[logo] M F S(R)
INVESTMENT MANAGEMENT
MFS(R) GOVERNMENT
MARKETS INCOME TRUST
SEMIANNUAL REPORT o MAY 31, 2002
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 14
Notes to Financial Statements ............................................. 18
Trustees and Officers ..................................................... 25
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MFS(R) PRIVACY POLICY
At MFS(R), we are committed to protecting your privacy.
On behalf of the MFS Family of Funds(R), the MFS(R) Institutional Trusts, the
Vertex(SM) Funds, Massachusetts Financial Services Company, and certain
affiliates(1) (collectively, "MFS," "we," "us" or "our"), this privacy policy
outlines certain of our policies designed to maintain the privacy of your
nonpublic personal information.
Nonpublic personal information includes much of the information you provide to
us and the related information about you and your transactions involving your
MFS investment product or service. Examples of nonpublic personal information
include the information you provide on new account applications for MFS
investment products or services, your share balance or transactional history,
and the fact that you are a customer of MFS.
We may collect nonpublic personal information about you from the following
sources:
o information we receive from you on applications or other forms
o information about your transactions with us, our affiliates, or others, and
o information we receive from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may disclose all of
the information we collect, as described above, to companies that perform
marketing services on our behalf or to other financial institutions with whom we
have joint marketing arrangements.
We restrict access to nonpublic personal information about you to personnel who
are necessary or appropriate to provide products or services to you. We maintain
physical, electronic, and procedural safeguards that comply with federal
regulations to guard your nonpublic personal information.
Our privacy policy applies only to individual MFS investors who have a direct
relationship with us. If you own MFS products or receive MFS investment services
in the name of a third-party broker-dealer, bank, investment adviser or other
financial service provider, that third-party's privacy policies may apply to you
and our privacy policy may not.
If you have any questions with respect to MFS' privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
(1)MFS Institutional Advisors, Inc., Vertex Investment Management, Inc., MFS
Original Research Advisors, LLC, MFS Original Research Partners, LLC, and
MFS(R) Heritage Trust Company(SM).
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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,
Despite a fourth-quarter rally in 2001, the market volatility we witnessed over
the past two years has continued into 2002. As I write this in mid-June, most
U.S. equity indices have retreated since December; bond performance has been
decidedly mixed year to date; and many international equity indices have
outperformed the U.S. market this year. Federal Reserve Board (Fed) Chairman
Alan Greenspan has declared that, in fact, the recession is over, and many
financial experts have agreed with him. We think the questions on many
investors' minds are:
o Is the recession genuinely over?
o If it is, should I change my portfolio to prepare for a recovery?
THE WORST SEEMS TO BE OVER
According to many economists, the recession is technically over. We are
beginning to see growth again in the U.S. economy and in economies around the
globe. But we would qualify that with a caution that the exciting growth rates
of the 1990s are not coming back any time soon.
Our view of the situation is that corporate profits still look weak, despite the
recession being over. We think the markets may be bumping along the bottom for a
bit longer before a recovery gathers steam. Firms in many industries are still
dogged by excess capacity built up in the 1990s, and we think that may slow the
growth of corporate profits for a while longer. Our analysts and fund managers
talk frequently with corporate managements; a common theme they have seen lately
is a wait-and-see attitude. Corporations are postponing spending decisions until
their own business improves.
SHOULD I CHANGE MY PORTFOLIO?
Should you be adjusting your portfolio to anticipate an eventual recovery? This
is a question best discussed with your investment professional. However, we
would contend that changing one's portfolio in response to short-term events,
known as market timing, is a strategy that few investors have been able to
execute successfully over the long term. Our experience has been that a
long-term financial plan, developed with the help of an investment professional,
may offer a better chance of riding out economic cycles and working toward your
long-term investment goals.
Recent events, we think, offer evidence to support that view. For example, two
traditional elements of a long-term financial plan are setting reasonable
expectations and diversifying among asset classes -- such as growth stocks,
value stocks, and bonds.
In the late 1990s, it was tempting to raise our long-term expectations as we
experienced several years of over-20% growth in equity markets. News stories
often suggested this was the new norm, declaring that a "new economy" had
vanquished the "old economy" -- and its historical average annual returns that
had been closer to 10% for stocks.
Adjusting one's financial plan to agree with that view, however, could have
proven disastrous over the past few years. Yes, the Standard & Poor's 500 Stock
Index (the S&P 500), a commonly used measure of the broad stock market, returned
an average of 28.6% per year for the years 1995 through 1999. But the same index
returned -10.5% annually for the years 2000 through 2001.(1) A look at history
might have prepared an investor for more realistic long-term returns. For
example, for the 50-year period ended May 31, 2002, which includes the up and
down periods just mentioned, the average annual return for the S&P 500 was
11.8%.(2)
In addition to unrealistic expectations, another investment trap of the 1990s
was believing that growth stocks would always reign supreme. A financial plan
that included a range of asset classes, however -- recognizing that individual
asset classes frequently go in and out of favor -- could have helped an investor
over the past two difficult years, when both bonds and value stocks
significantly outperformed growth stocks.(3)
We should, however, note that if your personal situation or financial goals
change, your financial plan may need to change as well. For that reason, we
suggest that you and your investment professional revisit your long-term plan
regularly to assess your progress and make course corrections as necessary.
DEJA VU
The points we've just made, of course, are familiar to most investors. As
baseball great Yogi Berra said, "This is like deja vu all over again." What's
new, however, is the historical context that validates the old familiar
strategies.
This spring marked the second anniversary of the start of a severe market
downturn that generally is recognized as the worst time for investors since the
1970s. But the downturn also demonstrated, in our opinion, that short-term
events are significantly less important for investors than tried-and-true
strategies, including sticking to a long-term plan, setting realistic
expectations, and diversifying among asset classes.
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 and Chief Executive Officer
MFS Investment Management(R)
June 17, 2002
(1)Source: Lipper Inc.
(2)Source: Thomson Wealth Management.
(3)For the two-year period ended May 31, 2002, bonds, as represented by the
Lehman Brothers Aggregate Bond Index, delivered an average annual return of
10.58%; value stocks, as represented by the Russell 1000 Value Index,
delivered an average annual return of 0.85%; and growth stocks, as
represented by the Russell 1000 Growth Index, delivered an average annual
return of -25.42%. Source: Lipper Inc.
The Lehman Brothers Aggregate Bond Index is unmanaged and is composed of all
publicly issued obligations of the U.S. Treasury and government agencies, all
corporate debt guaranteed by the U.S. government, all fixed-rate
nonconvertible investment-grade domestic corporate debt, and all fixed-rate
securities backed by mortgage pools of the Government National Mortgage
Association (GNMA), the Federal Home Loan Mortgage Corporation (FHLMC), and
the Federal National Mortgage Association (FNMA). The Russell 1000 Value
Index measures the performance of large-cap U.S. value stocks. The Russell
1000 Growth Index measures the performance of large-cap U.S. growth stocks.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
It is not possible to invest directly in an index.
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Peter Vaream]
Peter Vaream
Dear Shareholders,
For the six months ended May 31, 2002, the trust provided a total return of
6.28% based on its beginning and ending stock market prices and assuming the
reinvestment of any dividends and capital gains distributions paid during the
period. The trust's total return based on its net asset value (NAV) was 2.59%.
During the same period, the trust's benchmarks, the Lehman Brothers Government
Bond Index (the Lehman Index) and the J.P. Morgan Non-Dollar Government Bond
Index (the Morgan Index) returned 1.45% and 2.33%, respectively. The Lehman
Index is unmanaged and is composed of all publicly issued debt obligations of
the U.S. Treasury, U.S. government agencies, quasi-federal corporations, and
corporate debt guaranteed by the U.S. government. The Morgan Index is an
unmanaged aggregate of actively traded government bonds issued from 12 countries
(excluding the United States) with remaining maturities of at least one year.
Over the period, fixed-income markets experienced volatility and uncertainty as
a result of a slowing global economy and a rise in terrorism and geopolitical
tensions in parts of the globe. For most of 2001, bond yields had moved lower
and their prices higher, as central banks worldwide lowered rates to stimulate
sagging economies. However, toward the end of the year, interest rates and bond
yields grew more volatile, based on changing sentiment about the strength of the
economy and the future direction of interest rates. Although 2002 has so far
been challenging for fixed-income markets in general, the high-quality nature of
our holdings has helped performance as we witnessed a flight to quality in
global financial markets. Overall, we reduced the interest rate sensitivity of
the portfolio during the period, targeting a duration of approximately five
years throughout each sector of our holdings.
Over the longer term, our expectation is that the yield curve will flatten as
the Federal Reserve Board (the Fed) eventually raises short-term rates, but
long-term rates remain relatively stable. Thus, we see longer maturities
potentially outperforming and will continue to adjust the portfolio accordingly,
favoring intermediate-maturity (three- to seven-year) securities. (A yield curve
for bonds shows the relationship between interest rate, or yield, and time
remaining to maturity; under normal circumstances, bonds with longer maturities
pay higher interest rates but are also more sensitive to changes in interest
rates.)
Government agency securities, including those issued by the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac), the Small Business Administration (SBA), and the Department of
Housing and Urban Development (HUD), helped performance over the first half of
the period. In our opinion, investors became more risk averse over the period
and sought higher-quality investment options. The agency market benefited from
this trend, providing incremental income over Treasuries. The principal value
and interest on Treasury Securities are guaranteed by the U.S. government if
held to maturity.
We retained a market weighting in mortgage-backed securities. With the Fed
apparently finished lowering rates, this sector performed well as long-term
rates rose slightly and fewer homeowners prepaid their mortgages in order to
refinance at a lower rate. (Prepayments are generally bad for mortgage bonds
because they force investors to take their proceeds and reinvest them at lower
prevailing interest rates.)
Going forward, we believe mortgages could underperform, given the significant
price appreciation we've already seen. However, as the period ended, we were
still seeing strong demand from banks and other financial institutions because
mortgages are considered to be a high-quality asset in an uncertain environment.
We expect to monitor the situation and may potentially scale back our mortgage
holdings.
Internationally, we invested mainly in the dollar-bloc countries, including New
Zealand and Canada. These investments in relatively stable economies helped
performance over the period. Emerging market bonds, however, were among our
strongest-performing holdings over the period, particularly Russian and Mexican
bonds. We believe emerging markets performed well because their geo-political
situations were improving and, as a result, some of these countries became
upgrade candidates. In fact, Mexico's bond rating was upgraded in 2001, crossing
over from below-investment grade to investment grade. (When a bond is upgraded,
it is considered less risky and, therefore, its price often rises.) We also
targeted credits that had a high degree of sovereign support, finding
opportunities in South Korea.
After a long run, the U.S. dollar began to look overvalued to us, and indeed the
dollar began to slide over the period; in response, we began to build up our
foreign currency holdings. We think European bonds could potentially outperform
U.S. Treasuries going forward because we believe the U.S. economy will grow more
quickly than that of Europe -- and more rapid growth has historically tended to
push interest rates up and bond prices down.
Looking ahead, we believe the global economy is improving but that the recovery
will remain sluggish for a while longer. We feel the U.S. federal deficit will
increase over the next 12 months, putting some upward pressure on interest
rates. In that environment, we plan to remain well diversified and to continue
to reduce the interest rate sensitivity of our holdings. As of the end of the
period, we expected to continue to diversify away from Treasuries into other
asset classes that may be better performers, such as agencies. We have also been
paying close attention to the fluctuating value of the dollar, and we expect to
increase nondollar exposure in Europe as a defensive strategy.
As of the end of the period, we would argue that investor expectation of a rate
hike has already been factored into the bond market. So, while rates in general
remain difficult to predict and could drift higher, we do not foresee a Fed rate
hike having a big negative effect on the bond market, particularly in such a low
inflation environment.
Respectfully,
/s/ Peter C. Vaream
Peter C. Vaream
Portfolio Manager
Note to Shareholders: Effective March 2002, Peter Vaream became portfolio
manager of the trust.
The opinions expressed in this report are those of MFS and are current only
through the end of the period of the report as stated on the cover. These views
are subject to change at any time based on market and other conditions, and no
forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
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PORTFOLIO MANAGER'S PROFILE
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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.
NUMBER OF SHAREHOLDERS
As of May 31, 2002, our records indicate that there are 6,659 registered
shareholders and approximately 25,500 shareholders owning trust shares in
"street" name, such as through brokers, banks, and other financial
intermediaries.
If you are a "street" name shareholder and wish to directly receive our reports,
which contain important information about the trust, please write or call:
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
1-800-637-2304
ADDRESS CHANGE
Please use our new mailing address, effective immediately.
State Street Bank and Trust Company
c/o MFS Service Center, Inc.
P.O. Box 55024
Boston, MA 02205-5024
In accordance with Section 23(c) of the Investment Company Act of 1940, the
trust hereby gives notice that it may from time to time repurchase shares of the
trust in the open market at the option of the Board of Trustees and on such
terms as the Trustees shall determine.
OBJECTIVE: Seeks to provide a high level of current income
NEW YORK STOCK EXCHANGE SYMBOL: MGF
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PERFORMANCE SUMMARY
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(For the six months ended May 31, 2002)
NET ASSET VALUE PER SHARE
November 30, 2001 $7.32
May 31, 2002 $7.27
NEW YORK STOCK EXCHANGE PRICE
November 30, 2001 $6.59
May 31, 2002 (high)* $6.78
December 17, 2001 (low)* $6.31
May 31, 2002 $6.78
*For the six months ended December 1, 2001, through May 31, 2002.
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
details.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
MFS offers a Dividend Reinvestment and Cash Purchase Plan that allows you to
reinvest either all of the distributions paid by the trust or only the long-
term capital gains. Purchases are made at the market price unless that price
exceeds the net asset value (the shares are trading at a premium). If the shares
are trading at a premium, purchases will be made at a discounted price of either
the net asset value or 95% of the market price, whichever is greater. Twice each
year you can also buy shares. Investments from $100 to $2,500 can be made in
January and July on the 15th of the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee, you
can ask the firm or nominee to participate in the plan on your behalf. If the
nominee does not offer the plan, you may wish to request that your shares be
re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the trust. However, when shares are bought
on the New York Stock Exchange or otherwise on the open market, each participant
pays a pro rata share of the commissions. The automatic reinvestment of
distributions does not relieve you of any income tax that may be payable (or
required to be withheld) on the distributions.
To enroll in or withdraw from the plan, or if you have any questions, call
1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time. Please have
available the name of the trust and your account and Social Security numbers.
For certain types of registrations, such as corporate accounts, instructions
must be submitted in writing. Please call for additional details. When you
withdraw, you can receive the value of the reinvested shares in one of two ways:
a check for the value of the full and fractional shares, or a certificate for
the full shares and a check for the fractional shares.
PORTFOLIO OF INVESTMENTS (Unaudited) -- May 31, 2002
Bonds - 94.2%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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U.S. Bonds - 82.0%
U.S. Government Agencies - 52.4%
Federal Home Loan Mortgage Corp., 7.5s, 2027 - 2028 $ 1,712 $ 1,792,315
Federal Housing Administration/USGI Spring Garden,
10.375s, 2030 2,074 2,068,332
Federal National Mortgage Assn., 4.4s, 2005 5,000 5,062,550
Federal National Mortgage Assn., 5.5s, 2006 10,000 10,410,300
Federal National Mortgage Assn., 5.75s, 2010 2,500 2,393,915
Federal National Mortgage Assn., 6s, 2008 - 2016 27,479 28,769,711
Federal National Mortgage Assn., 6.5s, 2016 - 2031 24,845 25,490,791
Federal National Mortgage Assn., 6.956s, 2007 5,610 6,048,362
Federal National Mortgage Assn., 7.5s, 2015 - 2015 8,176 8,644,548
Federal National Mortgage Assn., 8.5s, 2027 10,100 11,040,512
Financing Corp., 10.7s, 2017 8,500 12,358,575
Financing Corp., 9.8s, 2018 5,000 6,870,500
Financing Corp., 10.35s, 2018 9,500 13,638,295
Government National Mortgage Assn., 6.5s, 2028 - 2032 21,132 21,544,882
Government National Mortgage Assn., 7s, 2022 - 2031 31,283 32,439,405
Government National Mortgage Assn., 7.5s, 2022 - 2027 11,082 11,656,221
Private Export Funding Corp., 7.01s, 2004 3,380 3,599,666
Small Business Administration, 8.875s, 2011 1,084 1,144,234
Small Business Administration, 6.34s, 2021 1,913 1,967,955
Small Business Administration, 6.35s, 2021 2,510 2,584,351
Small Business Administration, 6.44s, 2021 1,971 2,037,886
Small Business Administration, 6.625s, 2021 1,972 2,057,178
U.S. Department of Housing & Urban Development,
6.36s, 2016 1,580 1,575,063
U.S. Department of Housing & Urban Development,
6.59s, 2016 5,612 5,556,104
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$220,751,651
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U.S. Treasury Obligations - 29.6%
U.S. Treasury Bonds, 11.875s, 2003 $ 2,887 $ 3,257,662
U.S. Treasury Bonds, 10.375s, 2009 14,600 17,872,052
U.S. Treasury Bonds, 12s, 2013 12,500 17,304,125
U.S. Treasury Bonds, 9.875s, 2015 26,000 36,773,620
U.S. Treasury Bonds, 8.875s, 2017 6,000 7,982,760
U.S. Treasury Bonds, 6.875s, 2025 17,500 19,905,550
U.S. Treasury Bonds, 6.25s, 2030 3,000 3,211,050
U.S. Treasury Notes, 5.875s, 2004 13,000 13,733,200
U.S. Treasury Notes, 4.625s, 2006 4,500 4,591,395
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$124,631,414
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Total U.S. Bonds $345,383,065
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Foreign Bonds - 12.2%
Brazil - 0.3%
Banco Nacional de Desenvolvi, 12.762s, 2008 (Banks &
Credit Cos.)## $ 1,079 $ 986,237
Federal Republic of Brazil, 3.063s, 2024 571 390,421
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$ 1,376,658
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Bulgaria - 0.5%
Bulgaria Republic, 7.5s, 2013## EUR 1,171 $ 1,056,345
Bulgaria Republic, 8.25s, 2015## $ 1,089 1,071,304
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$ 2,127,649
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Canada - 5.4%
Government of Canada, 5.75s, 2006 CAD 5,929 $ 4,002,881
Government of Canada, 5.25s, 2008 9,661 9,888,072
Government of Canada, 5.5s, 2009 6,483 4,283,212
Government of Canada, 5.5s, 2010 6,661 4,369,626
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$ 22,543,791
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Dominican Republic - 0.2%
Dominican Republic, 9.5s, 2006## $ 601 $ 640,816
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Germany - 1.6%
Federal Republic of Germany, 4.75s, 2008 EUR 7,329 $ 6,757,650
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Kazakhstan
KazTransoil Co., 8.5s, 2006 (Oils)## $ 50 $ 49,000
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Malaysia - 0.2%
Petroliam Nasional Berhad, 7.75s, 2015 (Oils) $ 766 $ 812,125
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Mexico - 1.2%
BBVA Bancomer, 10.5s, 2011 (Banks & Credit Cos.)## $ 1,832 $ 2,006,040
Pemex Project Funding Master Trust, 9.125s, 2010
(Oils) 626 689,558
Petroleos Mexicanos, 9.375s, 2008 (Oils) 1,072 1,175,126
Petroleos Mexicanos, 9.5s, 2027 (Oils) 269 297,918
United Mexican States, 11.5s, 2026 682 885,918
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$ 5,054,560
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New Zealand - 0.5%
Government of New Zealand, 8s, 2006 NZD 3,999 $ 2,009,446
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Panama - 0.3%
Republic of Panama, 9.625s, 2011 $ 600 $ 613,500
Republic of Panama, 10.75s, 2020 772 847,270
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$ 1,460,770
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Philippines - 0.2%
Philippines Republic, 8.375s, 2009 $ 880 $ 897,600
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Russia - 0.6%
Ministry of Finance Russia, 12.75s, 2028## $ 1,195 $ 1,469,850
Mobile Telesystems Finance, 10.95s, 2004
(Telecommunications)## 849 868,102
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$ 2,337,952
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South Korea - 0.3%
Hanvit Bank, 12.75s, 2010 (Banks & Credit Cos.)## $ 1,123 $ 1,316,565
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Spain - 0.9%
Kingdom of Spain, 7s, 2005 $ 3,600 $ 3,902,710
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United Kingdom
United Kingdom Treasury, 6.75s, 2004 GBP 5 $ 7,605
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Total Foreign Bonds $ 51,294,897
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Total Bonds (Identified Cost, $388,559,984) $396,677,962
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Warrants
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SHARES
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United Mexican States* 1,354,000 $ 2,031
Republic of Venezuela* 37,500 --
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Total Warrants (Identified Cost, $0) $ 2,031
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Short-Term Obligations - 2.4%
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PRINCIPAL AMOUNT
(000 OMITTED)
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General Electric Capital Corp., due 6/03/02 $ 8,225 $ 8,224,168
The Student Loan Corp., due 6/03/02 2,021 2,020,807
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Total Short-Term Obligations, at Amortized Cost $ 10,244,975
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Repurchase Agreement - 2.5%
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Morgan Stanley, dated 5/31/02, due 6/03/02, total
to be received $10,445,522 (secured by various
U.S. Treasury and Federal Agency obligations in
a jointly traded account), at Cost $ 10,445 $ 10,445,000
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Total Investments (Identified Cost, $409,249,959) $417,369,968
Other Assets, Less Liabilities - 0.9% 3,678,095
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Net Assets - 100.0% $421,048,063
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* Non-income producing security.
## SEC Rule 144A restriction.
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. dollar. A list of abbreviations is shown below.
AUD = Australian Dollars EUR = Euro
CAD = Canadian Dollars GBP = British Pounds
CHF = Swiss Francs NZD = New Zealand Dollars
DKK = Danish Kroner
See notes to financial statements.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
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MAY 31, 2002
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Assets:
Investments at value (identified cost, $409,249,959) $417,369,968
Investment of cash collateral for securities loaned, (at
identified cost and value) 92,978,499
Cash 917
Receivable for forward foreign currency exchange
contracts 1,155,216
Receivable for forward foreign currency exchange
contracts subject to master netting agreements 516,206
Receivable for trust shares sold 6,000
Receivable for investments sold 8,738,406
Interest receivable 4,334,425
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Total assets $525,099,637
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Liabilities:
Payable for investments purchased $ 8,745,409
Collateral for securities loaned, at value 92,978,499
Payable to dividend disbursing agent 147,338
Payable for forward foreign currency exchange contracts 1,208,398
Payable for forward foreign currency exchange contracts
subject to master netting agreements 517,278
Payable to affiliates -
Management fee 7,770
Transfer and dividend disbursing agent fee 11,816
Administrative fee 203
Accrued expenses and other liabilities 434,863
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Total liabilities $104,051,574
------------
Net assets $421,048,063
============
Net assets consist of:
Paid-in capital $455,316,767
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 8,088,949
Accumulated net realized loss on investments and foreign
currency transactions (39,891,558)
Accumulated net investment loss (2,466,095)
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Total $421,048,063
============
Shares of beneficial interest outstanding (63,046,686
shares authorized, less 5,104,331 treasury shares) 57,942,355
==========
Net asset value per share (net assets / shares of
beneficial interest outstanding) $7.27
=====
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
--------------------------------------------------------------------------
SIX MONTHS ENDED MAY 31, 2002
--------------------------------------------------------------------------
Net investment income:
Interest Income $ 13,022,695
Dividends 2,323
------------
Total investment income $ 13,025,018
------------
Expenses -
Management fee $ 1,422,885
Trustees' compensation 67,258
Transfer and dividend disbursing agent fee 69,150
Administrative fee 30,587
Investor communication expense 120,496
Custodian fee 77,873
Postage 15,992
Auditing fees 19,301
Printing 22,897
Legal fees 208
Miscellaneous 72,491
------------
Total expenses $ 1,919,138
Fees paid indirectly (11,600)
------------
Net expenses $ 1,907,538
------------
Net investment income $ 11,117,480
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ (159,123)
Foreign currency transactions 263,505
------------
Net realized gain on investments and foreign
currency transactions $ 104,382
------------
Change in unrealized appreciation (depreciation) -
Investments $ (2,295,642)
Translation of assets and liabilities in foreign
currencies (386,111)
------------
Net unrealized loss on investments and foreign
currency translation $ (2,681,753)
------------
Net realized and unrealized loss on investments
and foreign currency $ (2,577,371)
------------
Increase in net assets from operations $ 8,540,109
============
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
---------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MAY 31, 2002 NOVEMBER 30, 2001
(UNAUDITED)
---------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 11,117,480 $ 25,051,978
Net realized gain on investments and foreign currency
transactions 104,382 10,733,408
Net unrealized gain (loss) on investments and foreign
currency translation (2,681,753) 7,839,712
------------ ------------
Increase in net assets from operations $ 8,540,109 $ 43,625,098
------------ ------------
Distributions declared to shareholders from net investment
income $(12,672,680) $(25,582,314)
------------ ------------
Cost of shares reacquired $(10,992,624) $ (3,894,610)
------------ ------------
Total increase (decrease) in net assets $(15,125,195) $ 14,148,174
Net assets:
At beginning of period 436,173,258 422,025,084
------------ ------------
At end of period (including accumulated net investment loss
of $2,466,095 and $910,895, respectively) $421,048,063 $436,173,258
============ ============
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Financial Highlights
-------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED -------------------------------------------------------------------------
MAY 31, 2002 2001 2000 1999 1998 1997
(UNAUDITED)
-------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 7.32 $ 7.01 $ 6.94 $ 7.50 $ 7.41 $ 7.56
------ ------ ------ ------ ------ ------
Income from investment
operations#(S) -
Net investment income $ 0.19 $ 0.42 $ 0.44 $ 0.43 $ 0.46 $ 0.49
Net realized and unrealized
gain (loss) on investments
and foreign currency (0.04) 0.31 0.06 (0.58) 0.08 (0.14)
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.15 $ 0.73 $ 0.50 $(0.15) $ 0.54 $ 0.35
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.22) $(0.43) $(0.29) $(0.40) $(0.46) $(0.49)
In excess of net investment
income -- -- -- -- (0.01) (0.03)
From paid-in capital -- -- (0.20) (0.06) -- --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.22) $(0.43) $(0.49) $(0.46) $(0.47) $(0.52)
------ ------ ------ ------ ------ ------
Net increase from repurchase of
capital shares $ 0.02 $ 0.01 $ 0.06 $ 0.05 $ 0.02 $ 0.02
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 7.27 $ 7.32 $ 7.01 $ 6.94 $ 7.50 $ 7.41
====== ====== ====== ====== ====== ======
Per share market value - end of
period $ 6.78 $ 6.59 $ 6.19 $ 5.81 $ 6.56 $ 6.69
------ ------ ------ ------ ------ ------
Total return at market value 6.28%++ 13.56% 15.24% (4.80)% 4.21% 6.91%
Ratios (to average net assets)/
Supplemental data:
Expenses## 0.91%+ 0.90% 0.94% 0.92% 0.89% 0.94%
Net investment income(S) 5.29%+ 5.82% 6.35% 6.00% 6.14% 6.56%
Portfolio turnover 36% 105% 151% 102% 253% 248%
Net assets at end of period
(000 Omitted) $421,048 $436,173 $422,025 $447,178 $511,861 $524,580
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(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 six months ended
May 31, 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 0.51%. 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 organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a non-diversified, closed-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. 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 - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, and forward foreign
currency exchange contracts are valued on the basis of valuations furnished by
dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Non-U.S. dollar denominated short-term
obligations are valued at amortized cost as calculated in the foreign currency
and translated into U.S. dollars at the closing daily exchange rate. Securities
for which there are no such quotations or valuations are valued in good faith at
the direction of the Trustees.
Repurchase Agreements - The trust may enter into repurchase agreements with
institutions that the trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The trust requires
that the securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the trust to obtain those securities
in the event of a default under the repurchase agreement. The trust monitors, on
a daily basis, the value of the collateral to ensure that its value, including
accrued interest, is greater than amounts owed to the fund 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.
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 Borrowers 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
Borrowers, 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.
At May 31, 2002, the value of securities loaned was $91,128,301. These loans
were collateralized by cash of $92,978,499 which was invested in the following
short-term obligations:
PRINCIPAL AMORTIZED COST
AMOUNT AND VALUE
------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio $92,978,499 $92,978,499
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. 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" (to be
announced) 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 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,
2001 and November 30, 2000 was as follows:
NOVEMBER 30, 2001 NOVEMBER 30, 2000
-------------------------------------------------------------------------------
Distributions declared from:
Ordinary income $24,788,702 $18,111,821
Tax return of capital 793,612 12,251,962
----------- -----------
Total distributions declared $25,582,314 $30,363,783
=========== ===========
As of November 30, 2001, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $ --
Undistributed long-term capital gain --
Capital loss carryforward (35,625,238)
Unrealized gain 6,049,214
Other temporary differences (560,109)
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 AMOUNT
---------------------------------------------------------
November 30, 2002 $ (9,027,808)
November 30, 2004 (196,662)
November 30, 2005 (8,818,381)
November 30, 2007 (11,594,208)
November 30, 2008 (5,988,179)
------------
Total $(35,625,238)
============
(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 the compensation of the Independent 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.
Administrator - The trust has an administrative services agreement with MFS to
provide the 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 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 $109,369,937 $142,316,951
------------ ------------
Investments (non-U.S. government
securities) $ 39,730,507 $ 38,106,280
------------ ------------
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 $414,469,670
------------
Gross unrealized appreciation $ 8,587,251
Gross unrealized depreciation (5,686,953)
------------
Net unrealized appreciation $ 2,900,298
============
(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 63,046,686 full and fractional shares of beneficial interest.
Transactions in trust shares were as follows:
SIX MONTHS ENDED MAY 31, 2002 YEAR ENDED NOVEMBER 30, 2001
----------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------
Treasury shares reacquired (1,680,400) $(10,992,624) (600,200) $(3,894,610)
---------- ------------ -------- -----------
In accordance with the provisions of the trust's prospectus, 1,680,400 shares of
beneficial interest were purchased by the trust during six months ended May 31,
2002 at an average price per share of $6.54 and a weighted average discount of
9.42% per share. The trust repurchased 600,200 shares of beneficial interest
during the year ended November 30, 2001, at an average price per shares of $6.49
and a weighted average discount of 9.09% per share.
(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. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating funds at the
end of each quarter. The commitment fee allocated to the trust for the six
months ended May 31, 2002, was $2,007. The trust had no borrowings during the
period.
(7) Financial Instruments
The trust trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include forward foreign currency exchange 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 06/18/02 AUD 7,746,309 $ 4,008,174 $ 4,374,659 $ (366,485)
06/18/02 CAD 27,025,826 17,136,576 17,690,879 (554,303)
06/18/02 CHF 11,581,224 7,325,484 7,385,259 (59,775)
06/18/02 NZD 4,540,239 1,941,089 2,168,924 (227,835)
----------- ----------- -----------
$30,411,323 $31,619,721 $(1,208,398)
=========== =========== ===========
PURCHASES 06/18/02 AUD 7,878,679 $ 4,225,020 $ 4,449,414 $ 224,394
06/18/02 CAD 23,012,834 14,482,108 15,064,009 581,901
06/18/02 DKK 3,648,503 428,605 458,252 29,647
06/18/02 EUR 11,659,057 10,647,927 10,876,051 228,124
06/18/02 NZD 4,700,000 2,154,091 2,245,241 91,150
----------- ----------- -----------
$31,937,751 $33,092,967 $ 1,155,216
=========== =========== ===========
At May 31, 2002, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net receivable of $516,206 with
UBS Warburg and to a net payable of $317,939 with DB Clearing Services and
$199,339 with Merrill Lynch, Pierce, Fenner and Smith.
At May 31, 2002, the trust had sufficient cash and/or securities to cover any
commitments under these contracts.
(8) Change in Accounting Principle
As required, effective December 1, 2001, the fund adopted the provision of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premiums on debt securities. Prior to December 1, 2001, the fund did not
amortize premiums on debt securities. The cumulative effect of this accounting
change had no impact on total net assets of the fund, but resulted in a
$4,368,323 decrease in cost of securities and a corresponding $4,368,323
increase in net unrealized appreciation, based on securities held by the fund on
November 30, 2001.
The effect of this change for the six months ended May 31, 2002 was to decrease
net investment income by $1,063,712, increase net unrealized appreciation by
$849,008, and increase net realized gains by $214,704. 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, POSITION WITH THE TRUST, AGE, PRINCIPAL OCCUPATION, AND OTHER DIRECTORSHIPS(1)
TRUSTEES
JEFFREY L. SHAMES* (born 06/02/55) Trustee, ABBY M. O'NEILL (born 04/27/28) Trustee
Chairman and President Private investor; Rockefeller Financial Services,
Massachusetts Financial Services Company, Chairman Inc. (investment advisers), Chairman and Chief
and Chief Executive Officer Executive Officer
JOHN W. BALLEN* (born 09/12/59) Trustee LAWRENCE T. PERERA (born 06/23/35) Trustee
Massachusetts Financial Services Company, Hemenway & Barnes (attorneys), Partner
President and Director
WILLIAM J. POORVU (born 04/10/35) Trustee
KEVIN J. PARKE* (born 12/14/59) Trustee Harvard University Graduate School of Business
Massachusetts Financial Services Company, Chief Administration, Adjunct Professor; CBL &
Investment Officer, Executive Vice President and Associates Properties, Inc. (real estate
Director investment trust), Director; The Baupost Fund (a
mutual fund), Vice Chairman and Trustee
LAWRENCE H. COHN, M.D. (born 03/11/37) Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38) Trustee
Surgery; Harvard Medical School, Professor of Insight Resources, Inc. (acquisition planning
Surgery specialists), President; Wellfleet Investments
(investor in health care companies), Managing
THE HON. SIR J. DAVID GIBBONS, KBE (born 06/15/27) General Partner (since 1993); Paragon Trade
Trustee Brands, Inc. (disposable consumer products),
Edmund Gibbons Limited (diversified holding Director; Cambridge Nutraceuticals (professional
company), Chief Executive Officer; Colonial nutritional products), Chief Executive Officer
Insurance Company Ltd., Director and Chairman; (until May 2001)
Bank of Butterfield, Chairman (until 1997)
ELAINE R. SMITH (born 04/25/46) Trustee
WILLIAM R. GUTOW (born 09/27/41) Trustee Independent health care industry consultant
Private investor and real estate consultant;
Capitol Entertainment Management Company (video WARD SMITH (born 09/13/30) Trustee
franchise), Vice Chairman Private investor; Sundstrand Corporation
(manufacturer of highly engineered products for
J. ATWOOD IVES (born 05/01/36) Trustee industrial and aerospace applications), Director
Private investor; KeySpan Corporation (energy (until June 1999)
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee
and Chief Executive Officer (until November 2000)
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
* "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) Trustee, ROBERT R. FLAHERTY (born 09/18/63) Assistant
Chairman and President Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
and Chief Executive Officer President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
JAMES R. BORDEWICK, JR. (born 03/06/59) Assistant
Secretary and Assistant Clerk ELLEN MOYNIHAN (born 11/13/57) Assistant
Massachusetts Financial Services Company, Senior Treasurer
Vice President and Associate General Counsel Massachusetts Financial Services Company, Vice
President (since September 1996)
MARK E. BRADLEY (born 11/23/59) Assistant
Treasurer JAMES O. YOST (born 06/12/60) Assistant Treasurer
Massachusetts Financial Services Company, Vice Massachusetts Financial Services Company, Senior
President (since March 1997) Vice President
STEPHEN E. CAVAN (born 11/06/53) Secretary and
Clerk
Massachusetts Financial Services Company, Senior
Vice President, General Counsel and Secretary
The trust holds annual shareholder meetings for the purpose of electing Trustees. Trustees are elected for
fixed terms. Each officer will hold office until his or her successor is chosen and qualified, or until he
or she retires, resigns or is removed from office.
Messrs. Shames, Cohn, Gibbons, 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 a 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 117 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
DIVIDEND DISBURSING AGENT
Massachusetts Financial Services Company
500 Boylston Street State Street Bank and Trust Company
Boston, MA 02116-3741 c/o MFS Service Center, Inc.
P.O. Box 55024
PORTFOLIO MANAGER Boston, MA 02205-8016
1-800-637-2304
Peter C. Vaream+
CUSTODIAN
State Street Bank and Trust Company
+ MFS Investment Management
MFS(R) GOVERNMENT MARKETS ------------
INCOME TRUST PRSRT STD
U.S. POSTAGE
[logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
------------
500 Boylston Street
Boston, MA 02116-3741
(C)2001 MFS Investment Management(R).
500 Boylston Street, Boston, MA 02116.
MGFCE-3 7/02 40M