SEC Form N-CSRS filed by MFS Government Markets Income Trust
$MGF
Trusts Except Educational Religious and Charitable
Finance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05078
MFS GOVERNMENT MARKETS INCOME TRUST
(Exact name of registrant as specified in charter)
111 Huntington Avenue, Boston, Massachusetts 02199 (Address of principal executive offices) (Zip code)
Christopher R. Bohane
Massachusetts Financial Services Company
111Huntington Avenue Boston, Massachusetts 02199
(Name and address of agents for service)
Registrant’s telephone number, including area code: (617) 954-5000
Date of fiscal year end: November 30
Date of reporting period: May 31, 2024
ITEM 1. REPORTS TO STOCKHOLDERS.
Item 1(a):
Semiannual Report
May 31, 2024
MFS® Government Markets Income Trust
MGF-SEM
MANAGED DISTRIBUTION POLICY
DISCLOSURE
The MFS Government Markets Income
Trust’s (the fund) Board of Trustees adopted a managed distribution policy. The fund seeks to pay monthly distributions based on an annual rate of 7.25% of the fund’s average monthly net asset value. The
primary purpose of the managed distribution policy is to provide shareholders with a constant, but not guaranteed, fixed rate of distribution each month. You should not draw any conclusions about the fund’s
investment performance from the amount of the current distribution or from the terms of the fund’s managed distribution policy. The Board may amend or terminate the managed distribution policy at any time
without prior notice to fund shareholders. The amendment or termination of the managed distribution policy could have an adverse effect on the market price of the fund’s shares.
With each distribution, the fund
will issue a notice to shareholders and an accompanying press release which will provide detailed information regarding the amount and composition of the distribution and other related information. The amounts and
sources of distributions reported in the notice to shareholders are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will
depend upon the fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The fund will send you a Form 1099-DIV for the calendar year that will
tell you how to report these distributions for federal income tax purposes. Please refer to “Tax Matters and Distributions” under Note 2 of the Notes to Financial Statements for information regarding the
tax character of the fund’s distributions.
Under a managed distribution policy
the fund may at times distribute more than its net investment income and net realized capital gains; therefore, a portion of your distribution may result in a return of capital. A return of capital may occur, for
example, when some or all of the money that you invested in the fund is paid back to you. Any such returns of capital will decrease the fund’s total assets and, therefore, could have the effect of increasing the
fund’s expense ratio. In addition, in order to make the level of distributions called for under its managed distribution policy, the fund may have to sell portfolio securities at a less than opportune time. A
return of capital does not necessarily reflect the fund’s investment performance and should not be confused with ‘yield’ or ‘income’. The fund’s total return in relation to changes
in net asset value is presented in the Financial Highlights.
MFS® Government Markets Income Trust
New York Stock Exchange Symbol: MGF
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| back cover |
NOT FDIC INSURED
• MAY LOSE VALUE • NO BANK GUARANTEE
Portfolio Composition - continued
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. |
Not Rated includes fixed income
securities and fixed income derivatives that have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies.
| (d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. The Average Duration calculation reflects the impact of the equivalent exposure of derivative positions, if any. |
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening feature (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
| (q) | For purposes of this presentation, Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative. |
| (v) | For purposes of this presentation, market value of fixed income and/or equity derivatives, if any, is included in Cash & Cash Equivalents. |
Where the fund holds convertible
bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes
any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash
position and other assets and liabilities.
From time to time Cash & Cash
Equivalents may be negative due to the timing of cash receipts and disbursements.
Percentages are based on net assets
as of May 31, 2024.
The portfolio is actively managed
and current holdings may be different.
2
Portfolio Managers' Profiles
| Portfolio Manager | Primary Role | Since | Title and Five Year History |
| Geoffrey Schechter | Lead and U.S. Government Securities Portfolio Manager | 2006 | Investment Officer of MFS; employed in the investment management area of MFS since 1993. |
| Neeraj Arora | Emerging Markets Debt Instruments Portfolio Manager | 2021 | Investment Officer of MFS; employed in the investment management area of MFS since 2011. |
| Alexander Mackey | Investment Grade Debt Instruments Portfolio Manager | 2021 | Co-Chief Investment Officer-Global Fixed Income of MFS; employed in the investment management area of MFS since 2001. |
| Jake Stone | U.S. Government Securities Portfolio Manager | 2023 | Investment Officer of MFS; employed in the investment management area of MFS since 2018. |
Effective September 30, 2025,
Geoffrey Schechter will no longer be a Portfolio Manager of the fund.
Other Notes
The fund’s shares may trade at
a discount or premium to net asset value. When fund shares trade at a premium, buyers pay more than the net asset value of the underlying fund shares, and shares purchased at a premium would receive less than the
amount paid for them in the event of the fund’s concurrent liquidation.
The fund's target annual
distribution rate is calculated based on an annual rate of 7.25% of the fund's average monthly net asset value, not a fixed share price, and the fund's dividend amount will fluctuate with changes in the fund's average
monthly net assets.
In accordance with Section 23(c)
of the Investment Company Act of 1940, the fund hereby gives notice that it may from time to time repurchase shares of the fund in the open market at the option of the Board of Trustees and on such terms as the
Trustees shall determine.
3
Portfolio of Investments
5/31/24 (unaudited)
The Portfolio of Investments is a
complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | Shares/Par | Value ($) | ||
| Bonds – 103.3% | ||||
| U.S. Bonds – 97.8% | ||||
| Asset-Backed & Securitized – 6.4% | ||||
| 3650R Commercial Mortgage Trust, 2021-PF1, “XA”, 1.013%, 11/15/2054 (i) | $ | 1,162,442 | $53,013 | |
| ACREC 2021-FL1 Ltd., “AS”, FLR, 6.935% ((SOFR - 1mo. + 0.11448%) + 1.5%), 10/16/2036 (n) | 323,500 | 320,820 | ||
| Arbor Realty Trust, Inc., CLO, 2021-FL1, “B”, FLR, 6.931% ((SOFR - 1mo. + 0.11448%) + 1.5%), 12/15/2035 (n) | 175,500 | 171,593 | ||
| Arbor Realty Trust, Inc., CLO, 2021-FL3, “AS”, FLR, 6.831% ((SOFR - 1mo. + 0.11448%) + 1.4%), 8/15/2034 (n) | 374,500 | 367,789 | ||
| AREIT 2022-CRE6 Trust, “AS”, FLR, 6.973% (SOFR - 30 day + 1.65%), 1/20/2037 (n) | 512,000 | 504,172 | ||
| ARI Fleet Lease Trust, 2023-B, “A2”, 6.05%, 7/15/2032 (n) | 100,000 | 100,329 | ||
| BBCMS Mortgage Trust, 2021-C10, “XA”, 1.402%, 7/15/2054 (i) | 1,166,335 | 72,705 | ||
| BBCMS Mortgage Trust, 2021-C9, “XA”, 1.601%, 2/15/2054 (i) | 974,208 | 75,880 | ||
| BBCMS Mortgage Trust, 2022-C18, “XA”, 0.462%, 12/15/2055 (i) | 1,229,532 | 44,070 | ||
| Benchmark 2021-B23 Mortgage Trust, “XA”, 1.264%, 2/15/2054 (i) | 1,965,773 | 111,811 | ||
| Benchmark 2021-B24 Mortgage Trust, “XA”, 1.144%, 3/15/2054 (i) | 1,166,989 | 58,723 | ||
| Benchmark 2021-B26 Mortgage Trust, “XA”, 0.996%, 6/15/2054 (i) | 1,594,916 | 65,951 | ||
| Benchmark 2021-B27 Mortgage Trust, “XA”, 1.257%, 7/15/2054 (i) | 1,447,320 | 82,878 | ||
| Benchmark 2021-B28 Mortgage Trust, “XA”, 1.268%, 8/15/2054 (i) | 2,187,933 | 135,638 | ||
| Benchmark 2021-B29 Mortgage Trust, “XA”, 1.028%, 9/15/2054 (i) | 1,877,685 | 88,296 | ||
| BSPDF 2021-FL1 Issuer Ltd., “A”, FLR, 6.631% ((SOFR - 1mo. + 0.11448%) + 1.2%), 10/15/2036 (n) | 144,818 | 142,952 | ||
| BSPDF 2021-FL1 Issuer Ltd., “AS”, FLR, 6.911% ((SOFR - 1mo. + 0.11448%) + 1.48%), 10/15/2036 (n) | 253,500 | 245,577 | ||
| Business Jet Securities LLC, 2024-1A, “A”, 6.197%, 5/15/2039 (n) | 97,917 | 98,327 | ||
| BXMT 2021-FL4 Ltd., “AS”, FLR, 6.735% ((SOFR - 1mo. + 0.11448%) + 1.3%), 5/15/2038 (n) | 345,000 | 317,879 | ||
| Capital Automotive, 2020-1A, “A4”, REIT, 3.19%, 2/15/2050 (n) | 98,521 | 95,892 | ||
| Chesapeake Funding II LLC, 2023-2A, “A2”, FLR, 6.423% (SOFR - 30 day + 1.1%), 10/15/2035 (n) | 305,135 | 306,581 | ||
| Citigroup Commercial Mortgage Trust, 2019-XA, “C7”, 0.981%, 12/15/2072 (i)(n) | 1,409,796 | 51,335 | ||
| Commercial Mortgage Pass-Through Certificates, 2021-BN31, “XA”, 1.294%, 2/15/2054 (i) | 1,492,470 | 95,444 | ||
| Commercial Mortgage Pass-Through Certificates, 2021-BN32, “XA”, 0.771%, 4/15/2054 (i) | 992,582 | 36,085 | ||
| Commercial Mortgage Pass-Through Certificates, 2021-BN35, “XA”, 1.143%, 6/15/2064 (i) | 987,161 | 50,455 | ||
| Dell Equipment Finance Trust, 2023-1, “A2”, 5.65%, 9/22/2028 (n) | 115,546 | 115,531 | ||
4
Portfolio of Investments (unaudited)
– continued
| Issuer | Shares/Par | Value ($) | ||
| Bonds – continued | ||||
| U.S. Bonds – continued | ||||
| Asset-Backed & Securitized – continued | ||||
| Dell Equipment Finance Trust, 2023-3, “A2”, 6.1%, 4/23/2029 (n) | $ | 99,828 | $99,968 | |
| GLS Auto Select Receivables Trust, 2023-2A, 6.37%, 6/15/2028 (n) | 100,800 | 101,351 | ||
| LAD Auto Receivables Trust, 2022-1A, “A”, 5.21%, 6/15/2027 (n) | 45,783 | 45,650 | ||
| LoanCore 2021-CRE5 Ltd., “AS”, FLR, 7.181% ((SOFR - 1mo. + 0.11448%) + 1.75%), 7/15/2036 (n) | 283,500 | 282,109 | ||
| LoanCore 2021-CRE6 Ltd., “AS”, FLR, 7.081% ((SOFR - 1mo. + 0.11448%) + 1.65%), 11/15/2038 (n) | 500,000 | 491,629 | ||
| MF1 2021-FL5 Ltd., “AS”, FLR, 6.634% ((SOFR - 1mo. + 0.11448%) + 1.2%), 7/15/2036 (n) | 173,500 | 172,413 | ||
| MF1 2021-FL5 Ltd., “B”, FLR, 6.884% ((SOFR - 1mo. + 0.11448%) + 1.45%), 7/15/2036 (n) | 279,500 | 277,112 | ||
| Morgan Stanley Capital I Trust, 2018-H4, “XA”, 0.974%, 12/15/2051 (i) | 1,495,593 | 45,422 | ||
| Morgan Stanley Capital I Trust, 2021-L5, “XA”, 1.287%, 5/15/2054 (i) | 733,723 | 42,511 | ||
| Morgan Stanley Capital I Trust, 2021-L6, “XA”, 1.317%, 6/15/2054 (i) | 1,125,875 | 58,749 | ||
| Morgan Stanley Capital I Trust, 2021-L7, “XA”, 1.09%, 10/15/2054 (i) | 3,343,901 | 169,100 | ||
| Navistar Financial Dealer Note Master Owner Trust, 2023-1, “A”, 6.18%, 8/25/2028 (n) | 121,000 | 121,702 | ||
| Navistar Financial Dealer Note Master Owner Trust, 2023-1, “B”, 6.48%, 8/25/2028 (n) | 50,000 | 49,990 | ||
| OBX Trust, 2024-NQM1, “A1”, 5.928%, 11/25/2063 (n) | 109,848 | 109,217 | ||
| OBX Trust, 2024-NQM1, “A2”, 6.253%, 11/25/2063 (n) | 95,288 | 94,701 | ||
| PFS Financing Corp., 2023-C, “B”, 5.91%, 10/15/2028 (n) | 63,000 | 63,049 | ||
| ReadyCap Commercial Mortgage Trust, 2021-FL7, “A”, FLR, 6.639% ((SOFR - 1mo. + 0.11448%) + 1.2%), 11/25/2036 | 146,057 | 144,984 | ||
| Santander Drive Auto Receivables Trust, 2024-1, “A2”, 5.71%, 2/16/2027 | 80,226 | 80,228 | ||
| Verus Securitization Trust, 2014-1, “A1”, 5.712%, 1/25/2069 (n) | 226,919 | 224,983 | ||
| Verus Securitization Trust, 2024-1, “A2”, 5.915%, 1/25/2069 (n) | 95,634 | 94,847 | ||
| Verus Securitization Trust, 2024-4, “A1”, 6.218%, 6/25/2069 (n) | 114,530 | 114,360 | ||
| Wells Fargo Commercial Mortgage Trust, 2018-C48, “XA”, 0.934%, 1/15/2052 (i)(n) | 852,011 | 28,403 | ||
| $6,722,204 | ||||
| Broadcasting – 0.9% | ||||
| Discovery Communications LLC, 4.65%, 5/15/2050 | $ | 229,000 | $169,804 | |
| Walt Disney Co., 3.5%, 5/13/2040 | 612,000 | 486,177 | ||
| WarnerMedia Holdings, Inc., 4.279%, 3/15/2032 | 379,000 | 331,704 | ||
| $987,685 | ||||
5
Portfolio of Investments (unaudited)
– continued
| Issuer | Shares/Par | Value ($) | ||
| Bonds – continued | ||||
| U.S. Bonds – continued | ||||
| Cable TV – 0.1% | ||||
| Charter Communications Operating LLC/Charter Communications Operating Capital Corp., 4.908%, 7/23/2025 | $ | 56,000 | $55,429 | |
| Time Warner Cable, Inc., 4.5%, 9/15/2042 | 100,000 | 73,523 | ||
| $128,952 | ||||
| Consumer Products – 0.2% | ||||
| Haleon US Capital LLC, 3.625%, 3/24/2032 | $ | 250,000 | $223,062 | |
| Consumer Services – 0.1% | ||||
| Conservation Fund, 3.474%, 12/15/2029 | $ | 159,000 | $142,449 | |
| Electronics – 0.6% | ||||
| Broadcom, Inc., 3.187%, 11/15/2036 (n) | $ | 750,000 | $588,665 | |
| Food & Beverages – 0.4% | ||||
| JBS USA Lux S.A./JBS USA Food Co./JBS USA Finance, Inc., 3%, 2/02/2029 | $ | 488,000 | $431,481 | |
| Tyson Foods, Inc., 5.15%, 8/15/2044 | 38,000 | 33,520 | ||
| $465,001 | ||||
| Industrial – 0.0% | ||||
| Howard University, Washington D.C., AGM, 2.516%, 10/01/2025 | $ | 42,000 | $40,202 | |
| Insurance – 0.4% | ||||
| Corebridge Financial, Inc., 3.85%, 4/05/2029 | $ | 500,000 | $466,148 | |
| Insurance - Health – 0.2% | ||||
| Humana, Inc., 3.7%, 3/23/2029 | $ | 167,000 | $155,714 | |
| Insurance - Property & Casualty – 0.1% | ||||
| Liberty Mutual Group, Inc., 3.951%, 10/15/2050 (n) | $ | 99,000 | $72,042 | |
| Major Banks – 1.8% | ||||
| Bank of America Corp., 2.687% to 4/22/2031, FLR (SOFR - 1 day + 1.32%) to 4/22/2032 | $ | 750,000 | $630,325 | |
| JPMorgan Chase & Co., 2.58% to 4/22/2031, FLR (SOFR - 1 day + 1.25%) to 4/22/2032 | 750,000 | 629,535 | ||
| Morgan Stanley, 3.622% to 4/01/2030, FLR (SOFR - 1 day + 3.12%) to 4/01/2031 | 588,000 | 536,724 | ||
| State Street Corp., 3.152% to 3/30/2030, FLR (SOFR + 2.65%) to 3/30/2031 | 138,000 | 123,997 | ||
| $1,920,581 | ||||
6
Portfolio of Investments (unaudited)
– continued
| Issuer | Shares/Par | Value ($) | ||
| Bonds – continued | ||||
| U.S. Bonds – continued | ||||
| Medical & Health Technology & Services – 0.9% | ||||
| Becton, Dickinson and Co., 4.685%, 12/15/2044 | $ | 123,000 | $108,473 | |
| Laboratory Corp. of America Holdings, 4.7%, 2/01/2045 | 106,000 | 93,179 | ||
| Montefiore Obligated Group, AGM, 5.246%, 11/01/2048 | 614,000 | 566,737 | ||
| ProMedica Toledo Hospital, “B”, AGM, 5.75%, 11/15/2038 | 175,000 | 172,685 | ||
| $941,074 | ||||
| Midstream – 0.1% | ||||
| Targa Resources Corp., 4.95%, 4/15/2052 | $ | 109,000 | $92,706 | |
| Mortgage-Backed – 44.7% | ||||
| Fannie Mae, 3%, 11/01/2028 - 5/25/2053 | $ | 2,453,856 | $2,259,080 | |
| Fannie Mae, 3.5%, 1/25/2030 - 6/25/2048 | 1,466,696 | 1,335,651 | ||
| Fannie Mae, 6.5%, 5/01/2031 - 1/01/2037 | 139,376 | 142,629 | ||
| Fannie Mae, 2.5%, 11/01/2031 - 10/01/2046 | 196,800 | 175,334 | ||
| Fannie Mae, 3.5%, 12/25/2031 - 2/25/2036 (i) | 56,231 | 4,662 | ||
| Fannie Mae, 2%, 1/25/2033 - 4/25/2046 | 119,880 | 108,637 | ||
| Fannie Mae, 3%, 2/25/2033 (i) | 88,222 | 7,029 | ||
| Fannie Mae, 5.5%, 10/01/2033 - 3/01/2038 | 816,559 | 819,463 | ||
| Fannie Mae, 6%, 8/01/2034 - 7/01/2037 | 226,696 | 230,703 | ||
| Fannie Mae, 5%, 6/01/2035 - 3/25/2042 | 252,712 | 249,145 | ||
| Fannie Mae, 4%, 9/01/2040 - 7/01/2047 | 1,779,986 | 1,662,740 | ||
| Fannie Mae, 4.5%, 2/01/2041 - 11/01/2042 | 330,281 | 318,735 | ||
| Fannie Mae, 2.25%, 4/25/2041 | 67,972 | 62,698 | ||
| Fannie Mae, 1.75%, 9/25/2041 - 10/25/2041 | 243,274 | 223,505 | ||
| Fannie Mae, 2.75%, 9/25/2042 | 72,275 | 67,274 | ||
| Fannie Mae, 5.688%, 2/25/2043 | 29,203 | 28,956 | ||
| Fannie Mae, 5.738%, 12/25/2045 | 29,820 | 28,655 | ||
| Fannie Mae, UMBS, 2.5%, 7/01/2037 - 7/01/2052 | 4,347,194 | 3,570,048 | ||
| Fannie Mae, UMBS, 2%, 2/01/2042 - 3/01/2052 | 2,054,929 | 1,643,862 | ||
| Fannie Mae, UMBS, 1.5%, 3/01/2051 | 118,061 | 87,044 | ||
| Fannie Mae, UMBS, 3%, 6/01/2051 - 6/01/2052 | 959,114 | 813,277 | ||
| Fannie Mae, UMBS, 4%, 8/01/2051 | 96,065 | 88,250 | ||
| Fannie Mae, UMBS, 4.5%, 9/01/2052 | 83,907 | 79,309 | ||
| Fannie Mae, UMBS, 5.5%, 11/01/2052 | 313,378 | 309,215 | ||
| Fannie Mae, UMBS, 6%, 12/01/2052 - 12/01/2053 | 658,983 | 662,211 | ||
| Fannie Mae, UMBS, 6.5%, 4/01/2054 | 99,016 | 100,644 | ||
| Freddie Mac, 0.615%, 7/25/2024 (i) | 2,268,152 | 75 | ||
| Freddie Mac, 3.064%, 8/25/2024 | 378,254 | 375,736 | ||
| Freddie Mac, 4.5%, 9/01/2024 - 5/01/2042 | 350,711 | 339,958 | ||
| Freddie Mac, 2.67%, 12/25/2024 | 827,000 | 815,174 | ||
| Freddie Mac, 0.069%, 5/25/2025 (i) | 21,790,570 | 20,914 | ||
| Freddie Mac, 3.208%, 2/25/2026 | 170,404 | 165,223 | ||
7
Portfolio of Investments (unaudited)
– continued
| Issuer | Shares/Par | Value ($) | ||
| Bonds – continued | ||||
| U.S. Bonds – continued | ||||
| Mortgage-Backed – continued | ||||
| Freddie Mac, 2.57%, 7/25/2026 | $ | 750,000 | $713,739 | |
| Freddie Mac, 3.12%, 9/25/2026 | 200,000 | 191,425 | ||
| Freddie Mac, 2.525%, 10/25/2026 | 97,187 | 91,770 | ||
| Freddie Mac, 2.797%, 12/25/2026 | 106,910 | 103,119 | ||
| Freddie Mac, 3.413%, 12/25/2026 | 300,000 | 288,048 | ||
| Freddie Mac, 1.366%, 3/25/2027 (i) | 391,000 | 13,202 | ||
| Freddie Mac, 5.682%, 3/25/2027 | 121,152 | 120,234 | ||
| Freddie Mac, 3.243%, 4/25/2027 | 390,961 | 372,328 | ||
| Freddie Mac, 3.117%, 6/25/2027 | 400,000 | 379,147 | ||
| Freddie Mac, 0.567%, 7/25/2027 (i) | 8,200,880 | 122,751 | ||
| Freddie Mac, 0.416%, 8/25/2027 (i) | 6,334,440 | 75,016 | ||
| Freddie Mac, 0.294%, 1/25/2028 (i) | 11,314,209 | 113,575 | ||
| Freddie Mac, 0.304%, 1/25/2028 (i) | 4,740,464 | 48,214 | ||
| Freddie Mac, 0.13%, 2/25/2028 (i) | 13,543,712 | 68,722 | ||
| Freddie Mac, 0.117%, 4/25/2028 (i) | 8,857,907 | 44,898 | ||
| Freddie Mac, 3%, 6/15/2028 - 2/25/2059 | 1,899,775 | 1,705,180 | ||
| Freddie Mac, 3.5%, 6/15/2028 - 10/25/2058 | 1,937,274 | 1,770,332 | ||
| Freddie Mac, 4.86%, 10/25/2028 | 52,609 | 52,339 | ||
| Freddie Mac, 5.807%, 3/25/2029 | 263,339 | 264,210 | ||
| Freddie Mac, 1.09%, 7/25/2029 (i) | 1,251,827 | 57,012 | ||
| Freddie Mac, 1.141%, 8/25/2029 (i) | 2,529,992 | 121,659 | ||
| Freddie Mac, 5.811%, 12/25/2029 | 137,500 | 137,076 | ||
| Freddie Mac, 1.59%, 1/25/2030 (i) | 254,089 | 18,314 | ||
| Freddie Mac, 1.798%, 4/25/2030 (i) | 600,527 | 53,285 | ||
| Freddie Mac, 1.868%, 4/25/2030 (i) | 1,277,474 | 117,045 | ||
| Freddie Mac, 1.666%, 5/25/2030 (i) | 612,877 | 51,802 | ||
| Freddie Mac, 1.797%, 5/25/2030 (i) | 1,389,954 | 124,818 | ||
| Freddie Mac, 1.115%, 6/25/2030 (i) | 886,499 | 47,976 | ||
| Freddie Mac, 1.341%, 6/25/2030 (i) | 559,633 | 38,042 | ||
| Freddie Mac, 5.707%, 6/25/2030 | 105,100 | 105,045 | ||
| Freddie Mac, 5.747%, 6/25/2030 | 77,175 | 76,905 | ||
| Freddie Mac, 1.599%, 8/25/2030 (i) | 633,757 | 52,202 | ||
| Freddie Mac, 1.169%, 9/25/2030 (i) | 314,905 | 19,245 | ||
| Freddie Mac, 1.081%, 11/25/2030 (i) | 789,331 | 45,685 | ||
| Freddie Mac, 5.878%, 11/25/2030 | 261,301 | 261,300 | ||
| Freddie Mac, 0.326%, 1/25/2031 (i) | 2,852,650 | 46,997 | ||
| Freddie Mac, 0.78%, 1/25/2031 (i) | 873,865 | 38,010 | ||
| Freddie Mac, 0.935%, 1/25/2031 (i) | 663,744 | 33,933 | ||
| Freddie Mac, 0.514%, 3/25/2031 (i) | 2,264,917 | 61,276 | ||
| Freddie Mac, 0.732%, 3/25/2031 (i) | 973,113 | 40,572 | ||
| Freddie Mac, 1.216%, 5/25/2031 (i) | 399,402 | 27,508 | ||
| Freddie Mac, 0.938%, 7/25/2031 (i) | 489,989 | 27,447 | ||
8
Portfolio of Investments (unaudited)
– continued
| Issuer | Shares/Par | Value ($) | ||
| Bonds – continued | ||||
| U.S. Bonds – continued | ||||
| Mortgage-Backed – continued | ||||
| Freddie Mac, 1.215%, 7/25/2031 (i) | $ | 984,709 | $70,016 | |
| Freddie Mac, 0.536%, 9/25/2031 (i) | 2,619,786 | 83,312 | ||
| Freddie Mac, 0.856%, 9/25/2031 (i) | 2,591,485 | 128,546 | ||
| Freddie Mac, 0.349%, 11/25/2031 (i) | 3,899,181 | 86,483 | ||
| Freddie Mac, 0.497%, 12/25/2031 (i) | 3,898,081 | 119,182 | ||
| Freddie Mac, 0.568%, 12/25/2031 (i) | 644,718 | 22,135 | ||
| Freddie Mac, 0.154%, 11/25/2032 (i) | 3,670,222 | 52,244 | ||
| Freddie Mac, 0.128%, 8/25/2033 (i) | 2,899,969 | 39,636 | ||
| Freddie Mac, 0.176%, 10/25/2033 (i) | 2,363,261 | 42,644 | ||
| Freddie Mac, 5.638%, 4/15/2035 | 8,150 | 8,063 | ||
| Freddie Mac, 6%, 5/01/2035 - 10/01/2038 | 201,745 | 205,864 | ||
| Freddie Mac, 5.5%, 8/01/2035 - 6/01/2036 | 144,862 | 145,576 | ||
| Freddie Mac, 5%, 2/15/2036 - 12/01/2044 | 643,985 | 636,328 | ||
| Freddie Mac, 5.5%, 2/15/2036 (i) | 22,958 | 3,993 | ||
| Freddie Mac, 6.5%, 5/01/2037 | 21,645 | 22,025 | ||
| Freddie Mac, 4%, 8/01/2037 - 4/01/2044 | 151,075 | 141,384 | ||
| Freddie Mac, 5.688%, 3/15/2039 | 124,602 | 120,183 | ||
| Freddie Mac, 4.5%, 12/15/2040 (i) | 4,216 | 366 | ||
| Freddie Mac, 6.774%, 10/25/2053 | 48,677 | 49,717 | ||
| Freddie Mac, 0.321%, 6/25/2055 (i) | 4,502,658 | 102,170 | ||
| Freddie Mac, 3.25%, 11/25/2061 | 193,145 | 170,295 | ||
| Freddie Mac, UMBS, 2.5%, 4/01/2037 - 9/01/2052 | 2,222,592 | 1,813,144 | ||
| Freddie Mac, UMBS, 2%, 2/01/2042 - 3/01/2052 | 2,404,779 | 1,874,914 | ||
| Freddie Mac, UMBS, 1.5%, 6/01/2051 | 433,468 | 319,407 | ||
| Freddie Mac, UMBS, 3.5%, 8/01/2051 - 5/01/2052 | 124,657 | 110,352 | ||
| Freddie Mac, UMBS, 3%, 4/01/2052 - 6/01/2052 | 257,617 | 217,224 | ||
| Freddie Mac, UMBS, 4%, 5/01/2052 | 175,300 | 160,680 | ||
| Freddie Mac, UMBS, 5%, 7/01/2052 | 365,025 | 352,416 | ||
| Freddie Mac, UMBS, 5.5%, 4/01/2053 | 69,395 | 68,957 | ||
| Freddie Mac, UMBS, 6%, 11/01/2053 | 372,510 | 373,075 | ||
| Ginnie Mae, 5.5%, 7/15/2033 - 1/20/2042 | 258,050 | 262,185 | ||
| Ginnie Mae, 5.669%, 8/20/2034 | 59,021 | 59,100 | ||
| Ginnie Mae, 4%, 5/16/2039 - 8/20/2052 | 286,833 | 267,664 | ||
| Ginnie Mae, 4%, 12/20/2039 - 8/16/2042 (i) | 57,844 | 8,698 | ||
| Ginnie Mae, 4.5%, 9/20/2041 - 5/20/2054 | 1,295,035 | 1,233,558 | ||
| Ginnie Mae, 3.5%, 10/20/2041 - 1/20/2043 (i) | 197,592 | 28,061 | ||
| Ginnie Mae, 3.5%, 4/15/2042 - 7/20/2043 | 595,944 | 543,636 | ||
| Ginnie Mae, 2.5%, 6/20/2042 - 8/20/2052 | 1,856,542 | 1,548,483 | ||
| Ginnie Mae, 2.25%, 9/20/2043 | 14,519 | 14,035 | ||
| Ginnie Mae, 3%, 4/20/2045 - 11/20/2051 | 707,583 | 618,120 | ||
| Ginnie Mae, 2.5%, 2/20/2051 (i) | 96,570 | 11,949 | ||
| Ginnie Mae, 2%, 1/20/2052 - 3/20/2052 | 465,489 | 373,518 | ||
9
Portfolio of Investments (unaudited)
– continued
| Issuer | Shares/Par | Value ($) | ||
| Bonds – continued | ||||
| U.S. Bonds – continued | ||||
| Mortgage-Backed – continued | ||||
| Ginnie Mae, 5%, 1/20/2053 - 3/20/2053 | $ | 233,245 | $226,559 | |
| Ginnie Mae, 7%, 12/20/2053 | 24,793 | 25,317 | ||
| Ginnie Mae, 6%, 2/20/2054 - 11/20/2055 | 1,058,671 | 1,066,820 | ||
| Ginnie Mae, 6.473%, 3/20/2064 | 523,088 | 524,787 | ||
| Ginnie Mae, TBA, 2%, 6/15/2054 - 7/15/2054 | 620,008 | 497,176 | ||
| Ginnie Mae, TBA, 3%, 6/15/2054 | 675,000 | 583,025 | ||
| Ginnie Mae, TBA, 5%, 6/15/2054 | 425,000 | 412,472 | ||
| Ginnie Mae, TBA, 5.5%, 6/15/2054 | 625,000 | 619,954 | ||
| Ginnie Mae, TBA, 6.5%, 6/15/2054 | 300,000 | 304,516 | ||
| UMBS, TBA, 3%, 6/25/2054 - 7/25/2054 | 1,825,000 | 1,534,971 | ||
| UMBS, TBA, 3.5%, 6/25/2054 - 7/25/2054 | 75,000 | 65,770 | ||
| UMBS, TBA, 5.5%, 6/25/2054 | 700,000 | 688,645 | ||
| UMBS, TBA, 6%, 6/25/2054 | 425,000 | 425,584 | ||
| UMBS, TBA, 6.5%, 6/25/2054 | 275,000 | 279,502 | ||
| UMBS, TBA, 2%, 7/25/2054 | 2,711,626 | 2,093,742 | ||
| UMBS, TBA, 2.5%, 7/25/2054 | 525,000 | 424,248 | ||
| $47,219,665 | ||||
| Municipals – 2.6% | ||||
| Bridgeview, IL, Stadium and Redevelopment Projects, Taxable, AAC, 5.06%, 12/01/2025 | $ | 345,000 | $339,743 | |
| Chicago, IL, General Obligation, Taxable, “C”, AGM, 6.207%, 1/01/2036 | 615,000 | 644,933 | ||
| Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Taxable, “B”, 3%, 6/01/2046 | 140,000 | 129,033 | ||
| Guam International Airport Authority Rev., Taxable (A.B. Won Pat Airport), “A”, 4.46%, 10/01/2043 | 5,000 | 4,034 | ||
| Illinois Sales Tax Securitization Corp., Second Lien, Taxable, “B”, BAM, 3.411%, 1/01/2043 | 240,000 | 184,302 | ||
| Massachusetts Educational Financing Authority, Education Loan Rev., Taxable, Issue M, “A”, 2.641%, 7/01/2037 | 515,000 | 459,660 | ||
| Michigan Finance Authority Tobacco Settlement Asset-Backed Rev., Taxable (2006 Sold Tobacco Receipts), “A-1”, 2.326%, 6/01/2030 | 6,280 | 6,153 | ||
| New Jersey Turnpike Authority Rev., Taxable (Build America Bonds), “F”, 7.414%, 1/01/2040 | 32,000 | 37,294 | ||
| Syracuse, NY, Industrial Development Agency PILOT Rev., Taxable (Carousel Center Project), “B”, 5%, 1/01/2036 (n) | 1,215,000 | 912,803 | ||
| $2,717,955 | ||||
| Telecommunications - Wireless – 0.5% | ||||
| T-Mobile USA, Inc., 4.375%, 4/15/2040 | $ | 650,000 | $565,111 | |
10
Portfolio of Investments (unaudited)
– continued
| Issuer | Shares/Par | Value ($) | ||
| Bonds – continued | ||||
| U.S. Bonds – continued | ||||
| U.S. Government Agencies and Equivalents – 0.2% | ||||
| Small Business Administration, 5.52%, 6/01/2024 | $ | 2,175 | $2,175 | |
| Small Business Administration, 2.21%, 2/01/2033 | 56,565 | 50,983 | ||
| Small Business Administration, 2.22%, 3/01/2033 | 82,267 | 74,007 | ||
| Small Business Administration, 3.15%, 7/01/2033 | 73,736 | 68,396 | ||
| Small Business Administration, 3.62%, 9/01/2033 | 66,449 | 62,602 | ||
| $258,163 | ||||
| U.S. Treasury Obligations – 36.6% | ||||
| U.S. Treasury Bonds, 2.25%, 2/15/2027 | $ | 1,921,000 | $1,802,513 | |
| U.S. Treasury Bonds, 5.25%, 2/15/2029 | 48,000 | 49,536 | ||
| U.S. Treasury Bonds, 0.625%, 5/15/2030 | 800,000 | 639,687 | ||
| U.S. Treasury Bonds, 4.75%, 2/15/2037 | 336,000 | 345,739 | ||
| U.S. Treasury Bonds, 4.375%, 2/15/2038 | 1,109,000 | 1,095,571 | ||
| U.S. Treasury Bonds, 4.5%, 8/15/2039 (f) | 4,503,100 | 4,467,744 | ||
| U.S. Treasury Bonds, 3.125%, 2/15/2043 | 453,700 | 363,385 | ||
| U.S. Treasury Bonds, 2.875%, 5/15/2043 | 1,697,100 | 1,303,253 | ||
| U.S. Treasury Bonds, 2.5%, 2/15/2045 | 4,017,000 | 2,830,416 | ||
| U.S. Treasury Bonds, 2.875%, 11/15/2046 | 3,470,000 | 2,574,713 | ||
| U.S. Treasury Bonds, 2.375%, 5/15/2051 | 449,000 | 291,061 | ||
| U.S. Treasury Notes, 4.125%, 1/31/2025 | 232,000 | 230,255 | ||
| U.S. Treasury Notes, 3.875%, 4/30/2025 | 2,507,000 | 2,477,058 | ||
| U.S. Treasury Notes, 4.25%, 5/31/2025 | 1,898,000 | 1,880,540 | ||
| U.S. Treasury Notes, 2.875%, 7/31/2025 | 4,700,000 | 4,582,500 | ||
| U.S. Treasury Notes, 5%, 9/30/2025 | 3,216,000 | 3,212,357 | ||
| U.S. Treasury Notes, 0.75%, 5/31/2026 | 567,700 | 523,725 | ||
| U.S. Treasury Notes, 0.875%, 6/30/2026 | 678,600 | 626,141 | ||
| U.S. Treasury Notes, 2%, 11/15/2026 (f) | 6,071,000 | 5,687,294 | ||
| U.S. Treasury Notes, 4%, 2/29/2028 | 3,068,000 | 3,005,801 | ||
| U.S. Treasury Notes, 4.625%, 4/30/2031 | 534,000 | 537,922 | ||
| U.S. Treasury Notes, 3.25%, 5/15/2042 | 165,000 | 135,719 | ||
| $38,662,930 | ||||
| Utilities - Electric Power – 1.0% | ||||
| FirstEnergy Corp., 4.15%, 7/15/2027 | $ | 694,000 | $660,943 | |
| Pacific Gas & Electric Co., 5.45%, 6/15/2027 | 357,000 | 356,113 | ||
| $1,017,056 | ||||
| Total U.S. Bonds | $103,387,365 | |||
| Foreign Bonds – 5.5% | ||||
| Australia – 0.0% | ||||
| APA Infrastructure Ltd., 4.25%, 7/15/2027 (n) | $ | 16,000 | $15,524 | |
11
Portfolio of Investments (unaudited)
– continued
| Issuer | Shares/Par | Value ($) | ||
| Bonds – continued | ||||
| Foreign Bonds – continued | ||||
| Bermuda – 0.4% | ||||
| Government of Bermuda, 5%, 7/15/2032 (n) | $ | 400,000 | $382,520 | |
| Chile – 0.9% | ||||
| Banco del Estado de Chile, 2.704%, 1/09/2025 (n) | $ | 241,000 | $235,859 | |
| Chile Electricity Lux MPC S.à r.l., 6.01%, 1/20/2033 (n) | 200,000 | 201,400 | ||
| Corporación Nacional del Cobre de Chile, 5.95%, 1/08/2034 (n) | 200,000 | 197,606 | ||
| ENGIE Energia Chile S.A., 6.375%, 4/17/2034 (n) | 200,000 | 202,471 | ||
| Republic of Chile, 2.55%, 1/27/2032 | 200,000 | 166,138 | ||
| $1,003,474 | ||||
| China – 0.4% | ||||
| Tencent Holdings Ltd., 2.88%, 4/22/2031 (n) | $ | 501,000 | $433,923 | |
| India – 0.9% | ||||
| Export-Import Bank of India, 2.25%, 1/13/2031 (n) | $ | 317,000 | $260,214 | |
| Indian Railway Finance Corp., 2.8%, 2/10/2031 (n) | 376,000 | 317,758 | ||
| Power Finance Corp. Ltd. (Republic of India), 5.25%, 8/10/2028 | 370,000 | 363,267 | ||
| $941,239 | ||||
| Indonesia – 0.3% | ||||
| PT Indofood CBP Sukses Makmur Tbk, 4.805%, 4/27/2052 | $ | 416,000 | $334,880 | |
| Ireland – 0.3% | ||||
| AerCap Ireland Capital DAC/AerCap Global Aviation Trust, 3.3%, 1/30/2032 | $ | 355,000 | $302,376 | |
| Kuwait – 0.2% | ||||
| NBK SPC Ltd. (State of Kuwait), 5.5% to 6/06/2029, FLR (SOFR - 1 day + 1.16%) to 6/06/2030 (n)(w) | $ | 200,000 | $200,176 | |
| Malaysia – 0.3% | ||||
| Dua Capital Ltd. (Federation of Malaysia), 2.78%, 5/11/2031 | $ | 400,000 | $339,198 | |
| Mexico – 0.3% | ||||
| United Mexican States, 4.75%, 4/27/2032 | $ | 324,000 | $300,510 | |
| Philippines – 0.2% | ||||
| Republic of Philippines, 5.5%, 1/17/2048 | $ | 200,000 | $196,692 | |
| Poland – 0.3% | ||||
| Bank Gospodarstwa Krajowego (Republic of Poland), 6.25%, 10/31/2028 (n) | $ | 264,000 | $272,002 | |
12
Portfolio of Investments (unaudited)
– continued
| Issuer | Shares/Par | Value ($) | ||
| Bonds – continued | ||||
| Foreign Bonds – continued | ||||
| United Arab Emirates – 0.2% | ||||
| Abu Dhabi National Energy Co. PJSC, 4.696%, 4/24/2033 (n) | $ | 200,000 | $191,626 | |
| United Kingdom – 0.7% | ||||
| B.A.T. Capital Corp., 4.7%, 4/02/2027 | $ | 600,000 | $589,578 | |
| Imperial Brands Finance PLC, 6.125%, 7/27/2027 (n) | 200,000 | 202,968 | ||
| $792,546 | ||||
| Uruguay – 0.1% | ||||
| Oriental Republic of Uruguay, 5.75%, 10/28/2034 | $ | 96,000 | $98,982 | |
| Total Foreign Bonds | $5,805,668 | |||
| Total Bonds (Identified Cost, $117,679,079) | $109,193,033 | |||
| Investment Companies (h) – 3.9% | ||||
| Money Market Funds – 3.9% | ||||
| MFS Institutional Money Market Portfolio, 5.38% (v) (Identified Cost, $4,143,762) | 4,143,760 | $4,144,174 | ||
| Other Assets, Less Liabilities – (7.2)% | (7,610,489) | |||
| Net Assets – 100.0% | $105,726,718 | |||
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts and cleared swap agreements. |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers and in unaffiliated issuers were $4,144,174 and $109,193,033, respectively. |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $9,897,818, representing 9.4% of net assets. |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| (w) | When-issued security. |
| The following abbreviations are used in this report and are defined: | |
| AAC | Ambac Assurance Corp. |
| AGM | Assured Guaranty Municipal |
| BAM | Build America Mutual |
| CLO | Collateralized Loan Obligation |
| FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
13
Portfolio of Investments (unaudited)
– continued
| REIT | Real Estate Investment Trust |
| SOFR | Secured Overnight Financing Rate |
| TBA | To Be Announced |
| UMBS | Uniform Mortgage-Backed Security |
| USA-CPI-U | Consumer Price Index - Urban Consumers |
Derivative Contracts at 5/31/24
| Futures Contracts | ||||||
| Description | Long/ Short | Currency | Contracts | Notional Amount | Expiration Date | Value/Unrealized Appreciation (Depreciation) |
| Asset Derivatives | ||||||
| Interest Rate Futures | ||||||
| U.S. Treasury Bond 30 yr | Short | USD | 40 | $4,642,500 | September - 2024 | $38,010 |
| U.S. Treasury Note 2 yr | Long | USD | 1 | 203,703 | September - 2024 | 43 |
| U.S. Treasury Ultra Note 10 yr | Short | USD | 69 | 7,730,156 | September - 2024 | 12,701 |
| $50,754 | ||||||
| Liability Derivatives | ||||||
| Interest Rate Futures | ||||||
| U.S. Treasury Note 10 yr | Long | USD | 208 | $22,629,750 | September - 2024 | $(62,202) |
| U.S. Treasury Note 5 yr | Long | USD | 5 | 528,984 | September - 2024 | (430) |
| U.S. Treasury Ultra Bond 30 yr | Long | USD | 23 | 2,816,063 | September - 2024 | (39,608) |
| $(102,240) | ||||||
14
Portfolio of Investments (unaudited)
– continued
| Cleared Swap Agreements | ||||||||||
| Maturity Date | Notional Amount | Counterparty | Cash Flows to Receive/ Frequency | Cash Flows to Pay/ Frequency | Unrealized Appreciation (Depreciation) | Net Unamortized Upfront Payments (Receipts) | Value | |||
| Asset Derivatives | ||||||||||
| Interest Rate Swaps | ||||||||||
| 3/17/32 | USD | 1,400,000 | centrally cleared | 3.960% / Annually | Daily SOFR / Annually | $4,695 | $— | $4,695 | ||
| 3/15/33 | USD | 1,100,000 | centrally cleared | 4.044% / Annually | Daily SOFR / Annually | 5,948 | — | 5,948 | ||
| 4/15/26 | USD | 2,300,000 | centrally cleared | USA-CPI-U / At Maturity | 2.637% / At Maturity | 1,747 | — | 1,747 | ||
| $12,390 | $— | $12,390 | ||||||||
| Liability Derivatives | ||||||||||
| Interest Rate Swaps | ||||||||||
| 3/21/57 | USD | 300,000 | centrally cleared | Daily SOFR / Annually | 3.718% / Annually | $(608) | $— | $(608) | ||
| 4/18/26 | USD | 4,600,000 | centrally cleared | USA-CPI-U / At Maturity | 2.680% / At Maturity | (718) | — | (718) | ||
| 3/15/58 | USD | 300,000 | centrally cleared | Daily SOFR / Annually | 3.757% / Annually | (3,690) | — | (3,690) | ||
| 5/24/26 | USD | 1,600,000 | centrally cleared | Daily SOFR / Annually | 4.759% / Annually | (812) | — | (812) | ||
| $(5,828) | $— | $(5,828) | ||||||||
At May 31, 2024, the fund had liquid
securities with an aggregate value of $567,486 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
15
Financial Statements
Statement of Assets and
Liabilities
At 5/31/24 (unaudited)
This statement represents your
fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| Assets | |
| Investments in unaffiliated issuers, at value (identified cost, $117,679,079) | $109,193,033 |
| Investments in affiliated issuers, at value (identified cost, $4,143,762) | 4,144,174 |
| Receivables for | |
| Net daily variation margin on open futures contracts | 21,706 |
| Investments sold | 323,967 |
| TBA sale commitments | 3,845,373 |
| Interest | 656,078 |
| Receivable from investment adviser | 3,037 |
| Other assets | 18,909 |
| Total assets | $118,206,277 |
| Liabilities | |
| Payable to custodian | $1,577 |
| Payables for | |
| Distributions | 36,827 |
| Net daily variation margin on open cleared swap agreements | 629 |
| Investments purchased | 333,040 |
| When-issued investments purchased | 199,810 |
| TBA purchase commitments | 11,783,469 |
| Payable to affiliates | |
| Administrative services fee | 139 |
| Transfer agent and dividend disbursing costs | 1,724 |
| Payable for independent Trustees' compensation | 11,220 |
| Deferred foreign capital gains tax expense payable | 31,048 |
| Accrued expenses and other liabilities | 80,076 |
| Total liabilities | $12,479,559 |
| Net assets | $105,726,718 |
| Net assets consist of | |
| Paid-in capital | $129,468,702 |
| Total distributable earnings (loss) | (23,741,984) |
| Net assets | $105,726,718 |
| Shares of beneficial interest outstanding | 32,590,193 |
| Net asset value per share (net assets of $105,726,718 / 32,590,193 shares of beneficial interest outstanding) | $3.24 |
See Notes to Financial Statements
16
Financial Statements
Statement of Operations
Six months ended 5/31/24
(unaudited)
This statement describes how much
your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Net investment income (loss) | |
| Income | |
| Interest | $2,142,581 |
| Dividends from affiliated issuers | 52,881 |
| Foreign taxes withheld | (62) |
| Total investment income | $2,195,400 |
| Expenses | |
| Management fee | $291,275 |
| Transfer agent and dividend disbursing costs | 27,564 |
| Administrative services fee | 12,854 |
| Independent Trustees' compensation | 4,178 |
| Stock exchange fee | 15,895 |
| Custodian fee | 5,915 |
| Shareholder communications | 32,184 |
| Audit and tax fees | 49,127 |
| Legal fees | 2,123 |
| Miscellaneous | 22,739 |
| Total expenses | $463,854 |
| Reduction of expenses by investment adviser | (31,201) |
| Net expenses | $432,653 |
| Net investment income (loss) | $1,762,747 |
| Realized and unrealized gain (loss) | |
| Realized gain (loss) (identified cost basis) | |
| Unaffiliated issuers | $(1,528,791) |
| Affiliated issuers | 1,068 |
| Futures contracts | (133,668) |
| Net realized gain (loss) | $(1,661,391) |
| Change in unrealized appreciation or depreciation | |
| Unaffiliated issuers (includes $1,613 increase in deferred foreign capital gains tax) | $2,098,566 |
| Affiliated issuers | 376 |
| Futures contracts | (101,379) |
| Swap agreements | 6,562 |
| Net unrealized gain (loss) | $2,004,125 |
| Net realized and unrealized gain (loss) | $342,734 |
| Change in net assets from operations | $2,105,481 |
See Notes to Financial Statements
17
Financial Statements
Statements of Changes in Net
Assets
These statements describe the
increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| Six months ended | Year ended | |
| 5/31/24 (unaudited) | 11/30/23 | |
| Change in net assets | ||
| From operations | ||
| Net investment income (loss) | $1,762,747 | $3,298,553 |
| Net realized gain (loss) | (1,661,391) | (2,424,465) |
| Net unrealized gain (loss) | 2,004,125 | (383,178) |
| Change in net assets from operations | $2,105,481 | $490,910 |
| Distributions to shareholders | $(1,846,356) | $(3,465,689) |
| Tax return of capital distributions to shareholders | $— | $(4,684,173) |
| Distributions from other sources | $(2,067,400)(a) | $— |
| Change in net assets from fund share transactions | $— | $(21,205) |
| Total change in net assets | $(1,808,275) | $(7,680,157) |
| Net assets | ||
| At beginning of period | 107,534,993 | 115,215,150 |
| At end of period | $105,726,718 | $107,534,993 |
| (a) | Estimated tax return of capital. All or a portion of this amount may be redesignated as ordinary income and/or capital gains at fiscal year end when the tax character of distributions is determined. Please refer to “Tax Matters and Distributions” under Note 2 of the Notes to Financial Statements for additional information regarding the tax character of the fund’s distributions. |
See Notes to Financial Statements
18
Financial Statements
Financial Highlights
The financial highlights table is
intended to help you understand the fund's financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Six months ended | Year ended | |||||
| 5/31/24 (unaudited) | 11/30/23 | 11/30/22 | 11/30/21 | 11/30/20 | 11/30/19 | |
| Net asset value, beginning of period | $3.30 | $3.53 | $4.35 | $4.75 | $4.75 | $4.65 |
| Income (loss) from investment operations | ||||||
| Net investment income (loss) (d) | $0.05 | $0.10 | $0.06 | $0.08 | $0.10 | $0.12 |
| Net realized and unrealized gain (loss) | 0.01 | (0.08) | (0.60) | (0.15) | 0.25 | 0.32 |
| Total from investment operations | $0.06 | $0.02 | $(0.54) | $(0.07) | $0.35 | $0.44 |
| Less distributions declared to shareholders | ||||||
| From net investment income | $(0.06) | $(0.11) | $(0.06) | $(0.09) | $(0.11) | $(0.13) |
| From tax return of capital | — | (0.14) | (0.22) | (0.24) | (0.24) | (0.21) |
| From other sources | (0.06)(b) | — | — | — | — | — |
| Total distributions declared to shareholders | $(0.12) | $(0.25) | $(0.28) | $(0.33) | $(0.35) | $(0.34) |
| Net increase from repurchase of capital shares | $— | $0.00(w) | $— | $— | $0.00(w) | $— |
| Net asset value, end of period (x) | $3.24 | $3.30 | $3.53 | $4.35 | $4.75 | $4.75 |
| Market value, end of period | $3.07 | $3.08 | $3.39 | $4.27 | $4.64 | $4.56 |
| Total return at market value (%) | 3.55(n) | (1.85) | (14.23) | (0.84) | 9.64 | 12.76 |
| Total return at net asset value (%) (j)(r)(s)(x) | 1.99(n) | 0.99 | (12.33) | (1.32) | 7.75 | 10.13 |
| Ratios (%) (to average net assets) and Supplemental data: | ||||||
| Expenses before expense reductions | 0.86(a) | 0.82 | 0.74 | 0.70 | 0.72 | 0.74 |
| Expenses after expense reductions | 0.80(a) | 0.80 | N/A | N/A | N/A | N/A |
| Net investment income (loss) | 3.26(a) | 2.95 | 1.59 | 1.78 | 2.19 | 2.45 |
| Portfolio turnover | 73(n) | 90 | 146 | 201 | 142 | 48 |
| Net assets at end of period (000 omitted) | $105,727 | $107,535 | $115,215 | $141,852 | $154,678 | $154,836 |
| Supplemental Ratios (%): | ||||||
| Portfolio turnover (excluding TBA transactions) (e) | 17(n) | 36 | N/A | N/A | N/A | N/A |
See Notes to Financial Statements
19
Financial Highlights – continued
| (a) | Annualized. |
| (b) | Estimated tax return of capital. All or a portion of this amount may be redesignated as ordinary income and/or capital gains at fiscal year end when the tax character of distributions is determined. Please refer to “Tax Matters and Distributions” under Note 2 of the Notes to Financial Statements for additional information regarding the tax character of the fund’s distributions. |
| (d) | Per share data is based on average shares outstanding. |
| (e) | Beginning with the period ending November 30, 2023, portfolio turnover rates excluding TBA transactions are being added as supplemental ratios. Refer to Note 2 for more information on TBA transactions and mortgage dollar rolls. |
| (j) | Total return at net asset value is calculated using the net asset value of the fund, not the publicly traded price and therefore may be different than the total return at market value. |
| (n) | Not annualized. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (w) | Per share amount was less than $0.01. |
| (x) | The net asset values and total returns at net asset value have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
20
Notes to Financial Statements
(unaudited)
(1) Business and
Organization
MFS Government Markets Income Trust
(the fund) is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a diversified closed-end management investment company.
The fund is an investment company
and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment
Companies.
(2) Significant Accounting
Policies
General — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s
Statement of Assets and Liabilities through the date that the financial statements were issued.
Balance Sheet Offsetting — The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International
Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and
Liabilities across transactions between the fund and the applicable counterparty. The fund's right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which
a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note
under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations — Subject to its oversight, the fund's Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments to MFS as
the fund's adviser, pursuant to the fund’s valuation policy and procedures which have been adopted by the adviser and approved by the Board. In accordance with Rule 2a-5 under the Investment Company Act of
1940, the Board of Trustees designated the adviser as the “valuation designee” of the fund. If the adviser, as valuation designee, determines that reliable market quotations are not readily available for
an investment, the investment is valued at fair value as determined in good faith by the adviser in accordance with the adviser’s fair valuation policy and procedures.
Under the fund's valuation policy
and procedures, debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term
instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their primary
exchange as provided by a third-party pricing service.
21
Notes to Financial
Statements (unaudited) - continued
Futures contracts for which there were no trades
that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Swap agreements are generally valued using valuations
provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share.
The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing
service.
Under the fund’s valuation
policy and procedures, market quotations are not considered to be readily available for debt instruments, floating rate loans, and many types of derivatives. These investments are generally valued at fair value based
on information from third-party pricing services or otherwise determined by the adviser in accordance with the adviser’s fair valuation policy and procedures. Securities and other assets generally valued on the
basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information
such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, spreads and other market data. An investment may also be valued at fair value if the adviser determines that the
investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the
determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally
traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment
characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The
value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used
to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it
were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in
determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value
hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a
particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or
liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes significant
unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts and swap agreements.
The following is a summary of the levels used as of May 31, 2024 in valuing the fund's assets and liabilities:
22
Notes to Financial
Statements (unaudited) - continued
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
| U.S. Treasury Bonds & U.S. Government Agencies & Equivalents | $— | $38,921,093 | $— | $38,921,093 |
| Non - U.S. Sovereign Debt | — | 3,723,947 | — | 3,723,947 |
| Municipal Bonds | — | 2,717,955 | — | 2,717,955 |
| U.S. Corporate Bonds | — | 7,806,449 | — | 7,806,449 |
| Residential Mortgage-Backed Securities | — | 47,857,773 | — | 47,857,773 |
| Commercial Mortgage-Backed Securities | — | 2,610,616 | — | 2,610,616 |
| Asset-Backed Securities (including CDOs) | — | 3,473,480 | — | 3,473,480 |
| Foreign Bonds | — | 2,081,720 | — | 2,081,720 |
| Mutual Funds | 4,144,174 | — | — | 4,144,174 |
| Total | $4,144,174 | $109,193,033 | $— | $113,337,207 |
| Other Financial Instruments | ||||
| Futures Contracts – Assets | $50,754 | $— | $— | $50,754 |
| Futures Contracts – Liabilities | (102,240) | — | — | (102,240) |
| Swap Agreements – Assets | — | 12,390 | — | 12,390 |
| Swap Agreements – Liabilities | — | (5,828) | — | (5,828) |
For further information regarding
security characteristics, see the Portfolio of Investments.
Derivatives — The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency
exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses
derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by
the fund during the period were futures contracts and swap agreements. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or
exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation
in the price for that type of future exceeds the daily limit set by the exchange. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables,
generally are indicative of the volume of its derivative activity during the period.
23
Notes to Financial
Statements (unaudited) - continued
The following table presents, by
major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at May 31, 2024 as reported in the Statement of Assets and Liabilities:
| Fair Value (a) | |||
| Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives |
| Interest Rate | Futures Contracts | $50,754 | $(102,240) |
| Interest Rate | Cleared Swap Agreements | 12,390 | (5,828) |
| Total | $63,144 | $(108,068) | |
(a) Values presented in this
table for futures contracts and cleared swap agreements correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts and cleared swap agreements is
reported separately within the Statement of Assets and Liabilities.
The following table presents, by
major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended May 31, 2024 as reported in the Statement of Operations:
| Risk | Futures Contracts |
| Interest Rate | $(133,668) |
The following table presents, by
major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the six months ended May 31, 2024 as reported in the Statement of Operations:
| Risk | Futures Contracts | Swap Agreements |
| Interest Rate | $(101,379) | $6,562 |
Derivative counterparty credit risk
is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk
whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if
there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions
traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA
Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements
differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in
the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange
contracts, uncleared swap agreements, and uncleared options). Collateral, in the form of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For
24
Notes to Financial
Statements (unaudited) - continued
derivatives traded under an ISDA Master
Agreement, which contains a credit support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to
collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of
Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the
Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous”
expense in the Statement of Operations.
Futures Contracts — The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A
futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures
contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments
(variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund
until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest
rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present
less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the
broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Swap Agreements — The fund entered into swap agreements which generally involve a periodic exchange of cash payments on a net basis, at specified intervals or upon the occurrence of specified
events, between the fund and a counterparty. Certain swap agreements may be entered into as a bilateral contract (“uncleared swaps”) while others are required to be centrally cleared (“cleared
swaps”).
Both cleared and uncleared swap
agreements are marked to market daily. The value of uncleared swap agreements is reported in the Statement of Assets and Liabilities as “Uncleared swaps, at value” which includes any related interest
accruals to be paid or received by the fund. For cleared swaps, payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the cleared swap, such
that only the current day net receivable or payable for variation margin is reported in the Statement of Assets and Liabilities.
For both cleared and uncleared
swaps, premiums paid or received at the inception of the agreements are amortized over the term of the agreement as realized gain or loss on swap agreements in the Statement of Operations. The periodic exchange
of net cash payments, as well as any liquidation payment received or made upon early termination, are recorded as a realized gain or loss on swap agreements in the
25
Notes to Financial
Statements (unaudited) - continued
Statement of Operations. The change in unrealized
appreciation or depreciation on swap agreements in the Statement of Operations reflects the aggregate change over the reporting period in the value of swaps net of any unamortized premiums paid or received.
Risks related to swap agreements
include the possible lack of a liquid market, unfavorable market and interest rate movements of the underlying instrument and the failure of the counterparty to perform under the terms of the agreements. The fund's
maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from/paid to the counterparty over the contract's remaining life, to the extent that the amount is
positive. To address counterparty risk, uncleared swap agreements are limited to only highly-rated counterparties. Risk is further reduced by having an ISDA Master Agreement (“ISDA”) between the fund
and the counterparty and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA. The fund's counterparty risk due to
cleared swaps is mitigated by the fact that the clearinghouse is the true counterparty to the transaction and the regulatory requirement safeguards in the event of a clearing broker bankruptcy.
The fund entered into interest rate
swap agreements in order to manage its exposure to interest rate fluctuations. Interest rate swap agreements involve the periodic exchange of cash flows, between the fund and a counterparty, based on the
difference between two interest rates applied to a notional principal amount. The two interest rates exchanged may either be a fixed rate and a floating rate or two floating rates based on different indices.
Mortgage-Backed/Asset-Backed
Securities — The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on
the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying
assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home
Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
Indemnifications — Under the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to
the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown
as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and
Income — Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date.
26
Notes to Financial
Statements (unaudited) - continued
The fund may receive proceeds from
litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in
unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Investment transactions are recorded
on the trade date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may purchase or sell
mortgage-backed securities on a “To Be Announced” (TBA) basis. A TBA transaction is subject to extended settlement and typically does not designate the actual security to be delivered, but instead includes
an approximate principal amount. The price of the TBA security and the date that it will be settled are fixed at the time the transaction is negotiated. The value of the security varies with market fluctuations and no
interest accrues to the fund until settlement takes place. TBA purchase and sale commitments are held at carrying amount, which approximates fair value and are categorized as level 2 within the fair value hierarchy
and included in TBA purchase and TBA sale commitments in the Statement of Assets and Liabilities, as applicable. Losses may arise as a result of changes in the value of the TBA investment prior to settlement date or
due to counterparty non-performance.
The fund may also enter into
mortgage dollar rolls, typically TBA dollar rolls, in which the fund sells TBA mortgage-backed securities to financial institutions and simultaneously agrees to repurchase similar (same issuer, type and coupon)
securities at a later date at an agreed-upon price. During the period between the sale and repurchase, the fund will not be entitled to receive interest and principal payments on the securities sold. The fund accounts
for dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. As such, these transactions may result in an increase to the fund’s portfolio turnover rate. Portfolio
turnover rates including and excluding TBA transactions are presented in the Financial Highlights. Dollar roll transactions involve the risk that the market value of the securities that the fund is required to
purchase may decline below the agreed upon repurchase price of those securities.
The fund may purchase or sell
securities on a when-issued or delayed delivery basis. In these extended settlement transactions, the receipt or delivery of the securities by the fund and related payments occur at a future date, usually beyond
the customary settlement period. The price of such security and the date that the security will be settled are generally fixed at the time the transaction is negotiated. The value of the security varies with market
fluctuations and for debt securities no interest accrues to the fund until settlement takes place. When the fund sells securities on a when-issued or delayed delivery basis, the fund typically owns or has the right to
acquire securities equivalent in kind and amount to the securities sold. Purchase and sale commitments for when-issued or delayed delivery securities are held at carrying amount, which approximates fair value and are
categorized as level 2 within the fair value hierarchy, and included in When-issued investments purchased and When-issued investments sold in the Statement of Assets and Liabilities, as applicable. Losses may arise
due to changes in the value of the underlying securities prior to settlement date or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to
political, economic or other factors.
27
Notes to Financial
Statements (unaudited) - continued
To mitigate the counterparty credit
risk on TBA transactions, mortgage dollar rolls, and other types of forward settling mortgage-backed and asset-backed security transactions, the fund whenever possible enters into a Master Securities Forward
Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to
terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party
has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments
across all transactions traded under the MSFTA could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
For mortgage-backed and asset-backed
securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one
party to the other to collateralize such obligations. Cash that has been pledged to cover the fund's collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and
Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Tax Matters and Distributions — The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including
realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three
year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require
recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by
certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those
countries.
Distributions to shareholders are
recorded on the ex-dividend date. The fund employs a managed distribution policy whereby the fund seeks to pay monthly distributions based on an annual rate of 7.25% of the fund’s average monthly net asset
value. As a result, distributions may exceed actual earnings which may result in a tax return of capital. Distributions in any year may include a substantial return of capital component. For the six months ended May
31, 2024, the amount of distributions estimated to be a tax return of capital was approximately $2,067,400 which is reported as distributions from other sources in the Statements of Changes in Net Assets. All or a
portion of this amount may be redesignated as ordinary income and/or capital gains at fiscal year end. Please refer to the Financial Highlights for distributions of tax returns of capital made during the prior five
years. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial
statements are periodically adjusted for permanent differences in order to reflect their tax character.
28
Notes to Financial
Statements (unaudited) - continued
These adjustments have no impact on net assets or
net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in
the future.
Book/tax differences primarily
relate to amortization of premium and accretion of discount of debt securities.
The tax character of distributions
made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| Year ended 11/30/23 | |
| Ordinary income (including any short-term capital gains) | $3,465,689 |
| Tax return of capital (b) | 4,684,173 |
| Total distributions | $8,149,862 |
| (b) | Distributions in excess of tax basis earnings and profits are reported in the financial statements as a tax return of capital. |
The federal tax cost and the tax
basis components of distributable earnings were as follows:
| As of 5/31/24 | |
| Cost of investments | $122,332,346 |
| Gross appreciation | 113,723 |
| Gross depreciation | (9,108,862) |
| Net unrealized appreciation (depreciation) | $(8,995,139) |
| As of 11/30/23 | |
| Capital loss carryforwards | (10,760,090) |
| Other temporary differences | (75,964) |
| Net unrealized appreciation (depreciation) | (11,097,655) |
The aggregate cost above includes
prior fiscal year end tax adjustments, if applicable.
As of November 30, 2023, the fund
had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses
are characterized as follows:
| Short-Term | $(2,599,429) |
| Long-Term | (8,160,661) |
| Total | $(10,760,090) |
(3) Transactions with
Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.32% of the fund’s average daily net assets and 5.33% of gross income. Gross income is calculated based on
tax elections that generally include the accretion of discount and exclude the amortization of premium, which may differ from
29
Notes to Financial
Statements (unaudited) - continued
investment income reported in the Statement of
Operations. MFS has agreed to reduce its management fee to the lesser of the contractual management fee as set forth above or 0.85% of the fund's average daily net assets. This written agreement will continue until
modified by the fund's Board of Trustees, but such agreement will continue at least until November 30, 2024. For the six months ended May 31, 2024, the fund’s average daily net assets and gross income fees did
not meet the thresholds required to waive the management fee under this agreement. The management fee, from net assets and gross income, incurred for the six months ended May 31, 2024 was equivalent to an annual
effective rate of 0.54% of the fund’s average daily net assets.
The investment adviser has agreed in
writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including
contingency fees and closing agreement expenses), and investment-related expenses, such that total fund operating expenses do not exceed 0.80% annually of the fund’s average daily net assets. This written
agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until November 30, 2024. For the six months ended May 31, 2024, this reduction amounted to
$31,201, which is included in the reduction of total expenses in the Statement of Operations.
Transfer Agent — The fund engages Computershare Trust Company, N.A. (“Computershare”) as the sole transfer agent for the fund. MFS Service Center, Inc. (MFSC) monitors and supervises
the activities of Computershare for an agreed upon fee approved by the Board of Trustees. For the six months ended May 31, 2024, fees paid to MFSC amounted to $9,367.
Administrator — MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the
fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee is
computed daily and paid monthly. The administrative services fee incurred for the six months ended May 31, 2024 was equivalent to an annual effective rate of 0.0238% of the fund's average daily net
assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee
chairpersons. Independent Trustees’ compensation is accrued daily and paid subsequent to each Trustee Board meeting. The fund does not pay compensation directly to Trustees or officers of the fund who
are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS and
MFSC.
Prior to December 31, 2001, the fund
had an unfunded defined benefit plan (“DB plan”) for independent Trustees. As of December 31, 2001, the Board took action to terminate the DB plan with respect to then-current and any future
independent Trustees, such that the DB plan covers only certain of those former independent Trustees who retired on or before December 31, 2001. The DB plan resulted in a pension expense of $533 and is included in
“Independent Trustees’ compensation” in the Statement of Operations for the six months ended May 31, 2024. The liability for deferred retirement benefits payable to those former independent Trustees
under the
30
Notes to Financial
Statements (unaudited) - continued
DB plan amounted to $11,111 at May 31, 2024, and is
included in “Payable for independent Trustees’ compensation” in the Statement of Assets and Liabilities. The deferred retirement benefits compensation fee is accrued daily and paid monthly.
Other — The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money
market fund does not pay a management fee to MFS but does incur investment and operating costs.
(4) Portfolio Securities
For the six months ended May 31,
2024, purchases and sales of investments, other than short-term obligations, were as follows:
| Purchases | Sales | |
| U.S. Government securities | $79,110,024 | $75,506,620 |
| Non-U.S. Government securities | 1,256,784 | 5,088,696 |
(5) Shares of Beneficial
Interest
The fund's Declaration of Trust
permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. The Trustees have authorized the repurchase by the fund of up to 10% annually of its own shares of beneficial
interest.
The fund did not repurchase any shares for the six
months ended May 31, 2024. The fund repurchased 7,200 shares of beneficial interest during the year ended November 30, 2023 at an average price per share of $2.95 and a weighted average discount of 7.68% per share.
Transactions in fund shares were as follows:
| Six months ended 5/31/24 | Year ended 11/30/23 | ||||
| Shares | Amount | Shares | Amount | ||
| Capital shares repurchased | — | $— | (7,200) | $(21,205) | |
(6) Line of Credit
The fund and certain other funds
managed by MFS participate in a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of
banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR
(Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion
of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 13, 2025 unless extended or renewed. In addition, the fund and other funds managed by MFS have
established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an
agreed upon spread. For the six months ended May 31, 2024, the fund’s commitment fee and interest expense were $276 and $0, respectively, and are included in “Miscellaneous” expense in the Statement
of Operations.
31
Notes to Financial
Statements (unaudited) - continued
(7) Investments in Affiliated
Issuers
An affiliated issuer may be
considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value |
| MFS Institutional Money Market Portfolio | $1,282,508 | $25,510,891 | $22,650,669 | $1,068 | $376 | $4,144,174 |
| Affiliated Issuers | Dividend Income | Capital Gain Distributions |
| MFS Institutional Money Market Portfolio | $52,881 | $— |
32
Report of Independent Registered Public
Accounting Firm
To the Board of Trustees and
Shareholders of MFS Government Markets Income Trust:
Results of Review of Interim Financial
Statements
We have reviewed the accompanying
statement of assets and liabilities of MFS Government Markets Income Trust (the “Trust”), including the portfolio of investments, as of May 31, 2024, and the related statements of operations, and changes
in net assets and the financial highlights for the six-month period ended May 31, 2024, and the related notes. Based on our review, we are not aware of any material modifications that should be made to the
accompanying interim financial statements and financial highlights for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the statement of assets and liabilities, including the portfolio of investments, as of November 30, 2023 (not
presented herein), the related statements of operations for the year ended November 30, 2023 (not presented herein), the statements of changes in net assets for the years ended November 30, 2023 and November 30, 2022
(2022 not presented herein) and the financial highlights for each of the five years in the period ended November 30, 2023, and in our report dated January 12, 2024, we expressed an unqualified opinion on those
financial statements.
Basis for Review Results
These interim financial statements
and financial highlights are the responsibility of the Trust's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Fund in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our review in
accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as
a whole. Accordingly, we do not express such an opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
July 16, 2024
July 16, 2024
We have served as the auditor of
one or more of the MFS investment companies since 1924.
33
Proxy Voting Policies and
Information
MFS votes proxies on behalf of the
fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund
voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio
Disclosure
The fund files a complete schedule
of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site
at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at mfs.com/closedendfunds by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Reports and Other Documents” tab.
Further Information
From time to time, MFS may post
important information about the fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/closedendfunds by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Additional information about the
fund (e.g., performance, dividends and the fund’s price history) is also available at mfs.com/closedendfunds by choosing the fund's name, if any.
INFORMATION ABOUT FUND
CONTRACTS AND LEGAL CLAIMS
The fund has entered into
contractual arrangements with an investment adviser, administrator, transfer agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended
beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them
against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and
Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of
Massachusetts.
34
CONTACT US
COMPUTERSHARE TRUST COMPANY,
N.A.
TRANSFER AGENT, REGISTRAR, AND
DIVIDEND DISBURSING AGENT
TRANSFER AGENT, REGISTRAR, AND
DIVIDEND DISBURSING AGENT
CALL
1-800-637-2304
9 a.m. to 5 p.m. Eastern time
WRITE
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
New York Stock Exchange Symbol:
MGF
Item 1(b):
A copy of the notice transmitted to the Registrant’s shareholders in reliance on Rule 30e-3 of the Investment Company Act of 1940, as amended that contains disclosure specified by paragraph (c)(3) of Rule 30e-3 is attached hereto as EX-99.30e-3Notice.
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics (the “Code”) pursuant to Section 406 of the Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the Registrant’s principal executive officer and principal financial and accounting officer. During the period covered by this report, the Registrant has not amended any provision in the Code that relates to an element of the Code’s definition enumerated in paragraph
(b)of Item 2 of this Form N-CSR. During the period covered by this report, the Registrant did not grant a waiver, including an implicit
waiver, from any provision of the Code. David L. DiLorenzo (Principal Executive Officer) and James O. Yost (Principal Financial Officer) were the two persons covered by the Code prior to April 1, 2024. Beginning April 1, 2024, David L. DiLorenzo (Principal Executive Officer) and Kasey L. Phillips (Principal Financial Officer) are the two persons covered by the Code.
A copy of the Code is attached hereto as EX-99.COE.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable for semi-annual reports.
ITEM 6. INVESTMENTS
A schedule of investments of the Registrant is included as part of the report to shareholders of the Registrant under Item 1(a) of this Form N-CSR.
ITEM 7. FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PROXY DISCLOSURES FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 10. RENUMERATION PAID TO DIRECTORS, OFFICERS, AND OTHERS OF OPEN-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 11. STATEMENT REGARDING BASES FOR APPROVAL OF INVESTMENT ADVISORY CONTRACT.
Not applicable.
ITEM 12. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable for semi-annual reports.
ITEM 13. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Portfolio Manager(s)
Information regarding the portfolio manager(s) of the MFS Government Markets Income Trust (the "Fund") is set forth below. Each portfolio manager is primarily responsible for the day-to-day management of the Fund.
Geoffrey Schechter has announced his intention to retire effective September 30, 2025, and he will no longer be a portfolio manager of the fund as of that date.
|
Portfolio Manager |
Primary Role |
Since |
Title and Five Year History |
|
Geoffrey Schechter |
Lead and U.S. Government Securities |
2006 |
Investment Officer of MFS; employed in the investment area of |
|
|
Portfolio Manager |
|
MFS since 1993 |
|
Neeraj Arora |
Emerging Markets Debt Instruments Portfolio |
2021 |
Investment Officer of MFS; employed in the investment area of |
|
|
Manager |
|
MFS since 2011 |
|
|
|
|
|
|
Alexander Mackey |
Investment Grade Debt Instruments |
2021 |
Co-Chief Investment Officer-Global Fixed Income of MFS; |
|
|
Portfolio Manager |
|
employed in the investment area of MFS since 2001 |
|
Jake Stone |
U.S. Government Securities Portfolio |
2023 |
Investment Officer of MFS; employed in the investment area of |
|
|
Manager |
|
MFS since 2018 |
Compensation
MFS’ philosophy is to align portfolio manager compensation with the goal to provide shareholders with long-term value through a collaborative investment process. Therefore, MFS uses long-term investment performance as well as contribution to the overall investment process and collaborative culture as key factors in determining portfolio manager compensation. In addition, MFS seeks to maintain total compensation programs that are competitive in the asset management industry in each geographic market where it has employees. MFS uses competitive compensation data to ensure that compensation practices are aligned with its goals of attracting, retaining, and motivating the highest-quality professionals.
MFS reviews portfolio manager compensation annually. In determining portfolio manager compensation, MFS uses quantitative means and qualitative means to help ensure a durable investment process. As of December 31, 2023, portfolio manager total cash compensation is a combination of base salary and performance bonus:
Base Salary – Base salary generally represents a smaller percentage of portfolio manager total cash compensation than performance bonus. Performance Bonus – Generally, the performance bonus represents more than a majority of portfolio manager total cash compensation.
The performance bonus is based on a combination of quantitative and qualitative factors, generally with more weight given to the former and less weight given to the latter. The quantitative portion is primarily based on the pre-tax performance of accounts managed by the portfolio manager over a range of fixed-length time periods, intended to provide the ability to assess performance over time periods consistent with a full market cycle and a strategy's investment horizon. The fixed-length time periods include the portfolio manager's full tenure on each Fund/strategy and, when available, 10-, 5-, and 3-year periods. For portfolio managers who have served for less than three years, shorter- term periods, including the one-year period, will also be considered, as will performance in previous roles, if any, held at the firm. Emphasis is generally placed on longer performance periods when multiple performance periods are available. Performance is evaluated across the full set of strategies and portfolios managed by a given portfolio manager, relative to appropriate peer group universes and/or representative indices (“benchmarks”). As of December 31, 2023, the following benchmarks were used to measure the following portfolio manager's performance for the Fund, unless otherwise indicated:
|
Fund |
Portfolio Manager |
Benchmark(s) |
|
MFS Government Markets Income Trust |
Geoffrey Schechter |
Bloomberg U.S. Credit Index |
|
|
|
Bloomberg U.S. Government/Mortgage Index |
|
|
Neeraj Arora |
JPMorgan Emerging Markets Bond Index Global |
|
|
Jake Stone |
Bloomberg U.S. Government/Mortgage Index |
Benchmarks may include versions and components of indices, custom indices, and linked indices that combine performance of different indices for different portions of the time period, where appropriate.
The qualitative portion is based on the results of an annual internal peer review process (where portfolio managers are evaluated by other portfolio managers, analysts, and traders) and management’s assessment of overall portfolio manager contributions to the MFS investment process and the client experience (distinct from fund and other account performance).
The performance bonus may be in the form of cash and/or a deferred cash award, at the discretion of management. A deferred cash award is issued for a cash value and becomes payable over a three-year vesting period if the portfolio manager remains in the continuous employ of MFS or its affiliates. During the vesting period, the value of the unfunded deferred cash award will fluctuate as though the portfolio manager had invested the cash value of the award in an MFS fund(s) selected by the portfolio manager. A selected fund may, but is not required to, be a fund that is managed by the portfolio manager.
With respect to Mr. Alexander Mackey, his compensation reflects his broader role within MFS as Co-Chief Investment Officer-Global Fixed Income in addition to being a portfolio manager. His performance bonus is based on a combination of quantitative and qualitative factors, generally with more weight given to the former and less weight given to the latter. The quantitative portion is based on overall group investment performance and business performance metrics. The qualitative portion is based on the results of an annual internal review
process conducted by the Chief Investment Officer which takes into account his broad leadership responsibilities. This performance bonus may be in the form of cash and/or a deferred cash award, at the discretion of management. A deferred cash award is issued for a cash value and becomes payable over a three-year vesting period if the portfolio manager remains in the continuous employ of MFS or its affiliates.
During the vesting period, the value of the unfunded deferred cash award will fluctuate as though the portfolio manager had invested the cash value of the award in an MFS fund(s) selected by the portfolio manager. A selected fund may, but is not required to, be a fund that is managed by the portfolio manager.
MFS Equity Plan – Portfolio managers also typically benefit from the opportunity to participate in the MFS Equity Plan. Equity interests are awarded by management, on a discretionary basis, taking into account tenure at MFS, contribution to the investment process, and other factors.
Finally, portfolio managers also participate in benefit plans (including a defined contribution plan and health and other insurance plans) and programs available generally to other employees of MFS. The percentage such benefits represent of any portfolio manager’s compensation depends upon the length of the individual’s tenure at MFS and salary level, as well as other factors.
Ownership of Fund Shares
The following table shows the dollar range of equity securities of the Fund beneficially owned by the Fund’s portfolio manager(s) as of the Fund's fiscal year ended November 30, 2023. The following dollar ranges apply:
N. None
A. $1 – $10,000
B. $10,001 – $50,000
C. $50,001 – $100,000
D. $100,001 – $500,000
E. $500,001 – $1,000,000
F. Over $1,000,000
|
Name of Portfolio Manager |
Dollar Range of Equity Securities in Fund |
|
Geoffrey Schechter |
N |
|
Neeraj Arora |
N |
|
Alexander Mackey |
N |
|
Jake Stone |
N |
Other Accounts
In addition to the Fund, each portfolio manager of the Fund is named as a portfolio manager of certain other accounts managed or sub- advised by MFS or an affiliate. The number and assets of these accounts were as follows as of the Fund's fiscal year ended November 30, 2023:
|
|
Registered Investment |
|
Other Pooled |
|
|
|
|||
|
|
|
Companies* |
Investment Vehicles |
Other Accounts |
|||||
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
|
Name |
Accounts |
|
Total Assets |
Accounts |
|
Total Assets |
Accounts |
Total Assets |
|
|
Geoffrey Schechter |
15 |
|
$20.6 billion |
4 |
|
$739.7 million |
5 |
$863.8 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
Neeraj Arora |
9 |
|
$13.9 billion |
9 |
|
$3.0 billion |
7 |
$2.2 billion |
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexander Mackey |
18 |
|
$34.3 billion |
5 |
|
$2.8 billion |
6 |
$500.8 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jake Stone |
5 |
|
$5.2 billion |
2 |
|
$444.1 million |
0 |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes the Fund |
|
|
|
|
|
|
|
|
|
Advisory fees are not based upon performance of any of the accounts identified in the table above.
Potential Conflicts of Interest
MFS seeks to identify potential conflicts of interest resulting from a portfolio manager’s management of both the Fund and other accounts, and has adopted policies and procedures designed to address such potential conflicts. There is no guarantee that MFS will be successful in identifying or mitigating conflicts of interest.
The management of multiple funds and accounts (including accounts in which MFS or an affiliate has an interest) gives rise to conflicts of interest if the funds and accounts have different objectives and strategies, benchmarks, time horizons, and fees, as a portfolio manager must allocate his or her time and investment ideas across multiple funds and accounts. In certain instances, there are securities which are suitable for the Fund’s portfolio as well as for one or more other accounts advised by MFS or its subsidiaries (including accounts in which MFS or an affiliate has an interest) with similar investment objectives. MFS' trade allocation policies could have a detrimental effect on the Fund if the
Fund’s orders do not get fully executed or are delayed in getting executed due to being aggregated with those of other accounts advised by MFS or its subsidiaries. A portfolio manager may execute transactions for another fund or account that may adversely affect the value of the Fund’s investments. Investments selected for funds or accounts other than the Fund may outperform investments selected for the Fund.
When two or more accounts are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed by MFS to be fair and equitable to each over time. Allocations may be based on many factors and may not always be pro rata based on assets managed. The allocation methodology could have a detrimental effect on the price or availability of a security with respect to the Fund.
MFS and/or a portfolio manager may have a financial incentive to allocate favorable or limited opportunity investments or structure the timing of investments to favor accounts other than the Fund; for instance, those that pay a higher advisory fee and/or have a performance adjustment, those that include an investment by the portfolio manager, and/or those in which MFS, its officers and/or employees, and/or its affiliates own or have an interest.
To the extent permitted by applicable law, certain accounts may invest their assets in other accounts advised by MFS or its affiliates, including accounts that are advised by one or more of the same portfolio manager(s), which could result in conflicts of interest relating to asset allocation, timing of purchases and redemptions, and increased profitability for MFS, its affiliates, and/or its personnel, including portfolio managers.
ITEM 14. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
MFS Government Markets Income Trust
|
|
|
|
|
(c) Total Number of |
(d) Maximum Number |
|
|
|
|
|
Shares Purchased as |
(or Approximate |
|
|
|
(a) Total number of |
(b) Average |
Part of Publicly |
Dollar Value) of |
|
|
Period |
Shares Purchased |
Price Paid |
Announced Plans or |
Shares that May Yet |
|
|
|
|
per Share |
Programs |
Be Purchased under |
|
|
|
|
|
|
the Plans or Programs |
|
|
|
|
|
|
|
|
|
12/01/23-12/31/23 |
0 |
N/A |
0 |
3,252,539 |
|
|
01/01/24-01/31/24 |
0 |
N/A |
0 |
3,252,539 |
|
|
02/01/24-02/28/24 |
0 |
N/A |
0 |
3,252,539 |
|
|
03/01/24-03/31/24 |
0 |
N/A |
0 |
3,252,539 |
|
|
04/01/24-04/30/24 |
0 |
N/A |
0 |
3,252,539 |
|
|
05/01/24-05/31/24 |
0 |
N/A |
0 |
3,252,539 |
|
|
Total |
0 |
N/A |
0 |
|
|
|
|
|
|
|
|
Note: The Board approved procedures to repurchase shares and reviews the results periodically. The notification to shareholders of the program is part of the semi-annual and annual reports sent to shareholders. These annual programs begin on October 1st of each year. The programs conform to the conditions of Rule 10b-18 of the Securities Exchange Act of 1934 and limit the aggregate number of shares that may be purchased in each annual period (October 1 through the following September 30) to 10% of the Registrant’s outstanding shares as of the first day of the plan year (October 1). The aggregate number of shares available for purchase for the October 1, 2023 plan year is 3,259,739.
ITEM 15. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.
ITEM 16. CONTROLS AND PROCEDURES.
(a)Based upon their evaluation of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this report on Form N-CSR, the Registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the Registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b)There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the period covered by the report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
ITEM 17. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable for semi-annual reports.
ITEM 18. RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION.
Not applicable.
ITEM 19. EXHIBITS.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Attached hereto as EX-99.COE.
(2)A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto as EX-99.302CERT.
(3)Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable.
(4)Change in the registrant’s independent public accountant. Not applicable.
(b)If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Attached hereto as EX-99.906CERT.
(c)Registrant’s Rule 30e-3 Notice pursuant to Item 1(b) of Form N-CSR. Attached hereto as EX-99.30e-3Notice.
(d)Notices to Trust’s common shareholders in accordance with Investment Company Act Section 19(a) and Rule 19a-1. Attached hereto as Ex-99.19a-1.
Notice
A copy of the Amended and Restated Declaration of Trust, as amended, of the Registrant is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS GOVERNMENT MARKETS INCOME TRUST
By (Signature and Title)*
/S/ DAVID L. DILORENZO
David L. DiLorenzo, President
Date: July 16, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)*
/S/ DAVID L. DILORENZO
David L. DiLorenzo, President (Principal Executive Officer)
Date: July 16, 2024
By (Signature and Title)*
/S/ KASEY L. PHILLIPS
Kasey L. Phillips, Treasurer (Principal Financial Officer and Accounting Officer) Date: July 16, 2024
* Print name and title of each signing officer under his or her signature.