[logo] M F S(R)
INVESTMENT MANAGEMENT
MFS(R) MULTIMARKET
INCOME TRUST
SEMIANNUAL REPORT o APRIL 30,2001
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 21
Notes to Financial Statements ............................................. 25
Trustees and Officers ..................................................... 33
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, and
MFS(R) Heritage Trust Company(SM).
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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,
When we talk to you about the information you want from MFS(R), you tell us
you're looking for answers to three basic questions:
1. How is my money being managed, over both the short and the long term?
2. What's going on in the market, and how will that affect me?
3. How can I get more out of my relationship with my investment
professional?
Traditionally, we've attempted to answer these and other questions through a
range of printed materials sent through the mail, including statements and
annual and semiannual reports. As the Internet has reached an ever-larger
percentage of households, however, we and most other investment management firms
have come to believe that the Web can be an additional -- and potentially more
effective -- way to communicate with investors.
The Internet holds the promise of near-instantaneous delivery, communication
when you want it rather than when we mail it, easy access to the specific
information you want, and an experience customized to each investor. With the
relaunch of our Web site, WWW.MFS.COM, earlier this year, we believe we've moved
a giant step closer to delivering the Internet's promise and created a site that
we're committed to improving every day. Our site now makes it easy for you to
find answers to your three basic questions.
HOW IS MY MONEY BEING MANAGED?
One of the most exciting features of our site is MFS(R) Interactive(SM): One
click to an expert(SM) -- a series of video interviews with MFS portfolio
managers and executives. Located in the "Investor Education" section of the
site, MFS Interactive uses video streamed over the Web to allow you to see and
hear from the people who are managing your money, to give you greater insight
into our investment approach and our response to market conditions. MFS
Interactive includes "Meet the Manager" interviews that cover the background and
investment style of a particular portfolio manager, as well as other Webcasts
that cover a specific fund or investment topic.
WHAT'S GOING ON IN THE MARKET, AND HOW WILL THAT AFFECT ME?
In our view, the tougher the market, the more you need to hear from the people
who are managing your money -- and the past year or so has certainly been one of
the toughest markets in recent memory. We think the immediacy of the Web
provides an ideal way to communicate with you frequently and to offer our views
on the current volatility and uncertainty in the market. On your "My MFS"
homepage, in many MFS Interactive interviews, and in the "News & Commentary"
section of the site, you'll find our views on the current situation and our
market outlook. Our goal is to help you understand what's going on and help you
make decisions based on facts and market history, rather than on the emotion of
the moment.
HOW CAN I GET MORE OUT OF MY RELATIONSHIP WITH MY INVESTMENT PROFESSIONAL?
Perhaps your best resource in a tough market is your own investment
professional. This is the person who may have the best understanding of your
financial goals and your unique financial situation. In our view, the Web is
incredible at delivering information, but it cannot take the place of an
investment professional working with you to incorporate that information into a
long-range financial plan -- a plan that may help you weather market volatility
and help you work toward reaching your own financial goals.
To a large degree, the MFS Web site is about preparing you to have a deeper
dialogue with your investment professional. We believe that if we can help you
"do your homework," you'll be able to spend less time with your investment
professional simply getting information and more time creating a financial plan
and making investment decisions.
On a final note, we want to assure you that our commitment to the Internet does
not signal a lessening of our commitment to other forms of communication. If
you're not yet connected to the Web, rest assured that we will continue to
strive to deliver outstanding communications in print and on the phone, as well
as electronically. We hope, however, that as we continue to improve our site, we
will give you more and more incentive to take advantage of the opportunities
that the Web offers investors.
For some time, I've ended my letters to you by saying that we appreciate your
confidence in MFS and welcome any questions or comments you may have. With the
relaunched WWW.MFS.COM, there is now an easy way for you to e-mail us those
questions or comments and receive a reply. Simply click on "Contact Us" at the
top of our homepage. We look forward to hearing from you.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
May 15, 2001
The opinions expressed in this letter are those of MFS, and no forecasts can be
guaranteed.
MANAGEMENT REVIEW AND OUTLOOK
[Photo of James T. Swanson]
James T. Swanson
Dear Shareholders,
For the six months ended April 30, 2001, the trust provided a total return of
10.84% based on its beginning and ending stock market prices and assuming the
reinvestment of any dividends and capital gains distributions paid during the
period. The trust's total return based on its net asset value (NAV) was 3.32%.
The trust's results compare to returns over the same period for the trust's
benchmarks: 1.26% for the J.P. Morgan Non-Dollar Government Bond Index (the
Morgan Index), 5.52% for the Lehman Brothers Government Bond Index, and 2.82%
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.
In our last report six months ago, we identified the beaten-down corporate
high-yield sector as an area of opportunity and anticipated increasing our
high-yield allocation. (High-yield bonds are issues rated "BBB" and below by the
major credit-rating agencies.) At that time, we felt high-yield bonds had
underperformed because the market had anticipated a slowing economy, which would
make it harder for companies issuing lower-quality bonds to repay their debt.
The high-yield sector turned out to be one of the best-performing areas of the
market over this period. We believe the sector rallied because the bond market
began to look through the economic downturn and anticipate a recovery.
Historically, markets have tended to anticipate economic events by roughly six
to nine months, and that is what we think happened.
Our emerging market holdings were another beneficiary of the market's more
upbeat outlook. Emerging market bonds had been performing well for much of 2000
as we believe the market recognized that many emerging market countries were
starting to get their political and economic houses in order. But the sector
received an additional boost as the market appeared to look beyond the downturn
and favor lower-quality, higher-yielding securities.
The Federal Reserve Board's (the Fed's) program of interest rate cuts was
another factor that we feel pushed investors toward high-yield corporates and
emerging market debt. As rate cuts made lower-yielding investments such as money
market funds and certificates of deposit less rewarding, higher-yielding areas
of the market became more attractive.
Looking at the overall economy, we think the overwhelming story here is the
resiliency of the U.S. economy, despite what has happened in the stock market.
We see two important things happening. One, interest rates have been lowered,
which may make it easier for businesses to start expanding again. And, two,
Congress appears to be poised to cut taxes, which could slightly increase
take-home pay for most of us as early as this fall. We think both of these
factors could help stimulate the economy, and we believe the economic situation
may begin to improve by the third or fourth quarter of this year.
Based on our past experience, an improving economy would probably not be good
for Treasuries because interest rates might eventually rise. However, corporate
bonds and other credit-linked bonds have tended to do well in an improving
economy because investors have more confidence that interest and principal
payments will be made. So we think the best opportunities going forward may
potentially be in U.S. corporate bonds, both high grade and high yield. As of
the end of the period, our high-yield allocation was already at about the
maximum level we feel is consistent with managing risk for our shareholders --
because high-yield bonds have tended to be one of the riskier areas of the bond
market. However, we do anticipate increasing our corporate high-grade exposure.
Convertible bonds are another sector that we think may perform well if the
economy improves, and we plan to add moderately to that sector. Convertible
bonds, or converts, are bonds that can be converted into stock at a
predetermined price.
The disarray in the stock market over the past year or so has beaten down prices
of converts and offered us what we feel are some great buying opportunities. We
think these issues could perform well if the stock market recovers.
In closing, we'd like to offer an example of how our Original Research(SM)
process contributed to recent returns. Turning back to the emerging markets we
referred to earlier, Russian government bonds were one of the best-performing
bonds in the portfolio over the period. We think our emerging market team was
ahead of many investors in spotting this opportunity and allowing us to buy
these bonds at what we feel were attractive prices.
Investors may remember that Russia defaulting on its debt was one of the causes
of the Asian investment crisis in 1998. The country has since undergone
extensive debt restructuring. By mid-2000, our research indicated that the
economic and fiscal reform programs begun under the new leadership regime were
significant and not another cosmetic overlay. At the same time, it appeared to
us that rising oil prices would help the Russian economy, which is highly
dependent on income from oil exports.
Based on these factors, our research indicated that Russian "B"-rated bonds were
potential candidates for a credit upgrade to a "BB" rating, which could drive up
their price. (A credit upgrade indicates the market has increased faith that
principal and interest on a bond will be paid, and thus increases the bond's
value.) We therefore added to our position in Russian government bonds last year
at a time when much of the market did not appear to recognize their potential.
And since the beginning of 2001, we have seen our Russian holdings appreciate as
the market has appeared to have come around to our point of view. However, past
performance is no guarantee of future results.
Respectfully,
/s/ James T. Swanson
James T. Swanson
Portfolio Manager
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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JAMES T. SWANSON, CFA, IS SENIOR VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R)
(MFS(R)). HE IS PORTFOLIO MANAGER OF THE STRATEGIC INCOME PORTFOLIOS AND THE
GLOBAL GOVERNMENTS PORTFOLIOS OF OUR MUTUAL FUNDS AND VARIABLE ANNUITY PRODUCTS.
HE ALSO MANAGES TWO CLOSED-END FUNDS, MFS(R) CHARTER INCOME TRUST AND MFS(R)
MULTIMARKET INCOME TRUST.
JAMES JOINED MFS IN 1985 AS VICE PRESIDENT AND WAS NAMED SENIOR VICE PRESIDENT
IN 1989. HE IS A GRADUATE OF COLGATE UNIVERSITY AND THE HARVARD UNIVERSITY
GRADUATE SCHOOL OF BUSINESS ADMINISTRATION. JAMES HOLDS THE CHARTERED FINANCIAL
ANALYST (CFA) DESIGNATION.
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.
NEW YORK STOCK EXCHANGE SYMBOL: MMT
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PERFORMANCE SUMMARY
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(For the six months ended April 30, 2001)
NET ASSET VALUE PER SHARE
October 31, 2000 $6.69
April 30, 2001 $6.61
NEW YORK STOCK EXCHANGE PRICE
October 31, 2000 $6.00
March 2, 2001 (high)* $6.74
November 13, 2001 (low)* $5.75
April 30, 2001 $6.36
*For the six months ended April 30, 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.
This trust is nondiversified and has more risk than a portfolio that is
diversified. The trust 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 and emerging market 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 April 30, 2001, our records indicate that there are 11,453 registered
shareholders and approximately 41,900 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.
PORTFOLIO OF INVESTMENTS (Unaudited) -- April 30, 2001
Bonds - 94.8%
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Principal Amount
Issuer (000 Omitted) Value
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U.S. Bonds - 71.3%
Aerospace - 0.5%
Argo Tech Corp., 8.625s, 2007 $ 300 $ 262,500
BE Aerospace, Inc., 8s, 2008 2,500 2,406,250
K & F Industries, Inc., 9.25s, 2007 200 205,000
----------------
$ 2,873,750
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Agricultural Products - 0.4%
Agco Corp., 9.5s, 2008 $ 2,000 $ 2,010,000
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Apparel & Textiles - 0.1%
Westpoint Stevens, Inc., 7.875s, 2008 $ 1,225 $ 722,750
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Automotive - 1.7%
Ford Motor Credit Co., 7.375s, 2011 $ 6,050 $ 6,210,325
Hayes Wheels International, Inc., 9.125s, 2007 2,100 1,701,000
Lear Corp., 9.5s, 2006 1,725 1,749,150
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$ 9,660,475
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Building - 0.9%
AAF-McQuay, Inc., 8.875s, 2003 $ 1,925 $ 1,900,937
American Standard, Inc., 7.375s, 2008 1,050 1,050,000
Building Materials Corp., 8s, 2007 1,100 605,000
Nortek, Inc., 9.25s, 2007 125 122,188
Nortek, Inc., 8.875s, 2008 1,215 1,160,325
----------------
$ 4,838,450
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Business Services - 0.3%
Iron Mountain, Inc., 10.125s, 2006 $ 150 $ 159,000
Iron Mountain, Inc., 8.75s, 2009 1,600 1,624,000
----------------
$ 1,783,000
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Chemicals - 0.7%
Huntsman ICI Holdings LLC, 10.125s, 2009 $ 1,025 $ 1,048,062
Lyondell Chemical Co., 10.875s, 2009 1,750 1,767,500
Sterling Chemicals, Inc., 12.375s, 2006 1,285 989,450
----------------
$ 3,805,012
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Computer Software - Systems - 0.7%
Exodus Communications Inc., 11.625s, 2010 $ 950 $ 750,500
Unisystem Corp., 7.875s, 2008 3,250 3,168,750
----------------
$ 3,919,250
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Consumer Goods & Services - 0.3%
Kindercare Learning Centers, Inc., 9.5s, 2009 $ 350 $ 343,000
Williams Scotsman, Inc., 9.875s, 2007 1,250 1,106,250
----------------
$ 1,449,250
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Corporate Asset-Backed - 2.6%
Airplane Pass-Through Trust, 10.875s, 2019 $ 247 $ 154,239
Continental Airlines Pass-Through Trust, Inc.,
6.545s, 2019 2,574 2,515,741
DLJ Mortgage Acceptance Corp., 8s, 2003 5,750 5,634,995
GMAC Commercial Mortgage Security Inc., 6.02s, 2033 5,800 4,272,742
Mortgage Capital Funding, Inc., 7.214s, 2007 2,250 1,949,063
----------------
$ 14,526,780
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Containers - 1.8%
Ball Corp., 7.75s, 2006 $ 500 $ 510,000
Buckeye Cellulose Corp., 9.25s, 2008 2,150 2,160,750
Gaylord Container Corp., 9.75s, 2007 1,200 744,000
Gaylord Container Corp., 9.875s, 2008 1,200 360,000
Riverwood International Corp., 10.25s, 2006 1,250 1,265,625
Silgan Holdings, Inc., 9s, 2009 1,500 1,455,000
Synthetic Industries, Inc., 17s, 2008 2,600 1,950,000
U.S. Timberlands, 9.625s, 2007 1,700 1,394,000
----------------
$ 9,839,375
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Energy - 0.4%
AmeriGas Partners LP, 10.125s, 2007 $ 600 $ 621,000
P&L Coal Holdings Corp., 9.625s, 2008 1,750 1,837,500
----------------
$ 2,458,500
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Financial Institutions - 3.6%
Beaver Valley Funding Corp. II, 9s, 2017 $ 2,124 $ 2,228,012
Midland Cogeneration Venture Corp., 10.33s, 2002 2,992 3,069,188
Morgan Stanley Capital , Inc., 7.677s, 2039 5,560 4,540,332
Nationslink Funding Corp., 5s, 2009 5,460 3,847,594
Residential Accredit Loans Inc., 7.75s, 2027 2,510 2,444,977
Sallie Mae, 4.75s, 2004 4,000 3,977,960
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$ 20,108,063
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Industrial - 0.7%
Allied Waste North America, Inc., 10s, 2009 $ 2,375 $ 2,455,156
Day International Group, Inc., 11.125s, 2005 1,000 1,021,250
Numatics, Inc., 9.625s, 2008 400 264,000
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$ 3,740,406
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Insurance - 0.5%
Americo Life, Inc., 9.25s, 2005 $ 2,650 $ 2,573,813
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Media - Cable - 6.7%
Adelphia Communications Corp., 9.875s, 2007 $ 1,725 $ 1,725,000
Allbritton Communications Co., 9.75s, 2007 1,005 1,020,075
Century Communications Corp., 9.5s, 2005 450 438,750
Chancellor Media Corp., 8.125s, 2007 3,625 3,715,625
Chancellor Media Corp., 8.75s, 2007 1,000 1,050,000
Charter Communications Holdings, 0s to 2004, 9.92s, 2011 4,000 2,860,000
Comcast Corp., 8.875s, 2007 1,500 1,568,985
Continental Cablevision, Inc., 9.5s, 2013 5,000 5,538,500
CSC Holdings, Inc., 8.125s, 2009 5,250 5,228,055
Cumulus Media, Inc., 10.375s, 2008 55 50,875
Echostar DBS Corp., 9.375s, 2009 2,425 2,479,563
Fox/Liberty Networks LLC, Inc., 8.875s, 2007 2,450 2,548,000
FrontierVision Holdings LP, 11s, 2006 2,000 2,070,000
FrontierVision Holdings LP, 0s to 2001, 11.875s, 2007 500 507,500
Granite Broadcasting Corp., 10.375s, 2005 1,221 818,070
Lenfest Communications, Inc., 10.5s, 2006 500 574,635
LIN Holdings Corp., 0s to 2003, 10s, 2008 1,500 1,110,000
Paxson Communications Corp., 11.625s, 2002 2,500 2,543,750
United International Holdings Corp., 0s to 2003,
10.75s, 2008 3,200 1,440,000
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$ 37,287,383
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Medical & Health Technology Services
Quorum Health Group, Inc., 8.75s, 2005 $ 200 $ 200,500
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Metals & Minerals - 0.6%
Commonwealth Aluminum Corp., 10.75s, 2006 $ 1,000 $ 905,000
Haynes International, Inc., 11.625s, 2004 1,585 951,000
Kaiser Aluminum & Chemical Corp., 9.875s, 2002 1,015 999,775
Kaiser Aluminum & Chemical Corp., 10.875s, 2006 175 169,750
Metal Management, Inc., 10s, 2008 (In default) 1,365 40,950
Thermadyne Manufacturing Corp., 9.875s, 2008 1,500 495,000
----------------
$ 3,561,475
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Oil Services - 1.6%
Chesapeake Energy Corp., 9.625s, 2005 $ 1,155 $ 1,261,837
Chesapeake Energy Corp., 8.125s, 2011 1,620 1,571,400
Clark USA, Inc., 10.875s, 2005 60 42,000
Continental Resources, Inc., 10.25s, 2008 1,000 870,000
Forest Oil Corp., 10.5s, 2006 1,250 1,340,625
Pemex Project, 9.125s, 2010## 130 131,300
Triton Energy Ltd., 9.25s, 2005 3,500 3,666,250
----------------
$ 8,883,412
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Printing & Publishing - 0.4%
Hollinger International Publishing, 9.25s, 2007 $ 1,950 $ 2,018,250
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Retail - 0.5%
J.Crew Operating Corp., 10.375s, 2007 $ 1,680 $ 1,520,400
Samsonite Corp., 10.75s, 2008 1,400 1,120,000
----------------
$ 2,640,400
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Steel - 0.1%
AK Steel Holdings Corp., 9.125s, 2006 $ 4 $ 4,080
WCI Steel, Inc., 10s, 2004 825 594,000
----------------
$ 598,080
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Telecommunications - 7.8%
Allegiance Telecommunications, Inc., 12.875s, 2008 $ 1,600 $ 1,504,000
American Tower Corp., 9.375s, 2009 1,650 1,637,625
Centennial Cellular Operating Co., 10.75s, 2008 500 460,000
Cox Communications, Inc., 6.75s, 2011 4,750 4,641,795
Cox Communications, Inc., 7.75s, 2010 1,154 1,211,469
Crown Castle International Corp., 10.75s, 2011 2,000 2,120,000
Focal Communications Corp., 0s to 2003, 12.125s, 2008 450 157,500
ICG Holdings, Inc., 12.5s, 2006 3,340 217,100
Intermedia Communications, Inc., 0s to 2002, 11.25s, 2007 2,875 2,357,500
ITC Deltacom, Inc., 11s, 2007 2,945 1,973,150
ITC Deltacom, Inc., 9.75s, 2008 750 487,500
Level 3 Communications, Inc., 9.125s, 2008 2,885 1,868,037
Metromedia Fiber Network, Inc., 10s, 2008 1,000 665,000
Nextel Communications, Inc., 0s to 2002, 9.75s, 2007 300 207,000
Nextel Communications, Inc., 0s to 2003, 9.95s, 2008 1,450 964,250
Nextel International, Inc., 0s to 2003, 12.125s, 2008 2,750 1,320,000
Nextlink Communications, Inc., 10.75s, 2009 1,375 680,625
NTL Communications Corp., 0s to 2003, 12.375s, 2008 1,025 563,750
NTL, Inc., 0s to 2003, 9.75s, 2008 1,860 1,018,350
PSINet, Inc., 11s, 2009 1,510 105,700
Rural Cellular Corp., 9.625s, 2008 1,125 1,043,438
Spectrasite Holdings, Inc., 10.75s, 2010 500 465,000
Spectrasite Holdings, Inc., 0s to 2003, 12s, 2008 2,550 1,555,500
Sprint Spectrum LP, 0s to 2001, 12s, 2006 2,000 2,063,494
TCI Communications Financing III, 9.65s, 2027 5,000 5,477,400
Time Warner Telecommunications LLC, 9.75s, 2008 2,500 2,450,000
Triton PCS, Inc., 0s to 2003, 11s, 2008 1,460 1,138,800
Turner Broadcasting Systems, Inc., 8.4s, 2024 3,000 3,042,150
Western Wireless Corp., 10.5s, 2007 1,500 1,560,000
Worldwide Fiber, Inc., 12s, 2009 1,000 130,000
----------------
$ 43,086,133
------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 19.9%
Federal Home Loan Bank, 7.5s, 2028 $ 2,213 $ 2,260,759
Financing Corp., 9.4s, 2018 12,000 15,635,640
FNMA, 4.75s, 2004 9,000 8,950,770
FNMA, 5.125s, 2004 4,000 4,018,120
FNMA, 6.625s, 2009 25,990 27,131,221
FNMA, 7s, 2029 7,206 7,268,726
FNMA, 7s, 2030 11,816 11,918,622
FNMA, 7.5s, 2030 15,470 15,791,995
FNMA TBA, 6.5s, 2099 5,600 5,650,736
GNMA, 8s, 2030 11,435 11,828,866
----------------
$ 110,455,455
------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 16.1%
U.S. Treasury Bonds, 12s, 2005 14,000 17,602,760
U.S. Treasury Bonds, 9.875s, 2015 14,825 20,794,434
U.S. Treasury Bonds, 6.125s, 2029 755 778,239
U.S. Treasury Bonds, 6.25s, 2030 2,877 3,032,531
U.S. Treasury Bonds, 5.375s, 2031 2,290 2,159,745
U.S. Treasury Notes, 6.875s, 2006 24,767 26,860,554
U.S. Treasury Notes, 4.25s, 2010 10,448 11,188,860
U.S. Treasury Notes, 6.5s, 2010 6,897 7,429,379
----------------
$ 89,846,502
------------------------------------------------------------------------------------------------------
Utilities - Electric - 2.4%
Aes Corp., 8.875s, 2011 $ 750 $ 746,437
BVPS II Funding Corp., 8.68s, 2017 991 1,043,424
Niagara Mohawk Power Corp., 7.25s, 2002 1,437 1,469,038
Niagara Mohawk Power Corp., 8.77s, 2018 2,433 2,477,865
PSEG Power LLC, 7.75s, 2011 2,511 2,545,059
Toledo Edison Co., 8.7s, 2002 2,192 2,271,570
Waterford 3 Funding Entergy Corp., 8.09s, 2017 2,745 2,752,559
----------------
$ 13,305,952
------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 396,192,416
------------------------------------------------------------------------------------------------------
Foreign Bonds - 23.5%
Algeria - 0.1%
Republic of Algeria, 5.813s, 2004 $ 110 $ 94,600
Republic of Algeria, 1.125s, 2010 JPY 34,158 192,162
Republic of Algeria, 5.5s, 2010 EUR 38 30,316
----------------
$ 317,078
------------------------------------------------------------------------------------------------------
Argentina - 0.1%
Republic of Argentina, 5.563s, 2005 $ 317 $ 255,348
Republic of Argentina, 11.375s, 2017 96 74,976
Republic of Argentina, 10.25s, 2030 230 163,300
Supercanal Holdings S.A., 11.5s, 2005
(Telecommunications)## (In default) 1,000 150,000
----------------
$ 643,624
------------------------------------------------------------------------------------------------------
Bermuda - 0.7%
Flag Ltd., 8.25s, 2008 (Conglomerate) $ 1,600 $ 1,464,000
Global Crossing Holdings Ltd., 9.625s, 2008
(Telecommunications) 2,325 2,197,125
----------------
$ 3,661,125
------------------------------------------------------------------------------------------------------
Brazil - 2.3%
Banco Nacional de Desenvolvi, 11.714s, 2008 (Banks
and Credit Cos.) $ 120 $ 108,300
Federal Republic of Brazil, 5.313s, 2006 56 49,280
Federal Republic of Brazil, 8s, 2014 7,026 5,313,734
Federal Republic of Brazil, 12.75s, 2020 2,500 2,300,000
Federal Republic of Brazil, 8.875s, 2024 60 39,900
Federal Republic of Brazil, 12.25s, 2030 1,462 1,264,630
Federal Republic of Brazil, 11s, 2040 4,964 3,785,050
----------------
$ 12,860,894
------------------------------------------------------------------------------------------------------
Bulgaria - 1.6%
National Republic of Bulgaria, 6.313s, 2011 $ 11,648 $ 8,619,520
------------------------------------------------------------------------------------------------------
Canada - 2.8%
AT&T Canada, Inc., 0s to 2003, 9.95s, 2008
(Telecommunications) $ 4,150 $ 3,483,303
Government of Canada, 6s, 2005 CAD 2,564 1,710,224
Government of Canada, 5.5s, 2009 12,922 8,299,702
PCI Chemicals Canada, Inc., 9.25s, 2007 (Chemicals) $ 1,500 555,000
Rogers Cantel, Inc., 9.375s, 2008
(Telecommunications) 1,800 1,746,000
----------------
$ 15,794,229
------------------------------------------------------------------------------------------------------
Chile
HQI Transelec Chile S.A., 7.875s, 2011 (Utilities -
Electric) $ 50 $ 49,029
------------------------------------------------------------------------------------------------------
Colombia
Republic of Colombia, 11.75s, 2020 $ 70 $ 63,350
------------------------------------------------------------------------------------------------------
France - 0.4%
France Telecom S.A., 8.5s, 2031
(Telecommunications)## $ 1,994 $ 2,024,468
Groupe Danone, 5.625s, 2003 (Consumer Goods &
Services) EUR 50 44,949
----------------
$ 2,069,417
------------------------------------------------------------------------------------------------------
Germany - 2.0%
Federal Republic of Germany, 4.5s, 2009 EUR 12,913 $ 11,088,371
------------------------------------------------------------------------------------------------------
Grand Cayman Islands - 0.8%
Daiwa PB Ltd., 5.993s, 2049 (Banks and Credit Cos.) $ 5,350 $ 4,363,032
------------------------------------------------------------------------------------------------------
Greece - 2.5%
Fage Dairy Industries S.A., 9s, 2007 (Food and
Beverage Products) $ 5,000 $ 4,406,250
Hellenic Republic, 8.9s, 2003 EUR 9,180 8,737,241
Hellenic Republic, 8.7s, 2005 964 966,249
----------------
$ 14,109,740
------------------------------------------------------------------------------------------------------
Indonesia - 0.1%
Indah Kiat Finance Mauritius Ltd., 10s, 2007 (Forest
and Paper Products) (In default) $ 4,000 $ 360,000
------------------------------------------------------------------------------------------------------
Luxembourg - 0.3%
Millicom International Cellular Communications Corp.,
0s to 2001, 13.5s, 2006 (Telecommunications) $ 600 $ 510,000
Republic Orient of Uruguay, 7.875s, 2027 1,102 1,090,356
----------------
$ 1,600,356
------------------------------------------------------------------------------------------------------
Mexico - 1.4%
BBVA Bancomer Capital Trust, 10.5s, 2011
(Conglomerate)## $ 50 $ 51,375
Bepensa S.A., 9.75s, 2004 (Beverages)## 2,611 2,506,560
Cydsa S.A., 9.375s, 2002 (Chemicals) 1,320 541,200
Grupo Iusacell S.A. de CV, 14.25s, 2006
(Telecommunications) 2,511 2,605,162
Grupo Minero Mexico S.A. de CV, 8.25s, 2008 (Metals
and Minerals) 775 631,625
Maxcom Telecomunicacione, 13.75s, 2007
(Telecommunications) 140 49,000
United Mexican States, 9.875s, 2010 99 106,821
United Mexican States, 8.125s, 2019 1,372 1,251,078
United Mexican States, 11.5s, 2026 50 60,375
----------------
$ 7,803,196
------------------------------------------------------------------------------------------------------
Netherlands - 0.8%
PTC International Finance BV, 0s to 2002, 10.75s,
2007 (Telecommunications) $ 60 $ 47,400
Tenet Healthcare Corp., 0s, 2002 (Medical and Health
Technology Services) 2,468 2,171,890
Tjiwi Kimia International Finance BV, 13.25s, 2001
(Forest and Paper Products) (In default) 600 42,000
United Pan-Europe, 10.875s, 2009 (Media) 2,200 1,430,000
Versatel Telecom B.V., 13.25s, 2008
(Telecommunications) 2,125 892,500
----------------
$ 4,583,790
------------------------------------------------------------------------------------------------------
New Zealand - 0.2%
Government of New Zealand, 8s, 2006 NZD 2,270 $ 1,011,917
------------------------------------------------------------------------------------------------------
Panama - 0.4%
Republic of Panama, 9.625s, 2011 $ 115 $ 116,725
Republic of Panama, 4.5s, 2014 155 132,525
Republic of Panama, 10.75s, 2020 1,895 1,937,637
----------------
$ 2,186,887
------------------------------------------------------------------------------------------------------
Philippines
Philippines Republic, 10.625s, 2025 $ 210 $ 177,975
------------------------------------------------------------------------------------------------------
Qatar
State of Qatar, 9.75s, 2030## $ 205 $ 219,350
------------------------------------------------------------------------------------------------------
Russia - 2.7%
Russian Federation, 11.75s, 2003 $ 4,081 $ 4,076,809
Russian Federation, 8.75s, 2005 60 50,250
Russian Federation, 10s, 2007## 100 80,125
Russian Federation, 8.25s, 2010## 822 567,014
Russian Federation, 12.75s, 2028## 130 116,513
Russian Federation, 5s, 2030## 24,742 10,329,597
----------------
$ 15,220,308
------------------------------------------------------------------------------------------------------
South Africa
Republic of South Africa, 12.5s, 2002 ZAR 1,000 $ 126,039
------------------------------------------------------------------------------------------------------
South Korea
Hanvit Bank, 12.75s, 2010 (Banks and Credit Cos.)## $ 228 $ 232,560
------------------------------------------------------------------------------------------------------
Spain - 1.2%
Kingdom of Spain, 7s, 2005 $ 6,102 $ 6,408,058
------------------------------------------------------------------------------------------------------
United Kingdom - 2.8%
Colt Telecom Group PLC, 8.875s, 2007
(Telecommunications) DEM 1,000 $ 437,643
Colt Telecom Group PLC, 0s to 2001, 12s, 2006
(Telecommunications) $ 500 495,000
Diamond Cable Communications Corp. PLC, 0s to 2000,
11.75s, 2005 (Telecommunications) 2,000 1,740,000
Dolphin Telecom PLC, 0s to 2003, 11.5s, 2008
(Telecommunications) 2,515 179,194
Energis PLC, 9.75s, 2009 (Telecommunications) 1,000 970,000
Global Tele-Systems Ltd., 10.875s, 2008
(Telecommunications) 165 4,950
Ono Finance PLC, 13s, 2009 (Media) 750 577,500
Ono Finance PLC, 14s, 2011 (Media) 1,000 890,000
Telewest Communications PLC, 9.625s, 2006 (Cable
Television) 2,200 2,002,000
United Kingdom Treasury, 6.75s, 2004 GBP 5,533 8,331,026
----------------
$ 15,627,313
------------------------------------------------------------------------------------------------------
Venezuela - 0.1%
Republic of Venezuela, 9.25s, 2027 $ 380 $ 263,150
------------------------------------------------------------------------------------------------------
Uruguay - 0.2%
Banco Central de Uruguay, "A", 6.75s, 2021 (Banks and
Credit Cos.) $ 1,250 $ 1,143,750
------------------------------------------------------------------------------------------------------
Total Foreign Bonds $130,604,058
------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $556,759,746) $526,796,474
------------------------------------------------------------------------------------------------------
Stocks
------------------------------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------------------------------
Colt Telecom Group PLC, ADR (United Kingdom -
Telecommunications)* 1,565 $ 85,293
Golden Books Family Entertainment, Inc. (Printing and
Publishing)* 19,975 2,397
RJR Nabisco Inc. (Consumer Goods & Services) 2,302 134,828
------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $87,770) $ 222,518
------------------------------------------------------------------------------------------------------
Preferred Stock - 1.8%
------------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 11.125% (Media - Cable)* 78,799 $ 8,549,691
Primedia, Inc., 10% (Printing and Publishing) 1,360 114,920
Primedia, Inc., 8.625% (Printing and Publishing) 20,000 1,555,000
------------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $6,752,910) $ 10,219,611
------------------------------------------------------------------------------------------------------
Convertible Bond - 1.3%
------------------------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
------------------------------------------------------------------------------------------------------
Colt Telecom Group PLC, 2s, 2006 (United Kingdom -
Telecommunications) $ 3,825 $ 2,467,401
Telewest Finance Jersey Ltd., 6s, 2005
(Entertainment)## 925 758,500
Tenet Healthcare Corp., 6s, 2005 (Netherlands -
Medical and Health Technology Services) 4,250 3,915,312
Versatel Telecom B.V., 4s, 2005 (Netherlands -
Telecommunications) 50 15,523
------------------------------------------------------------------------------------------------------
Total Convertible Bond (Identified Cost, $7,073,978) $ 7,156,736
------------------------------------------------------------------------------------------------------
Rights
------------------------------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------------------------------
Banco Central de Uruguay (Uruguay - Banks and Credit
Cos.) 1,250,000 $ --
United Mexican States* (Mexico) 501,000 6,012
------------------------------------------------------------------------------------------------------
Total Rights (Identified Cost, $--) $ 6,012
------------------------------------------------------------------------------------------------------
Warrants
------------------------------------------------------------------------------------------------------
Issuer Shares Value
------------------------------------------------------------------------------------------------------
Loral Orion Network Systems, Inc., Expire 1/15/07
(Telecommunications)* 1,625 $ 4,875
Loral Orion Network Systems, Inc., Expire 1/15/07
(Telecommunications)* 700 3,500
------------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $28,729) $ 8,375
------------------------------------------------------------------------------------------------------
Short-Term Obligations - 1.6%
------------------------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
------------------------------------------------------------------------------------------------------
FNMA, due 5/01/01, at Amortized Cost $ 8,569 $ 8,569,000
------------------------------------------------------------------------------------------------------
Call Options Purchased - 0.1%
------------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted)
------------------------------------------------------------------------------------------------------
Argentina Government Bonds/May/92 $ 11
$ 224 2
Brazilian Real/April/2.54 23,066 676,282
Federal Republic of Brazil/July/73.5 78 2,691
Mexican Peso/May/10.0025 5,201 40,502
------------------------------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $509,096) $ 719,587
------------------------------------------------------------------------------------------------------
Put Options Purchased - 0.7%
------------------------------------------------------------------------------------------------------
Argentina Government Bonds/May/78.4 $ 14,000 $ 1,138
Brazilian Real/April/2.54 23,066 304,581
Euro/May/0.929 24,571 31,033
Euro/June/0.94 28,089 64,297
Euro/June/0.952 25,132 34,405
Hong Kong Dollars/October/7.7828 98,547 48,288
Japanese Yen/May/123 5,199,082 499,112
Japanese Yen/June/128 101,099 283,885
Japanese Yen/June/130 3,423,791 58,205
Japanese Yen/October/142.5 175,726 98,582
Japanese Yen/October/125 3,787,608 606,017
Japanese Yen/November/120 4,637,158 1,465,342
Japanese Yen/Australian Dollars/July/62.5 1,897,195 445,841
Japanese Yen/Euro/June/116.15 3,079,755 43,116
Mexican Peso/May/10.0025 5,201 --
------------------------------------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $4,229,886) $ 3,983,842
------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $584,011,115) $ 557,682,155
------------------------------------------------------------------------------------------------------
Put Options Written - (0.2)%
------------------------------------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted) Value
------------------------------------------------------------------------------------------------------
Japanese Yen/November/120.00 JPY 4,637,158 $ (1,465,342)
Russia Government Bonds/June/38.28 RUS 330 (2,816)
------------------------------------------------------------------------------------------------------
Total Put Options Written (Premiums Received, $1,486,857) $ (1,468,158)
------------------------------------------------------------------------------------------------------
Call Options Written - (0.1)%
------------------------------------------------------------------------------------------------------
Argentina Government Bonds/May/96.00 ARG 224 $ (45)
Argentina Government Bonds/May/84.40 140 (833)
Euro/June/0.87 AUD 25,699 (187,345)
Japanese Yen/Australian Dollars/July/59.00 JPY 1,790,952 (155,813)
Japanese Yen/June/115.50 91,226 (99,983)
Japanese Yen/Euro/June/106.30 2,818,579 (180,389)
------------------------------------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $1,321,628) $ (624,408)
------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities 30,369
------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 555,619,958
------------------------------------------------------------------------------------------------------
*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.
ARG = Argentine Peso HKD = Hong Kong Dollars
AUD = Australian Dollars JPY = Japanese Yen
BRL = Brazilian Real MXN = Mexican Peso
CAD = Canadian Dollars NZD = New Zealand Dollars
CHF = Swiss Francs PHP = Philippines Peso
DEM = Deutsche Marks RUS = Russian Ruble
DKK = Danish Krone SEK = Swedish Kronor
EUR = Euro VEB = Venezuelan Bolivar
GBP = British Pounds ZAR = South African Rand
GRD = Greek Drachma
See notes to financial statements.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
------------------------------------------------------------------------------
APRIL 30, 2001
------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $584,011,015) $557,682,155
Cash 984
Net receivable for forward foreign currency exchange
contracts to sell 843,674
Receivable for investments sold 9,010,040
Interest and dividends receivable 11,115,624
Other assets 3,559
------------
Total assets $578,656,036
------------
Liabilities:
Payable to custodian $ 117
TBA sale commitments, at value (premiums received,
$5,798,704) 5,794,747
Distributions payable 344,740
Net payable for forward foreign currency exchange
contracts to purchase 3,034,010
Net payable for forward foreign currency exchange
contracts subject to master
netting agreements 4,682,887
Payable for investments purchased 6,385,841
Payable for trust shares reacquired 84,000
Written options outstanding, at value (premiums
received, $2,808,485) 2,092,566
Payable to affiliates --
Management fee 35,580
Transfer and dividend disbursing agent fee 20,405
Administrative fee 1,065
Accrued expenses and other liabilities 560,120
------------
Total liabilities $ 23,036,078
------------
Net assets $555,619,958
============
Net assets consist of:
Paid-in capital $640,920,846
Unrealized depreciation on investments and translation
of assets and liabilities in foreign currencies (32,515,739)
Accumulated net realized loss on investments and foreign
currency transactions (51,918,660)
Accumulated net investment loss (866,489)
------------
Total $555,619,958
============
Shares of beneficial interest outstanding
(124,846,052 authorized, less 40,799,600 treasury
shares) 84,046,452
==========
Net asset value per share (net assets / shares of
beneficial interest outstanding) $6.61
=====
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
------------------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30, 2001
------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 24,977,193
Dividends 321,741
------------
Total investment income $ 25,298,934
------------
Expenses -
Management fee $ 2,345,299
Trustees' compensation 62,081
Custodian fee 158,092
Transfer and dividend disbursing agent fee 119,582
Administrative fee 34,760
Auditing fees 19,032
Legal fees 1,771
Postage 36,033
Printing 28,210
Investor communication expense 119,034
Stock exchange fee 52,631
Miscellaneous 38,001
------------
Total expenses $ 3,014,526
Fees paid indirectly (119,987)
------------
Net expenses $ 2,894,539
------------
Net investment income $ 22,404,395
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(11,739,824)
Written option transactions 2,180,354
Foreign currency transactions (1,359,743)
------------
Net realized loss on investments and foreign currency
transactions $(10,919,213)
------------
Change in unrealized appreciation (depreciation) -
Investments $ 9,313,577
TBA sale commitments 3,957
Futures contracts 996
Written options 1,514,194
Translation of assets and liabilities in foreign
currencies (4,595,597)
--------------
Net unrealized gain on investments and foreign
currency translation $ 6,237,127
------------
Net realized and unrealized loss on investments
and foreign currency $ (4,682,086)
------------
Increase in net assets from operations $ 17,722,309
============
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
--------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2001 YEAR ENDED
(UNAUDITED) OCTOBER 31, 2000
--------------------------------------------------------------------------------------------------------
Decrease in net assets:
From operations -
Net investment income $ 22,404,395 $ 50,501,655
Net realized loss on investments and foreign currency
transactions (10,919,213) (27,150,648)
Net unrealized gain (loss) on investments and foreign
currency translation 6,237,127 (8,076,643)
------------ ------------
Increase in net assets from operations $ 17,722,309 $ 15,274,364
------------ ------------
Distributions declared to shareholders -
From net investment income $(24,508,270) $(35,553,670)
From paid-in capital
-- (15,231,841)
------------ ------------
Total distributions declared to shareholders $(24,508,270) $(50,785,511)
------------ ------------
Trust share (principal) transactions -
Cost of shares reacquired $ (4,785,255) $(38,510,906)
------------ ------------
Total decrease in net assets $(11,571,216) $(74,022,053)
------------ ------------
Net assets:
At beginning of period 567,191,174 641,213,227
------------ ------------
At end of period (accumulated net investment loss and
accumulated undistributed net investment income of
$866,489 and $1,237,386, respectively) $555,619,958 $567,191,174
============ ============
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Financial Highlights
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
SIX MONTHS ENDED --------------------------------------------------------------------------
APRIL 30, 2001 2000 1999 1998 1997 1996
(UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $ 6.69 $ 7.03 $ 7.17 $ 7.79 $ 7.71 $ 7.57
------- ------- ------- ------- ------- -------
Income from investment operations# -
Net investment income $ 0.27 $ 0.58 $ 0.56 $ 0.59 $ 0.59 $ 0.57
Net realized and unrealized
gain (loss) on investments
and foreign currency (0.07) (0.40) (0.14) (0.63) 0.09 0.12
------- ------- ------- ------- ------- -------
Total from investment
operations $ 0.20 $ 0.18 $ 0.42 $ (0.04) $ 0.68 $ 0.69
------- ------- ------- ------- ------- -------
Less distributions declared to
shareholders -
From net investment income $ (0.29) $ (0.41) $ (0.57) $ (0.58) $ (0.62) $ (0.59)
From paid-in capital
-- (0.17) -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions
declared to shareholders $ (0.29) $ (0.58) $ (0.57) $ (0.58) $ (0.62) $ (0.59)
------- ------- ------- ------- ------- -------
Net increase from repurchase of
capital shares $ 0.01 $ 0.06 $ 0.01 $ -- $ 0.02 $ 0.04
------- ------- ------- ------- ------- -------
Net asset value - end of period $ 6.61 $ 6.69 $ 7.03 $ 7.17 $ 7.79 $ 7.71
------- ------- ------- ------- ------- -------
Per share market value - end of
period $ 6.36 $ 6.00 $ 6.063 $ 6.438 $ 7.125 $ 7.125
======= ======= ======= ======= ======= =======
Total return 10.84%++ 8.84% 2.81% (1.89)% 8.93% 19.32%
Ratios (to average net assets)
Supplemental data:
Interest expense -- % -- % -- % -- % 0.18% -- %
Other expenses## 1.07%+ 1.06% 1.05% 1.05% 0.93% 1.11%
Total expense 1.07%+ 1.06% 1.05% 1.05% 1.11% 1.11%
Net investment income 7.92%+ 8.23% 7.80% 7.70% 7.64% 7.49%
Portfolio turnover 43% 82% 98% 155% 172% 214%
Net assets at end of period
(000 Omitted) $555,620 $567,191 $641,213 $665,881 $723,649 $739,882
Leverage analysis:
Debt outstanding at end of
period (000 Omitted) $ -- $ -- $ -- $ -- $ -- $ --
Average daily balance of debt
outstanding (000 Omitted) $ -- $ -- $ -- $ -- $18,854 $ --
Average daily number of shares
outstanding (000 Omitted) 84,215 87,811 92,464 92,880 93,951 100,810
Average debt per share $ -- $ -- $ -- $ -- $ 0.20 $ --
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(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.
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. 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. 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.
Non-U.S. dollar denominated short-term obligations are valued at amortized cost
as calculated in the foreign currency and translated into U.S. dollars at the
closing daily exchange rate. Futures contracts, options, and options on futures
contracts listed on commodities exchanges are reported at market value using
closing settlement prices. Over-the-counter options on securities are valued by
brokers. Over-the-counter currency options are valued through the use of a
pricing model which takes into account foreign currency exchange spot and
forward rates, implied volatility, and short-term repurchase rates. Securities
for which there are no such quotations or valuations are valued in good faith by
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 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 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.
TBA Purchase Commitments - The trust may enter into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond time. Although the unit price has been established, the principal
value has not been finalized. However, the amount of the commitments will not
fluctuate more than 1.0% for the principal amount. 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 risk is in addition to the risk of decline in the value the trusts
other assets. Unsettled TBA purchase commitments are valued at the current
market value of the underlying securities, according to the procedures described
under "Investment Valuation" above.
TBA Sale Commitments - The trust may enter into TBA 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.
Unsettled TBA sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under the
"Investment Valuation" above. The contract is "marked-to-market" daily and the
change in market value is recorded by the trust as an unrealized gain or loss.
If the TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the trust realizes a gain or loss. If the trust delivers
securities under the commitment, the trust realizes a gain or loss from the sale
of the securities based upon the unit price established at the date the
commitment was entered into.
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 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.
At April 30, 2001, the trust, for federal income tax purposes, had a capital
loss carryforward of $40,819,384 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization. The
amount of the carryover and the expiration dates are:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------
October 31, 2003 $ 3,003,441
October 31, 2007 $18,400,020
October 31, 2008 $19,415,923
(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 $17,063 for the six months ended April 30, 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 $102,773,196 $112,393,652
------------ ------------
Investments (non-U.S. government securities) $154,623,617 $115,284,316
------------ ------------
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 $584,208,028
------------
Gross unrealized appreciation $ 22,896,848
Gross unrealized depreciation (49,422,721)
------------
Net unrealized depreciation $(26,525,873)
============
(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:
SIX MONTHS ENDED APRIL 30, 2001 YEAR ENDED OCTOBER 31, 2000
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------------
Treasury shares reacquired 771,000 $4,785,255 6,390,000 $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 the six months ended
April 30, 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, 2000, 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 funds 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 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, 2001, was $3,074. 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.
Written Option Transactions
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
------------------------------------------------------------------------------
Outstanding, beginning of period 7 $1,163,526
Options written 19 6,195,110
Options terminated in closing transactions (10) (2,857,188)
Options exercised (3) (540,131)
Options expired (5) (1,152,832)
--- ----------
Outstanding, end of period 8 $2,808,485
=== ==========
At April 30, 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 06/13/01 AUD 27,866,451 $13,990,573 $14,201,881 $(211,308)
06/05/01 - 11/05/01 BRL 20,424,906 10,341,305 9,406,882 934,423
06/13/01 DKK 954,663 118,986 113,383 5,603
06/13/01 EUR 7,284,427 6,616,533 6,457,437 159,096
08/17/01 - 09/07/01 JPY 4,667,250 45,856 38,297 7,559
05/07/01 - 05/09/01 MXN 1,572,512 162,242 169,592 (7,350)
06/13/01 NZD 13,168,427 5,381,937 5,426,286 (44,349)
----------- ----------- ---------
$36,657,432 $35,813,758 $ 843,674
=========== =========== =========
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
------------------------------------------------------------------------------------------------------------
Purchases
06/05/01 - 11/05/01 BRL 20,424,906 $10,172,656 $ 9,406,882 $ (765,774)
06/13/01 CHF 195,578 118,532 112,914 (5,618)
06/13/01 EUR 64,389,541 58,790,417 57,079,488 (1,710,929)
06/13/01 JPY 4,038,060,000 33,400,000 32,852,325 (547,675)
10/23/01 PHP 19,000,000 362,595 357,158 (5,437)
06/13/01 SEK 173,900 17,913 16,971 (942)
05/07/01 ZAR 3,158,095 390,853 393,218 2,365
------------ ------------ -----------
$103,252,966 $100,218,956 $(3,034,010)
============ ============ ===========
At April 30, 2001, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net payable of $1,060,799 with
Deutsche Bank, $78,015 with CS First Boston Bank, $1,043,948 with Merrill Lynch,
and $2,500,125 with UBS Warburg.
At April 30, 2001, the trust had sufficient cash and/or securities to cover any
commitments under these contracts.
Futures Contracts
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION APPRECIATION
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes June 2001 200,000 Short $862
U.S. Treasury Notes June 2001 100,000 Short 134
----
$996
====
At April 30, 2001, the trust had sufficient cash and/or securities to cover any
margin requirements under these contracts.
TBA Sale Commitments
DESCRIPTION PRINCIPAL AMOUNT SETTLEMENT DATE COST VALUE
--------------------------------------------------------------------------------
GNMA, 8s, 2099 5,601,766 05/21/01 5,798,704 $5,794,747
----------
At April 30, 2001, the trust had sufficient cash and/or securities to cover this
commitment.
MFS(R) MULTIMARKET INCOME TRUST
TRUSTEES PORTFOLIO MANAGER
J. Atwood Ives+(2) - Chairman and Chief James T. Swanson*
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 Laura F. Healy*
Administration Ellen Moynihan*
Charles W. Schmidt+(2) - Private Investor SECRETARY
Stephen E. Cavan*
Arnold D. Scott* - Senior Executive Vice
President, Director, and Secretary, MFS ASSISTANT SECRETARY
Investment Management James R. Bordewick, Jr.*
Jeffrey L. Shames* - Chairman and Chief TRANSFER AGENT, REGISTRAR, AND
Executive Officer, MFS Investment Management DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
Elaine R. Smith+(1) - Independent Consultant c/o MFS Service Center, Inc.
P.O. Box 9024
David B. Stone+(1)(2) - Chairman, North Boston, MA 02205-9824
American Management Corp. (investment advisers) 1-800-637-2304
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street
Boston, MA 02116-3741
+ 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
(R)2001 MFS Investment Management(R).
500 Boylston Street, Boston, MA 02116. MMTCE-3 06/01 59.6M