UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4975
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MFS MULTIMARKET INCOME TRUST
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
James R. Bordewick, Jr.
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2004
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) MULTIMARKET INCOME TRUST 10/31/04
ANNUAL REPORT
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[logo] M F S(R)
INVESTMENT MANAGEMENT
ANNUAL REPORT
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 5
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MANAGEMENT REVIEW 6
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PERFORMANCE SUMMARY 8
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DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN 11
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RESULTS OF SHAREHOLDER MEETING 12
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PORTFOLIO OF INVESTMENTS 13
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FINANCIAL STATEMENTS 29
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NOTES TO FINANCIAL STATEMENTS 34
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 47
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TRUSTEES AND OFFICERS 48
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PROXY VOTING POLICIES AND
INFORMATION 52
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QUARTERLY PORTFOLIO DISCLOSURE 52
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FEDERAL TAX INFORMATION 53
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CONTACT INFORMATION BACK COVER
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LETTER FROM THE CEO
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Dear Shareholders,
[Photo of Robert J. Manning]
For most investors, the main factor in determining long-term success is asset
allocation - how they spread their money among stocks, bonds, and cash. In
fact, the total returns of investors may be more influenced by their asset
allocation strategy than by their security selection within each asset class.
The principle behind asset allocation is simple: by diversifying across a
variety of types of securities, investors reduce the overall risk of their
portfolio because gains in one area are likely to offset losses in another.
One of the dangers of not having an asset allocation plan is the temptation to
simply chase performance, by moving money into whichever asset class appears
to be outperforming at the moment. The problem with this approach is that by
the time a particular area of the market comes into favor, investors may have
already missed some of the best performance. We would suggest that one way to
benefit from swings in the market is to acquire a diversified portfolio so
that investors hold a range of asset classes before the market swings in their
direction.
UNDERSTAND YOUR EMOTIONS
It usually takes a bear market for people to appreciate the benefits of
diversification. At MFS, we believe proper asset allocation is important in
all market environments. But we understand that there are emotional components
of investment decisions that sometimes keep investors from achieving their
long term goals. The three common behaviors that negatively impact investment
decisions are overconfidence, looking backwards, and loss aversion.
o Overconfidence. After experiencing gains in the market, particularly
during a bull market, investors have a natural tendency to overestimate
their own abilities. During the global bull market of the late 1990s, for
example, a large number of investors traded their own stocks and made
significant profits. However, most of these same investors later handed
back those profits - and then some - because they focused more on
short-term blips in the market and less on the fundamental factors that
affect a company's long-term prospects.
o Looking backwards. Although security prices are determined by
expectations about the future, many investors make choices based on the
recent past. Investors who have achieved momentary success in the market
tend to take on too much risk, believing that better- than-average
returns can be easily duplicated. On the other hand, those who have had
negative experiences tend to become overly cautious and take on too
little risk. Recent historical experience tends to dictate an investor's
frame of reference and may lead to irrational decisions.
o Loss aversion. Simply put, investors would rather avoid the immediate
pain of losses than enjoy the future pleasure of gains. As a result, some
investors tend to overreact to short-term downturns in the market by
seeking to mitigate their losses, rather than remaining invested to
benefit from the long-term growth potential of the stock and bond
markets.
THINK LIKE A PROFESSIONAL INVESTOR
Asset allocation helps reduce the emotional factors that tend to affect the
long-term returns of investors. Professional investors - those who manage
assets for money management firms, pension funds, and endowments - have tended
to outperform the average retirement investor because they focus on asset
allocation. For example, the investment performance of the average 401(k)
participant has lagged these professional investors by more than two
percentage points a year, on average, over the past 10 years.(1)
We think asset allocation is one of the most important decisions for
investors. A study of the performance of 91 large U.S. corporate pension plans
with assets of more than $100 million over a 10-year period beginning in 1974
concluded that asset allocation policies accounted for 93.6% of their returns,
while individual security selection and the timing of their investments
accounted for only 6.4% for their overall performance.(2)
Professional investors target a realistic level of return based on the amount
of risk they are willing to take, then set allocations to meet their goals. On
average, U.S. professional investors allocate 35% to 40% of their assets to
domestic equity stocks; 20% to 30% to fixed income issues; 10% to
international stocks; and between 10% and 20% to other investment classes such
as real estate.(3) And within those categories, they hold a broad range of
styles and asset classes.
In contrast, 401(k) participants who held company stock in their retirement
plans at the end of 2002 had roughly 42% of their retirement assets in company
stock while the rest was allocated to either growth or value stock funds.(4)
These participants virtually ignored the broad range of equity, fixed-income,
and international offerings provided by their retirement plans.
ALLOCATE, DIVERSIFY, REBALANCE
We recommend working with a professional adviser to find an optimal mix of
investments based on your individual goals. In our view, a disciplined asset
allocation strategy is composed of three simple steps: allocate, diversify
and rebalance.
o Allocate. Investors should work with their financial adviser to specify
their long-term goals and tolerance for risk. Then investors should
allocate their assets across the major asset classes - stocks, bonds, and
cash - to help them pursue an investment return that is consistent with
their risk tolerance level.
o Diversify. By diversifying their assets, investors trade some performance
in the top performing categories for a more predictable and stable
portfolio. At the same time, investors should include different
investment styles and market capitalizations of stocks and a range of
fixed-income investments, as well as U.S. and non-U.S. securities.
Because security subclasses tend to move in and out of favor during
various market and economic environments, a broad portfolio increases the
benefits of diversification.
o Rebalance. We suggest that investors consult with their professional
advisers periodically to rebalance their portfolios to maintain the
percentages that they have dedicated to each asset class. Allocations can
shift as markets rise and fall, making for a riskier or more conservative
portfolio than an investor originally intended. For example, a portfolio
of 50% stocks and 50% bonds at the start of 2000 would have shifted to
32% stocks and 68% bonds at the end of 2002 because of the weak stock
market.(5)
In short, these three simple concepts - allocate, diversify and rebalance -
help take emotion out of the investment process and help prevent investors
from trying to outguess the market. An asset allocation strategy cannot turn a
down market cycle into a good one, but it is an invaluable tool to manage risk
and keep investors on track toward reaching their long-term investment goals.
A DISCIPLINED INVESTMENT PROCESS IS PARAMOUNT
Disciplined diversification has helped investors pursue long-term, above-
average results through the years. Since 1924, when we invented the mutual
fund, MFS(R) has strived to give investors the products and tools they need to
maintain well-diversified portfolios. MFS provides a variety of products in
each asset class as well as a family of asset allocation funds. These asset
allocation portfolios cover a range from conservative to moderate, growth, and
aggressive growth allocations, each with a strategy based on a distinct level
of risk. We recommend developing a comprehensive financial plan with an
investment advisor who is familiar with your risk tolerance, your individual
goals, and your financial situation.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management
November 15, 2004
Asset allocation and diversification can not guarantee a profit or protect
against a loss.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
(1) Source: Watson Wyatt
(2) "Determinants of Portfolio Performance," in Financial Analysts Journal,
January/February 1995, by
Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower
(3) Source: Greenwich Associates
(4) Source: Hewitt Associates
(5) Source: Lipper Inc.
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PORTFOLIO COMPOSITION
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PORTFOLIO STRUCTURE*
Bonds 93.4%
Cash & Other Assets 6.0%
Stocks 0.6%
MARKET SECTORS*
High Yield Corporates 29.9%
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High Grade Corporates 22.8%
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International Sovereigns 17.8%
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Commercial Mortgage Backed 9.9%
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Emerging Market Debt 9.5%
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Cash & Other Net Assets 6.0%
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U.S. Government Agencies 1.9%
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Mortgage Backed 1.0%
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Domestic Convertibles 0.4%
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Residential Mortgage Backed 0.3%
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Asset Backed 0.3%
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Domestic Equity 0.1%
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International Equity 0.1%
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CREDIT QUALITY**
AAA 28.3%
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AA 2.8%
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A 4.1%
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BBB 18.8%
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BB 19.6%
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B 18.8%
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CCC 4.1%
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CC 0.9%
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C 0.0%
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D 0.0%
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Not Rated 1.0%
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Equity 0.6%
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Other 1.0%
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PORTFOLIO FACTS
Average Duration 4.2
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Average Life 7.9 Yrs
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Average Maturity 10.3 Yrs
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Average Quality BBB
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Average Quality Short Term Bonds A-1
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COUNTRY WEIGHTINGS
United States 66.1%
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Germany 7.8%
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United Kingdom 2.7%
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Mexico 2.3%
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Russia 2.0%
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France 1.9%
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Brazil 1.6%
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Ireland 1.6%
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Canada 1.6%
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Other 12.4%
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*For purposes of this graphical presentation, the bond component includes
both accrued interest on bonds and the equivalent exposure from any
derivative holdings, if applicable. The bond weight in this portfolio
includes the equivalent exposure of a short U.S. Treasury futures contract.
**Credit quality ratings are based on a weighted average of each security's
rating from Moody's Investors Service. If not rated by Moody's, the rating
will be that assigned by Standard & Poor's. Likewise, if not assigned a
rating by Standard & Poor's, it will be based on the ratings assigned by
Fitch, Inc. If not rated by any of the three agencies, the security is
considered not rated, except for U.S. Treasuries and mortgage-backed
securities, which are included in the "AAA"-rating category.
Percentages are based on net assets as of 10/31/04.
The portfolio is actively managed, and current holdings may be different.
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MANAGEMENT REVIEW
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SUMMARY OF RESULTS
To gauge performance of this portfolio, we use a variety of benchmarks
reflecting the varying results of the different markets in which we invest. For
the year ended October 31, 2004, MFS Multimarket Income Trust's performance at
net asset value surpassed three of the five benchmarks. The fund trailed the
pure domestic high-yield and emerging markets debt benchmarks.
MARKET ENVIRONMENT
In 2004, many measures of global economic growth, including employment,
corporate spending, and earnings growth continued to improve, though we feel
that near-record-high oil prices, concerns about rising interest rates, and an
unsettled geopolitical environment adversely affected global markets. The U.S.
Federal Reserve Board raised interest rates three times during the period, and
this appears to have set expectations for an ongoing series of modest rate
hikes.
PERFORMANCE RELATIVE TO THE TRUST'S BENCHMARKS
The trust's focus on domestic debt obligations, both high-yield and
investment-grade, was the most influential positive factor in relative
performance. By rating quality, "BB"- and "B"-rated bonds were the most
significant contributors, followed by "BBB"-rated securities. Among the top
performing domestic corporate investments were three commercial mortgage- backed
securities, two of which had credit rating upgrades to investment grade during
the 12-months. One, a security issued by Morgan Stanley Capital in 1997, was
upgraded all the way from "BB" to "AA" by the Fitch credit rating service. The
other was a security issued by First Union-Lehman Brothers, which Fitch raised
from "BB" to "BBB". The last was an asset-backed security issued by Commercial
Mortgage Acceptance Corporation.
Investments in foreign high-grade debt also added to relative returns. Falling
long-term rates in Europe led to price gains by several positions, including
debt issued by the governments of Germany, Finland, the Netherlands,
and Spain.
Three issues, cable companies Continental Cable, and TCI Communications as well
as cellular provider Dobson Communications, held back relative results for the
period. We subsequently sold our position in Dobson Communications.
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS fund. References to specific securities are
not recommendations of such securities and may not be representative of any MFS
fund's current or future investments.
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PERFORMANCE SUMMARY THROUGH 10/31/04
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All results are historical. Investment return and principal value will
fluctuate, and shares, when sold, may be worth more or less than their original
cost. More recent returns may be different from those shown. Past performance is
no guarantee of future results.
PRICE SUMMARY
Year ended 10/31/04
Date Price
Net asset value 10/31/2003 $6.76
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10/31/2004 $6.94
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New York Stock Exchange price 10/31/2003 $6.41
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2/13/2004 (high)* $6.48
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5/10/2004 (low)* $5.68
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10/31/2004 $6.30
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* For the period from November 1, 2003, through October 31, 2004.
TOTAL RETURN VS BENCHMARKS
Year ended 10/31/04
New York Stock Exchange price** 4.62%
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Net asset value** 9.28%
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Citigroup World Government Bond Non-Dollar Hedged Index# 4.62%
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Lehman Brothers Aggregate Bond Index# 5.53%
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Lehman Brothers Credit Index# 6.59%
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Lehman Brothers Government/Mortgage Index# 5.20%
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Lehman Brothers High Yield Index# 12.32%
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J.P. Morgan Emerging Markets Bond Index Global# 12.79%
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* Includes reinvestment of dividend and capital gain distributions.
# Source: Standard and Poor's Micropal, Inc.
INDEX DEFINITIONS
Citigroup World Government Bond Non-Dollar Hedged Index - measures the
government bond markets around the world, ex-U.S.
Lehman Brothers Aggregate Bond Index - a measure of the U.S. bond market.
Lehman Brothers Credit Index - measures the U.S. investment-grade corporate
bond market.
Lehman Brothers Government/Mortgage Index - measures government and mortgage
securities markets.
Lehman Brothers High Yield Index - measures the high-yield bond market.
J.P. Morgan Emerging Markets Bond Index Global (the EMBI Global) - tracks debt
instruments in the emerging markets (includes a broader array of countries
than the EMBI Plus).
Note to Shareholders: Effective 10/31/04, the Lehman Brothers Credit Index and
the Lehman Brothers Government/Mortgage Index were added to the trust in place
of the Lehman Brothers Aggregate Bond Index.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
The trust's shares may trade at a discount to net asset value. Shareholders do
not have the right to cause the trust to repurchase their shares at net asset
value. The trust's shares also may trade at a premium to their net asset
value. When trust shares trade at a premium, buyers pay more than the asset
value underlying trust shares, and shares purchased at a premium would receive
less than the amount paid for them in the event of the trust's liquidation. As
a result, the total return that is calculated based on the net asset value and
New York Stock Exchange price can be different.
The trust's monthly distributions may include a return of capital to
shareholders. Distributions that are treated for federal income tax purposes as
a return of capital will reduce each shareholder's basis in his or her shares
and, to the extent the return of capital exceeds such basis, will be treated as
gain to the shareholder from a sale of shares. Returns of shareholder capital
have the effect of reducing the trust's assets and increasing the trust's
expense ratio.
KEY RISK CONSIDERATIONS
The portfolio may invest in derivative securities, which may include futures
and options. These types of instruments can increase price fluctuation.
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
Government guarantees apply to the underlying securities only and not to the
prices and yields of the portfolio.
Investments in high yield or lower-rated securities may provide greater
returns but are subject to greater-than-average risk.
Because the portfolio invests in a limited number of companies a change in one
security's value may have a more significant effect on the portfolio's value.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
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The trust 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 may be made in
any amount over $100 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 from the plan, you can receive the value of the reinvested
shares in one of two ways: a check for the value of the full and fractional
shares, or a certificate for the full shares and a check for the fractional
shares.
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RESULTS OF SHAREHOLDER MEETING (unaudited) - 10/31/04
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At the annual meeting of shareholders of MFS Multimarket Income Trust, which
was held on October 7, 2004, the following actions were taken:
ITEM 1. The election of four Trustees of the trust.
NUMBER OF SHARES
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NOMINEE FOR WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. 74,687,541.067 1,250,872.434
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Robert J. Manning 74,752,238.964 1,186,174.537
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Lawrence T. Perera 74,754,388.149 1,184,025.352
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Elaine R. Smith 74,765,226.493 1,173,187.008
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ITEM 2. The ratification of the election of Ernst & Young LLP as the
independent registered public accounting firm to be employed by the
trust for the fiscal year ending October 31, 2004.
NUMBER OF SHARES
For 74,773,189.075
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Against 520,759.434
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Abstain 664,464.992
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PORTFOLIO OF INVESTMENTS - 10/31/04
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The Portfolio of Investments is a complete list of all securities owned by your trust.
It is categorized by broad-based asset classes.
Bonds - 96.8%
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ISSUER PAR AMOUNT $ VALUE
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Advertising & Broadcasting - 2.3%
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Allbritton Communications Co., 7.75%, 2012 $1,000,000 $1,042,500
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Azteca Holdings S.A. de C.V., 12.25%, 2008 15,000 15,825
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Clear Channel Communications, Inc., 6.5%, 2005 EUR 275,000 360,604
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DIRECTV Holdings LLC, 8.375%, 2013 $600,000 684,000
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Lamar Media Corp., 7.25%, 2013 1,370,000 1,486,450
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Muzak LLC, 10%, 2009 435,000 389,325
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News America Holdings, 7.7%, 2025 517,000 619,002
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News America, Inc., 6.55%, 2033 529,000 569,134
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Paxson Communications Corp., 0% to 2006, 12.25% to 2009 2,275,000 1,979,250
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Radio One, Inc., 8.875%, 2011 1,425,000 1,574,625
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Spanish Broadcasting System, Inc., 9.625%, 2009 1,400,000 1,471,750
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TV Azteca S.A. de C.V., 10.5%, 2007 17,000 17,340
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Young Broadcasting, Inc., 8.5%, 2008 2,750,000 2,942,500
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$13,152,305
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Aerospace - 1.2%
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BAE Systems Holdings, Inc., 6.4%, 2011## $1,922,000 $2,154,975
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Hexcel Corp., 9.875%, 2008 1,215,000 1,360,800
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Hexcel Corp., 9.75%, 2009 800,000 842,000
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K&F Industries, Inc., 9.25%, 2007 157,000 160,140
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K&F Industries, Inc., 9.625%, 2010 1,500,000 1,740,000
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Rolls-Royce PLC, 6.375%, 2007 EUR 300,000 416,396
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$6,674,311
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Airlines - 0.6%
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Continental Airlines, Inc., 7.568%, 2006 $580,000 $414,549
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Continental Airlines, Inc., 6.545%, 2019 2,318,765 2,246,166
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Continental Airlines, Inc., 7.566%, 2020 1,073,054 831,980
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$3,492,695
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Apparel Manufacturers - 0.4%
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Levi Strauss & Co., 7%, 2006 $2,325,000 $2,275,594
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Asset Backed & Securitized - 10.4%
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ARCap REIT, Inc., 6.0996%, 2045## $2,000,000 $1,684,655
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Airplane Pass-Through Trust, 10.875%, 2019 246,925 1,235
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Amresco Commercial Mortgage Funding I, 7%, 2029 3,570,000 3,790,574
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Asset Securitization Corp., 8.0046%, 2029 1,877,956 1,997,840
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CPS Auto Receivables Trust, 2.89%, 2009## 789,064 783,146
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Chalet Finance 1 PLC, 2.345%, 2013 EUR 300,000 384,194
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Commercial Mortgage Acceptance Corp., 5.44%, 2030## $3,500,000 3,588,993
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Credit Suisse First Boston Mortgage, 6.38%, 2035 2,384,781 2,656,114
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Crest 2004 1 Ltd., 7%, 2040##* 2,000,000 1,940,510
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DEPFA Bank, 5.5%, 2010 EUR 960,000 1,354,920
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DLJ Commercial Mortgage Corp., 6.04%, 2031 $2,000,000 2,034,782
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Deutsche Mortgage & Asset Receiving Corp., 7.5%, 2031 1,847,000 1,585,879
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Europa Ltd., 2.436%, 2027 EUR 187,322 239,872
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Falcon Auto Dealership LLC, 3.8379%, 2025^^ $9,134,548 1,664,106
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First Union National Bank Commercial Mortgage Trust,
0.9673%, 2043## 31,070,185 1,530,872
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First Union-Lehman Brothers Bank of America,
0.5417%, 2035^^ 78,247,531 1,739,505
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First Union-Lehman Brothers Commercial Mortgage Trust, 7%,
2029## 1,847,000 2,120,043
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First Union-Lehman Brothers Commercial Mortgage Trust,
7.5%, 2029 1,846,973 2,159,010
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GE Capital Commercial Mortgage Corp., 6.496%, 2033 2,384,781 2,671,531
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GMAC Commercial Mortgage Securities, Inc., 6.02%, 2033 2,542,000 2,465,941
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GMAC Commercial Mortgage Securities, Inc.,
7.6527%, 2034## 1,853,000 2,108,751
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Granites Mortgages PLC, 5.15%, 2042 EUR 350,000 471,904
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Lehman Brothers Commercial Conduit Mortgage Trust,
0.9637%, 2030^^ $21,035,721 762,292
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Morgan Stanley Capital I, Inc., 6.86%, 2010 2,215,000 2,364,538
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Morgan Stanley Capital I, Inc., 1.563%, 2039## 14,915,475 1,148,342
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Mortgage Capital Funding, Inc., 7.214%, 2007 2,250,000 2,403,095
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Mortgage Capital Funding, Inc., 0.8748%, 2031^^ 22,883,310 564,504
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Mortgage Capital Funding, Inc., 6.337%, 2031 2,384,781 2,580,892
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Multi-Family Capital Access One, Inc., 6.65%, 2024 133,842 148,154
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Nationslink Funding Corp., 5%, 2009 4,560,000 4,411,758
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RMAC PLC, 2.316%, 2036## EUR 230,000 294,228
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Residential Accredit Loans, Inc., 7.75%, 2027 $1,216,326 1,214,598
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TIAA Retail Estate CDO Ltd., 7.17%, 2032## 4,093,074 4,342,414
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$59,209,192
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Automotive - 2.9%
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Continental AG, 6.875%, 2008 EUR 100,000 $144,056
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DaimlerChrysler N.A. Holdings Corp., 8.5%, 2031 $1,251,000 1,547,087
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Dana Corp., 9%, 2011 1,210,000 1,439,900
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Ford Motor Credit Co., 7.875%, 2010 2,058,000 2,283,672
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Ford Motor Credit Co., 7%, 2013 1,000,000 1,056,054
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General Motors Acceptance Corp., 6%, 2006 EUR 375,000 499,880
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General Motors Acceptance Corp., 8%, 2031 $1,367,000 1,414,908
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Lear Corp., 8.11%, 2009 4,725,000 5,425,703
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TRW Automotive, Inc., 9.375%, 2013 567,000 652,050
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TRW Automotive, Inc., 11%, 2013 130,000 154,700
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Tenneco Automotive, Inc., 10.25%, 2013 1,705,000 1,986,325
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$16,604,335
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Banks & Credit Companies - 2.7%
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BBVA Bancomer Capital Trust I, 10.5%, 2011## $1,240,000 $1,353,150
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Banco Mercantil del Norte S.A., 5.875%, 2014## 3,174,000 3,245,415
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Bank of Ireland, 7.4%, 2049 EUR 500,000 759,555
-------------------------------------------------------------------------------------------------
Credit Suisse Group, 7.974%, 2010 265,000 405,140
-------------------------------------------------------------------------------------------------
HBOS Capital Funding LP, 6.071% to 2014,
4.07% to 2049## $1,543,000 1,657,367
-------------------------------------------------------------------------------------------------
Kazkommerts International B.V., 10.125%, 2007## 250,000 273,125
-------------------------------------------------------------------------------------------------
Kazkommerts International B.V., 7%, 2009## 40,000 40,000
-------------------------------------------------------------------------------------------------
Kazkommerts International B.V., 8.5%, 2013 64,000 66,880
-------------------------------------------------------------------------------------------------
Kazkommerts International B.V., 8.5%, 2013## 329,000 343,805
-------------------------------------------------------------------------------------------------
Mizuho Financial Group, Inc., 4.75%, 2014## EUR 127,000 168,527
-------------------------------------------------------------------------------------------------
Mizuho Financial Group, Inc., 5.79%, 2014## $1,633,000 1,699,217
-------------------------------------------------------------------------------------------------
National Westminster Bank PLC, 6.625% to 2009,
4.303% to 2049 EUR 330,000 476,959
-------------------------------------------------------------------------------------------------
RBS Capital Trust II, 6.425% to 2034, 4.1125% to 2049 $833,000 866,461
-------------------------------------------------------------------------------------------------
SG Capital Trust I, 7.875% to 2010, 5.255% to 2049 EUR 300,000 457,460
-------------------------------------------------------------------------------------------------
Turanalem Finance B.V., 8%, 2014## $2,031,000 1,990,380
-------------------------------------------------------------------------------------------------
VTB Capital S.A., 7.5%, 2011## 100,000 103,500
-------------------------------------------------------------------------------------------------
Woori Bank, 5.75%, 2014## 1,300,000 1,365,000
-------------------------------------------------------------------------------------------------
$15,271,941
-------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 4.9%
-------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 8.125%, 2009 $3,469,000 $3,815,900
-------------------------------------------------------------------------------------------------
Charter Communications, Inc., 8.625%, 2009 3,300,000 2,656,500
-------------------------------------------------------------------------------------------------
Continental Cablevision, Inc., 9.5%, 2013 7,341,000 8,041,823
-------------------------------------------------------------------------------------------------
Cox Communications, Inc., 4.625%, 2013 1,744,000 1,662,470
-------------------------------------------------------------------------------------------------
Lenfest Communications, Inc., 10.5%, 2006 500,000 554,811
-------------------------------------------------------------------------------------------------
Mediacom Broadband LLC, 9.5%, 2013 1,235,000 1,210,300
-------------------------------------------------------------------------------------------------
Mediacom Broadband LLC, 11%, 2013 1,170,000 1,257,750
-------------------------------------------------------------------------------------------------
Rogers Cable, Inc., 5.5%, 2014 1,500,000 1,402,500
-------------------------------------------------------------------------------------------------
TCI Communications Financing III, 9.65%, 2027 5,000,000 5,846,855
-------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.8%, 2012 1,135,000 1,462,491
-------------------------------------------------------------------------------------------------
$27,911,400
-------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.2%
-------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc., 5.7%, 2012 $2,665,000 $2,838,582
-------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter, Inc., 6.6%, 2012 2,538,000 2,860,458
-------------------------------------------------------------------------------------------------
Refco Finance Holdings LLC, 9%, 2012## 860,000 928,800
-------------------------------------------------------------------------------------------------
$6,627,840
-------------------------------------------------------------------------------------------------
Building - 0.4%
-------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $1,015,000 $1,121,575
-------------------------------------------------------------------------------------------------
Building Materials Corp. of America, 7.75%, 2014## 800,000 794,000
-------------------------------------------------------------------------------------------------
Jacuzzi Brands, Inc., 9.625%, 2010 500,000 562,500
-------------------------------------------------------------------------------------------------
$2,478,075
-------------------------------------------------------------------------------------------------
Business Services - 1.6%
-------------------------------------------------------------------------------------------------
Iron Mountain, Inc., 8.625%, 2013 $985,000 $1,066,263
-------------------------------------------------------------------------------------------------
Iron Mountain, Inc., 7.75%, 2015 1,630,000 1,760,400
-------------------------------------------------------------------------------------------------
Lucent Technologies, Inc., 5.5%, 2008 2,050,000 2,101,250
-------------------------------------------------------------------------------------------------
Unisys Corp., 7.875%, 2008 2,655,000 2,724,694
-------------------------------------------------------------------------------------------------
Xerox Corp., 7.625%, 2013 1,415,000 1,556,500
-------------------------------------------------------------------------------------------------
$9,209,107
-------------------------------------------------------------------------------------------------
Chemicals - 2.1%
-------------------------------------------------------------------------------------------------
Equistar Chemicals LP, 10.625%, 2011 $1,225,000 $1,414,875
-------------------------------------------------------------------------------------------------
Huntsman International LLC, 10.125%, 2009 1,900,000 1,995,000
-------------------------------------------------------------------------------------------------
JohnsonDiversey Holding, Inc., 0% to 2007, 10.67% to 2013 1,465,000 1,252,575
-------------------------------------------------------------------------------------------------
Kronos International, Inc., 8.875%, 2009 EUR 95,000 130,643
-------------------------------------------------------------------------------------------------
Lyondell Chemical Co., 11.125%, 2012 $1,500,000 1,768,125
-------------------------------------------------------------------------------------------------
Nalco Co., 7.75%, 2011 695,000 752,338
-------------------------------------------------------------------------------------------------
Nova Chemicals Corp., 7.4%, 2009 1,358,000 1,487,010
-------------------------------------------------------------------------------------------------
Nova Chemicals Corp., 6.5%, 2012 1,350,000 1,420,875
-------------------------------------------------------------------------------------------------
Rhodia S.A., 8.875%, 2011 2,090,000 1,954,150
-------------------------------------------------------------------------------------------------
$12,175,591
-------------------------------------------------------------------------------------------------
Conglomerates - 0.3%
-------------------------------------------------------------------------------------------------
Invensys PLC, 9.875%, 2011## $1,500,000 $1,597,500
-------------------------------------------------------------------------------------------------
Construction - 0.3%
-------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 8%, 2009 $1,565,000 $1,764,538
-------------------------------------------------------------------------------------------------
Consumer Cyclical - 0.4%
-------------------------------------------------------------------------------------------------
GEO Group, Inc., 8.25%, 2013 $1,110,000 $1,165,500
-------------------------------------------------------------------------------------------------
KinderCare Learning Centers, Inc., 9.5%, 2009 1,113,000 1,126,913
-------------------------------------------------------------------------------------------------
$2,292,413
-------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.4%
-------------------------------------------------------------------------------------------------
ASSA ABLOY AB, 5.125%, 2006 EUR 130,000 $173,734
-------------------------------------------------------------------------------------------------
K2, Inc., 7.375%, 2014## $535,000 583,150
-------------------------------------------------------------------------------------------------
Remington Arms Co., Inc., 10.5%, 2011 500,000 442,500
-------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp., 8.625%, 2008 700,000 577,500
-------------------------------------------------------------------------------------------------
Werner Holding Co., Inc., 10%, 2007 600,000 555,000
-------------------------------------------------------------------------------------------------
$2,331,884
-------------------------------------------------------------------------------------------------
Containers - 1.0%
-------------------------------------------------------------------------------------------------
Crown European Holdings S.A., 9.5%, 2011 $1,580,000 $1,801,200
-------------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc., 8.875%, 2009 515,000 565,213
-------------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc., 8.25%, 2013 2,090,000 2,299,000
-------------------------------------------------------------------------------------------------
Pliant Corp., 13%, 2010 1,190,000 1,109,675
-------------------------------------------------------------------------------------------------
$5,775,088
-------------------------------------------------------------------------------------------------
Defense Electronics - 0.3%
-------------------------------------------------------------------------------------------------
L-3 Communications Holdings, Inc., 7.625%, 2012 $1,455,000 $1,607,775
-------------------------------------------------------------------------------------------------
Electronics - 0.2%
-------------------------------------------------------------------------------------------------
Flextronics International Ltd., 6.5%, 2013 $1,130,000 $1,186,500
-------------------------------------------------------------------------------------------------
Emerging Market Agencies - 1.3%
-------------------------------------------------------------------------------------------------
Pemex Finance Ltd., 9.69%, 2009 $905,000 $1,040,750
-------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 8.625%, 2022 1,321,000 1,525,755
-------------------------------------------------------------------------------------------------
Petroleos Mexicanos, 9.5%, 2027 1,309,000 1,613,343
-------------------------------------------------------------------------------------------------
Petroliam Nasional Berhad, 7.75%, 2015 1,634,000 1,983,774
-------------------------------------------------------------------------------------------------
Petronas Capital Ltd., 7.875%, 2022## 987,000 1,212,746
-------------------------------------------------------------------------------------------------
$7,376,368
-------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 4.0%
-------------------------------------------------------------------------------------------------
Aries Vermogensverwaltungs, 9.6%, 2014## $1,250,000 $1,460,938
-------------------------------------------------------------------------------------------------
Banco de La Republica Oriental del Uruguay, 10.5%, 2006 UYU 3,188,828 122,106
-------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 3.125%, 2012 $1,279,422 1,173,869
-------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8%, 2014 6,145,542 6,103,291
-------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8.875%, 2019 - 2024 289,000 279,345
-------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 3.0625%, 2024 314,000 276,320
-------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 11%, 2040 1,134,000 1,279,152
-------------------------------------------------------------------------------------------------
Republic of Argentina, 1.98%, 2012 99,000 75,290
-------------------------------------------------------------------------------------------------
Republic of Colombia, 8.25%, 2014 422,000 422,000
-------------------------------------------------------------------------------------------------
Republic of Colombia, 11.75%, 2020 573,000 700,493
-------------------------------------------------------------------------------------------------
Republic of Colombia, 10.375%, 2033 49,000 53,288
-------------------------------------------------------------------------------------------------
Republic of Ecuador, 8%, 2030 73,000 61,722
-------------------------------------------------------------------------------------------------
Republic of El Salvador, 8.25%, 2032 114,000 114,319
-------------------------------------------------------------------------------------------------
Republic of Guatemala, 8.125%, 2034## 24,000 24,510
-------------------------------------------------------------------------------------------------
Republic of Panama, 9.375%, 2023 - 2029 1,724,000 1,898,390
-------------------------------------------------------------------------------------------------
Republic of Panama, 8.875%, 2027 350,000 364,000
-------------------------------------------------------------------------------------------------
Republic of Peru, 9.125%, 2012 45,000 50,400
-------------------------------------------------------------------------------------------------
Republic of Peru, 9.875%, 2015 27,000 31,374
-------------------------------------------------------------------------------------------------
Republic of Peru, 5%, 2017 56,320 51,814
-------------------------------------------------------------------------------------------------
Republic of Peru, 8.75%, 2033 61,000 61,153
-------------------------------------------------------------------------------------------------
Republic of Philippines, 9.375%, 2017 96,000 99,000
-------------------------------------------------------------------------------------------------
Republic of South Africa, 8.5%, 2017 944,000 1,165,840
-------------------------------------------------------------------------------------------------
Republic of Turkey, 9%, 2011 20,000 22,275
-------------------------------------------------------------------------------------------------
Republic of Turkey, 11%, 2013 31,000 38,246
-------------------------------------------------------------------------------------------------
Republic of Turkey, 7.25%, 2015 60,000 60,000
-------------------------------------------------------------------------------------------------
Republic of Turkey, 8%, 2034 81,000 82,114
-------------------------------------------------------------------------------------------------
Republic of Uruguay, 7.5%, 2015 15,000 13,406
-------------------------------------------------------------------------------------------------
Republic of Venezeula, 8.5%, 2014 175,000 177,625
-------------------------------------------------------------------------------------------------
Republic of Venezuela, 9.25%, 2027 88,000 90,024
-------------------------------------------------------------------------------------------------
Republic of Vietnam, 3.75%, 2028 59,000 41,300
-------------------------------------------------------------------------------------------------
Russian Federation, 3%, 2008 - 2011 674,000 571,775
-------------------------------------------------------------------------------------------------
Russian Federation, 11%, 2018 1,302,000 1,767,465
-------------------------------------------------------------------------------------------------
Russian Ministry of Finance, 12.75%, 2028 32,000 50,880
-------------------------------------------------------------------------------------------------
State of Qatar, 9.75%, 2030 754,000 1,086,703
-------------------------------------------------------------------------------------------------
United Mexican States, 8%, 2022 713,000 818,168
-------------------------------------------------------------------------------------------------
United Mexican States, 7.5%, 2033 2,015,000 2,147,990
-------------------------------------------------------------------------------------------------
$22,836,585
-------------------------------------------------------------------------------------------------
Energy - Independent - 0.8%
-------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 7.5%, 2014 $3,195,000 $3,554,438
-------------------------------------------------------------------------------------------------
Ocean Energy, Inc., 4.375%, 2007 908,000 929,253
-------------------------------------------------------------------------------------------------
$4,483,691
-------------------------------------------------------------------------------------------------
Energy - Integrated - 1.0%
-------------------------------------------------------------------------------------------------
Siberian Oil Co., 10.75%, 2009 $349,000 $384,773
-------------------------------------------------------------------------------------------------
Triton Energy Ltd., 9.25%, 2005 3,500,000 3,584,347
-------------------------------------------------------------------------------------------------
Tyumen Oil Co., 11%, 2007 1,560,000 1,774,500
-------------------------------------------------------------------------------------------------
$5,743,620
-------------------------------------------------------------------------------------------------
Entertainment - 0.7%
-------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 9.5%, 2011 $1,224,000 $1,263,780
-------------------------------------------------------------------------------------------------
Loews Cineplex Entertainment Corp., 9%, 2014## 805,000 843,238
-------------------------------------------------------------------------------------------------
Six Flags, Inc., 9.75%, 2013 1,500,000 1,445,625
-------------------------------------------------------------------------------------------------
Turner Broadcasting System, Inc., 8.375%, 2013 419,000 512,780
-------------------------------------------------------------------------------------------------
$4,065,423
-------------------------------------------------------------------------------------------------
Financial Institutions - 0.3%
-------------------------------------------------------------------------------------------------
Capital One Bank, 4.25%, 2008 $1,296,000 $1,315,183
-------------------------------------------------------------------------------------------------
MBNA Europe Funding PLC, 6.5%, 2007 EUR 150,000 206,988
-------------------------------------------------------------------------------------------------
$1,522,171
-------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.7%
-------------------------------------------------------------------------------------------------
Burns, Philp & Co. Ltd., 9.75%, 2012 $2,680,000 $2,948,000
-------------------------------------------------------------------------------------------------
Coca-Cola Erfrischungsgetranke, 5.875%, 2005 EUR 600,000 781,090
-------------------------------------------------------------------------------------------------
Seminis Vegetable Seeds, Inc., 10.25%, 2013 $360,000 403,200
-------------------------------------------------------------------------------------------------
$4,132,290
-------------------------------------------------------------------------------------------------
Forest & Paper Products - 2.1%
-------------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc., 6.95%, 2006 $2,500,000 $2,600,000
-------------------------------------------------------------------------------------------------
Buckeye Technologies, Inc., 8.5%, 2013 1,675,000 1,850,875
-------------------------------------------------------------------------------------------------
Corporacion Durango S.A. de C.V., 13.125%, 2006* 22,000 13,200
-------------------------------------------------------------------------------------------------
Corporacion Durango S.A. de C.V., 13.5%, 2008* 8,000 4,800
-------------------------------------------------------------------------------------------------
Corporacion Durango S.A. de C.V., 13.75%, 2009##* 30,000 18,000
-------------------------------------------------------------------------------------------------
Georgia Pacific Corp., 9.375%, 2013 1,220,000 1,436,550
-------------------------------------------------------------------------------------------------
International Paper Co., 5.375%, 2006 EUR 140,000 186,422
-------------------------------------------------------------------------------------------------
MDP Acquisitions PLC, 9.625%, 2012 $940,000 1,071,600
-------------------------------------------------------------------------------------------------
MeadWestvaco Corp., 6.8%, 2032 1,345,000 1,434,706
-------------------------------------------------------------------------------------------------
Norske Skog Canada Ltd., 7.375%, 2014 575,000 602,313
-------------------------------------------------------------------------------------------------
Packaging Corp. of America, 5.75%, 2013 2,500,000 2,584,755
-------------------------------------------------------------------------------------------------
Sino Forest Corp., 9.125%, 2011## 19,000 19,713
-------------------------------------------------------------------------------------------------
$11,822,934
-------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.5%
-------------------------------------------------------------------------------------------------
Hilton Hotels Corp., 7.625%, 2012 $1,100,000 $1,293,905
-------------------------------------------------------------------------------------------------
MGM Mirage, Inc., 8.375%, 2011 1,550,000 1,747,625
-------------------------------------------------------------------------------------------------
NCL Corp., 10.625%, 2014## 1,000,000 1,040,000
-------------------------------------------------------------------------------------------------
Pinnacle Entertainment, Inc., 8.75%, 2013 650,000 690,625
-------------------------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 8%, 2010 1,210,000 1,385,450
-------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 1,965,000 2,303,963
-------------------------------------------------------------------------------------------------
$8,461,568
-------------------------------------------------------------------------------------------------
Industrial - 0.7%
-------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011## $1,845,000 $2,029,500
-------------------------------------------------------------------------------------------------
Valmont Industries, Inc., 6.875%, 2014## 500,000 515,000
-------------------------------------------------------------------------------------------------
Williams Scotsman, Inc., 9.875%, 2007 1,455,000 1,396,800
-------------------------------------------------------------------------------------------------
Williams Scotsman, Inc., 10%, 2008 205,000 223,450
-------------------------------------------------------------------------------------------------
$4,164,750
-------------------------------------------------------------------------------------------------
Insurance - 1.0%
-------------------------------------------------------------------------------------------------
MetLife, Inc., 6.375%, 2034 $2,140,000 $2,281,672
-------------------------------------------------------------------------------------------------
Prudential Financial, Inc., 5.1%, 2014 1,985,000 1,990,296
-------------------------------------------------------------------------------------------------
Prudential Funding Corp., 6.6%, 2008## 1,230,000 1,355,690
-------------------------------------------------------------------------------------------------
$5,627,658
-------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.3%
-------------------------------------------------------------------------------------------------
Allianz AG, 5.5%, 2049 EUR 140,000 $189,026
-------------------------------------------------------------------------------------------------
Fund American Cos., Inc., 5.875%, 2013 $1,464,000 1,492,803
-------------------------------------------------------------------------------------------------
$1,681,829
-------------------------------------------------------------------------------------------------
International Market Agencies - 0.6%
-------------------------------------------------------------------------------------------------
Kreditanstalt fur Wiederaufbau, 4.75%, 2006 EUR 750,000 $997,579
-------------------------------------------------------------------------------------------------
Kreditanstalt fur Wiederaufbau, 3.25%, 2008 1,705,000 2,208,800
-------------------------------------------------------------------------------------------------
$3,206,379
-------------------------------------------------------------------------------------------------
International Market Sovereign - 16.8%
-------------------------------------------------------------------------------------------------
Federal Republic of Germany, 4%, 2007 - 2009 EUR 2,312,000 $3,057,925
-------------------------------------------------------------------------------------------------
Federal Republic of Germany, 3.5%, 2008 4,786,000 6,248,749
-------------------------------------------------------------------------------------------------
Federal Republic of Germany, 4.5%, 2009 15,660,000 21,219,555
-------------------------------------------------------------------------------------------------
Federal Republic of Germany, 5.25%, 2010 491,000 688,468
-------------------------------------------------------------------------------------------------
Federal Republic of Germany, 6.25%, 2030 425,000 679,306
-------------------------------------------------------------------------------------------------
Government of Australia, 8.75%, 2008 AUD 1,238,000 1,035,184
-------------------------------------------------------------------------------------------------
Government of Australia, 6.25%, 2015 1,353,000 1,080,470
-------------------------------------------------------------------------------------------------
Government of Canada, 5.5%, 2009 CAD 661,000 579,781
-------------------------------------------------------------------------------------------------
Government of Canada, 5.25%, 2012 585,000 509,270
-------------------------------------------------------------------------------------------------
Government of Canada, 8%, 2023 136,000 154,012
-------------------------------------------------------------------------------------------------
Government of New Zealand, 7%, 2009 NZD 1,341,000 954,999
-------------------------------------------------------------------------------------------------
Government of New Zealand, 6.5%, 2013 5,266,000 3,714,833
-------------------------------------------------------------------------------------------------
Kingdom of Belgium, 3.75%, 2009 EUR 686,000 901,486
-------------------------------------------------------------------------------------------------
Kingdom of Belgium, 5%, 2012 1,078,000 1,497,078
-------------------------------------------------------------------------------------------------
Kingdom of Denmark, 7%, 2007 DKK 6,600,000 1,273,124
-------------------------------------------------------------------------------------------------
Kingdom of Denmark, 6%, 2009 4,771,000 922,813
-------------------------------------------------------------------------------------------------
Kingdom of Denmark, 5%, 2013 3,993,000 741,977
-------------------------------------------------------------------------------------------------
Kingdom of Netherlands, 5.75%, 2007 EUR 3,079,000 4,215,020
-------------------------------------------------------------------------------------------------
Kingdom of Netherlands, 3.75%, 2009 2,965,000 3,893,236
-------------------------------------------------------------------------------------------------
Kingdom of Spain, 6%, 2008 522,000 732,961
-------------------------------------------------------------------------------------------------
Kingdom of Spain, 5.35%, 2011 2,425,000 3,442,509
-------------------------------------------------------------------------------------------------
Republic of Austria, 5.5%, 2007 1,907,000 2,629,725
-------------------------------------------------------------------------------------------------
Republic of Austria, 5%, 2012 1,441,000 2,006,236
-------------------------------------------------------------------------------------------------
Republic of Austria, 4.65%, 2018 218,000 291,500
-------------------------------------------------------------------------------------------------
Republic of Finland, 2.75%, 2006 2,492,000 3,207,060
-------------------------------------------------------------------------------------------------
Republic of Finland, 3%, 2008 2,718,000 3,489,804
-------------------------------------------------------------------------------------------------
Republic of France, 4.75%, 2007 2,640,000 3,561,420
-------------------------------------------------------------------------------------------------
Republic of France, 4%, 2009 1,715,000 2,275,771
-------------------------------------------------------------------------------------------------
Republic of France, 5%, 2012 - 2016 607,000 845,571
-------------------------------------------------------------------------------------------------
Republic of Ireland, 4.25%, 2007 5,031,000 6,715,213
-------------------------------------------------------------------------------------------------
Republic of Italy, 4.5%, 2005 4,745,000 6,144,594
-------------------------------------------------------------------------------------------------
Republic of Portugal, 5.45%, 2013 588,000 841,509
-------------------------------------------------------------------------------------------------
United Kingdom Treasury, 7.25%, 2007 GBP 499,000 985,687
-------------------------------------------------------------------------------------------------
United Kingdom Treasury, 5.75%, 2009 716,000 1,379,478
-------------------------------------------------------------------------------------------------
United Kingdom Treasury, 5%, 2012 1,978,000 3,695,356
-------------------------------------------------------------------------------------------------
$95,611,680
-------------------------------------------------------------------------------------------------
Machinery & Tools - 1.6%
-------------------------------------------------------------------------------------------------
AGCO Corp., 9.5%, 2008 $2,000,000 $2,150,000
-------------------------------------------------------------------------------------------------
Manitowoc Co., Inc., 10.5%, 2012 1,180,000 1,364,375
-------------------------------------------------------------------------------------------------
Sun Sage B.V., 8.25%, 2009## 100,000 103,125
-------------------------------------------------------------------------------------------------
Terex Corp., 10.375%, 2011 1,140,000 1,282,500
-------------------------------------------------------------------------------------------------
Terex Corp., 9.25%, 2011 1,380,000 1,545,600
-------------------------------------------------------------------------------------------------
United Rentals, Inc., 6.5%, 2012 2,450,000 2,425,500
-------------------------------------------------------------------------------------------------
$8,871,100
-------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.4%
-------------------------------------------------------------------------------------------------
Alliance Imaging, Inc., 10.375%, 2011 $1,600,000 $1,768,000
-------------------------------------------------------------------------------------------------
Baxter International, Inc., 9.5%, 2008 2,296,000 2,711,213
-------------------------------------------------------------------------------------------------
Fisher Scientific International, Inc., 8.125%, 2012 1,133,000 1,263,295
-------------------------------------------------------------------------------------------------
HCA, Inc., 8.75%, 2010 1,900,000 2,197,236
-------------------------------------------------------------------------------------------------
Mariner Health Care, Inc., 8.25%, 2013## 255,000 289,425
-------------------------------------------------------------------------------------------------
$8,229,169
-------------------------------------------------------------------------------------------------
Metals & Mining - 1.1%
-------------------------------------------------------------------------------------------------
Foundation PA Coal Co., 7.25%, 2014## $1,550,000 $1,656,563
-------------------------------------------------------------------------------------------------
Peabody Energy Corp., 6.875%, 2013 340,000 373,150
-------------------------------------------------------------------------------------------------
Peabody Energy Corp., 5.875%, 2016 2,300,000 2,346,000
-------------------------------------------------------------------------------------------------
Phelps Dodge Corp., 8.75%, 2011 501,000 619,251
-------------------------------------------------------------------------------------------------
U.S. Steel Corp., 9.75%, 2010 850,000 973,250
-------------------------------------------------------------------------------------------------
$5,968,214
-------------------------------------------------------------------------------------------------
Mortgage Backed - 1.0%
-------------------------------------------------------------------------------------------------
Fannie Mae, 6%, 2012 - 2016 $1,814,116 $1,904,850
-------------------------------------------------------------------------------------------------
Fannie Mae, 6.5%, 2031 - 2032 3,340,480 3,518,399
-------------------------------------------------------------------------------------------------
$5,423,249
-------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.3%
-------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 8.875%, 2011 $1,635,000 $1,790,325
-------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.9%
-------------------------------------------------------------------------------------------------
ANR Pipeline Co., 8.875%, 2010 $440,000 $493,900
-------------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 2,433,000 2,908,542
-------------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 7.4%, 2031 2,775,000 3,208,427
-------------------------------------------------------------------------------------------------
Magellan Midstream Partners LP, 5.65%, 2016 1,123,000 1,142,498
-------------------------------------------------------------------------------------------------
Southern Natural Gas Co., Inc., 8.875%, 2010 1,540,000 1,734,425
-------------------------------------------------------------------------------------------------
Williams Cos., Inc., 7.125%, 2011 1,382,000 1,547,840
-------------------------------------------------------------------------------------------------
$11,035,632
-------------------------------------------------------------------------------------------------
Oils - 0.7%
-------------------------------------------------------------------------------------------------
Gaz Capital S.A., 8.625%, 2034## $1,425,000 $1,599,563
-------------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013 550,000 633,875
-------------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013## 100,000 115,250
-------------------------------------------------------------------------------------------------
Hurricane Finance B.V., 9.625%, 2010 46,000 50,830
-------------------------------------------------------------------------------------------------
Valero Energy Corp., 6.875%, 2012 1,331,000 1,514,908
-------------------------------------------------------------------------------------------------
$3,914,426
-------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.2%
-------------------------------------------------------------------------------------------------
Schering-Plough Corp., 6.5%, 2033 $1,002,000 $1,101,976
-------------------------------------------------------------------------------------------------
Pollution Control - 0.3%
-------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 7.875%, 2013 $955,000 $971,713
-------------------------------------------------------------------------------------------------
IMCO Recycling, Inc., 9%, 2014## 100,000 100,000
-------------------------------------------------------------------------------------------------
Veolia Environnement, 5.875%, 2008 EUR 250,000 347,323
-------------------------------------------------------------------------------------------------
$1,419,036
-------------------------------------------------------------------------------------------------
Printing & Publishing - 1.2%
-------------------------------------------------------------------------------------------------
Bertelsmann U.S. Finance, Inc., 4.625%, 2010 EUR 148,000 $196,723
-------------------------------------------------------------------------------------------------
Dex Media East LLC, 9.875%, 2009 $1,500,000 1,725,000
-------------------------------------------------------------------------------------------------
Dex Media West LLC, 9.875%, 2013 1,455,000 1,720,538
-------------------------------------------------------------------------------------------------
Mail-Well Corp., 9.625%, 2012 1,050,000 1,165,500
-------------------------------------------------------------------------------------------------
MediaNews Group, Inc., 6.875%, 2013 1,710,000 1,774,125
-------------------------------------------------------------------------------------------------
Pearson PLC, 6.125%, 2007 EUR 135,000 184,511
-------------------------------------------------------------------------------------------------
Reed Elsevier Capital, Inc., 5.75%, 2008 125,000 174,238
-------------------------------------------------------------------------------------------------
$6,940,635
-------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.2%
-------------------------------------------------------------------------------------------------
Societe Nationale des Chemins de Fer Francais, 7.5%, 2008 EUR 750,000 $1,098,260
-------------------------------------------------------------------------------------------------
Retailers - 1.3%
-------------------------------------------------------------------------------------------------
Gap, Inc., 8.8%, 2008 $1,080,000 $1,317,600
-------------------------------------------------------------------------------------------------
J. Crew Operating Corp., 10.375%, 2007 1,100,000 1,130,250
-------------------------------------------------------------------------------------------------
Limited Brands, Inc., 5.25%, 2014 2,294,000 2,292,183
-------------------------------------------------------------------------------------------------
Rite Aid Corp., 9.5%, 2011 1,760,000 1,949,200
-------------------------------------------------------------------------------------------------
Rite Aid Corp., 9.25%, 2013 815,000 849,638
-------------------------------------------------------------------------------------------------
$7,538,871
-------------------------------------------------------------------------------------------------
Special Products & Services
-------------------------------------------------------------------------------------------------
Telemig Celular Participacoes S.A., 8.75%, 2009## $28,000 $28,000
-------------------------------------------------------------------------------------------------
Supermarkets - 0.3%
-------------------------------------------------------------------------------------------------
Roundy's, Inc., 8.875%, 2012 $1,650,000 $1,794,375
-------------------------------------------------------------------------------------------------
Supranational - 0.2%
-------------------------------------------------------------------------------------------------
European Investment Bank, 5.375%, 2012 EUR 750,000 $1,063,978
-------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.5%
-------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 11%, 2010 $1,251,000 $1,463,670
-------------------------------------------------------------------------------------------------
Centennial Communications Corp., 10.125%, 2013 2,220,000 2,408,700
-------------------------------------------------------------------------------------------------
Crown Castle International Corp., 7.5%, 2013 1,755,000 1,877,850
-------------------------------------------------------------------------------------------------
Innova S. de R.L., 9.375%, 2013 484,000 538,450
-------------------------------------------------------------------------------------------------
Mobile TeleSystems OJSC, 9.75%, 2008## 19,000 20,591
-------------------------------------------------------------------------------------------------
Mobile TeleSystems OJSC, 8.375%, 2010## 1,344,000 1,374,240
-------------------------------------------------------------------------------------------------
PTC International Finance II S.A., 11.25%, 2009 1,326,000 1,405,560
-------------------------------------------------------------------------------------------------
Rural Cellular Corp., 9.75%, 2010 79,000 67,940
-------------------------------------------------------------------------------------------------
U.S. Unwired, Inc., 10%, 2012 1,300,000 1,407,250
-------------------------------------------------------------------------------------------------
Ubiquitel Operating Co., 9.875%, 2011 1,700,000 1,840,250
-------------------------------------------------------------------------------------------------
Vimpel-Communications, 10.45%, 2005## 1,551,000 1,597,530
-------------------------------------------------------------------------------------------------
Vodafone Group PLC, 5.75%, 2006 EUR 140,000 189,361
-------------------------------------------------------------------------------------------------
$14,191,392
-------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 3.9%
-------------------------------------------------------------------------------------------------
Axtel S.A. de C.V., 11%, 2013 $45,000 $46,800
-------------------------------------------------------------------------------------------------
Bellsouth Corp., 6.55%, 2034 3,213,000 3,435,131
-------------------------------------------------------------------------------------------------
Citizens Communications Co., 9.25%, 2011 645,000 741,750
-------------------------------------------------------------------------------------------------
Citizens Communications Co., 9%, 2031 165,000 176,138
-------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 8.125%, 2012 EUR 130,000 208,012
-------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 8.75%, 2030 $3,313,000 4,371,716
-------------------------------------------------------------------------------------------------
France Telecom S.A., 7.2%, 2006 105,000 111,704
-------------------------------------------------------------------------------------------------
OTE Telecommunications PLC, 6.125%, 2007 EUR 195,000 266,161
-------------------------------------------------------------------------------------------------
Qwest Services Corp., 14%, 2010## $1,600,000 1,900,000
-------------------------------------------------------------------------------------------------
SBC Communications, Inc., 5.1%, 2014 3,395,000 3,418,612
-------------------------------------------------------------------------------------------------
Telecom Italia Capital, 6%, 2034## 2,020,000 1,985,424
-------------------------------------------------------------------------------------------------
Telecom Italia S.p.A., 5.625%, 2007 EUR 300,000 405,903
-------------------------------------------------------------------------------------------------
Verizon New York, Inc., 7.375%, 2032 $4,590,000 5,200,254
-------------------------------------------------------------------------------------------------
$22,267,605
-------------------------------------------------------------------------------------------------
Tobacco - 0.1%
-------------------------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings, Inc., 7.25%, 2012 $828,000 $828,000
-------------------------------------------------------------------------------------------------
Transportation - Services - 0.1%
-------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 10.25%, 2007 $15,000 $15,750
-------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 11.75%, 2009 16,000 16,280
-------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 12.5%, 2012 344,000 390,440
-------------------------------------------------------------------------------------------------
$422,470
-------------------------------------------------------------------------------------------------
U.S. Government Agencies - 1.9%
-------------------------------------------------------------------------------------------------
Fannie Mae, 5%, 2011 $8,758,000 $8,766,224
-------------------------------------------------------------------------------------------------
Small Business Administration, 5.34%, 2021 1,682,809 1,768,281
-------------------------------------------------------------------------------------------------
$10,534,505
-------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 4.9%
-------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.375%, 2007### $10,484,224 $11,235,324
-------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.625%, 2008 10,196,194 11,246,881
-------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 2%, 2014 5,459,868 5,659,711
-------------------------------------------------------------------------------------------------
$28,141,916
-------------------------------------------------------------------------------------------------
Utilities - Electric Power - 6.3%
-------------------------------------------------------------------------------------------------
BVPS II Funding Corp., 8.68%, 2017 $846,000 $974,584
-------------------------------------------------------------------------------------------------
Beaver Valley Funding Corp., 9%, 2017 4,562,000 5,373,078
-------------------------------------------------------------------------------------------------
CMS Energy Corp., 8.5%, 2011 1,300,000 1,475,500
-------------------------------------------------------------------------------------------------
Calpine Corp., 8.5%, 2008 750,000 461,250
-------------------------------------------------------------------------------------------------
Calpine Corp., 8.75%, 2013## 1,255,000 909,875
-------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.25%, 2010 1,250,000 1,398,919
-------------------------------------------------------------------------------------------------
DPL, Inc., 6.875%, 2011 1,692,000 1,844,280
-------------------------------------------------------------------------------------------------
Dynegy Holdings, Inc., 9.875%, 2010## 1,600,000 1,818,000
-------------------------------------------------------------------------------------------------
Empresa Nacional de Electricidad S.A., 8.35%, 2013 1,915,000 2,151,039
-------------------------------------------------------------------------------------------------
Enersis S.A., 7.375%, 2014 1,272,000 1,331,942
-------------------------------------------------------------------------------------------------
HQI Transelec Chile S.A., 7.875%, 2011 700,000 814,835
-------------------------------------------------------------------------------------------------
MSW Energy Holdings LLC, 7.375%, 2010 1,045,000 1,097,250
-------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 3.5%, 2008 2,437,000 2,409,840
-------------------------------------------------------------------------------------------------
National Grid Group Finance PLC, 5.25%, 2006 EUR 200,000 266,908
-------------------------------------------------------------------------------------------------
NorthWestern Corp., 5.875%, 2014## $135,000 139,219
-------------------------------------------------------------------------------------------------
PG&E Corp., 6.875%, 2008 400,000 434,000
-------------------------------------------------------------------------------------------------
PSEG Energy Holdings LLC, 7.75%, 2007 2,350,000 2,514,500
-------------------------------------------------------------------------------------------------
RWE Finance B.V., 5.375%, 2008 EUR 6,000 8,237
-------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.25%, 2010 $490,000 543,900
-------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.5%, 2013 575,000 646,875
-------------------------------------------------------------------------------------------------
System Energy Resources, Inc., 5.129%, 2014## 2,898,000 2,942,542
-------------------------------------------------------------------------------------------------
TXU Corp., 6.375%, 2006 3,943,000 4,142,114
-------------------------------------------------------------------------------------------------
W3A Funding Corp., 8.09%, 2017 1,944,885 2,178,680
-------------------------------------------------------------------------------------------------
$35,877,367
-------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $512,872,776) $550,855,531
-------------------------------------------------------------------------------------------------
Stocks - 0.1%
-------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
-------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.1%
-------------------------------------------------------------------------------------------------
Sind Holdings, Inc.* 5,720 $478,764
-------------------------------------------------------------------------------------------------
Machinery & Tools
-------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp.* 111 $1,166
-------------------------------------------------------------------------------------------------
Tobacco
-------------------------------------------------------------------------------------------------
Reynolds American, Inc. 2,302 $158,516
-------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $2,157,700) $638,446
-------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 0.2%
-------------------------------------------------------------------------------------------------
Automotive - 0.2%
-------------------------------------------------------------------------------------------------
Ford Motor Co. Capital Trust II, 6.5% (Identified Cost,
$1,177,235) 22,511 $1,125,325
-------------------------------------------------------------------------------------------------
Preferred Stock
-------------------------------------------------------------------------------------------------
Real Estate
-------------------------------------------------------------------------------------------------
HRPT Properties Trust, 8.75% (Identified Cost, $64,956) 2,375 $65,194
-------------------------------------------------------------------------------------------------
Warrants
-------------------------------------------------------------------------------------------------
Banco Central del Uruguay (Emerging Market Sovereign) 1,250,000 $0
-------------------------------------------------------------------------------------------------
DWC Construction Co., Inc. (Utilities - Other)* 112,911 16,291
-------------------------------------------------------------------------------------------------
DWC Trading (Utilities - Other)* 44,711 9,208
-------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd. (Business Services)* 1,625 0
-------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd. (Business Services)* 700 0
-------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp. (Machinery & Tools)* 777 155
-------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $38,522) $25,654
-------------------------------------------------------------------------------------------------
Convertible Bonds - 0.3%
-------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
-------------------------------------------------------------------------------------------------
Banks & Credit Companies - 0.1%
-------------------------------------------------------------------------------------------------
Fortis Capital Co., 6.25%, 2049 EUR 155,000 $216,129
-------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.2%
-------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.25%, 2010 $1,300,000 $1,324,375
-------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $1,376,825) $1,540,504
-------------------------------------------------------------------------------------------------
Repurchase Agreement - 2.6%
-------------------------------------------------------------------------------------------------
Goldman Sachs & Co., dated 10/29/04, due 11/01/04, total to
be received $14,585,260 (secured by various U.S. Treasury
and Federal Agency obligations in a jointly traded
account), at Cost $14,583,000 $14,583,000
-------------------------------------------------------------------------------------------------
Total Investments(+) (Identified Cost, $532,271,014) $568,833,654
-------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities 257,347
-------------------------------------------------------------------------------------------------
Net Assets - 100.0% $569,091,001
-------------------------------------------------------------------------------------------------
(+) As of October 31, 2004, one security representing $478,764 and 0.1% of net assets was fair valued
in accordance with policies adopted by the Board of Trustees.
* Non-income producing security.
^^ Interest only security.
## SEC Rule 144A restriction.
### Security segregated as collateral for open futures contracts.
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.
ARS = Argentine Peso JPY = Japanese Yen
AUD = Australian Dollar KRW = Korean Won
BRL = Brazilian Real MXN = Mexican Peso
CAD = Canadian Dollar NZD = New Zealand Dollar
CLP = Chilean Peso PLN = Polish Zloty
CNY = Chinese Yuan Renminbi RUB = Russian Ruble
COP = Colombian Peso SEK = Swedish Krona
CZK = Czech Koruna SGD = Singapore Dollar
DKK = Danish Krone SKK = Slovakian Koruna
EUR = Euro THB = Thailand Baht
GBP = British Pound TRL = Turkish Lira
HUF = Hungarian Forint TWD = Taiwan Dollar
IDR = Indonesian Rupiah UYU = Uruguayan Peso
ILS = Israeli Sheqel ZAR = South African Rand
INR = Indian Rupee
SEE NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------------------------------------------------------------------------
This statement represents your trust's balance sheet, which details the assets
and liabilities composing the total value of your trust.
AT 10/31/04
ASSETS
Investments, at value (identified cost, $532,271,014) $568,833,654
-----------------------------------------------------------------------------------------------------
Cash 102,385
-----------------------------------------------------------------------------------------------------
Receivable for forward foreign currency exchange contracts 437,871
-----------------------------------------------------------------------------------------------------
Receivable for forward foreign currency exchange contracts
subject to master netting agreements 355,660
-----------------------------------------------------------------------------------------------------
Receivable for investments sold 9,399,200
-----------------------------------------------------------------------------------------------------
Interest and dividends receivable 9,365,302
-----------------------------------------------------------------------------------------------------
Other assets 82,894
-----------------------------------------------------------------------------------------------------
Total assets $588,576,966
-----------------------------------------------------------------------------------------------------
LIABILITIES
Payable to dividend disbursing agent $223,838
-----------------------------------------------------------------------------------------------------
Payable for forward foreign currency exchange contracts 4,231,548
-----------------------------------------------------------------------------------------------------
Payable for daily variation margin on open futures contracts 59,625
-----------------------------------------------------------------------------------------------------
Payable for investments purchased 14,222,331
-----------------------------------------------------------------------------------------------------
Payable for treasury shares reacquired 100,302
-----------------------------------------------------------------------------------------------------
Payable to affiliates
-----------------------------------------------------------------------------------------------------
Management fee 33,103
-----------------------------------------------------------------------------------------------------
Transfer agent and dividend disbursing costs 17,397
-----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 597,821
-----------------------------------------------------------------------------------------------------
Total liabilities $19,485,965
-----------------------------------------------------------------------------------------------------
Net assets $569,091,001
-----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $626,105,994
-----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 32,975,488
-----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (82,602,964)
-----------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (7,387,517)
-----------------------------------------------------------------------------------------------------
Net assets $569,091,001
-----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding (88,343,454
issued, less 6,388,302 treasury shares) 81,955,152
-----------------------------------------------------------------------------------------------------
Net asset value per share (net assets of
$569,091,001/81,955,152 shares of beneficial interest
outstanding) $6.94
-----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
-----------------------------------------------------------------------------------------------------
This statement describes how much your trust received in investment income and
paid in expenses. It also describes any gains and/or losses generated by trust
operations.
FOR YEAR ENDED 10/31/04
NET INVESTMENT INCOME
Interest $36,458,274
-----------------------------------------------------------------------------------------------------
Dividends 24,762
-----------------------------------------------------------------------------------------------------
Total investment income $36,483,036
-----------------------------------------------------------------------------------------------------
Expenses
-----------------------------------------------------------------------------------------------------
Management fee $4,038,474
-----------------------------------------------------------------------------------------------------
Trustees' compensation 93,215
-----------------------------------------------------------------------------------------------------
Transfer agent and dividend disbursing costs 199,050
-----------------------------------------------------------------------------------------------------
Administrative fee 51,638
-----------------------------------------------------------------------------------------------------
Custodian fee 315,930
-----------------------------------------------------------------------------------------------------
Printing 64,657
-----------------------------------------------------------------------------------------------------
Postage 47,820
-----------------------------------------------------------------------------------------------------
Auditing fees 45,673
-----------------------------------------------------------------------------------------------------
Legal fees 10,070
-----------------------------------------------------------------------------------------------------
Miscellaneous 454,625
-----------------------------------------------------------------------------------------------------
Total expenses $5,321,152
-----------------------------------------------------------------------------------------------------
Fees paid indirectly (14,389)
-----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (220)
-----------------------------------------------------------------------------------------------------
Net expenses $5,306,543
-----------------------------------------------------------------------------------------------------
Net investment income $31,176,493
-----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
-----------------------------------------------------------------------------------------------------
Investment transactions $18,620,588
-----------------------------------------------------------------------------------------------------
Written options transactions 17,020
-----------------------------------------------------------------------------------------------------
Futures contracts (1,378,715)
-----------------------------------------------------------------------------------------------------
Foreign currency transactions (5,475,616)
-----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency
transactions $11,783,277
-----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
-----------------------------------------------------------------------------------------------------
Investments $7,026,646
-----------------------------------------------------------------------------------------------------
Written options (16,072)
-----------------------------------------------------------------------------------------------------
Futures contracts (224,187)
-----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (3,765,792)
-----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency
translation $3,020,595
-----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $14,803,872
-----------------------------------------------------------------------------------------------------
Change in net assets from operations $45,980,365
-----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
FOR YEARS ENDED 10/31 2004 2003
CHANGE IN NET ASSETS
OPERATIONS
Net investment income $31,176,493 $31,821,641
-------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 11,783,277 8,088,573
-------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 3,020,595 30,421,194
-------------------------------------------------------------------------------------------------------
Change in net assets from operations $45,980,365 $70,331,408
-------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(32,540,604) $(33,246,025)
-------------------------------------------------------------- ------------- ------------
TRUST SHARE (PRINCIPAL) TRANSACTIONS
Cost of shares reacquired (8,109,105) (2,269,553)
-------------------------------------------------------------- ------------- ------------
Total change in net assets $5,330,656 $34,815,830
-------------------------------------------------------------- ------------- ------------
NET ASSETS
At beginning of period $563,760,345 $528,944,515
-------------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions in
excess of net investment income of $7,387,517 and
$8,416,158, respectively) $569,091,001 $563,760,345
-------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the trust's financial performance for the past 5 years.
Certain information reflects financial results for a single trust share. The total returns in the table represent the rate by
which an investor would have earned (or lost) on an investment in the trust (assuming reinvestment of all distributions) held
for the entire period. This information has been audited by the trust's independent registered public accounting firm, whose
report, together with the trust's financial statements, are included in this report.
FOR YEARS ENDED 10/31 2004 2003 2002 2001 2000
Net asset value, beginning of period $6.76 $6.32 $6.60 $6.69 $7.03
------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.38 $0.38 $0.41 $0.51 $0.58
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency 0.17 0.46 (0.26) (0.06) (0.40)
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.55 $0.84 $0.15 $0.45 $0.18
------------------------------------------------ ------- ------ ------ ------ ------
Less distributions declared to shareholders
From net investment income $(0.39) $(0.40) $(0.43) $(0.49) $(0.41)
------------------------------------------------ ------- ------ ------ ------ ------
From paid-in capital -- -- -- (0.05) (0.17)
------------------------------------------------ ------- ------ ------ ------ ------
Total distributions declared to
shareholders $(0.39) $(0.40) $(0.43) $(0.54) $(0.58)
------------------------------------------------------------------------------------------------------------------------------
Net increase from repurchase of capital
shares $0.02 $0.00+ $0.00+ $0.00+ $0.06
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.94 $6.76 $6.32 $6.60 $6.69
------------------------------------------------------------------------------------------------------------------------------
Per share market value, end of period $6.30 $6.41 $5.69 $6.06 $6.00
------------------------------------------------------------------------------------------------------------------------------
Total return at market value(%) 4.62 20.11 0.72* 9.83 8.84
------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
FOR YEARS ENDED 10/31 2004 2003 2002 2001 2000
RATIOS (%) (TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:(S)
Expenses## 0.94 0.94 0.96 1.06 1.06
------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.51 5.76 6.49 7.65 8.23
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 126 152 103 82
------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $569,091 $563,760 $528,945 $554,767 $567,191
------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the trust for its proportional share of
Independent Chief Compliance Officer services paid to Tarantino LLC. If this fee had been incurred by the trust, the net
investment income per share and the ratios would have been:
Net investment income $0.38^ $-- $-- $-- $--
------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.94^ -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.51^ -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ The reimbursement impact per share amount and ratios were less than $0.01 and 0.01% respectively.
+ Per share amount was less than $0.01.
(S)(S) As required, effective November 1, 2001, the trust has adopted the provisions of the AICPA Audit and Accounting Guide
for Investment Companies and began amortizing premium accreting market discount on debt securities. The effect of this
change for the year ended October 31, 2002 was to decrease net investment income per share and increase net realized and
unrealized gains and losses per share. The impact of this change calculates to less than $0.01 per share. In addition,
the ratio of net investment income to average net assets decreased by 0.01%. Per share, ratios, and supplemental data
for years prior to October 30, 2002 have not been restated to reflect this change in presentation.
* As revised, to reflect transactions conducted prior to close, not included in closing activity on the NYSE at October 31,
2002. Such amount was previously reported as 0.90%.
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 U.S.
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 - Bonds and other fixed income securities (other than
short-term obligations) in the trust's portfolio are valued at an evaluated
bid price as reported by an independent pricing service, or to the extent a
valuation is not reported by a pricing service, such securities are valued on
the basis of quotes from brokers and dealers. Prices obtained from pricing
services utilize both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate 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 quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Equity securities in the trust's portfolio
for which market quotations are available are valued at the last sale or
official closing price as reported by an independent pricing service on the
primary market or exchange on which they are primarily traded, or at the last
quoted bid price for securities in which there were no sales during the day.
Equity securities traded over the counter are valued at the last sales price
traded each day as reported by an independent pricing service, or to the
extent there are no sales reported, such securities are valued on the basis of
quotations obtained from brokers and dealers. Foreign currency options are
valued by MFS using an external pricing model approved by the Board of
Trustees that uses market data from an independent pricing source. Futures
contracts are valued at the settlement price as reported by an independent
pricing service on the primary exchange on which they are traded. Forward
foreign currency contracts are valued using spot rates and forward points as
reported by an independent pricing source. Short-term obligations with a
remaining maturity in excess of 60 days will be valued upon dealer-supplied
valuations. All other short-term obligations in the trust's portfolio are
valued at amortized cost, which constitutes market value as determined by the
Board of Trustees. 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. When pricing service
information or market quotations are not readily available, securities are
priced at fair value as determined under the direction of the Board of
Trustees. For example, significant events (such as movement in the U.S.
securities market, or other regional and local developments) may occur between
the time that foreign markets close (where the security is principally traded)
and the time that the trust calculates its net asset value (generally, the
close of the NYSE) that may impact the value of securities traded in these
foreign markets. In these cases, the trust may utilize information from an
external vendor or other sources to adjust closing market quotations of
foreign equity securities to reflect what it believes to be the fair value of
the securities as of the trust's valuation time. Because the frequency of
significant events is not predictable, fair valuation of foreign equity
securities may occur on a frequent basis.
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 - 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 funds selected
by the Trustee. Deferred amounts represent an unsecured obligation of the
trust until distributed in accordance with the Plan. Included in other assets,
and accrued expenses and other liabilities, is $77,894 of Deferred
Trustees' Compensation.
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 premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend 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.
Legal fees and other related expenses incurred to preserve and protect the
value of a security owned are added to the cost of the security; other legal
fees are expensed. Capital infusions made directly to the security issuer,
which are generally non-recurring, incurred to protect or enhance the value of
high-yield debt securities, are reported as additions to the cost basis of the
security. Costs that are incurred to negotiate the terms or conditions of
capital infusions or that are expected to result in a plan of reorganization
are reported as realized losses. Ongoing costs incurred to protect or enhance
an investment, or costs incurred to pursue other claims or legal actions, are
expensed.
FEES PAID INDIRECTLY - The trust's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the trust. This amount, for the year ended October 31, 2004, 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 foreign currency transactions, derivatives, defaulted bonds,
straddle loss deferrals, and amortization and accretion on debt securities.
The tax character of distributions declared for the years ended October 31, 2004
and October 31, 2003 was as follows:
10/31/04 10/31/03
Distributions declared from:
Ordinary income $32,540,604 $33,246,025
--------------------------------------------------------------------------------
During the year ended October 31, 2004, accumulated distributions in excess of
net investment income decreased by $2,392,752, accumulated net realized loss
on investments and foreign currency transactions increased by $3,825,336, and
paid-in capital increased by $1,432,584 due to differences between book and
tax accounting for foreign currency transactions, amortization and accretion
on debt securities, defaulted bonds and derivatives. This change had no effect
on the net assets or net asset value per share.
As of October 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $4,386,522
----------------------------------------------------------
Capital loss carryforward (80,031,394)
----------------------------------------------------------
Unrealized appreciation 33,776,450
----------------------------------------------------------
Other temporary differences (15,146,571)
----------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration as follows:
EXPIRATION DATE
March 31, 2008 $(19,380,450)
----------------------------------------------------------
March 31, 2009 (22,359,865)
----------------------------------------------------------
March 31, 2010 (38,291,079)
----------------------------------------------------------
Total $(80,031,394)
----------------------------------------------------------
(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.
Management fees incurred for the year ended October 31, 2004 were an effective
rate of 0.71% of average daily net assets on an annualized basis.
The trust pays compensation to its Independent Trustees in the form of a
retainer, attendance fees, and additional compensation to Board and Committee
chairpersons, and pays no compensation directly to its Trustees who are
officers of the investment adviser, or to officers of the trust, all of whom
receive remuneration for their services to the trust from MFS. Certain
officers and Trustees of the trust are officers or directors of MFS and MFS
Service Center, Inc. (MFSC). The trust has an unfunded, defined benefit plan
for retired Independent Trustees and an unfunded retirement benefit deferral
plan for current Independent Trustees. Included in Trustees' compensation is
$11,584 as a result of the change in the trust's unfunded retirement benefit
deferral plan for certain current Independent Trustees and a pension
expense of $13,029 for retired Independent Trustees for the year ended October
31, 2004.
This trust and certain other MFS funds (the "funds") have entered into a
services agreement (the "Agreement") which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse each of the funds for a proportional share of substantially all of
the payments made by the funds to Tarantino LLC and also to provide office
space and other administrative support and supplies to the ICCO. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment advisor. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the trust paid MFS an administrative fee up to the following
annual percentage rates 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%
----------------------------------------------------------
Effective April 1, 2004, the trust paid MFS an administrative fee up to the
following annual percentage rates of the trust's average daily net assets:
First $2 billion 0.01120%
----------------------------------------------------------
Next $2.5 billion 0.00832%
----------------------------------------------------------
Next $2.5 billion 0.00032%
----------------------------------------------------------
In excess of $7 billion 0.00000%
----------------------------------------------------------
For the year ended October 31, 2004, the trust paid MFS $51,638, equivalent to
0.0091% of average daily net assets, to partially reimburse MFS for the costs
of providing administrative services.
TRANSFER AGENT - Included in transfer agent and dividend disbursing costs is a
fee paid to MFSC, a wholly owned subsidiary of MFS, for its services 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. These fees amounted to
$163,988 for the year ended October 31, 2004. Also included in transfer agent
and dividend disbursing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $8,543 for the year ended October 31, 2004, as well as other
expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchase and sales of investments, other than the purchases of option
transactions and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $55,686,235 $44,802,351
--------------------------------------------------------------------------------
Investments (non-U.S. government
securities) $266,992,034 $296,074,942
--------------------------------------------------------------------------------
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 $535,064,511
----------------------------------------------------------
Gross unrealized appreciation $37,768,483
----------------------------------------------------------
Gross unrealized depreciation (3,999,340)
----------------------------------------------------------
Net unrealized appreciation $33,769,143
----------------------------------------------------------
(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 the repurchase by the trust of up to 10% annually of its own shares
of beneficial interest.
The trust repurchased and retired 1,415,400 shares of beneficial interest
during the year ended October 31, 2004 at an average price per share of $5.73
and a weighted average discount of 15.52% per share.
The trust repurchased and retired 381,600 shares of beneficial interest during
the year ended October 31, 2003 at an average price per share of $5.95 and a
weighted average discount of 8.90% per share. Transactions in trust shares
were as follows:
Year ended 10/31/04 Year ended 10/31/03
SHARES AMOUNT SHARES AMOUNT
Treasury shares reacquired (1,415,400) $(8,109,105) (381,600) $(2,269,553)
-------------------------------------------------------------------------------------------------------------
(6) LINE OF CREDIT
The trust and other affiliated funds participate in an $800 million 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 Federal
Reserve funds rate plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the trust for the year ended October 31, 2004 was $2,717, and is
included in miscellaneous expense. The trust had no significant borrowings
during the year ended October 31, 2004.
(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, 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 2 $17,020
------------------------------------------------------------------------------------------------------
Options expired (2) (17,020)
------------------------------------------------------------------------------------------------------
Outstanding, end of period -- $--
------------------------------------------------------------------------------------------------------
Forward Foreign Currency Exchange Contracts
SALES
CONTRACTS TO NET UNREALIZED
DELIVER/ IN EXCHANGE CONTRACTS APPRECIATION
SETTLEMENT DATE RECEIVE FOR AT VALUE (DEPRECIATION)
11/12/04 - 11/22/04 ARS 310,000 $101,257 $104,183 $(2,926)
12/13/04 - 12/15/04 AUD 2,589,967 1,861,681 1,929,271 (67,590)
11/15/04 CAD 1,108,710 850,000 910,505 (60,505)
11/16/04 DKK 20,792,857 3,415,496 3,578,404 (162,908)
11/15/04 - 11/22/04 EUR 75,257,333 92,490,220 96,266,764 (3,776,544)
11/16/04 GBP 3,276,850 5,937,917 6,011,612 (73,695)
11/9/04 JPY 10,665,050 100,000 100,801 (801)
11/1/04 KRW 69,315,000 61,559 61,907 (348)
11/8/04 MXN 1,705,498 150,000 147,664 2,336
12/13/04 NZD 6,897,182 4,625,940 4,697,799 (71,859)
------------ ------------ -----------
$109,594,070 $113,808,910 $(4,214,840)
============ ============ ===========
PURCHASES
11/12/04 ARS 310,000 $100,000 $104,266 $4,266
11/16/04 BRL 579,025 201,235 202,796 1,561
11/22/04 - 11/29/94 CLP 164,640,000 269,266 268,411 (855)
6/1/05 CNY 1,830,988 227,198 226,318 (880)
11/8/04 COP 261,700,000 100,000 101,854 1,854
11/29/04 CZK 12,420,433 502,185 504,773 2,588
11/16/04 DKK 4,052,415 669,880 697,411 27,531
11/15/04 - 11/22/04 EUR 4,750,976 5,915,216 6,077,327 162,111
11/29/04 HUF 67,921,760 347,728 351,062 3,334
11/22/04 IDR 975,700,000 107,294 107,132 (162)
11/29/04 ILS 1,276,152 287,486 285,617 (1,869)
11/29/04 INR 9,150,000 200,000 201,232 1,232
11/1/04 - 11/30/04 KRW 310,830,000 271,614 277,451 5,837
11/8/04 - 11/19/04 MXN 10,183,013 891,858 881,252 (10,606)
11/16/04 - 11/29/04 PLN 2,267,920 642,236 668,056 25,820
11/22/04 RUB 2,928,000 100,688 101,892 1,204
11/16/04 SEK 19,942,195 2,652,510 2,819,799 167,289
11/18/04 SGD 896,225 532,960 539,093 6,133
11/12/04 SKK 8,158,369 251,026 261,247 10,221
11/22/04 THB 4,069,000 98,166 99,163 997
11/19/04 TRL 628,372,000,000 418,602 421,601 2,999
11/16/04 TWD 6,680,000 197,196 199,823 2,627
11/18/04 ZAR 1,750,855 277,467 285,398 7,931
------------ ------------ -----------
$15,261,811 $15,682,974 $421,163
============ ============ ===========
At October 31, 2004, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net receivable of $355,660
with Merrill Lynch International.
At October 31, 2004, the trust had sufficient cash and/or securities to cover
any commitments under these contracts.
Futures Contracts
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION DEPRECIATION
U.S. Treasury Notes 10
Year Futures December 2004 78 Short $(125,893)
------------------------------------------------------------------------------
U.S. Treasury Notes 2
Year Futures December 2004 243 Short (95,923)
------------------------------------------------------------------------------
$(221,816)
------------------------------------------------------------------------------
At October 31, 2004, the trust had sufficient cash and/or securities to cover
any margin requirements under these contracts.
(8) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the
Securities and Exchange Commission ("SEC") regarding disclosure of brokerage
allocation practices in connection with MFS fund sales (the term "MFS funds"
means the open-end registered management investment companies sponsored by
MFS). Under the terms of the settlement, in which MFS neither admitted nor
denied any wrongdoing, MFS agreed to pay (one dollar) $1.00 in disgorgement
and $50 million in penalty to certain MFS funds, pursuant to a plan developed
by an independent distribution consultant. The brokerage allocation practices
which were the subject of this proceeding were discontinued by MFS in November
2003. The agreement with the SEC is reflected in an order of the SEC. Pursuant
to the SEC order, on July 28, 2004, MFS transferred these settlement amounts
to the SEC, and those MFS funds entitled to these settlement amounts accrued
an estimate of their pro rata portion of these amounts. Once the final
distribution plan is approved by the SEC, these amounts will be distributed by
the SEC to the affected MFS funds. The SEC settlement order states that MFS
failed to adequately disclose to the Boards of Trustees and to shareholders of
the MFS funds the specifics of its preferred arrangements with certain
brokerage firms selling MFS fund shares. The SEC settlement order states that
MFS had in place policies designed to obtain best execution of all MFS fund
trades. As part of the settlement, MFS retained an independent compliance
consultant to review the completeness of its current policies and practices
regarding disclosure to MFS fund trustees and to MFS fund shareholders of
strategic alliances between MFS or its affiliates and broker-dealers and other
financial advisers who support the sale of MFS fund shares.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS open-end retail fund ("MFS
retail funds") prospectuses regarding market timing and related matters (the
"February Settlements"). These regulators alleged that prospectus language for
certain MFS retail funds was false and misleading because, although the
prospectuses for those funds in the regulators' view indicated that they
prohibited market timing, MFS did not limit trading activity in 11 domestic
large cap stock, high grade bond and money market retail funds. MFS' former
Chief Executive Officer, John W. Ballen, and former President, Kevin R. Parke,
also reached agreement with the SEC in which they agreed to, among other
terms, monetary fines and temporary suspensions from association with any
investment adviser or registered investment company. Messrs. Ballen and Parke
have resigned their positions with, and will not be returning to, MFS and the
MFS funds. Under the terms of the February Settlements, MFS and the executives
neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain MFS retail funds,
which has been funded by MFS and of which $50 million is characterized as a
penalty. This pool will be distributed in accordance with a methodology
developed by an independent distribution consultant in consultation with MFS
and the Board of Trustees of the MFS retail funds, and acceptable to the SEC.
MFS has further agreed with NYAG to reduce its management fees in the
aggregate amount of approximately $25 million annually over the next five
years, and not to increase certain management fees during this period. MFS has
also paid an administrative fine to NH in the amount of $1 million, which will
be used for investor education purposes (NH retained $250,000 and $750,000 was
contributed to the North American Securities Administrators Association's
Investor Protection Trust). In addition, under the terms of the February
Settlements, MFS is in the process of adopting certain governance changes and
reviewing its policies and procedures.
Since December 2003, MFS, MFS Fund Distributors, Inc., MFS Service Center,
Inc., MFS Corporation Retirement Committee, Sun Life Financial Inc., various
MFS funds, certain current and/or former Trustees of these MFS funds, and
certain officers of MFS have been named as defendants in multiple lawsuits
filed in federal and state courts. The lawsuits variously have been commenced
as class actions or individual actions on behalf of investors who purchased,
held or redeemed shares of the MFS funds during specified periods, as class
actions on behalf of participants in certain retirement plan accounts, or as
derivative actions on behalf of the MFS funds. The lawsuits relating to market
timing and related matters have been transferred to, and consolidated before,
the United States District Court for the District of Maryland, as part of a
multi-district litigation of market timing and related claims involving
several other fund complexes (In re Mutual Funds Investment Litigation (Alger,
Columbia, Janus, MFS, One Group, Putnam, Allianz Dresdner), No. 1:04-md-15863
(transfer began March 19, 2004)). The plaintiffs in these consolidated
lawsuits generally seek injunctive relief including removal of the named
Trustees, adviser and distributor, rescission of contracts and 12b-1 Plans,
disgorgement of fees and profits, monetary damages, punitive damages,
attorney's fees and costs and other equitable and declaratory relief. Four
lawsuits alleging improper brokerage allocation practices and excessive
compensation are pending in the United States District Court for the District
of Massachusetts (Forsythe v. Sun Life Financial Inc., et al., No. 04cv10584
(GAO) (March 25, 2004); Eddings v. Sun Life Financial Inc., et al., No.
04cv10764 (GAO) (April 15, 2004); Marcus Dumond, et al. v. Massachusetts
Financial Servs. Co., et al., No. 04cv11458 (GAO) (May 4, 2004); and Koslow v.
Sun Life Financial Inc., et al., No. 04cv11019 (GAO) (May 20, 2004)). The
plaintiffs in these lawsuits generally seek compensatory damages, punitive
damages, recovery of fees, rescission of contracts, an accounting,
restitution, declaratory relief, equitable and/or injunctive relief and
attorney's fees and costs. The various lawsuits generally allege that some or
all of the defendants (i) permitted or acquiesced in market timing and/or late
trading in some of the MFS funds, inadequately disclosed MFS' internal
policies concerning market timing and such matters, and received excessive
compensation as fiduciaries to the MFS funds, or (ii) permitted or acquiesced
in the improper use of fund assets by MFS to support the distribution of MFS
fund shares and inadequately disclosed MFS' use of fund assets in this manner.
The actions assert that some or all of the defendants violated the federal
securities laws, including the Securities Act of 1933 and the Securities
Exchange Act of 1934, the Investment Company Act of 1940 and the Investment
Advisers Act of 1940, the Employee Retirement Income Security Act of 1974, as
well as fiduciary duties and other violations of common law. Insofar as any of
the actions is appropriately brought derivatively on behalf of any of the MFS
funds, any recovery will inure to the benefit of the MFS funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed
in the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS
has established a restitution pool in the amount of $225 million to compensate
certain shareholders of certain MFS retail funds for damages that they
allegedly sustained as a result of market timing or late trading in certain of
the MFS retail funds, and transferred $50 million for distribution to affected
MFS funds to compensate those funds based upon the amount of brokerage
commissions allocated in recognition of MFS fund sales. It is not clear
whether these amounts will be sufficient to compensate shareholders for all of
the damage they allegedly sustained, whether certain shareholders or putative
class members may have additional claims to compensation, or whether the
damages that may be awarded in any of the actions will exceed these amounts.
In the event the MFS funds incur any losses, costs or expenses in connection
with such lawsuits, the Boards of Trustees of the affected MFS funds may
pursue claims on behalf of such funds against any party that may have
liability to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments,
will not result in increased fund redemptions, reduced sales of fund shares,
or other adverse consequences to the MFS funds.
While these developments relate to MFS and the MFS' open-end funds, there can
be no assurance that these developments, or the adverse publicity
associated with these developments, will not result in an increase to the
market discount of the MFS closed-end fund shares or other adverse
consequences.
-------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------------------------------
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, 2004, and the related statement of operations for the year
then ended, the statements 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 the standards of the Public Company
Accounting Oversight Board (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 at October 31, 2004, 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, 2004, 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 its financial highlights for each of the five
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Ernst & Young LLP
Boston, Massachusetts
December 10, 2004
------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
------------------------------------------------------------------------------------------------------
The Trustees and officers of the trust, as of December 10, 2004, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.) The
address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS & OTHER
POSITION(s) HELD TRUSTEE/OFFICER DIRECTORSHIPS(2) DURING
NAME, DATE OF BIRTH WITH FUND SINCE(1) THE PAST FIVE YEARS
------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee and February 2004 Massachusetts Financial
(born 10/20/63) President Services Company, Chief
Executive Officer, President,
Chief Investment Officer and
Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial
(born 08/08/46) Services Company, Chairman
(since February 2004);
Harvard Law School
(education), John Olin
Visiting Professor (since
July 2002); Secretary of
Economic Affairs, The
Commonwealth of Massachusetts
(January 2002 to December
2002); Fidelity Investments,
Vice Chairman (June 2000 to
December 2001); Fidelity
Management & Research Company
(investment adviser),
President (March 1997 to July
2001); The Bank of New York
(financial services),
Director; Bell Canada Enterprises
(telecommunications),
Director; Medtronic, Inc.
(medical technology),
Director; Telesat (satellite
communications), Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair of February 1992 Private investor; Eastern
(born 05/01/36) Trustees Enterprises (diversified
services company), Chairman,
Trustee and Chief Executive
Officer (until November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Chief of Cardiac Surgery;
Harvard Medical School,
Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service
provider), Vice Chairman/
Director (since April 2001);
Encinitos Ventures (private
investment company),
Principal (1997 to April
2001); Lincoln Electric
Holdings, Inc. (welding
equipment manufacturer),
Director; Southwest Gas
Corporation (natural gas
distribution company),
Director
William R. Gutow Trustee December 1993 Private investor and real
(born 09/27/41) estate consultant; Capitol
Entertainment Management
Company (video franchise),
Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group
(1997 to February 2001);
Borders Group, Inc. (book and
music retailer), Director;
Federal Realty Investment
Trust (real estate investment
trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes
(born 06/23/35) (attorneys), Partner
William J. Poorvu Trustee August 1982 Private investor; Harvard
(born 04/10/35) University Graduate School of
Business Administration,
Class of 1961 Adjunct
Professor in Entrepreneurship
Emeritus
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President;
Wellfleet Investments
(investor in health care
companies), Managing General
Partner (since 1993);
Cambridge Nutraceuticals
(professional nutritional
products), Chief Executive
Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care
(born 04/25/46) industry consultant
OFFICERS
Robert J. Manning(3) President and February 2004 Massachusetts Financial
(born 10/20/63) Trustee Services Company, Chief
Executive Officer, President,
Chief Investment Officer and
Director
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial
(born 03/06/59) and Assistant Clerk Services Company, Senior Vice
President and Associate
General Counsel
Jeffrey N. Carp(3) Secretary and Clerk September 2004 Massachusetts Financial
(born 12/01/56) Services Company, Senior Vice
President, General Counsel
and Secretary (since April
2004); Hale and Door LLP (law
firm) (prior to April 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial
(born 10/01/53) Services Company, Vice
President (since April 2003);
Brown Brothers Harriman &
Co., Senior Vice President
(November 2002 to April
2003); ING Groep N.V./Aeltus
Investment Management, Senior
Vice President (prior to
November 2002)
James F. DesMarais(3) Assistant Secretary September 2004 Massachusetts Financial
(born 03/09/61) and Assistant Clerk Services Company, Assistant
General Counsel
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial
(born 09/18/63) Services Company, Vice
President (since August
2000); UAM Fund Services,
Senior Vice President (prior
to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial
(born 08/29/58) Services Company, Senior Vice
President (since July 2002);
The Bank of New York, Senior
Vice President (September
2000 to July 2002); Lexington
Global Asset Managers, Inc.,
Executive Vice President and
Chief Financial Officer
(prior to September 2000);
Lexington Funds, Chief
Financial Officer (prior to
September 2000)
Brian T. Hourihan(3) Assistant Secretary September 2004 Massachusetts Financial
(born 11/11/64) and Assistant Clerk Services Company, Vice
President, Senior Counsel and
Assistant Secretary (since
June 2004); Affiliated
Managers Group, Inc., Chief
Legal Officer/Centralized
Compliance Program (January
to April 2004); Fidelity
Research & Management
Company, Assistant General
Counsel (prior to January
2004)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial
(born 11/13/57) Services Company, Vice
President
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance Officer compliance services),
Principal (since June 2004);
CRA Business Strategies Group
(consulting services),
Executive Vice President
(April 2003 to June 2004);
David L. Babson & Co.
(investment adviser),
Managing Director, Chief
Administrative Officer and
Director (February 1997 to
March 2003)
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial
(born 06/12/60) Services Company, Senior Vice
President
------------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(3) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act), which is the principal federal law governing investment companies like the fund. The address of
MFS is 500 Boylston Street, Boston, Massachusetts 02116.
The trust holds annual shareholder meetings for the purpose of electing Trustees, and Trustees are elected for
fixed terms. The Board of Trustees is currently divided into three classes, each having a term of three years.
Each year the term of one class expires. Each Trustee's term of office expires on the date of the third annual
meeting following the election to office of the Trustee's class. Each Trustee will serve until next elected or
his or her earlier death, resignation, retirement or removal. Messrs. Ives, Poorvu and Sherratt and Ms. Lane
are members of the trust's Audit Committee.
Each of the trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor, and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 99 funds within the MFS Family of Funds.
On October 29, 2004, Robert J. Manning, as Chief Executive Officer of the trust, certified to the New York
Stock Exchange that as of the date of his certification he was not aware of any violation by the trust of the
corporate governance listing standards of the New York Stock Exchange.
The trust filed with the Securities and Exchange Commission the certifications of its principal executive
officer and principal financial officer under Section 302 of the Sarbanes-Oxley Act of 2002 as an exhibit to
the trust's Form N-CSR for the period covered by this report.
-------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIANS
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
J.P. Morgan Chase Bank
PORTFOLIO MANAGER One Chase Manhattan Plaza
Peter C. Vaream New York, NY 10081
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
200 Clarendon Street, Boston, MA 02116
-------------------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION
-------------------------------------------------------------------------------
A general description of the MFS funds' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the About MFS section of mfs.com or by visiting the SEC's Web site at
http://www.sec. gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
-------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE
-------------------------------------------------------------------------------
The fund will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The fund's Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
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FEDERAL TAX INFORMATION (UNAUDITED)
In January 2005, shareholders will be mailed a Tax Form Summary or Form 1099-
DIV, if applicable, reporting the federal tax status of all distributions paid
during the calendar year 2004.
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CONTACT INFORMATION AND NUMBER OF SHAREHOLDERS
INVESTOR INFORMATION
Transfer Agent, Registrar and Dividend Disbursing Agent
Call 1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time
Write to: State Street Bank and Trust Company
c/o MFS Service Center, Inc.
P.O. Box 55024
Boston, MA 02205-5024
NUMBER OF SHAREHOLDERS
As of October 31, 2004, our records indicate that there are 8,553 registered
shareholders and approximately 42,113 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
c/o MFS Service Center, Inc.
P.O. Box 55024
Boston, MA 02205-5024
1-800-637-2304
[logo] M F S(R)
INVESTMENT MANAGEMENT
(C) 2004 MFS Investment Management(R)
500 Boylston Street, Boston, MA 02116.
MMT-ANN-12/04 59M
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the Registrant's
principal executive officer and principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Mr. J. Atwood Ives and Ms. Amy B. Lane, members of the Audit Committee, have
been determined by the Board of Trustees in their reasonable business judgment
to meet the definition of "audit committee financial expert" as such term is
defined in Form N-CSR. In addition, Mr. Ives and Ms. Lane are both "independent"
members of the Audit Committee as defined in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEMS 4(A) THROUGH 4(D) AND 4(G):
The Board of Trustees has appointed Ernst & Young LLP ("E&Y") to serve as
independent accountants to the Registrant. The tables below set forth the audit
fees billed to the Registrant as well as fees for non-audit services provided to
the Registrant and/or to the Registrant's investment adviser, Massachusetts
Financial Services Company ("MFS") and to various entities either controlling,
controlled by, or under common control with MFS that provide ongoing services to
the Registrant ("MFS Related Entities").
For the fiscal years ended October 31, 2004 and 2003, audit fees billed to the
following Registrant by E&Y were as follows:
Audit Fees
FEES BILLED BY E&Y: 2004 2003
------ ------
MFS Multimarket Income Trust 37,900 36,330
------ ------
TOTAL 37,900 36,330
For the fiscal years ended October 31, 2004 and 2003, fees billed by E&Y for
audit-related, tax and other services provided to the Registrant and for
audit-related, tax and other services provided to MFS and MFS Related Entities
were as follows:
Audit-Related Fees(1) Tax Fees(2) All Other Fees(3)
FEES BILLED BY E&Y: 2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
To MFS Multimarket 0 0 11,600 6,870 0 0
------ -----
Income Trust
To MFS and MFS Related 0 0 0 0 40,000 14,607
Entities relating directly to the
operations and
financial reporting of the
above Registrant*
To Registrant, MFS and MFS 0 0 18,600 6,870 40,000 24,607
Related Entities#
* This amount reflects the fees billed to MFS and MFS Related Entities for
non-audit services relating directly to the operations and financial
reporting of the Registrant (which services also related to the operations
and financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by E&Y for non-audit services
rendered to the Registrant and for non-audit services rendered to MFS and
the MFS Related Entities.
(1) The fees included under "Audit-Related Fees" are fees related to assurance
and related services that are reasonably related to the performance of the
audit or review of financial statements, but not reported under "Audit
Fees," including accounting consultations, agreed-upon procedure reports,
attestation reports and comfort letters.
(2) The fees included under "Tax Fees" are fees associated with tax compliance,
tax advice and tax planning, including services relating to the filing or
amendment of federal, state or local income tax returns, regulated
investment company qualification reviews and tax distribution and analysis.
(3) The fees included under "All Other Fees" are fees for products and services
provided by E&Y other than those reported under "Audit Fees", "Audit-Related
Fees" and "Tax Fees."
For periods prior to May 6, 2003, the amounts shown above under "Audit-Related
Fees," "Tax Fees" and "All Other Fees" relate to permitted non-audit services
that would have been subject to pre-approval if the Securities and Exchange
Commission's rules relating to pre-approval of non-audit services had been in
effect.
ITEM 4(E)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services: To the extent required by applicable law,
pre-approval by the Audit Committee of the Board is needed for all audit and
permissible non-audit services rendered to the Funds and all permissible
non-audit services rendered to MFS or MFS Related Entities if the services
relate directly to the operations and financial reporting of the Registrant.
Pre-approval is currently on an engagement-by-engagement basis. In the event
pre-approval of such services is necessary between regular meetings of the Audit
Committee and it is not practical to wait to seek pre-approval at the next
regular meeting of the Audit Committee, such pre-approval of services may be
referred to the Chair of the Audit Committee for approval; provided that the
Chair may not pre-approve any individual engagement for such services exceeding
$50,000 or multiple engagements for such services in the aggregate exceeding
$100,000 between such regular meetings of the Audit Committee. Any engagement
pre-approved by the Chair between regular meetings of the Audit Committee shall
be presented for ratification by the entire Audit Committee at its next
regularly scheduled meeting.
ITEM 4(E)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Registrant and MFS and MFS Related Entities relating
directly to the operations and financial reporting of the Registrant disclosed
above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X (which permits audit committee approval after the
start of the engagement with respect to services other than audit review or
attest services, if certain conditions are satisfied).
ITEM 4(F): Not applicable.
ITEM 4(H): The Registrant's Audit Committee has considered whether the provision
by a Registrant's independent registered public accounting firm of non-audit
services to MFS and MFS Related Entities that were not pre-approved by the
Committee (because such services were provided prior to the effectiveness of SEC
rules requiring pre-approval or because such services did not relate directly to
the operations and financial reporting of the Registrant) was compatible with
maintaining the independence of the independent registered public accounting
firm as the Registrant's principal auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has an Audit Committee established in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit
Committee are Messrs. J. Atwood Ives, William J. Poorvu and J. Dale Sherratt and
Ms. Amy B. Lane.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments of the Registrant is included as part of the report to
shareholders of the Registrant under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Board of Trustees and the Board of Managers of the investment companies (the
"MFS Funds") advised by Massachusetts Financial Services Company ("MFS") have
delegated to MFS the right and obligation to vote proxies for shares that are
owned by the MFS Funds, in accordance with MFS' proxy voting policies and
procedures (the "MFS Proxy Policies"). The MFS Proxy Policies are set forth
below:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
PROXY VOTING POLICIES AND PROCEDURES
SEPTEMBER 17, 2003, AS REVISED ON SEPTEMBER 20, 2004
Massachusetts Financial Services Company, MFS Institutional
Advisors, Inc. and MFS' other investment adviser subsidiaries
(collectively, "MFS") have adopted proxy voting policies and
procedures, as set forth below, with respect to securities owned by the
clients for which MFS serves as investment adviser and has the power to
vote proxies, including the registered investment companies sponsored
by MFS, other than the MFS Union Standard Equity Fund (the "MFS
Funds").
These policies and procedures include:
A. Voting Guidelines;
B. Administrative Procedures;
C. Monitoring System;
D. Records Retention; and
E. Reports.
A. VOTING GUIDELINES
1. GENERAL POLICY; POTENTIAL CONFLICTS OF INTEREST
MFS' policy is that proxy voting decisions are made in what MFS
believes to be the best long-term economic interests of MFS' clients, and not in
the interests of any other party or in MFS' corporate interests, including
interests such as the distribution of MFS Fund shares, administration of 401(k)
plans, and institutional relationships.
MFS has carefully reviewed matters that in recent years have been
presented for shareholder vote by either management or shareholders of public
companies. Based on the guiding principle that all votes made by MFS on behalf
of its clients must be in what MFS believes to be the best long-term economic
interests of such clients, MFS has adopted proxy voting guidelines, which are
set forth below, that govern how MFS generally plans to vote on specific matters
presented for shareholder vote. In all cases, MFS will exercise its discretion
to vote these items in accordance with this guiding principle. These underlying
guidelines are simply that - guidelines. Each proxy item is considered on a
case-by-case basis, in light of all relevant facts and circumstances, and there
may be instances in which MFS may vote proxies in a manner different from these
guidelines.
As a general matter, MFS maintains a consistent voting position with
respect to similar proxy proposals made by various issuers. In addition, MFS
generally votes consistently on the same matter when securities of an issuer are
held by multiple client accounts. However, MFS recognizes that there are
gradations in certain types of proposals that might result in different voting
positions being taken with respect to the different proxy statements. There also
may be situations involving matters presented for shareholder vote that are not
clearly governed by the guidelines, such as proposed mergers and acquisitions.
Some items that otherwise would be acceptable will be voted against the
proponent when it is seeking extremely broad flexibility without offering a
valid explanation. MFS reserves the right to override the guidelines with
respect to a particular shareholder vote when such an override is, in MFS' best
judgment, consistent with the guiding principle of voting proxies in the best
long-term economic interests of MFS' clients.
From time to time, MFS receives comments on these guidelines and
regarding particular voting issues from its clients. Those comments are reviewed
and considered periodically, and these guidelines are reviewed each year with
MFS Equity Research Department management, the MFS Proxy Review Group and the
MFS Proxy Consultant and are revised as appropriate.
These policies and procedures are intended to address any potential
material conflicts of interest on the part of MFS or its affiliates that could
arise in connection with the voting of proxies on behalf of MFS' clients. MFS
shall be mindful of any and all potential material conflicts of interest that
could arise in the voting of these proxies, shall identify, analyze, document
and report on any such potential conflicts, and shall ultimately vote these
proxies in what MFS believes to be the best long-term economic interests of its
clients. The MFS Proxy Review Group is responsible for monitoring and reporting
on all potential conflicts of interest.
2. MFS' POLICY ON SPECIFIC ISSUES
NON-SALARY COMPENSATION PROGRAMS
Managements have become increasingly creative and generous with
compensation programs involving common stock. The original stock option plans,
which called for the optionee to pay the money to exercise the option, are now
embellished with no risk benefits such as stock appreciation rights, the use of
unexercised options to "buy" stock, and restricted stock at bargain prices.
Stock option plans are supposed to reward results rather than tenure,
so the use of restricted stock at bargain prices is not favored. In some cases,
restricted stock is granted to the recipient at deep discounts to fair market
value, sometimes at par value. The holder cannot sell for a period of years, but
in the meantime is able to vote and receive dividends. Eventually the
restrictions lapse and the stock can be sold.
MFS votes against option programs for officers, employees or
non-employee directors that do not require an investment by the optionee, that
give "free rides" on the stock price, or that permit grants of restricted stock
at deep discounts to fair market value. MFS generally votes against stock option
plans that involve stock appreciation rights or the use of unexercised options
to "buy" stock.
MFS opposes plans that provide unduly generous compensation for
officers, directors or employees, or could result in excessive dilution to other
shareholders. As a general guideline, MFS votes against stock option plans if
all such plans for a particular company involve potential dilution, in the
aggregate, of more than 15%.
MFS votes in favor of stock option plans for non-employee directors as
long as they satisfy the requirements set forth above with respect to stock
option plans for employees. Stock option plans that include options for
consultants and other third parties not involved in the management of the
company generally are opposed by MFS.
"GOLDEN PARACHUTES"
From time to time, shareholders of companies have submitted proxy
proposals that would require shareholder approval of any severance packages for
executive officers that exceed certain predetermined thresholds. MFS votes in
favor of such shareholder proposals when they would require shareholder approval
of any severance package for an executive officer that exceeds a certain
percentage of such officer's annual compensation. When put to a vote, MFS votes
against very large golden parachutes.
ANTI-TAKEOVER MEASURES
In general, MFS votes against any measure that inhibits capital
appreciation in a stock, including a possible takeover and any proposal that
protects management from action by shareholders. These types of proposals take
many forms, ranging from "poison pills" and "shark repellents" to board
classification and super-majority requirements.
REINCORPORATION AND REORGANIZATION PROPOSALS
When presented with a proposal to reincorporate a company under the
laws of a different state, or to effect some other type of corporate
reorganization, MFS considers the underlying purpose and ultimate effect of such
a proposal in determining whether or not to support such a measure. While MFS
generally votes in favor of management proposals that it believes are in the
best long-term economic interests of its clients, MFS may oppose such a measure
if, for example, the intent or effect would be to create additional
inappropriate impediments to possible acquisitions or takeovers.
DILUTION
There are many reasons for issuance of stock and most are legitimate.
As noted above under "Non-Salary Compensation Programs", when a stock option
plan (either individually or when aggregated with other plans of the same
company) would substantially dilute the existing equity (e.g., by approximately
15% or more), MFS generally votes against the plan. In addition, MFS votes
against proposals where management is asking for authorization to issue common
or preferred stock with no reason stated (a "blank check") because the
unexplained authorization could work as a potential anti-takeover device.
CONFIDENTIAL VOTING
MFS votes in favor of proposals to ensure that shareholder voting
results are kept confidential. For example, MFS supports proposals that would
prevent management from having access to shareholder voting information that is
compiled by an independent proxy tabulation firm.
INDEPENDENCE OF BOARDS OF DIRECTORS AND COMMITTEES THEREOF
While MFS acknowledges the potential benefits of a company's inclusion
of directors who are "independent" from management, MFS generally opposes
shareholder proposals that would require that a majority (or a "super-majority")
of a company's board be comprised of "independent" directors. Such proposals
could inappropriately reduce a company's ability to engage in certain types of
transactions, could result in the exclusion of talented directors who are not
deemed "independent", or could result in the unnecessary addition of additional
"independent" directors to a company's board. However, in view of the special
role and responsibilities of various committees of a board of directors, MFS
supports proposals that would require that the Audit, Nominating and
Compensation Committees be comprised entirely of directors who are deemed
"independent" of the company.
INDEPENDENT AUDITORS
Recently, some shareholder groups have submitted proposals to limit the
non-audit activities of a company's audit firm. Some proposals would prohibit
the provision of any non-audit services (unless approved in advance by the full
board) whereas other proposals would cap non-audit fees so that such fees do not
exceed a certain percentage of the audit fees. MFS supports such shareholder
proposals that would cap non-audit fees at an amount deemed to be not excessive.
BEST PRACTICES STANDARDS
Best practices standards are rapidly evolving in the corporate
governance areas as a result of recent corporate failures, the Sarbanes-Oxley
Act of 2002 and revised listing standards on major stock exchanges. MFS
generally support these changes. However, many issuers are not publicly
registered, are not subject to these enhanced listing standards or are not
operating in an environment that is comparable to that in the United States. In
reviewing proxy proposals under these circumstances, MFS votes for proposals
that enhance standards of corporate governance so long as we believe that --
within the circumstances of the environment within which the issuers operate -
the proposal is consistent with the best long-term economic interests of our
clients.
FOREIGN ISSUERS - SHARE BLOCKING
In accordance with local law or business practices, many foreign
companies prevent the sales of shares that have been voted for a certain period
beginning prior to the shareholder meeting and ending on the day following the
meeting ("share blocking"). Depending on the country in which a company is
domiciled, the blocking period may begin a stated number of days prior to the
meeting (e.g., one, three or five days) or on a date established by the company.
While practices vary, in many countries the block period can be continued for a
longer period if the shareholder meeting is adjourned and postponed to a later
date. Similarly, practices vary widely as to the ability of a shareholder to
have the "block" restriction lifted early (e.g., in some countries shares
generally can be "unblocked" up to two days prior to the meeting whereas in
other countries the removal of the block appears to be discretionary with the
issuer's transfer agent). Due to these restrictions, MFS must balance the
benefits to its clients of voting proxies against the potentially serious
portfolio management consequences of a reduced flexibility to sell the
underlying shares at the most advantageous time. For companies in countries with
potentially long block periods, the disadvantage of being unable to sell the
stock regardless of changing conditions generally outweighs the advantages of
voting at the shareholder meeting for routine items. Accordingly, MFS generally
will not vote those proxies in the absence of an unusual, significant vote.
Conversely, for companies domiciled in countries with very short block periods,
MFS generally will continue to cast votes in accordance with these policies and
procedures.
SOCIAL ISSUES
There are many groups advocating social change, and many have chosen
the publicly-held corporation as a vehicle for their agenda. Common among these
are resolutions requiring the corporation to refrain from investing or
conducting business in certain countries, to adhere to some list of goals or
principles (e.g., environmental standards) or to report on various activities.
MFS votes against such proposals unless their shareholder-oriented benefits will
outweigh any costs or disruptions to the business, including those that use
corporate resources to further a particular social objective outside the
business of the company or when no discernible shareholder economic advantage is
evident.
The laws of various states may regulate how the interests of certain
clients subject to those laws are voted. For example, the General Laws of The
Commonwealth of Massachusetts prohibit the investment of state funds, including
retirement system assets, in the following types of investments: (i) financial
institutions which directly or through any subsidiary have outstanding loans to
any individual or corporation engaged in manufacturing, distribution or sale of
firearms, munitions, rubber or plastic bullets, tear gas, armored vehicles or
military aircraft for use or deployment in any activity in Northern Ireland; or
(ii) any stocks, securities or obligations of any company so engaged.
Because of these statutory restrictions, it is necessary when voting
proxies for securities held in Massachusetts public pension accounts to support
the purpose of this legislation. Thus, on issues relating to these or similar
state law questions, it may be necessary to cast ballots differently for these
portfolios than MFS might normally do for other accounts.
B. ADMINISTRATIVE PROCEDURES
1. MFS PROXY REVIEW GROUP
The administration of these policies and procedures is overseen by the
MFS Proxy Review Group, which includes senior MFS Legal Department officers and
MFS' Proxy Consultant. The MFS Proxy Review Group:
a. Reviews these policies and procedures at least annually and
recommends any amendments considered to be necessary or advisable;
b. Determines whether any material conflicts of interest exist with
respect to instances in which (i) MFS seeks to override these
guidelines and (ii) votes not clearly governed by these guidelines;
and
c. Considers special proxy issues as they may arise from time to time.
The current MFS Proxy Consultant is an independent proxy consultant who
performs these services exclusively for MFS.
2. POTENTIAL CONFLICTS OF INTEREST
The MFS Proxy Review Group is responsible for monitoring potential
material conflicts of interest on the part of MFS or its affiliates that could
arise in connection with the voting of proxies on behalf of MFS' clients. Any
attempt to influence MFS' voting on a particular proxy matter should be reported
to the MFS Proxy Review Group. The MFS Proxy Consultant will assist the MFS
Proxy Review Group in carrying out these responsibilities.
In cases where proxies are voted in accordance with these policies and
guidelines, no conflict of interest will be deemed to exist. In cases where (i)
MFS is considering overriding these policies and guidelines, or (ii) matters
presented for vote are not clearly governed by these policies and guidelines,
the MFS Proxy Review Group and the MFS Proxy Consultant will follow these
procedures:
a. Compare the name of the issuer of such proxy against a list of
significant current and potential (i) distributors of MFS Fund
shares, (ii) retirement plans administered by MFS, and (iii) MFS
institutional clients (the "MFS Significant Client List");
b. If the name of the issuer does not appear on the MFS Significant
Client List, then no material conflict of interest will be deemed to
exist, and the proxy will be voted as otherwise determined by the
MFS Proxy Review Group;
c. If the name of the issuer appears on the MFS Significant Client
List, then the MFS Proxy Review Group will carefully evaluate the
proposed votes in order to ensure that the proxy ultimately is voted
in what MFS believes to be the best long-term economic interests of
MFS' clients, and not in MFS' corporate interests; and
d. For all potential material conflicts of interest identified under
clause (c) above, the MFS Proxy Review Group will document: the name
of the issuer, the issuer's relationship to MFS, the analysis of the
matters submitted for proxy vote, and the basis for the
determination that the votes ultimately were cast in what MFS
believes to be the best long-term economic interests of MFS'
clients, and not in MFS' corporate interests.
The MFS Proxy Review Group is responsible for creating and maintaining
the MFS Significant Client List, in consultation with MFS' distribution,
retirement plan administration and institutional business units. The MFS
Significant Client List will be reviewed and updated as necessary, but no less
frequently than quarterly.
3. GATHERING PROXIES
Nearly all proxies received by MFS originate at Automatic Data
Processing Corp. ("ADP"). ADP and issuers send proxies and related material
directly to the record holders of the shares beneficially owned by MFS' clients,
usually to the client's custodian or, less commonly, to the client itself. Each
client's custodian is responsible for forwarding all proxy solicitation
materials to MFS (except in the case of certain institutional clients for which
MFS does not vote proxies). This material will include proxy cards, reflecting
the proper shareholdings of Funds and of clients on the record dates for such
shareholder meetings, and proxy statements, the issuer's explanation of the
items to be voted upon.
MFS, on behalf of itself and the Funds, has entered into an agreement
with an independent proxy administration firm, Institutional Shareholder
Services, Inc. (the "Proxy Administrator"), pursuant to which the Proxy
Administrator performs various proxy vote processing and recordkeeping functions
for MFS' Fund and institutional client accounts. The Proxy Administrator does
not make recommendations to MFS as to how to vote any particular item. The Proxy
Administrator receives proxy statements and proxy cards directly from various
custodians, logs these materials into its database and matches upcoming meetings
with MFS Fund and client portfolio holdings, which are input into the Proxy
Administrator's system by an MFS holdings datafeed. Through the use of the Proxy
Administrator system, ballots and proxy material summaries for the upcoming
shareholders' meetings of over 10,000 corporations are available on-line to
certain MFS employees, the MFS Proxy Consultant and the MFS Proxy Review Group
and most proxies can be voted electronically. In addition to receiving the hard
copies of materials relating to meetings of shareholders of issuers whose
securities are held by the Funds and/or clients, the ballots and proxy
statements can be printed from the Proxy Administrator's system and forwarded
for review.
4. ANALYZING PROXIES
After input into the Proxy Administrator system, proxies which are
deemed to be completely routine (e.g., those involving only uncontested
elections of directors, appointments of auditors, and/or employee stock purchase
plans)(1) are automatically voted in favor by the Proxy Administrator without
being sent to either the MFS Proxy Consultant or the MFS Proxy Review Group for
further review. Proxies that pertain only to merger and acquisition proposals
are forwarded initially to an appropriate MFS portfolio manager or research
analyst for his or her recommendation. All proxies that are reviewed by either
the MFS Proxy Consultant or a portfolio manager or analyst are then forwarded
with the corresponding recommendation to the MFS Proxy Review Group.(2)
---------------
(1) Proxies for foreign companies often contain significantly more voting items
than those of U.S. companies. Many of these items on foreign proxies involve
repetitive, non-controversial matters that are mandated by local law.
Accordingly, there is an expanded list of items that are deemed routine (and
therefore automatically voted in favor) for foreign issuers, including the
following: (i) receiving financial statements or other reports from the
board; (ii) approval of declarations of dividends; (iii) appointment of
shareholders to sign board meeting minutes; (iv) the discharge of management
and supervisory boards; and (v) approval of share repurchase programs.
(2) From time to time, due to travel schedules and other commitments, an
appropriate portfolio manager or research analyst is not available to
provide a recommendation on a merger or acquisition proposal. If such a
recommendation cannot be obtained within a few business days prior to the
shareholder meeting, the MFS Proxy Review Group will determine the vote in
what MFS believes to be the best long-term economic interests of its
clients.
Recommendations with respect to voting on non-routine issues are
generally made by the MFS Proxy Consultant in accordance with the policies
summarized under "Voting Guidelines," and all other relevant materials. His or
her recommendation as to how each proxy proposal should be voted is indicated on
copies of proxy cards, including his or her rationale on significant items.
These cards are then forwarded to the MFS Proxy Review Group.
As a general matter, portfolio managers and investment analysts are
consulted and involved in developing MFS' substantive proxy voting guidelines,
but have little or no involvement in or knowledge of proxy proposals or voting
positions taken by MFS. This is designed to promote consistency in the
application of MFS' voting guidelines, to promote consistency in voting on the
same or similar issues (for the same or for multiple issuers) across all client
accounts, and to minimize or remove the potential that proxy solicitors,
issuers, and third parties might attempt to exert influence on the vote or might
create a conflict of interest that is not in what MFS believes to be the best
long-term economic interests of our clients. In limited, specific instances
(e.g., mergers), the MFS Proxy Consultant or the MFS Proxy Review Group may
consult with or seek recommendations from portfolio managers or analysts. The
MFS Proxy Review Group would ultimately determine the manner in which all
proxies are voted.
As noted above, MFS reserves the right to override the guidelines when
such an override is, in MFS' best judgment, consistent with the guiding
principle of voting proxies in the best long-term economic interests of MFS'
clients. Any such override of the guidelines shall be examined, explained and
reported in accordance with the procedures set forth in these policies.
5. VOTING PROXIES
After the proxy card copies are reviewed, they are voted electronically
through the Proxy Administrator's system. In accordance with its contract with
MFS, the Proxy Administrator also generates a variety of reports for the MFS
Proxy Consultant and the MFS Proxy Review Group, and makes available on-line
various other types of information so that the MFS Proxy Review Group and the
MFS Proxy Consultant may monitor the votes cast by the Proxy Administrator on
behalf of MFS' clients.
C. MONITORING SYSTEM
It is the responsibility of the Proxy Administrator and MFS' Proxy
Consultant to monitor the proxy voting process. As noted above, when proxy
materials for clients are received, they are forwarded to the Proxy
Administrator and are input into the Proxy Administrator's system. Additionally,
through an interface with the portfolio holdings database of MFS, the Proxy
Administrator matches a list of all MFS Funds and clients who hold shares of a
company's stock and the number of shares held on the record date with the Proxy
Administrator's listing of any upcoming shareholder's meeting of that company.
When the Proxy Administrator's system "tickler" shows that the date of
a shareholders' meeting is approaching, a Proxy Administrator representative
checks that the vote for MFS Funds and clients holding that security has been
recorded in the computer system. If a proxy card has not been received from the
client's custodian, the Proxy Administrator calls the custodian requesting that
the materials be forward immediately. If it is not possible to receive the proxy
card from the custodian in time to be voted at the meeting, MFS may instruct the
custodian to cast the vote in the manner specified and to mail the proxy
directly to the issuer.
D. RECORDS RETENTION
MFS will retain copies of these policies and procedures in effect from
time to time and will retain all proxy voting reports submitted to the Board of
Trustees and Board of Managers of the MFS Funds for a period of six years. Proxy
solicitation materials, including electronic versions of the proxy cards
completed by the MFS Proxy Consultant and the MFS Proxy Review Group, together
with their respective notes and comments, are maintained in an electronic format
by the Proxy Administrator and are accessible on-line by the MFS Proxy
Consultant and the MFS Proxy Review Group. All proxy voting materials and
supporting documentation, including records generated by the Proxy
Administrator's system as to proxies processed, the dates when proxies were
received and returned, and the votes on each company's proxy issues, are
retained for six years.
E. REPORTS
MFS FUNDS
Periodically, MFS will report the results of its voting to the Board of
Trustees and Board of Managers of the MFS Funds. These reports will include: (i)
a listing of how votes were cast; (ii) a review of situations where MFS did not
vote in accordance with the guidelines and the rationale therefor; (iii) a
review of the procedures used by MFS to identify material conflicts of interest;
and (iv) a review of these policies and the guidelines and, as necessary or
appropriate, any proposed modifications thereto to reflect new developments in
corporate governance and other issues. Based on these reviews, the Trustees and
Managers of the MFS Funds will consider possible modifications to these policies
to the extent necessary or advisable.
ALL MFS ADVISORY CLIENTS
At any time, a report can be printed by MFS for each client who has
requested that MFS furnish a record of votes cast. The report specifies the
proxy issues which have been voted for the client during the year and the
position taken with respect to each issue.
Generally, MFS will not divulge actual voting practices to any party
other than the client or its representatives (unless required by applicable law)
because we consider that information to be confidential and proprietary to the
client.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
======================================================================================================================
MFS MULTIMARKET INCOME TRUST
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(D) MAXIMUM NUMBER (OR
(A) TOTAL (C) TOTAL NUMBER OF SHARES APPROXIMATE DOLLAR VALUE)
PRIOR NUMBER OF (B) AVERAGE PURCHASED AS PART OF OF SHARES THAT MAY YET BE
SHARES PRICE PAID PUBLICLY ANNOUNCED PURCHASED UNDER THE PLANS
PURCHASED PER SHARE PLANS OR PROGRAMS OR PROGRAMS
======================================================================================================================
11/01/03 - 11/30/03 0 0 0 8,178,655
12/01/03 - 12/31/03 0 0 0 8,178,655
01/01/04 - 01/31/04 0 0 0 8,178,655
02/01/04 - 02/28/04 0 0 0 8,337,055
03/01/04 - 03/31/04 0 0 0 8,337,055
04/01/04 - 04/30/04 347,600 6.10 347,600 7,989,455
05/01/04 - 05/31/04 378,500 5.89 378,500 7,610,955
06/01/04 - 06/30/04 0 0 0 7,610,955
07/01/04 - 07/31/04 271,000 6.05 271,000 7,339,955
08/01/04 - 08/31/04 142,100 6.18 142,100 7,197,855
09/01/04 - 09/30/04 223,300 6.27 223,300 6,974,555
10/01/04 - 10/31/04 52,900 6.31 52,900 6,921,655
TOTALS/YEAR 1,415,400 6.08 1,415,400
======================================================================================================================
Note: All share purchases were made pursuant to publicly announced share
repurchase programs approved by the Board of Trustees. The Board of Trustees
approves procedures to repurchase shares annually. The notification to
shareholders of the program is part of the semi-annual and annual reports sent
to shareholders. These annual programs begin on March 1st of each year. The
programs conform to the conditions of Rule 10b-18 of the Securities Exchange Act
of 1934 and limit the aggregate number of shares that may be purchased in each
annual period (March 1 through the following February 28) to 10% of the
Registrant's outstanding shares as of the first day of the plan year (March 1).
The aggregate number of shares available for the March 1, 2004 plan year are
8,337,055.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Trustees of the Registrant has adopted procedures by which
shareholders may send communications, including recommendations to the Board for
nominees to the Registrant's Board. Shareholders may mail written recommendation
to the Board to the attention of the Board of Trustees, MFS Multimarket Income
Trust, Massachusetts Financial Services Company, 500 Boylston Street, Boston, MA
02116, c/o , Jeffrey N. Carp, Secretary of the Trust. Shareholder communications
must be in writing and be signed by the shareholder and identify the series of
the Registrant to which they relate. Such recommendations must be accompanied by
the candidate's biographical and occupational data (including whether the
candidate would be an "interested person" of the Registrant), a written consent
of the candidate to be named as a nominee and to serve as Trustee if elected,
record and ownership information for the recommending shareholder with respect
to the series of the Registrant to which the recommendation relates and a
description of any arrangements or understandings regarding recommendation of
the candidate for consideration.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Act) as conducted within
90 days of the filing date of this Form N-CSR, the registrant's principal
financial officer and principal executive officer have concluded that those
disclosure controls and procedures provide reasonable assurance that the
material information required to be disclosed by the registrant on this
report is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and
forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter covered by the report that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Code of
Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(3)Any written solicitation to purchase securities under Rule 23c-1 under
the Act sent or given during the period covered by the report by or on
behalf of the Registrant to 10 or more persons. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for the purposes of
Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the
liability of that section. Such certification will not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933 or
the Exchange Act, except to the extent that the registrant specifically
incorporates it by reference: Attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant MFS MULTIMARKET INCOME TRUST
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By (Signature and Title)* ROBERT J. MANNING
-----------------------------------------------------
Robert J. Manning, President
Date: December 21, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* ROBERT J. MANNING
------------------------------------------------------
Robert J. Manning, President
(Principal Executive Officer)
Date: December 21, 2004
By (Signature and Title)* RICHARD M. HISEY
-----------------------------------------------------
Richard M. Hisey, Treasurer (Principal Financial
Officer and Accounting Officer)
Date: December 21, 2004
* Print name and title of each signing officer under his or her signature.