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 GOVERNMENT MARKETS 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)
Stephen E. Cavan
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: November 30, 2002
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Date of reporting period: May 31, 2003
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ITEM 1. REPORTS TO STOCKHOLDERS.
[logo] M F S(R)
INVESTMENT MANAGEMENT
MFS(R) GOVERNMENT
MARKETS INCOME TRUST
SEMIANNUAL REPORT o MAY 31, 2003
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review ......................................................... 4
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 9
Financial Statements ...................................................... 14
Notes to Financial Statements ............................................. 18
Trustees and Officers ..................................................... 26
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NOT FDIC INSURED AY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
Our firm was built on the philosophy that bottom-up fundamental research is the
best means of achieving superior long-term investment performance. When you're
managing billions of dollars for investors, we think you have an obligation to
have in-depth, firsthand knowledge of every company owned, anywhere in the
world.
We have structured our equity and fixed-income investment teams to capitalize on
the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in each
segment of the fixed-income market and work as part of the same team ensuring
that every member has access to information that may have a material effect on
their investment decisions. As MFS(R) continues to grow and as markets become
more complex, we believe our structure will enable us to maintain a consistent
investment process with the goal of providing strong, long-term investment
performance across market capitalizations, investment disciplines, and country
borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts know
the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry insights
and a wider perspective on companies and industries. Our goal is to make sure
those two sets of perspectives coordinate and work well together. As the world's
markets become more interdependent, we believe our collaborative environment
allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of the
market. We do not believe that analysts and portfolio managers -- no matter how
talented they may be -- can succeed by working in a vacuum. Through the latest
technology available, our entire research team meets frequently via video and
telephone teleconferences, e-mail, and PDAs (personal digital assistants). When
we hire new analysts, we require them to spend an average of one year in Boston
to learn MFS' culture and to build relationships with their peers. We believe
the interaction among our analysts is the key to making our collaborative
process work toward delivering superior long-term investment performance for our
investors. Our analysts work out of four research offices in Boston, London,
Singapore, and Tokyo, and are assigned to specific regions and industries. They
meet regularly with their colleagues to discuss world trends affecting the
companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income analysts
will look at stability of a company's cash flow, the value of its assets, and
its capital structure to gauge whether the company can generate enough free cash
flow to pay off its debt. As a result of their collaboration, we believe we're
able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make better
investment decisions.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman
MFS Investment Management(R)
June 20, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
MANAGEMENT REVIEW
[Photo of Peter C. Vaream]
Peter C. Vaream
Dear Shareholder,
For the six months ended May 31, 2003, the trust provided a total return of
7.41% based on its beginning and ending stock market prices and assuming the
reinvestment of any distributions paid during the period. The trust's total
return, based on its net asset value (NAV) was 6.00%. The trust's results
compare with returns over the same period for the following benchmarks: 4.65%
for the Salomon Brothers World Government Bond Index Non-dollar Hedged and 4.56%
for the Lehman Brothers Government/Mortgage Index. The Lehman Brothers
Government/Mortgage Index measures the performance of the government and
mortgage securities markets. The Salomon Brothers World Government Bond Index
Non-dollar Hedged is a measure of government bond markets around the world.
MARKET ENVIRONMENT
During the fourth quarter of 2002 and continuing through the end of May 2003,
economic growth worldwide continued to be anemic. That environment kept U.S.
interest rates low. It also caused the European Central Bank (ECB) to cut its
interest rates twice as the ECB sought to provide a boost for economic activity
in that region.
SOLID RETURNS FROM INTERNATIONAL BONDS, CURRENCY POSITIONS, AND TREASURY
INFLATION PROTECTED SECURITY (TIPS) The trust outperformed its two benchmark
indices because of its holdings in foreign government bonds, its
foreign-currency-denominated holdings, and U.S. Treasury Inflation-indexed
Notes.
Throughout the period, we added to our international holdings. As a result, the
trust benefited from the increased income those securities provided (relative to
lower yielding U.S. Treasury securities). (The principal value and interest on
Treasury securities are guaranteed by the U.S. government if held to maturity.)
and from the capital appreciation that occurred when the ECB cut interest rates.
We chose to leave between 2% to 4% of the trust's international holdings
denominated in the euro, a decision that proved to be beneficial to the trust.
Although currency represented a small portion of the trust's investments,
currency gains made throughout the period made a significant difference in the
trust's total return. To illustrate the magnitude of the euro's currency
appreciation, the euro was worth approximately $1.00 on December 1, 2002 and
rose to nearly $1.20 before settling back to $1.18 at the end of the period. The
value of euro-denominated trust holdings rose as the euro appreciated against
the U.S. dollar.
A Treasury Inflation-indexed Note, commonly known as a Treasury Inflation
Protected Security (TIPS), is issued by the U.S. Treasury with an accrual factor
that adjusts to reflect changes in inflation (as measured by the consumer price
index (CPI)). Because oil and gas prices are part of the CPI, changes in the
price of those commodities influence TIPS' valuations. In the months leading up
to the war with Iraq, oil and gas prices rose, TIPS' prices increased, in
anticipation of future CPI increases. When the war ended, oil prices pulled back
somewhat. As a result, TIPS' values declined but still ended at a higher level
than they were at the beginning of the period.
UNDERWEIGHTED MORTGAGE POSITION DAMPENED RESULTS
The trust's slight underweighting in mortgage-backed securities acted as a drag
on trust performance. Continued strength in the mortgage market pushed prices
higher throughout the period. Although we did not own enough of these securities
to benefit fully from that strength, the mortgage-backed securities we did own
performed well.
Sincerely,
/s/ Peter C. Vaream
Peter C. Vaream
Portfolio Manager
Note to shareholders: Effective in May 2003, the JP Morgan Non-Dollar Government
Bond Index and Lehman Brothers Government Bond Index have been replaced by the
Salomon Brothers World Government Bond Index Non-dollar Hedged and the Lehman
Brothers Government/Mortgage Index.
Important note to shareholders: Effective May 1, 2002, the trust, under normal
market conditions, invests at least 80% of its net assets in U.S. and non-U.S.
government securities. However, the trust expects, under normal conditions, to
invest at least 65% of its assets in U.S. government securities.
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed. Past performance is no guarantee
of future results.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
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PORTFOLIO MANAGER'S PROFILE
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PETER C. VAREAM IS VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R) (MFS(R))
AND MANAGES THE INVESTMENT-GRADE BOND, GOVERNMENT SECURITIES AND GLOBAL
GOVERNMENTS PORTFOLIOS OF OUR MUTUAL FUNDS, VARIABLE ANNUITIES AND
INSTITUTIONAL ACCOUNTS. HE IS A MEMBER OF THE MFS FIXED INCOME STRATEGY
GROUP.
PETER JOINED MFS IN 1992 AND BECAME A PORTFOLIO MANAGER IN 1993.
PREVIOUSLY, HE WAS VICE PRESIDENT IN THE FIXED INCOME DEPARTMENT AT THE
FIRST BOSTON CORP. FROM 1986 TO 1992. PRIOR TO THAT, HE SERVED AS A
CORPORATE FINANCIAL ANALYST.
PETER EARNED A BACHELOR'S DEGREE IN FINANCE FROM NEW YORK UNIVERSITY. HE
IS A MEMBER OF THE LEHMAN BROTHERS INDEX ADVISORY COUNCIL.
ALL PORTFOLIO MANAGERS AT MFS ARE SUPPORTED BY AN INVESTMENT STAFF OF OVER
160 PROFESSIONALS UTILIZING MFS ORIGINAL RESEARCH(R), A GLOBAL,
COMPANY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING SECURITIES.
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NUMBER OF SHAREHOLDERS
As of May 31, 2003, our records indicate that there are 6,192 registered
shareholders and approximately 21,817 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 02266-5024
1-800-637-2304
OBJECTIVE: To provide a high level of current income.
NEW YORK STOCK EXCHANGE SYMBOL: MGF
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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PERFORMANCE SUMMARY
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(For the six months ended May 31, 2003)
NET ASSET VALUE PER SHARE
November 30, 2002 $7.49
May 31, 2003 $7.73
NEW YORK STOCK EXCHANGE PRICE
November 30, 2002 $6.77
May 23, 2003 (high)* $7.13
December 2, 2002 (low)* $6.73
May 31, 2003 $7.08
* For the period December 1, 2002 through May 31, 2003.
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NOTES TO PERFORMANCE SUMMARY
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 more or less than those shown. Past performance
is no guarantee of future results.
KEY RISK CONSIDERATIONS
Investments in foreign and/or emerging market securities may be unfavorably
affected by interest-rate and currency-exchange-rate changes as well as by
market, economic, and political conditions of the countries where investments
are made. There may be greater returns but also greater risk than with U.S.
investments.
The portfolio may invest in derivative securities which may include futures and
options. These types of instruments can increase price fluctuation.
As a nondiversified portfolio, the portfolio invests in a limited number of
companies and may have more risk because a change in one security's value may
have a more significant effect on the portfolio's net asset value. An investment
in the portfolio is not a complete investment program.
Government guarantees apply to the underlying securities only and not to the
prices and yields of the portfolio.
These risks may increase share price volatility. Please see the prospectus for
further information on these and other risk considerations.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
MFS offers a Dividend Reinvestment and Cash Purchase Plan that allows you to
reinvest either all of the distributions paid by the trust or only the long-
term capital gains. Purchases are made at the market price unless that price
exceeds the net asset value (the shares are trading at a premium). If the shares
are trading at a premium, purchases will be made at a discounted price of either
the net asset value or 95% of the market price, whichever is greater. Twice each
year you can also buy shares. Investments in any amount over $100 can be made in
January and July on the 15th of the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee, you
can ask the firm or nominee to participate in the plan on your behalf. If the
nominee does not offer the plan, you may wish to request that your shares be
re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the trust. However, when shares are bought
on the New York Stock Exchange or otherwise on the open market, each participant
pays a pro rata share of the commissions. The automatic reinvestment of
distributions does not relieve you of any income tax that may be payable (or
required to be withheld) on the distributions.
To enroll in or withdraw from the plan, or if you have any questions, call
1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time. Please have
available the name of the trust and your account and Social Security numbers.
For certain types of registrations, such as corporate accounts, instructions
must be submitted in writing. Please call for additional details. When you
withdraw, you can receive the value of the reinvested shares in one of two ways:
a check for the value of the full and fractional shares, or a certificate for
the full shares and a check for the fractional shares.
PORTFOLIO OF INVESTMENTS (Unaudited) -- May 31, 2003
Bonds - 96.8%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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U.S. Bonds - 82.7%
U.S. Government Agencies - 55.0%
Federal Home Loan Mortgage Corp., 2.875s, 2005 $ 2,096 $ 2,158,738
Federal Home Loan Mortgage Corp., 3.875s, 2005 5,179 5,188,441
Federal Home Loan Mortgage Corp., 7.5s, 2027 - 2028 845 900,260
Federal National Mortgage Assn., 5.5s, 2017 11,774 12,204,305
Federal National Mortgage Assn., 6s, 2008 - 2032 23,388 24,624,960
Federal National Mortgage Assn., 6.5s, 2016 - 2032 51,673 53,960,217
Federal National Mortgage Assn., 6.956s, 2007 5,143 5,886,509
Federal National Mortgage Assn., 7s, 2032 6,469 6,814,913
Federal National Mortgage Assn., 8.5s, 2027 10,100 11,794,253
Federal National Mortgage Assn. TBA 15, 5s, 2018 4,300 4,437,063
Federal National Mortgage Assn. TBA 30, 5.5s, 2033 10,617 10,965,365
Federal National Mortgage Assn. TBA 30, 6s, 2033 37,900 39,250,187
Financing Corp., 10.7s, 2017 4,095 6,932,540
Financing Corp., 9.8s, 2018 4,350 6,969,087
Financing Corp., 10.35s, 2018 6,820 11,381,680
Government National Mortgage Assn., 6.5s, 2028 - 2032 12,442 13,064,573
Government National Mortgage Assn., 7.5s, 2022 - 2032 3,820 4,040,553
Private Export Funding Corp., 7.01s, 2004 3,380 3,559,265
Small Business Administration, 8.875s, 2011 633 692,801
Small Business Administration, 6.34s, 2021 1,802 2,029,076
Small Business Administration, 6.35s, 2021 2,327 2,620,912
Small Business Administration, 6.44s, 2021 1,878 2,122,731
Small Business Administration, 6.625s, 2021 1,871 2,130,827
Student Loan Marketing Assn., 5.25s, 2006 3,205 3,511,834
U.S. Department Housing & Urban Development, 6.36s, 2016 1,580 1,850,575
U.S. Department Housing & Urban Development, 6.59s, 2016 5,612 6,425,241
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$245,516,906
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U.S. Treasury Obligations - 27.7%
Principal Stripped Payments, 0s, 2023 $ 2,036 $ 802,738
U.S. Treasury Bonds, 12.375s, 2004 2,178 2,408,646
U.S. Treasury Bonds, 10.375s, 2009 - 2012### 14,600 18,314,283
U.S. Treasury Bonds, 9.25s, 2016 26,500 41,219,928
U.S. Treasury Bonds, 8.875s, 2017 6,000 9,233,436
U.S. Treasury Bonds, 5.25s, 2028 12,720 14,232,980
U.S. Treasury Bonds, 3.375s, 2032 1,228 1,536,342
U.S. Treasury Notes, 3s, 2007 3,755 3,895,959
U.S. Treasury Notes, 3.25s, 2007 11,853 12,436,393
U.S. Treasury Notes, 3.375s, 2007 9,640 10,579,571
U.S. Treasury Notes, 4.75s, 2008 4,010 4,481,331
U.S. Treasury Notes, 3.625s, 2013 4,517 4,620,399
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$123,762,006
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Total U.S. Bonds $369,278,912
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Foreign Bonds - 14.1%
Austria - 0.7%
Republic of Austria, 5.5s, 2007 EUR 1,204 $ 1,570,781
Republic of Austria, 4.65s, 2018 1,424 1,753,048
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$ 3,323,829
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Belgium - 0.4%
Kingdom of Belgium, 3.75s, 2009 EUR 500 $ 607,349
Kingdom of Belgium, 5s, 2012 810 1,047,531
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$ 1,654,880
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Bulgaria - 0.2%
Republic of Bulgaria, 8.25s, 2015## $ 728 $ 866,320
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Canada - 1.7%
Government of Canada, 5.25s, 2008 $ 2,735 $ 3,120,785
Government of Canada, 5.5s, 2009 CAD 2,075 1,635,147
Government of Canada, 5.5s, 2010 1,957 1,543,103
Government of Canada, 5.25s, 2012 1,590 1,233,031
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$ 7,532,066
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Chile - 0.1%
HQI Transelec Chile S.A., 7.875s, 2011 (Utilities - Electric) $ 314 $ 364,323
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Denmark - 0.9%
Kingdom of Denmark, 7s, 2007 DKK 7,938 $ 1,465,437
Kingdom of Denmark, 5s, 2013 12,912 2,225,261
Nordea Kredit Realkredit, 5s, 2035 (Residential Mortgage-Backed) 2,780 433,031
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$ 4,123,729
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Dominican Republic - 0.3%
Dominican Republic, 9.5s, 2006## $ 601 $ 582,970
Dominican Republic, 9.04s, 2013## 889 844,550
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$ 1,427,520
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Finland - 0.8%
Republic of Finland, 2.75s, 2006 EUR 434 $ 514,868
Republic of Finland, 3s, 2008 466 549,597
Republic of Finland, 5.375s, 2013 1,897 2,525,561
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$ 3,590,026
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France - 0.6%
Republic of France, 4.75s, 2012 EUR 1,423 $ 1,807,979
Republic of France, 5s, 2016 509 651,348
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$ 2,459,327
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Germany - 0.7%
Federal Republic of Germany, 4.75s, 2008 EUR 1,635 $ 2,082,716
Federal Republic of Germany, 4s, 2009 980 1,203,505
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$ 3,286,221
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Ireland - 0.8%
Republic of Ireland, 4.25s, 2007 EUR 996 $ 1,239,609
Republic of Ireland, 5s, 2013 1,319 1,704,697
Republic of Ireland, 4.6s, 2016 440 542,002
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$ 3,486,308
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Italy - 0.5%
Republic of Italy, 4.5s, 2007 EUR 1,501 $ 1,881,458
Republic of Italy, 4.75s, 2013 351 443,854
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$ 2,325,312
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Kazakhstan
Kaztransoil Co., 8.5s, 2006 (Oil Services)## $ 50 $ 53,375
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Malaysia - 0.2%
Petroliam Nasional Berhad, 7.75s, 2015 $ 766 $ 941,495
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Mexico - 1.4%
BBVA Bancomer, 10.5s, 2011 (Banks & Credit Cos.)## $ 1,502 $ 1,719,790
Pemex Project Funding Master Trust, 9.125s, 2010 184 224,480
Petroleos Mexicanos, 9.375s, 2008 (Oil Services) 1,072 1,310,520
United Mexican States, 11.375s, 2016 489 716,385
United Mexican States, 8.125s, 2019 1,040 1,209,000
United Mexican States, 11.5s, 2026 796 1,214,696
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$ 6,394,871
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Netherlands - 0.7%
Kingdom of Netherlands, 3.75s, 2009 EUR 360 $ 436,931
Kingdom of Netherlands, 5s, 2012 1,966 2,541,646
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$ 2,978,577
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New Zealand - 0.7%
Government of New Zealand, 7s, 2009 NZD 2,754 $ 1,731,653
Government of New Zealand, 6.5s, 2013 1,994 1,246,429
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$ 2,978,082
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Norway - 0.3%
Kingdom of Norway, 5.5s, 2009 NOK 2,655 $ 418,231
Kingdom of Norway, 6.5s, 2013 4,248 723,149
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$ 1,141,380
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Panama - 0.2%
Republic of Panama, 9.375s, 2029 $ 817 $ 931,380
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Portugal
Republic of Portugal, 5.45s, 2013 EUR 145 $ 193,045
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Russia - 0.4%
Ministry of Finance, 3s, 2008 $ 140 $ 128,800
Ministry of Finance, 12.75s, 2028 441 746,833
Mobile Telesystems Finance S.A., 9.75s, 2008
(Telecommunications - Wireless)## 865 942,850
------------
$ 1,818,483
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Spain - 1.8%
Kingdom of Spain, 7s, 2005 $ 3,600 $ 3,980,898
Kingdom of Spain, 5.35s, 2011 EUR 2,910 3,856,681
------------
$ 7,837,579
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Sweden - 0.2%
Kingdom of Sweden, 8s, 2007 SEK 1,625 $ 245,991
Kingdom of Sweden, 5.25s, 2011 3,955 549,663
------------
$ 795,654
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United Kingdom - 0.5%
United Kingdom Treasury, 7.25s, 2007 GBP 106 $ 198,953
United Kingdom Treasury, 5.75s, 2009 1,239 2,245,093
------------
$ 2,444,046
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Total Foreign Bonds $ 62,947,828
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Total Bonds (Identified Cost, $404,575,180) $432,226,740
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Rights
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SHARES
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Mexico - Value Recovery Rights (Identified Cost, $0) 1,354,000 $ 5,552
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Collateral for Securities Loaned - 1.8%
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Navigator Securities Lending Prime Portfolio, at Identified Cost $8,077,265 $ 8,077,265
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Short-Term Obligations - 4.8%
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PRINCIPAL AMOUNT
(000 OMITTED)
--------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Discount Notes, due 6/02/03,
at Amortized Cost $ 21,194 $ 21,193,264
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Repurchase Agreement - 10.0%
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Merrill Lynch, dated 05/30/03, due 06/02/03, total to be received
$44,646,836 (secured by various U.S. Treasury and Federal Agency
obligations in a jointly traded account), at Cost $ 44,642 $ 44,642,000
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Total Investments (Identified Cost, $478,487,709) $506,144,821
Other Assets, Less Liabilities - (13.4)% (59,831,952)
--------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $446,312,869
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## SEC Rule 144A restriction.
### Security segregated as collateral for an open futures contract.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. Dollar. A list of abbreviations is shown
below:
AUD = Australian Dollars GBP = British Pounds
CAD = Canadian Dollars NOK = Norwegian Kroner
DKK = Danish Kroner NZD = New Zealand Dollars
EUR = Euro SEK = Swedish Kronor
See notes to financial statements.
Financial Statements
Statement of Assets and Liabilities (Unaudited)
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MAY 31, 2003
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Assets:
Investments, at value, including $7,919,517 of
securities on loan (identified cost, $478,487,709) $506,144,821
Cash 36,058
Receivable for forward foreign currency exchange contracts 242,244
Receivable for investments sold 1,649,477
Interest receivable 4,289,414
Receivable for daily variation margin on open futures
contracts 1,406
------------
Total assets $512,363,420
------------
Liabilities:
Payable for investments purchased $ 1,353,176
Payable for TBA purchase commitments 54,447,548
Collateral for securities loaned, at value 8,077,265
Payable to dividend disbursing agent 114,224
Payable for forward foreign currency exchange contracts 1,598,456
Payable to affiliates -
Management fee 13,575
Administrative fee 429
Accrued expenses and other liabilities 445,878
------------
Total liabilities $ 66,050,551
------------
Net assets $446,312,869
------------
Net assets consist of:
Paid-in capital $453,836,348
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 26,004,159
Accumulated net realized loss on investments and foreign
currency transactions (29,817,970)
Accumulated net investment loss (3,709,668)
------------
Total $446,312,869
------------
Shares of beneficial interest outstanding
(62,874,486 shares authorized, less 5,104,331 treasury shares) 57,770,155
----------
Net asset value per share
(net assets / shares of beneficial interest outstanding) $7.73
-----
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
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SIX MONTHS ENDED MAY 31, 2003
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Net investment income:
Interest income $ 9,682,774
Dividends 3,874
-----------
Total investment income $ 9,686,648
-----------
Expenses -
Management fee $ 1,340,311
Trustees' compensation 47,655
Transfer and dividend disbursing agent fee 59,389
Administrative fee 31,872
Investor communication expense 80,814
Custodian fee 106,336
Postage 17,883
Auditing fees 22,225
Printing 16,636
Legal fees 1,756
Miscellaneous 76,803
-----------
Total expenses $ 1,801,680
Fees paid indirectly (4,555)
-----------
Net expenses $ 1,797,125
-----------
Net investment income $ 7,889,523
-----------
Realized and unrealized gain on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 8,103,803
Futures contracts 48,724
Foreign currency transactions (3,693,131)
-----------
Net realized gain on investments and foreign currency
transactions $ 4,459,396
-----------
Change in unrealized appreciation (depreciation) -
Investments $13,474,407
Futures contracts (395,651)
Translation of assets and liabilities in foreign
currencies (984,802)
-----------
Net unrealized gain on investments and foreign
currency translation $12,093,954
-----------
Net realized and unrealized gain on investments and
foreign currency $16,553,350
-----------
Increase in net assets from operations $24,442,873
-----------
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
----------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
MAY 31, 2003 YEAR ENDED
(UNAUDITED) NOVEMBER 30, 2002
----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 7,889,523 $ 21,544,996
Net realized gain on investments and foreign currency
transactions 4,459,396 8,783,757
Net unrealized gain on investments and foreign currency
translation 12,093,954 3,139,378
------------ ------------
Increase in net assets from operations $ 24,442,873 $ 33,468,131
------------ ------------
Distributions declared to shareholders -
From net investment income $(10,929,486) $(21,544,996)
In excess of net investment income -- (3,121,476)
------------ ------------
Total distributions declared to shareholders $(10,929,486) $(24,666,472)
------------ ------------
Cost of shares reacquired $ (824,480) $(11,350,955)
------------ ------------
Total increase (decrease) in net assets $ 12,688,907 $ (2,549,296)
Net assets:
At beginning of period 433,623,962 436,173,258
------------ ------------
At end of period (including accumulated net investment
loss of $3,709,668 and $669,705, respectively) $446,312,869 $433,623,962
------------ ------------
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
The financial highlights table is intended to help you understand the trust's financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the trust's operation). 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).
Financial Highlights
-------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED -------------------------------------------------------------------------
MAY 31, 2003 2002 2001 2000 1999 1998
(UNAUDITED)
-------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each year):
Net asset value - beginning of year $ 7.49 $ 7.32 $ 7.01 $ 6.94 $ 7.50 $ 7.41
------ ------ ------ ------ ------ ------
Income from investment operations#(S) -
Net investment income $ 0.14 $ 0.37 $ 0.42 $ 0.44 $ 0.43 $ 0.46
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.29 0.20 0.31 0.06 (0.58) 0.08
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.43 $ 0.57 $ 0.73 $ 0.50 $(0.15) $ 0.54
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.19) $(0.37) $(0.43) $(0.29) $(0.40) $(0.46)
In excess of net investment
income -- (0.05) -- -- -- (0.01)
From paid-in capital -- -- -- (0.20) (0.06) --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.19) $(0.42) $(0.43) $(0.49) $(0.46) $(0.47)
------ ------ ------ ------ ------ ------
Net increase from repurchase of
capital shares $ 0.00+++ $ 0.02 $ 0.01 $ 0.06 $ 0.05 $ 0.02
------ ------ ------ ------ ------ ------
Net asset value - end of year $ 7.73 $ 7.49 $ 7.32 $ 7.01 $ 6.94 $ 7.50
------ ------ ------ ------ ------ ------
Per share market value - end of
year $ 7.08 $ 6.77 $ 6.59 $ 6.19 $ 5.81 $ 6.56
------ ------ ------ ------ ------ ------
Total return at market value 7.41%++ 9.31% 13.56% 15.24% (4.80)% 4.21%
Ratios (to average net assets)/
Supplemental data:
Expenses## 0.82%+ 0.87% 0.90% 0.94% 0.92% 0.89%
Net investment income(S) 3.61%+ 4.98% 5.82% 6.35% 6.00% 6.14%
Portfolio turnover 65% 123% 105% 151% 102% 253%
Net assets at end of year
(000 Omitted) $446,313 $433,624 $436,173 $422,025 $447,178 $511,861
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(S) As required, effective December 1, 2001, the trust has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended November
30, 2002 was to decrease net investment income per share by $0.02, increase net realized and unrealized gains and losses per
share by $0.02, and decrease the ratio of net investment income to average net assets by 0.33%. Per share, ratios, and
supplemental data for periods prior to December 1, 2001 have not been restated to reflect this change in presentation.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Government Markets Income Trust (the trust) is a non-diversified
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 accounting
principles generally accepted in the United States of America 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) of U.S. issuers in the trust's portfolio are valued at
an evaluated bid price on the basis of quotes from brokers and dealers or on the
basis of valuations furnished by a pricing service. 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. Forward contracts will be valued using a
pricing model taking into consideration market data from an external pricing
source. Use of the pricing services has been approved by the Board of Trustees.
All other securities (other than short-term obligations), including futures
contracts in the trust's portfolio for which the principal market is one or more
securities or commodities exchanges (whether domestic or foreign) will be valued
at the last reported sale price or at the settlement price prior to the
determination (or if there has been no current sale, at the closing bid price)
on the primary exchange on which such securities, or futures contracts are
traded; but if a securities exchange is not the principal market for securities,
such securities will, if market quotations are readily available, be valued at
current bid prices. Short-term obligations in the trust's portfolio are valued
at amortized cost, which constitutes fair value as determined by the Board of
Trustees. Short-term obligations with a remaining maturity in excess of 60 days
will be valued upon dealer-supplied valuations. Portfolio investments for which
market quotations are not readily available, or whose values have been
materially affected by events occurring after the close of their primary
markets, are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees.
Repurchase Agreements - The trust may enter into repurchase agreements with
institutions that the trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The trust requires
that the securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the trust to obtain those securities
in the event of a default under the repurchase agreement. The trust monitors, on
a daily basis, the value of the collateral to ensure that its value, including
accrued interest, is greater than amounts owed to the trust under each such
repurchase agreement. The trust, along with other affiliated entities of
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
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 fund's (trust, series) relative position in
one or more currencies without buying and selling portfolio assets. Investments
in 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.
Security Loans - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the trust to certain qualified
institutions (the "Borrowers") approved by the trust. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an amount
at least equal to the market value of the securities loaned. State Street
provides the trust with indemnification against Borrower default. The trust
bears the risk of loss with respect to the investment of cash collateral.
Cash collateral is invested in short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the trust and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the Borrower,
and is allocated between the trust and the lending agent. Income from securities
lending is included in interest income on the Statement of Operations. The
dividend and interest income earned on the securities loaned is accounted for in
the same manner as other dividend and interest income.
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 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. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
Some securities may be purchased on a "when-issued" or "forward delivery" basis,
which means that the securities will be delivered to the trust at a future date,
usually beyond customary settlement time. The trust may enter in TBA purchase
commitments to purchase securities for a fixed unit price at a future date.
Although the unit price has been established, the principal value has not been
finalized. However, the principal amount of the commitments will not fluctuate
more than 1.0%. The trust holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase price,
or the trust may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until settlement
date. TBA purchase commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased declines
prior to settlement date, which is in addition to the risk of decline in the
value of the trusts' other assets. Unsettled TBA purchase commitments are valued
at the current market value of the underlying securities, according to the
procedures described under "Investment Valuations" above. The trust may enter
into "TBA" (to be announced) sale commitments to hedge its portfolio positions
or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are held as
"cover" for the transaction.
Fees Paid Indirectly - The trust's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
trust. This amount is shown as a reduction of total expenses on the Statement of
Operations.
Tax Matters and Distributions - The trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The trust
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, mortgage-backed securities, derivatives,
capital losses and amortization and accretion on debt securities.
The tax character of distributions declared for the years ended November 30,
2002 and November 30, 2001 was as follows:
NOVEMBER 30, 2002 NOVEMBER 30, 2001
--------------------------------------------------------------------------------
Distributions declared from:
Ordinary income $24,666,472 $24,788,702
Long-term capital gain -- 793,612
----------- -----------
Total distributions declared $24,666,472 $25,582,314
----------- -----------
As of November 30, 2002, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $ 313,291
Capital loss carryforward (29,788,263)
Unrealized appreciation 9,384,343
Other temporary differences (1,243,845)
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 on:
EXPIRATION DATE
------------------------------------------------------
November 30, 2002 $ (3,190,833)
November 30, 2004 (196,662)
November 30, 2005 (8,818,381)
November 30, 2007 (11,594,208)
November 30, 2008 (5,988,179)
------------
Total $(29,788,263)
------------
(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 0.32% of
the trust's average daily net assets and 5.33% of investment income.
The trust pays compensation to the Independent Trustees ("Trustees") in the form
of both a retainer and attendance fees, 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). On January 1, 2002, the Trustees terminated
the Independent Trustee unfunded defined benefit plan for active Trustees and
converted it to an unfunded retirement benefit deferral plan for active
Trustees. Under the new plan, the unfunded pension liability was converted into
an equivalent value of notional shares of the trust that will fluctuate with the
performance of the trust. Included in Trustees' compensation is a net increase
of $9,107 as a result of the change in the trust's pension liability under this
plan and a pension expense of $7,886 for inactive trustees for the six months
ended May 31, 2003.
Administrator - The trust has an administrative services agreement with MFS to
provide the fund trust with certain financial, legal, shareholder
communications, compliance, and other administrative services. As a partial
reimbursement for the cost of providing these services, the trust pays MFS an
administrative fee at the following annual percentages of the fund's trust's
average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Transfer Agent - MFSC acts as registrar and dividend disbursing agent for the
Trust. The agreement provides that the Trust will pay MFSC an account
maintenance fee of no more than $9.00 and a dividend services fee of $0.75 per
reinvestment and will reimburse MFSC for reasonable out-of-pocket expenses.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
PURCHASES SALES
-------------------------------------------------------------------------------
U.S. government securities $229,458,516 $217,103,050
------------ ------------
Investments (non-U.S. government securities) $ 41,253,340 $ 57,516,582
------------ ------------
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 $484,159,962
------------
Gross unrealized appreciation $ 23,091,863
Gross unrealized depreciation (1,107,004)
------------
Net unrealized appreciation $ 21,984,859
------------
(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 62,874,486 full and fractional shares of beneficial interest and have
authorized the repurchase by the trust of up to 10% of its own shares of
beneficial interest. The trust repurchased 119,200 shares of beneficial interest
during the six months ended May 31, 2003 at an average price per share of $6.92
and a weighted average discount of 8.45% per share. The trust repurchased
1,733,400 shares of beneficial interest during the year ended November 30, 2002,
at an average price per shares of $6.55 and a weighted average discount of 9.44%
per share. Transactions in trust shares were as follows:
SIX MONTHS ENDED YEAR ENDED
MAY 31, 2003 NOVEMBER 30, 2002
--------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------
Treasury shares reacquired (119,200) $(824,480) (1,733,400) $(11,350,955)
-------- --------- ---------- ------------
(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 bank's
base rate. A commitment fee of $1,700 which is based on the average daily unused
portion of the line of credit is included in miscellaneous expense. The trust
had no significant borrowings during the period.
(7) Financial Instruments
The trust trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include 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.
Forward Foreign Currency Exchange Contracts
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
---------------------------------------------------------------------------------------------------------------
SALES
6/16/2003 AUD 1,714,632 $ 1,055,404 $ 1,115,670 $ (60,266)
6/16/2003 CAD 5,608,016 3,938,931 4,089,493 (150,562)
6/16/2003 DKK 22,644,085 3,339,836 3,587,053 (247,217)
6/16/2003 - 6/30/2003 EUR 12,658,096 14,052,129 14,879,406 (827,277)
6/16/2003 GBP 1,344,250 2,110,473 2,200,646 (90,173)
6/16/2003 NOK 7,811,029 1,117,799 1,166,003 (48,204)
6/16/2003 NZD 5,100,149 2,853,642 2,933,871 (80,229)
6/16/2003 SEK 10,456,458 1,252,121 1,346,649 (94,528)
---------- ---------- ---------
$29,720,335 $31,318,791 $(1,598,456)
---------- ---------- ---------
PURCHASES
6/16/2003 AUD 3,466,132 $ 2,238,784 $ 2,255,329 $ 16,545
6/16/2003 CAD 1,258,987 909,162 918,082 8,920
6/16/2003 - 6/30/2003 EUR 4,390,417 4,955,088 5,160,875 205,787
6/16/2003 NOK 662,251 98,696 98,859 163
6/16/2003 SEK 6,342,572 806,008 816,837 10,829
----------- ----------- -----------
$ 9,007,738 $ 9,249,982 $ 242,244
----------- ----------- -----------
Futures Contracts
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION APPRECIATION
--------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes 10 Yr. Futures June 2003 90 Short $1,406
------
$1,406
------
At May 31, 2003, the trust had sufficient cash and/or securities to cover any
margin requirements under these contracts.
(8) Change in Accounting Principle
As required, effective December 1, 2001, the fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premium on debt securities. Prior to December 1, 2001, the fund did not amortize
premium on debt securities. The cumulative effect of this accounting change had
no impact on total net assets of the fund, but resulted in a $4,368,448 decrease
in cost of securities and a corresponding $4,368,448 increase in net unrealized
appreciation, based on securities held by the fund on December 1, 2001.
The effect of this change for the year ended November 30, 2002 was to decrease
net investment income by $1,420,001, increase net unrealized appreciation by
$418,264, and increase net realized gains by $1,001,737. The Statement of
Changes in Net Assets and Financial Highlights for prior periods has not been
restated to reflect this change in presentation.
MFS(R) GOVERNMENT MARKETS INCOME TRUST
The following tables present certain information regarding the Trustees and officers of the Trust, including
their principal occupations, which, unless specific dates are shown, are of more than five years' duration,
although the titles may not have been the same throughout.
NAME, AGE, POSITION WITH THE TRUST,
PRINCIPAL OCCUPATION, AND OTHER DIRECTORSHIPS(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35) Trustee
Executive Officer and Director Hemenway & Barnes (attorneys),
Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer, and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "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 Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) ROBERT R. FLAHERTY (born 09/18/63)
Chairman Assistant Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
President (since August 2000); UAM Fund Services,
JOHN W. BALLEN (born 09/12/59) Senior Vice President (prior to August 2000)
Trustee and President
Massachusetts Financial Services Company, Chief RICHARD M. HISEY (born 08/29/58)
Executive Officer and Director Treasurer
Massachusetts Financial Services Company, Senior
JAMES R. BORDEWICK, JR. (born 03/06/59) Vice President (since July 2002); The Bank of New
Assistant Secretary and Assistant Clerk York, Senior Vice President (September 2000 to
Massachusetts Financial Services Company, Senior July 2002); Lexington Global Asset Managers, Inc.,
Vice President and Associate General Counsel Executive Vice President and Chief Financial
Officer, General Manager, Mutual Funds (prior to
STEPHEN E. CAVAN (born 11/06/53) September 2000)
Secretary and Clerk
Massachusetts Financial Services Company, Senior ELLEN MOYNIHAN (born 11/13/57)
Vice President, General Counsel and Secretary Assistant Treasurer
Massachusetts Financial Services Company, Vice
STEPHANIE A. DESISTO (born 10/01/53) President
Assistant Treasurer
Massachusetts Financial Services Company, Vice JAMES O. YOST (born 06/12/60)
President (since April 2003); Brown Brothers Assistant Treasurer
Harriman & Co., Senior Vice President (November Massachusetts Financial Services Company, Senior
2002 to April 2003); ING Groep N.V./Aeltus Vice President
Investment Management, Senior Vice President
(prior to November 2002)
The Trust holds annual shareholder meetings for the purpose of electing Trustees, and Trustees are elected for
fixed terms. The Board of Trustees currently is 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. Shames, Cohn, Sherratt and Smith, and Ms. O'Neill have served in their capacity as Trustee of the
Trust continuously since originally elected or appointed. Messrs. Ballen, Gutow, Ives, Perera and Poorvu, and
Ms. Smith were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr.
Parke has served as Trustee of the Trust since January 1, 2002.
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 112 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
INVESTMENT ADVISER TRANSFER AGENT, REGISTRAR, AND
Massachusetts Financial Services Company DIVIDEND DISBURSING AGENT
500 Boylston Street
Boston, MA 02116-3741 State Street Bank and Trust
Company
PORTFOLIO MANAGER c/o MFS Service Center, Inc.
Peter C. Vaream+ P.O. Box 55024
Boston, MA 02205-5024
CUSTODIANS 1-800-637-2304
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
JP Morgan Chase Bank
One Chase Manhattan Plaza
New York, NY 10081
+ MFS Investment Management
MFS(R) GOVERNMENT MARKETS ---------------
INCOME TRUST PRSRT STD
U.S. POSTAGE
PAID
MFS
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[MFS LOGO]
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C)2003 MFS Investment Management(R).
500 Boylston Street, Boston, MA 02116. MGF-SEM 7/03 75M
ITEM 2. CODE OF ETHICS.
Not applicable at this time. Applicable for annual reports filed for fiscal
years ending on or after July 15, 2003.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time. Applicable for annual reports filed for fiscal
years ending on or after July 15, 2003.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time. Applicable for annual reports filed for the first
fiscal year ending after December 15, 2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
If applicable, not applicable at this time. Applicable for annual reports
covering periods ending on or after the compliance date for the listing
standards applicable to the particular issuer. Listed issuers must be in
compliance with the new listing rules by the earlier of the registrant's first
annual shareholders meeting after January 15, 2004 or October 31, 2004.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
If applicable, not applicable at this time. Applicable for annual reports filed
on or after July 1, 2003.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures 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 requir ed 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 significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent
to the date of their evaluation.
ITEM 10. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a) 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: Not applicable.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule
30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto.
[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)) 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.][The submission of Section
906 certifications has been proposed by the SEC, but has not yet been
finalized. The SEC has encouraged issuers to submit Section 906
certifications as an exhibit to Form N-CSR until the final rule has been
adopted. Please see Proposed Rule: Certification of Disclosure in Certain
Exchange Act Reports, Release No. 33-8212 (March 21, 2003)].
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 GOVERNMENT MARKETS INCOME TRUST
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By (Signature and Title)* /s/ JOHN W. BALLEN
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John W. Ballen, President
Date: July 24, 2003
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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)* /s/ JOHN W. BALLEN
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John W. Ballen, President
(Principal Executive Officer)
Date: July 24, 2003
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By (Signature and Title)* /s/ RICHARD M. HISEY
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Richard M. Hisey, Treasurer
(Principal Financial Officer and Accounting Officer)
Date: July 24, 2003
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* Print name and title of each signing officer under his or her signature.