ITEM 1. |
REPORTS TO STOCKHOLDERS. |
Item 1(a):
Semiannual Report
May 31, 2022
MFS® Government Markets Income Trust
MANAGED DISTRIBUTION POLICY DISCLOSURE
The MFS Government Markets Income Trust’s (the fund)
Board of Trustees adopted a managed distribution policy. The fund seeks to pay monthly distributions based on an annual rate of 7.25% of the fund’s average monthly net asset value. The primary purpose of the managed distribution policy is to
provide shareholders with a constant, but not guaranteed, fixed rate of distribution each month. You should not draw any conclusions about the fund’s investment performance from the amount of the current distribution or from the terms of the
fund’s managed distribution policy. The Board may amend or terminate the managed distribution policy at any time without prior notice to fund shareholders. The amendment or termination of the managed distribution policy could have an adverse
effect on the market price of the fund’s shares.
With each distribution, the fund will issue a notice to
shareholders and an accompanying press release which will provide detailed information regarding the amount and composition of the distribution and other related information. The amounts and sources of distributions reported in the notice to
shareholders are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the fund’s investment experience during the remainder of its
fiscal year and may be subject to changes based on tax regulations. The fund will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes. Please refer to “Tax Matters
and Distributions” under Note 2 of the Notes to Financial Statements for information regarding the tax character of the fund’s distributions.
Under a managed distribution policy the fund may at times
distribute more than its net investment income and net realized capital gains; therefore, a portion of your distribution may result in a return of capital. A return of capital may occur, for example, when some or all of the money that you invested
in the fund is paid back to you. Any such returns of capital will decrease the fund’s total assets and, therefore, could have the effect of increasing the fund’s expense ratio. In addition, in order to make the level of distributions
called for under its managed distribution policy, the fund may have to sell portfolio securities at a less than opportune time. A return of capital does not necessarily reflect the fund’s investment performance and should not be confused with
‘yield’ or ‘income’. The fund’s total return in relation to changes in net asset value is presented in the Financial Highlights.
MFS® Government
Markets Income Trust
New York Stock Exchange Symbol:
MGF
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1
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2
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4
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4
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5
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17
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18
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19
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20
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22
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33
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34
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34
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34
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34
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NOT FDIC INSURED • MAY LOSE VALUE
• NO BANK GUARANTEE
LETTER FROM THE CHAIR AND
CEO
Dear Shareholders:
Global markets have recently been buffeted by a series of
crosscurrents, including rising inflation, tighter financial conditions, the continued spread of the coronavirus (particularly in Asia), and the evolving geopolitical landscape in the wake of Russia’s invasion of Ukraine. Consequently, at a
time when global growth faces multiple headwinds, central banks have been presented with the challenge of reining in rising prices without tipping economies into recession. At its June meeting, the US Federal Reserve undertook a 0.75% rate hike, its
largest since 1994. Additional larger-than-normal hikes are expected in coming meetings as the Fed seeks to move policy into restrictive territory by year-end to slow the economy and dampen inflation. Richly valued, rate-sensitive growth equities
have been hit particularly hard by higher interest rates, and volatility in credit markets has picked up too.
There are, however, encouraging signs for
the markets. The latest wave of COVID-19 cases appears to be receding in Asia, cases outside of Asia remain well below prior peaks, and fewer are seriously ill. Meanwhile, unemployment is low and there are signs that some global supply chain
bottlenecks are beginning to ease, though lingering coronavirus restrictions in China and disruptions stemming from Russia’s invasion of Ukraine could hamper these advances. Additionally, easier Chinese monetary and regulatory policies and the
record pace of corporate stock buybacks are supportive elements, albeit in an otherwise turbulent investment environment.
It is important to have a deep understanding of company
fundamentals during times of market transition, and we have built our unique global research platform to do just that.
At MFS®, we put our clients’ assets to work responsibly by carefully navigating increasingly complex global capital markets. Our investment team is guided by a commitment to
long-term fundamental investing. Our global investment platform — combining collective expertise, long-term discipline, and thoughtful risk management — seeks to uncover what we believe are the best, most durable investment ideas in
markets around the world, enabling us to potentially create value for investors.
Respectfully,
Michael W.
Roberge
Chair and Chief Executive Officer
MFS Investment Management
July 15, 2022
The opinions expressed in this letter are subject to change
and may not be relied upon for investment advice. No forecasts can be guaranteed.
Portfolio structure (i)
Fixed income sectors
(i)
Mortgage-Backed
Securities |
38.7%
|
U.S.
Treasury Securities |
32.9%
|
Investment
Grade Corporates |
13.6%
|
Emerging
Markets Bonds |
4.9%
|
Commercial
Mortgage-Backed Securities |
3.9%
|
Municipal
Bonds |
3.3%
|
Collateralized
Debt Obligations |
1.7%
|
High
Yield Corporates |
0.6%
|
U.S.
Government Agencies |
0.4%
|
Asset-Backed
Securities |
0.1%
|
Composition including fixed income credit quality (a)(i)
AAA
|
4.0%
|
AA
|
3.3%
|
A
|
7.1%
|
BBB
|
11.4%
|
BB
|
1.3%
|
C
|
0.7%
|
U.S.
Government |
39.3%
|
Federal
Agencies |
39.1%
|
Not
Rated |
(6.1)%
|
Cash
& Cash Equivalents |
(6.5)%
|
Other
|
6.4%
|
Portfolio facts (i)
Average
Duration (d) |
6.0
|
Average
Effective Maturity (m) |
8.3 yrs.
|
(a)
|
For all
securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three
agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the
security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. If none of the 4 rating agencies listed above rate the security, but the security is rated by the Kroll Bond Rating Agency (KBRA), then the KBRA rating is assigned.
Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury.
Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. |
Not Rated includes fixed income securities and
fixed income derivatives that have not been
Portfolio Composition -
continued
rated by any rating agency. The fund may or may not have
held all of these instruments on this date. The fund is not rated by these agencies.
(d)
|
Duration is
a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move.
|
(i)
|
For
purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated
amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the
portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include
any accrued interest amounts. |
(m)
|
In
determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes
it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
Where the fund holds convertible bonds, they are treated
as part of the equity portion of the portfolio.
Cash
& Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash
position and other assets and liabilities.
From time to
time Cash & Cash Equivalents may be negative due to timing of cash receipts and disbursements.
Other includes equivalent exposure from currency derivatives
and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of May 31, 2022.
The portfolio is actively managed and current holdings may be
different.
Portfolio
Managers' Profiles
Portfolio
Manager |
Primary
Role |
Since
|
Title
and Five Year History |
Geoffrey
Schechter |
Lead
and U.S. Government Securities Portfolio Manager |
2006
|
Investment
Officer of MFS; employed in the investment management area of MFS since 1993. |
Neeraj
Arora |
Emerging
Markets Debt Instruments Portfolio Manager |
2021
|
Investment
Officer of MFS; employed in the investment management area of MFS since 2011. |
Alexander
Mackey |
Investment
Grade Debt Instruments Portfolio Manager |
2021
|
Investment
Officer of MFS; employed in the investment management area of MFS since 2001. |
Other Notes
The fund’s shares may trade at a discount or premium to
net asset value. When fund shares trade at a premium, buyers pay more than the net asset value underlying fund shares, and shares purchased at a premium would receive less than the amount paid for them in the event of the fund’s concurrent
liquidation.
The fund's target annual distribution rate
is calculated based on an annual rate of 7.25% of the fund's average monthly net asset value, not a fixed share price, and the fund's dividend amount will fluctuate with changes in the fund's average monthly net assets.
In accordance with Section 23(c) of the Investment Company
Act of 1940, the fund hereby gives notice that it may from time to time repurchase shares of the fund in the open market at the option of the Board of Trustees and on such terms as the Trustees shall determine.
Portfolio of
Investments
5/31/22 (unaudited)
The Portfolio of Investments is a complete list of all
securities owned by your fund. It is categorized by broad-based asset classes.
Issuer
|
|
|
Shares/Par
|
Value
($) |
Bonds
– 106.0% |
U.S.
Bonds – 100.0% |
Aerospace
& Defense – 0.6% |
Boeing
Co., 1.433%, 2/04/2024 |
|
$
|
750,000
|
$
722,310 |
Asset-Backed
& Securitized – 5.7% |
3650R
Commercial Mortgage Trust, 2021-PF1, “XA”, 1.034%, 11/15/2054 (i) |
|
$
|
1,180,187
|
$
77,859 |
ACREC
2021-FL1 Ltd., “AS”, FLR, 2.435% (LIBOR - 1mo. + 1.5%), 10/16/2036 (n) |
|
|
323,500
|
312,238
|
Arbor
Realty Trust, Inc., CLO, 2021-FL1, “B”, FLR, 2.375% (LIBOR - 1mo. + 1.5%), 12/15/2035 (n) |
|
|
175,500
|
170,493
|
Arbor
Realty Trust, Inc., CLO, 2021-FL3, “AS”, FLR, 2.274% (LIBOR - 1mo. + 1.4%), 8/15/2034 (n) |
|
|
374,500
|
370,466
|
AREIT
2022-CRE6 Trust, “AS”, FLR, 2.115% (SOFR - 30 day + 1.65%), 1/16/2037 (n) |
|
|
512,000
|
504,640
|
BBCMS
Mortgage Trust, 2021-C10, “XA”, 1.304%, 7/15/2054 (i) |
|
|
1,183,158
|
97,430
|
BBCMS
Mortgage Trust, 2021-C9, “XA”, 1.633%, 2/15/2054 (i) |
|
|
991,911
|
102,748
|
Benchmark
2021-B23 Mortgage Trust, “XA”, 1.275%, 2/15/2054 (i) |
|
|
1,981,969
|
152,757
|
Benchmark
2021-B24 Mortgage Trust, “XA”, 1.153%, 3/15/2054 (i) |
|
|
1,171,668
|
81,614
|
Benchmark
2021-B26 Mortgage Trust, “XA”, 0.999%, 6/15/2054 (i) |
|
|
1,597,765
|
89,504
|
Benchmark
2021-B27 Mortgage Trust, “XA”, 1.27%, 7/15/2054 (i) |
|
|
1,459,903
|
118,719
|
Benchmark
2021-B28 Mortgage Trust, “XA”, 1.288%, 8/15/2054 (i) |
|
|
2,214,283
|
182,482
|
Benchmark
2021-B29 Mortgage Trust, “XA”, 1.047%, 9/15/2054 (i) |
|
|
1,895,883
|
122,406
|
BSPDF
2021-FL1 Issuer Ltd., “A”, FLR, 2.074% (LIBOR - 1mo. + 1.2%), 10/15/2036 (n) |
|
|
200,500
|
194,319
|
BSPDF
2021-FL1 Issuer Ltd., “AS”, FLR, 2.355% (LIBOR - 1mo. + 1.48%), 10/15/2036 (n) |
|
|
253,500
|
245,809
|
BXMT
2021-FL4 Ltd., “AS”, FLR, 2.175% (LIBOR - 1mo. + 1.3%), 5/15/2038 (n) |
|
|
345,000
|
335,628
|
Capital
Automotive, 2020-1A, “A4”, REIT, 3.19%, 2/15/2050 (n) |
|
|
99,521
|
95,329
|
Citigroup
Commercial Mortgage Trust, 2019-XA, “C7”, 0.871%, 12/15/2072 (i)(n) |
|
|
1,431,293
|
72,600
|
COMM
2013-WWP Mortgage Trust, “D”, 3.897%, 3/10/2031 (n) |
|
|
564,000
|
566,983
|
Commercial
Mortgage Pass-Through Certificates, 2021-BN31, “XA”, 1.331%, 2/15/2054 (i) |
|
|
1,526,835
|
130,326
|
Commercial
Mortgage Pass-Through Certificates, 2021-BN32, “XA”, 0.782%, 4/15/2054 (i) |
|
|
997,876
|
49,601
|
Commercial
Mortgage Pass-Through Certificates, 2021-BN35, “XA”, 1.051%, 6/15/2064 (i) |
|
|
996,599
|
67,176
|
Commercial
Mortgage Trust, 2015-DC1, “A5”, 3.35%, 2/10/2048 |
|
|
177,000
|
175,307
|
GS
Mortgage Securities Trust, 2015-GC32, “A2”, 3.062%, 7/10/2048 |
|
|
32,351
|
32,365
|
Portfolio of
Investments (unaudited) – continued
Issuer
|
|
|
Shares/Par
|
Value
($) |
Bonds
– continued |
U.S.
Bonds – continued |
Asset-Backed
& Securitized – continued |
LoanCore
2021-CRE5 Ltd., “AS”, FLR, 2.625% (LIBOR - 1mo. + 1.75%), 7/15/2036 (n) |
|
$
|
283,500
|
$
270,379 |
LoanCore
2021-CRE6 Ltd., “AS”, FLR, 2.525% (LIBOR - 1mo. + 1.65%), 11/15/2038 (n) |
|
|
500,000
|
479,003
|
Madison
Park Funding Ltd., 2014-13A, “BR2”, FLR, 2.544% (LIBOR - 3mo. + 1.5%), 4/19/2030 (n) |
|
|
452,738
|
441,953
|
MF1
2021-FL5 Ltd., “AS”, FLR, 2.11% (LIBOR - 1mo. + 1.2%), 7/15/2036 (n) |
|
|
173,500
|
168,619
|
MF1
2021-FL5 Ltd., “B”, FLR, 2.36% (LIBOR - 1mo. + 1.45%), 7/15/2036 (n) |
|
|
279,500
|
275,305
|
Morgan
Stanley Capital I Trust, 2018-H4, “XA”, 0.833%, 12/15/2051 (i) |
|
|
1,629,113
|
67,261
|
Morgan
Stanley Capital I Trust, 2021-L5, “XA”, 1.298%, 5/15/2054 (i) |
|
|
738,124
|
59,113
|
Morgan
Stanley Capital I Trust, 2021-L6, “XA”, 1.234%, 6/15/2054 (i) |
|
|
1,148,715
|
83,497
|
Morgan
Stanley Capital I Trust, 2021-L7, “XA”, 1.104%, 10/15/2054 (i) |
|
|
3,375,565
|
231,873
|
PFP
III 2021-7 Ltd., “AS”, FLR, 2.025% (LIBOR - 1mo. + 1.15%), 4/14/2038 (n) |
|
|
311,484
|
303,820
|
ReadyCap
Commercial Mortgage Trust, 2021-FL7, “A”, FLR, 2.206% (LIBOR - 1mo. + 1.2%), 11/25/2036 (n) |
|
|
219,704
|
210,189
|
ReadyCap
Commercial Mortgage Trust, 2021-FL7, “AS”, FLR, 2.506% (LIBOR - 1mo. + 1.5%), 11/25/2036 (n) |
|
|
100,000
|
96,721
|
Wells
Fargo Commercial Mortgage Trust, 2018-C48, “XA”, 0.948%, 1/15/2052 (i) |
|
|
933,233
|
46,931
|
|
|
|
|
$
7,083,463 |
Automotive
– 0.3% |
Hyundai
Capital America, 2.85%, 11/01/2022 (n) |
|
$
|
233,000
|
$
232,788 |
Hyundai
Capital America, 2.375%, 2/10/2023 (n) |
|
|
115,000
|
114,221
|
|
|
|
|
$
347,009 |
Broadcasting
– 0.9% |
Discovery,
Inc., 4.65%, 5/15/2050 |
|
$
|
229,000
|
$
192,759 |
Magallanes,
Inc., 4.279%, 3/15/2032 (n) |
|
|
379,000
|
354,231
|
Walt
Disney Co., 3.5%, 5/13/2040 |
|
|
612,000
|
545,757
|
|
|
|
|
$
1,092,747 |
Building
– 0.1% |
Martin
Marietta Materials, Inc., 4.25%, 7/02/2024 |
|
$
|
82,000
|
$
83,042 |
Portfolio of
Investments (unaudited) – continued
Issuer
|
|
|
Shares/Par
|
Value
($) |
Bonds
– continued |
U.S.
Bonds – continued |
Cable
TV – 0.3% |
Charter
Communications Operating LLC/Charter Communications Operating Capital Corp., 4.908%, 7/23/2025 |
|
$
|
242,000
|
$
247,101 |
Time
Warner Cable, Inc., 4.5%, 9/15/2042 |
|
|
100,000
|
83,398
|
|
|
|
|
$
330,499 |
Consumer
Products – 0.2% |
GSK
Consumer Healthcare Capital US LLC, 3.625%, 3/24/2032 (n) |
|
$
|
250,000
|
$
239,217 |
Consumer
Services – 0.1% |
Conservation
Fund, 3.474%, 12/15/2029 |
|
$
|
159,000
|
$
148,088 |
Electronics
– 0.5% |
Broadcom,
Inc., 3.187%, 11/15/2036 (n) |
|
$
|
750,000
|
$
601,274 |
Energy
- Integrated – 0.5% |
Exxon
Mobil Corp., 3.452%, 4/15/2051 |
|
$
|
714,000
|
$
617,953 |
Food
& Beverages – 2.0% |
Constellation
Brands, Inc., 4.65%, 11/15/2028 |
|
$
|
1,500,000
|
$
1,520,339 |
JBS
USA Lux S.A./JBS USA Food Co./JBS USA Finance, Inc., 3%, 2/02/2029 (n) |
|
|
488,000
|
431,270
|
Keurig
Dr Pepper, Inc., 3.8%, 5/01/2050 |
|
|
650,000
|
546,055
|
Tyson
Foods, Inc., 5.15%, 8/15/2044 |
|
|
38,000
|
38,995
|
|
|
|
|
$
2,536,659 |
Industrial
– 0.1% |
Howard
University, Washington D.C., 2.738%, 10/01/2022 |
|
$
|
28,000
|
$
27,938 |
Howard
University, Washington D.C., 2.801%, 10/01/2023 |
|
|
31,000
|
30,558
|
Howard
University, Washington D.C., AGM, 2.416%, 10/01/2024 |
|
|
33,000
|
32,076
|
Howard
University, Washington D.C., AGM, 2.516%, 10/01/2025 |
|
|
42,000
|
39,681
|
|
|
|
|
$
130,253 |
Insurance
– 0.4% |
Corebridge
Financial, Inc., 3.85%, 4/05/2029 (n) |
|
$
|
500,000
|
$
479,821 |
Insurance
- Health – 0.7% |
Humana,
Inc., 3.7%, 3/23/2029 |
|
$
|
167,000
|
$
163,167 |
UnitedHealth
Group, Inc., 4.625%, 7/15/2035 |
|
|
672,000
|
703,172
|
|
|
|
|
$
866,339 |
Insurance
- Property & Casualty – 0.1% |
Liberty
Mutual Group, Inc., 3.951%, 10/15/2050 (n) |
|
$
|
99,000
|
$
80,552 |
Portfolio of
Investments (unaudited) – continued
Issuer
|
|
|
Shares/Par
|
Value
($) |
Bonds
– continued |
U.S.
Bonds – continued |
Machinery
& Tools – 0.5% |
CNH
Industrial Capital LLC, 4.2%, 1/15/2024 |
|
$
|
625,000
|
$
635,541 |
Major
Banks – 2.2% |
Bank
of America Corp., 3.004%, 12/20/2023 |
|
$
|
183,000
|
$
182,953 |
Bank
of America Corp., 2.687% to 4/22/2031, FLR (SOFR - 1 day + 1.32%) to 4/22/2032 |
|
|
750,000
|
653,626
|
Goldman
Sachs Group, Inc., 3.625%, 1/22/2023 |
|
|
241,000
|
243,102
|
JPMorgan
Chase & Co., 2.58% to 4/22/2031, FLR (SOFR - 1 day + 1.25%) to 4/22/2032 |
|
|
750,000
|
654,121
|
JPMorgan
Chase & Co., 3.109% to 4/22/2050, FLR (SOFR + 2.44%) to 4/22/2051 |
|
|
485,000
|
376,310
|
Morgan
Stanley, 3.622% to 4/01/2030, FLR (SOFR - 1 day + 3.12%) to 4/01/2031 |
|
|
588,000
|
560,076
|
State
Street Corp., 3.152% to 3/30/2030, FLR (SOFR + 2.65%) to 3/30/2031 |
|
|
138,000
|
128,138
|
|
|
|
|
$
2,798,326 |
Medical
& Health Technology & Services – 1.0% |
Becton,
Dickinson and Co., 4.685%, 12/15/2044 |
|
$
|
140,000
|
$
134,792 |
Laboratory
Corp. of America Holdings, 4.7%, 2/01/2045 |
|
|
106,000
|
99,879
|
Montefiore
Obligated Group, AGM, 5.246%, 11/01/2048 |
|
|
614,000
|
635,923
|
ProMedica
Toledo Hospital, “B”, AGM, 5.325%, 11/15/2028 |
|
|
250,000
|
268,458
|
ProMedica
Toledo Hospital, “B”, AGM, 5.75%, 11/15/2038 |
|
|
175,000
|
183,809
|
|
|
|
|
$
1,322,861 |
Midstream
– 0.1% |
Targa
Resources Corp., 4.95%, 4/15/2052 |
|
$
|
109,000
|
$
99,804 |
Mortgage-Backed
– 38.6% |
Fannie
Mae, 2.152%, 1/25/2023 |
|
$
|
108,856
|
$
108,759 |
Fannie
Mae, 2.41%, 5/01/2023 |
|
|
113,370
|
113,233
|
Fannie
Mae, 2.55%, 5/01/2023 |
|
|
97,292
|
97,243
|
Fannie
Mae, 4%, 3/25/2028 - 7/01/2047 |
|
|
2,400,328
|
2,453,593
|
Fannie
Mae, 3%, 11/01/2028 - 5/25/2053 |
|
|
1,851,698
|
1,831,114
|
Fannie
Mae, 6.5%, 5/01/2031 - 1/01/2037 |
|
|
206,495
|
221,935
|
Fannie
Mae, 2.5%, 11/01/2031 - 10/01/2046 |
|
|
267,233
|
257,655
|
Fannie
Mae, 3.5%, 12/25/2031 - 2/25/2036 (i) |
|
|
86,566
|
8,736
|
Fannie
Mae, 2.99%, 5/01/2032 |
|
|
174,928
|
169,066
|
Fannie
Mae, 3.17%, 5/01/2032 |
|
|
139,309
|
135,303
|
Fannie
Mae, 3%, 2/25/2033 (i) |
|
|
128,024
|
12,542
|
Fannie
Mae, 5.5%, 10/01/2033 - 3/01/2038 |
|
|
1,130,267
|
1,214,480
|
Fannie
Mae, 6%, 8/01/2034 - 7/01/2037 |
|
|
334,504
|
360,249
|
Portfolio of
Investments (unaudited) – continued
Issuer
|
|
|
Shares/Par
|
Value
($) |
Bonds
– continued |
U.S.
Bonds – continued |
Mortgage-Backed
– continued |
Fannie
Mae, 5%, 6/01/2035 - 3/01/2042 |
|
$
|
267,424
|
$
283,711 |
Fannie
Mae, 3.5%, 4/01/2038 - 7/01/2046 |
|
|
1,095,935
|
1,095,471
|
Fannie
Mae, 2%, 10/25/2040 - 4/25/2046 |
|
|
134,254
|
129,440
|
Fannie
Mae, 4.5%, 2/01/2041 - 11/01/2042 |
|
|
404,534
|
421,517
|
Fannie
Mae, 1.75%, 9/25/2041 - 10/25/2041 |
|
|
373,181
|
358,739
|
Fannie
Mae, 2.75%, 9/25/2042 |
|
|
111,813
|
109,987
|
Fannie
Mae, UMBS, 2%, 2/01/2042 - 3/01/2052 |
|
|
5,750,287
|
5,145,943
|
Fannie
Mae, UMBS, 2.5%, 3/01/2042 - 4/01/2052 |
|
|
2,882,549
|
2,667,643
|
Fannie
Mae, UMBS, 3%, 6/01/2051 - 1/01/2052 |
|
|
654,681
|
627,077
|
Fannie
Mae, UMBS, 3.5%, 5/01/2052 |
|
|
74,901
|
73,557
|
Freddie
Mac, 3.06%, 7/25/2023 |
|
|
294,000
|
295,862
|
Freddie
Mac, 3.458%, 8/25/2023 |
|
|
367,000
|
369,875
|
Freddie
Mac, 0.895%, 4/25/2024 (i) |
|
|
3,396,046
|
47,100
|
Freddie
Mac, 0.602%, 7/25/2024 (i) |
|
|
4,602,363
|
37,641
|
Freddie
Mac, 3.064%, 8/25/2024 |
|
|
481,571
|
482,163
|
Freddie
Mac, 4.5%, 9/01/2024 - 5/01/2042 |
|
|
302,643
|
315,373
|
Freddie
Mac, 2.67%, 12/25/2024 |
|
|
827,000
|
819,445
|
Freddie
Mac, 2.811%, 1/25/2025 |
|
|
538,768
|
535,644
|
Freddie
Mac, 3.5%, 1/15/2027 - 10/25/2058 |
|
|
2,654,012
|
2,650,619
|
Freddie
Mac, 1.367%, 3/25/2027 (i) |
|
|
391,000
|
22,738
|
Freddie
Mac, 0.576%, 7/25/2027 (i) |
|
|
8,481,163
|
216,129
|
Freddie
Mac, 0.429%, 8/25/2027 (i) |
|
|
6,584,111
|
129,274
|
Freddie
Mac, 0.291%, 1/25/2028 (i) |
|
|
12,125,991
|
190,931
|
Freddie
Mac, 0.304%, 1/25/2028 (i) |
|
|
4,994,703
|
81,103
|
Freddie
Mac, 0.135%, 2/25/2028 (i) |
|
|
14,063,041
|
116,742
|
Freddie
Mac, 2.5%, 3/15/2028 |
|
|
39,607
|
39,538
|
Freddie
Mac, 0.12%, 4/25/2028 (i) |
|
|
9,028,766
|
69,821
|
Freddie
Mac, 3%, 6/15/2028 - 2/25/2059 |
|
|
2,003,632
|
1,949,925
|
Freddie
Mac, 1.09%, 7/25/2029 (i) |
|
|
1,259,452
|
81,967
|
Freddie
Mac, 1.143%, 8/25/2029 (i) |
|
|
2,552,309
|
172,835
|
Freddie
Mac, 1.798%, 4/25/2030 (i) |
|
|
600,527
|
71,697
|
Freddie
Mac, 1.868%, 4/25/2030 (i) |
|
|
1,277,474
|
156,943
|
Freddie
Mac, 1.663%, 5/25/2030 (i) |
|
|
612,877
|
68,565
|
Freddie
Mac, 1.797%, 5/25/2030 (i) |
|
|
1,389,954
|
167,502
|
Freddie
Mac, 1.342%, 6/25/2030 (i) |
|
|
559,633
|
50,632
|
Freddie
Mac, 1.6%, 8/25/2030 (i) |
|
|
633,757
|
69,714
|
Freddie
Mac, 1.17%, 9/25/2030 (i) |
|
|
314,905
|
25,814
|
Freddie
Mac, 1.081%, 11/25/2030 (i) |
|
|
789,331
|
60,834
|
Freddie
Mac, 0.33%, 1/25/2031 (i) |
|
|
2,862,712
|
64,915
|
Freddie
Mac, 0.781%, 1/25/2031 (i) |
|
|
873,865
|
50,194
|
Freddie
Mac, 0.936%, 1/25/2031 (i) |
|
|
663,744
|
44,782
|
Freddie
Mac, 0.517%, 3/25/2031 (i) |
|
|
2,273,585
|
82,505
|
Portfolio of
Investments (unaudited) – continued
Issuer
|
|
|
Shares/Par
|
Value
($) |
Bonds
– continued |
U.S.
Bonds – continued |
Mortgage-Backed
– continued |
Freddie
Mac, 0.732%, 3/25/2031 (i) |
|
$
|
973,113
|
$
52,879 |
Freddie
Mac, 1.225%, 5/25/2031 (i) |
|
|
399,402
|
36,140
|
Freddie
Mac, 0.938%, 7/25/2031 (i) |
|
|
489,989
|
34,952
|
Freddie
Mac, 0.536%, 9/25/2031 (i) |
|
|
2,619,786
|
105,344
|
Freddie
Mac, 0.855%, 9/25/2031 (i) |
|
|
808,717
|
53,522
|
Freddie
Mac, 0.349%, 11/25/2031 (i) |
|
|
3,899,181
|
116,671
|
Freddie
Mac, 0.497%, 12/25/2031 (i) |
|
|
3,898,081
|
155,476
|
Freddie
Mac, 0.567%, 12/25/2031 (i) |
|
|
644,718
|
28,632
|
Freddie
Mac, 6%, 5/01/2035 - 10/01/2038 |
|
|
168,693
|
184,850
|
Freddie
Mac, 5.5%, 8/01/2035 - 6/01/2036 |
|
|
194,608
|
210,065
|
Freddie
Mac, 5%, 2/15/2036 - 12/01/2044 |
|
|
774,015
|
824,025
|
Freddie
Mac, 5.5%, 2/15/2036 (i) |
|
|
31,348
|
5,395
|
Freddie
Mac, 2%, 8/15/2036 |
|
|
156,635
|
155,989
|
Freddie
Mac, 6.5%, 5/01/2037 |
|
|
40,977
|
44,367
|
Freddie
Mac, 4%, 8/01/2037 - 4/01/2044 |
|
|
195,346
|
199,977
|
Freddie
Mac, 4.5%, 12/15/2040 (i) |
|
|
9,145
|
846
|
Freddie
Mac, 3.25%, 11/25/2061 |
|
|
412,362
|
403,557
|
Freddie
Mac, UMBS, 2%, 2/01/2042 - 5/01/2052 |
|
|
1,139,026
|
1,020,042
|
Freddie
Mac, UMBS, 2.5%, 10/01/2051 - 3/01/2052 |
|
|
1,360,324
|
1,254,288
|
Freddie
Mac, UMBS, 3%, 1/01/2052 |
|
|
148,436
|
141,753
|
Freddie
Mac, UMBS, 3.5%, 5/01/2052 |
|
|
60,428
|
59,750
|
Freddie
Mac, UMBS, 4%, 5/01/2052 |
|
|
200,000
|
202,059
|
Ginnie
Mae, 5.5%, 7/15/2033 - 1/20/2042 |
|
|
392,180
|
427,654
|
Ginnie
Mae, 5.69%, 8/20/2034 |
|
|
91,635
|
97,704
|
Ginnie
Mae, 4%, 5/16/2039 - 7/20/2041 |
|
|
183,644
|
187,736
|
Ginnie
Mae, 4.5%, 9/20/2041 |
|
|
115,047
|
119,499
|
Ginnie
Mae, 3.5%, 10/20/2041 (i) |
|
|
46,225
|
2,992
|
Ginnie
Mae, 3.5%, 4/15/2042 - 7/20/2043 |
|
|
753,062
|
761,674
|
Ginnie
Mae, 2.5%, 6/20/2042 - 11/20/2051 |
|
|
1,357,051
|
1,276,956
|
Ginnie
Mae, 4%, 8/16/2042 (i) |
|
|
46,971
|
7,040
|
Ginnie
Mae, 2.25%, 9/20/2043 |
|
|
33,404
|
33,175
|
Ginnie
Mae, 3%, 4/20/2045 - 2/20/2052 |
|
|
1,043,318
|
1,013,425
|
Ginnie
Mae, 2%, 1/20/2052 |
|
|
443,171
|
403,609
|
Ginnie
Mae, 0.586%, 2/16/2059 (i) |
|
|
181,392
|
7,054
|
Ginnie
Mae, TBA, 3%, 6/15/2052 |
|
|
1,025,000
|
988,725
|
Ginnie
Mae, TBA, 3.5%, 6/15/2052 |
|
|
1,125,000
|
1,114,453
|
Ginnie
Mae, TBA, 4%, 6/15/2052 - 8/15/2052 |
|
|
1,094,799
|
1,100,244
|
Ginnie
Mae, TBA, 4.5%, 8/15/2052 |
|
|
425,000
|
431,275
|
UMBS,
TBA, 2%, 6/16/2037 - 7/14/2052 |
|
|
3,575,000
|
3,265,300
|
UMBS,
TBA, 2.5%, 6/16/2037 - 7/14/2052 |
|
|
3,425,000
|
3,167,446
|
UMBS,
TBA, 3%, 6/13/2052 |
|
|
700,000
|
666,559
|
UMBS,
TBA, 3.5%, 6/13/2052 |
|
|
100,000
|
97,969
|
Portfolio of
Investments (unaudited) – continued
Issuer
|
|
|
Shares/Par
|
Value
($) |
Bonds
– continued |
U.S.
Bonds – continued |
Mortgage-Backed
– continued |
UMBS,
TBA, 4%, 6/13/2052 |
|
$
|
25,000
|
$
24,984 |
UMBS,
TBA, 5%, 7/25/2052 |
|
|
200,000
|
205,719
|
|
|
|
|
$
48,127,586 |
Municipals
– 3.3% |
Bridgeview,
IL, Stadium and Redevelopment Projects, Taxable, AAC, 5.06%, 12/01/2025 |
|
$
|
630,000
|
$
621,646 |
California
Earthquake Authority Rev., Taxable, “B”, 1.477%, 7/01/2023 |
|
|
110,000
|
108,495
|
Chicago,
IL, General Obligation, Taxable, “C”, AGM, 6.207%, 1/01/2036 |
|
|
1,010,000
|
1,141,598
|
Florida
State Board of Administration Finance Corp. Rev., Taxable, “A”, 1.705%, 7/01/2027 |
|
|
291,000
|
263,301
|
Golden
State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Taxable, “B”, 3%, 6/01/2046 |
|
|
175,000
|
154,570
|
Guam
International Airport Authority Rev., Taxable (A.B. Won Pat Airport), “A”, 4.46%, 10/01/2043 |
|
|
5,000
|
4,396
|
Illinois
Sales Tax Securitization Corp., Second Lien, Taxable, “B”, BAM, 3.411%, 1/01/2043 |
|
|
240,000
|
201,435
|
Massachusetts
Educational Financing Authority, Education Loan Subordinate Rev., Taxable, “A”, 2.641%, 7/01/2037 |
|
|
535,000
|
466,860
|
Michigan
Finance Authority Tobacco Settlement Asset-Backed Rev., Taxable (2006 Sold Tobacco Receipts), “A-1”, 2.326%, 6/01/2030 |
|
|
19,102
|
17,929
|
New
Jersey Turnpike Authority Rev., Taxable (Build America Bonds), “F”, 7.414%, 1/01/2040 |
|
|
32,000
|
42,902
|
Syracuse,
NY, Industrial Development Agency PILOT Rev., Taxable (Carousel Center Project), “B”, 5%, 1/01/2036 (n) |
|
|
1,215,000
|
886,369
|
Texas
Transportation Commission, Central Texas Turnpike System First Tier Refunding Rev., Taxable, “B”, 1.98%, 8/15/2042 |
|
|
195,000
|
195,000
|
|
|
|
|
$
4,104,501 |
Oils
– 0.1% |
Valero
Energy Corp., 3.65%, 12/01/2051 |
|
$
|
157,000
|
$
123,666 |
Pharmaceuticals
– 0.0% |
Gilead
Sciences, Inc., 4.5%, 2/01/2045 |
|
$
|
82,000
|
$
78,526 |
Retailers
– 0.5% |
Home
Depot, Inc., 2.7%, 4/15/2030 |
|
$
|
700,000
|
$
648,663 |
Telecommunications
- Wireless – 0.8% |
Crown
Castle International Corp., 3.25%, 1/15/2051 |
|
$
|
464,000
|
$347,087 |
Portfolio of
Investments (unaudited) – continued
Issuer
|
|
|
Shares/Par
|
Value
($) |
Bonds
– continued |
U.S.
Bonds – continued |
Telecommunications
- Wireless – continued |
T-Mobile
USA, Inc., 4.375%, 4/15/2040 |
|
$
|
650,000
|
$
610,585 |
|
|
|
|
$
957,672 |
Transportation
- Services – 0.0% |
ERAC
USA Finance LLC, 3.85%, 11/15/2024 (n) |
|
$
|
34,000
|
$
34,175 |
U.S.
Government Agencies and Equivalents – 0.4% |
Small
Business Administration, 5.52%, 6/01/2024 |
|
$
|
18,371
|
$
18,512 |
Small
Business Administration, 2.21%, 2/01/2033 |
|
|
94,706
|
89,757
|
Small
Business Administration, 2.22%, 3/01/2033 |
|
|
129,061
|
122,258
|
Small
Business Administration, 3.15%, 7/01/2033 |
|
|
116,287
|
113,861
|
Small
Business Administration, 3.62%, 9/01/2033 |
|
|
114,198
|
115,022
|
|
|
|
|
$
459,410 |
U.S.
Treasury Obligations – 39.1% |
U.S.
Treasury Bonds, 2.25%, 2/15/2027 |
|
$
|
1,921,000
|
$
1,870,349 |
U.S.
Treasury Bonds, 5.25%, 2/15/2029 |
|
|
48,000
|
54,909
|
U.S.
Treasury Bonds, 0.625%, 5/15/2030 |
|
|
800,000
|
674,344
|
U.S.
Treasury Bonds, 4.75%, 2/15/2037 |
|
|
336,000
|
410,327
|
U.S.
Treasury Bonds, 4.375%, 2/15/2038 |
|
|
1,109,000
|
1,304,851
|
U.S.
Treasury Bonds, 4.5%, 8/15/2039 (f) |
|
|
4,503,100
|
5,362,031
|
U.S.
Treasury Bonds, 3.125%, 2/15/2043 |
|
|
453,700
|
439,610
|
U.S.
Treasury Bonds, 2.875%, 5/15/2043 |
|
|
1,697,100
|
1,578,767
|
U.S.
Treasury Bonds, 2.5%, 2/15/2045 |
|
|
4,017,000
|
3,469,527
|
U.S.
Treasury Bonds, 2.875%, 11/15/2046 |
|
|
3,470,000
|
3,217,612
|
U.S.
Treasury Bonds, 3%, 2/15/2048 |
|
|
804,400
|
770,119
|
U.S.
Treasury Bonds, 2.375%, 5/15/2051 |
|
|
638,000
|
547,708
|
U.S.
Treasury Bonds, 1.875%, 11/15/2051 |
|
|
1,090,500
|
830,825
|
U.S.
Treasury Notes, 1.75%, 6/15/2022 |
|
|
1,500,000
|
1,500,576
|
U.S.
Treasury Notes, 1.5%, 9/15/2022 |
|
|
2,459,000
|
2,460,345
|
U.S.
Treasury Notes, 0.125%, 12/31/2022 |
|
|
1,530,000
|
1,516,194
|
U.S.
Treasury Notes, 0.125%, 2/28/2023 |
|
|
1,171,500
|
1,155,895
|
U.S.
Treasury Notes, 0.125%, 4/30/2023 |
|
|
3,940,200
|
3,870,015
|
U.S.
Treasury Notes, 0.125%, 5/31/2023 |
|
|
2,400,000
|
2,352,094
|
U.S.
Treasury Notes, 2.75%, 2/15/2024 |
|
|
577,000
|
580,020
|
U.S.
Treasury Notes, 2.5%, 5/15/2024 |
|
|
2,955,000
|
2,954,538
|
U.S.
Treasury Notes, 2.875%, 7/31/2025 |
|
|
4,700,000
|
4,718,726
|
U.S.
Treasury Notes, 2%, 8/15/2025 |
|
|
98,000
|
95,707
|
U.S.
Treasury Notes, 0.75%, 5/31/2026 |
|
|
567,700
|
523,415
|
U.S.
Treasury Notes, 0.875%, 6/30/2026 |
|
|
678,600
|
627,917
|
U.S.
Treasury Notes, 2%, 11/15/2026 |
|
|
6,071,000
|
5,855,432
|
|
|
|
|
$
48,741,853 |
Portfolio of
Investments (unaudited) – continued
Issuer
|
|
|
Shares/Par
|
Value
($) |
Bonds
– continued |
U.S.
Bonds – continued |
Utilities
- Electric Power – 0.9% |
FirstEnergy
Corp., 4.4%, 7/15/2027 |
|
$
|
694,000
|
$
688,795 |
Vistra
Operations Co. LLC, 4.875%, 5/13/2024 (n) |
|
|
500,000
|
501,960
|
|
|
|
|
$
1,190,755 |
Total
U.S. Bonds |
|
|
|
$
124,682,565 |
Foreign
Bonds – 6.0% |
Australia
– 0.0% |
APT
Pipelines Ltd., 4.25%, 7/15/2027 (n) |
|
$
|
16,000
|
$
15,869 |
Chile
– 0.2% |
Banco
del Estado de Chile, 2.704%, 1/09/2025 (n) |
|
$
|
241,000
|
$
230,459 |
China
– 0.6% |
Industrial
and Commercial Bank of China, 4.875%, 9/21/2025 |
|
$
|
294,000
|
$
305,058 |
Tencent
Holdings Ltd., 2.88%, 4/22/2031 (n) |
|
|
501,000
|
439,016
|
|
|
|
|
$
744,074 |
India
– 0.8% |
Export-Import
Bank of India, 2.25%, 1/13/2031 (n) |
|
$
|
317,000
|
$
258,681 |
Indian
Railway Finance Corp., 2.8%, 2/10/2031 (n) |
|
|
376,000
|
314,652
|
Power
Finance Corp. Ltd. (Republic of India), 5.25%, 8/10/2028 |
|
|
370,000
|
373,830
|
|
|
|
|
$
947,163 |
Indonesia
– 0.4% |
PT
Freeport Indonesia, 5.315%, 4/14/2032 (n) |
|
$
|
451,000
|
$
438,282 |
Ireland
– 0.2% |
AerCap
Ireland Capital DAC/AerCap Global Aviation Trust, 3.3%, 1/30/2032 |
|
$
|
355,000
|
$
299,549 |
Israel
– 0.4% |
Bank
Hapoalim B.M., 3.255% to 1/21/2027, FLR (CMT - 5yr. + 2.155%) to 1/21/2032 (n) |
|
$
|
200,000
|
$
175,750 |
Bank
Leumi le-Israel B.M., 3.275%, 1/29/2031 (n) |
|
|
354,000
|
323,025
|
|
|
|
|
$
498,775 |
Kazakhstan
– 0.3% |
KazTransGas
JSC (Republic of Kazakhstan), 4.375%, 9/26/2027 |
|
$
|
350,000
|
$
316,260 |
Kuwait
– 0.2% |
EQUATE
Petrochemical B.V. (State of Kuwait), 4.25%, 11/03/2026 |
|
$
|
253,000
|
$
251,260 |
Portfolio of
Investments (unaudited) – continued
Issuer
|
|
|
Shares/Par
|
Value
($) |
Bonds
– continued |
Foreign
Bonds – continued |
Malaysia
– 0.3% |
Dua
Capital Ltd. (Federation of Malaysia), 2.78%, 5/11/2031 |
|
$
|
400,000
|
$
338,960 |
Mexico
– 0.4% |
Comision
Federal de Electricidad (United Mexican States), 3.348%, 2/09/2031 (n) |
|
$
|
232,000
|
$
186,066 |
United
Mexican States, 4.75%, 4/27/2032 |
|
|
324,000
|
325,680
|
|
|
|
|
$
511,746 |
Morocco
– 0.2% |
Kingdom
of Morocco, 3%, 12/15/2032 (n) |
|
$
|
377,000
|
$
294,531 |
Panama
– 0.1% |
Republic
of Panama, 3.362%, 6/30/2031 (n) |
|
$
|
162,000
|
$
144,504 |
Romania
– 0.2% |
Republic
of Romania, 2%, 4/14/2033 |
|
EUR
|
367,000
|
$
285,442 |
Saudi
Arabia – 0.4% |
Kingdom
of Saudi Arabia, 2.25%, 2/02/2033 (n) |
|
$
|
309,000
|
$
270,398 |
Saudi
Arabian Oil Co., 1.625%, 11/24/2025 (n) |
|
|
305,000
|
285,937
|
|
|
|
|
$
556,335 |
South
Korea – 0.2% |
Shinhan
Bank Co., Ltd., 4.375%, 4/13/2032 (n) |
|
$
|
300,000
|
$
292,956 |
Thailand
– 0.3% |
Thaioil
Treasury Center Co. Ltd., 3.75%, 6/18/2050 (n) |
|
$
|
470,000
|
$
324,911 |
United
Arab Emirates – 0.3% |
MDGH
- GMTN RSC Ltd. (United Arab Emirates), 2.5%, 11/07/2024 (n) |
|
$
|
429,000
|
$
420,591 |
United
Kingdom – 0.5% |
B.A.T.
Capital Corp., 4.7%, 4/02/2027 |
|
$
|
600,000
|
$
595,874 |
Total
Foreign Bonds |
|
|
$
7,507,541 |
Total
Bonds (Identified Cost, $137,110,605) |
|
$
132,190,106 |
Portfolio of
Investments (unaudited) – continued
Issuer
|
|
|
Shares/Par
|
Value
($) |
Investment
Companies (h) – 2.6% |
Money
Market Funds – 2.6% |
|
MFS
Institutional Money Market Portfolio, 0.64% (v) (Identified Cost, $3,257,550) |
|
|
3,257,550
|
$
3,257,550 |
|
|
Other
Assets, Less Liabilities – (8.6)% |
|
(10,716,865)
|
Net
Assets – 100.0% |
|
$
124,730,791 |
(f)
|
All or a
portion of the security has been segregated as collateral for open futures contracts. |
(h)
|
An
affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund's investments in affiliated issuers
and in unaffiliated issuers were $3,257,550 and $132,190,106, respectively. |
(i)
|
Interest
only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
(n)
|
Securities
exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the
aggregate value of these securities was $13,486,000, representing 10.8% of net assets. |
(v)
|
Affiliated
issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
The
following abbreviations are used in this report and are defined: |
AAC
|
Ambac
Assurance Corp. |
AGM
|
Assured
Guaranty Municipal |
BAM
|
Build
America Mutual |
CLO
|
Collateralized
Loan Obligation |
CMT
|
Constant
Maturity Treasury |
FLR
|
Floating
Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
LIBOR
|
London
Interbank Offered Rate |
REIT
|
Real
Estate Investment Trust |
SOFR
|
Secured
Overnight Financing Rate |
TBA
|
To Be
Announced |
UMBS
|
Uniform
Mortgage-Backed Security |
Abbreviations
indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below: |
EUR
|
Euro
|
Portfolio of
Investments (unaudited) – continued
Derivative Contracts at 5/31/22
Forward
Foreign Currency Exchange Contracts |
Currency
Purchased |
Currency
Sold |
Counterparty
|
Settlement
Date |
Unrealized
Appreciation (Depreciation) |
Asset
Derivatives |
USD
|
405,203
|
EUR
|
367,738
|
BNP
Paribas S.A. |
7/15/2022
|
$9,535
|
Futures
Contracts |
Description
|
Long/
Short |
Currency
|
Contracts
|
Notional
Amount |
Expiration
Date |
Value/Unrealized
Appreciation (Depreciation) |
Asset
Derivatives |
Interest
Rate Futures |
|
|
U.S.
Treasury Bond |
Short
|
USD
|
48
|
$6,693,000
|
September
- 2022 |
$65,824
|
U.S.
Treasury Note 2 yr |
Short
|
USD
|
19
|
4,010,930
|
September
- 2022 |
7,120
|
U.S.
Treasury Note 5 yr |
Short
|
USD
|
53
|
5,986,515
|
September
- 2022 |
21,344
|
U.S.
Treasury Ultra Bond |
Short
|
USD
|
3
|
467,250
|
September
- 2022 |
9,831
|
|
|
|
|
|
|
$104,119
|
Liability
Derivatives |
Interest
Rate Futures |
|
|
U.S.
Treasury Note 10 yr |
Long
|
USD
|
75
|
$8,958,984
|
September
- 2022 |
$(60,624)
|
U.S.
Treasury Ultra Note 10 yr |
Long
|
USD
|
2
|
256,969
|
September
- 2022 |
(1,476)
|
|
|
|
|
|
|
$(62,100)
|
At May 31, 2022, the fund had liquid
securities with an aggregate value of $214,333 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
Financial Statements
Statement of Assets and Liabilities
At 5/31/22 (unaudited)
This statement represents your fund’s balance sheet,
which details the assets and liabilities comprising the total value of the fund.
Assets
|
|
Investments
in unaffiliated issuers, at value (identified cost, $137,110,605) |
$132,190,106
|
Investments
in affiliated issuers, at value (identified cost, $3,257,550) |
3,257,550
|
Cash
|
10,222
|
Receivables
for |
|
Forward
foreign currency exchange contracts |
9,535
|
Net
daily variation margin on open futures contracts |
47,759
|
Investments
sold |
20,000
|
TBA
sale commitments |
5,037,338
|
Interest
|
679,679
|
Other
assets |
18,989
|
Total
assets |
$141,271,178
|
Liabilities
|
|
Payables
for |
|
Investments
purchased |
$395,437
|
TBA
purchase commitments |
16,027,030
|
Payable
to affiliates |
|
Investment
adviser |
8,282
|
Administrative
services fee |
413
|
Transfer
agent and dividend disbursing costs |
4,968
|
Payable
for independent Trustees' compensation |
14,070
|
Accrued
expenses and other liabilities |
90,187
|
Total
liabilities |
$16,540,387
|
Net
assets |
$124,730,791
|
Net
assets consist of |
|
Paid-in
capital |
$141,296,179
|
Total
distributable earnings (loss) |
(16,565,388)
|
Net
assets |
$124,730,791
|
Shares
of beneficial interest outstanding |
32,597,393
|
Net
asset value per share (net assets of $124,730,791 / 32,597,393 shares of beneficial interest outstanding) |
$3.83
|
See Notes to Financial
Statements
Financial Statements
Statement of Operations
Six months ended 5/31/22 (unaudited)
This statement describes how much your fund earned in
investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
Net
investment income (loss) |
|
Income
|
|
Interest
|
$1,284,644
|
Dividends
from affiliated issuers |
3,723
|
Foreign
taxes withheld |
(93)
|
Total
investment income |
$1,288,274
|
Expenses
|
|
Management
fee |
$286,508
|
Transfer
agent and dividend disbursing costs |
30,564
|
Administrative
services fee |
14,690
|
Independent
Trustees' compensation |
3,062
|
Stock
exchange fee |
15,832
|
Custodian
fee |
6,392
|
Shareholder
communications |
37,607
|
Audit
and tax fees |
43,628
|
Legal
fees |
1,870
|
Miscellaneous
|
24,937
|
Total
expenses |
$465,090
|
Net
investment income (loss) |
$823,184
|
Realized
and unrealized gain (loss) |
Realized
gain (loss) (identified cost basis) |
|
Unaffiliated
issuers |
$(1,328,057)
|
Futures
contracts |
880,485
|
Forward
foreign currency exchange contracts |
22,773
|
Foreign
currency |
(522)
|
Net
realized gain (loss) |
$(425,321)
|
Change
in unrealized appreciation or depreciation |
|
Unaffiliated
issuers |
$(12,906,969)
|
Futures
contracts |
270,288
|
Forward
foreign currency exchange contracts |
1,777
|
Translation
of assets and liabilities in foreign currencies |
173
|
Net
unrealized gain (loss) |
$(12,634,731)
|
Net
realized and unrealized gain (loss) |
$(13,060,052)
|
Change
in net assets from operations |
$(12,236,868)
|
See Notes to Financial
Statements
Financial Statements
Statements of Changes in Net Assets
These statements describe the increases and/or decreases in
net assets resulting from operations, any distributions, and any shareholder transactions.
|
Six
months ended |
Year
ended |
|
5/31/22
(unaudited) |
11/30/21
|
Change
in net assets |
|
|
From
operations |
|
|
Net
investment income (loss) |
$823,184
|
$2,620,224
|
Net
realized gain (loss) |
(425,321)
|
1,914,649
|
Net
unrealized gain (loss) |
(12,634,731)
|
(6,608,864)
|
Change
in net assets from operations |
$(12,236,868)
|
$(2,073,991)
|
Distributions
to shareholders |
$(912,305)
|
$(2,900,169)
|
Tax
return of capital distributions to shareholders |
$—
|
$(7,851,681)
|
Distributions
from other sources |
$(4,014,743)
|
$—
|
Change
in net assets from fund share transactions |
$42,524
|
$—
|
Total
change in net assets |
$(17,121,392)
|
$(12,825,841)
|
Net
assets |
|
|
At
beginning of period |
141,852,183
|
154,678,024
|
At
end of period |
$124,730,791
|
$141,852,183
|
See Notes to Financial
Statements
Financial
Statements
Financial Highlights
The financial highlights table is intended to help you
understand the fund's financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
|
Six months ended |
Year
ended |
|
5/31/22
(unaudited) |
11/30/21
|
11/30/20
|
11/30/19
|
11/30/18
|
11/30/17
|
Net
asset value, beginning of period |
$4.35
|
$4.75
|
$4.75
|
$4.65
|
$5.08
|
$5.35
|
Income
(loss) from investment operations |
Net
investment income (loss) (d) |
$0.03
|
$0.08
|
$0.10
|
$0.12
|
$0.12
|
$0.14
|
Net
realized and unrealized gain (loss) |
(0.40)
|
(0.15)
|
0.25
|
0.32
|
(0.20)
|
(0.03)
|
Total
from investment operations |
$(0.37)
|
$(0.07)
|
$0.35
|
$0.44
|
$(0.08)
|
$0.11
|
Less
distributions declared to shareholders |
From
net investment income |
$(0.03)
|
$(0.09)
|
$(0.11)
|
$(0.13)
|
$(0.14)
|
$(0.18)
|
From
tax return of capital |
—
|
(0.24)
|
(0.24)
|
(0.21)
|
(0.21)
|
(0.20)
|
From
other sources |
(0.12)
|
—
|
—
|
—
|
—
|
—
|
Total
distributions declared to shareholders |
$(0.15)
|
$(0.33)
|
$(0.35)
|
$(0.34)
|
$(0.35)
|
$(0.38)
|
Net
increase from repurchase of capital shares |
$—
|
$—
|
$0.00(w)
|
$—
|
$—
|
$—
|
Net
asset value, end of period (x) |
$3.83
|
$4.35
|
$4.75
|
$4.75
|
$4.65
|
$5.08
|
Market
value, end of period |
$3.80
|
$4.27
|
$4.64
|
$4.56
|
$4.36
|
$4.81
|
Total
return at market value (%) |
(7.51)(n)
|
(0.84)
|
9.64
|
12.76
|
(2.05)
|
2.62
|
Total
return at net asset value (%) (j)(r)(s)(x) |
(8.50)(n)
|
(1.32)
|
7.75
|
10.13
|
(1.09)
|
2.50
|
Ratios
(%) (to average net assets) and Supplemental data: |
Expenses
|
0.70(a)
|
0.70
|
0.72
|
0.74
|
0.75
|
0.75
|
Net
investment income (loss) |
1.24(a)
|
1.78
|
2.19
|
2.45
|
2.57
|
2.64
|
Portfolio
turnover |
87(n)
|
201
|
142
|
48
|
21
|
32
|
Net
assets at end of period (000 omitted) |
$124,731
|
$141,852
|
$154,678
|
$154,836
|
$151,533
|
$165,599
|
See Notes to Financial Statements
Financial
Highlights – continued
(a)
|
Annualized.
|
(d)
|
Per share
data is based on average shares outstanding. |
(j)
|
Total return
at net asset value is calculated using the net asset value of the fund, not the publicly traded price and therefore may be different than the total return at market value. |
(n)
|
Not
annualized. |
(r)
|
Certain
expenses have been reduced without which performance would have been lower. |
(s)
|
From time to
time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
(w)
|
Per share
amount was less than $0.01. |
(x)
|
The
net asset values and total returns at net asset value have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes.
|
See Notes to Financial Statements
Notes to Financial
Statements
(unaudited)
(1) Business and Organization
MFS Government Markets Income Trust (the fund) is organized as
a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a diversified closed-end management investment company.
The fund is an investment company and accordingly follows the
investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services - Investment Companies.
(2) Significant Accounting Policies
General — The preparation
of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these
financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
Balance Sheet Offsetting
— The fund's accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or
similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the
fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations
— Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term
instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their
primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a
third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing
service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on
the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and
market information such as yield, quality, coupon rate,
Notes to Financial
Statements (unaudited) - continued
maturity, type of issue, trading characteristics, and other market data. The
values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for
determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and
procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from
third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the
investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the
exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the
type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value
of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset
value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines
its net asset value per share.
Various inputs are used in
determining the value of the fund's assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an
investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund's assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted
prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser's own assumptions in determining the fair value of investments. Other financial instruments are
derivative instruments, such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of May 31, 2022 in valuing the fund's assets and liabilities:
Notes to Financial
Statements (unaudited) - continued
Financial
Instruments |
Level
1 |
Level
2 |
Level
3 |
Total
|
U.S.
Treasury Bonds & U.S. Government Agencies & Equivalents |
$—
|
$49,201,263
|
$—
|
$49,201,263
|
Non
- U.S. Sovereign Debt |
—
|
5,040,591
|
—
|
5,040,591
|
Municipal
Bonds |
—
|
4,104,501
|
—
|
4,104,501
|
U.S.
Corporate Bonds |
—
|
16,165,752
|
—
|
16,165,752
|
Residential
Mortgage-Backed Securities |
—
|
48,127,586
|
—
|
48,127,586
|
Commercial
Mortgage-Backed Securities |
—
|
4,814,260
|
—
|
4,814,260
|
Asset-Backed
Securities (including CDOs) |
—
|
2,269,203
|
—
|
2,269,203
|
Foreign
Bonds |
—
|
2,466,950
|
—
|
2,466,950
|
Mutual
Funds |
3,257,550
|
—
|
—
|
3,257,550
|
Total
|
$3,257,550
|
$132,190,106
|
$—
|
$135,447,656
|
Other
Financial Instruments |
|
|
|
|
Futures
Contracts – Assets |
$104,119
|
$—
|
$—
|
$104,119
|
Futures
Contracts – Liabilities |
(62,100)
|
—
|
—
|
(62,100)
|
Forward
Foreign Currency Exchange Contracts – Assets |
—
|
9,535
|
—
|
9,535
|
For further information regarding
security characteristics, see the Portfolio of Investments.
Foreign Currency Translation
— 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 or on the reporting date for foreign denominated
receivables and payables. 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 receivables, payables, 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.
Derivatives — The fund
uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for
hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from
derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the
period were futures contracts and forward foreign currency exchange contracts. Depending on the type of derivative, a fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an
agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out
Notes to Financial
Statements (unaudited) - continued
a futures position in instances where the daily fluctuation in the price for
that type of future exceeds the daily limit set by the exchange. The fund's period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its
derivative activity during the period.
The following
table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at May 31, 2022 as reported in the Statement of Assets and Liabilities:
|
|
Fair
Value (a) |
Risk
|
Derivative
Contracts |
Asset
Derivatives |
Liability
Derivatives |
Interest
Rate |
Futures
Contracts |
$104,119
|
$(62,100)
|
Foreign
Exchange |
Forward
Foreign Currency Exchange Contracts |
9,535
|
—
|
Total
|
|
$113,654
|
$(62,100)
|
(a)
|
Values
presented in this table for futures contracts correspond to the values reported in the Portfolio of Investments. Only the current day net variation margin for futures contracts is separately reported within the Statement of Assets and Liabilities.
|
The following table presents, by
major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended May 31, 2022 as reported in the Statement of Operations:
Risk
|
Futures
Contracts |
Forward
Foreign Currency Exchange Contracts |
Interest
Rate |
$880,485
|
$—
|
Foreign
Exchange |
—
|
22,773
|
Total
|
$880,485
|
$22,773
|
The following table presents, by
major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the six months ended May 31, 2022 as reported in the Statement of Operations:
Risk
|
Futures
Contracts |
Forward
Foreign Currency Exchange Contracts |
Interest
Rate |
$270,288
|
$—
|
Foreign
Exchange |
—
|
1,777
|
Total
|
$270,288
|
$1,777
|
Derivative counterparty credit risk
is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an
ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other
party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one
Notes to Financial
Statements (unaudited) - continued
net amount payable by one party to the other. This right to close out and net
payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund's credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of
derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the
fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form
of cash and securities, is held in segregated accounts with the fund's custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are
netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund's collateral or
margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as
collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in
“Miscellaneous” expense in the Statement of Operations.
Futures Contracts — The
fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of
an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to
deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending
on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is
realized.
The fund bears the risk of interest rates,
exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since
the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit
risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts — The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s
currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to
hedge
Notes to Financial
Statements (unaudited) - continued
against declines in the value of foreign currency denominated securities due
to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of
anticipated exchange rate changes.
Forward foreign
currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement
date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from
unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the
contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the
counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Indemnifications — Under
the fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters
into agreements with service providers that may contain indemnification clauses. The fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet
occurred.
Investment Transactions and Income — Investment transactions are recorded on the trade date. Some securities may be purchased or sold on an extended settlement basis, which means that the receipt or delivery
of the securities by the fund and related payments occur at a future date, usually beyond the customary settlement period.
Interest income is recorded on the accrual basis. All premium and discount is
amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the
security on such date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund may receive proceeds from litigation settlements. Any
proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund.
Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
The fund invests a significant portion of its assets in
asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the
underlying assets or collateral.
Notes to Financial
Statements (unaudited) - continued
Enforcing rights, if any, against the underlying assets or collateral may be
difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S.
Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
The fund may purchase or sell mortgage-backed securities on a
“To Be Announced” (TBA) basis. A TBA transaction is subject to extended settlement and typically does not designate the actual security to be delivered, but instead includes an approximate principal amount. The price of the TBA security
and the date that it will be settled are fixed at the time the transaction is negotiated. The value of the security varies with market fluctuations and no interest accrues to the fund until settlement takes place. TBA purchase and sale commitments
are held at carrying amount, which approximates fair value and are categorized as level 2 within the fair value hierarchy and included in TBA purchase and TBA sale commitments in the Statement of Assets and Liabilities. Losses may arise as a result
of changes in the value of the TBA investment prior to settlement date or due to counterparty non-performance. At the time that it enters into a TBA transaction, the fund is required to have sufficient cash and/or liquid securities to cover its
commitments.
The fund may also enter into mortgage dollar
rolls, typically TBA dollar rolls, in which the fund sells TBA mortgage-backed securities to financial institutions and simultaneously agrees to repurchase similar (same issuer, type and coupon) securities at a later date at an agreed-upon price.
During the period between the sale and repurchase, the fund will not be entitled to receive interest and principal payments on the securities sold. The fund accounts for dollar roll transactions as purchases and sales and realizes gains and losses
on these transactions. Dollar roll transactions involve the risk that the market value of the securities that the fund is required to purchase may decline below the agreed upon repurchase price of those securities.
Tax Matters and Distributions
— The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal
income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state
tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in
accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be
subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend
date. The fund seeks to pay monthly distributions based on an annual rate of 7.25% of the fund’s average monthly net asset value. As a result, distributions may exceed actual earnings which may result in a tax return of capital. Income and
capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their
Notes to Financial
Statements (unaudited) - continued
tax character. These adjustments have no impact on net assets or net asset
value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to amortization and
accretion of debt securities, straddle loss deferrals and derivative transactions.
For the six months ended May 31, 2022, the amount of
distributions estimated to be a tax return of capital was approximately $4,014,743 which is reported as distributions from other sources in the Statements of Changes in Net Assets. All or a portion of this amount may be redesignated as capital gains
at fiscal year end.
The tax character of distributions
made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:
|
Year
ended 11/30/21 |
Ordinary
income (including any short-term capital gains) |
$2,900,169
|
Tax
return of capital (b) |
7,851,681
|
Total
distributions |
$10,751,850
|
(b)
|
Distributions
in excess of tax basis earnings and profits are reported in the financial statements as a tax return of capital. |
The federal tax cost and the tax basis components of
distributable earnings were as follows:
As
of 5/31/22 |
|
Cost
of investments |
$144,597,365
|
Gross
appreciation |
1,333,713
|
Gross
depreciation |
(10,483,422)
|
Net
unrealized appreciation (depreciation) |
$
(9,149,709) |
As
of 11/30/21 |
|
Capital
loss carryforwards |
(3,107,951)
|
Other
temporary differences |
(62,279)
|
Net
unrealized appreciation (depreciation) |
3,768,758
|
The aggregate cost above includes
prior fiscal year end tax adjustments, if applicable.
As
of November 30, 2021, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses
are characterized as follows:
(3) Transactions with
Affiliates
Investment Adviser — The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The
management fee is computed daily and paid monthly at an annual rate of 0.32% of the fund’s average daily net assets and 5.33% of gross
Notes to Financial
Statements (unaudited) - continued
income. Gross income is calculated based on tax elections that generally
include the accretion of discount and exclude the amortization of premium, which may differ from investment income reported in the Statement of Operations. MFS has agreed to reduce its management fee to the lesser of the contractual management fee
as set forth above or 0.85% of the fund's average daily net assets. This written agreement will continue until modified by the fund's Board of Trustees, but such agreement will continue at least until November 30, 2023. For the six months ended May
31, 2022, the fund’s average daily net assets and gross income fees did not meet the thresholds required to waive the management fee under this agreement. The management fee, from net assets and gross income, incurred for the six months ended
May 31, 2022 was equivalent to an annual effective rate of 0.43% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion
of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, certain tax reclaim recovery expenses (including contingency fees and closing agreement expenses), and
investment-related expenses, such that total annual operating expenses do not exceed 0.80% annually of the fund’s average daily net assets. This written agreement will continue until modified by the fund’s Board of Trustees, but such
agreement will continue at least until November 30, 2023. For the six months ended May 31, 2022, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s
expenses related to this agreement.
Transfer Agent — The fund engages Computershare Trust Company, N.A. (“Computershare”) as the sole transfer agent for the fund. MFS Service Center, Inc. (MFSC) monitors and supervises the activities of Computershare
for an agreed upon fee approved by the Board of Trustees. For the six months ended May 31, 2022, these fees paid to MFSC amounted to $9,894.
Administrator — MFS
provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is
charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended May 31, 2022 was equivalent to an annual effective rate of 0.0221% of the fund's average daily
net assets.
Trustees’ and Officers’
Compensation — The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation
directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS and
MFSC.
Prior to December 31, 2001, the fund had an
unfunded defined benefit plan (“DB plan”) for independent Trustees. As of December 31, 2001, the Board took action to terminate the DB plan with respect to then-current and any future independent Trustees, such that the DB plan covers
only certain of those former independent Trustees who retired on or before December 31, 2001. The DB plan resulted in a pension expense of $411 and is included in “Independent Trustees’ compensation” in the Statement of Operations
for the six months ended May 31, 2022. The liability for
Notes to Financial
Statements (unaudited) - continued
deferred retirement benefits payable to those former independent Trustees
under the DB plan amounted to $13,996 at May 31, 2022, and is included in “Payable for independent Trustees’ compensation” in the Statement of Assets and Liabilities.
Other — The fund invests
in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and
operating costs.
(4) Portfolio Securities
For the six months ended May 31, 2022, purchases and sales of
investments, other than short-term obligations, were as follows:
|
Purchases
|
Sales
|
U.S.
Government securities |
$118,956,059
|
$122,125,231
|
Non-U.S.
Government securities |
3,988,795
|
5,532,575
|
(5) Shares of Beneficial
Interest
The fund's Declaration of Trust permits the
Trustees to issue an unlimited number of full and fractional shares of beneficial interest. The Trustees have authorized the repurchase by the fund of up to 10% annually of its own shares of beneficial interest.
During the six months ended May 31, 2022 and the year ended November 30, 2021,
the fund did not repurchase any shares. Transactions in fund shares were as follows:
|
Six
months ended 5/31/22 |
|
Year
ended 11/30/21 |
|
Shares
|
Amount
|
|
Shares
|
Amount
|
Shares
issued to shareholders in reinvestment of distributions |
11,103
|
$42,524
|
|
—
|
$—
|
(6) Line of Credit
The fund and certain other funds managed by MFS participate in
a $1.45 billion unsecured committed line of credit of which $1.2 billion is reserved for use by the fund and certain other MFS U.S. funds. The line of credit is provided by a syndicate of banks under a credit agreement. Borrowings may be made for
temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of 1) Daily Simple SOFR (Secured Overnight Financing Rate) plus 0.10%, 2) the Federal Funds Effective Rate, or 3) the
Overnight Bank Funding Rate, each plus an agreed upon spread. A commitment fee, based on the average daily unused portion of the committed line of credit, is allocated among the participating funds. The line of credit expires on March 16, 2023
unless extended or renewed. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its
borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the six months ended May 31, 2022, the fund’s commitment fee and interest expense were $264 and $0, respectively, and are included in
“Miscellaneous” expense in the Statement of Operations.
Notes to Financial
Statements (unaudited) - continued
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund
owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
Affiliated
Issuers |
Beginning
Value |
Purchases
|
Sales
Proceeds |
Realized
Gain (Loss) |
Change
in Unrealized Appreciation or Depreciation |
Ending
Value |
MFS
Institutional Money Market Portfolio |
$12,202,488
|
$24,464,970
|
$33,409,908
|
$—
|
$—
|
$3,257,550
|
Affiliated
Issuers |
Dividend
Income |
Capital
Gain Distributions |
MFS
Institutional Money Market Portfolio |
$3,723
|
$—
|
(8) LIBOR Transition
Certain of the fund's investments, including investments in
certain debt instruments and derivatives (if any), as well as borrowings by the fund and certain other contractual arrangements of the fund, may be based on the London Interbank Offered Rate (“LIBOR”). In 2017, the regulatory authority
that oversees financial services firms in the United Kingdom announced plans to transition away from LIBOR by the end of 2021. In March 2021, the administrator of LIBOR announced the extension of the publication of the more commonly used U.S. dollar
LIBOR settings to the end of June 2023. Although the full impacts of the transition away from LIBOR are not fully known, the transition may result in, among other things, an increase in volatility or illiquidity of the markets for instruments that
currently rely on LIBOR to determine interest rates and this could have an adverse impact on the fund's performance. With respect to the fund's accounting for investments, including investments in certain debt instruments and derivatives, as well as
borrowings by the fund and any other contractual arrangements of the fund that undergo reference rate-related modifications as a result of the transition, management will rely upon the relief provided by FASB Codification Topic 848 – Reference
Rate Reform (Topic 848). The guidance in Topic 848 permits the fund to account for those modified contracts as a continuation of the existing contracts. Management is still evaluating the impact to the fund of the June 30, 2023 planned
discontinuation of the more commonly used U.S. dollar LIBOR settings.
(9) Russia and Ukraine Conflict
The market disruptions, which began in late February 2022,
associated with geopolitical events related to the conflict between Russia and Ukraine may adversely affect the value of the fund’s assets and thus the fund’s performance. Management continues to monitor these events and to evaluate the
related impacts, if any, to the fund.
Report of Independent
Registered Public Accounting Firm
To the Trustees and
Shareholders of MFS Government Markets Income Trust:
Results of Review of Interim Financial Statements
We have reviewed the accompanying statement of assets and
liabilities of MFS Government Markets Income Trust (the “Trust”), including the portfolio of investments, as of May 31, 2022, and the related statements of operations, and changes in net assets and the financial highlights for the
six-month period ended May 31, 2022, and the related notes. Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements and financial highlights for them to be in
conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States) (PCAOB), the statement of assets and liabilities, including the portfolio of investments, as of November 30, 2021 (not presented herein), the related statements of operations for the year
ended November 30, 2021 (not presented herein), the statements of changes in net assets for the years ended November 30, 2021 and November 30, 2020 (2020 not presented herein) and the financial highlights for each of the five years in the period
ended November 30, 2021, and in our report dated January 14, 2022, we expressed an unqualified opinion on those financial statements.
Basis for Review Results
These interim financial statements and financial highlights are
the responsibility of the Trust's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our review in accordance with the standards of the
PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
July 15, 2022
We have served as the auditor of one or more of the MFS
investment companies since 1924.
Proxy
Voting Policies and Information
MFS votes proxies on
behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s
Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to
portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Quarterly Portfolio Disclosure
The fund files a complete schedule of portfolio holdings with
the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at
http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund's fiscal year at
mfs.com/closedendfunds by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
Further Information
From time to time, MFS may post important information about the
fund or the MFS Funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at
mfs.com/closedendfunds by choosing the fund's name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Additional information about the fund (e.g., performance,
dividends and the fund’s price history) is also available at mfs.com/closedendfunds by choosing the fund's name, if any.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an
investment adviser, administrator, transfer agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these
contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any
claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
CONTACT US
TRANSFER AGENT, REGISTRAR, AND
DIVIDEND DISBURSING
AGENT
CALL
1-800-637-2304
9 a.m. to 5 p.m. Eastern time
WRITE
Computershare Trust Company, N.A.
P.O. Box 505005
Louisville, KY 40233-5005
New York Stock Exchange Symbol: MGF
Item 1(b):
A copy of the notice transmitted to the Registrants shareholders in reliance on Rule 30e-3 of the Investment
Company Act of 1940, as amended that contains disclosure specified by paragraph (c)(3) of Rule 30e-3 is attached hereto as
EX-99.30e-3Notice.