Corp., 5s, 2009 5,460 4,149,600
Residential Accredit Loans, Inc., 7.75s, 2027 2,495 2,659,150
------------
$ 25,374,681
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Forest & Paper Products - 1.0%
Buckeye Cellulose Corp., 9.25s, 2008 $ 2,150 $ 2,010,250
Gaylord Container Corp., 9.375s, 2007 400 320,000
Gaylord Container Corp., 9.75s, 2007 1,200 960,000
Riverwood International Corp., 10.25s, 2006 1,250 1,287,500
U.S. Timberlands, 9.625s, 2007 1,700 935,000
------------
$ 5,512,750
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Industrial - 0.4%
Midland Cogeneration Venture Corp., 10.33s, 2002 $ 2,038 $ 2,089,812
--------------------------------------------------------------------------------------------------
Insurance - 0.5%
Americo Life, Inc., 9.25s, 2005 $ 2,650 $ 2,570,500
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Internet
PSINet, Inc., 11s, 2009 (In default) $ 530 $ 41,075
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Machinery - 0.5%
Agco Corp., 9.5s, 2008 $ 2,000 $ 2,060,000
Numatics, Inc., 9.625s, 2008 400 180,000
Thermadyne Manufacturing/Capital Corp., 9.875s, 2008
(In default) 1,500 538,125
------------
$ 2,778,125
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Media - Cable - 7.9%
Adelphia Communications Corp., 9.875s, 2007 $ 1,725 $ 1,612,875
Allbritton Communications Co., 9.75s, 2007 1,005 1,035,150
Century Communications Corp., 9.5s, 2005 450 432,000
Chancellor Media Corp., 8.125s, 2007 3,625 3,770,000
Chancellor Media Corp., 8.75s, 2007 1,000 1,050,000
Charter Communications Holdings, 0s to 2004, 9.92s, 2011 4,000 2,760,000
Continental Cablevision, Inc., 9.5s, 2013 5,000 5,646,200
Cox Communications, Inc., 7.875s, 2009 3,864 4,240,586
Cox Communications, Inc., 7.75s, 2010 1,154 1,267,923
Cox Communications, Inc., 6.75s, 2011 886 910,338
CSC Holdings, Inc., 8.125s, 2009 1,969 2,048,902
Cumulus Media, Inc., 10.375s, 2008 55 55,000
Echostar DBS Corp., 9.375s, 2009 2,425 2,461,375
Fox/Liberty Networks LLC, Inc., 8.875s, 2007 2,450 2,572,500
FrontierVision Holdings LP, 11s, 2006 2,000 2,050,000
FrontierVision Holdings LP, 11.875s, 2007 500 520,000
Granite Broadcasting Corp., 10.375s, 2005 1,221 854,700
Jones Intercable, Inc., 8.875s, 2007 1,500 1,650,165
Lenfest Communications, Inc., 10.5s, 2006 500 596,710
LIN Holdings Corp., 0s to 2003, 10s, 2008 1,500 1,020,000
NTL Communications Corp., 0s to 2003, 12.375s, 2008 1,025 389,500
NTL, Inc., 0s to 2003, 9.75s, 2008 1,860 706,800
TCI Communications Financing III, 9.65s, 2027 5,000 5,618,300
United International Holdings Corp., 0s to 2003,
10.75s, 2008 1,840 294,400
------------
$ 43,563,424
--------------------------------------------------------------------------------------------------
Metals & Minerals - 0.4%
Commonwealth Aluminum Corp., 10.75s, 2006 $ 1,000 $ 930,000
Kaiser Aluminum & Chemical Corp., 9.875s, 2002 1,015 964,250
Kaiser Aluminum & Chemical Corp., 10.875s, 2006 175 133,000
------------
$ 2,027,250
--------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.0%
Consolidated Natural Gas Co., 6.25s, 2011 $ 5,456 $ 5,573,740
--------------------------------------------------------------------------------------------------
Oil Services - 0.4%
AmeriGas Partners LP, 10.125s, 2007 $ 510 $ 526,575
Forest Oil Corp., 10.5s, 2006 1,250 1,306,250
Pemex Project, 9.125s, 2010 112 117,600
------------
$ 1,950,425
--------------------------------------------------------------------------------------------------
Oils
Clark USA, Inc., 10.875s, 2005 $ 60 $ 46,800
--------------------------------------------------------------------------------------------------
Pollution Control - 0.4%
Allied Waste North America, Inc., 10s, 2009 $ 2,375 $ 2,392,813
--------------------------------------------------------------------------------------------------
Printing & Publishing - 0.2%
Hollinger International Publishing, 9.25s, 2007 $ 1,250 $ 1,187,500
--------------------------------------------------------------------------------------------------
Railroad - 0.1%
Security National Financial Corp., 7.5s, 2008 $ 750 $ 790,178
--------------------------------------------------------------------------------------------------
Retail - 0.2%
J.Crew Operating Corp., 10.375s, 2007 $ 1,680 $ 1,310,400
--------------------------------------------------------------------------------------------------
Special Products & Services - 0.1%
Haynes International, Inc., 11.625s, 2004 $ 1,095 $ 547,500
--------------------------------------------------------------------------------------------------
Steel - 0.6%
AK Steel Holdings Corp., 9.125s, 2006 $ 2,804 $ 2,782,970
WCI Steel, Inc., 10s, 2004 825 528,000
------------
$ 3,310,970
--------------------------------------------------------------------------------------------------
Technology - 0.6%
Unisystem Corp., 7.875s, 2008 $ 3,250 $ 3,201,250
--------------------------------------------------------------------------------------------------
Telecom - Wireless - 1.8%
American Tower Corp., 9.375s, 2009 $ 1,650 $ 1,320,000
Centennial Cellular Operating Co., 10.75s, 2008 500 435,000
Crown Castle International Corp., 10.75s, 2011 2,000 1,900,000
Nextel Communications, Inc., 0s to 2002, 9.75s, 2007 300 183,000
Nextel Communications, Inc., 0s to 2003, 9.95s, 2008 1,450 862,750
Nextel International, Inc., 0s to 2003, 12.125s, 2008 2,750 137,500
Rural Cellular Corp., 9.625s, 2008 1,125 1,102,500
Spectrasite Holdings, Inc., 10.75s, 2010 500 280,000
Spectrasite Holdings, Inc., 0s to 2003, 12s, 2008 2,550 841,500
Triton PCS, Inc., 0s to 2003, 11s, 2008 1,460 1,314,000
Western Wireless Corp., 10.5s, 2007 1,500 1,545,000
------------
$ 9,921,250
--------------------------------------------------------------------------------------------------
Telecom - Wireline - 1.6%
Allegiance Telecommunications, Inc., 12.875s, 2008## $ 1,220 $ 817,400
Exodus Communications, Inc., 11.625s, 2010 (In default) 950 204,250
Focal Communications Corp., 0s to 2003, 12.125s, 2008 450 121,500
ICG Holdings, Inc., 0s to 2001, 12.5s, 2006 1,380 124,200
ITC Deltacom, Inc., 9.75s, 2008 3,695 1,330,200
Nextlink Communications, Inc., 10.75s, 2009 760 159,600
Sprint Corp., 6s, 2007## 4,206 4,199,691
Time Warner Telecommunications LLC, 9.75s, 2008 2,500 1,875,000
Worldwide Fiber, Inc., 12s, 2009 (In default) 500 2,245
------------
$ 8,834,086
--------------------------------------------------------------------------------------------------
Tire & Rubber - 0.1%
Day International Group, Inc., 11.125s, 2005 $ 855 $ 778,050
--------------------------------------------------------------------------------------------------
U.S. Government Agencies - 16.6%
FHML, 4.5s, 2004 $ 5,000 $ 5,175,800
Financing Corp., 9.4s, 2018 12,000 16,981,920
FNMA, 6.5s, 2014 - 2031 14,747 15,234,539
FNMA, 6.625s, 2009 10,000 11,257,800
FNMA, 7s, 2029 - 2099 16,200 16,899,678
FNMA, 6s, 2008 5,000 5,438,300
GNMA, 6.5s, 2028 16,566 17,161,494
GNMA, 8s, 2030 1,152 1,219,221
GNMA, 8s, 2030 2,747 2,906,187
------------
$ 92,274,939
--------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 16.5%
U.S. Treasury Bonds, 12s, 2005 $ 14,000 $ 18,073,160
U.S. Treasury Bonds, 12s, 2013 12,000 17,566,920
U.S. Treasury Bonds, 9.875s, 2015 18,429 27,966,007
U.S. Treasury Bonds, 6.125s, 2029 3,500 4,043,060
U.S. Treasury Bonds, 5.375s, 2031 10,000 10,746,900
U.S. Treasury Bonds, 3.375s, 2032 5,000 5,201,550
U.S. Treasury Notes, 4.625s, 2006 5,000 5,229,700
U.S. Treasury Notes, 5s, 2011 2,750 2,908,978
------------
$ 91,736,275
--------------------------------------------------------------------------------------------------
Utilities - Electric - 3.5%
AES Corp., 8.875s, 2011 $ 540 $ 491,400
BVPS II Funding Corp., 8.68s, 2017 991 1,102,933
Niagara Mohawk Power Corp., 7.25s, 2002 1,437 1,480,904
Niagara Mohawk Power Corp., 8.77s, 2018 2,395 2,511,613
Progress Energy Inc., 5.85s, 2008 5,818 5,911,146
PSEG Power LLC, 7.75s, 2011## 2,511 2,752,807
Toledo Edison Co., 8.7s, 2002 2,192 2,272,403
Waterford 3 Funding Entergy Corp., 8.09s, 2017 2,745 2,883,798
------------
$ 19,407,004
--------------------------------------------------------------------------------------------------
Total U.S. Bonds $377,933,486
--------------------------------------------------------------------------------------------------
Foreign Bonds - 26.0%
Algeria
Republic of Algeria, 4.313s, 2004 $ 198 $ 168,300
--------------------------------------------------------------------------------------------------
Argentina
Supercanal Holdings S.A., 11.5s, 2005 (Media -
Cable)## (In default) $ 1,000 $ 100,000
--------------------------------------------------------------------------------------------------
Bermuda - 0.3%
Flag Ltd., 8.25s, 2008 (Telecom - Wireline) $ 1,600 $ 1,152,000
Global Crossing Holdings Ltd., 8.7s, 2007 (Telecom -
Wireline) 1,730 255,175
Global Crossing Holdings Ltd., 9.625s, 2008 (Telecom
- Wireline) 55 9,212
Global Crossing Holdings Ltd., 9.5s, 2009 (Telecom -
Wireline) 540 87,750
------------
$ 1,504,137
--------------------------------------------------------------------------------------------------
Brazil - 0.5%
Federal Republic of Brazil, 8s, 2014 $ 454 $ 307,850
Federal Republic of Brazil, 6s, 2024 50 33,500
Federal Republic of Brazil, 8.875s, 2024 2,389 1,361,730
Federal Republic of Brazil, 12.25s, 2030 18 13,527
Federal Republic of Brazil, 11s, 2040 1,630 1,075,800
------------
$ 2,792,407
--------------------------------------------------------------------------------------------------
Bulgaria - 1.7%
National Republic of Bulgaria, 4.563s, 2011 $ 12,161 $ 9,531,309
National Republic of Bulgaria, 4.563s, 2012 151 122,310
------------
$ 9,653,619
--------------------------------------------------------------------------------------------------
Canada - 2.7%
AT&T Canada, Inc., 0s to 2003, 9.95s, 2008
(Telecommunications) $ 4,150 $ 2,241,000
Government of Canada, 5.75s, 2006 CAD 2,591 1,748,986
Government of Canada, 5.5s, 2009 12,922 8,535,379
PCI Chemicals Canada, Inc., 9.25s, 2007 (Chemicals)
(In default) $ 1,500 540,000
Rogers Cantel, Inc., 9.375s, 2008 (Telecom -
Wireless) 1,800 1,800,000
------------
$ 14,865,365
--------------------------------------------------------------------------------------------------
Colombia
Republic of Colombia, 11.375s, 2008 EUR 80 $ 72,655
--------------------------------------------------------------------------------------------------
Dominican Republic - 0.1%
Dominican Republic, 9.5s, 2006## $ 660 $ 650,925
--------------------------------------------------------------------------------------------------
France
Groupe Danone, 5.625s, 2003 (Food & Beverage Products) EUR 50 $ 46,484
--------------------------------------------------------------------------------------------------
Germany - 8.2%
Coca Cola Erfrischungsgetraenke AG, 5.875s, 2005
(Beverages) EUR 600 $ 566,739
Depfa Deutsche Pfandbriefbk, 5.5s, 2010 (Corporate
Asset-Backed) 960 913,585
Federal Republic of Germany, 6.75s, 2004 6,221 6,083,669
Federal Republic of Germany, 4.75s, 2008 27,987 25,923,572
Federal Republic of Germany, 4.5s, 2009 7,608 6,919,251
Federal Republic of Germany, 5.25s, 2010 5,000 4,773,779
------------
$ 45,180,595
--------------------------------------------------------------------------------------------------
Grand Cayman Islands - 0.7%
Daiwa PB Ltd., 4.2s, 2049 (Banks & Credit Cos.) $ 4,850 $ 3,877,347
--------------------------------------------------------------------------------------------------
Greece - 0.5%
Fage Dairy Industries S.A., 9s, 2007 (Food & Beverage
Products) $ 2,770 $ 2,631,500
--------------------------------------------------------------------------------------------------
Italy - 0.8%
Republic of Italy, 3.25s, 2004 EUR 5,000 $ 4,482,295
--------------------------------------------------------------------------------------------------
Kazakhstan
Kaztransoil Co., 8.5s, 2006 (Natural Gas - Pipelines) $ 75 $ 71,062
--------------------------------------------------------------------------------------------------
Luxembourg - 0.1%
Millicom International Cellular Communications Corp.,
12.5s, 2006 (Telecom - Wireless) $ 390 $ 237,900
--------------------------------------------------------------------------------------------------
Mexico - 1.5%
Bepensa S.A., 9.75s, 2004 (Food & Beverages)## $ 2,611 $ 2,689,330
Durango Corp., 13.125s, 2006 (Forest & Paper Products) 1,285 1,156,500
Grupo Iusacell S.A. de CV, 14.25s, 2006 (Utilities -
Electric) 2,511 2,561,220
Petroleos Mexicanos, 9.5s, 2027 (Oils) 50 51,250
United Mexican States, 8.375s, 2011 80 81,800
United Mexican States, 11.375s, 2016 90 108,450
United Mexican States, 8.125s, 2019 598 569,350
United Mexican States, 11.5s, 2026 642 800,253
United Mexican States, 8.3s, 2031 160 152,400
------------
$ 8,170,553
--------------------------------------------------------------------------------------------------
Netherlands - 1.5%
Tenet Healthcare Corp., 6.375s, 2011 (Medical &
Health Technology Services) $ 4,964 $ 4,963,504
PTC International Finance BV, 0s to 2002, 10.75s,
2007 (Telecom - Wireless) 60 49,800
Tenet Healthcare Corp., 0s, 2002 (Medical & Health
Technology Services) 2,468 2,381,620
United Pan-Europe, 10.875s, 2009 (Media - Cable) 2,200 330,000
Versatel Telecom B.V., 13.25s, 2008 (Telecom -
Wireline) 2,125 718,125
------------
$ 8,443,049
--------------------------------------------------------------------------------------------------
New Zealand - 0.2%
Government of New Zealand, 8s, 2006 NZD 2,270 $ 1,030,099
--------------------------------------------------------------------------------------------------
Panama
Republic of Panama, 4.75s, 2014 $ 117 $ 102,439
Republic of Panama, 9.375s, 2029 45 46,575
------------
$ 149,014
--------------------------------------------------------------------------------------------------
Peru - 0.2%
Republic of Peru, 4s, 2017 $ 244 $ 160,410
Republic of Peru, 4.5s, 2017 1,082 776,449
------------
$ 936,859
--------------------------------------------------------------------------------------------------
Philippines
Philippines Republic, 10.625s, 2025 $ 83 $ 70,758
--------------------------------------------------------------------------------------------------
Russia - 2.9%
Russian Federation, 3s, 2006 $ 550 $ 341,715
Russian Federation, 3s, 2003 14,122 12,603,885
Russian Federation, 5s, 2030## 5,962 2,834,717
------------
$ 15,780,317
--------------------------------------------------------------------------------------------------
South Africa
Republic of South Africa, 12.5s, 2002 ZAR 1,000 $ 106,687
--------------------------------------------------------------------------------------------------
South Korea - 0.3%
Hanvit Bank, 12.75s, 2010 (Banks & Credit Cos.)## $ 1,704 $ 1,806,240
--------------------------------------------------------------------------------------------------
Spain - 1.2%
Kingdom of Spain, 7s, 2005 $ 6,102 $ 6,756,525
--------------------------------------------------------------------------------------------------
Turkey
Republic of Turkey, 11.875s, 2030 $ 57 $ 49,448
--------------------------------------------------------------------------------------------------
United Kingdom - 2.6%
Bank of Ireland, 7.4s, 2049 (Banks & Credit Cos.) EUR 500 $ 485,325
Colt Telecom Group PLC, 0s to 2001, 12s, 2006
(Telecom - Wireline) $ 500 405,000
Colt Telecom Group PLC, 8.875s, 2007 (Telecom -
Wireline) DEM 1,000 354,010
Diamond Cable Communications Corp. PLC, 11.75s, 2005
(Media - Cable) $ 2,000 1,040,000
Dolphin Telecom PLC, 0s to 2003, 11.5s, 2008 (Telecom
- Wireless) 2,515 25,150
Energis PLC, 9.75s, 2009 (Telecom - Wireline) 510 357,000
Global Tele-Systems Ltd., 10.875s, 2008
(Telecommunications) (In default) 165 1,650
Ono Finance PLC, 13s, 2009 (Banks & Credit Cos.) 750 525,000
Ono Finance PLC, 14s, 2011 (Banks & Credit Cos.) 1,000 720,000
Telewest Communications PLC, 9.625s, 2006 (Media -
Cable)## 2,200 1,628,000
United Kingdom Treasury, 6.75s, 2004 GBP 5,533 8,580,170
------------
$ 14,121,305
--------------------------------------------------------------------------------------------------
Venezuela
Republic of Venezuela, 9.25s, 2027 $ 255 $ 169,192
--------------------------------------------------------------------------------------------------
Ukraine
Ukraine Republic, 11s, 2007## $ 181 $ 158,289
--------------------------------------------------------------------------------------------------
Total Foreign Bonds $144,082,926
--------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $541,946,657) $522,016,412
--------------------------------------------------------------------------------------------------
Stocks
--------------------------------------------------------------------------------------------------
SHARES
--------------------------------------------------------------------------------------------------
Colt Telecom Group PLC, ADR (United Kingdom - Telecom
- Wireline)* 1,565 $ 11,190
Golden Books Family Entertainment, Inc. (Printing &
Publishing) 19,975 399
Metal Management, Inc. (Metals & Minerals) 62,567 187,701
RJR Nabisco Inc. (Beverages) 2,302 129,004
--------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,452,770) $ 328,294
--------------------------------------------------------------------------------------------------
Preferred Stock - 1.6%
--------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 11.125% (Media - Cable)* 78,799 $ 8,195,096
Primedia, Inc., 8.625% (Printing & Publishing) 20,000 800,000
Primedia, Inc., 10% (Printing & Publishing) 1,360 61,200
--------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $6,752,910) $ 9,056,296
--------------------------------------------------------------------------------------------------
Convertible Bond - 1.2%
--------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
--------------------------------------------------------------------------------------------------
Colt Telecom Group PLC, 2s, 2006 (United Kingdom -
Telecom - Wireline) $ 3,450 $ 1,853,588
Telewest Finance Jersey Ltd., 6s, 2005
(Entertainment) 925 629,000
Tenet Healthcare Corp., 6s, 2005 (Netherlands -
Medical & Health Technology Services) 4,250 4,021,562
--------------------------------------------------------------------------------------------------
Total Convertible Bond (Identified Cost, $6,365,798) $ 6,504,150
--------------------------------------------------------------------------------------------------
Warrants
--------------------------------------------------------------------------------------------------
SHARES
--------------------------------------------------------------------------------------------------
Ono Finance PLC, Expire 2/15/11 (United Kingdom -
Banks & Credit Cos.) 1,000 $ 20,000
Loral Orion Network Systems, Inc., Expire 1/15/07
(Telecom - Wireless)* 1,625 4,875
Loral Orion Network Systems, Inc., Expire 1/15/07
(Telecom - Wireless)* 700 3,500
--------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $166,689) $ 28,375
--------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.0%
--------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
--------------------------------------------------------------------------------------------------
Ford Motor Credit Co., due 11/14/01, at Amortized Cost $ 16,555 $ 16,538,261
--------------------------------------------------------------------------------------------------
Rights
--------------------------------------------------------------------------------------------------
SHARES
--------------------------------------------------------------------------------------------------
Banco Central de Uruguay, "A" (Uruguay - Banks &
Credit Cos.) 1,250,000 $ --
United Mexican States* 501,000 2,756
--------------------------------------------------------------------------------------------------
Total Rights (Identified Cost, $--) $ 2,756
--------------------------------------------------------------------------------------------------
Repurchase Agreement - 0.3%
--------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
--------------------------------------------------------------------------------------------------
Goldman Sachs Group, LP dated 10/31/01 due 11/01/01,
total to be received $1,527,111 (secured by various
U.S. Treasury and Federal Agency obligations in a
jointly traded account), at Cost $ 1,527 $ 1,527,000
--------------------------------------------------------------------------------------------------
Put Options Purchased - 0.4%
--------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
--------------------------------------------------------------------------------------------------
Brazil Government Bonds/November/68.625 $ 308 $ 6,080
Brazilian Real/April/2.54 23,066 1,198,324
Japanese Yen/November/120 4,637,158 825,414
Japanese Yen/November/125 2,251,214 38,271
--------------------------------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $1,003,853) $ 2,068,089
--------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $575,753,938) $558,069,633
--------------------------------------------------------------------------------------------------
Put Options Written - (0.4)%
--------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
DESCRIPTION/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED) VALUE
--------------------------------------------------------------------------------------------------
Brazilian Real/April/2.54 BRL 23,066 $ (1,198,324)
Japanese Yen/November/125.00 JPY 2,251,214 (38,271)
Japanese Yen/November/120.00 4,637,158 (825,414)
--------------------------------------------------------------------------------------------------
Total Put Options Written (Premiums Received, $2,659,330) $ (2,062,009)
--------------------------------------------------------------------------------------------------
Call Options Written
--------------------------------------------------------------------------------------------------
Brazilian Real/April/2.54 (Premiums Received,
$167,089) BRL 23,066 $ (23,619)
--------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.2)% (1,217,268)
--------------------------------------------------------------------------------------------------
Net Assets - 100.0% $554,766,737
--------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
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 JPY = Japanese Yen
BRL = Brazilian Real MXN = Mexican Peso
CAD = Canadian Dollars NZD = New Zealand Dollar
DEM = Deutsche Marks SEK = Swedish Kronor
DKK = Danish Krone TWD = Taiwan Dollar
EUR = Euro ZAR = South African Rand
GBP = British Pounds
See notes to financial statements.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
------------------------------------------------------------------------------
OCTOBER 31, 2001
------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $575,753,938) $ 558,069,633
Cash 1,021,516
Net receivable for forward foreign currency exchange
contracts 1,489,575
Net receivable for forward foreign currency exchange
contracts subject to
master netting agreements 5,298,683
Receivable for investments sold 39,694,466
Interest and dividends receivable 9,625,851
Other assets 3,434
-------------
Total assets $ 615,203,158
-------------
Liabilities:
Distributions payable $ 283,414
Net payable for forward foreign currency exchange
contracts 3,270,083
Net payable for forward foreign currency exchange
contracts subject to master netting agreements 2,495,750
Payable for investments purchased 51,701,568
Payable for fund shares reacquired 84,000
Written options outstanding, at value (premiums
received, $2,826,419) 2,085,628
Payable to affiliates -
Management fee 5,167
Transfer and dividend disbursing agent fee 18,651
Accrued expenses and other liabilities 492,160
-------------
Total liabilities $ 60,436,421
-------------
Net assets $ 554,766,737
=============
Net assets consist of:
Paid-in capital $ 636,768,021
Unrealized depreciation on investments and translation
of assets and liabilities in foreign currencies (15,934,500)
Accumulated net realized loss on investments and foreign
currency transactions (63,465,810)
Accumulated net investment loss (2,600,974)
-------------
Total $ 554,766,737
=============
Shares of beneficial interest outstanding (124,846,052
issued, less 40,799,600 treasury shares) 84,046,452
==========
Net asset value per share (net assets) outstanding of
$554,766,737 / 84,046,452 shares of beneficial interest
outstanding) $6.60
=====
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Operations
---------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2001
---------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 47,735,474
Dividends 860,992
-------------
Total investment income $ 48,596,466
-------------
Expenses -
Management fee $ 4,546,216
Trustees' compensation 137,353
Custodian fee 259,732
Transfer and dividend disbursing agent fee 229,617
Administrative fee 63,912
Auditing fees 38,832
Legal fees 16,887
Postage 56,977
Printing 66,397
Investor communication expense 368,784
Stock exchange fee 100,879
Miscellaneous 42,915
-------------
Total expenses $ 5,928,501
Fees paid indirectly (202,891)
-------------
Net expenses $ 5,725,610
-------------
Net investment income $ 42,870,856
-------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ (24,950,325)
Written option transactions 2,257,228
Foreign currency transactions (5,114,840)
Futures contracts (801)
-------------
Net realized loss on investments and foreign
currency transactions $ (27,808,738)
-------------
Change in unrealized appreciation -
Investments $ 17,958,132
Written options 1,539,066
Translation of assets and liabilities in
foreign currencies 3,321,168
-------------
Net unrealized gain on investments and foreign
currency translation $ 22,818,366
-------------
Net realized and unrealized loss on
investments and foreign currency $ (4,990,372)
-------------
Increase in net assets from operations $ 37,880,484
=============
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
-------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2001 2000
-------------------------------------------------------------------------------------------------------------
Decrease in net assets:
From operations -
Net investment income $ 42,870,856 $ 50,501,655
Net realized loss on investments and foreign currency
transactions (27,808,738) (27,150,648)
Net unrealized gain (loss) on investments and foreign
currency translation 22,818,366 (8,076,643)
------------- -------------
Increase in net assets from operations $ 37,880,484 $ 15,274,364
------------- -------------
Distributions declared to shareholders -
From net investment income $ (41,366,841) $ (35,553,670)
From paid-in capital (4,152,826) (15,231,841)
------------- -------------
Total distributions declared to shareholders $ (45,519,667) $ (50,785,511)
------------- -------------
Trust share (principal) transactions -
Cost of shares reacquired $ (4,785,254) $ (38,510,906)
------------- -------------
Total decrease in net assets $ (12,424,437) $ (74,022,053)
Net assets:
At beginning of year 567,191,174 641,213,227
------------- -------------
At end of year (including accumulated net investment
loss and accumulated undistributed net investment
income of $2,600,974 and $1,237,386, respectively) $ 554,766,737 $ 567,191,174
============= =============
See notes to financial statements
FINANCIAL STATEMENTS -- continued
Financial Highlights
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2001 2000 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each year):
Net asset value - beginning of year $ 6.69 $ 7.03 $ 7.17 $ 7.79 $ 7.71
------- ------- ------- ------- -------
Income from investment operations# -
Net investment income $ 0.51 $ 0.58 $ 0.56 $ 0.59 $ 0.59
Net realized and unrealized gain (loss)
on investments and foreign currency (0.06) (0.40) (0.14) (0.63) 0.09
------- ------- ------- ------- -------
Total from investment operations $ 0.45 $ 0.18 $ 0.42 $ (0.04) $ 0.68
------- ------- ------- ------- -------
Less distributions declared to
shareholders -
From net investment income $ (0.49) $ (0.41) $ (0.57) $ (0.58) $ (0.62)
From paid in capital (0.05) (0.17) -- -- --
------- ------- ------- ------- -------
Total distributions declared to
shareholders $ (0.54) $ (0.58) $ (0.57) $ (0.58) $ (0.62)
------- ------- ------- ------- -------
Net increase from repurchase of capital
shares $ 0.00+ $ 0.06 $ 0.01 $ -- $ 0.02
------- ------- ------- ------- -------
Net asset value - end of year $ 6.60 $ 6.69 $ 7.03 $ 7.17 $ 7.79
------- ------- ------- ------- -------
Per share market value - end of year $ 6.060 $ 6.000 $ 6.063 $ 6.438 $ 7.125
======= ======= ======= ======= =======
Total return at market value 9.83% 8.84% 2.81% (1.89)% 8.93%
Ratios (to average net assets)/Supplemental data:
Interest expense -- % -- % -- % -- % 0.18%
Other expenses## 1.06% 1.06% 1.05% 1.05% 0.93%
Total expense 1.06% 1.06% 1.05% 1.05% 1.11%
Net investment income 7.65% 8.23% 7.80% 7.70% 7.64%
Portfolio turnover 103% 82% 98% 155% 172%
Net assets at end of year (000 Omitted) $554,767 $567,191 $641,213 $665,881 $723,649
Leverage analysis:
Debt outstanding at end of year (000
Omitted) $ -- $ -- $ -- $ -- $ --
Average daily balance of debt outstanding
(000 Omitted) $ -- $ -- $ -- $ -- $18,854
Average daily number of shares
outstanding (000 Omitted) 84,137 87,811 92,464 92,880 93,951
Average debt per share $ -- $ -- $ -- $ -- $ 0.20
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
+ Per share amount was less than $0.01
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Multimarket Income Trust (the trust) is a non-diversified trust that is
organized as a Massachusetts business trust and is registered under
the Investment Company Act of 1940, as amended, as a 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. The trust
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each 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 foreign
currency exchange 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. 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. Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Future 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. Securities for which there are no such quotations or valuations are
valued in good faith 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.
Deferred Trustee Compensation - Under a Deferred Compensation Plan (the Plan)
independent Trustees may elect to defer receipt of all or a portion of their
annual compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the trust or other MFS trusts selected
by the Trustee. Deferred amounts represent an unsecured obligation of the
trust until distributed in accordance with the Plan.
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 option 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 trust 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
trust is required to deposit with the broker either in cash or securities an
amount equal to a certain percentage of the contract amount. Subsequent
payments are made or received by the trust each day, depending on the daily
fluctuations in the value of the contract, and are recorded for financial
statement purposes as unrealized gains or losses by the trust. The trust's
investment in futures contracts is designed to hedge against anticipated
future changes in interest or exchange rates or securities prices. 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
trust's relative position in one or more currencies without buying and selling
portfolio assets. Investments in equity index contracts or contracts on
related options for purposes other than hedging, may be made when the trust
has cash on hand and wishes to participate in anticipated market appreciation
while the cash is being invested. Should interest or exchange rates or
securities prices move unexpectedly, the trust may not achieve the anticipated
benefits of the futures contracts and may realize a loss.
Forward Foreign Currency Exchange Contracts - The trust may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The trust may enter
into forward foreign currency exchange 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.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is 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 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 may enter in "TBA" (to be announced) purchase commitments to
purchase securities for a fixed unit price at a future date. Although the unit
price has been established, the principal value has not been finalized.
However, the principal amount of the commitments will not fluctuate more than
1.0%. The trust holds, and maintains until settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price, or the
trust may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to settlement date, which is in addition to the risk
of decline in the value of the trust's other assets. Unsettled TBA purchase
commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Investment
Valuations" above.
The trust may enter into "TBA" (to be announced) sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction.
The trust will adopt the provisions of the AICPA Audit and Accounting Guide
for Investment Companies, as revised, effective for fiscal years beginning
after December 15, 2000. As required, the trust will begin amortizing premiums
on debt securities effective November 1, 2001. Prior to this date, the trust
did not amortize premiums on debt securities. The cumulative effect of this
accounting change will have no impact on the total net assets of the trust.
The impact of this accounting change has not been determined, but will result
in a decrease to cost of securities and a corresponding increase in net
unrealized appreciation.
Fees Paid Indirectly - The trust's custody 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 total 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.
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 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. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, mortgage-backed securities, derivatives,
real estate investment trusts, defaulted bonds, capital losses, and amortization
and accretion on debt securities. During the year ended October 31, 2001,
accumulated net investment loss increased by $1,189,549, and accumulated net
realized loss on investments and foreign currency transactions decreased by
$1,189,549, due to differences between book and tax accounting. In addition,
$4,152,826 was designated a tax return of capital distribution. This change had
no effect on the net assets or net asset value per share.
At October 31, 2001, the trust, for federal income tax purposes, had a capital
loss carryforward of $63,179,249 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on:
EXPIRATION DATE
---------------
October 31, 2003 $ 3,003,441
October 31, 2007 18,400,020
October 31, 2008 19,415,923
October 31, 2009 22,359,865
-----------
Total $63,179,249
===========
(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). Included in Trustees' compensation is a net periodic pension
expense of $32,311 for the year ended October 31, 2001.
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:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Transfer Agent - MFSC acts as registrar and dividend disbursing agent for the
Trust. The agreement provides that the Trust will pay MFSC an account
maintenance fee of no more than $9.00 and a dividend services fee of $0.75 per
reinvestment and will reimburse MFSC for reasonable out-of-pocket expenses.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
-----------------------------------------------------------------------------
U.S. government securities $276,868,351 $305,324,500
------------ ------------
Investments (non-U.S. government securities) $304,637,298 $247,013,352
------------ ------------
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:
Aggregate cost $576,057,449
------------
Gross unrealized appreciation $ 24,044,165
Gross unrealized depreciation (42,031,981)
------------
Net unrealized depreciation $(17,987,816)
============
(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. The Trustees have
authorized 124,846,052 full and fractional shares of beneficial interest.
Transactions in trust shares were as follows:
YEAR ENDED OCTOBER 31, 2001 YEAR ENDED OCTOBER 31, 2000
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
Treasury shares
reacquired (771,000) $ (4,785,254) (6,390,600) $(38,510,906)
-------- ------------ ---------- ------------
Net decrease (771,000) (4,785,254) (6,390,600) (38,510,906)
-------- ------------ ---------- ------------
In accordance with the provisions of the trust's prospectus, 771,000 shares of
beneficial interest were purchased by the trust during year ended October 31,
2001 at an average price per share of $6.0976 and a weighted average discount
of 8.73% per share. The trust repurchased 6,390,600 shares of beneficial
interest during the year ended October 31, 2001, at an average price per
shares of $6.026 and a weighted average discount of 13.87% per share.
(6) Line of Credit
The trust and other affiliated trusts participate in a $1.225 billion
unsecured line of credit provided by a syndication of banks under a line of
credit agreement. Borrowings may be made for temporary financing needs.
Interest is charged to each trust, 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 trusts at the end of each quarter. The commitment fee allocated
to the trust for the year ended October 31, 2001, was $5,757. The trust had no
borrowings during the year.
(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, and forward foreign currency
exchange 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
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
-----------------------------------------------------------------------------
Outstanding, beginning of year 7 $ 1,163,526
Options written 29 8,674,985
Options terminated in closing transactions (19) (4,779,065)
Options exercised (8) (1,080,195)
Options expired (5) (1,152,832)
--- -----------
Outstanding, end of year 4 $ 2,826,419
=== ===========
At October 31, 2001, the trust had sufficient cash and/or securities at least
equal to the value of the written options.
Forward Foreign Currency Exchange Contracts
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
----------------------------------------------------------------------------------------------------------
Sales
11/05/01 - 04/30/02 BRL 19,709,509 $ 7,311,954 $ 6,765,434 $ 546,520
12/18/01 DKK 954,663 116,337 115,083 1,254
12/18/01 EUR 34,203,025 31,427,267 30,699,539 727,728
12/18/01 GBP 9,947,758 14,571,476 14,411,244 160,232
12/04/01 MXN 2,300,000 242,770 246,123 (3,353)
12/18/01 NZD 2,560,125 1,075,252 1,051,088 24,164
11/05/01 TWD 8,720,000 251,587 253,120 (1,533)
11/13/01 - 11/26/01 ZAR 2,335,425 252,390 246,709 5,681
------------ ------------ ----------
$ 55,249,033 $ 53,788,340 $1,460,693
============ ============ ==========
Purchases
12/18/01 AUD 16,424 $ 8,425 $ 8,234 $ 191
11/05/01 - 04/30/02 BRL 19,709,509 7,334,142 6,765,435 568,707
12/18/01 EUR 81,585,653 74,004,319 73,228,670 775,649
12/18/01 JPY 5,161,562,965 44,162,105 42,256,657 1,905,448
12/04/01 - 12/21/01 MXN 9,200,000 971,119 982,508 (11,389)
12/18/01 SEK 173,900 16,482 16,272 210
11/13/01 - 12/03/01 ZAR 4,515,621 479,620 477,235 2,385
------------ ------------ ----------
$126,976,212 $123,735,011 $3,241,201
============ ============ ==========
At October 31, 2001, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net payable of $2,495,750 with
Duetsche Bank and net receivables of $3,835,121 with CS First Boston, $238,283
with Merrill Lynch, and $1,225,279 with UBS Warburg.
At October 31, 2001, the trust had sufficient cash and/or securities to cover
any commitments under these contracts.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of MFS Multimarket Income Trust:
We have audited the accompanying statement of assets and liabilities of MFS
Multimarket Income Trust (the Fund), including the portfolio of investments,
as of October 31, 2001, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years
in the period then ended and the financial highlights for each of the five
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 2001,
by correspondence with the custodian and brokers or by other appropriate
auditing procedures where replies from brokers were not received. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
MFS Multimarket Income Trust at October 31, 2001, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG
Boston, Massachusetts
December 7, 2001
--------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
--------------------------------------------------------------------------------
IN JANUARY 2002, SHAREHOLDERS WILL BE MAILED A FORM 1099-DIV REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR 2001.
FOR THE YEAR ENDED OCTOBER 31, 2001, THE AMOUNT OF DISTRIBUTIONS FROM INCOME
ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR CORPORATIONS IS 2.09%.
--------------------------------------------------------------------------------
MFS(R) MULTIMARKET INCOME TRUST
TRUSTEES PORTFOLIO MANAGER
J. Atwood Ives+(2) - Chairman and Chief Steven E. Nothern*
Executive Officer, Eastern Enterprises
(diversified services company) TREASURER
James O. Yost*
Lawrence T. Perera+(1) - Partner, Hemenway &
Barnes (attorneys) ASSISTANT TREASURERS
Mark E. Bradley*
William J. Poorvu+(1) - Adjunct Professor, Robert R. Flaherty*
Harvard University Graduate School of Business Ellen Moynihan*
Administration
SECRETARY
Charles W. Schmidt+(2) - Private Investor Stephen E. Cavan*
Arnold D. Scott* - Senior Executive Vice ASSISTANT SECRETARY
President, Director, and Secretary, MFS James R. Bordewick, Jr.*
Investment Management
TRANSFER AGENT, REGISTRAR, AND
Jeffrey L. Shames* - Chairman and Chief DIVIDEND DISBURSING AGENT
Executive Officer, MFS Investment Management State Street Bank and Trust Company
c/o MFS Service Center, Inc.
Elaine R. Smith+(1) - Independent Consultant P.O. Box 9024
Boston, MA 02205-9824
David B. Stone+(1)(2) - Chairman, North 1-800-637-2304
American Management Corp. (investment advisers)
CUSTODIAN
INVESTMENT ADVISER State Street Bank and Trust Company
Massachusetts Financial Services Company
500 Boylston Street AUDITORS
Boston, MA 02116-3741 Ernst & Young LLP
+ Independent Trustee
* MFS Investment Management
(1) Member of Audit Committee
(2) Member of Portfolio Trading Committee
MFS(R) MULTIMARKET INCOME TRUST ------------
PRSRT STD
[logo] M F S(R) U.S. Postage
INVESTMENT MANAGEMENT Paid
MFS
500 Boylston Street ------------
Boston, MA 02116-3741
(C)2001 MFS Investment Management(R).
500 Boylston Street, Boston, MA 02116. MMTCE-2 12/01 63M