[Logo] M F S (R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
[Graphic Omitted]
MFS(R) GOVERNMENT
MARKETS INCOME TRUST
ANNUAL REPORT o NOVEMBER 30, 2000
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 5
Performance Summary ....................................................... 8
Results of Shareholder Meetings............................................ 10
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 15
Notes to Financial Statements ............................................. 19
Independent Auditors' Report .............................................. 26
Trustees and Officers ..................................................... 28
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
If you've been reading our fund reports for any length of time, you've probably
sensed the pride we have in our research process. More than anything else, we
think MFS Original Research(R) -- and the performance results it has yielded for
shareholders -- makes us unique among investment management companies. We think
that uniqueness stems from three factors: philosophy, process, and people.
PHILOSOPHY
In over 75 years in the investment management business, we've developed a number
of beliefs about the best ways to invest over a variety of market conditions.
First, we believe in bottom-up research, which means we use a company-by-
company, one-security-at-a-time approach to building a portfolio. What we look
for is the truth about the fundamentals of a company's business -- things such
as the ability of management to execute its business plan, the ability of that
plan to be scaled up as the company grows, actual demand for the company's
products and services, cash flow, profits, and earnings.
Second, we believe that, over the long term, stock prices follow earnings. In
our view, stock prices are basically a multiple of projected earnings, with the
multiple increasing as the market perceives that a company has something
customers want and will continue to want. One of the major elements of Original
Research(SM) is doing our best to project a company's future earnings and
determine how much the market will pay for those earnings.
Third, we believe there are at least three ways to potentially achieve
competitive long-term performance: be early, uncover second chances, and avoid
mistakes. All of these are based on bottom-up research. In both domestic and
international markets, early discovery has historically been a hallmark of our
investment style. Some of the stocks with which MFS has been most successful are
those in which we've taken large positions before the market discovered or
believed in them. Similarly, some of our best fixed-income investments have been
early positions in companies or governments that our research revealed were
potential candidates for credit upgrades. (A credit upgrade causes the value of
a bond to rise because it indicates the market has increased confidence that
principal and interest on the bond will be repaid.)
"Second-chance" opportunities are companies whose stock prices have stumbled but
that we believe still have the potential to be market leaders. For example, a
quarterly earnings shortfall of a few cents may cause the market to temporarily
lose confidence in a company. If we believe the business remains fundamentally
strong, we may use the price decline as a buying opportunity.
Avoiding mistakes is another way we feel Original Research may help performance.
In fixed-income investing this means, among other things, trying to be better
than our peers at avoiding bond issuers that may default. In equity investing,
avoiding mistakes means we strive to know a company and its industry well enough
to distinguish truth from hype.
PROCESS
We acquire our information firsthand, by researching thousands of companies to
determine which firms may make good investments. Our analysis of an individual
company may include
o face-to-face contact with senior management as well as frontline workers
o analysis of the company's financial statements and balance sheets
o contact with the company's current and potential customers
o contact with the company's competitors
o our own forecasts of the company's future market share, cash flow, and
earnings
Our analysts and portfolio managers disseminate this information in the form of
daily notes e-mailed worldwide to all members of our investment team. This
ensures that our best ideas are shared throughout the company, without barriers
between equity and fixed-income, international and domestic, or value and growth
investment areas. We believe this allows each of our portfolio managers -- and
thus each of our investors -- to potentially benefit from any relevant item of
Original Research.
John Ballen, our President and Chief Investment Officer, has often said that the
thought he hopes managers will have when they read the daily notes is, "I could
never perform as well at any other investment company, because nowhere else
could the quality of the research be this good."
PEOPLE
Our team of research analysts and portfolio managers traces its roots back to
1932, when we created one of the first in-house research departments in the
industry. Today, we believe we have an investment team distinguished for its
unique blend of talent, continuity, and cohesiveness.
MFS' team culture and commitment to quality research have proven to be of
tremendous value in attracting some of the best and brightest talent from
leading business schools and from other investment management companies. Our
company culture was a key factor in our recognition by Fortune magazine in its
January 10, 2000, issue as one of the "100 Best Companies to Work For" in
America. As befits a great team, our people have tended to stick around -- the
average MFS tenure of our portfolio managers is 11 years, with over 16 years in
the investment industry. Contributing to this continuity is our policy that all
equity portfolio managers are promoted from within, after distinguishing
themselves first as research analysts. And because many of us who are now
managing funds or managing the company itself have been working together for
well over a decade, we have a cohesiveness, a shared philosophy of investing,
and a unity of purpose that we believe bodes well for the future of the company.
We also have scale. Our research analyst team is over 55 members strong and
growing. Each analyst is our in-house expert on a specific industry or group of
industries in a specific region of the globe. In pursuing their research, our
analysts and portfolio managers each year will visit more than 2,000 companies
throughout the world, meet with representatives from more than 3,000 companies
at one of our four worldwide offices, attend roughly 5,000 company presentations
sponsored by major Wall Street firms, and consult with over 1,000 analysts from
hundreds of U.S. and foreign brokerage houses.
All of this culminates in our analysts making buy and sell recommendations on a
wide range of potential investments for all of our portfolios. In the end, the
goal of Original Research is to try to give our portfolio managers an advantage
over their peers -- to enable our managers to deliver competitive performance by
finding opportunities before they are generally recognized by the market, and by
avoiding mistakes whenever possible. Original Research does, we believe, make a
difference.
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)
December 15, 2000
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the 12 months ended November 30, 2000, the trust provided a total return of
15.24% based on its beginning and ending stock market prices and assuming the
reinvestment of any distributions paid during the period. The trust's total
return based on its net asset value (NAV) was 9.35%. During the same period, the
Salomon Brothers Medium Term (1-to-10 year) Treasury Government Sponsored Index
(the Salomon Index), an unmanaged index of medium-term U.S. Treasury and
government-agency securities, returned 1.54%. The J.P. Morgan Non-Dollar
Government Bond Index (the J.P. Morgan Index), an unmanaged index of actively
traded government bonds issued by 12 countries (excluding the United States)
with remaining maturities of at least one year, returned -6.59% over the same
period.
Turbulent market conditions characterized the period as this year could truly be
described as a tale of two bond markets. The U.S. Treasury market in particular,
which was out of favor in 1999 and the early part of 2000, reversed course to
become the big winner over the past year. Through the first half of the one-year
period, a tight labor market, signs of rising inflation, and persistently robust
economic growth applied downward pressure on bond prices as investors
anticipated the Federal Reserve Board's (the Fed) next move. Investor sentiment
shifted dramatically over the past few months as most fixed-income securities,
especially U.S. Treasuries, posted strong gains amid increasing evidence that
the Fed has successfully orchestrated a "soft landing" -- a gradual slowing of
the economy, which would lead to noninflationary economic growth.
Given this environment, in the first half of the period we underweighted the
portfolio in short- and intermediate-maturity Treasuries and mortgage-backed
securities because they tend to perform poorly in a rising interest rate
environment. At the same time, we overweighted long-term Treasuries, which have
tended to be less affected when the Fed raises short-term interest rates.
As the U.S. and global economies began to show signs of slowing, we increased
our holdings in mortgage-backed securities, government agency bonds, and
longer-term Treasuries as a way to potentially take advantage of historically
attractive spreads and to gain additional yield for the portfolio. In recent
months, these strategies helped the portfolio outperform both the Salomon and
Morgan indices. Our positions in federal agency securities rallied amid a more
optimistic outlook on whether the implicit government guarantee on these issues
would remain in place. Holdings in mortgage-backed securities benefited from
reduced supply and a more favorable prepayment environment.
On the international side, due to the persistent decline in the euro and the
potential for interest rate hikes, we reduced our exposure to European bonds. We
maintained only limited exposure to international bonds as we generally found
more attractive opportunities in the United States. However, the international
markets we favored were all within the dollar-bloc countries, such as Australia,
New Zealand, and Canada. We added to positions in these countries because we
anticipated better return potential compared to European bonds of comparable
credit quality.
Looking forward, we're fairly confident that global economic growth, especially
in the United States, will continue to decelerate and dispel remaining fears of
inflation, which could continue to benefit the fixed-income market. As a result,
we believe above-average returns may be garnered through investing in
high-quality intermediate-term mortgage-backed, agency, and government
securities.
Respectfully,
/s/ Stephen C. Bryant /s/ Steven E. Nothern
Stephen C. Bryant Steven E. Nothern
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. The managers' 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 MANAGERS' PROFILES
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STEPHEN C. BRYANT IS SENIOR VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R) AND
PORTFOLIO MANAGER OF OUR GLOBAL FIXED-INCOME INSTITUTIONAL PRODUCTS AND THE
GLOBAL GOVERNMENTS PORTFOLIO OF OUR VARIABLE ANNUITY PRODUCTS. HE ALSO MANAGERS
MFS(R) GOVERNMENT MARKETS INCOME TRUST AND MFS(R) INTERMEDIATE INCOME TRUST, TWO
CLOSED-END FUNDS. HE JOINED MFS IN 1987 AS ASSISTANT VICE PRESIDENT. HE WAS
NAMED VICE PRESIDENT IN 1989, PORTFOLIO MANAGER IN 1992, AND SENIOR VICE
PRESIDENT IN 1993. STEVE IS A GRADUATE OF WESLEYAN UNIVERSITY.
STEVEN E. NOTHERN, CFA, IS SENIOR VICE PRESIDENT OF MFS INVESTMENT
MANAGEMENT(R). HE IS PORTFOLIO MANAGER OF THE GOVERNMENT SECURITIES PORTFOLIOS
OF OUR MUTUAL FUNDS, VARIABLE ANNUITIES, AND OFFSHORE FUNDS, AND ALSO MANAGES
TWO CLOSED-END FUNDS, MFS(R) INTERMEDIATE INCOME TRUST AND MFS(R) GOVERNMENT
MARKETS INCOME TRUST. STEVE JOINED MFS IN 1986 IN THE FIXED INCOME DEPARTMENT
AND WAS NAMED VICE PRESIDENT IN 1989, PORTFOLIO MANAGER IN 1991, AND SENIOR VICE
PRESIDENT IN 1993. HE IS A GRADUATE OF MIDDLEBURY COLLEGE AND HOLDS A MASTER OF
BUSINESS ADMINISTRATION DEGREE FROM BOSTON UNIVERSITY. HE IS A CHARTERED
FINANCIAL ANALYST AND A MEMBER OF THE BOSTON SECURITY ANALYSTS SOCIETY, INC.
ALL PORTFOLIO MANAGERS AT MFS INVESTMENT MANAGEMENT(R) ARE SUPPORTED BY AN
INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL RESEARCH(R), A
GLOBAL, SECURITY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING SECURITIES.
NUMBER OF SHAREHOLDERS
As of November 30, 2000, our records indicate that there are 13,811 registered
shareholders and approximately 28,000 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
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 year ended November 30, 2000)
NET ASSET VALUE PER SHARE
November 30, 1999 $6.94
November 30, 2000 $7.01
NEW YORK STOCK EXCHANGE PRICE
November 30, 1999 $5.8125
November 27, 2000 (high)* $6.2500
January 20, 2000 (low)* $5.6875
November 30, 2000 $6.1875
*For the period from December 1, 1999, through November 30, 2000.
NOTES TO PERFORMANCE SUMMARY
Investments in foreign 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. See the prospectus for
details.
Government guarantees apply to the underlying securities only and not to the
prices and yields of the managed portfolio. 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 $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. A service fee of $0.75 is charged for
each cash purchase as well as a pro rata share of the brokerage 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.
RESULTS OF SHAREHOLDER MEETINGS (Unaudited)
At the annual meeting of shareholders of MFS Government Markets Income Trust,
which was held on September 19, 2000, the following actions were taken:
ITEM 1. The election of Arnold D. Scott and Jeffrey L. Shames as trustees of
the trust.
ELECTION OF TRUSTEES FOR WITHHELD
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Arnold D. Scott 45,761,832.8910 733,174.4099
Jeffrey L. Shames 45,728,033.3715 766,973.9294
ITEM 2. The ratification of the selection of Deloitte & Touche LLP as the
independent accountants to be employed by the trust for the fiscal year
ending November 30, 2001.
% OF SHARES TO TOTAL % OF SHARES TO TOTAL
SHARES OUTSTANDING SHARES SHARES VOTED
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For 45,861,465.8761 74.8392% 98.6374%
Against 214,428,7844 0.3499% 0.4612%
Abstain 419,112.6404 0.6839% 0.9014%
PORTFOLIO OF INVESTMENTS -- November 30, 2000
Bonds - 98.3%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-------------------------------------------------------------------------------
U.S. Bonds - 86.4%
Federal National Mortgage Association - 15.0%
FNMA, 5.75s, 2010 $ 2,500 $ 2,192,958
FNMA, 6.956s, 2007 5,715 5,706,502
FNMA, 7s, 2029 - 2030 27,451 27,178,982
FNMA, 7.5s, 2015 - 2015 17,250 17,491,662
FNMA, 8.5s, 2027 10,100 10,788,012
------------
$ 63,358,116
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Government National Mortgage Association - 10.2%
GNMA, 7s, 2022 - 2029 $ 16,376 $ 16,309,360
GNMA, 7.5s, 2022 - 2027 19,044 19,248,909
GNMA, 8s, 2030 - 2030 6,352 6,494,101
GNMA TBA, 7s, 2022 - 2025 958 952,505
------------
$ 43,004,875
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Small Business Administration - 0.5%
SBA, 8.875s, 2011 $ 1,892 $ 1,968,054
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U.S. Federal Agencies - 20.3%
Federal Home Loan Mortgage Corp., 7s, 2005 $ 46,562 $ 47,966,310
Federal Home Loan Mortgage Corp., 7.5s, 2027 3,490 3,517,089
FHA (USGI 986 Spring Hill), 10.375s, 2030+ 2,138 2,137,592
Financing Corp., 10.7s, 2017 8,500 12,116,495
Financing Corp., 9.8s, 2018 5,000 6,698,450
Financing Corp., 10.35s, 2018 9,500 13,307,410
------------
$ 85,743,346
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U.S. Government Guaranteed - 2.0%
Housing Urban Development, 6.59s, 2016 $ 5,612 $ 5,036,069
Private Export Funding Corporation, 7.01s, 2004 3,380 3,481,738
------------
8,517,807
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U.S. Treasury Obligations - 38.4%
U.S. Treasury Bonds, 10.375s, 2009 $ 14,600 $ 17,838,276
U.S. Treasury Bonds, 9.875s, 2015 32,750 46,366,795
U.S. Treasury Bonds, 8.875s, 2017 6,000 8,006,220
U.S. Treasury Bonds, 3.625s, 2028 10,758 10,482,079
U.S. Treasury Bonds, 6.125s, 2029 7,317 7,797,141
U.S. Treasury Bonds, 6.25s, 2030 3,000 3,281,730
U.S. Treasury Notes, 8s, 2001 9,250 9,323,723
U.S. Treasury Notes, 5.875s, 2004 34,250 34,662,027
U.S. Treasury Notes, 4.25s, 2010 7,226 7,476,194
U.S. Treasury Notes, 5.75s, 2010 10,398 10,625,404
U.S. Treasury Notes, 6.5s, 2010 5,602 5,995,877
------------
$161,855,466
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Total U.S. Bonds $364,447,664
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Foreign Bonds - 11.9%
Argentina - 0.6%
Republic of Argentina, 0s, 2001 $ 2,900 $ 2,710,425
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Brazil - 0.7%
Banco Nacional de Desenvolvi, 12.554s, 2008
(Banks and Credit Cos.)## $ 780 $ 724,230
Federal Republic of Brazil, 7.688s, 2009 320 268,800
Federal Republic of Brazil, 14.5s, 2009 243 254,846
Federal Republic of Brazil, 8s, 2014 399 296,042
Federal Republic of Brazil, 6s, 2024 425 279,437
Federal Republic of Brazil, 7.625s, 2024 300 227,181
Federal Republic of Brazil, 12.25s, 2030 500 420,000
Federal Republic of Brazil, 11s, 2040 514 388,623
------------
$ 2,859,159
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Bulgaria - 0.5%
National Republic of Bulgaria, 7.75s, 2024 $ 3,015 $ 2,193,412
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Canada - 4.0%
Government of Canada, 6s, 2005 CAD 5,867 $ 3,887,891
Government of Canada, 6s, 2008 9,661 8,983,841
Government of Canada, 5.5s, 2009 6,344 4,119,798
------------
$ 16,991,530
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Denmark - 1.3%
Kingdom of Denmark, 6s, 2009 DKK 45,640 $ 5,572,047
-------------------------------------------------------------------------------
France - 0.4%
Republic of France, 4s, 2009 EUR 2,121 $ 1,701,807
-------------------------------------------------------------------------------
Greece - 1.3%
Hellenic Republic, 8.7s, 2005 GRD 56,000 $ 160,743
Hellenic Republic, 6s, 2006 2,000,000 5,224,586
------------
$ 5,385,329
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Mexico - 0.9%
Grupo Iusacell S.A. de CV, 14.25s, 2006
(Telecommunications) $ 529 $ 534,951
United Mexican States, 9.875s, 2007 800 837,200
United Mexican States, 10.375s, 2009 785 836,025
United Mexican States, 11.375s, 2016 500 576,605
United Mexican States, 7.533s, 2019 880 902,000
------------
$ 3,686,781
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Netherlands - 0.1%
Netia Holdings BV, 10.25s, 2007
(Telecommunications) $ 477 $ 314,820
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New Zealand - 0.4%
Government of New Zealand, 8s, 2006 NZD 3,999 $ 1,763,676
-------------------------------------------------------------------------------
Panama - 0.4%
Republic of Panama, 4.5s, 2014 $ 195 $ 154,781
Republic of Panama, 10.75s, 2020 1,310 1,257,600
Republic of Panama, 8.875s, 2027 390 325,650
------------
$ 1,738,031
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Qatar - 0.3%
State of Qatar, 9.75s, 2030 $ 1,090 $ 1,069,290
-------------------------------------------------------------------------------
South Korea - 0.1%
Chohung Bank, 11.5s, 2010
(Banks and Credit Cos.) $ 100 $ 94,000
Hanvit Bank, 12.75s, 2010
(Banks and Credit Cos.)## 494 475,475
------------
$ 569,475
-------------------------------------------------------------------------------
Spain - 0.9%
Kingdom of Spain, 7s, 2005 $ 3,600 $ 3,707,032
-------------------------------------------------------------------------------
United Kingdom
United Kingdom Treasury, 6.75s, 2004 GBP 5 $ 7,480
-------------------------------------------------------------------------------
Total Foreign Bonds $ 50,270,294
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Total Bonds (Identified Cost, $414,554,450) $414,717,958
-------------------------------------------------------------------------------
Warrants
-------------------------------------------------------------------------------
SHARES
-------------------------------------------------------------------------------
Republic of Venezuela (Identified Cost, $0)* 37,500 $ 0
-------------------------------------------------------------------------------
Rights
-------------------------------------------------------------------------------
United Mexican States (Identified Cost, $0)* 1,354,000 $ 0
-------------------------------------------------------------------------------
Short-Term Obligations - 2.4%
-------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-------------------------------------------------------------------------------
American Express Credit Corp., due 12/01/00 $ 514 $ 514,000
Associates Corp. of North America, due 12/01/00 777 777,000
Bank of America, due 12/01/00 887 887,000
Campbell Soup Co., due 12/01/00 218 218,000
Chase Nassau Time Deposit, due 12/01/00 912 912,000
Dow Chemical Co., due 12/01/00 160 160,000
Federal Home Loan Mortgage Discount Notes, due
12/01/00 1,191 1,191,000
Gannett, Inc., due 1/04/01 581 577,401
Gillette Co., due 12/01/00 2,252 2,252,000
Glaxo PLC, due 12/01/00 146 146,000
Morgan (J.P.) & Co., Inc., due 12/01/00
- 12/13/00 1,749 1,747,405
Morgan Stanley Dean Witter, due 12/01/00 476 476,000
Prudential Funding Corp., due 12/01/00 297 297,000
-------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 10,154,806
-------------------------------------------------------------------------------
Total Investments (Identified Cost, $424,709,256) $424,872,764
-------------------------------------------------------------------------------
Put Options Written (0.1)%
-------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
DESCRIPTION/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
-------------------------------------------------------------------------------
Australian Dollars/May/.555 AUD 6,330 $ (383,842)
Australian Dollars/October/.500 9,598 (125,720)
-------------------------------------------------------------------------------
Total Put Options Written (Premiums Received,
$264,232) $ (509,562)
-------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.6)% (2,338,118)
-------------------------------------------------------------------------------
Net Assets - 100.0% $422,025,084
-------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
+ Restricted security.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. dollar. A list of abbreviations is shown
below.
AUD = Australian Dollars GBP = British Pounds
CAD = Canadian Dollars GRD = Greek Drachma
CHF = Swiss Francs JPY = Japanese Yen
DKK = Danish Kroner NZD = New Zealand Dollars
EUR = Euro
See notes to financial statements.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
NOVEMBER 30, 2000
------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $424,709,256) $ 424,872,764
Investment of cash collateral for securities loaned, (at
identified cost and value) 95,939,664
Cash 132,841
Net receivable for forward foreign currency exchange
contracts to sell 20,681
Receivable for investments sold 273,255
Interest receivable 4,755,676
-------------
Total assets $ 525,994,881
-------------
Liabilities:
Payable for investments purchased $ 5,440,269
Payable for fund shares reacquired 88,200
Collateral for securities loaned, at value 95,939,664
Payable to dividend disbursing agent 171,052
Net payable for forward foreign currency exchange
contracts to purchase 343,363
Net payable for forward foreign currency exchange
contracts subject to master netting agreements 1,018,910
Written options outstanding, at value (premium received,
$264,232) 509,562
Payable to affiliates -
Management fee 8,354
Transfer and dividend disbursing agent fee 13,645
Accrued expenses and other liabilities 436,778
-------------
Total liabilities $ 103,969,797
-------------
Net assets $ 422,025,084
=============
Net assets consist of:
Paid-in capital $ 470,997,613
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (1,437,333)
Accumulated net realized loss on investments and foreign
currency transactions (48,483,029)
Accumulated undistributed net investment income 947,833
-------------
Total $ 422,025,084
=============
Shares of beneficial interest outstanding (97,911,555
shares authorized, less 37,688,600 treasury shares) 60,222,955
==========
Net asset value per share (net assets / shares of
beneficial interest outstanding) $7.01
=====
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Operations
--------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 2000
--------------------------------------------------------------------------------
Net investment income:
Interest income $ 31,164,405
Dividends 6,297
------------
Total investment income $ 31,170,702
------------
Expenses -
Management fee $ 3,024,641
Trustees' compensation 149,010
Transfer and dividend disbursing agent fee 163,008
Administrative fee 60,555
Investor communication expense 225,016
Custodian fee 191,538
Postage 38,597
Auditing fees 41,000
Printing 32,972
Legal fees 4,580
Miscellaneous 115,629
------------
Total expenses $ 4,046,546
Fees paid indirectly (85,242)
------------
Net expenses $ 3,961,304
------------
Net investment income $ 27,209,398
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(12,672,185)
Written option transactions 1,002,029
Foreign currency transactions (2,724,875)
Swap transactions 48,986
------------
Net realized loss on investments and foreign
currency transactions $(14,346,045)
------------
Change in unrealized appreciation (depreciation) -
Investments $ 19,470,203
Written options (245,330)
Swap transactions 89,918
Translation of assets and liabilities in foreign currencies (1,375,297)
------------
Net unrealized gain on investments and foreign
currency translation $ 17,939,494
------------
Net realized and unrealized gain on investments
and foreign currency $ 3,593,449
------------
Increase in net assets from operations $ 30,802,847
============
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 2000 1999
------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 27,209,398 $ 28,799,982
Net realized loss on investments and foreign currency
transactions (14,346,045) (12,498,873)
Net unrealized gain (loss) on investments and foreign
currency translation 17,939,494 (26,844,564)
------------- -------------
Increase (decrease) in net assets from operations $ 30,802,847 $ (10,543,455)
------------- -------------
Distributions declared to shareholders -
From net investment income $ (18,111,821) $ (26,308,092)
From paid-in capital (12,251,962) (3,973,796)
------------- -------------
Total distributions declared to shareholders $ (30,363,783) $ (30,281,888)
------------- -------------
Cost of shares reacquired $ (25,591,692) $ (23,857,509)
------------- -------------
Total decrease in net assets $ (25,152,628) $ (64,682,852)
Net assets:
At beginning of year 447,177,712 511,860,564
------------- -------------
At end of year (including accumulated undistributed net
investment income and distribution in excess of net
investment income of $947,833 and $53,953, respectively) $ 422,025,084 $ 447,177,712
============= =============
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Financial Highlights
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 6.94 $ 7.50 $ 7.41 $ 7.56 $ 7.62
------- ------- ------- ------- -------
Income from investment operations# -
Net investment income $ 0.44 $ 0.43 $ 0.46 $ 0.49 $ 0.49
Net realized and unrealized gain (loss)
on investments and foreign currency 0.06 (0.58) 0.08 (0.14) (0.07)
------- ------- ------- ------- -------
Total from investment operations $ 0.50 $ (0.15) $ 0.54 $ 0.35 $ 0.42
------- ------- ------- ------- -------
Less distributions declared to
shareholders -
From net investment income $ (0.29) $ (0.40) $ (0.46) $ (0.49) $ (0.49)
In excess of net investment income -- -- $ (0.01) $ (0.03) $ (0.05)
From paid in capital (0.20) (0.06) -- -- --
------- ------- ------- ------- -------
Total distributions declared to
shareholders $ (0.49) $ (0.46) $ (0.47) $ (0.52) $ (0.54)
------- ------- ------- ------- -------
Net increase from repurchase of capital
shares $ 0.06 $ 0.05 $ 0.02 $ 0.02 $ 0.06
------- ------- ------- ------- -------
Net asset value - end of period $ 7.01 $ 6.94 $ 7.50 $ 7.41 $ 7.56
------- ------- ------- ------- -------
Per share market value - end of period $ 6.188 $ 5.813 $ 6.563 $ 6.688 $ 6.75
======= ======= ======= ======= =======
Total return 15.24% (4.80)% 4.21% 6.91% 12.61%
Ratios (to average net assets)/Supplemental data:
Expenses## 0.94% 0.92% 0.89% 0.94% 1.00%
Net investment income 6.35% 6.00% 6.14% 6.56% 6.63%
Portfolio turnover 151% 102% 253% 248% 249%
Net assets at end of period (000 Omitted) $422,025 $447,178 $511,861 $524,580 $554,496
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
(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 a
nondiversified, 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, forward contracts, and swap
agreements, 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. Options and options on futures
contracts listed on commodities exchanges are reported at market value using
closing settlement prices. Over- the-counter options on securities are valued by
brokers. Over-the-counter currency options are valued through the use of a
pricing model which takes into account foreign currency exchange spot and
forward rates, implied volatility, and short-term repurchase rates. Securities
for which there are no such quotations or valuations are valued in good faith,
at fair value, by the Trustees.
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.
Written Options - The trust may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the option contract. When a written option
expires, the trust realizes a gain equal to the amount of the premium received.
When a written call option is exercised or closed, the premium received is
offset against the proceeds to determine the realized gain or loss. When a
written put option is exercised, the premium reduces the cost basis of the
security purchased by the trust. The trust, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as part of an income producing strategy reflecting the view of the
trust's management on the direction of interest rates.
Security Loans - State Street Bank and Trust Company ("State Street") and Chase
Manhattan Bank ("Chase"), as lending agents, 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 or U.S. Treasury securities in
an amount at least equal to the market value of the securities loaned. State
Street provides the trust with indemnification against Borrower default. The
trust bears the risk of loss with respect to the investment of cash collateral.
Cash collateral is invested in short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the trust and the lending agents. On loans
collateralized by U.S. Treasury securities, a fee is received from the Borrower,
and is allocated between the trust and the lending agent. Income from securities
lending is included in interest income on the Statement of Operations. The
dividend and interest income earned on the securities loaned is accounted for in
the same manner as other dividend and interest income.
At November 30, 2000, the value of securities loaned was $94,030,366. These
loans were collateralized by cash of $95,939,664 which was invested in the
following short-term obligations:
AMORTIZED
PRINCIPAL COST AND
AMOUNT VALUE
-------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio $95,939,664 $95,939,664
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 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.
Swap Agreements - The trust may enter into swap agreements. A swap is an
exchange of cash payments between the trust and another party which is based on
a specific financial index. Cash payments are exchanged at specified intervals
and the expected income or expense is recorded on the accrual basis. The value
of the swap is adjusted daily and the change in value is recorded as unrealized
appreciation or depreciation. Risks may arise upon entering into these
agreements from the potential inability of counterparties to meet the terms of
their contract and from unanticipated changes in the value of the financial
index on which the swap agreement is based. The trust uses swaps for both
hedging and non-hedging purposes. For hedging purposes, the trust may use swaps
to reduce its exposure to interest and foreign exchange rate fluctuations. For
non-hedging purposes, the trust may use swaps to take a position on anticipated
changes in the underlying financial index.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations.
The trust will adopt the provisions of the AICPA Audit and Accounting Guide for
Investment Companies, as revised, effective for fiscal years beginning after
December 15, 2000. As required, the trust will begin amortizing premiums on debt
securities effective December 1, 2001. Prior to this date, the trust did not
amortize premiums on debt securities. The cumulative effect of this accounting
change will have no impact on the total net assets of the trust. The impact of
this accounting change has not been determined but will result in a decrease to
cost of securities and a corresponding increase in net unrealized appreciation.
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. During
the year ended November 30, 2000, $8,095,791 was reclassified from accumulated
undistributed net investment income to accumulated undistributed net realized
gain on investments and foreign currency transactions due to differences between
book and tax accounting for mortgage-backed securities and foreign currency
transactions. This change had no effect on the net assets or net asset value per
share. In addition, $12,251,962 was redesignated as a tax return of capital
distribution. At November 30, 2000, accumulated undistributed net investment
income and accumulated net realized loss on investments and foreign currency
transactions under book accounting were different from tax accounting due to
temporary differences in accounting for capital losses and foreign currency
transactions.
At November 30, 2000, the trust, for federal income tax purposes, had a capital
loss carryforward of $48,087,867 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on:
November 30, 2002 $21,490,437
November 30, 2004 196,662
November 30, 2005 8,818,381
November 30, 2007 11,594,208
November 30, 2008 5,988,179
(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 the lesser of 0.32% per
annum of the trust's average daily net assets and 5.33% of investment income, or
0.85% per annum of average daily net assets. The effective rate for the year
ended November 30, 2000, was 0.71%.
The trust pays no compensation directly to its trustees who are officers of the
investment adviser, or to officers of the trust, all of whom receive
remuneration for their services to the trust from MFS. Certain officers and
trustees of the trust are officers or directors of MFS, and MFS Service Center,
Inc. (MFSC). The trust has an unfunded defined benefit plan for all of its
independent trustees. Included in trustees' compensation is a net periodic
pension expense of $45,305 for the year ended November 30, 2000.
Administrator - The trust has an administrative services agreement with MFS to
provide the trust with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the trust incurs 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 $535,399,231 $509,787,403
------------ ------------
Investments (non-U.S. government securities) $ 80,246,885 $112,998,946
------------ ------------
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 $425,104,419
------------
Gross unrealized appreciation $ 7,922,790
Gross unrealized depreciation (8,154,445)
------------
Net unrealized depreciation $ (231,655)
============
(5) Shares of Beneficial Interest
The trustees have authorized 97,911,555 full and fractional shares of beneficial
interest. Transactions in trust shares were as follows:
YEAR ENDED NOVEMBER 30, 2000 YEAR ENDED NOVEMBER 30, 2000
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------
Treasury shares acquired (4,231,200) $(25,591,692) (3,808,400) $(23,857,509)
---------- ------------ ---------- ------------
In accordance with the provisions of the trust's prospectus 4,231,200 shares of
beneficial interest were purchased by the trust during the year ended November
30, 2000, at an average price of $6.05 and a weighted average discount of 12.26%
per share. The trust reacquired 3,808,400 shares of beneficial interest during
the year ended November 30, 1999, at an average price per share of $6.26 and a
weighted discount of 12.50% per share.
(6) Line of Credit
The trust and other affiliated funds participate in a $1.1 billion 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 year
ended November 30, 2000, was $2,945. The trust had no significant borrowings
during the year.
(7) Financial Instruments
The trust trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include written options, forward foreign currency exchange
contracts, swap agreements, and futures contracts. The notional or contractual
amounts of these instruments represent the investment the trust has in
particular classes of financial instruments and does not necessarily represent
the amounts potentially subject to risk. The measurement of the risks associated
with these instruments is meaningful only when all related and offsetting
transactions are considered.
Written Option Transactions
NUMBER OF
CONTRACTS PREMIUMS
------------------------------------------------------------------------------
Outstanding, beginning of period -- $ --
Options written 13 1,734,932
Options terminated in closing transactions (1) (184,286)
Options expired (10) (1,286,414)
--- -----------
Outstanding, end of period 2 $ 264,232
=== ===========
At November 30, 2000, the trust had sufficient cash and/or securities at least
equal to the value of the written options.
Forward Foreign Currency Exchange Contracts
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
----------------------------------------------------------------------------------------------------------
Sales 12/15/00 AUD 10,602,277 $ 5,510,546 $ 5,579,821 $ (69,275)
12/15/00 CHF 8,093,574 4,594,184 4,666,424 (72,240)
12/15/00 DKK 45,210,638 5,356,264 5,275,632 80,632
12/15/00 EUR 21,306,806 18,297,466 18,535,869 (238,403)
12/15/00 GRD 2,070,049,080 5,326,255 5,286,811 39,444
12/15/00 JPY 1,049,811,670 9,763,283 9,482,760 280,523
----------- ----------- ----------
$48,847,998 $48,827,317 $ 20,681
=========== =========== ==========
Purchases 12/15/00 AUD 17,944,973 $ 9,802,523 $ 9,444,173 $ (358,350)
12/15/00 EUR 14,399,394 12,511,775 12,526,762 14,987
----------- ----------- ----------
$22,314,298 $21,970,935 $ (343,363)
=========== =========== ==========
At November 30, 2000, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net payable of $577,552 with
Union Bank of Switzerland, $455,057 with Deutsche Bank and $41,067 with First
Boston and a net receivable of $54,766 with Merrill Lynch.
At November 30, 2000, the trust had sufficient cash and/or securities to cover
any commitment under these contracts.
(8) Restricted Securities
The trust may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At November 30, 2000,
the trust owned the following restricted securities, excluding securities issued
under Rule 144A, constituting 0.50% of net assets which may not be publicly sold
without registration under the Securities Act of 1933. The trust does not have
the right to demand that such securities be registered. The value of these
securities is determined by valuations furnished by dealers or by a pricing
service, or if not available, in good faith, at fair value, by the Trustees.
DATE OF PRINCIPAL AMOUNT
DESCRIPTION ACQUISITION (000 OMITTED) COST VALUE
---------------------------------------------------------------------------------------------------------------------
Federal Housing Administration, 10.375s, 2030 8/16/1993 $2,138 $2,299,247 $2,137,592
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of MFS Government Markets Income Trust:
We have audited the accompanying statement of assets and liabilities of MFS
Government Markets Income Trust, including the portfolio of investments, as of
November 30, 2000, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 2000, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Government Markets Income Trust as of November 30, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 4, 2001
--------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
--------------------------------------------------------------------------------
IN JANUARY 2001, SHAREHOLDERS WILL BE MAILED A FORM 1099-DIV REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR 2000.
MFS(R) GOVERNMENT MARKETS INCOME TRUST
TRUSTEES PORTFOLIO MANAGERS
Stephen C. Bryant*
Steven E. Nothern*
Marshall N. Cohan+(1) - Private
Investor TREASURER
James O. Yost*
Lawrence H. Cohn, M.D.+(2) - Chief
of Cardiac Surgery, Brigham and ASSISTANT TREASURERS
Women's Hospital; Professor of Mark E. Bradley*
Surgery, Harvard Medical School Robert R. Flaherty*
Laura F. Healy*
The Hon. Sir J. David Gibbons, Ellen Moynihan*
KBE+(2) - Chief Executive Officer,
Edmund Gibbons Ltd.; Chairman, SECRETARY
Colonial Insurance Stephen E. Cavan*
Company, Ltd.
ASSISTANT SECRETARY
Abby M. O'Neill+(2) - Private James R. Bordewick, Jr.*
Investor
TRANSFER AGENT,
Walter E. Robb, III+(1) - President REGISTRAR, AND DIVIDEND
and Treasurer, Benchmark Advisors, DISBURSING AGENT
Inc. (corporate financial State Street Bank and Trust
consultants); President, Benchmark Company
Consulting Group, Inc. c/o MFS Service Center, Inc.
(office services) P.O. Box 9024
Boston, MA 02205-9824
Arnold D. Scott* - Senior Executive 1-800-637-2304
Vice President, Director, and
Secretary, CUSTODIAN
MFS Investment Management State Street Bank and Trust
Company
Jeffrey L. Shames* - Chairman and
Chief Executive Officer, AUDITORS
MFS Investment Management Deloitte & Touche LLP
J. Dale Sherratt+(1) - President,
Insight Resources, Inc. (acquisition
planning specialists)
Ward Smith+(1) - Former Chairman
(until 1994), NACCO Industries
(holding company)
INVESTMENT ADVISER
Massachusetts Financial Services
Company
500 Boylston Street
Boston, MA 02116-3741
+ Independent Trustee
* MFS Investment Management
(1) Member of Audit Committee
(2) Member of Portfolio Trading Committee
MFS(R) GOVERNMENT MARKETS ------------
INCOME TRUST BULK RATE
U.S. POSTAGE
[Logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)2001 MFS Investment Management.(R)
500 Boylston Street, Boston, MA 02116
MGFCE-2 1/01 42M