[MFS Logo] MFS
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND [Registration Mark]
MFS[Registration Mark] Government Markets Income Trust
Annual Report
for Year Ended
November 30, 1998
[Illustration: man & woman conversing]
<PAGE>
Letter from the Chairman
Dear Shareholders,
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual
fund -- our Massachusetts Investors Trust (MIT) -- was introduced to the public
on March 21, 1924. Since then, MFS Investment Management[RegTM], the company
that grew out of that original fund, has helped guide shareholders through many
economic and investment cycles, primarily by focusing on the long-term
opportunities created by an expanding global economy. As of November 30, 1998,
MFS manages over $90 billion, and the firm's 2,000 people serve 3.8 million
investors and their financial advisers worldwide, while MIT's assets have grown
to over $10 billion.
A major factor in our growth was the development of one of the industry's first
in-house research departments in 1932. Unlike many other companies that rely on
Wall Street research reports, which can be used by many investors at the same
time, MIT's managers built its long-term track record by visiting companies,
talking to managers and competitors, and "kicking the tires" so they could
judge the quality and potential of each company's products and services for
themselves. Today, MFS has more than 100 full-time portfolio managers, stock
analysts, and credit analysts who track the equity and bond markets. That
number includes over 35 equity analysts who specialize in industries such as
aviation, media, technology, automobiles, and utilities.
While MIT was the first mutual fund, it was not our only invention. We also
established the nation's first global bond fund, first high-yield municipal
bond fund, and first high-yield municipal closed-end bond fund.
We are proud of the record of MIT and of the funds offered by MFS, but we are
also proud of our long-standing relationship with financial advisers. Not only
do we believe investors can benefit from the advice of these experts but, as
was shown during the market volatility of 1998, people who work with financial
advisers are less likely to abandon their carefully designed, long-term
investment strategies.
Our ability to service your investment and information needs is also extremely
important to us. Today, the MFS Service Center handles millions of transactions
and phone calls every year. Supporting the work of financial advisers, promptly
sending out statements and confirmations, and answering hundreds of investors'
questions every day are crucial elements in maintaining long-term relationships
with our fund shareholders.
If there is a common thread running through these milestones, it is our
always-increasing commitment to providing you with the best possible investment
management and shareholder service, just as we have done for the past 75 years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your investment
needs in the next century. We appreciate your confidence and welcome any
questions or comments you may have.
Respectfully,
[Signature of Jeffrey L. Shames]
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management[RegTM]
December 15, 1998
1
<PAGE>
Management Review and Outlook
Dear Shareholders,
The primary focus for investors in the past year has been the turmoil in global
fixed-income and equity markets. However, the economic downturn overseas was
not triggered by tightened monetary conditions aimed at reducing excess demand.
Rather, lenders made too much money available, which led to falling currency
prices, undermining economic activity. This exposed structural economic
weaknesses and threatened a growing number of economic systems. Because global
growth expectations were reduced dramatically, expectations for corporate
profits were reduced, impacting markets around the globe.
The Trust's stock market price, which stood at $6.69 on November 30, 1997,
decreased to $6.56 on November 30, 1998, while its net asset value (NAV) over
the same period increased from $7.41 to $7.50, representing a total return of
4.21% based on market price and 8.49% based on NAV. For comparative purposes,
the Salomon Brothers Treasury Government Sponsored Index, an unmanaged index of
medium-term U.S. Treasury and government-agency securities, appreciated 10.80%
over this period, while the J.P. Morgan Non-Dollar Government Bond Index, an
unmanaged index of actively traded government bonds issued by 12 countries
(excluding the United States) with remaining maturities of at least one year,
returned 14.04% in local currency terms.
U.S. Government Sector
The Trust's performance has, on balance, been favorably impacted by the
investment market turmoil. U.S. Treasuries proved to be the investment of
choice for investors who shifted their allocations away from potentially
riskier asset classes such as stocks, and prices of Treasuries appreciated.
Government-agency securities, however, also felt the negative effects of the
flight to quality and did not keep up with Treasuries. This caused a slight
drag on the Trust's performance during the sharp rally in Treasuries in August.
However, this does not mean other government-agency and mortgage-backed
securities are less safe, relatively speaking. They continue to enjoy, if not
explicit, at least implicit backing from the U.S. Treasury. We believe agency
securities continue to represent very good value over the long term. In
turbulent markets, they will often be overlooked as the focus shifts to the
Treasury market. In this environment, investors are able to purchase
government-agency securities at very attractive yield spreads to Treasuries. So
it becomes a good opportunity to acquire higher-yielding, quality securities.
(Principal value and interest on Treasury securities are guaranteed by the U.S.
government if held to maturity.)
We have somewhat decreased our exposure to mortgage-backed securities because
declining interest rates have led to quick increases in mortgage prepayment
rates, although Ginnie Mae (Government National Mortgage Association)
securities have shown good value versus other types of mortgage securities.
Ginnie Maes have smaller loan balances and are less sensitive to prepayments
than securities such as Fannie Maes (Federal National Mortgage Association) and
Freddie Macs (Federal Home Loan Mortgage Corporation). We've also found value
in 15-year securities. Even if interest rates come down a little, people with
15-year loans probably won't refinance into new 15-year loans, because when
they add up the extra interest costs of extending their mortgages they will
probably prefer to pay off their current mortgages. So we're selectively buying
these mortgages.
International Sector
The crisis atmosphere that began in Asia in the summer of 1997 remained the
dominant theme of the past 12 months. Emerging markets stabilized in the first
half of the year only to be hit hard when Russia defaulted in August.
Top-quality government bonds benefited from the flight to quality as well as
from accumulating evidence that the crisis will slow growth and dampen
inflation in the industrialized economies. As a result, every major European
bond market generated double-digit returns (in local currency terms) according
to the J.P. Morgan global
2
<PAGE>
government indices. A narrowing of yield spreads was also in evidence as the
higher-yielding markets -- the United Kingdom, Ireland, Sweden, and Italy --
outperformed the rest of Europe in the run-up to European monetary union in
January 1999. Similarly, New Zealand bonds outperformed the lower-yielding
markets of the dollar bloc. Throughout the year, the Trust's foreign assets were
concentrated in these better-performing markets -- especially the United Kingdom
and New Zealand. As we reported 12 months ago, we cut the Trust's exposure to
emerging markets to 5% in the early stages of the Asian crisis. We have
maintained this exposure throughout the year.
Six months ago, we suggested that the U.S. dollar's three-year trend of
appreciating versus major currencies might be ending. And so it did. Since the
end of April, the dollar has depreciated by 7.8% against the German Mark and by
12.7% against the Japanese Yen. While the fundamental factors that had
supported the dollar were waning, the magnitude of the collapse owes mostly to
forced unwinding of leveraged positions and official intervention designed to
relieve pressure on dollar-dependent emerging markets. As the pressure
increased on the dollar, we removed the currency hedges from the Trust's
foreign assets so that, at present, the Trust has roughly a 10% exposure to
foreign currencies. The portfolio is actively managed, and current holdings may
be different.
Over the last month of the period, the global bond markets have taken comfort
from rate cuts by the U.S. Federal Reserve Board and European central banks, an
increase in funding for the International Monetary Fund, a bank support package
in Japan, and a fiscal package in Brazil. These developments have renewed hope
that further deterioration of the global economy can be averted. Hence,
top-quality government bond yields have risen while credit spreads have
narrowed. Nonetheless, we remain positive on top-quality government bonds.
Global growth remains dependent upon U.S. demand, which is likely to slow in the
months ahead. Given their wide yield spreads, the United Kingdom, New Zealand,
and Greece remain among our favorite places in which to invest.
Respectfully,
[Signature of Stephen C. Bryant]
Stephen C. Bryant
Portfolio Manager
[Signature of Steven E. Nothern]
Steven E. Nothern
Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are only through the end of the period of the report as stated on the cover.
The managers' views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may vary.
----------------------------------------------
In accordance with Section 23(c) of the Investment Company Act of 1940, the
Trust hereby gives notice that it may from time to time repurchase shares of
the Trust in the open market at the option of the Board of Trustees and on such
terms as the Trustees shall determine.
3
<PAGE>
- ------------------------------------------------------------
Performance Summary
(For the year ended November 30, 1998)
<TABLE>
<S> <C>
Net Asset Value Per Share
November 30, 1997 $7.41
November 30, 1998 $7.50
New York Stock Exchange Price
November 30, 1997 $6.688
October 5, 1998 (high)* $6.875
May 7, 1998 (low)* $6.375
November 30, 1998 $6.563
</TABLE>
*For the period December 1, 1997, through November 30, 1998.
- ------------------------------------------------------------
Federal Tax Information
(For the year ended November 30, 1998)
In January 1999, shareholders will be mailed a Form 1099 reporting the federal
tax status of all distributions paid during the calendar year 1998.
Number of Employees
The Trust is organized as a Massachusetts business trust and is registered under
the Investment Company Act of 1940, as amended, as a closed-end, nondiversified,
management investment company and has no employees.
Number of Shareholders
As of November 30, 1998, our records indicate that there are 9,807 registered
shareholders and approximately 48,600 shareholders owning Trust shares in
"street" name, such as through brokers, banks, and other financial
intermediaries.
If you are a "street" name shareholder and wish to directly receive our
reports, which contain important information about the Trust, please write or
call:
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
1-800-637-2304
New York Stock Exchange Symbol
The New York Stock Exchange symbol is MGF.
Results of Shareholder Meeting
At the annual meeting of shareholders of MFS[RegTM] Government Markets Income
Trust, which was held on October 22, 1998, the following actions were taken:
Item 1. The election of Marshall N. Cohan,
Sir J. David Gibbons, Abby M. O'Neill, and Ward Smith as
Trustees of the Trust.
<TABLE>
<CAPTION>
Number of Shares
------------------------------------------
Withhold
Nominee For Authority
- ---------------------- -------------------- -------------------
<S> <C> <C>
Marshall N. Cohan 60,779,369.7822 1,366,035.8335
Sir J. David Gibbons 60,776,784.2291 1,368,621.3866
Abby M. O'Neill 60,785,224.2126 1,360,181.4031
Ward Smith 60,793,241.7805 1,352,163.8352
</TABLE>
Trustees continuing in office who were not subject to re-election at this
meeting are Richard B. Bailey, Lawrence H. Cohn, Walter E. Robb, III, Arnold D.
Scott, Jeffrey L. Shames, and J. Dale Sherratt.
Item 2. The ratification of the election of Deloitte & Touche LLP as the
independent public accountants to be employed by the Trust for
the fiscal year ending November 30, 1999.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 61,096,059.9601
Against 380,709.3618
Abstain 668,636.2938
</TABLE>
4
<PAGE>
Investment Objective and Policy
The investment objective of the Trust is to provide a high current income.
The Trust will attempt to achieve this objective by investing at least 65% of
its assets in U.S. government securities and by engaging in transactions
involving related options. The Trust may invest up to 35% of its total assets
in foreign government securities. In pursuing its objective, the Trust will
consider the preservation of capital by balancing the yields of various
fixed-income securities against their attendant risks. However, the Trust will
not purchase securities with the goal of achieving capital appreciation.
For defensive purposes, the Trust may invest in cash (including foreign
currency) and cash equivalents. The Trust may also enter into options and
futures transactions, and forward foreign currency exchange contracts, and
interest-rate swaps and may purchase securities on a "when-issued" basis.
Dividend Reinvestment and
Cash Purchase Plan
MFS offers a Dividend Reinvestment and Cash Purchase Plan which allows you to
reinvest either all of the distributions paid by the Trust or only the
long-term capital gains. Purchases are made at the market price unless that
price exceeds the net asset value (the shares are trading at a premium). If the
shares are trading at a premium, purchases will be made at a discounted price
of either the net asset value or 95% of the market price, whichever is greater.
Twice each year you can also buy shares. Investments from $100 to $500 can be
made in January and July on the 15th of the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee, you
can ask the firm or nominee to participate in the Plan on your behalf. If the
nominee does not offer the Plan, you may wish to request that your shares be
re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the Trust. However, when shares are
bought on the New York Stock Exchange or otherwise on the open market, each
participant pays a pro rata share of the commissions. A service fee of $0.75 is
charged for each cash purchase as well as a pro rata share of the brokerage
commissions. The automatic reinvestment of distributions does not relieve you
of any income tax that may be payable (or required to be withheld) on the
distributions.
To enroll in or withdraw from the Plan, call 1-800-637-2304 any business day
from 8 a.m. to 8 p.m. Eastern time. Please have available the name of the Trust
and your account and Social Security numbers. For certain types of
registrations, such as corporate accounts, instructions must be submitted in
writing. Please call for additional details. When you withdraw, you can receive
the value of the reinvested shares in one of two ways: a check for the value of
the full and fractional shares, or a certificate for the full shares and a
check for the fractional shares.
If you have any questions or would like a brochure providing a complete
description of the Plan, please call 1-800-637-2304 any business day from 8
a.m. to 8 p.m. Eastern time.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
5
<PAGE>
Portfolio of Investments - November 30, 1998
Bonds - 99.0%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- 83.6%
U.S. Federal Agencies -- 33.8%
FHA, 10.375s, 2030+ ............................. $ 2,444 $ 2,456,482
FICO, 9.8s, 2018 ................................ 5,000 7,427,350
FICO, 10.35s, 2018 .............................. 9,500 14,769,555
FICO, 10.7s, 2017 ............................... 8,500 13,447,255
Federal Home Loan Banks,
5.125s, 2003 .................................. 27,250 27,330,933
Federal Home Loan Mortgage
Corp., 5.75s, 2003 ............................ 23,000 23,686,320
Federal Home Loan Mortgage
Corp., 6.79s, 2005 ............................ 4,500 4,886,719
Federal National Mortgage Assn.,
5s, 2023 ...................................... 6,000 5,461,860
Federal National Mortgage Assn.,
6.959s, 2007 .................................. 5,932 6,211,424
Federal National Mortgage Assn.,
7.875s, 2006 .................................. 20,000 20,403,200
Federal National Mortgage Assn.,
8.5s, 2027 .................................... 10,100 11,087,881
Federal National Mortgage Assn.,
6s, 2099, TBA ................................. 6,850 6,858,562
Federal National Mortgage Assn.,
7.5s, 2010, TBA ............................... 28,175 28,975,930
------------
$173,003,471
------------
U.S. Treasury Obligations -- 31.1%
U.S. Treasury Bonds, 3.625s,
2028 .......................................... $20,111 $ 19,985,107
U.S. Treasury Bonds, 6.125s,
2027 .......................................... 3,500 3,946,810
U.S. Treasury Bonds, 6.375s,
2027 .......................................... 9,250 10,711,223
U.S. Treasury Bonds, 6.625s,
2027 .......................................... 15,700 18,683,000
U.S. Treasury Bonds, 8.875s,
2017 .......................................... 6,000 8,516,220
U.S. Treasury Bonds, 9.875s,
2015 .......................................... 13,750 20,975,212
U.S. Treasury Bonds, 10.375s,
2009 - 2012 ................................... 14,600 19,566,568
U.S. Treasury Notes, 3.625s,
2008 .......................................... 12,634 12,531,534
U.S. Treasury Notes, 4.75s, 2008 10,000 10,015,600
U.S. Treasury Notes, 5.625s,
2008 .......................................... 7,500 7,978,125
U.S. Treasury Notes, 8s, 2001 ................... 24,250 26,125,495
------------
$159,034,894
------------
Government National Mortgage
Association -- 17.4%
GNMA, 7s, 2023 - 2024 ........................... $14,747 $ 15,103,090
GNMA, 7.5s, 2022 - 2023 ......................... 1,288 1,330,862
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- continued
GNMA, 6.5s, 2028, TBA ............................. $17,819 $ 18,002,404
GNMA, 7s, 2011 - 2025, TBA ...................... 17,319 17,752,350
GNMA, 7.5s, 2009 - 2026, TBA .................... 35,659 36,802,372
------------
$ 88,991,078
------------
U.S. Government Guaranteed -- 0.7%
Private Export Funding Corp.,
7.01s, 2004 ................................... $ 3,380 $ 3,683,795
------------
Small Business
Administration -- 0.6%
SBA, 8.875s, 2011 ............................... $ 2,781 $ 3,098,204
------------
Total U.S. Bonds ........................... $427,811,442
------------
Foreign Bonds -- 15.4%
Argentina -- 0.6%
Republic of Argentina, 9.015s,
2005 .......................................... $ 2,100 $ 1,995,000
Republic of Argentina, 11s, 2005................. 1,100 1,105,500
------------
$ 3,100,500
------------
Australia -- 0.3%
Commonwealth of Australia, 9.5s,
2003 ..................................... AUD 2,345 $ 1,758,002
------------
Brazil--1.1%
Federal Republic of Brazil, 5.5s,
2024 .......................................... $ 1,270 $ 830,326
Federal Republic of Brazil,
6.188s, 2024 .................................. 4,555 2,937,975
Federal Republic of Brazil,
9.375s, 2008 .................................. 2,055 1,628,587
------------
$ 5,396,888
------------
Bulgaria -- 0.4%
National Republic of Bulgaria,
6.688s, 2024 .................................. $ 2,750 $ 2,038,575
------------
Colombia -- 0.5%
Republic of Columbia, 12.243s,
2005 .......................................... $ 3,000 $ 2,797,500
------------
Denmark -- 0.4%
Kingdom of Denmark, 7s, 2007 ............... DKK 12,142 $ 2,242,310
------------
Greece -- 2.0%
Hellenic Republic, 5.75s, 2008 ............. XEU 731 $ 899,016
Hellenic Republic, 8.9s, 2003 .............. GRD 2,650,000 9,532,809
------------
$ 10,431,825
------------
Mexico -- 1.4%
Petroleos Mexicanos Medium
Term Note, 10.261s, 2005 ........................ $ 1,000 $ 947,500
United Mexican States, 9.875s,
2007 ............................................ 6,200 6,215,500
------------
$ 7,163,000
------------
</TABLE>
6
<PAGE>
Bonds - continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- continued
New Zealand -- 2.2%
Government of New Zealand, 8s,
2004 - 2006 .................................. NZD 17,800 $ 10,565,971
Government of New Zealand,
10s, 2002 ........................................ 730 437,863
------------
$ 11,003,834
------------
Panama -- 0.4%
Republic of Panama, 8.25s, 2008 $2,400 $ 2,292,000
------------
Russia -- 0.2%
Ministry of Finance, 10s, 2007 ..................... $ 260 $ 71,500
Russian Federation, 11.75s,
2003 ............................................. 2,100 724,500
------------
$ 796,000
------------
South Korea -- 1.1%
Republic of Korea, 8.875s, 2008..................... $3,150 $ 3,148,457
Korea Development Bank,
8.875s, 2003 ..................................... 2,700 2,362,500
------------
$ 5,510,957
------------
United Kingdom -- 4.8%
United Kingdom Treasury, 6.5s,
2003 ........................................ GBP 6,79 $ 12,086,332
United Kingdom Treasury, 6.75s,
2004 ............................................. 1,387 2,527,234
United Kingdom Treasury, 7.25s,
2007 ............................................. 4,999 9,804,836
------------
$ 24,418,402
------------
Total Foreign Bonds .................................... $ 78,949,793
------------
Total Bonds
(Identified Cost, $498,942,784)........................ $506,761,235
------------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C>
Warrants
Republic of Venezuela* (Identified
Cost, $0).................................. 37,500 $ --
------------
Rights
United Mexican States* (Identified
Cost, $0)................................. 1,000 $ --
------------
</TABLE>
Short-Term Obligations -- 0.2%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Federal Home Loan Bank
Consolidated Discount Notes,
due 12/01/98, at Amortized
Cost ................................................. $900 $ 900,000
------------
Total Investments (Identified Cost,
$499,842,784)................................................................ $507,661,235
------------
Call Options Written
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
Japanese Yen / February/110
(Premiums Received,
$228,144)........................................ JPY 1,976,049 $ (49,401)
------------
Other Assets, Less
Liabilities -- 0.8% 4,248,730
------------
Net Assets -- 100.0% ........................................................... $511,860,564
============
</TABLE>
* Non-income producing security
+ Restricted Security
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. dollar. A list of abbreviations is shown
below.
AUD = Australian Dollars GRD = Greek Drachmas
CAD = Canadian Dollars JPY = Japanese Yen
CHF = Swiss Francs ITL = Italian Lire
DEM = Deutsche Marks NZD = New Zealand Dollars
DKK = Danish Kroner XEU = European Currency Unit
GBP = British Pounds
See notes to financial statements
7
<PAGE>
Statement of Assets and Liabilities -- November 30, 1998
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $499,842,784) ................................... $ 507,661,235
Cash .................................................................................... 44,592
Net receivable for forward foreign currency exchange contracts to purchase .............. 1,067,187
Net receivable for forward foreign currency exchange contracts closed or subject to 357,412
master netting agreements
Receivable for investments sold ......................................................... 6,944,726
Interest receivable ..................................................................... 6,242,631
Other assets ............................................................................ 3,459
-------------
Total assets .......................................................................... $ 522,321,242
------------
Liabilities:
Payable to dividend disbursing agent .................................................... $ 200,083
Payable for investments purchased ....................................................... 7,926,240
Written options outstanding, at value (premiums received, $228,144) ..................... 49,401
Net payable for forward foreign currency exchange contracts to sell ..................... 1,928,738
Payable to affiliates --
Management fee ......................................................................... 28,416
Transfer and dividend disbursing agent fee ............................................. 16,346
Accrued expenses and other liabilities .................................................. 311,454
-------------
Total liabilities ..................................................................... $ 10,460,678
-------------
Net assets ............................................................................... $ 511,860,564
=============
Net assets consist of:
Paid-in capital ......................................................................... $ 536,672,572
Unrealized appreciation on investments and translation of assets and liabilities in 7,467,737
foreign currencies
Accumulated net realized loss on investments and foreign currency transactions .......... (31,565,172)
Accumulated distributions in excess of net investment income ............................ (714,573)
-------------
Total ................................................................................. $ 511,860,564
=============
Shares of beneficial interest outstanding (97,911,555 shares issued, less 29,649,000 68,262,555
treasury shares) =============
Net asset value per share (net assets of $511,860,564 [divided by] 68,262,555 shares of $7.50
beneficial interest outstanding) =====
</TABLE>
See notes to financial statements
8
<PAGE>
Statement of Operations -- Year Ended November 30, 1998
<TABLE>
<S> <C>
Net investment income:
Interest income ........................................................... $ 36,248,655
------------
Expenses --
Management fee ........................................................... $ 3,582,526
Trustees' compensation ................................................... 146,886
Transfer and dividend disbursing agent fee ............................... 195,438
Administrative fee ....................................................... 66,645
Custodian fee ............................................................ 178,921
Auditing fees ............................................................ 75,431
Postage .................................................................. 48,595
Printing ................................................................. 22,205
Legal fees ............................................................... 5,949
Miscellaneous ............................................................ 278,805
------------
Total expenses .......................................................... $ 4,601,401
Fees paid indirectly ..................................................... (81,722)
------------
Net expenses ............................................................ $ 4,519,679
------------
Net investment income .................................................. $ 31,728,976
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions .................................................. $ 2,921,342
Written option transactions .............................................. (266,460)
Foreign currency transactions ............................................ 1,466,873
Swap transactions ........................................................ 30,924
------------
Net realized gain on investments and foreign currency transactions ..... $ 4,152,679
------------
Change in unrealized appreciation (depreciation) --
Investments .............................................................. $ 3,010,788
Written options .......................................................... 727,445
Translation of assets and liabilities in foreign currencies .............. (2,731,260)
Swap transactions ........................................................ (55,263)
------------
Net unrealized gain on investments and foreign currency transactions ... $ 951,710
------------
Net realized and unrealized gain on investments and foreign currency .. $ 5,104,389
------------
Increase in net assets from operations ............................... $ 36,833,365
============
</TABLE>
See notes to financial statements
9
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended November 30,
-----------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations --
Net investment income .................................................................. $ 31,728,976 $ 34,660,278
Net realized gain (loss) on investments and foreign currency transactions .............. 4,152,679 (6,065,965)
Net unrealized gain (loss) on investments and foreign currency translation ............. 951,710 (3,847,810)
------------- -------------
Increase in net assets from operations ................................................ $ 36,833,365 $ 24,746,503
------------- -------------
Distributions declared to shareholders --
From net investment income ............................................................. $ (31,728,976) $ (34,660,278)
In excess of net investment income ..................................................... (967,060) (2,305,112)
------------- -------------
Total distributions declared to shareholders ......................................... $ (32,696,036) $ (36,965,390)
------------- -------------
Trust share (principal) transactions --
Cost of Treasury shares acquired ....................................................... $ (16,857,235) $ (17,696,661)
------------- -------------
Total decrease in net assets ......................................................... $ (12,719,906) $ (29,915,548)
Net assets:
At beginning of period ................................................................. 524,580,470 554,496,018
------------- -------------
At end of period (including accumulated distributions in excess of net investment income
of $714,573 and $2,185,420, respectively) ............................................. $ 511,860,564 $ 524,580,470
============= =============
</TABLE>
See notes to financial statements
10
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- --------------
Per share data (for shares outstanding
throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value -- beginning of period ................ $ 7.41 $ 7.56 $ 7.62 $ 6.90 $ 7.83
-------- -------- -------- -------- --------
Income from investment operations# --
Net investment income ................................ $ 0.46 $ 0.49 $ 0.49 $ 0.49 $ 0.48
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ....... 0.08 (0.14) (0.07) 0.64 (0.88)
-------- --------- --------- -------- ---------
Total from investment operations .................... $ 0.54 $ 0.35 $ 0.42 $ 1.13 $ (0.40)
-------- --------- --------- -------- ---------
Less distributions declared to shareholders --
From net investment income ........................... $ (0.46) $ (0.49) $ (0.49) $ (0.49) $ (0.14)
From net realized gain on investments and foreign
currency transactions ............................... -- -- -- -- (0.05)
In excess of net investment income ................... (0.01) (0.03) (0.05) -- (0.02)
Tax return of capital ................................ -- -- -- -- (0.32)
--------- --------- --------- --------- ---------
Total distributions declared to shareholders ........ $ (0.47) $ (0.52) $ (0.54) $ (0.49) $ (0.53)
--------- --------- --------- --------- ---------
Net increase from repurchase of capital shares ....... $ 0.02 $ 0.02 $ 0.06 $ 0.08 --
--------- --------- --------- --------- ---------
Net asset value -- end of period ..................... $ 7.50 $ 7.41 $ 7.56 $ 7.62 $ 6.90
========= ========= ========= ========= =========
Per share market value -- end of period .............. $ 6.563 $ 6.688 $ 6.750 $ 6.500 $ 6.313
Total return ......................................... 4.21% 6.91% 12.61% 10.96% (3.90)%
Ratios (to average net assets)/Supplemental data
Expenses## .......................................... 0.89% 0.94% 1.00% 0.99% 0.97%
Net investment income ............................... 6.14% 6.56% 6.63% 6.84% 6.51%
Portfolio turnover ................................... 253% 248% 249% 318% 295%
Net assets at end of period (000 omitted) ............ $511,861 $524,580 $554,496 $606,135 $617,789
</TABLE>
# Per share data are based on average shares outstanding.
## The Trust has an expense offset arrangement which reduces the Trust's
custodian fee based upon the amount of cash maintained by the Trust with its
custodian and dividend disbursing agent. For the fiscal years ending after
September 1, 1995, the Trust's expenses are calculated without reduction for
this expense offset arrangement.
See notes to financial statements
11
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Government Markets Income Trust (the Trust) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a non diversified, closed-end management investment company.
(2) Significant Accounting Policies
General -- The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations -- Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, forward contracts,
and swap agreements, are valued on the basis of valuations furnished by dealers
or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Non-U.S. dollar denominated
short-term obligations are valued at amortized cost as calculated in the
foreign currency and translated into U.S. dollars at the closing daily exchange
rate. Options and options on futures contracts listed on commodities exchanges
are reported at market value using closing settlement prices. Over-the-counter
options on securities are valued by brokers. Over-the-counter currency options
are valued through the use of a pricing model which takes into account foreign
currency exchange spot and forward rates, implied volatility, and short-term
repurchase rates. Securities for which there are no such quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Trustees.
Foreign Currency Translation -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction gains
and losses. That portion of both realized and unrealized gains and losses on
investments that results from fluctuations in foreign currency exchange rates
is not separately disclosed.
Written Options -- The Trust may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the options contract. When a written option
expires, the Trust realizes a gain equal to the amount of the premium received.
When a written call option is exercised or closed, the premium received is
offset against the proceeds to determine the realized gain or loss. When a
written put option is exercised, the premium reduces the cost basis of the
security purchased by the Trust. The Trust, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received.
12
<PAGE>
Written options may also be used as part of an income producing strategy
reflecting the view of the Trust's management on the direction of interest
rates.
Forward Foreign Currency Exchange Contracts -- The Trust may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Trust may enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Trust may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Trust may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Trust may
enter into contracts with the intent of changing the relative exposure of the
Trust's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
Swap Agreements -- The Trust may enter into swap agreements. A swap is an
exchange of cash payments between the Trust and another party which is based on
a specific financial index. Cash payments are exchanged at specified intervals
and the expected income or expense is recorded on the accrual basis. The value
of the swap is adjusted daily and the change in value is recorded as unrealized
appreciation or depreciation. Risks may arise upon entering into these
agreements from the potential inability of counterparties to meet the terms of
their contract and from unanticipated changes in the value of the financial
index on which the swap agreement is based. The Trust uses swaps for both
hedging and non-hedging purposes. For hedging purposes, the Trust may use swaps
to reduce its exposure to interest and foreign exchange rate fluctuations. For
non-hedging purposes, the Trust may use swaps to take a position on anticipated
changes in the underlying financial index.
Investment Transactions and Income -- Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Some securities may be purchased on a
"when-issued" or "forward delivery" basis, which means that the securities will
be delivered to the Trust at a future date, usually beyond customary settlement
time.
Fees Paid Indirectly -- The Trust's custody fee is calculated as a percentage
of the Trust's month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
Trust. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions -- The Trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Trust files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of
net investment income and net realized gain reported on these financial
statements may differ from that reported on the Trust's tax return and,
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV.
13
<PAGE>
Notes to Financial Statements -- continued
Distributions to shareholders are recorded on the ex-dividend date. The Trust
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. During
the year ended November 30, 1998, $2,437,907 and $2,396,092 was reclassified
from paid-in capital to accumulated distributions in excess of net investment
income and accumulated net realized loss on investments and foreign currency
transactions, respectively, due to differences between book and tax accounting
for mortgage-backed securities and currency transactions. This change had no
effect on the net assets or net asset value per share.
At November 30, 1998, accumulated undistributed net investment income under
book accounting was different from tax accounting due to temporary differences
in accounting for currency transactions.
At November 30, 1998, the Trust, for federal income tax purposes, had a capital
loss carryforward of $30,505,480 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on November 30, 2002 ($21,490,437), November 30, 2004 ($196,662),
and November 30, 2005 ($8,818,381).
(3) Transactions with Affiliates
Investment Adviser -- The Trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at the lesser of 0.32% per
annum of the Trust's average daily net assets and 5.33% of investment income,
or 0.85% per annum of average daily net assets. The effective annual rate for
the year ended November 30, 1998, was 0.61%.
Administrator -- The Trust has an administrative services agreement with MFS to
provide the Trust with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Trust pays MFS an administrative fee
at the following annual percentages of the Trust's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Transfer Agent -- MFS Service Center, Inc. (MFSC) acts as registrar and
dividend disbursing agent for the Trust. The agreement provides that the Trust
will pay MFSC an account maintenance fee of no more than $9.00 and a dividend
services fee of $0.75 per reinvestment and will reimburse MFSC for reasonable
out-of-pocket expenses.
The Trust pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Trust, all of whom receive
remuneration for their services to the Trust from MFS. Certain officers and
Trustees of the Trust are officers or directors of MFS, and MFSC. The Trust has
an unfunded defined benefit plan for all of its independent Trustees and Mr.
Bailey. Included in Trustees' compensation is a net periodic pension expense of
$41,763 for the year ended November 30, 1998.
14
<PAGE>
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
-------------- --------------
<S> <C> <C>
U.S. government securities $1,089,890,627 $1,103,549,210
============== ==============
Investments (non-U.S. government securities) $ 217,008,976 $ 158,647,197
============== ==============
</TABLE>
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Trust, as computed on a federal income tax basis, are
as follows:
<TABLE>
<S> <C>
Aggregate cost ........................ $501,506,175
============
Gross unrealized appreciation ......... $ 10,698,625
Gross unrealized depreciation ......... (4,543,565)
------------
Net unrealized appreciation .......... $ 6,155,060
============
</TABLE>
(5) Shares of Beneficial Interest
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Trust shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
November 30, 1998 November 30, 1997
------------------------ ------------------------
Shares Amount Shares Amount
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Treasury shares acquired ....... 2,490,700 $16,857,235 2,631,200 $17,696,661
========= =========== ========= ===========
</TABLE>
In accordance with the provisions of the Trust's prospectus, 2,490,700 shares
of beneficial interest were purchased by the Trust during the year ended
November 30, 1998 at an average price per share of $6.76 and a weighted average
discount of 9.2% per share. The Trust reacquired 2,631,200 shares of beneficial
interest during the year ended November 30, 1997, at an average price per share
of $6.73 and a weighted average discount of 9.6% per share.
(6) Line of Credit
The Trust and other affiliated trusts participate in an $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the acquisition of
Treasury shares. Interest is charged to each trust, based on its borrowings, at
a rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating trusts at the end of each quarter. The commitment fee allocated
to the Trust for the year ended November 30, 1998, was $3,733.
(7) Financial Instruments
The Trust trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to market
risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency
exchange contracts and swap agreements. The notional or contractual amounts of
these instruments represent the investment the Trust has in particular classes
of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting transactions are
considered.
15
<PAGE>
Notes to Financial Statements -- continued
Written Option Transactions
<TABLE>
<CAPTION>
1998 Calls 1998 Puts
---------------------------------------------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period --
Swiss Francs/Deutsche Marks ................... 19,084 $ 133,083 $ -- $ --
Options Written --
Canadian Dollars .............................. -- -- 2,243 8,391
Deutsche Marks ................................ 22,842 98,983 5,808 33,389
Japanese Government Bonds ..................... 113,200 1,739 226,600 6,406
Japanese Yen .................................. 10,312,554 746,239 -- --
Japanese Yen/Deutsche Marks ................... 251,984 58,600 -- --
Options terminated in closing transactions --
Canadian Dollars .............................. -- -- (2,243) (8,391)
Deutsche Marks ................................ (22,842) (98,983) (5,808) (33,389)
Japanese Government Bonds ..................... (113,200) (1,739) (226,600) (6,406)
Japanese Yen .................................. (5,595,453) (484,996) -- --
Swiss Francs/Deutsche Marks ................... (19,084) (133,083) -- --
Options expired --
Japanese Yen .................................. (2,741,052) (33,099) -- --
Japanese Yen/Deutsche Marks ................... (251,984) (58,600) -- --
---------- ----------
Outstanding, end of period $ 228,144 $ --
========== ==========
Options outstanding at end of period consist of:
Japanese Yen .................................. 1,976,049 $ 228,144 -- $ --
---------- ----------
Outstanding, end of period ..................... $ 228,144 $ --
========== ==========
</TABLE>
At November 30, 1998, the Trust had sufficient cash and/or securities at least
equal to the value of the written options.
16
<PAGE>
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Net Unrealized
Contracts to Contracts Appreciation
Settlement Date Deliver/Receive In Exchange For at Value (Depreciation)
--------------------- ----------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sales 12/15/1998 .......... AUD 2,875,087 $ 1,704,841 $ 1,801,064 $ (96,223)
12/15/1998 .......... CAD 20,962,393 13,850,276 13,690,721 159,555
12/15/1998 .......... DEM 46,331,947 27,668,967 27,333,681 335,286
12/15/1998 .......... DKK 25,848,315 4,069,211 4,011,431 57,780
12/15/1998 .......... ITL 16,081,979 10,093 9,584 509
12/15/1998 .......... JPY 2,953,945,787 21,748,596 24,024,994 (2,276,398)
12/15/1998 .......... NZD 19,434,986 10,101,011 10,210,258 (109,247)
----------- ----------- ------------
$79,152,995 $81,081,733 $ (1,928,738)
=========== =========== ============
Purchases 12/15/1998 .......... AUD 15,227,806 $ 9,057,500 $ 9,539,275 $ 481,775
12/15/1998 .......... CAD 26,762,973 17,302,532 17,479,130 176,598
12/15/1998 .......... CHF 12,656,746 9,165,624 9,073,261 (92,363)
12/15/1998 .......... DEM 34,892,846 20,858,348 20,585,146 (273,202)
12/15/1998 .......... DKK 9,877,359 1,587,540 1,532,879 (54,661)
12/15/1998 .......... GBP 1,685,853 2,852,631 2,777,340 (75,291)
12/15/1998 .......... JPY 3,629,695,996 28,629,005 29,520,997 891,992
12/15/1998 .......... NZD 4,562,482 2,384,582 2,396,921 12,339
----------- ----------- ------------
$91,837,762 $92,904,949 $ 1,067,187
=========== =========== ============
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net payable of $252,925 with Deutschebank and
$942,660 with Merrill Lynch, and a net receivable of $1,552,997 with First
Boston at November 30, 1998.
At November 30, 1998, the Trust had sufficient cash and/or securities to cover
any commitments under these contracts.
(8) Restricted Securities
The Trust may invest not more than 10% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At November 30,
1998, the Trust owned the following restricted security (constituting 0.48% of
net assets) which may not be publicly sold without registration under the
Securities Act of 1933. The Trust does not have the right to demand that this
security be registered. The value of this security is determined by valuations
furnished by dealers or by a pricing service, or if not available, is valued at
fair value as determined in good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
Principal
Date of Amount
Description Acquisition (000 omitted) Cost Value
- -------------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
FHA, 10.375s, 2030 8/16/1993 $2,444 $2,629,108 $2,456,482
</TABLE>
17
<PAGE>
Independent Auditors' Report
To the Trustees and Shareholders of MFS Government Markets Income Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Government Markets Income Trust as of
November 30, 1998, the related statement of operations for the year then ended,
the statement of changes in net assets for the years ended November 30, 1998
and 1997, and the financial highlights for each of the years in the five-year
period ended November 30, 1998. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
November 30, 1998 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Government
Markets Income Trust at November 30, 1998, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 8, 1999
18
<PAGE>
MFS Prepares for the Year 2000
[YK Year 2000 Logo]
MFS Investment Management[RegTM] is committed to the effective use of technology
in managing investments, delivering high-quality service to our fund
shareholders, and supporting the financial advisers who sell our products. With
that in mind, we created a separately funded Year 2000 Program Management
Office in 1996 composed of a specialized staff reporting directly to MFS senior
management.
The Year 2000 (Y2K) problem arose because date fields in computers and software
applications have traditionally used two-digit codes. Since the dawn of the
computer age, the implied first two digits have been "1" and "9". In the year
2000, that can no longer be the case because computer applications may assume
"00" refers to 1900. Our team of dedicated business and technology managers,
working with outside experts, is taking reasonable steps to ascertain the Y2K
compliance of MFS' internal systems. We are also working with our vendors to
seek reasonable assurances that their systems are or will be compliant.
MFS realizes that investors are also concerned about whether the companies in
the Funds' portfolios are addressing their internal Y2K issues. As MFS'
portfolio managers and research analysts meet with the managements of portfolio
companies as part of the MFS[RegTM] Original Research[SM] process, one of the
many factors they may consider is a company's Y2K preparedness.
Year 2000 compliance is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K phenomenon.
While MFS is making an effort to ensure the integrity of its internal systems,
there are significant systems interdependencies in the domestic and foreign
securities markets, external vendor systems, and the internal business
environments of its portfolio companies. There can be no assurance that the
steps MFS has taken will be sufficient to avoid any adverse impact on the Funds.
However, MFS will continue to review and test its internal systems.
19
<PAGE>
MFS[RegTM] Government Markets Income Trust
Trustees
Richard B. Bailey* (2)
Private Investor; Former Chairman and
Director (until 1991), MFS Investment
Management
Marshall N. Cohan (1)
Private Investor
Lawrence H. Cohn, M.D.(2)
Chief of Cardiac Surgery,
Brigham and Women's Hospital;
Professor of Surgery, Harvard
Medical School
The Hon. Sir J. David
Gibbons, KBE(2)
Chief Executive Officer,
Edmund Gibbons Ltd.
Abby M. O'Neill(2)
Private Investor
Walter E. Robb, III(1)
President and Treasurer,
Benchmark Advisors, Inc.
(corporate financial consultants);
President, Benchmark Consulting
Group, Inc. (office services)
Arnold D. Scott *
Senior Executive Vice President,
Director, and Secretary,
MFS Investment Management
Jeffrey L. Shames*
Chairman, Chief Executive Officer,
and Director, MFS Investment
Management
J. Dale Sherratt(1)
President, Insight Resources, Inc.
(acquisition planning specialists)
Ward Smith(1)
Former Chairman (until 1994),
NACCO Industries (holding company)
Portfolio Managers
Stephen C. Bryant*
Steven E. Nothern*
Treasurer
W. Thomas London*
Assistant Treasurers
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
Transfer Agent,
Registrar, and Dividend
Disbursing Agent
State Street Bank and
Trust Company
c/o MFS Service Center, Inc.
P.O. Box 9024
Boston, MA 02205-9824
1-800-637-2304
Custodian
State Street Bank and
Trust Company
Independent Auditors
Deloitte & Touche LLP
Investment Adviser
Massachusetts Financial
Services Company
500 Boylston Street
Boston, MA 02116-3741
* Affiliated with the Investment Adviser.
(1) Member of Audit Committee.
(2) Member of Portfolio Trading Committee.
[Recycle Logo] This report is printed on recycled paper.
MGFCE-2 1/99 61M
