<PAGE>
DEAR SHAREHOLDERS,
It has been almost two years since financial turmoil began to rock Asian and
other markets, including markets in Russia and Latin America. Even developed
markets such as Europe and the United States were not immune. Investors in U.S.
bond markets, for example, became increasingly risk conscious, shifting money
into U.S. Treasury securities and away from corporate and municipal bonds and
mortgage-backed securities.
Today, the bond market environment in the United States has become much more
favorable. In fact, we think it is approaching the level of relative stability
it enjoyed before the Asian turmoil began.
This May, the Federal Reserve Board (the Fed) indicated a bias toward raising
short-term interest rates. Despite six months of strong economic growth and a
surprisingly high 0.7% increase in the Consumer Price Index in April, the Fed
did not actually raise rates. This is not the first time the Fed has used such a
strategy. Since 1995, the Fed has indicated a bias toward higher interest rates
more than 15 times but has raised rates only twice.
We believe the Fed's bias statement will be good for the bond markets for two
reasons. First, it reassures investors that the Fed will act if economic growth
results in higher inflation and reduced purchasing power. Second, the Fed's
signal, combined with several months of strong growth, has already resulted in
higher interest rates, which could slow the economy enough to dampen inflation
without a need for further Fed action. Although the Fed has not changed
short-term interest rates since October 1998, bond market investors have pushed
up the rate on the 30-year Treasury bond close to 6%, almost a full percentage
point higher than it was a year ago. The effect of this increase can be seen in
the mortgage market, in which interest rates have risen slightly since the
summer of 1998.
April's increase in the Consumer Price Index was higher than analysts had
forecast, but we do not believe it is cause for concern. Most of April's
increase seems to have resulted from a decision by oil-exporting countries to
limit production following more than a year of declining oil prices. If the
increase in oil prices is nothing more than a small reversal of the earlier
decline, April's inflation report may be an aberration rather than the beginning
of a trend toward higher prices. Also, thanks in part to global competition and
the growing use of technology to increase global production, companies followed
by our portfolio managers and analysts report very little margin to raise
prices. As a result, we expect 1999's inflation rate to be around 2%, which is
slightly higher than 1998's but still moderate.
One of the most positive results of the moderate growth and inflation
environment has been a rebound in the major non-Treasury bond markets:
corporate, municipal, and mortgage. Once people saw that the overseas turmoil
had little, if any, effect on the financial strength of most domestic bond
issuers, these markets began to rebound and to present our portfolio managers
with opportunities to find attractive yields.
We will, of course, closely follow domestic and overseas economic growth,
inflation, Fed policy, and government spending in an effort to monitor their
impact on the bond markets. On a more fundamental level, we will continue to use
extensive research and credit analysis to find attractive investment
opportunities. For example, we believe the strong U.S. economy and low inflation
have helped select corporate bond issuers maintain strong balance sheets and
meet their debt payments. And, despite their recent increases, mortgage rates
have not risen enough to slow the housing market significantly, which has
benefited issuers of mortgage-backed securities. We believe the well-defined
strategies and active portfolio management of our fixed-income funds position
them to benefit from opportunities in these and other bond markets.
1
<PAGE>
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
[SIGNATURE]
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management-Registered Trademark-
June 17, 1999
MANAGEMENT REVIEW AND OUTLOOK
DEAR SHAREHOLDERS,
The Trust's stock market price, which stood at $6.56 on November 30, 1998,
decreased to $6.25 on May 28, 1999, while its net asset value (NAV) price over
the same period decreased from $7.50 to $7.19, representing a total return of
- -1.45% based on market price and -0.80% based on NAV. Over the same period, the
Salomon Brothers Medium Term (1- to 10-year) Treasury Government Sponsored Index
(the Salomon Index), an unmanaged index of medium-term U.S. Treasury and agency
securities, returned -1.85%, 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 -4.55% in local currency terms.
U.S. GOVERNMENT/MORTGAGE SECTOR
The Trust has maintained a higher-than-average weighting in U.S. government,
government-agency, and mortgage-backed securities. As a result of the bond
market turmoil following last August's Russian bond default, the interest-rate
differential between mortgage-backed securities and comparable maturity
Treasuries reached its highest point since the late 1980s. (Principal value and
interest on Treasury securities are guaranteed by the U.S. government if held to
maturity.) Prices of non-Treasury securities fell as their interest rates rose.
However, as we expected, the bond market steadied by the end of 1998 and
into 1999, when yields on these securities declined.
The current level of interest rates and our view that Treasury yields will
remain fairly stable should be favorable for mortgages, which generally perform
very well when interest rates are stable. Rates have not risen enough recently
to slow down a healthy housing market or to prevent homeowners with low-rate
mortgages from buying new homes. However, interest rates have increased enough
from their historically low levels to ease the refinancing pressure on
higher-rate loans.
As the bond market recovered from last fall's turmoil, prices of Government
National Mortgage Association securities increased, with their yields declining
from 182 basis points (1.82%) over 10-year Treasuries in October 1998 to 126
basis points (1.26%) as of April 30, 1999. The reduction in the number of
prepayments, which removed higher-yielding bonds from the portfolio, made
mortgage-backed securities even more attractive. We saw this environment as an
opportunity to add additional yield and increased the Trust's allocation to this
sector.
The portfolio's sensitivity to changes in interest rates is about the same as
that of the Salomon Index.
In the near term, we think the bond markets will continue to adjust to the
growing acceptance that the Federal Reserve Board (the Fed) might raise
short-term interest rates. We believe this outlook should keep yields on
two-year Treasury securities around 5.50% to 5.85%. Yields on longer-term
Treasuries, meanwhile, will reflect the bond markets' perception about economic
growth. If investors believe growth is too strong, they may push up interest
rates to rein in a surging economy and quell inflation fears. However, because
we believe inflation should remain in check, we think any rate
2
<PAGE>
increase will be limited and will present us with an opportunity to buy
higher-yielding securities selectively.
INTERNATIONAL SECTOR
While continued strong U.S. economic growth resulted in higher Treasury yields
during the first four months of 1999, the newly formed European Central Bank
lowered interest rates by 50 basis points (0.50%) to stimulate domestic demand.
Currently, most European markets continue to outperform the United States.
Approximately 11% of the Trust's assets were allocated to developed
international markets during the past six months. In Europe, positions in Greece
and Denmark helped performance. These two countries are not presently in
European monetary union (EMU) but are likely to join in the next few years. In
addition, government-bond holdings in New Zealand and Australia, where rates are
higher than in Europe, continued to add incremental income to the Trust. While
bonds from the United Kingdom were stellar performers in 1998, they barely have
outperformed U.S. Treasuries in 1999.
Regarding the currency impact on the portfolio, since its creation in January
1999 the euro has depreciated approximately 9% versus the U.S. dollar. However,
the majority of the Trust's foreign assets has been in dollars. Therefore, there
has not been much currency impact resulting from a stronger dollar.
Looking forward, we do not anticipate much change in our international holdings.
We believe the possibility of additional interest-rate cuts in Europe is small.
We believe interest rates within EMU should remain stable as inflation stays
low. We believe Greece, in particular, should continue to perform well relative
to countries within EMU. Although the performance of holdings in New Zealand and
Australia will depend on the direction of U.S. interest rates, we believe the
inflation-adjusted returns in these two countries should remain relatively
attractive.
Respectfully,
[SIGNATURE]
Stephen C. Bryant
Portfolio Manager
[SIGNATURE]
Steven E. Nothern
Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. The managers' views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
---------------------------------------------
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>
<TABLE>
<CAPTION>
PERFORMANCE SUMMARY
<S> <C>
(For the six months ended May
31, 1999)
NET ASSET VALUE PER SHARE
November 30, 1998 $ 7.50
May 31, 1999 $ 7.19
NEW YORK STOCK EXCHANGE PRICE
November 30, 1998 $6.563
December 9, 1998 (high)* $6.875
May 27, 1999 (low)* $6.187
May 28, 1999 $6.250
*For the period December 1, 1998,
through May 28, 1999.
</TABLE>
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 May 31, 1999, our records indicate that there are 9,194 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.
INVESTMENT OBJECTIVE AND POLICY
The investment objective of the Trust is to provide 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 also may enter into options and
futures transactions, 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 that allows you to
reinvest either all of the distributions paid by the Trust or only the long-term
capital gains. Purchases are made at the market price unless that price exceeds
the net asset value (the shares are trading at a premium). If the shares are
trading at a premium, purchases will be made at a discounted price of either the
net asset value or 95% of the market price, whichever is greater. Twice each
year you can also buy shares. Investments from $100 to $500 can be made in
January and July on the 15th of the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee, you
can ask the firm or nominee to participate in the Plan on your behalf. If the
nominee does not offer the Plan, you may wish to request that your shares be
re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the Trust. However, when shares are bought
on the New York Stock Exchange or otherwise on the open market, each participant
4
<PAGE>
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 (Unaudited) -- May 31, 1999
BONDS -- 97.0%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. BONDS -- 81.6%
U.S. FEDERAL AGENCIES -- 34.2%
FHA, 10.375s, 2030+................ $ 2,438 $ 2,413,921
FICO, 9.8s, 2018................... 5,000 6,797,650
FICO, 10.35s, 2018................. 9,500 13,515,270
FICO, 10.7s, 2017.................. 8,500 12,328,995
Federal Home Loan Mortgage Corp.,
6.79s, 2005...................... 4,500 4,696,875
Federal Home Loan Mortgage Corp.
Gold PCS, TBA, 7.5s, 2027........ 5,501 5,617,436
Federal National Mortgage Assn.,
5s, 2023......................... 6,000 5,150,580
Federal National Mortgage Assn.,
5.625s, 2004..................... 50,250 49,378,665
Federal National Mortgage Assn.,
6.956s, 2007..................... 5,809 5,809,101
Federal National Mortgage Assn.,
7.875s, 2006..................... 20,000 20,100,000
Federal National Mortgage Assn.,
8.5s, 2027....................... 10,100 10,923,756
Federal National Mortgage Assn.,
TBA, 7s, 2099.................... 4,760 4,765,674
Federal National Mortgage Assn.,
TBA, 7.5s, 2009.................. 21,889 22,484,016
-----------------
$ 163,981,939
-----------------
U.S. TREASURY OBLIGATIONS -- 29.9%
U.S. Treasury Bonds, 3.625s,
2028............................. $ 10,190 $ 9,718,640
U.S. Treasury Bonds, 3.875s,
2029............................. 4,988 4,972,338
U.S. Treasury Bonds, 5.25s, 2029... 24,400 22,421,404
U.S. Treasury Bonds, 8.875s,
2017............................. 6,000 7,791,540
U.S. Treasury Bonds, 9.875s,
2015............................. 32,750 45,430,472
U.S. Treasury Bonds, 10.375s,
2009............................. 14,600 18,285,422
U.S. Treasury Notes, 8s, 2001...... 9,250 9,682,160
U.S. Treasury Notes, 8.5s, 2000.... 24,250 24,837,335
-----------------
$ 143,139,311
-----------------
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. BONDS -- continued
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 15.1%
GNMA, 7s, 2023-2024................ $ 11,843 $ 11,865,819
GNMA, 7.5s, 2022-2023.............. 1,134 1,161,560
GNMA, TBA, 6.5s, 2028-2099......... 18,763 18,300,004
GNMA, TBA, 7s, 2011-2025........... 16,950 17,092,516
GNMA, TBA, 7.5s, 2010-2025......... 30,443 23,680,887
-----------------
$ 72,100,786
-----------------
U.S. GOVERNMENT GUARANTEED -- 1.9%
Housing Urban Development, 6.59s,
2016............................. $ 5,612 $ 5,436,625
Private Export Funding Corp.,
7.01s, 2004...................... 3,380 3,497,252
-----------------
$ 8,933,877
-----------------
SMALL BUSINESS
ADMINISTRATION -- 0.5%
SBA, 8.875s, 2011.................. $ 2,474 $ 2,649,705
-----------------
TOTAL U.S. BONDS................................... $ 390,805,618
-----------------
FOREIGN BONDS -- 15.4%
ARGENTINA -- 0.1%
Republic of Argentina, 11.447s,
2005............................. $ 450 $ 396,000
-----------------
AUSTRALIA -- 2.2%
Commonwealth of Australia, 7.5s,
2009............................. AUD 14,773 $ 10,696,535
-----------------
BRAZIL -- 1.2%
Federal Republic of Brazil,
11.625s, 2004.................... $ 6,365 $ 5,776,238
-----------------
DENMARK -- 0.4%
Kingdom of Denmark, 7s, 2007....... DKK 12,142 $ 2,009,810
-----------------
GREECE -- 2.1%
Hellenic Republic, 5.75s, 2008..... EUR 731 $ 817,620
Republic of Greece, 8.01s, 2003.... GRD 2,650,000 9,248,042
-----------------
$ 10,065,662
-----------------
</TABLE>
6
<PAGE>
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
FOREIGN BONDS -- continued
<S> <C> <C>
MEXICO -- 1.2%
Petroleos Mexicanos, 9.5s, 2027
(Oils)##......................... $ 1,800 $ 1,667,250
United Mexican States, 5.874s,
2019............................. 650 539,500
United Mexican States, 9.875s,
2007............................. 1,300 1,277,250
United Mexican States, x.375s,
2009............................. 1,410 1,402,950
United Mexican States Medium Term
Note, 9.75s, 2005................ 710 697,575
-----------------
$ 5,584,525
-----------------
NEW ZEALAND -- 3.7%
Government of New Zealand, 8s,
2004-2006........................ NZD 30,410 $ 17,868,854
-----------------
PANAMA -- 0.2%
Republic of Panama, 4s, 2014....... $ 940 $ 674,450
Republic of Panama, 8.25s, 2008.... 350 311,500
-----------------
$ 985,950
-----------------
PERU -- 0.2%
Republic of Peru, 4.5s, 2017....... $ 1,900 $ 1,149,500
-----------------
PHILIPPINES -- 0.5%
Republic of Philippines, 9.875s,
2019............................. $ 2,400 $ 2,316,000
-----------------
POLAND -- 0.3%
Telekomunikacja Polska S.A., 7.75s,
2008 (Utilities -- Telephone).... $ 1,500 $ 1,469,400
-----------------
SOUTH KOREA -- 0.6%
Korea Development Bank (Banking),
10.172s, 2003##.................. $ 2,700 $ 2,619,000
-----------------
UNITED KINGDOM -- 2.7%
United Kingdom Treasury, 6.5s,
2003............................. GBP 6,255 $ 10,601,695
United Kingdom Treasury, 6.75s,
2004............................. $ 1,387 $ 2,405,286
-----------------
$ 13,006,981
-----------------
TOTAL FOREIGN BONDS................................ $ 73,944,455
-----------------
TOTAL BONDS (IDENTIFIED COST, $472,076,520)........ $ 464,750,073
-----------------
<CAPTION>
Issuer Shares Value
<S> <C> <C>
RIGHTS
United Mexican States*
(Identified Cost, $0)............. 1,000 $ --
-----------------
WARRANTS
Republic of Venezuela* (Identified
Cost, $0)......................... 37,500 $ --
-----------------
<CAPTION>
Principal Amount
(000 Omitted)
<S> <C> <C>
SHORT-TERM
OBLIGATIONS -- 2.3%
Federal Home Loan Mortgage Discount
Notes, due 6/01/99 at Amortized
Cost.............................. $ 10,950 $ 10,950,000
-----------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $483,026,520).................. $ 475,700,073
-----------------
OTHER ASSETS,
LESS LIABILITIES -- 0.7%.............................. 3,167,315
-----------------
Net Assets -- 100.0%................................... $ 478,867,388
-----------------
</TABLE>
*Non-income producing security.
##SEC Rule 144A restriction.
+Restricted security.
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. dollar. A list of abbreviations is shown below.
<TABLE>
<CAPTION>
AUD = Australian Dollars
<S> <C> <C>
DKK = Danish Kroner
EUR = Euro
GBP = British Pounds
GRD = Greek Drachma
JPY = Japanese Yen
NZD = New Zealand Dollars
SEK = Swedish Krona
</TABLE>
See notes to financial statements
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (Unaudited) -- May 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified cost, $483,026,520).......... $ 475,700,073
Net receivable for forward foreign currency exchange contracts
to purchase................................................... 161,772
Receivable for investments sold................................ 6,452,712
Interest receivable............................................ 4,795,026
Other assets................................................... 6,860
-------------
Total assets............................................... $ 487,116,443
-------------
LIABILITIES:
Payable to custodian........................................... $ 18,319
Payable to dividend disbursing agent........................... 189,191
Payable for investments purchased.............................. 6,451,030
Payable for Treasury shares reacquired......................... 157,000
Net payable for forward foreign currency exchange contracts to
sell.......................................................... 494,499
Net payable for forward foreign currency exchange contracts
closed or subject to master netting agreements................ 447,469
Payable for swap agreements.................................... 95,183
Payable to affiliates -
Management fee............................................... 36,561
Administrative Fee........................................... 786
Transfer and dividend disbursing agent fee................... 14,931
Accrued expenses and other liabilities......................... 344,086
-------------
Total liabilities.......................................... $ 8,249,055
-------------
NET ASSETS....................................................... $ 478,867,388
-------------
-------------
NET ASSETS CONSIST OF:
Paid-in capital................................................ $ 525,962,096
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies.................. (8,215,217)
Accumulated net realized loss on investments and foreign
currency transactions......................................... (37,898,590)
Accumulated distributions in excess of net investment income... (980,901)
-------------
Total...................................................... $ 478,867,388
-------------
-------------
SHARES OF BENEFICIAL INTEREST OUTSTANDING (97,911,555 SHARES
AUTHORIZED, LESS 31,300,700 TREASURY SHARES).................... 66,610,855
-------------
-------------
NET ASSET VALUE PER SHARE (NET ASSETS OF $478,867,388
DIVIDED BY 66,610,855 SHARES OF BENEFICIAL INTEREST
OUTSTANDING).................................................... $ 7.19
-------------
-------------
</TABLE>
See notes to financial statements
8
<PAGE>
STATEMENT OF OPERATIONS (Unaudited) -- Six Months Ended May 31, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
Interest income................................................ $ 16,913,696
-------------
EXPENSES --
Management fee............................................... $ 1,699,027
Trustees' compensation....................................... 75,042
Transfer and dividend disbursing agent fee................... 89,637
Administrative fee........................................... 30,774
Custodian fee................................................ 101,757
Postage...................................................... 22,151
Auditing fees................................................ 20,000
Printing..................................................... 17,876
Legal fees................................................... 1,305
Miscellaneous................................................ 244,923
-------------
Total expenses............................................. $ 2,302,492
Fees paid indirectly......................................... (31,762)
-------------
Net expenses............................................... $ 2,270,730
-------------
Net investment income.................................... $ 14,642,966
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) (identified cost basis) --
Investment transactions.................................... $ (6,364,663)
Written option transactions................................ 497,201
Foreign currency transactions.............................. (465,956)
-------------
Net realized loss on investments and foreign currency
transactions.............................................. $ (6,333,418)
-------------
Change in unrealized depreciation --
Investments................................................ $ (15,144,898)
Written options............................................ (178,743)
Translation of assets and liabilities in foreign
currencies................................................. (264,130)
Swap transactions.......................................... (95,183)
-------------
Net unrealized loss on investments and foreign currency
translation............................................... $ (15,682,954)
-------------
Net realized and unrealized loss on investments and
foreign currency........................................ $ (22,016,372)
-------------
Decrease in net assets from operations............... $ (7,373,406)
-------------
-------------
</TABLE>
See notes to financial statements
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
May 31, 1999 November 30,
(Unaudited) 1998
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income........................... $ 14,642,966 $ 31,728,976
Net realized gain (loss) on investments and
foreign currency transactions.................. (6,333,418) 4,152,679
Net unrealized gain (loss) on investments and
foreign currency translation................... (15,682,954) 951,710
------------- -------------
Increase (decrease) in net assets from
operations................................... $ (7,373,406) $ 36,833,365
------------- -------------
Distributions declared to shareholders --
From net investment income...................... $(14,642,966) $(31,728,976)
In excess of net investment income.............. (266,328) (967,060)
------------- -------------
Total distributions declared to
shareholders................................ $(14,909,294) $(32,696,036)
------------- -------------
Trust share (principal) transactions --
Cost of Treasury shares acquired................ $(10,710,476) $(16,857,235)
------------- -------------
Total decrease in net assets................ $(32,993,176) $(12,719,906)
------------- -------------
NET ASSETS:
At beginning of period.......................... 511,860,564 524,580,470
------------- -------------
At end of period (including accumulated
distributions in excess of net
investment income of $980,901 and $714,543,
respectively).................................. $478,867,388 $511,860,564
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements
10
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
May 31, Year Ended November 30,
1999 ----------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
------------ --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
Net asset value -- beginning of period............ $ 7.50 $ 7.41 $ 7.56 $ 7.62 $ 6.90 $ 7.83
------------ --------- --------- --------- --------- ----------
Income from investment operations# --
Net investment income........................... $ 0.22 $ 0.46 $ 0.49 $ 0.49 $ 0.49 $ 0.48
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions.................................. (0.33) 0.08 (0.14) (0.07) 0.64 (0.88)
------------ --------- --------- --------- --------- ----------
Total from investment operations.............. $ (0.11) $ 0.54 $ 0.35 $ 0.42 $ 1.13 $ (0.40)
------------ --------- --------- --------- --------- ----------
Less distributions declared to shareholders --
From net investment income...................... $ (0.22) $ (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+++........... (0.00) (0.01) (0.03) (0.05) -- (0.02)
Tax return of capital........................... -- -- -- -- -- (0.32)
------------ --------- --------- --------- --------- ----------
Total distributions declared to
shareholders................................ $ (0.22) $ (0.47) $ (0.52) $ (0.54) $ (0.49) $ (0.53)
------------ --------- --------- --------- --------- ----------
Net increase from repurchase of capital shares.... $ 0.02 $ 0.02 $ 0.02 $ 0.06 $ 0.08 $ --
------------ --------- --------- --------- --------- ----------
Net asset value -- end of period.................. $ 7.19 $ 7.50 $ 7.41 $ 7.56 $ 7.62 $ 6.90
------------ --------- --------- --------- --------- ----------
------------ --------- --------- --------- --------- ----------
Per share market value -- end of period........... $ 6.250 $ 6.563 $ 6.688 $ 6.750 $ 6.500 $ 6.313
TOTAL RETURN.................................... (1.45)%++ 4.21% 6.91% 12.61% 10.96% (3.90)%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL
DATA:
Expenses##.................................... 0.93%+ 0.89% 0.94% 1.00% 0.99% 0.97%
Net investment income......................... 5.90%+ 6.14% 6.56% 6.63% 6.84% 6.51%
PORTFOLIO TURNOVER.............................. 68% 253% 248% 249% 318% 295%
Net assets at end of period (000 omitted)....... $478,867 $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.
+ Annualized.
++ Not annualized.
+++ For the six months ended May 31, 1999, the per share distribution in excess
of net investment income was less than $0.01.
See notes to financial statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) BUSINESS AND ORGANIZATION
MFS Government Markets Income Trust (the Trust) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a non diversified, closed-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL -- The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. 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
12
<PAGE>
security purchased by the Trust. The Trust, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as part of an income producing strategy reflecting the view of the
Trust's management on the direction of interest rates.
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.
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
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- continued
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.
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 distributions from paid-in
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
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
six months ended May 31, 1999, was 0.68%. The Trust pays no compensation
directly to its Trustees who are officers of the investment adviser, or to
officers of the Trust, all of whom receive remuneration for their services to
the Trust from MFS. Certain officers and Trustees of the Trust are officers or
directors of MFS, and MFS Service Center, Inc. (MFSC). The Trust has an unfunded
defined benefit plan for all of its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of $21,156
for the six months ended May 31, 1999.
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:
<TABLE>
<S> <C>
First $1 billion.................................................. 0.0150%
Next $1 billion................................................... 0.0125%
Next $1 billion................................................... 0.0100%
In excess of $3 billion........................................... 0.0000%
</TABLE>
TRANSFER AGENT -- MFSC acts as registrar and dividend disbursing agent for the
Trust. The agreement provides that the Trust will pay MFSC an account
maintenance fee of no more than $9.00 and a dividend services fee of $0.75 per
reinvestment and will reimburse MFSC for reasonable out-of-pocket expenses.
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........................ $ 282,379,280 $ 307,129,488
------------- -------------
------------- -------------
Investments (non-U.S. government securities)...... $ 48,029,356 $ 43,840,500
------------- -------------
------------- -------------
</TABLE>
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Trust, as computed on a federal income tax basis, are
as follows:
<TABLE>
<S> <C>
Aggregate cost................................................... $ 484,689,911
-------------
-------------
Gross unrealized depreciation.................................... $ (11,721,714)
Gross unrealized appreciation.................................... 2,731,876
-------------
Net unrealized depreciation.................................... $ (8,989,838)
-------------
-------------
</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>
Six Months Ended Year Ended
May 31, 1999 November 30, 1998
------------------------- -------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Treasury shares acquired................ 1,651,700 $ 10,710,476 2,490,700 $ 16,857,235
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
In accordance with the provisions of the Trust's prospectus, 1,651,700 shares of
beneficial interest were purchased by the Trust during the six months ended May
31, 1999, at an average price per share of $6.48 and a weighted average discount
of 12.04% per share. The Trust reacquired 2,490,700 shares of beneficial
interest during the year ended November 30, 1998, 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 funds participate in a $720 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 repurchase of Trust
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 six months ended May 31, 1999, was $1,651. The Trust had no
borrowings during the period.
(7) FINANCIAL INSTRUMENTS
The Trust trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include written options, forward foreign currency exchange contracts
and
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- continued
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.
WRITTEN OPTION TRANSACTIONS
<TABLE>
<CAPTION>
--------------------------------------------------------------
1999 Puts
1999 Calls Principal
Principal Amounts Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING, BEGINNING OF PERIOD --
Japanese Yen................ 1,976,049 $ 228,144 -- $ --
Options written --
Australian Dollars.......... 17,704 146,071 7,854 64,558
Euro........................ 19,993 187,433 -- --
Euro/British Pounds......... 8,826 102,157 8,490 46,875
Japanese Yen................ 1,976,049 308,084 2,245,510 250,599
Options terminated in closing
transactions --
Australian Dollars.......... (10,383) (103,826) (7,854) (64,558)
Euro........................ (19,993) (187,433) -- --
Euro/British Pounds......... (8,826) (102,157) (8,490) (46,875)
Japanese Yen................ (1,976,049) (228,144) -- --
Options expired --
Australian Dollars.......... (7,321) (42,245) -- --
Japanese Yen................ (1,976,049) (308,084) (2,245,510) (250,599)
---------- ----------
OUTSTANDING, END OF PERIOD.... $ -- $ --
---------- ----------
---------- ----------
</TABLE>
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 6/16/1999...................... AUD 26,273,075 $ 16,733,368 $ 17,146,072 $(412,704)
6/16/1999...................... DKK 14,344,441 2,108,515 2,014,287 94,228
6/16/1999...................... JPY 1,416,920,756 11,598,703 11,751,364 (152,661)
6/16/1999...................... NZD 30,143,979 16,127,029 16,150,391 (23,362)
---------------- ------------ -----------
$ 46,567,615 $ 47,062,114 $(494,499)
---------------- ------------ -----------
---------------- ------------ -----------
Purchases 6/16/1999...................... AUD 23,681,031 $ 15,041,407 $ 15,454,479 $ 413,072
6/16/1999...................... GBP 3,400,173 5,531,741 5,446,142 (85,599)
6/16/1999...................... JPY 797,329,215 6,778,425 6,612,724 (165,701)
---------------- ------------ -----------
$ 27,351,573 $ 27,513,345 $ 161,772
---------------- ------------ -----------
---------------- ------------ -----------
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net payable of $214,681 with Deutschebank and
$316,668 with First Boston, and a net receivable of $83,880 with Merrill Lynch
at May 31, 1999.
16
<PAGE>
At May 31, 1999, the Trust had sufficient cash and/or securities to cover any
commitments under these contracts.
SWAP AGREEMENTS
INTEREST RATE SWAPS
<TABLE>
<CAPTION>
Cash Flows
Notional Principal Cash Flows Paid Received by the Unrealized
Expiration Amount of Contract by the Trust Trust Depreciation
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/22/2003............... SEK 78,300,000 Floating - 3M STIBOR Fixed - 4.38% $(84,111)
Floating -
3/22/2003............... EUR 8,480,000 Fixed - 3.76% 6M EURIBOR $(11,072)
----------
$(95,183)
----------
----------
</TABLE>
(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 May 31, 1999, the
Trust owned the following restricted security (constituting 0.50% of net assets)
which may not be publicly sold without registration under the Securities Act of
1933. The Trust does not have the right to demand that such securities be
registered. The value of this security is determined by valuations furnished by
dealers or by a pricing service, or if not available, are valued at fair value
as determined in good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
Principal
Amount
Date of (000
Description Acquisition omitted) Cost Value
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
FHA, 10.375s, 2030.................... 8/16/1993 $ 2,438 $ 2,622,701 $ 2,413,921
</TABLE>
17
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management-Registered Trademark-, as an investment adviser and on
behalf of the MFS funds, is committed to the effective use of technology in
managing our portfolio investments, delivering high-quality service to MFS fund
shareholders, retirement plan participants, and MFS' institutional clients, 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
comprised of a specialized staff reporting directly to MFS senior management.
The Year 2000 (Y2K) problem arises because calendar-year fields in computers and
software applications traditionally have used two-digit codes so that, for
example, the year 1998 is coded as "98," with the "19" being implied. In the
year 2000, unless necessary corrections have been made, computer applications
may assume "00" refers to 1900 rather than 2000, thus resulting in systems
failures or miscalculations. To address this issue, our team of dedicated
business and technology managers, working with outside experts, is taking steps
to ascertain the Y2K readiness of MFS' internal systems and is working with our
external systems vendors to determine whether they expect their systems to be
ready.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS-Registered Trademark-
Original Research-SM- process of evaluating portfolio investments, one of the
many relevant factors that MFS' portfolio managers and research analysts may
consider is a company's Y2K readiness. Each year, MFS' research analysts and
portfolio managers conduct more than 1,000 on-site meetings with companies whose
securities are, or may be, held in fund and client portfolios, and host an
additional 1,500 meetings at MFS' headquarters. When assessing the Y2K readiness
of these companies, MFS' research analysts and portfolio managers may rely upon
discussions at these meetings as well as SEC disclosure documents and
third-party reports.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While MFS
is taking significant steps to protect the integrity of its internal systems,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on MFS, shareholders of MFS funds, participants in retirement
plans administered by MFS, or MFS' institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com or contact the MFS Year 2000 Program
Management Office by e-mail at [email protected] or by letter at 500 Boylston Street,
Boston, MA 02116-3741.
18
<PAGE>
MFS-REGISTERED TRADEMARK- 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;
CHAIRMAN, Colonial Insurance Company, 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
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-3 7/99 6OM
[MFS 75 YEARS LOGO]
MFS-REGISTERED TRADEMARK- GOVERNMENT MARKETS
INCOME TRUST
SEMIANNUAL REPORT - MAY 31, 1999
