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 811-5078
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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)
Susan S. Newton
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
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Date of reporting period: May 31, 2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) GOVERNMENT MARKETS INCOME TRUST
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
SEMIANNUAL REPORT
5/31/07
MGF-SEM
MFS(R) GOVERNMENT MARKETS INCOME TRUST
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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PORTFOLIO MANAGER'S PROFILE 3
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PERFORMANCE SUMMARY 4
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN 6
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PORTFOLIO OF INVESTMENTS 7
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STATEMENT OF ASSETS AND LIABILITIES 14
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STATEMENT OF OPERATIONS 15
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STATEMENTS OF CHANGES IN NET ASSETS 16
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FINANCIAL HIGHLIGHTS 17
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NOTES TO FINANCIAL STATEMENTS 18
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 26
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 27
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PROXY VOTING POLICIES AND INFORMATION 27
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QUARTERLY PORTFOLIO DISCLOSURE 27
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CONTACT INFORMATION BACK COVER
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TRUST OBJECTIVE: The Trust seeks to provide a high level
of current income.
New York Stock Exchange Symbol: MGF
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NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
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LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. As of mid-May 2007, it
had returned another 8% and continued to reach new highs. But the Dow's upward
rise has not been without hiccups. After hitting new records in February, the
Dow lost 5.8% between February 20 and March 5, as stocks were sold off around
the globe. As we have said before, markets are volatile, and investors should
make sure they have an investment plan that can carry them through the peaks
and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short-term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss.
Investing and planning for the long term require diligence and patience, two
traits that in our experience are essential to capitalizing on the many
opportunities the financial markets can offer -- through both up and down
economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
July 16, 2007
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE (i)
Bonds 92.5%
Cash & Other Net Assets 7.5%
FIXED INCOME SECTORS (i)
Mortgage-Backed Securities 50.3%
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U.S. Government Agencies 20.6%
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U.S. Treasury Securities 11.8%
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Non U.S. Government Bonds 7.1%
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Emerging Market Bonds 2.2%
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Commercial Mortgage-Backed
Securities 0.5%
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CREDIT QUALITY OF BONDS (r)
AAA 96.1%
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AA 1.1%
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A 0.3%
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BBB 1.7%
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BB 0.8%
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PORTFOLIO FACTS
Average Duration (d,i) 4.3
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Average Life (i,m) 6.3 yrs.
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Average Maturity (i,m) 14.1 yrs.
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Average Credit Quality of Rated
Securities (long-term) (a) AAA
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Average Credit Quality of Rated
Securities (short-term) (a) A-1
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(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a bond
with a 5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this presentation, the bond component includes both accrued
interest amounts and the equivalent exposure from any derivative holdings,
if applicable.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which
have been pre- refunded or pre-paid to an earlier date or which have a
mandatory put date prior to the stated maturity. The average life shown
takes into account these earlier dates.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based
on the rating assigned by Fitch, Inc. For those portfolios that hold a
security which is not rated by any of the three agencies, the security is
considered Not Rated. Holdings in U.S. Treasuries and government agency
mortgage-backed securities, if any, are included in the "AAA"-rating
category. Percentages are based on the total market value of investments as
of 05/31/07.
Percentages are based on net assets as of 05/31/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
PORTFOLIO MANAGER'S PROFILE
Geoffrey L. Schechter, CFA, CPA, is a Senior Vice President of MFS Investment
Management (R) (MFS(R)) and a Municipal Fixed Income Portfolio Manager. He
also manages several other government bond portfolios for MFS. He joined MFS
as a portfolio manager, and was named Senior Vice President in 2002. He has
been a portfolio manager of the trust since July 2004. Geoffrey is a graduate
of the University of Texas and has an M.B.A. degree from Boston University. He
holds the Chartered Financial Analyst (CFA) and Certified Public Accountant
(CPA) designations.
PERFORMANCE SUMMARY THROUGH 5/31/07
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.
PRICE SUMMARY
Six months ended 5/31/07
Date Price
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Net Asset Value 5/31/07 $7.14
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11/30/06 $7.28
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New York Stock Exchange Price 5/31/07 $6.71
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5/8/07 (high) (t) $6.77
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2/9/07 (low) (t) $6.48
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11/30/06 $6.60
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TOTAL RETURNS VS BENCHMARKS
Six months ended 5/31/07
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New York Stock Exchange Price (r) 4.28%
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Net Asset Value (r) 0.60%
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Lehman Brothers U.S. Government/Mortgage Bond Index (f) 0.83%
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(f) Source: FactSet Research Systems Inc.
(r) Includes reinvestment of dividends and capital gain distributions.
(t) For the period December 1, 2006 through May 31, 2007.
INDEX DEFINITION
Lehman Brothers U.S. Government/Mortgage Bond Index - measures debt issued by
the U.S. Government, and its agencies, as well as mortgage-backed pass-through
securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
The trust's shares may trade at a discount to net asset value. Shareholders do
not have the right to cause the trust to repurchase their shares at net asset
value. The trust's shares also may trade at a premium to their net asset
value.
When trust shares trade at a premium, buyers pay more than the asset value
underlying trust shares, and shares purchased at a premium would receive less
than the amount paid for them in the event of the trust's liquidation. As a
result, the total returns that are calculated based on the net asset value and
New York Stock Exchange prices can be different.
The trust's monthly distributions may include a return of capital to
shareholders. Distributions that are treated for federal income tax purposes
as a return of capital will reduce each shareholder's basis in his or her
shares and, to the extent the return of capital exceeds such basis, will be
treated as gain to the shareholder from a sale of shares. Returns of
shareholder capital have the effect of reducing the trust's assets and may
increase the trust's expense ratio.
From time to time the trust may receive proceeds from litigation settlements,
without which performance would be lower.
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.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The trust offers a Dividend Reinvestment and Cash Purchase Plan that allows
you to reinvest either all of the distributions paid by the trust or only the
long-term capital gains. Purchases are made at the market price unless that
price exceeds the net asset value (the shares are trading at a premium). If
the shares are trading at a premium, purchases will be made at a discounted
price of either the net asset value or 95% of the market price, whichever is
greater. Twice each year you can also buy shares. Investments may be made in
any amount over $100 in January and July on the 15th of the month or
shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee,
you can ask the firm or nominee to participate in the plan on your behalf. If
the nominee does not offer the plan, you may wish to request that your shares
be re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the trust. However, when shares are
bought on the New York Stock Exchange or otherwise on the open market, each
participant pays a pro rata share of the transaction expenses, including
commissions. The automatic reinvestment of distributions does not relieve
you of any income tax that may be payable (or required to be withheld) on the
distributions.
To enroll in or withdraw from the plan, or if you have any questions, call
1-800-637-2304 any business day from 9 a.m. to 5 p.m. Eastern time. Please
have available the name of the trust and your account and Social Security
numbers. For certain types of registrations, such as corporate accounts,
instructions must be submitted in writing. Please call for additional details.
When you withdraw from the plan, you can receive the value of the reinvested
shares in one of two ways: a check for the value of the full and fractional
shares, or a certificate for the full shares and a check for the fractional
shares.
Effective May 1, 2007, Computershare Trust Company, N.A. (the Transfer Agent
for the trust) became the agent for the plan.
PORTFOLIO OF INVESTMENTS
5/31/07 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Bonds - 94.4%
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U.S. Bonds - 85.3%
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ISSUER SHARES/PAR VALUE ($)
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Agency - Other - 7.8%
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Financing Corp., 10.7%, 2017 $ 4,095,000 $ 5,845,064
Financing Corp., 9.4%, 2018 3,085,000 4,110,414
Financing Corp., 9.8%, 2018 4,350,000 5,944,988
Financing Corp., 10.35%, 2018 6,820,000 9,698,245
Financing Corp., STRIPS, 0%, 2017 5,000,000 2,884,490
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$ 28,483,201
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Asset Backed & Securitized - 0.5%
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Prudential Securities Secured Financing Corp., FRN, 7.3257%, 2013 (z) $ 1,819,000 $ 1,902,156
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Mortgage Backed - 50.1%
----------------------------------------------------------------------------------------------------------------
Fannie Mae, 7.031%, 2007 $ 212,913 $ 213,002
Fannie Mae, 5.78%, 2008 894,969 894,333
Fannie Mae, 4.79%, 2012 3,522,804 3,413,455
Fannie Mae, 4.543%, 2013 846,677 816,033
Fannie Mae, 4.845%, 2013 1,001,228 974,656
Fannie Mae, 5%, 2013 - 2027 13,014,401 12,782,837
Fannie Mae, 5.06%, 2013 400,692 393,771
Fannie Mae, 5.37%, 2013 1,035,652 1,028,835
Fannie Mae, 4.545%, 2014 945,534 906,372
Fannie Mae, 4.6%, 2014 481,638 459,969
Fannie Mae, 4.666%, 2014 2,919,258 2,817,050
Fannie Mae, 4.77%, 2014 491,383 474,446
Fannie Mae, 4.839%, 2014 3,266,389 3,178,320
Fannie Mae, 4.871%, 2014 1,799,630 1,759,101
Fannie Mae, 4.88%, 2014 - 2020 758,011 738,597
Fannie Mae, 5.1%, 2014 525,089 513,181
Fannie Mae, 4.56%, 2015 621,841 589,432
Fannie Mae, 4.62%, 2015 691,778 658,337
Fannie Mae, 4.665%, 2015 419,465 399,885
Fannie Mae, 4.69%, 2015 342,851 327,462
Fannie Mae, 4.7%, 2015 481,209 459,690
Fannie Mae, 4.74%, 2015 389,539 374,384
Fannie Mae, 4.78%, 2015 546,048 523,183
Fannie Mae, 4.815%, 2015 543,000 523,818
Fannie Mae, 4.82%, 2015 1,459,998 1,407,845
Fannie Mae, 4.85%, 2015 342,686 330,341
Fannie Mae, 4.87%, 2015 363,226 350,348
Fannie Mae, 4.89%, 2015 406,968 393,114
Fannie Mae, 4.925%, 2015 1,346,857 1,314,366
Fannie Mae, 5.471%, 2015 945,096 952,510
Fannie Mae, 5.09%, 2016 500,000 485,578
Fannie Mae, 5.424%, 2016 800,852 804,887
Fannie Mae, 5.845%, 2016 506,748 513,821
Fannie Mae, 6.5%, 2016 - 2036 8,349,556 8,548,699
Fannie Mae, 5.05%, 2017 525,300 508,630
Fannie Mae, 5.5%, 2017 - 2035 62,581,565 61,347,602
Fannie Mae, 6%, 2017 - 2037 16,321,935 16,395,151
Fannie Mae, 4.5%, 2019 13,997,799 13,414,702
Freddie Mac, 4.5%, 2013 - 2021 2,070,792 2,054,441
Freddie Mac, 4.375%, 2015 1,807,781 1,758,988
Freddie Mac, 5%, 2016 - 2027 13,170,799 13,048,580
Freddie Mac, 6%, 2021 - 2036 2,988,078 2,992,941
Freddie Mac, 4%, 2024 847,398 831,326
Freddie Mac, 5.5%, 2024 - 2035 10,984,672 10,765,138
Freddie Mac, 6.5%, 2037 3,151,251 3,202,897
Ginnie Mae, 5.5%, 2033 7,254,129 7,140,740
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$183,782,794
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U.S. Government Agencies - 12.5%
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Aid-Egypt, 4.45%, 2015 $ 1,755,000 $ 1,668,373
Fannie Mae, 4.625%, 2013 736,000 712,331
Farmer Mac, 5.5%, 2011 (n) 3,010,000 3,035,853
Federal Home Loan Bank, 4.625%, 2008 9,090,000 9,048,541
Freddie Mac, 4.2%, 2007 4,358,000 4,335,151
Overseas Private Investment Corp., 0%, 2007 1,056,227 1,144,929
Small Business Administration, 8.875%, 2011 134,756 137,635
Small Business Administration, 6.34%, 2021 970,246 994,775
Small Business Administration, 6.35%, 2021 1,134,630 1,163,329
Small Business Administration, 6.44%, 2021 1,086,442 1,115,978
Small Business Administration, 6.625%, 2021 1,184,926 1,223,567
Small Business Administration, 4.98%, 2023 797,316 778,415
Small Business Administration, 4.34%, 2024 1,168,000 1,089,519
Small Business Administration, 4.72%, 2024 2,089,694 2,009,249
Small Business Administration, 4.77%, 2024 1,955,662 1,878,914
Small Business Administration, 4.86%, 2024 - 2025 2,499,325 2,406,190
Small Business Administration, 4.87%, 2024 1,396,376 1,346,229
Small Business Administration, 5.52%, 2024 1,283,162 1,289,457
Small Business Administration, 4.76%, 2025 2,011,992 1,906,206
Small Business Administration, 5.11%, 2025 1,233,793 1,210,288
U.S. Department of Housing & Urban Development, 6.36%, 2016 1,580,000 1,616,323
U.S. Department of Housing & Urban Development, 6.59%, 2016 5,612,000 5,675,663
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$ 45,786,915
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U.S. Treasury Obligations - 14.4%
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U.S. Treasury Bonds, 8.75%, 2017 $ 6,100,000 $ 7,908,077
U.S. Treasury Bonds, 0%, 2027 3,064,000 1,085,011
U.S. Treasury Bonds, 4.5%, 2036 6,301,000 5,800,367
U.S. Treasury Bonds, STRIPS, 0%, 2021 4,547,000 2,167,973
U.S. Treasury Notes, 6.5%, 2010 (f) 12,594,000 13,102,684
U.S. Treasury Notes, 10.375%, 2012 8,400,000 8,593,595
U.S. Treasury Notes, 12%, 2013 3,036,000 3,284,336
U.S. Treasury Notes, 4.25%, 2015 4,400,000 4,207,500
U.S. Treasury Notes, TIPS, 3.875%, 2009 2,748,909 2,803,244
U.S. Treasury Notes, TIPS, 2.375%, 2017 3,775,725 3,727,939
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$ 52,680,726
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TOTAL U.S. BONDS $312,635,792
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Foreign Bonds - 9.1%
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Australia - 0.0%
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Commonwealth of Australia, 6%, 2017 AUD 155,000 $ 128,163
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Austria - 0.4%
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Republic of Austria, 4.65%, 2018 EUR 1,201,000 $ 1,639,978
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Brazil - 0.0%
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Federative Republic of Brazil, 8%, 2018 $ 102,000 $ 113,934
----------------------------------------------------------------------------------------------------------------
Canada - 0.2%
----------------------------------------------------------------------------------------------------------------
Canada Housing Trust, 4.6%, 2011 CAD 179,000 $ 166,991
Government of Canada, 5.5%, 2009 CAD 356,000 338,687
Government of Canada, 4.5%, 2015 CAD 60,000 56,152
Government of Canada, 8%, 2023 CAD 36,000 47,146
Government of Canada, 5.75%, 2033 CAD 66,000 74,674
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$ 683,650
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Chile - 0.4%
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HQI Transelec Chile S.A., 7.875%, 2011 $ 314,000 $ 332,782
Republic of Chile, FRN, 5.755%, 2008 1,057,000 1,058,057
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$ 1,390,839
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Denmark - 0.1%
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Kingdom of Denmark, 4%, 2015 DKK 1,771,000 $ 309,983
----------------------------------------------------------------------------------------------------------------
Egypt - 0.0%
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Petroleum Export/Cayman, 5.265%, 2011 (n) $ 85,981 $ 83,461
----------------------------------------------------------------------------------------------------------------
France - 0.8%
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Republic of France, 4.75%, 2012 EUR 349,000 $ 476,596
Republic of France, 5%, 2016 EUR 585,000 819,988
Republic of France, 6%, 2025 EUR 235,000 371,563
Republic of France, 4.75%, 2035 EUR 962,000 1,328,920
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$ 2,997,067
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Germany - 1.3%
----------------------------------------------------------------------------------------------------------------
Federal Republic of Germany, 5.25%, 2010 EUR 913,000 $ 1,257,226
Federal Republic of Germany, 3.75%, 2015 EUR 459,000 591,451
Federal Republic of Germany, 6.25%, 2030 EUR 707,000 1,172,556
KfW Bankengruppe, 1.35%, 2014 JPY 199,000,000 1,615,674
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$ 4,636,907
----------------------------------------------------------------------------------------------------------------
Ireland - 0.6%
----------------------------------------------------------------------------------------------------------------
Republic of Ireland, 3.25%, 2009 EUR 721,000 $ 950,057
Republic of Ireland, 4.6%, 2016 EUR 940,000 1,279,178
------------
$ 2,229,235
----------------------------------------------------------------------------------------------------------------
Japan - 1.8%
----------------------------------------------------------------------------------------------------------------
Development Bank of Japan, 1.75%, 2010 JPY 84,000,000 $ 702,813
Development Bank of Japan, 1.4%, 2012 JPY 126,000,000 1,038,289
Development Bank of Japan, 1.05%, 2023 JPY 178,000,000 1,249,890
Development Bank of Japan, 2.3%, 2026 JPY 60,000,000 501,843
Japan Finance Corp. for Municipal Enterprises, 1.55%, 2012 JPY 126,000,000 1,047,782
Japan Finance Corp. for Municipal Enterprises, 2%, 2016 JPY 230,000,000 1,931,146
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$ 6,471,763
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Malaysia - 0.1%
----------------------------------------------------------------------------------------------------------------
Petronas Capital Ltd., 7.875%, 2022 $ 433,000 $ 522,440
----------------------------------------------------------------------------------------------------------------
Mexico - 0.7%
----------------------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 9.375%, 2008 $ 1,072,000 $ 1,134,712
United Mexican States, 8.3%, 2031 128,000 167,040
United Mexican States, 6.75%, 2034 1,164,000 1,295,532
------------
$ 2,597,284
----------------------------------------------------------------------------------------------------------------
Netherlands - 0.9%
----------------------------------------------------------------------------------------------------------------
Kingdom of Netherlands, 3.75%, 2009 EUR 1,693,000 $ 2,248,000
Kingdom of Netherlands, 3.75%, 2014 EUR 487,000 628,671
Kingdom of Netherlands, 4%, 2016 EUR 359,000 467,207
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$ 3,343,878
----------------------------------------------------------------------------------------------------------------
Panama - 0.3%
----------------------------------------------------------------------------------------------------------------
Republic of Panama, 9.375%, 2029 $ 677,000 $ 921,397
----------------------------------------------------------------------------------------------------------------
Russia - 0.4%
----------------------------------------------------------------------------------------------------------------
Russian Federation, 3%, 2008 $ 1,474,000 $ 1,439,066
----------------------------------------------------------------------------------------------------------------
South Africa - 0.2%
----------------------------------------------------------------------------------------------------------------
Republic of South Africa, 5.875%, 2022 $ 855,000 $ 859,275
----------------------------------------------------------------------------------------------------------------
Spain - 0.5%
----------------------------------------------------------------------------------------------------------------
Kingdom of Spain, 5.35%, 2011 EUR 1,250,000 $ 1,741,600
----------------------------------------------------------------------------------------------------------------
United Kingdom - 0.4%
----------------------------------------------------------------------------------------------------------------
United Kingdom Treasury, 8%, 2015 GBP 133,000 $ 311,025
United Kingdom Treasury, 8%, 2021 GBP 146,000 371,051
United Kingdom Treasury, 4.25%, 2036 GBP 367,000 682,252
------------
$ 1,364,328
----------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS $ 33,474,248
----------------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $352,601,087) $346,110,040
----------------------------------------------------------------------------------------------------------------
Repurchase Agreements - 6.2%
----------------------------------------------------------------------------------------------------------------
Merrill Lynch, 5.31%, dated 5/31/07, due 6/01/07, total to be
received $22,912,379 (secured by various U.S. Treasury and
Federal Agency obligations and Mortgage Backed securities in a
jointly traded account), at Cost $ 22,909,000 $ 22,909,000
----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $375,510,087) (k) $369,019,040
----------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.6)% (2,249,380)
----------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $366,769,660
----------------------------------------------------------------------------------------------------------------
(f) All or a portion of the security has been segregated as collateral for an open futures contract.
(k) As of May 31, 2007, the trust held securities fair valued in accordance with the policies adopted by the
Board of Trustees, aggregating $346,110,040 and 93.79% of market value. An independent pricing service
provided an evaluated bid for 93.65% of the market value.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be
sold in the ordinary course of business in transactions exempt from registration, normally to qualified
institutional buyers. At period end, the aggregate value of these securities was $3,119,314, representing
0.9% of net assets.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal
restrictions on resale. These securities generally may be resold in transactions exempt from registration
or to the public if the securities are subsequently registered. Disposal of these securities may involve
time-consuming negotiations and prompt sale at an acceptable price may be difficult. The trust holds the
following restricted securities:
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
RESTRICTED SECURITIES DATE COST VALUE NET ASSETS
----------------------------------------------------------------------------------------------------------------
Prudential Securities Secured Financial Corp.,
FRN, 7.3257%, 2013 12/6/04 $2,019,445 $1,902,156 0.5%
The following abbreviations are used in this report and are defined:
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.
STRIPS Separate Trading of Registered Interest and Principal of Securities
TIPS Treasury Inflation Protected Security
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S.
dollars unless otherwise indicated. A list of abbreviations is shown below:
AUD Australian Dollar
CAD Canadian Dollar
CHF Swiss Franc
DKK Danish Krone
EUR Euro
GBP British Pound
JPY Japanese Yen
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AT 5/31/07
Appreciation and Depreciation in the table below are reported by currency.
NET
UNREALIZED
CONTRACTS TO SETTLEMENT IN EXCHANGE CONTRACTS APPRECIATION
TYPE CURRENCY DELIVER/RECEIVE DATE RANGE FOR AT VALUE (DEPRECIATION)
--------------------------------------------------------------------------------------------------------------
APPRECIATION
--------------------------------------------------------------------------------------------------------------
BUY AUD 147,843 6/04/07 $ 121,533 $ 122,424 $ 891
BUY CAD 32,535 7/23/07 30,340 30,469 129
BUY CHF 1,123,181 8/03/07 920,376 921,550 1,174
SELL EUR 1,361,962 6/20/07 1,855,948 1,833,812 22,136
SELL GBP 1,503,747 6/20/07 3,014,140 2,976,313 37,827
---------
$ 62,157
=========
DEPRECIATION
--------------------------------------------------------------------------------------------------------------
BUY AUD 2,626,829 6/04/07 $ 2,183,151 $ 2,175,180 $ (7,971)
SELL AUD 2,922,515 6/04/07- 2,400,692 2,419,831 (19,139)
8/03/07
SELL CAD 747,846 7/23/07 690,921 700,358 (9,437)
BUY CHF 1,123,181 6/04/07 927,974 917,006 (10,968)
SELL CHF 1,123,181 6/04/07 915,910 917,006 (1,096)
BUY DKK 218,825 6/13/07 40,000 39,542 (458)
SELL DKK 2,004,314 6/13/07 361,724 362,183 (459)
BUY EUR 200,000 6/20/07 272,683 269,290 (3,393)
SELL EUR 11,416,400 6/20/07 15,244,090 15,371,602 (127,512)
BUY GBP 795,218 6/20/07 1,594,204 1,573,946 (20,258)
BUY JPY 138,371,307 6/20/07- 1,156,034 1,140,717 (15,317)
---------
$(216,008)
=========
At May 31, 2007, forward foreign currency purchases and sales under master netting agreements excluded above
amounted to a net receivable of $109,955 with Merrill Lynch International Bank.
FUTURES CONTRACTS OUTSTANDING AT 5/31/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
--------------------------------------------------------------------------------------------------------------
U.S. Treasury Note 5 yr (Short) 54 $5,639,625 Sep-07 $17,609
U.S. Treasury Bond (Short) 59 6,438,375 Sep-07 8,090
U.S. Treasury Note 10 yr (Long) 21 2,233,875 Sep-07 (6,636)
--------------------------------------------------------------------------------------------------------------
$19,063
=======
At May 31, 2007, the trust had sufficient cash and/or other liquid securities to cover any commitments under
these derivative contracts.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 5/31/07 (unaudited)
This statement represents your trust's balance sheet, which details the assets and liabilities
comprising the total value of the trust.
ASSETS
------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $375,510,087) $369,019,040
Cash 4,314
Receivable for forward foreign currency exchange contracts 62,157
Receivable for forward foreign currency exchange contracts
subject to master netting agreements 109,955
Receivable for daily variation margin on open futures contracts 2,766
Receivable for investments sold 1,184,588
Interest receivable 3,124,689
Other assets 50,006
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Total assets $373,557,515
------------------------------------------------------------------------------------------------------
LIABILITIES
------------------------------------------------------------------------------------------------------
Distributions payable $73,230
Payable for forward foreign currency exchange contracts 216,008
Payable for investments purchased 6,128,002
Payable to affiliates
Management fee 10,681
Transfer agent and dividend disbursing costs 42,140
Administrative services fee 400
Payable for independent trustees' compensation 177,637
Accrued expenses and other liabilities 139,757
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Total liabilities $6,787,855
------------------------------------------------------------------------------------------------------
Net assets $366,769,660
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NET ASSETS CONSIST OF
------------------------------------------------------------------------------------------------------
Paid-in capital $401,546,887
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies (6,507,256)
Accumulated net realized gain (loss) on investments and foreign
currency transactions (28,577,097)
Undistributed net investment income 307,126
------------------------------------------------------------------------------------------------------
Net assets $366,769,660
------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding (56,436,886 issued,
less 5,104,331 treasury shares) 51,332,555
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Net asset value per share (net assets of $366,769,660/51,332,555
shares of beneficial interest outstanding) $7.14
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SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
At 5/31/07 (unaudited)
This statement describes how much your trust earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by trust operations.
NET INVESTMENT INCOME
------------------------------------------------------------------------------------------------------
Income
Interest $9,535,927
Foreign taxes withheld (448)
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Total investment income $9,535,479
-------------------------------------------------------------------------------------------------------
Expenses
Management fee $1,142,033
Transfer agent and dividend disbursing costs 65,139
Administrative services fee 36,672
Independent trustees' compensation 40,598
Custodian fee 59,930
Shareholder communications 36,001
Auditing fees 31,154
Legal fees 3,820
Miscellaneous 40,967
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Total expenses $1,456,314
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Fees paid indirectly (1,961)
Reduction of expenses by investment adviser (926)
-------------------------------------------------------------------------------------------------------
Net expenses $1,453,427
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Net investment income $8,082,052
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
-------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $192,671
Futures contracts 264,436
Foreign currency transactions (816,116)
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Net realized gain (loss) on investments and
foreign currency transactions $(359,009)
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Change in unrealized appreciation (depreciation)
Investments $(7,004,999)
Futures contracts 45,023
Translation of assets and liabilities in foreign currencies 1,177,002
-------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and
foreign currency translation $(5,782,974)
-------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $(6,141,983)
-------------------------------------------------------------------------------------------------------
Change in net assets from operations $1,940,069
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SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
5/31/07 11/30/06
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
------------------------------------------------------------------------------------------------------
Net investment income $8,082,052 $15,920,038
Net realized gain (loss) on investments and
foreign currency transactions (359,009) (1,841,399)
Net unrealized gain (loss) on investments and
foreign currency translation (5,782,974) 4,024,134
------------------------------------------------------------------------------------------------------
Change in net assets from operations $1,940,069 $18,102,773
------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------
From net investment income $(8,675,165) $(18,296,971)
------------------------------------------------------------------------------------------------------
Change in net assets from trust share transactions $-- $(5,014,933)
------------------------------------------------------------------------------------------------------
Total change in net assets $(6,735,096) $(5,209,131)
------------------------------------------------------------------------------------------------------
NET ASSETS
------------------------------------------------------------------------------------------------------
At beginning of period 373,504,756 378,713,887
At end of period (including undistributed net investment
income of $307,126 and $900,239, respectively) $366,769,660 $373,504,756
------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the trust's financial performance for the semiannual period
and the past 5 fiscal years. Certain information reflects financial results for a single trust share. The total returns in the
table represent the rate by which an investor would have earned (or lost) on an investment in the trust share class (assuming
reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 11/30
ENDED ------------------------------------------------------------------------
5/31/07 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value, beginning of period $7.28 $7.27 $7.43 $7.44 $7.49 $7.32
---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.16 $0.31 $0.31 $0.31 $0.26 $0.37
Net realized and unrealized gain (loss)
on investments and foreign currency (0.13) 0.04 (0.17) (0.02) 0.02 0.20
---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.03 $0.35 $0.14 $0.29 $0.28 $0.57
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
---------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.17) $(0.35) $(0.32) $(0.33) $(0.36) $(0.42)
---------------------------------------------------------------------------------------------------------------------------------
Net increase from repurchase of
capital shares $-- $0.01 $0.02 $0.03 $0.03 $0.02
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.14 $7.28 $7.27 $7.43 $7.44 $7.49
---------------------------------------------------------------------------------------------------------------------------------
Per share market value, end of period $6.71 $6.60 $6.39 $6.55 $6.71 $6.77
---------------------------------------------------------------------------------------------------------------------------------
Total return at market value (%) 4.28(n) 9.06 2.36 2.49 4.38 9.31
---------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET
ASSETS) AND SUPPLEMENTAL DATA:
---------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.79(a) 0.80 0.83 0.81 0.79 0.87
Expenses after expense reductions (f) 0.79(a) 0.80 0.83 0.81 N/A N/A
Net investment income 4.38(a) 4.29 4.20 4.12 3.41 4.98
Portfolio turnover 12 26 68 71 108 123
Net assets at end of period
(000 omitted) $366,770 $373,505 $378,714 $399,061 $414,095 $433,624
---------------------------------------------------------------------------------------------------------------------------------
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(n) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Government Markets Income Trust (the trust) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a closed-end diversified management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The trust
can invest in foreign securities, including securities of emerging market
issuers. 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. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - Debt instruments (other than short-term instruments),
including restricted debt instruments, are generally valued at an evaluated or
composite bid as reported by an independent pricing service. Short-term
instruments with a maturity at issuance of 60 days or less may be valued at
amortized cost, which approximates market value. Futures contracts are
generally valued at last posted settlement price as reported by an independent
pricing service on the market on which they are primarily traded. Futures
contracts for which there were no trades that day for a particular position are
generally valued at the closing bid quotation as reported by an independent
pricing service on the market on which such futures contracts are primarily
traded. Forward foreign currency contracts are generally valued at the mean of
bid and asked prices for the time period interpolated from rates reported by an
independent pricing service for proximate time periods. Securities and other
assets generally valued on the basis of information from an independent pricing
service may also be valued at a broker-dealer bid quotation. Values obtained
from pricing services can utilize both dealer-supplied valuations and
electronic data processing techniques, which take into account 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. The values of foreign securities and other assets and liabilities
expressed in foreign currencies are converted to U.S. dollars using the mean of
bid and asked prices for rates reported by an independent pricing service.
The Board of Trustees has delegated primary responsibility for determining or
causing to be determined the value of the trust's investments (including any
fair valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the trust's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. In addition, investments may be valued at fair
value if the adviser determines that an investment's value has been materially
affected by events occurring after the close of the exchange or market on which
the investment is principally traded (such as foreign exchange or market) and
prior to the determination of the trust's net asset value, or after the halting
of trading of a specific security where trading does not resume prior to the
close of the exchange or market on which the security is principally traded.
The adviser may rely on independent pricing services or other information (such
as the correlation with price movements of similar securities in the same or
other markets; the type, cost and investment characteristics of the security;
the business and financial condition of the issuer; and trading and other
market data) to assist in determining whether to fair value and at what value
to fair value an investment. The value of an investment for purposes of
calculating the trust's net asset value can differ depending on the source and
method used to determine value. When fair valuation is used, the value of
investments used to determine the trust's net asset value may differ from
quoted or published prices for the same investments.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the trust, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the trust's financial statements.
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 and other funds managed by
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
INFLATION-ADJUSTED DEBT SECURITIES - The trust invests in inflation-adjusted
debt securities issued by the U.S. Treasury. The trust may also invest in
inflation-adjusted debt securities issued by U.S. Government agencies and
instrumentalities other than the U.S. Treasury and by other entities such as
U.S. and foreign corporations and foreign governments. The principal value of
these debt securities is adjusted by references to changes in the Consumer
Price Index or another general price or wage index. These debt securities
typically pay a fixed rate of interest, but this fixed rate is applied to the
inflation-adjusted principal amount. The principal paid at maturity of the debt
security is typically equal to the inflation-adjusted principal amount, or the
security's original par value, whichever is greater. Other types of
inflation-adjusted securities may use other methods to adjust for other
measures of inflation.
FOREIGN CURRENCY TRANSLATION - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
DERIVATIVE RISK - The trust may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the trust uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include futures contracts and forward foreign currency
exchange contracts.
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. Upon entering into such contracts, the
trust bears the risk of interest or exchange rates or securities prices moving
unexpectedly, in which case, the trust may not achieve the anticipated benefits
of the futures contracts and may realize a loss.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The trust may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of the contract. 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.
INDEMNIFICATIONS - Under the trust's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the trust. Additionally, in the
normal course of business, the trust enters into agreements with service
providers that may contain indemnification clauses. The trust's maximum
exposure under these agreements is unknown as this would involve future claims
that may be made against the trust 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. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations.
FEES PAID INDIRECTLY - The trust's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
trust. This amount, for the six months ended May 31, 2007, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The trust 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.
Accordingly, no provision for federal income tax is required in the financial
statements. Foreign taxes, if any, have been accrued by the trust 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, straddle loss deferrals, and foreign currency transactions.
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 is as follows:
11/30/06
Ordinary income (including any short-term
capital gains) $18,296,971
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 5/31/07
Cost of investments $381,285,986
----------------------------------------------------------
Gross appreciation $1,405,768
Gross depreciation (13,672,714)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $(12,266,946)
AS OF 11/30/06
Undistributed ordinary income 1,012,110
Capital loss carryforwards (22,831,879)
Other temporary differences (1,323,108)
Net unrealized appreciation (depreciation) (4,899,254)
The aggregate cost above includes prior fiscal year end tax adjustments.
As of November 30, 2006, the trust had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
11/30/07 $(11,594,208)
11/30/08 (5,988,179)
11/30/12 (3,637,025)
11/30/14 (1,612,467)
----------------------------------------------------------
Total $(22,831,879)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management
has evaluated the application of the Interpretation to the trust, and has
determined that there is no impact resulting from the adoption of this
Interpretation on the trust's financial statements.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The trust has an investment advisory agreement with MFS to
provide overall investment management and related administrative services and
facilities to the trust. 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
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 May 31, 2007 was equivalent to an annual effective rate of
0.62% of the trust's average daily net assets.
TRANSFER AGENT - Prior to December 18, 2006, MFS Service Center, Inc. (MFSC), a
wholly-owned subsidiary of MFS, received a fee from the trust for its services
as registrar and dividend-disbursing agent. Pursuant to a written agreement,
the trust paid MFSC an account maintenance fee of no more than $9.00 and a
dividend services fee of $0.75 per reinvestment. Effective December 18, 2006,
the trust has engaged Computershare Trust Company, N.A. ("Computershare") as
the sole transfer agent for the trust. MFSC will continue to monitor and
supervise the activities of Computershare for an agreed upon fee approved by
the Board of Trustees. For the six months ended May 31, 2007, these fees paid
to MFSC amounted to $18,883. MFSC also receives payment from the trust for
out-of-pocket expenses paid by MFSC on behalf of the trust. For the six months
ended May 31, 2007, these costs amounted to $20,907.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the trust.
Under an administrative services agreement, the trust partially reimburses MFS
the costs incurred to provide these services. The trust is charged a fixed
amount plus a fee based on calendar year average net assets. The trust's annual
fixed amount is $17,500.
The administrative services fee incurred for the six months ended May 31, 2007
was equivalent to an annual effective rate of 0.0199% of the trust's average
daily net assets.
TRUSTEES' AND OFFICERS' COMPENSATION - The trust pays compensation to
independent trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The trust does not pay
compensation directly to trustees or to officers of the trust who are also
officers of the investment adviser, 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 MFSC. The trust has an unfunded, defined
benefit plan for certain retired independent trustees which resulted in a
pension expense of $4,926. The trust also has an unfunded retirement benefit
deferral plan for certain independent trustees which resulted in an expense of
$1,626. Both amounts are included in independent trustees' compensation for the
six months ended May 31, 2007. The liability for deferred retirement benefits
payable to certain independent trustees under both plans amounted to $164,657
at May 31, 2007, and is included in payable for independent trustees'
compensation.
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. Trustees are no longer allowed to
defer compensation under the Plan. Amounts previously deferred are treated as
though equivalent dollar amounts had been invested in shares of certain MFS
funds selected by the trustee. Deferred amounts represent an unsecured
obligation of the trust until distributed in accordance with the Plan. Included
in other assets and payable for independent trustees' compensation is $12,790
of deferred trustees' compensation.
OTHER - This trust and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the six months ended May 31, 2007, the fee paid to Tarantino LLC
was $1,433. MFS has agreed to reimburse the trust for a portion of the payments
made by the funds to Tarantino LLC in the amount of $926, which is shown as a
reduction of total expenses in the Statement of Operations. Additionally, MFS
has agreed to bear all expenses associated with office space, other
administrative support, and supplies provided to the ICCO.
(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 $29,773,359 $24,555,555
Investments (non-U.S. government securities) $13,434,419 $20,381,176
(5) SHARES OF BENEFICIAL INTEREST
The trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. The Trustees have
authorized the repurchase by the trust of up to 10% annually of its own shares
of beneficial interest. During the six months ended May 31, 2007, the trust did
not repurchase any shares. The trust repurchased and retired 782,600 shares of
beneficial interest during the year ended November 30, 2006 at an average price
per share of $6.41 and a weighted average discount of 10.50% per share.
Transactions in trust shares were as follows:
PERIOD ENDED YEAR ENDED
5/31/07 11/30/06
SHARES AMOUNT SHARES AMOUNT
Treasury shares reacquired -- $-- (782,600) $(5,014,933)
(6) LINE OF CREDIT
The trust and other funds managed by MFS participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the trust and other funds managed by MFS have
established uncommitted borrowing arrangements with certain banks. Borrowings
may be made for temporary financing needs. Interest is charged to each fund,
based on its borrowings, generally at a rate equal to the Federal Reserve funds
rate plus 0.30%. In addition, a commitment fee, based on the average daily,
unused portion of the committed line of credit, is allocated among the
participating funds at the end of each calendar quarter. For the six months
ended May 31, 2007, the trust's commitment fee and interest expense were $1,565
and $922, respectively, and are included in miscellaneous expense on the
Statement of Operations.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Shareholders of MFS Government Markets Income Trust:
We have reviewed the accompanying statement of assets and liabilities of MFS
Government Markets Income Trust (the "Trust"), including the portfolio of
investments, as of May 31, 2007, and the related statement of operations,
changes in net assets, and financial highlights for the six-month period ended
May 31, 2007. These interim financial statements and financial highlights are
the responsibility of the Trust's 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 referred to above for them to be in conformity with accounting
principles generally accepted in the United States of America.
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 November 30, 2006, and financial highlights for
each of the five years in the period ended November 30, 2006, and in our report
dated January 18, 2007, we expressed an unqualified opinion on such statement
of changes in net assets and financial highlights.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
July 11, 2007
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
trust's investment advisory agreement is available by clicking on the trust's
name under "Select a fund" on 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 SEC's Web site at
http://www.sec.gov.
Information regarding how the trust voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The trust will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The trust's Form N-Q 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 1-202-551-5850. The trust's Form N-Q is available on
the EDGAR database on the Commission's Internet Web site at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
CONTACT INFORMATION AND NUMBER OF SHAREHOLDERS
INVESTOR INFORMATION
Transfer Agent, Registrar and Dividend Disbursing Agent
Call 1-800-637-2304 any business day from 9 a.m. to 5 p.m. Eastern
time
Write to: Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
Effective December 18, 2006, Computershare Trust Company, N.A. became the
Transfer Agent and Registrar and Computershare Shareholder Services, Inc.
became the Dividend Disbursing Agent, succeeding MFS Service Center, Inc.
NUMBER OF SHAREHOLDERS
As of May 31, 2007, our records indicate that there are 4,387 registered
shareholders and approximately 16,572 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:
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
1-800-637-2304
M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street, Boston, MA 02116
ITEM 2. CODE OF ETHICS.
The Registrant has not amended any provision in its Code of Ethics (the "Code")
that relates to any element of the Code's definition enumerated in paragraph
(b) of Item 2 of this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable for semi-annual reports.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments for each series of the Registrant is included as part
of the report to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable for semi-annual reports.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
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MFS GOVERNMENT MARKETS INCOME TRUST
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(D) MAXIMUM NUMBER
(C) TOTAL NUMBER OF (OR APPROXIMATE
SHARES PURCHASED AS DOLLAR VALUE) OF
(B) AVERAGE PART OF PUBLICLY SHARES THAT MAY YET
(A) TOTAL NUMBER OF PRICE PAID ANNOUNCED PLANS BE PURCHASED UNDER
PERIOD SHARES PURCHASED PER SHARE OR PROGRAMS THE PLANS OR PROGRAMS
=====================================================================================================================
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11/1/06 - 11/30/06 0 N/A N/A 4,609,276
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12/1/06 - 12/31/06 0 N/A N/A 4,609,276
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1/1/07 - 1/31/07 0 N/A N/A 4,609,276
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2/1/07 - 2/28/07 0 N/A N/A 4,609,276
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3/1/07 - 3/31/07 0 N/A N/A 5,133,256
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4/1/07 - 4/30/07 0 N/A N/A 5,133,256
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TOTAL 0 N/A N/A
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Note: The Board of Trustees approves procedures to repurchase Fund shares
annually. The notification to shareholders of the program is included in the
semi-annual and annual reports sent to shareholders. These annual programs
begin on March 1st of each year. The programs conform to the conditions of Rule
10b-18 of the Securities Exchange Act of 1934 and limit the aggregate number of
Fund shares that may be repurchased in each annual period (March 1 through the
following February 28) to 10% of the Registrant's outstanding shares as of the
first day of the plan year (March 1). The aggregate number of Fund shares
available for repurchase for the March 1, 2007 plan year is 5,133,256.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 407(c)(2)(iv) of Regulation S-K (as required by Item
22(b)(15) of Schedule 14A), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the effectiveness of the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act")) as conducted within 90 days of
the filing date of this report on Form N-CSR, the registrant's principal
financial officer and principal executive officer have concluded that
those disclosure controls and procedures provide reasonable assurance that
the material information required to be disclosed by the registrant on
this report is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules
and forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter of the period covered by the report that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item 2 requirements through filing of an
exhibit.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule
30a-2 under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C.
78r), or otherwise subject to the liability of that section. Such
certification will not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Exchange Act, except to the
extent that the registrant specifically incorporates it by reference:
Attached hereto.
NOTICE
A copy of the Amended and Restated Declaration of Trust of the Registrant is on
file with the Secretary of State of The Commonwealth of Massachusetts and
notice is hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant as an officer and not individually
and the obligations of or arising out of this instrument are not binding upon
any of the Trustees or shareholders individually, but are binding only upon the
assets and property of the respective constituent series of the Registrant.
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)* MARIA F. DWYER
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Maria F. Dwyer, President
Date: July 11, 2007
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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)* MARIA F. DWYER
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Maria F. Dwyer, President (Principal Executive
Officer)
Date: July 11, 2007
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By (Signature and Title)* TRACY ATKINSON
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Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: July 11, 2007
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* Print name and title of each signing officer under his or her signature.