|
|
|
|
|
|
|
|
|
Risk
|
|
Futures
Contracts
|
|
|
Foreign
Currency
|
|
Interest Rate
|
|
|
$(194,439
|
)
|
|
|
$
|
|
Foreign Exchange
|
|
|
|
|
|
|
2,347,995
|
|
Total
|
|
|
$(194,439
|
)
|
|
|
$2,347,995
|
|
43
Notes to Financial Statements (unaudited) continued
The following table presents, by major type of derivative contract, the change in
unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended April 30, 2013 as reported in the Statement of Operations:
|
|
|
|
|
|
|
|
|
Risk
|
|
Futures
Contracts
|
|
|
Translation
of Assets
and
Liabilities in
Foreign
Currencies
|
|
Interest Rate
|
|
|
$(763,797
|
)
|
|
|
$
|
|
Foreign Exchange
|
|
|
|
|
|
|
(787,451
|
)
|
Total
|
|
|
$(763,797
|
)
|
|
|
$(787,451
|
)
|
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On
certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a
bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if
there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all
transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master
Agreement could result in a reduction of the funds credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty
or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange
traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and
over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such
obligations. Cash collateral that has been segregated to cover obligations of the fund under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as Restricted cash. Securities collateral
pledged for the same purpose, if any, is noted in the Portfolio of Investments.
Futures Contracts
The fund entered into futures contracts
which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a
specified date.
44
Notes to Financial Statements (unaudited) continued
Upon entering into a futures contract, the fund is required to deposit with the broker,
either in cash or securities, an initial margin in an amount equal to a certain percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations
in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits
of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchanges clearinghouse guarantees payments to the broker, there is still
counterparty credit risk due to the insolvency of the broker. The funds maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures
contracts.
Forward Foreign Currency Exchange Contracts
The fund entered into forward foreign currency exchange contracts for the purchase
or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the funds currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive
foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate
movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the funds portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are
recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on foreign currency.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of
counterparties to meet the terms of their contracts. Generally, the funds maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, an industry accepted settlement
system. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and for posting of collateral by the counterparty to the fund to cover the funds
exposure to the counterparty under such ISDA Master Agreement.
Loans and Other Direct Debt Instruments
The fund invests in loans and loan
participations or other receivables. These investments may include standby financing commitments, including revolving credit facilities, which obligate the fund to supply additional cash to the borrower on demand. Loan participations involve a risk
of insolvency of the lending bank or other financial intermediary.
45
Notes to Financial Statements (unaudited) continued
Statement of Cash Flows
Information on financial transactions which have
been settled through the receipt or disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is the amount included within the funds Statement of Assets and Liabilities and includes
cash on hand at its custodian bank and does not include any short term investments.
Indemnifications
Under the funds organizational
documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service
providers that may contain indemnification clauses. The funds maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
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. The fund earns certain fees in connection with its floating rate loan purchasing activities. These fees
are in addition to interest payments earned and may include amendment fees, commitment fees, facility fees, consent fees, and prepayment fees. Commitment fees are recorded on an accrual basis as income in the accompanying financial statements.
Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and
interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date. Debt obligations may be placed on non-accrual status or set to accrue at a rate of
interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by the write-off of the related interest receivables when deemed
uncollectible.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are
reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio
holdings are reflected as other income in the Statement of Operations.
The fund purchased or sold debt securities on a when-issued or delayed delivery
basis, or in a To Be Announced (TBA) or forward commitment transaction with delivery or payment to occur at a later date beyond the normal settlement period. TBA securities resulting from these transactions are included in
the Portfolio of Investments. At the time a fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the security acquired is reflected in the funds net asset value. The price of such security
and the date that the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. TBA purchase commitments are held at carrying amount, which approximates
fair value and are categorized as level 2 within the fair value hierarchy disclosure. No interest accrues to the fund until payment takes
46
Notes to Financial Statements (unaudited) continued
place. At the time that a fund enters into this type of transaction, the fund is required to have sufficient cash and/or liquid securities to cover its commitments. Losses may arise due to
changes in the value of the underlying securities or if the counterparty does not perform under the contracts terms, or if the issuer does not issue the securities due to political, economic or other factors. Additionally, losses may arise due
to declines in the value of the securities prior to settlement date.
Fees Paid Indirectly
The funds custody fee may be reduced
according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended April 30, 2013, is shown as a reduction of total expenses in the Statement of Operations.
Tax Matters and Distributions
The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue
Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The funds federal tax returns, when filed, will remain subject to examination by the Internal
Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to
shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the
financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain
items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for
financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to amortization and accretion of debt securities and straddle loss deferrals.
The tax character of distributions made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders
for the last fiscal year is as follows:
|
|
|
|
|
|
|
10/31/12
|
|
Ordinary income (including any
short-term capital gains)
|
|
|
$39,816,079
|
|
The federal tax cost and the tax basis components of distributable earnings were as follows:
|
|
|
|
|
As of 4/30/13
|
|
|
|
Cost of investments
|
|
|
$662,234,559
|
|
Gross appreciation
|
|
|
52,372,158
|
|
Gross depreciation
|
|
|
(7,379,770
|
)
|
Net unrealized appreciation (depreciation)
|
|
|
$44,992,388
|
|
47
Notes to Financial Statements (unaudited) continued
|
|
|
|
|
|
|
As of 10/31/12
|
|
|
|
Undistributed ordinary income
|
|
|
1,723,566
|
|
Capital loss carryforwards
|
|
|
(5,571,511
|
)
|
Other temporary differences
|
|
|
(3,646,567
|
)
|
Net unrealized appreciation (depreciation)
|
|
|
47,217,422
|
|
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Under the Regulated Investment Company Modernization Act of 2010 (the Act), net capital losses recognized for fund fiscal years beginning after
October 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses (post-enactment losses). Previously, net capital losses were carried forward for eight years and treated as
short-term losses (pre-enactment losses). As a transition rule, the Act requires that all post-enactment net capital losses be used before pre-enactment net capital losses.
As of October 31, 2012, the fund had capital loss carryforwards available to offset future realized gains. Such pre-enactment losses expire as follows:
|
|
|
|
|
10/31/16
|
|
|
$(2,851,956
|
)
|
10/31/17
|
|
|
(2,719,555
|
)
|
Total
|
|
|
$(5,571,511
|
)
|
(3) Transactions with Affiliates
Investment Adviser
The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is
computed daily and paid monthly at an annual rate of 0.34% of the funds average daily net assets and 5.40% of gross income. Gross income is calculated based on tax elections that generally include the accretion of discount and exclude the
amortization of premium, which may differ from investment income reported in the Statement of Operations. The management fee, from net assets and gross income, incurred for the six months ended April 30, 2013 was equivalent to an annual
effective rate of 0.73% of the funds average daily net assets.
Transfer Agent
The fund engages Computershare Trust Company, N.A.
(Computershare) as the sole transfer agent for the fund. MFS Service Center, Inc. (MFSC) monitors and supervises the activities of Computershare for an agreed upon fee approved by the Board of Trustees. For the six months ended
April 30, 2013, these fees paid to MFSC amounted to $31,627.
Administrator
MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of
$17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended April 30, 2013 was equivalent to an annual effective rate of 0.0145% of the funds average daily net assets.
48
Notes to Financial Statements (unaudited) continued
Trustees and Officers Compensation
The fund pays compensation
to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the
investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS and MFSC.
Prior to December 31, 2001, the fund had an unfunded defined benefit plan (DB plan) for independent Trustees. As of December 31, 2001, the Board took action to terminate the DB plan with
respect to then-current and any future independent Trustees, such that the DB plan covers only certain of those former independent Trustees who retired on or before December 31, 2001. Effective January 1, 2002, accrued benefits under the
DB plan for then-current independent Trustees who continued were credited to an unfunded retirement deferral plan (the Retirement Deferral plan), which was established for and exists solely with respect to these credited amounts, and is
not available for other deferrals by these or other independent Trustees. Although the Retirement Deferral plan is unfunded, amounts deferred under the plan are periodically adjusted for investment experience as if they had been invested in shares
of the fund. The DB plan resulted in a pension expense of $1,469 and the Retirement Deferral plan resulted in an expense of $4,216. Both amounts are included in independent Trustees compensation for the six months ended April 30, 2013.
The liability for deferred retirement benefits payable to certain independent Trustees under both plans amounted to $147,796 at April 30, 2013, and is included in Payable for independent Trustees compensation in the Statement
of Assets and Liabilities.
Deferred Trustee Compensation
Under a Deferred Compensation Plan (the Plan), independent Trustees
previously were allowed to elect to defer receipt of all or a portion of their annual compensation. Effective January 1, 2005, the Board elected to no longer allow Trustees to defer receipt of future compensation under the Plan. Amounts
deferred under the Plan are invested in shares of certain MFS Funds selected by the independent Trustees as notional investments. Deferred amounts represent an unsecured obligation of the fund until distributed in accordance with the Plan. Included
in Other assets and Payable for independent Trustees compensation in the Statement of Assets and Liabilities is $48,242 of deferred Trustees compensation. There is no current year expense associated with the Plan.
Other
This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide
for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are
officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six
months ended April 30, 2013, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $2,054 and are included in Miscellaneous expense in the Statement of Operations. MFS has agreed to reimburse the fund
for a portion of the payments made by the fund in the amount of $782, which is shown as a reduction of total expenses in the
49
Notes to Financial Statements (unaudited) continued
Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of
capital and liquidity. Income earned on this investment is included in Dividends from underlying affiliated funds in the Statement of Operations. This money market fund does not pay a management fee to MFS.
(4) Portfolio Securities
Purchases and sales of investments,
other than short-term obligations, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
Sales
|
|
U.S. Government securities
|
|
|
$80,527,689
|
|
|
|
$79,091,257
|
|
Investments (non-U.S. Government securities)
|
|
|
$174,807,602
|
|
|
|
$164,662,600
|
|
(5) Shares of Beneficial Interest
The funds 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 fund of up to 10%
annually of its own shares of beneficial interest. During the six months ended April 30, 2013 and the year ended October 31, 2012, there were no transactions in fund shares.
(6) Loan Agreement
The fund has a credit agreement with a bank for a revolving secured line of credit that can
be drawn upon up to $100,000,000. At April 30, 2013, the fund had outstanding borrowings under this agreement in the amount of $100,000,000, which are secured by a lien on the funds assets. The loans carrying value in the
funds Statement of Assets and Liabilities approximates its fair value. The loan value as of the reporting date is considered level 2 under the fair value hierarchy. The credit agreement matures on August 23, 2013. Borrowing under the
agreement can be made for liquidity or leverage purposes. Interest is charged at a rate per annum equal to LIBOR plus an agreed upon spread or an alternate rate, at the option of the borrower, stated as the greater of Overnight LIBOR or the Federal
Funds Rate each plus an agreed upon spread. The fund incurred interest expense of $517,711 during the period. The fund may also be charged a commitment fee based on the average daily unused portion of the line of credit. The fund did not incur a
commitment fee during the period. For the six months ended April 30, 2013, the average loan balance was $100,000,000 at a weighted average annual interest rate of 1.04%. The fund is subject to certain covenants including, but not limited to,
requirements with respect to asset coverage, portfolio diversification and liquidity.
50
Notes to Financial Statements (unaudited) continued
(7) Transactions in Underlying Affiliated Funds-Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For
the purposes of this report, the fund assumes the following to be an affiliated issuer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Affiliated Fund
|
|
Beginning
Shares/Par
Amount
|
|
|
Acquisitions
Shares/Par
Amount
|
|
|
Dispositions
Shares/Par
Amount
|
|
|
Ending
Shares/Par
Amount
|
|
MFS Institutional Money
Market Portfolio
|
|
|
38,135,567
|
|
|
|
88,210,864
|
|
|
|
(110,507,007
|
)
|
|
|
15,839,424
|
|
|
|
|
|
|
Underlying Affiliated Fund
|
|
Realized
Gain (Loss)
|
|
|
Capital Gain
Distributions
|
|
|
Dividend
Income
|
|
|
Ending
Value
|
|
MFS Institutional Money
Market Portfolio
|
|
|
$
|
|
|
|
$
|
|
|
|
$19,786
|
|
|
|
$15,839,424
|
|
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of MFS Multimarket Income Trust:
We have reviewed the accompanying statement of assets and liabilities of MFS Multimarket Income Trust (the Fund), including the portfolio of investments, as of April 30, 2013, and the related statements of
operations, changes in net assets, cash flows, and financial highlights for the six-month period ended April 30, 2013. These interim financial statements and financial highlights are the responsibility of the Funds management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements and financial highlights
for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the statement of changes in net assets for the year ended October 31, 2012, and financial highlights for each of the five years in the period ended October 31, 2012, and in our
report dated December 14, 2012, we expressed an unqualified opinion on such statement of changes in net assets and financial highlights.
Boston, Massachusetts
June 17, 2013
52
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Boards most recent review and renewal of the funds Investment Advisory Agreement with MFS is available by clicking on the
funds name under Closed-End Funds in the Products section of the MFS Web site
(mfs.com)
.
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 Proxy Voting section of
mfs.com
or by visiting the SECs Web site at
http://www.sec.gov
.
Information regarding how the fund voted proxies relating to portfolio securities during the twelve-month period ended June 30, 2012 is available without charge by visiting the Proxy Voting section of
mfs.com
or by visiting the SECs 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. A shareholder can obtain the quarterly portfolio holdings report at
mfs.com
. The funds Form N-Q is also available on the EDGAR database on the Commissions Internet Web site
at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the
operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the funds Form N-Q also 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.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (
mfs.com
). This information is
available by visiting the News & Commentary section of
mfs.com
or by clicking on the funds name under Closed-End Funds in the Products section of
mfs.com
.
53
CONTACT US
TRANSFER AGENT, REGISTRAR, AND
DIVIDEND
DISBURSING AGENT
CALL
1-800-637-2304
9 a.m. to 5 p.m. Eastern time
WRITE
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
New York Stock Exchange Symbol:
MMT