ITEM 1.
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REPORTS TO STOCKHOLDERS.
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Annual Report
November 30, 2019
MFS® Government Markets Income
Trust
Beginning on January 1, 2021, as permitted by
regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the funds annual and semiannual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the
complete reports will be made available on the funds Web site, and you will be notified by mail each time a report is posted and provided with a Web site link to access the report.
If you are already signed up to receive shareholder reports by email, you will not be affected by this change and you need not take any action. You may sign up to receive shareholder reports and other
communications from the fund by email by contacting your financial intermediary (such as a broker-dealer or bank) or, if you hold your shares directly with the fund, by calling 1-800-637-2304 or by logging into your Investor Center account at
www.computershare.com/investor.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge. Contact your
financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the fund, you can call 1-800-637-2304 to let the fund know that you wish to continue receiving paper copies of your
shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through your financial intermediary or all funds held with the MFS fund complex if you invest directly.
MGF-ANN
MANAGED DISTRIBUTION POLICY DISCLOSURE
The MFS Government Markets Income Trusts (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 funds
average monthly net asset value. The primary purpose of the managed distribution policy is to provide shareholders with a constant, but not guaranteed, fixed minimum rate of distribution each month. You should not draw any conclusions about the
funds investment performance from the amount of the current distribution or from the terms of the funds 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 funds 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 funds investment experience during 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 funds 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 funds total assets
and, therefore, could have the effect of increasing the funds 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 funds investment performance and should not be confused with yield or income. The funds 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
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
LETTER
FROM THE EXECUTIVE CHAIR
Dear Shareholders:
Slowing global growth, low inflation, and trade friction between the United States and China have been hallmarks of the past 12 months. After experiencing an uptick
in
market volatility in late 2018, markets steadied for most of 2019, thanks in large measure to the adoption of a dovish policy stance on the part of global central banks, focused on supporting
economic growth. Negotiations aimed at a phase one trade deal between the U.S. and China are at an advanced stage, boosting investor sentiment, though uncertainty persists. Signs of stability emerging from the global manufacturing sector
have also lifted spirits. Uncertainty over Brexit, along with the ripple effects from the trade conflict, hampered business confidence and investment in the U.K. and Europe, though investors hope that the result of Decembers general election,
which the pro-Brexit Conservative Party won by a comfortable margin, will bring
greater clarity as the U.K. is on pace to leave the EU at the end of January 2020.
Markets expect
that the longest economic expansion in U.S. history will continue for the time being, albeit at a slower pace, especially if trade tensions recede. In an effort to prolong the expansion, the U.S. Federal Reserve lowered interest rates three times
between July and October. Similarly, the European Central Bank loosened policy in September. While the monetary policy environment remains quite accommodative, signs of easing trade tensions and fading global recession fears have helped push global
interest rates modestly higher from the record-low levels posted late in the summer as investors grew less risk averse.
Here at MFS®, we aim to help our clients navigate the growing complexity of the markets and world economies. Our long-term investment philosophy and commitment to the responsible allocation of capital allow us
to tune out the noise and uncover what we believe are the best, most durable investment opportunities in the market. Through our powerful global investment platform, we combine collective expertise, thoughtful risk management and long-term
discipline to create sustainable value for investors.
Respectfully,
Robert J. Manning
Executive Chair
MFS Investment Management
January 15, 2020
The opinions expressed in this letter are
subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
1
PORTFOLIO COMPOSITION
Portfolio structure (i)
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Fixed income sectors (i)
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Mortgage-Backed Securities
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46.1%
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U.S. Treasury Securities
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37.5%
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Investment Grade Corporates
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9.8%
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Emerging Markets Bonds
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4.7%
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Municipal Bonds
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3.4%
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U.S. Government Agencies
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1.6%
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Collateralized Debt Obligations
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1.5%
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Commercial Mortgage-Backed Securities
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1.4%
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Asset-Backed Securities
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0.6%
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Non-U.S. Government Bonds
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0.1%
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Composition including fixed income credit quality (a)(i)
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AAA
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2.8%
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AA
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2.0%
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A
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4.2%
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BBB
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11.2%
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BB
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1.3%
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U.S. Government
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33.7%
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Federal Agencies
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47.7%
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Not Rated
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3.8%
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Cash & Cash Equivalents
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(2.9)%
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Other
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(3.8)%
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Portfolio facts (i)
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Average Duration (d)
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5.8
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Average Effective Maturity (m)
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8.0 yrs.
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(a)
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For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moodys,
Fitch, and Standard & Poors 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. 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, which have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies.
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2
Portfolio Composition continued
(d)
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Duration is a measure of how much a bonds 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.
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(i)
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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 portfolios 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.
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(m)
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In determining each instruments effective maturity for purposes of calculating the funds dollar-weighted average effective maturity, MFS
uses the instruments 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 instruments stated maturity.
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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 funds cash position and other assets and liabilities.
From time to time Cash & Cash Equivalents may be negative due to borrowings for leverage transactions and/or 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 November 30, 2019.
The portfolio is actively managed and current holdings may be different.
3
MANAGEMENT REVIEW
Summary of Results
MFS Government Markets Income Trust
(fund) is a closed-end fund. The funds investment objective is to seek high current income, but may also consider capital appreciation. MFS normally invests at least 80% of the funds net assets,
including borrowings for investment purposes, in U.S. and foreign government securities. MFS may invest the funds assets in other types of debt instruments. MFS generally invests substantially all of the funds assets in investment grade
debt instruments. MFS may invest the funds assets in U.S. and foreign securities, including emerging market securities.
For the twelve months
ended November 30, 2019, the fund provided a total return of 10.13%, at net asset value and a total return of 12.76%, at market value. This compares with a return of 9.00% for the funds benchmark, the Bloomberg Barclays U.S.
Government/Mortgage Bond Index. Over the same period, the funds other benchmark, the MFS Government Markets Income Trust Blended Index (Blended Index), generated a return of 10.21%. The Blended Index reflects the blended returns of various
fixed income market indices, with percentage allocations to each index designed to resemble the fixed income allocations of the fund. The market indices and related percentage allocations used to compile the Blended Index are set forth in the
Performance Summary.
The performance commentary below is based on the net asset value performance of the fund which reflects the performance of the
underlying pool of assets held by the fund. The total return at market value represents the return earned by owners of the shares of the fund which are traded publicly on the exchange.
Market Environment
Fading fears of a near-term global recession, hopes for a partial trade deal between the
United States and China and dramatically lower odds of a no-deal Brexit helped bolster market sentiment late in the period, causing headwinds experienced for many months prior to die down. Changes in market
sentiment, largely driven by uncertainty over the outcome of trade negotiations between the US and China, contributed to periodic bouts of volatility during the reporting period. The global economy decelerated, led by weakness in China and Europe,
although the pace of the slowdown moderated late in the period amid signs of stabilization in the manufacturing sector.
The deteriorating global growth
backdrop, along with declining inflationary pressures, prompted the US Federal Reserve to adopt a more dovish posture beginning in early 2019, resulting in the first interest rate cut in over a decade at the end of July, followed by additional cuts
in September and October. The Feds actions led to a sharp decline in long-term interest rates during the periods second half, causing the inversion of portions of the US Treasury yield curve for a time. The Fed indicated in October that
further rate cuts are unlikely unless the outlook for the economy materially worsens.
Globally, central banks have tilted more dovish as well, with the
European Central Bank unveiling a package of easing measures, which included cutting overnight rates further sending them deeper into negative territory restarting its bond-buying program and lengthening the term of cheap loans to
banks to three years from two. The central
4
Management Review continued
banks of India and Australia are among those that have cut rates several times in
recent months, although China has been more cautious in increasing liquidity as it continues to attempt to deleverage its economy, cutting rates only marginally.
Emerging markets experienced considerable volatility through the end of 2018, as tighter global financial conditions exposed structural weakness in some countries. Those conditions improved in 2019 as the Fed
became more dovish, but significant trade friction between the US and China weighed on sentiment for much of the year, although hopes for a partial trade deal improved sentiment late in the period. Idiosyncratic factors negatively impacted some
emerging economies, such as Argentina and Turkey.
From a geopolitical perspective, Brexit uncertainty has receded as a UK general election in early
December provided some much needed clarity, assuring that the UK will leave the EU on January 31, 2020, though the two sides have a narrow window in which to negotiate their future trade relationship by the end of next year. Further boosting
risk sentiment was the announcement of a partial trade agreement between China and the US.
Factors Affecting Performance
Relative to the Blended Index, the funds out-of-benchmark
exposure to both the industrials and commercial mortgage-backed securities (CMBS) sectors contributed to performance during the reporting period. Security selection within both the government-related agencies and MBS
agency fixed rate sectors also benefited relative results. The funds longer duration (d) stance was another factor supporting relative returns as interest rates generally fell throughout the reporting period.
There were no material detractors from relative performance during the period.
Respectfully,
Portfolio Manager(s)
Geoffrey Schechter, Ward Brown, Robert
Persons, and Matt Ryan
(d)
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Duration is a measure of how much a bonds 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.
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The views expressed in this
report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at
any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to
specific securities are not recommendations of such securities, and may not be representative of any MFS portfolios current or future investments.
5
PERFORMANCE SUMMARY
THROUGH 11/30/19
The following chart presents the funds historical
performance in comparison to its benchmark(s). Investment return and principal value will fluctuate, and shares, when sold, may be worth more or less than their original cost; current performance may be lower or higher than quoted. The performance
shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the sale of fund shares. Performance data shown represents past performance and is no guarantee of future results.
Price Summary for MFS Government Markets Income Trust
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Date
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Price
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Year Ended 11/30/19
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Net Asset Value
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11/30/19
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$4.75
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11/30/18
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$4.65
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New York Stock Exchange Price
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11/30/19
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$4.56
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10/31/19
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(high) (t)
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$4.65
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12/18/18
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(low) (t)
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$4.34
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11/30/18
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$4.36
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Total Returns vs Benchmark(s)
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Year Ended 11/30/19
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MFS Government Markets Income Trust at
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New York Stock Exchange Price (r)
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12.76%
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Net Asset Value (r)
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10.13%
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Bloomberg Barclays U.S. Government/Mortgage Bond Index (f)
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9.00%
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MFS Government Markets Income Trust Blended Index (f)(w)
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10.21%
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Bloomberg Barclays U.S. Credit Bond Index (f)
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15.18%
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(f)
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Source: FactSet Research Systems Inc.
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(r)
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Includes reinvestment of all distributions.
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(t)
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For the period December 1, 2018 through November 30, 2019.
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(w)
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As of November 30, 2019, the MFS Government Markets Income Trust Blended Index (a custom index) was comprised of 80% Bloomberg Barclays U.S.
Government/Mortgage Bond Index and 20% Bloomberg Barclays U.S. Credit Bond Index.
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Benchmark Definition(s)
Bloomberg Barclays U.S. Credit Bond Index a market capitalization-weighted index that measures the performance of publicly issued,
SEC-registered, U.S. corporate and specified foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements.(b)
6
Performance Summary continued
Bloomberg Barclays U.S. Government/Mortgage Bond Index
measures debt issued by the U.S. Government, and its agencies, as well as mortgage-backed pass-through securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).(b)
It is not possible to invest
directly in an index.
(b)
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BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, Barclays), used under license. Bloomberg or
Bloombergs licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or
makes any warranty, express or implied, as to the results to be obtained therefrom, and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
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Notes to Performance Summary
The funds 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 funds concurrent liquidation.
The funds target annual distribution rate is calculated based on an annual rate of 7.25% of the funds average monthly net asset value, not a fixed share price, and the funds dividend amount will
fluctuate with changes in the funds average monthly net assets.
Net asset values and performance results based on net asset value per share do not
include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the Statement of Assets and Liabilities or the Financial Highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
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.
7
PORTFOLIO MANAGERS PROFILE
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Portfolio Manager
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Primary Role
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Since
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Title and Five Year History
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Geoffrey Schechter
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Lead and
U.S. Government
Securities
Portfolio
Manager
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2006
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Investment Officer of MFS; employed in the investment management area of MFS since 1993.
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Ward Brown
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Emerging
Markets Debt
Instruments
Portfolio
Manager
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2012
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Investment Officer of MFS; employed in the investment management area of MFS since 2005.
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Robert Persons
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Investment
Grade Debt
Instruments
Portfolio
Manager
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2012
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Investment Officer of MFS; employed in the investment management area of MFS since 2000.
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Matt Ryan
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Emerging
Markets Debt
Instruments
Portfolio
Manager
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2012
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Investment Officer of MFS; employed in the investment management area of MFS since 1997.
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8
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The fund offers a Dividend Reinvestment and Cash Purchase Plan (the Plan) that allows common shareholders to reinvest either all of the distributions
paid by the fund or only the long-term capital gains. Generally, 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 price of either the net asset value or 95% of the market price, whichever is greater. You can also buy shares on a quarterly basis in any amount $100 and over. The Plan Agent will purchase shares under the Cash Purchase Plan on the 15th of
January, April, July, and October or shortly thereafter.
If shares are registered in your own name, new shareholders will automatically participate in
the Plan, unless you have indicated that you do not wish to participate. 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 fund. However, when shares are bought on the New York Stock Exchange or otherwise on the open market, each participant pays a pro rata share of the transaction expenses, including commissions. The tax status of
dividends and capital gain distributions does not change whether received in cash or reinvested in additional shares 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.
If your shares are held directly with the Plan Agent, you may withdraw from the Plan at any time by going to the Plan
Agents website at www.computershare.com/investor, by calling 1-800-637-2304 any business day from 9 a.m. to 5 p.m. Eastern
time or by writing to the Plan Agent at P.O. Box 505005, Louisville, KY 40233-5005. Please have available the name of the fund and your account number. For certain types of registrations, such as corporate accounts, instructions must be submitted in
writing. Please call for additional details. When you withdraw from the Plan, you can receive the value of the reinvested shares in one of three ways: your full shares will be held in your account, the Plan Agent will sell your shares and send the
proceeds to you, or you may transfer your full shares to your investment professional who can hold or sell them. Additionally, the Plan Agent will sell your fractional shares and send the proceeds to you.
If you have any questions or for further information or a copy of the Plan, contact the Plan Agent Computershare Trust Company, N.A. (the Transfer Agent for the
fund) at 1-800-637-2304, at the Plan Agents website at www.computershare.com/investor, or by writing to the Plan Agent at
P.O. Box 505005, Louisville, KY 40233-5005.
9
PORTFOLIO OF INVESTMENTS
11/30/19
The Portfolio of Investments is a
complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
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Bonds - 102.3%
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Issuer
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Shares/Par
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Value ($)
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U.S. Bonds - 95.4%
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Asset-Backed & Securitized - 3.5%
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ALM Loan Funding, CLO, 2015-12A, A1R2, FLR, 2.89% (LIBOR - 3mo. + 0.89%), 4/16/2027
(n)
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$
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238,809
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$
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238,652
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Chesapeake Funding II LLC, 2018-1A, A1, 3.04%, 4/15/2030 (n)
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210,952
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213,342
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Chesapeake Funding II LLC, 2018-3A, A1, 3.39%, 1/15/2031 (n)
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346,079
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352,240
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Commercial Mortgage Trust, 2015-DC1, A5, 3.35%, 2/10/2048
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327,000
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341,931
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Commercial Mortgage Trust, 2017-COR2, A3, 3.51%, 9/10/2050
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292,470
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311,433
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DLL Securitization Trust, 2019-DA1, A2, 2.79%, 11/22/2021 (n)
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425,556
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427,086
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GS Mortgage Securities Trust, 2015-GC32, A2, 3.062%, 7/10/2048
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330,000
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330,484
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Loomis, Sayles & Co., CLO, A2, FLR, 3.401% (LIBOR - 3mo. + 1.4%), 4/15/2028 (n)
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429,010
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425,242
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Madison Park Funding Ltd., 2014-13A, BR2, FLR, 3.466% (LIBOR - 3mo. + 1.5%), 4/19/2030 (n)
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452,738
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447,632
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Morgan Stanley Bank of America Merrill Lynch Trust, 2017-C34, A4, 3.536%, 11/15/2052
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59,686
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63,937
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Morgan Stanley Capital I Trust, 2018-H4, XA, 1.034%, 12/15/2051 (i)
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1,680,098
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107,368
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Neuberger Berman CLO Ltd., FLR, 2.801% (LIBOR - 3mo. + 0.8%), 1/15/2028 (n)
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250,000
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249,825
|
|
Symphony CLO Ltd., 2016-17A, BR, FLR, 3.201% (LIBOR - 3mo. + 1.2%), 4/15/2028 (n)
|
|
|
383,677
|
|
|
|
383,359
|
|
TICP CLO Ltd., FLR, 2.806% (LIBOR - 3mo. + 0.8%), 4/20/2028 (n)
|
|
|
538,454
|
|
|
|
535,407
|
|
UBS Commercial Mortgage Trust, 2017-C1, A4, 3.544%, 11/15/2050
|
|
|
279,000
|
|
|
|
298,301
|
|
Wells Fargo Commercial Mortgage Trust, 2018-C48, XA, 1.124%, 1/15/2052 (i)(n)
|
|
|
994,597
|
|
|
|
70,480
|
|
Wells Fargo Commercial Mortgage Trust, 2019-C54, A4, 3.146%, 12/15/2052
|
|
|
590,926
|
|
|
|
615,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,412,242
|
|
Automotive - 0.2%
|
|
|
|
|
|
|
|
|
Hyundai Capital America, 2.85%, 11/01/2022 (n)
|
|
$
|
233,000
|
|
|
$
|
234,840
|
|
|
|
|
Building - 0.1%
|
|
|
|
|
|
|
|
|
Martin Marietta Materials, Inc., 4.25%, 7/02/2024
|
|
$
|
82,000
|
|
|
$
|
87,822
|
|
|
|
|
Business Services - 0.2%
|
|
|
|
|
|
|
|
|
Fidelity National Information Services, Inc., 3.875%, 6/05/2024
|
|
$
|
271,000
|
|
|
$
|
288,645
|
|
10
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
U.S. Bonds - continued
|
|
|
|
|
|
|
|
|
Cable TV - 0.2%
|
|
|
|
|
|
|
|
|
Charter Communications Operating LLC/Charter Communications
|
|
|
|
|
|
|
|
|
Operating Capital Corp., 4.908%, 7/23/2025
|
|
$
|
242,000
|
|
|
$
|
265,411
|
|
Time Warner Cable, Inc., 4.5%, 9/15/2042
|
|
|
100,000
|
|
|
|
100,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
365,559
|
|
Chemicals - 0.1%
|
|
|
|
|
|
|
|
|
Sherwin Williams Co., 2.75%, 6/01/2022
|
|
$
|
156,000
|
|
|
$
|
158,471
|
|
|
|
|
Computer Software - Systems - 0.4%
|
|
|
|
|
|
|
|
|
Apple, Inc., 3.25%, 2/23/2026
|
|
$
|
400,000
|
|
|
$
|
424,611
|
|
Apple, Inc., 4.375%, 5/13/2045
|
|
|
121,000
|
|
|
|
146,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
571,016
|
|
Conglomerates - 0.4%
|
|
|
|
|
|
|
|
|
United Technologies Corp., 3.95%, 8/16/2025
|
|
$
|
625,000
|
|
|
$
|
679,443
|
|
|
|
|
Consumer Services - 0.1%
|
|
|
|
|
|
|
|
|
Conservation Fund, 3.474%, 12/15/2029
|
|
$
|
159,000
|
|
|
$
|
160,253
|
|
|
|
|
Electronics - 0.5%
|
|
|
|
|
|
|
|
|
Broadcom, Inc., 4.75%, 4/15/2029 (n)
|
|
$
|
750,000
|
|
|
$
|
801,995
|
|
|
|
|
Food & Beverages - 1.1%
|
|
|
|
|
|
|
|
|
Constellation Brands, Inc., 4.65%, 11/15/2028
|
|
$
|
1,500,000
|
|
|
$
|
1,695,437
|
|
Tyson Foods, Inc., 5.15%, 8/15/2044
|
|
|
38,000
|
|
|
|
46,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,741,849
|
|
Insurance - 0.1%
|
|
|
|
|
|
|
|
|
American International Group, Inc., 4.7%, 7/10/2035
|
|
$
|
108,000
|
|
|
$
|
125,182
|
|
|
|
|
Insurance - Health - 0.5%
|
|
|
|
|
|
|
|
|
UnitedHealth Group, Inc., 4.625%, 7/15/2035
|
|
$
|
672,000
|
|
|
$
|
821,868
|
|
|
|
|
Insurance - Property & Casualty - 0.1%
|
|
|
|
|
|
|
|
|
Liberty Mutual Group, Inc., 3.951%, 10/15/2050 (n)
|
|
$
|
99,000
|
|
|
$
|
100,986
|
|
|
|
|
Machinery & Tools - 0.4%
|
|
|
|
|
|
|
|
|
CNH Industrial Capital LLC, 4.2%, 1/15/2024
|
|
$
|
625,000
|
|
|
$
|
662,960
|
|
|
|
|
Major Banks - 0.3%
|
|
|
|
|
|
|
|
|
Bank of America Corp., 3.004%, 12/20/2023
|
|
$
|
183,000
|
|
|
$
|
186,900
|
|
Goldman Sachs Group, Inc., 3.625%, 1/22/2023
|
|
|
241,000
|
|
|
|
251,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
438,225
|
|
11
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
U.S. Bonds - continued
|
|
|
|
|
|
|
|
|
Medical & Health Technology & Services - 1.2%
|
|
|
|
|
|
|
|
|
Becton, Dickinson and Co., 4.685%, 12/15/2044
|
|
$
|
140,000
|
|
|
$
|
165,217
|
|
CommonSpirit Health, 2.76%, 10/01/2024
|
|
|
27,000
|
|
|
|
27,272
|
|
HCA, Inc., 4.125%, 6/15/2029
|
|
|
785,000
|
|
|
|
826,997
|
|
Laboratory Corp. of America Holdings, 4.7%, 2/01/2045
|
|
|
106,000
|
|
|
|
119,241
|
|
Montefiore Obligated Group, 5.246%, 11/01/2048
|
|
|
614,000
|
|
|
|
731,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,870,348
|
|
Midstream - 0.6%
|
|
|
|
|
|
|
|
|
Kinder Morgan Energy Partners LP, 6.85%, 2/15/2020
|
|
$
|
1,000,000
|
|
|
$
|
1,008,940
|
|
|
|
|
Mortgage-Backed - 45.9%
|
|
|
|
|
|
|
|
|
Fannie Mae, 5.5%, 12/01/2019 - 3/01/2038
|
|
$
|
2,291,258
|
|
|
$
|
2,575,978
|
|
Fannie Mae, 6%, 7/01/2021 - 7/01/2037
|
|
|
650,168
|
|
|
|
744,207
|
|
Fannie Mae, 2.152%, 1/25/2023
|
|
|
366,886
|
|
|
|
368,124
|
|
Fannie Mae, 2.41%, 5/01/2023
|
|
|
121,172
|
|
|
|
122,794
|
|
Fannie Mae, 2.55%, 5/01/2023
|
|
|
104,137
|
|
|
|
105,994
|
|
Fannie Mae, 2.59%, 5/01/2023
|
|
|
66,117
|
|
|
|
67,384
|
|
Fannie Mae, 3.78%, 10/01/2023
|
|
|
61,106
|
|
|
|
64,980
|
|
Fannie Mae, 3.5%, 5/25/2025 - 1/01/2047
|
|
|
6,227,167
|
|
|
|
6,506,435
|
|
Fannie Mae, 2.7%, 7/01/2025
|
|
|
200,000
|
|
|
|
206,318
|
|
Fannie Mae, 3.43%, 6/01/2026
|
|
|
189,461
|
|
|
|
203,423
|
|
Fannie Mae, 3.59%, 9/01/2026
|
|
|
70,008
|
|
|
|
75,866
|
|
Fannie Mae, 2.28%, 11/01/2026
|
|
|
72,859
|
|
|
|
73,337
|
|
Fannie Mae, 2.672%, 12/25/2026
|
|
|
729,000
|
|
|
|
748,578
|
|
Fannie Mae, 3.144%, 3/25/2028
|
|
|
363,000
|
|
|
|
382,262
|
|
Fannie Mae, 4%, 3/25/2028 - 7/01/2047
|
|
|
8,289,121
|
|
|
|
8,828,594
|
|
Fannie Mae, 3%, 11/01/2028 - 11/01/2046
|
|
|
4,551,219
|
|
|
|
4,681,066
|
|
Fannie Mae, 4.96%, 6/01/2030
|
|
|
111,618
|
|
|
|
129,639
|
|
Fannie Mae, 6.5%, 5/01/2031 - 2/01/2037
|
|
|
396,300
|
|
|
|
444,676
|
|
Fannie Mae, 3.5%, 12/25/2031 (i)
|
|
|
33,036
|
|
|
|
3,093
|
|
Fannie Mae, 3%, 2/25/2033 (i)
|
|
|
212,186
|
|
|
|
25,015
|
|
Fannie Mae, 5%, 6/01/2035 - 3/01/2042
|
|
|
425,865
|
|
|
|
469,020
|
|
Fannie Mae, 4.5%, 1/01/2040 - 4/01/2044
|
|
|
3,951,324
|
|
|
|
4,281,248
|
|
Fannie Mae, 2%, 10/25/2040 - 4/25/2046
|
|
|
448,295
|
|
|
|
445,292
|
|
Fannie Mae, TBA, 2.5%, 12/01/2034 - 1/01/2035
|
|
|
1,274,999
|
|
|
|
1,285,865
|
|
Fannie Mae, TBA, 3%, 12/01/2034 - 2/01/2035
|
|
|
450,000
|
|
|
|
460,455
|
|
Fannie Mae, TBA, 3.5%, 12/01/2034
|
|
|
800,000
|
|
|
|
828,937
|
|
Freddie Mac, 3.808%, 8/25/2020
|
|
|
212,491
|
|
|
|
213,886
|
|
Freddie Mac, 3.034%, 10/25/2020
|
|
|
283,284
|
|
|
|
284,805
|
|
Freddie Mac, 6%, 5/01/2021 - 10/01/2038
|
|
|
304,061
|
|
|
|
347,925
|
|
Freddie Mac, 2.355%, 7/25/2022
|
|
|
500,000
|
|
|
|
504,996
|
|
Freddie Mac, 2.51%, 11/25/2022
|
|
|
496,000
|
|
|
|
504,277
|
|
Freddie Mac, 3.32%, 2/25/2023
|
|
|
433,000
|
|
|
|
450,545
|
|
12
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
U.S. Bonds - continued
|
|
|
|
|
|
|
|
|
Mortgage-Backed - continued
|
|
|
|
|
|
|
|
|
Freddie Mac, 3.3%, 4/25/2023 - 10/25/2026
|
|
$
|
1,034,471
|
|
|
$
|
1,095,972
|
|
Freddie Mac, 3.06%, 7/25/2023
|
|
|
294,000
|
|
|
|
304,866
|
|
Freddie Mac, 3.458%, 8/25/2023
|
|
|
367,000
|
|
|
|
385,561
|
|
Freddie Mac, 1.016%, 4/25/2024 (i)
|
|
|
4,310,211
|
|
|
|
133,217
|
|
Freddie Mac, 0.735%, 7/25/2024 (i)
|
|
|
4,752,595
|
|
|
|
116,347
|
|
Freddie Mac, 3.064%, 8/25/2024
|
|
|
489,568
|
|
|
|
509,941
|
|
Freddie Mac, 4.5%, 9/01/2024 - 5/01/2042
|
|
|
736,618
|
|
|
|
796,695
|
|
Freddie Mac, 2.67%, 12/25/2024
|
|
|
827,000
|
|
|
|
852,807
|
|
Freddie Mac, 2.811%, 1/25/2025
|
|
|
642,000
|
|
|
|
665,572
|
|
Freddie Mac, 3.329%, 5/25/2025
|
|
|
928,000
|
|
|
|
987,532
|
|
Freddie Mac, 3.01%, 7/25/2025
|
|
|
225,000
|
|
|
|
235,995
|
|
Freddie Mac, 2.673%, 3/25/2026
|
|
|
900,000
|
|
|
|
930,899
|
|
Freddie Mac, 3.5%, 1/15/2027 - 10/25/2058
|
|
|
7,868,413
|
|
|
|
8,240,543
|
|
Freddie Mac, 0.713%, 7/25/2027 (i)
|
|
|
8,575,405
|
|
|
|
339,723
|
|
Freddie Mac, 0.567%, 8/25/2027 (i)
|
|
|
6,754,828
|
|
|
|
202,480
|
|
Freddie Mac, 0.427%, 1/25/2028 (i)
|
|
|
12,230,751
|
|
|
|
288,463
|
|
Freddie Mac, 0.434%, 1/25/2028 (i)
|
|
|
5,036,229
|
|
|
|
121,552
|
|
Freddie Mac, 0.269%, 2/25/2028 (i)
|
|
|
14,203,558
|
|
|
|
176,687
|
|
Freddie Mac, 2.5%, 3/15/2028 - 11/01/2031
|
|
|
115,178
|
|
|
|
116,824
|
|
Freddie Mac, 0.262%, 4/25/2028 (i)
|
|
|
9,085,149
|
|
|
|
105,797
|
|
Freddie Mac, 3%, 6/15/2028 - 2/25/2059
|
|
|
4,823,498
|
|
|
|
4,960,846
|
|
Freddie Mac, 3.926%, 7/25/2028
|
|
|
1,046,000
|
|
|
|
1,174,412
|
|
Freddie Mac, 4.06%, 10/25/2028
|
|
|
423,000
|
|
|
|
480,562
|
|
Freddie Mac, 1.09%, 7/25/2029 (i)
|
|
|
1,262,484
|
|
|
|
113,689
|
|
Freddie Mac, 1.27%, 8/25/2029 (i)
|
|
|
2,569,510
|
|
|
|
241,763
|
|
Freddie Mac, 5.5%, 8/01/2035 - 6/01/2036
|
|
|
362,463
|
|
|
|
408,281
|
|
Freddie Mac, 5%, 2/15/2036 - 7/01/2041
|
|
|
1,440,830
|
|
|
|
1,592,137
|
|
Freddie Mac, 5.5%, 2/15/2036 (i)
|
|
|
56,325
|
|
|
|
10,989
|
|
Freddie Mac, 6.5%, 5/01/2037
|
|
|
71,361
|
|
|
|
80,155
|
|
Freddie Mac, 4%, 8/01/2037 - 4/01/2044
|
|
|
457,609
|
|
|
|
486,185
|
|
Freddie Mac, 4.5%, 12/15/2040 (i)
|
|
|
25,932
|
|
|
|
2,422
|
|
Ginnie Mae, 5.5%, 7/15/2033 - 1/20/2042
|
|
|
709,802
|
|
|
|
794,370
|
|
Ginnie Mae, 4%, 5/16/2039 - 7/20/2049
|
|
|
1,035,577
|
|
|
|
1,086,194
|
|
Ginnie Mae, 4.5%, 9/20/2041
|
|
|
239,323
|
|
|
|
257,804
|
|
Ginnie Mae, 3.5%, 10/20/2041 (i)
|
|
|
98,335
|
|
|
|
9,946
|
|
Ginnie Mae, 3.5%, 4/15/2042 - 7/20/2043
|
|
|
1,611,686
|
|
|
|
1,705,669
|
|
Ginnie Mae, 2.5%, 6/20/2042
|
|
|
20,000
|
|
|
|
19,822
|
|
Ginnie Mae, 4%, 8/16/2042 (i)
|
|
|
89,783
|
|
|
|
14,569
|
|
Ginnie Mae, 3%, 4/20/2045 - 10/20/2048
|
|
|
2,320,283
|
|
|
|
2,391,414
|
|
Ginnie Mae, 5.87%, 4/20/2058
|
|
|
5,550
|
|
|
|
6,274
|
|
Ginnie Mae, 0.661%, 2/16/2059 (i)
|
|
|
532,526
|
|
|
|
30,528
|
|
Ginnie Mae, TBA, 3%, 12/01/2049 - 1/01/2050
|
|
|
2,125,000
|
|
|
|
2,182,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,093,316
|
|
13
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
U.S. Bonds - continued
|
|
|
|
|
|
|
|
|
Municipals - 3.3%
|
|
|
|
|
|
|
|
|
Bridgeview, IL, Stadium and Redevelopment Projects, AAC, 5.06%, 12/01/2025
|
|
$
|
750,000
|
|
|
$
|
775,147
|
|
Chicago, IL, B, 7.375%, 1/01/2033
|
|
|
275,000
|
|
|
|
329,194
|
|
Chicago, IL, C, AGM, 6.207%, 1/01/2036
|
|
|
795,000
|
|
|
|
1,051,093
|
|
New Jersey Economic Development Authority State Pension Funding Rev., Capital Appreciation, B, AGM, 0%, 2/15/2023
|
|
|
1,182,000
|
|
|
|
1,089,355
|
|
New Jersey Turnpike Authority Rev. (Build America Bonds), F, 7.414%, 1/01/2040
|
|
|
32,000
|
|
|
|
51,388
|
|
Syracuse, NY, Industrial Development Agency PILOT Rev.
|
|
|
|
|
|
|
|
|
(Carousel Center Project), B, 5%, 1/01/2036
|
|
|
1,215,000
|
|
|
|
1,247,222
|
|
University of California Rev. (Build America Bonds), 5.77%, 5/15/2043
|
|
|
450,000
|
|
|
|
615,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,158,851
|
|
Oils - 0.1%
|
|
|
|
|
|
|
|
|
Valero Energy Corp., 4.9%, 3/15/2045
|
|
$
|
130,000
|
|
|
$
|
147,696
|
|
|
|
|
Pharmaceuticals - 0.1%
|
|
|
|
|
|
|
|
|
Gilead Sciences, Inc., 4.5%, 2/01/2045
|
|
$
|
82,000
|
|
|
$
|
95,090
|
|
|
|
|
Restaurants - 0.3%
|
|
|
|
|
|
|
|
|
Starbucks Corp., 3.8%, 8/15/2025
|
|
$
|
498,000
|
|
|
$
|
536,310
|
|
|
|
|
Supranational - 0.1%
|
|
|
|
|
|
|
|
|
Inter-American Development Bank, 4.375%, 1/24/2044
|
|
$
|
158,000
|
|
|
$
|
215,977
|
|
|
|
|
Transportation - Services - 0.0%
|
|
|
|
|
|
|
|
|
ERAC USA Finance LLC, 3.85%, 11/15/2024 (n)
|
|
$
|
34,000
|
|
|
$
|
36,170
|
|
|
|
|
U.S. Government Agencies and Equivalents - 1.6%
|
|
|
|
|
|
|
|
|
AID-Tunisia, 2.452%, 7/24/2021
|
|
$
|
235,000
|
|
|
$
|
236,082
|
|
AID-Ukraine, 1.847%, 5/29/2020
|
|
|
330,000
|
|
|
|
330,368
|
|
Hashemite Kingdom of Jordan, 2.503%, 10/30/2020
|
|
|
418,000
|
|
|
|
420,819
|
|
Private Export Funding Corp., 2.25%, 3/15/2020
|
|
|
86,000
|
|
|
|
86,136
|
|
Private Export Funding Corp., 2.3%, 9/15/2020
|
|
|
360,000
|
|
|
|
361,569
|
|
Small Business Administration, 6.35%, 4/01/2021
|
|
|
9,230
|
|
|
|
9,364
|
|
Small Business Administration, 6.34%, 5/01/2021
|
|
|
13,352
|
|
|
|
13,609
|
|
Small Business Administration, 6.44%, 6/01/2021
|
|
|
17,438
|
|
|
|
17,757
|
|
Small Business Administration, 6.625%, 7/01/2021
|
|
|
20,142
|
|
|
|
20,456
|
|
Small Business Administration, 5.52%, 6/01/2024
|
|
|
55,646
|
|
|
|
58,404
|
|
Small Business Administration, 2.21%, 2/01/2033
|
|
|
163,302
|
|
|
|
162,869
|
|
Small Business Administration, 2.22%, 3/01/2033
|
|
|
253,589
|
|
|
|
253,214
|
|
14
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
U.S. Bonds - continued
|
|
|
|
|
|
|
|
|
U.S. Government Agencies and Equivalents - continued
|
|
|
|
|
|
|
|
|
Small Business Administration, 3.15%, 7/01/2033
|
|
$
|
237,351
|
|
|
$
|
245,651
|
|
Small Business Administration, 3.62%, 9/01/2033
|
|
|
207,289
|
|
|
|
219,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,435,390
|
|
U.S. Treasury Obligations - 33.5%
|
|
|
|
|
|
|
|
|
U.S. Treasury Bonds, 5.25%, 2/15/2029
|
|
$
|
48,000
|
|
|
$
|
62,183
|
|
U.S. Treasury Bonds, 4.75%, 2/15/2037
|
|
|
336,000
|
|
|
|
473,012
|
|
U.S. Treasury Bonds, 4.375%, 2/15/2038
|
|
|
1,109,000
|
|
|
|
1,509,020
|
|
U.S. Treasury Bonds, 4.5%, 8/15/2039 (f)
|
|
|
4,503,100
|
|
|
|
6,269,687
|
|
U.S. Treasury Bonds, 3.125%, 2/15/2043
|
|
|
453,700
|
|
|
|
531,024
|
|
U.S. Treasury Bonds, 2.875%, 5/15/2043
|
|
|
1,697,100
|
|
|
|
1,908,972
|
|
U.S. Treasury Bonds, 2.5%, 2/15/2045
|
|
|
4,017,000
|
|
|
|
4,244,682
|
|
U.S. Treasury Bonds, 2.875%, 11/15/2046
|
|
|
4,322,000
|
|
|
|
4,912,054
|
|
U.S. Treasury Bonds, 3%, 2/15/2048
|
|
|
804,400
|
|
|
|
938,226
|
|
U.S. Treasury Notes, 2.5%, 1/31/2021
|
|
|
1,500,000
|
|
|
|
1,513,652
|
|
U.S. Treasury Notes, 2.625%, 6/15/2021
|
|
|
5,000,000
|
|
|
|
5,070,898
|
|
U.S. Treasury Notes, 1.75%, 5/15/2022
|
|
|
1,751,000
|
|
|
|
1,757,224
|
|
U.S. Treasury Notes, 1.75%, 9/30/2022
|
|
|
6,200,000
|
|
|
|
6,224,945
|
|
U.S. Treasury Notes, 2.75%, 2/15/2024
|
|
|
577,000
|
|
|
|
603,078
|
|
U.S. Treasury Notes, 2.5%, 5/15/2024
|
|
|
2,955,000
|
|
|
|
3,064,889
|
|
U.S. Treasury Notes, 2.875%, 7/31/2025
|
|
|
3,100,000
|
|
|
|
3,299,441
|
|
U.S. Treasury Notes, 2%, 8/15/2025
|
|
|
98,000
|
|
|
|
99,677
|
|
U.S. Treasury Notes, 2.625%, 12/31/2025
|
|
|
600,000
|
|
|
|
631,852
|
|
U.S. Treasury Notes, 1.875%, 7/31/2026
|
|
|
2,500,000
|
|
|
|
2,523,633
|
|
U.S. Treasury Notes, 2%, 11/15/2026
|
|
|
6,071,000
|
|
|
|
6,180,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,818,712
|
|
Utilities - Electric Power - 0.5%
|
|
|
|
|
|
|
|
|
FirstEnergy Corp., 3.9%, 7/15/2027
|
|
$
|
694,000
|
|
|
$
|
742,606
|
|
Total U.S. Bonds
|
|
|
|
|
|
$
|
147,810,762
|
|
|
|
|
Foreign Bonds - 6.9%
|
|
|
|
|
|
|
|
|
Australia - 0.0%
|
|
|
|
|
|
|
|
|
APT Pipelines Ltd., 4.25%, 7/15/2027 (n)
|
|
$
|
16,000
|
|
|
$
|
17,221
|
|
|
|
|
Belgium - 0.1%
|
|
|
|
|
|
|
|
|
Anheuser-Busch InBev Worldwide, Inc., 3.3%, 2/01/2023
|
|
$
|
150,000
|
|
|
$
|
155,518
|
|
|
|
|
Brazil - 0.3%
|
|
|
|
|
|
|
|
|
Vale Overseas Ltd., 6.875%, 11/10/2039
|
|
$
|
327,000
|
|
|
$
|
414,473
|
|
15
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
Foreign Bonds - continued
|
|
|
|
|
|
|
|
|
Chile - 1.0%
|
|
|
|
|
|
|
|
|
Empresa de Transporte de Pasajeros Metro S.A. (Republic of Chile), 5%, 1/25/2047
|
|
$
|
440,000
|
|
|
$
|
499,400
|
|
Engie Energia Chile S.A., 5.625%, 1/15/2021
|
|
|
566,000
|
|
|
|
583,671
|
|
GNL Quintero S.A., 4.634%, 7/31/2029 (n)
|
|
|
200,000
|
|
|
|
208,322
|
|
Transelec S.A., 4.25%, 1/14/2025
|
|
|
200,000
|
|
|
|
209,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,500,643
|
|
China - 0.2%
|
|
|
|
|
|
|
|
|
State Grid Overseas Investment (2014) Ltd. (Peoples Republic of China), 4.125%, 5/07/2024 (n)
|
|
$
|
240,000
|
|
|
$
|
256,746
|
|
|
|
|
Germany - 0.2%
|
|
|
|
|
|
|
|
|
Volkswagen Group of America Co., 2.7%, 9/26/2022 (n)
|
|
$
|
260,000
|
|
|
$
|
262,423
|
|
|
|
|
India - 0.5%
|
|
|
|
|
|
|
|
|
NTPC Ltd. (Republic of India), 4.25%, 2/26/2026
|
|
$
|
398,000
|
|
|
$
|
420,489
|
|
Power Finance Corp. Ltd. (Republic of India), 5.25%, 8/10/2028
|
|
|
370,000
|
|
|
|
402,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
823,335
|
|
Indonesia - 0.2%
|
|
|
|
|
|
|
|
|
Republic of Indonesia, 3.5%, 1/11/2028
|
|
$
|
310,000
|
|
|
$
|
321,741
|
|
|
|
|
Italy - 0.2%
|
|
|
|
|
|
|
|
|
Enel Finance International N.V., 2.875%, 5/25/2022 (n)
|
|
$
|
366,000
|
|
|
$
|
369,850
|
|
|
|
|
Kazakhstan - 0.3%
|
|
|
|
|
|
|
|
|
KazMunayGas National Co., JSC (Republic of Kazakhstan), 5.375%, 4/24/2030 (n)
|
|
$
|
434,000
|
|
|
$
|
499,274
|
|
|
|
|
Kuwait - 0.3%
|
|
|
|
|
|
|
|
|
EQUATE Petrochemical B.V. (State of Kuwait), 4.25%, 11/03/2026
|
|
$
|
453,000
|
|
|
$
|
481,659
|
|
|
|
|
Mexico - 0.2%
|
|
|
|
|
|
|
|
|
Petroleos Mexicanos, 6.49%, 1/23/2027 (n)
|
|
$
|
301,000
|
|
|
$
|
316,953
|
|
|
|
|
Netherlands - 0.8%
|
|
|
|
|
|
|
|
|
ING Bank N.V., 5.8%, 9/25/2023 (n)
|
|
$
|
769,000
|
|
|
$
|
852,400
|
|
ING Groep N.V., 3.15%, 3/29/2022
|
|
|
350,000
|
|
|
|
357,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,210,341
|
|
Panama - 0.2%
|
|
|
|
|
|
|
|
|
Republic of Panama, 3.16%, 1/23/2030
|
|
$
|
358,000
|
|
|
$
|
369,635
|
|
16
Portfolio of Investments continued
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Shares/Par
|
|
|
Value ($)
|
|
Bonds - continued
|
|
|
|
|
|
|
|
|
Foreign Bonds - continued
|
|
|
|
|
|
|
|
|
Peru - 0.6%
|
|
|
|
|
|
|
|
|
Peru LNG, 5.375%, 3/22/2030 (n)
|
|
$
|
400,000
|
|
|
$
|
388,000
|
|
Petroleos del Peru S.A., 4.75%, 6/19/2032
|
|
|
455,000
|
|
|
|
491,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
879,628
|
|
Romania - 0.3%
|
|
|
|
|
|
|
|
|
Republic of Romania, 2%, 12/08/2026 (n)
|
|
EUR
|
352,000
|
|
|
$
|
415,720
|
|
|
|
|
Saudi Arabia - 0.1%
|
|
|
|
|
|
|
|
|
Saudi Arabian Oil Co., 4.25%, 4/16/2039 (n)
|
|
$
|
226,000
|
|
|
$
|
243,211
|
|
|
|
|
Singapore - 0.2%
|
|
|
|
|
|
|
|
|
United Overseas Bank Ltd. 3.75% to 4/15/2024, FLR (CMT - 5yr. + 1.5%) to 4/15/2029 (n)
|
|
$
|
309,000
|
|
|
$
|
320,004
|
|
|
|
|
United Arab Emirates - 0.5%
|
|
|
|
|
|
|
|
|
Abu Dhabi Crude Oil Pipeline, 4.6%, 11/02/2047
|
|
$
|
245,000
|
|
|
$
|
279,962
|
|
MDGH - GMTN B.V. (United Arab Emirates), 2.5%, 11/07/2024 (n)
|
|
|
429,000
|
|
|
|
430,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
710,678
|
|
United Kingdom - 0.7%
|
|
|
|
|
|
|
|
|
B.A.T Capital Corp., 2.764%, 8/15/2022
|
|
$
|
438,000
|
|
|
$
|
442,775
|
|
Imperial Tobacco Finance PLC, 3.75%, 7/21/2022 (n)
|
|
|
266,000
|
|
|
|
273,947
|
|
Reckitt Benckiser Treasury Services PLC, 2.75%, 6/26/2024 (n)
|
|
|
267,000
|
|
|
|
272,336
|
|
Reynolds American, Inc., 4%, 6/12/2022
|
|
|
79,000
|
|
|
|
82,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,071,258
|
|
Total Foreign Bonds
|
|
|
|
|
|
$
|
10,640,311
|
|
Total Bonds (Identified Cost, $150,385,065)
|
|
|
|
|
|
$
|
158,451,073
|
|
|
|
|
Investment Companies (h) - 2.4%
|
|
|
|
|
|
|
|
|
Money Market Funds - 2.4%
|
|
|
|
|
|
|
|
|
MFS Institutional Money Market Portfolio, 1.73% (v) (Identified Cost, $3,624,793)
|
|
|
3,624,530
|
|
|
$
|
3,624,892
|
|
|
|
|
Other Assets, Less Liabilities - (4.7)%
|
|
|
|
|
|
|
(7,239,642
|
)
|
Net Assets - 100.0%
|
|
|
|
|
|
$
|
154,836,323
|
|
(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 funds investments in affiliated issuers and in unaffiliated issuers were $3,624,892 and $158,451,073, 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.
|
17
Portfolio of Investments continued
(n)
|
Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in
transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $9,644,379, representing 6.2% 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
|
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
|
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:
Derivative Contracts at 11/30/19
Forward Foreign Currency Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Purchased
|
|
Currency
Sold
|
|
Counterparty
|
|
Settlement
Date
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
USD
|
|
383,832
|
|
EUR
|
|
348,755
|
|
Merrill Lynch International
|
|
|
12/13/2019
|
|
|
|
$(651)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
37
|
|
|
|
$5,881,844
|
|
|
|
March - 2020
|
|
|
|
$36,357
|
|
U.S. Treasury Note 5 yr
|
|
|
Short
|
|
|
|
USD
|
|
|
|
6
|
|
|
|
713,812
|
|
|
|
March - 2020
|
|
|
|
834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$37,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Futures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Note 2 yr
|
|
|
Long
|
|
|
|
USD
|
|
|
|
58
|
|
|
|
$12,503,984
|
|
|
|
March - 2020
|
|
|
|
$(5,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 30, 2019, the fund had liquid securities with an aggregate value of $104,423 to cover any collateral or margin
obligations for certain derivative contracts.
See Notes to Financial Statements
18
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 11/30/19
This statement represents your funds balance sheet, which details the assets and
liabilities comprising the total value of the fund.
|
|
|
|
|
Assets
|
|
|
|
|
Investments in unaffiliated issuers, at value (identified cost, $150,385,065)
|
|
|
$158,451,073
|
|
Investments in affiliated issuers, at value (identified cost, $3,624,793)
|
|
|
3,624,892
|
|
Receivables for
|
|
|
|
|
Net daily variation margin on open futures contracts
|
|
|
18,577
|
|
Investments sold on an extended settlement basis
|
|
|
2,630,143
|
|
Interest
|
|
|
853,760
|
|
Other assets
|
|
|
2,593
|
|
Total assets
|
|
|
$165,581,038
|
|
|
|
Liabilities
|
|
|
|
|
Payable to custodian
|
|
|
$12,962
|
|
Payables for
|
|
|
|
|
Distributions
|
|
|
48,789
|
|
Forward foreign currency exchange contracts
|
|
|
651
|
|
Investments purchased
|
|
|
3,147,393
|
|
Investments purchased on an extended settlement basis
|
|
|
7,387,924
|
|
Payable to affiliates
|
|
|
|
|
Investment adviser
|
|
|
9,035
|
|
Administrative services fee
|
|
|
334
|
|
Transfer agent and dividend disbursing costs
|
|
|
4,752
|
|
Payable for independent Trustees compensation
|
|
|
17,813
|
|
Accrued expenses and other liabilities
|
|
|
115,062
|
|
Total liabilities
|
|
|
$10,744,715
|
|
Net assets
|
|
|
$154,836,323
|
|
|
|
Net assets consist of
|
|
|
|
|
Paid-in capital
|
|
|
$156,858,856
|
|
Total distributable earnings (loss)
|
|
|
(2,022,533
|
)
|
Net assets
|
|
|
$154,836,323
|
|
Shares of beneficial interest outstanding
|
|
|
32,601,117
|
|
Net asset value per share (net assets of $154,836,323 / 32,601,117 shares of beneficial interest
outstanding)
|
|
|
$4.75
|
|
See Notes to Financial Statements
19
Financial Statements
STATEMENT OF OPERATIONS
Year ended 11/30/19
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
|
|
|
$4,885,478
|
|
Dividends from affiliated issuers
|
|
|
52,671
|
|
Other
|
|
|
720
|
|
Total investment income
|
|
|
$4,938,869
|
|
Expenses
|
|
|
|
|
Management fee
|
|
|
$768,929
|
|
Transfer agent and dividend disbursing costs
|
|
|
64,338
|
|
Administrative services fee
|
|
|
31,432
|
|
Independent Trustees compensation
|
|
|
41,802
|
|
Stock exchange fee
|
|
|
31,743
|
|
Custodian fee
|
|
|
13,632
|
|
Shareholder communications
|
|
|
62,111
|
|
Audit and tax fees
|
|
|
82,483
|
|
Legal fees
|
|
|
3,697
|
|
Miscellaneous
|
|
|
49,622
|
|
Total expenses
|
|
|
$1,149,789
|
|
Net investment income (loss)
|
|
|
$3,789,080
|
|
|
|
Realized and unrealized gain (loss)
|
|
|
|
|
Realized gain (loss) (identified cost basis)
|
|
|
|
|
Unaffiliated issuers
|
|
|
$1,096,086
|
|
Affiliated issuers
|
|
|
589
|
|
Futures contracts
|
|
|
(616,733
|
)
|
Forward foreign currency exchange contracts
|
|
|
(147,575
|
)
|
Foreign currency
|
|
|
107,813
|
|
Net realized gain (loss)
|
|
|
$440,180
|
|
Change in unrealized appreciation or depreciation
|
|
|
|
|
Unaffiliated issuers
|
|
|
$10,255,381
|
|
Affiliated issuers
|
|
|
99
|
|
Futures contracts
|
|
|
51,914
|
|
Forward foreign currency exchange contracts
|
|
|
(32,875
|
)
|
Translation of assets and liabilities in foreign currencies
|
|
|
4,140
|
|
Net unrealized gain (loss)
|
|
|
$10,278,659
|
|
Net realized and unrealized gain (loss)
|
|
|
$10,718,839
|
|
Change in net assets from operations
|
|
|
$14,507,919
|
|
See Notes to Financial Statements
20
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.
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
11/30/19
|
|
|
11/30/18
|
|
Change in net assets
|
|
|
|
|
|
|
|
|
|
From operations
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
$3,789,080
|
|
|
|
$4,043,849
|
|
Net realized gain (loss)
|
|
|
440,180
|
|
|
|
(46,625
|
)
|
Net unrealized gain (loss)
|
|
|
10,278,659
|
|
|
|
(6,541,742
|
)
|
Change in net assets from operations
|
|
|
$14,507,919
|
|
|
|
$(2,544,518
|
)
|
Distributions to shareholders
|
|
|
$(4,160,922
|
)
|
|
|
$(4,467,677
|
)
|
Tax return of capital distributions to shareholders
|
|
|
$(7,043,761
|
)
|
|
|
$(7,053,890
|
)
|
Total change in net assets
|
|
|
$3,303,236
|
|
|
|
$(14,066,085
|
)
|
|
|
|
Net assets
|
|
|
|
|
|
|
|
|
At beginning of period
|
|
|
151,533,087
|
|
|
|
165,599,172
|
|
At end of period
|
|
|
$154,836,323
|
|
|
|
$151,533,087
|
|
See Notes to Financial Statements
21
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the funds financial performance for the past 5 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
|
|
|
11/30/19
|
|
|
11/30/18
|
|
|
11/30/17
|
|
|
11/30/16
|
|
|
11/30/15
|
|
Net asset value, beginning of period
|
|
|
$4.65
|
|
|
|
$5.08
|
|
|
|
$5.35
|
|
|
|
$5.67
|
|
|
|
$6.07
|
|
|
|
|
|
|
Income (loss) from investment operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) (d)
|
|
|
$0.12
|
|
|
|
$0.12
|
|
|
|
$0.14
|
|
|
|
$0.16
|
(c)
|
|
|
$0.17
|
|
Net realized and unrealized gain (loss)
|
|
|
0.32
|
|
|
|
(0.20
|
)
|
|
|
(0.03
|
)
|
|
|
(0.07
|
)
|
|
|
(0.14
|
)
|
Total from investment operations
|
|
|
$0.44
|
|
|
|
$(0.08
|
)
|
|
|
$0.11
|
|
|
|
$0.09
|
|
|
|
$0.03
|
|
|
|
|
|
|
Less distributions declared to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
$(0.13
|
)
|
|
|
$(0.14
|
)
|
|
|
$(0.18
|
)
|
|
|
$(0.20
|
)
|
|
|
$(0.20
|
)
|
From tax return of capital
|
|
|
(0.21
|
)
|
|
|
(0.21
|
)
|
|
|
(0.20
|
)
|
|
|
(0.21
|
)
|
|
|
(0.23
|
)
|
Total distributions declared to shareholders
|
|
|
$(0.34
|
)
|
|
|
$(0.35
|
)
|
|
|
$(0.38
|
)
|
|
|
$(0.41
|
)
|
|
|
$(0.43
|
)
|
Net asset value, end of period (x)
|
|
|
$4.75
|
|
|
|
$4.65
|
|
|
|
$5.08
|
|
|
|
$5.35
|
|
|
|
$5.67
|
|
Market value, end of period
|
|
|
$4.56
|
|
|
|
$4.36
|
|
|
|
$4.81
|
|
|
|
$5.06
|
|
|
|
$5.26
|
|
Total return at market value (%)
|
|
|
12.76
|
|
|
|
(2.05
|
)
|
|
|
2.62
|
|
|
|
3.82
|
|
|
|
(2.02
|
)
|
Total return at net asset value (%) (j)(r)(s)(x)
|
|
|
10.13
|
|
|
|
(1.09
|
)
|
|
|
2.50
|
|
|
|
1.84
|
(c)
|
|
|
0.92
|
|
|
|
|
|
|
Ratios (%) (to average net assets)
and Supplemental data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses before expense reductions (f)
|
|
|
0.74
|
|
|
|
0.75
|
|
|
|
0.75
|
|
|
|
0.72
|
(c)
|
|
|
0.76
|
|
Expenses after expense reductions (f)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net investment income (loss)
|
|
|
2.45
|
|
|
|
2.57
|
|
|
|
2.64
|
|
|
|
2.78
|
(c)
|
|
|
2.84
|
|
Portfolio turnover
|
|
|
48
|
|
|
|
21
|
|
|
|
32
|
|
|
|
41
|
|
|
|
74
|
|
Net assets at end of period (000 omitted)
|
|
|
$154,836
|
|
|
|
$151,533
|
|
|
|
$165,599
|
|
|
|
$174,396
|
|
|
|
$184,824
|
|
(c)
|
Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net
investment income and performance would be lower and expenses would be higher.
|
(d)
|
Per share data is based on average shares outstanding.
|
(f)
|
Ratios do not reflect reductions from fees paid indirectly, if applicable.
|
(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.
|
(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.
|
(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
22
NOTES TO FINANCIAL STATEMENTS
(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 funds Statement
of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and
the U.S. dollar and to the effects of changes in each countrys market, economic, industrial, political, regulatory, geopolitical, and other conditions.
In March 2017, the FASB issued Accounting Standards Update 2017-08, Receivables Nonrefundable Fees and Other Costs (Subtopic
310-20) Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08). For entities that purchased callable debt securities at a premium,
ASU 2017-08 requires that the premium be amortized to the earliest call date. ASU 2017-08 will be effective for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years. Management has evaluated the potential impacts of ASU 2017-08 and believes that adoption of ASU 2017-08 will not have a
material effect on the funds overall financial position or its overall results of operations.
Balance Sheet Offsetting The
funds 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 funds 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 funds Significant Accounting Policies note under the captions for each of the funds 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
23
Notes to Financial Statements continued
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, 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 funds 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 funds 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 investments 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 funds 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 funds 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 funds 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 funds 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,
24
Notes to Financial Statements continued
an investments level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value
measurement. The funds 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 advisers 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 November 30, 2019 in valuing the funds assets or liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
U.S. Treasury Bonds & U.S. Government Agencies & Equivalents
|
|
|
$
|
|
|
|
$54,254,102
|
|
|
|
$
|
|
|
|
$54,254,102
|
|
Non-U.S. Sovereign Debt
|
|
|
|
|
|
|
5,645,956
|
|
|
|
|
|
|
|
5,645,956
|
|
Municipal Bonds
|
|
|
|
|
|
|
5,158,851
|
|
|
|
|
|
|
|
5,158,851
|
|
U.S. Corporate Bonds
|
|
|
|
|
|
|
11,676,272
|
|
|
|
|
|
|
|
11,676,272
|
|
Residential Mortgage-Backed Securities
|
|
|
|
|
|
|
71,093,316
|
|
|
|
|
|
|
|
71,093,316
|
|
Commercial Mortgage-Backed Securities
|
|
|
|
|
|
|
2,139,457
|
|
|
|
|
|
|
|
2,139,457
|
|
Asset-Backed Securities (including CDOs)
|
|
|
|
|
|
|
3,272,785
|
|
|
|
|
|
|
|
3,272,785
|
|
Foreign Bonds
|
|
|
|
|
|
|
5,210,334
|
|
|
|
|
|
|
|
5,210,334
|
|
Mutual Funds
|
|
|
3,624,892
|
|
|
|
|
|
|
|
|
|
|
|
3,624,892
|
|
Total
|
|
|
$3,624,892
|
|
|
|
$158,451,073
|
|
|
|
$
|
|
|
|
$162,075,965
|
|
|
|
|
Other Financial Instruments
|
|
|
|
|
|
|
|
Futures Contracts Assets
|
|
|
$37,191
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$37,191
|
|
Futures Contracts Liabilities
|
|
|
(5,252
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,252
|
)
|
Forward Foreign Currency Exchange Contracts Liabilities
|
|
|
|
|
|
|
(651
|
)
|
|
|
|
|
|
|
(651
|
)
|
For further information regarding security characteristics, see the Portfolio of Investments.
Inflation-Adjusted Debt Securities The fund invests in inflation-adjusted debt securities issued by the U.S. Treasury. The principal value of these
debt securities is adjusted through income according to changes in the Consumer Price Index. These debt securities typically pay a fixed rate of interest, but this fixed rate is applied to the inflation-adjusted principal amount. The principal paid
at maturity of the debt security is typically equal to the inflation-adjusted principal amount, or the securitys original par value, whichever is greater. Other types of inflation-adjusted securities may use other methods to adjust for other
measures of inflation.
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
25
Notes to Financial Statements continued
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 derivatives 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, the fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund
may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The funds 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 November 30, 2019 as reported in the Statement of Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value (a)
|
|
|
|
|
|
Risk
|
|
Derivative Contracts
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
Interest Rate
|
|
Interest Rate Futures
|
|
|
$37,191
|
|
|
|
$(5,252
|
)
|
Foreign Exchange
|
|
Forward Foreign Currency Exchange Contracts
|
|
|
|
|
|
|
(651
|
)
|
Total
|
|
|
|
|
$37,191
|
|
|
|
$(5,903
|
)
|
(a)
|
Values presented in this table for futures contracts correspond to the values reported in the funds Portfolio of Investments. Only the current day
net variation margin for futures contracts is separately reported within the funds 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 year ended November 30, 2019 as reported in the Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
Risk
|
|
Futures
Contracts
|
|
|
Forward
Foreign
Currency
Exchange
Contracts
|
|
Interest Rate
|
|
|
$(616,733
|
)
|
|
|
$
|
|
Foreign Exchange
|
|
|
|
|
|
|
(147,575
|
)
|
Total
|
|
|
$(616,733
|
)
|
|
|
$(147,575
|
)
|
26
Notes to Financial Statements continued
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 year ended November 30, 2019 as reported in the Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
Risk
|
|
Futures
Contracts
|
|
|
Forward
Foreign
Currency
Exchange
Contracts
|
|
Interest Rate
|
|
|
$51,914
|
|
|
|
$
|
|
Foreign Exchange
|
|
|
|
|
|
|
(32,875
|
)
|
Total
|
|
|
$51,914
|
|
|
|
$(32,875
|
)
|
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On
certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the
agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out
and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the funds 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 funds 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 funds 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
27
Notes to Financial Statements continued
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 exchanges clearinghouse guarantees payments to the broker, there is still
counterparty credit risk due to the insolvency of the broker. The funds 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 funds 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 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 funds 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 funds 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 funds exposure to the counterparty under such ISDA Master Agreement.
TBA Dollar Roll Transactions The fund enters into TBA dollar roll transactions in which the fund sells TBA mortgage-backed securities to financial
institutions and
28
Notes to Financial Statements continued
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. TBA 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.
Indemnifications Under the funds 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 funds 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. 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. Some securities may be purchased on a when-issued or forward delivery basis, which means that the securities will be delivered to the fund at a future date, usually beyond customary settlement time.
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.
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. 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 purchased or sold debt securities on a when-issued or
delayed delivery basis, or in a To Be Announced (TBA) or forward commitment transaction with delivery or payment to occur at a later date beyond the normal settlement period. When the fund sells securities on a when-issued,
delayed delivery, or forward commitment basis, the fund typically owns or has the right to acquire securities equivalent in kind and amount to the delivered securities. At the time a fund enters into a commitment to purchase or sell a security, the
transaction is recorded and the value of the security acquired or sold is reflected in the funds net asset value. The price of such security and
29
Notes to Financial Statements continued
the date that the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security
may vary with market fluctuations. TBA securities resulting from these transactions are included in the Portfolio of Investments. 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. No interest accrues to the fund until payment takes place. At the time that a fund enters into this type of transaction, the fund is required to have sufficient cash and/or liquid securities to cover its
commitments. Losses may arise due to changes in the value of the underlying securities prior to settlement date or if the counterparty does not perform under the contracts terms, or if the issuer does not issue the securities due to political,
economic or other factors.
To mitigate the counterparty credit risk on TBA securities and other types of forward settling mortgage-backed securities,
the fund whenever possible enters into a Master Securities Forward Transaction Agreement (MSFTA) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each
party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close
out and net payments across all transactions traded under the MSFTA could result in a reduction of the funds credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
For mortgage-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions
traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the funds collateral or margin obligations under a MSFTA, if any, will be
reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Tax Matters and Distributions The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue
Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The funds federal tax returns, when filed, will remain subject to examination by the Internal
Revenue Service for a three year period. Management has analyzed the funds 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 funds average
30
Notes to Financial Statements continued
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 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 and straddle loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
11/30/19
|
|
|
Year ended
11/30/18
|
|
Ordinary income (including any short-term capital gains)
|
|
|
$4,160,922
|
|
|
|
$4,467,677
|
|
Tax return of capital (b)
|
|
|
7,043,761
|
|
|
|
7,053,890
|
|
|
|
|
Total distributions
|
|
|
$11,204,683
|
|
|
|
$11,521,567
|
|
(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 11/30/19
|
|
|
|
|
|
Cost of investments
|
|
|
$156,977,272
|
|
Gross appreciation
|
|
|
5,345,597
|
|
|
|
Gross depreciation
|
|
|
(215,616
|
)
|
|
|
Net unrealized appreciation (depreciation)
|
|
|
$5,129,981
|
|
Capital loss carryforwards
|
|
|
(7,085,865
|
)
|
Other temporary differences
|
|
|
(66,649
|
)
|
As of November 30, 2019, the fund had capital loss carryforwards available to offset future realized gains. These net capital
losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
|
|
|
|
|
Short-Term
|
|
|
$(220,591
|
)
|
Long-Term
|
|
|
(6,865,274
|
)
|
Total
|
|
|
$(7,085,865
|
)
|
(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 funds average daily net assets and 5.33% of gross
31
Notes to Financial Statements 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 funds average daily net
assets. This written agreement will continue until modified by the funds Board of Trustees, but such agreement will continue at least until November 30, 2020. For the year ended November 30, 2019, the funds 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 year ended November 30, 2019 was equivalent to an annual
effective rate of 0.50% of the funds average daily net assets.
The investment adviser has agreed in writing to pay a portion of the funds
total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.80% annually of the funds average
daily net assets. This written agreement will continue until modified by the funds Board of Trustees, but such agreement will continue at least until November 30, 2020. For the year ended November 30, 2019, the funds actual
operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the funds 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 year ended November 30, 2019, these fees paid to MFSC amounted to $19,013.
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 year ended November 30, 2019 was
equivalent to an annual effective rate of 0.0203% of the funds 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 $5,409 and is included in Independent Trustees compensation in the Statement of Operations for the year ended November 30, 2019. The liability for
32
Notes to Financial Statements continued
deferred retirement benefits payable to those former independent Trustees under the DB plan amounted to $17,800 at November 30,
2019, and is included in Payable for independent Trustees compensation in the Statement of Assets and Liabilities.
Other
This fund and certain other funds managed by MFS (the funds) had entered into a service agreement (the ISO Agreement) which provided for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an
Independent Senior Officer (ISO) for the funds. Frank L. Tarantino served as the ISO and was an officer of the funds and the sole member of Tarantino LLC. Effective June 30, 2019, Mr. Tarantino retired from his position as ISO for the
funds, and the ISO Agreement was terminated. For the year ended November 30, 2019, the fee paid by the fund under this agreement was $214 and is included in Miscellaneous expense in the Statement of Operations. MFS had agreed to
bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
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.
(4) Portfolio Securities
For the year ended
November 30, 2019, purchases and sales of investments, other than short-term obligations, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
Sales
|
|
U.S. Government securities
|
|
|
$61,848,729
|
|
|
|
$58,002,818
|
|
Non-U.S. Government securities
|
|
|
$16,513,818
|
|
|
|
$15,915,844
|
|
(5) Shares of Beneficial Interest
The funds 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 years ended November 30, 2019 and November 30, 2018, there were no transactions in fund shares.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.25 billion
unsecured committed line of credit, subject to a $1 billion sublimit, 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 one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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. 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 year ended November 30, 2019, the funds commitment fee and interest expense were $869 and $0, respectively, and are included in
Miscellaneous expense in the Statement of Operations.
33
Notes to Financial Statements continued
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were
affiliated issuers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliated Issuers
|
|
Beginning
Value
|
|
|
Purchases
|
|
|
Sales
Proceeds
|
|
|
Realized
Gain (Loss)
|
|
|
Change in
Unrealized
Appreciation or
Depreciation
|
|
|
Ending
Value
|
|
MFS Institutional Money Market Portfolio
|
|
|
$1,662
|
|
|
|
$58,400,687
|
|
|
|
$54,778,145
|
|
|
|
$589
|
|
|
|
$99
|
|
|
|
$3,624,892
|
|
|
|
|
|
|
|
|
Affiliated Issuers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
Income
|
|
|
Capital Gain
Distributions
|
|
MFS Institutional Money Market Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
$52,671
|
|
|
|
$
|
|
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and the Shareholders of MFS Government Markets Income Trust:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of
assets and liabilities of MFS Government Markets Income Trust (the Fund), including the portfolio of investments, as of November 30, 2019, the related statement of operations for the year then ended, the statements of changes
in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly,
in all material respects, the financial position of the Fund as of November 30, 2019, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the
Funds management. Our responsibility is to express an opinion on the Funds financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the
financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial
highlights. Our procedures included confirmation of securities owned as of November 30, 2019,
35
Report of Independent Registered Public Accounting Firm continued
by correspondence with the custodian and brokers; when replies were not received from
brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 15, 2020
We have served as the auditor of one or more of the MFS investment companies since 1924.
36
RESULTS OF SHAREHOLDER MEETING
(unaudited)
At the annual meeting of shareholders
of MFS Government Markets Income Trust, which was held on October 3, 2019, the following action was taken:
Item 1: To elect the following
individuals as Trustees:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Nominee
|
|
For
|
|
|
Withheld Authority
|
|
Maureen R. Goldfarb
|
|
|
28,479,325.964
|
|
|
|
260,127.197
|
|
Robert J. Manning
|
|
|
28,463,033.174
|
|
|
|
276,419.987
|
|
Maryanne L. Roepke
|
|
|
28,485,998.877
|
|
|
|
253,454.284
|
|
Laurie J. Thomsen
|
|
|
28,478,377.103
|
|
|
|
261,076.058
|
|
37
TRUSTEES AND OFFICERS IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of January 1, 2020, are listed below, together with their principal occupations during the past five
years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name, Age
|
|
Position(s)
Held
with Fund
|
|
Trustee/
Officer
Since (h)
|
|
Term
Expiring
|
|
Number
of MFS
Funds
overseen
by the
Trustee
|
|
Principal
Occupations
During
the Past
Five Years
|
|
Other
Directorships
During
the Past
Five Years
(j)
|
INTERESTED TRUSTEES
|
Robert J. Manning (k)
(age 56)
|
|
Trustee
|
|
February 2004
|
|
2022
|
|
133
|
|
Massachusetts Financial Services Company, Executive Chairman (since January 2017); Director; Chairman of the Board; Chief Executive Officer (until 2015);
Co-Chief Executive Officer (2015-2016)
|
|
N/A
|
|
|
|
|
|
|
|
Robin A. Stelmach (k)
(age 58)
|
|
Trustee
|
|
January 2014
|
|
2021
|
|
133
|
|
Massachusetts Financial Services Company, Vice Chair (since January 2017); Chief Operating Officer and Executive Vice President (until January 2017)
|
|
N/A
|
INDEPENDENT TRUSTEES
|
John P. Kavanaugh
(age 65)
|
|
Trustee and Chair of Trustees
|
|
January 2009
|
|
2020
|
|
133
|
|
Private investor
|
|
N/A
|
|
|
|
|
|
|
|
Steven E. Buller
(age 68)
|
|
Trustee
|
|
February 2014
|
|
2020
|
|
133
|
|
Financial Accounting Standards Advisory Council, Chairman (2014-2015); Public Company Accounting Oversight Board, Standing Advisory Group, Member (until 2014); BlackRock, Inc. (investment
management), Managing Director (until 2014), BlackRock Finco UK (investment management), Director (until 2014)
|
|
N/A
|
38
Trustees and Officers continued
|
|
|
|
|
|
|
|
|
|
|
|
|
Name, Age
|
|
Position(s)
Held
with Fund
|
|
Trustee/
Officer
Since (h)
|
|
Term
Expiring
|
|
Number
of MFS
Funds
overseen
by the
Trustee
|
|
Principal
Occupations
During
the Past
Five Years
|
|
Other
Directorships
During
the Past
Five Years
(j)
|
John A. Caroselli
(age 65)
|
|
Trustee
|
|
March 2017
|
|
2021
|
|
133
|
|
JC Global Advisors, LLC (management consulting), President (since 2015); First Capital Corporation (commercial finance), Executive Vice President (until 2015)
|
|
N/A
|
|
|
|
|
|
|
|
Maureen R. Goldfarb
(age 64)
|
|
Trustee
|
|
January 2009
|
|
2022
|
|
133
|
|
Private investor
|
|
N/A
|
|
|
|
|
|
|
|
Peter D. Jones
(age 64)
|
|
Trustee
|
|
January 2019
|
|
2020
|
|
133
|
|
Franklin Templeton Distributors, Inc. (investment management), President (until 2015); Franklin Templeton Institutional, LLC (investment management), Chairman (until 2015)
|
|
N/A
|
|
|
|
|
|
|
|
James W. Kilman, Jr.
(age 58)
|
|
Trustee
|
|
January 2019
|
|
2021
|
|
133
|
|
Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016); Morgan
Stanley & Co. (financial services), Vice Chairman of Investment Banking, Co-Head of Diversified Financials Coverage Financial Institutions Investment Banking Group (until 2016)
|
|
Alpha-En Corporation,
Director
(2016 until 2019)
|
39
Trustees and Officers continued
|
|
|
|
|
|
|
|
|
|
|
|
|
Name, Age
|
|
Position(s)
Held
with Fund
|
|
Trustee/
Officer
Since (h)
|
|
Term
Expiring
|
|
Number
of MFS
Funds
overseen
by the
Trustee
|
|
Principal
Occupations
During
the Past
Five Years
|
|
Other
Directorships
During
the Past
Five Years
(j)
|
Clarence Otis, Jr.
(age 63)
|
|
Trustee
|
|
March 2017
|
|
2021
|
|
133
|
|
Darden Restaurants, Inc., Chief Executive Officer (until 2014)
|
|
VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director; Federal Reserve Bank of Atlanta, Director (until 2015)
|
|
|
|
|
|
|
|
Maryanne L. Roepke
(age 63)
|
|
Trustee
|
|
May 2014
|
|
2022
|
|
133
|
|
American Century Investments (investment management), Senior Vice President and Chief Compliance Officer (until 2014)
|
|
N/A
|
|
|
|
|
|
|
|
Laurie J. Thomsen
(age 62)
|
|
Trustee
|
|
March 2005
|
|
2022
|
|
133
|
|
Private investor
|
|
The Travelers Companies, Director; Dycom Industries, Inc., Director (since 2015)
|
|
|
|
|
|
|
|
|
|
|
|
Name, Age
|
|
Position(s)
Held
with Fund
|
|
Trustee/Officer
Since (h)
|
|
Term
Expiring
|
|
Number of
MFS Funds
for
which
the Person is
an Officer
|
|
Principal
Occupations During
the Past Five Years
|
OFFICERS
|
Christopher R. Bohane (k)
(age 45)
|
|
Assistant Secretary and Assistant Clerk
|
|
July 2005
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President and Assistant General Counsel
|
|
|
|
|
|
|
Kino Clark (k)
(age 51)
|
|
Assistant
Treasurer
|
|
January 2012
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President
|
|
|
|
|
|
|
John W. Clark, Jr. (k)
(age 52)
|
|
Assistant Treasurer
|
|
April 2017
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head Treasurers Office (until February
2017)
|
40
Trustees and Officers continued
|
|
|
|
|
|
|
|
|
|
|
Name, Age
|
|
Position(s)
Held
with Fund
|
|
Trustee/Officer
Since (h)
|
|
Term
Expiring
|
|
Number of
MFS Funds
for
which
the Person is
an Officer
|
|
Principal
Occupations During
the Past Five Years
|
Thomas H. Connors (k)
(age 60)
|
|
Assistant
Secretary and Assistant
Clerk
|
|
September 2012
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President and Senior Counsel
|
|
|
|
|
|
|
David L. DiLorenzo (k)
(age 51)
|
|
President
|
|
July 2005
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Senior Vice President
|
|
|
|
|
|
|
Heidi W. Hardin (k)
(age 52)
|
|
Secretary and Clerk
|
|
April 2017
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (from September 2015 to
January 2017); Janus Capital Management LLC (investment management), Senior Vice President and General Counsel (until September 2015)
|
|
|
|
|
|
|
Brian E. Langenfeld (k)
(age 46)
|
|
Assistant Secretary and Assistant Clerk
|
|
June 2006
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President and Senior Counsel
|
|
|
|
|
|
|
Amanda S. Mooradian (k)
(age 40)
|
|
Assistant Secretary and Assistant Clerk
|
|
September 2018
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Assistant Vice President and Counsel
|
|
|
|
|
|
|
Susan A. Pereira (k)
(age 49)
|
|
Assistant Secretary and Assistant Clerk
|
|
July 2005
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President and Assistant General Counsel
|
|
|
|
|
|
|
Kasey L. Phillips (k)
(age 49)
|
|
Assistant Treasurer
|
|
September 2012
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President
|
|
|
|
|
|
|
Matthew A. Stowe (k)
(age 45)
|
|
Assistant Secretary and Assistant Clerk
|
|
October 2014
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Vice President and Assistant General Counsel
|
41
Trustees and Officers continued
|
|
|
|
|
|
|
|
|
|
|
Name, Age
|
|
Position(s)
Held
with Fund
|
|
Trustee/Officer
Since (h)
|
|
Term
Expiring
|
|
Number of
MFS Funds
for
which
the Person is
an Officer
|
|
Principal
Occupations During
the Past Five Years
|
Martin J. Wolin (k)
(age 52)
|
|
Chief Compliance Officer
|
|
July 2015
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer (since July 2015); Mercer (financial service provider), Chief Risk and Compliance Officer, North
America and Latin America (until June 2015)
|
|
|
|
|
|
|
James O. Yost (k)
(age 58)
|
|
Treasurer
|
|
September 1990
|
|
N/A
|
|
133
|
|
Massachusetts Financial Services Company, Senior Vice President
|
(h)
|
Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For
the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds,
respectively.
|
(j)
|
Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., public companies).
|
(k)
|
Interested person of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the
principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
|
The Trust holds annual shareholder meetings for the purpose of electing Trustees, and Trustees are elected for fixed terms. The Board of Trustees is currently
divided into three classes, each having a term of three years which term expires on the date of the third annual meeting following the election to office of the Trustees class. Each year the term of one class expires. Each Trustee and officer
will serve until next elected or his or her earlier death, resignation, retirement or removal. Under the terms of the Boards retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the
earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trusts Audit Committee.
42
Trustees and Officers continued
Each of the Interested Trustees and certain Officers hold comparable officer positions
with certain affiliates of MFS.
|
|
|
Investment Adviser
|
|
Custodian
|
Massachusetts Financial Services Company
111
Huntington Avenue
Boston MA 02199-7618
|
|
State Street Bank and Trust Company
1 Lincoln
Street
Boston, MA 02111-2900
|
Portfolio Manager(s)
|
|
Independent Registered Public Accounting Firm
|
Geoffrey Schechter
Ward Brown
Robert Persons
Matt Ryan
|
|
Deloitte & Touche LLP
200 Berkeley
Street
Boston, MA 02116
|
43
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested
(independent) Trustees, voting separately, annually approve the continuation of the Funds investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings
throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times over the course of three months beginning in May and ending in July, 2019 (contract review
meetings) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the MFS Funds). The independent
Trustees were assisted in their evaluation of the Funds investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the MFS Funds Independent Senior Officer, a senior officer appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered
such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took
into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the
existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received
and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (Broadridge), an independent third party, on the investment performance (based on net asset value) of the
Fund for various time periods ended December 31, 2018 and the investment performance (based on net asset value) of a group of funds with substantially similar investment classifications/objectives (the Broadridge performance
universe), (ii) information provided by Broadridge on the Funds advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment
classification/category (the Broadridge expense group and universe), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients,
(iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee breakpoints are observed for the Fund, (v) information regarding MFS financial results and financial condition, including
MFS and certain of its affiliates estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS institutional business, (vi) MFS views regarding the outlook for the mutual
fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall
organization of
44
Board Review of Investment Advisory Agreement continued
MFS, including information about MFS senior management and other personnel
providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent
Trustees did not independently verify any information provided to them by MFS.
The Trustees conclusion as to the continuation of the investment
advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees deliberations are described below,
although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the
result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees conclusions may be based, in part, on
their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS,
the Trustees reviewed the Funds total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Funds common
shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2018, which the Trustees believed was a long enough period to reflect differing market conditions. The total
return performance of the Funds common shares ranked 5th out of a total of 6 funds in the Broadridge performance universe for this five-year period (a ranking of first place out of the total number of funds in the performance universe
indicating the best performer and a ranking of last place out of the total number of funds in the performance universe indicating the worst performer). The total return performance of the Funds common shares ranked 2nd out of a total of 6
funds for the one-year period and 6th out of a total of 6 funds for the three-year period ended December 31, 2018. Given the size of the Broadridge performance universe and information previously provided
by MFS regarding differences between the Fund and the other funds in its Broadridge performance universe, the Trustees also reviewed the Funds performance in comparison to a custom benchmark developed by MFS. The Fund outperformed its custom
benchmark for the one-year period and matched its custom benchmark for each of the three- and five-year periods ended December 31, 2018 (one-year: 0.4% total
return for the Fund versus 0.3% total return for the benchmark; three-year: 1.9% total return for the Fund versus 1.9% total return for the benchmark; five-year: 2.4% total return for the Fund versus 2.4% total return for the benchmark). Because of
the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with
portfolio management personnel during the course of the year, regarding the Funds performance. The Trustees observed that
45
Board Review of Investment Advisory Agreement continued
there were significant limitations to the usefulness of the comparative data provided
by Broadridge, noting that the applicable Broadridge performance universe for the Fund included funds that pursue substantially different investment programs as compared to that pursued by the fund. After reviewing these and related factors, the
Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS responses and efforts relating to investment performance.
In assessing the reasonableness of the Funds advisory fee, the Trustees considered, among other information, the Funds advisory fee and the total
expense ratio of the Funds common shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS
has agreed in writing to reduce its advisory fee, and that MFS currently observes an expense limitation for the Fund, each of which may not be changed without the Trustees approval. The Trustees also considered that, according to the data by
Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Funds last fiscal year), the Funds effective advisory fee rate was higher than the Broadridge expense group and the Funds
total expense ratio was approximately at the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any
institutional separate accounts advised by MFS (separate accounts) and unaffiliated investment companies for which MFS serves as subadviser (subadvised funds) that have comparable investment strategies to the Fund, if any. In
comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison
to separate accounts and subadvised funds.
The Trustees considered that, as a closed-end fund, the Fund is
unlikely to experience meaningful asset growth. As a result, the Trustees did not view the potential for realization of economies of scale as the Funds assets grow to be a material factor in their deliberations. The Trustees noted that they
would consider economies of scale in the future in the event the Fund experiences significant asset growth, such as through an offering of preferred shares (which is not currently contemplated) or a material increase in the market value of the
Funds portfolio securities.
The Trustees also considered information prepared by MFS relating to MFS costs and profits with respect to the
Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for
purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their
overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The
Trustees also
46
Board Review of Investment Advisory Agreement continued
considered current and developing conditions in the financial services industry,
including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the
Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment
companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative services provided to the Fund
by MFS under agreements other than the investment advisory agreement. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Funds behalf, which may include securities lending
programs, directed expense payment programs, class action recovery programs, and MFS interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that
the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called fall-out benefits to MFS such as
reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that, effective January 3, 2018, MFS had discontinued its historic practice of obtaining investment research from portfolio
brokerage commissions paid by certain MFS Funds and would thereafter directly pay for or voluntarily reimburse a Fund, if applicable, for the costs of external research acquired through the use of the Funds portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the
independent Trustees, concluded that the Funds investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2019.
47
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 SECs 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 SECs 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 on Form N-Q or as an exhibit to its reports on Form N-PORT (for first and third fiscal quarters ending March 31, 2019
or after). The funds Form N-Q or Form N-PORT reports are available on the SECs website at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the funds fiscal year
at mfs.com/closedendfunds by choosing the funds name and then selecting the Resources tab and clicking on Prospectus and Reports.
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/en-us/what-we-do/announcements.html or at mfs.com/closedendfunds by choosing the funds name.
Additional information about the fund (e.g. performance, dividends and the funds price history) is also available by clicking on the funds name under
Closed-End Funds in the Products section of mfs.com.
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 Trusts 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.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2019 income tax forms in January 2020.
48
rev. 3/16
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FACTS
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WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION?
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Why?
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Financial companies choose how they share your personal information.
Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we
do.
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What?
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The types of personal
information we collect and share depend on the product or service you have with us. This information can include:
Social Security number and account balances
Account transactions and transaction history
Checking account information and wire transfer
instructions
When you are no longer our customer, we continue to share your information as described in this notice.
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How?
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All financial companies need to share customers personal
information to run their everyday business. In the section below, we list the reasons financial companies can share their customers personal information; the reasons MFS chooses to share; and whether you can limit this
sharing.
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Reasons we can share your
personal information
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Does
MFS
share?
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Can you limit
this sharing?
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For our everyday business purposes
such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit
bureaus
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Yes
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No
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For our marketing purposes
to offer our products and services to you
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No
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We dont share
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For joint marketing with other
financial companies
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No
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We dont share
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For our affiliates everyday business purposes
information about your transactions and experiences
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No
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We dont share
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For our affiliates everyday business purposes
information about your creditworthiness
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No
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We dont share
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For nonaffiliates to market to you
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No
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We dont share
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Questions?
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Call 800-225-2606 or go to mfs.com.
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49
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Who we are
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Who is providing this notice?
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MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust
Company.
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What we do
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How does MFS protect my
personal information?
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To protect your personal information from unauthorized access and use, we use security measures
that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you.
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How does MFS collect my personal information?
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We collect your personal information, for example,
when you
open an account or provide account information
direct us to buy securities or direct us to sell your securities
make a wire transfer
We also collect your personal information from others, such as credit bureaus, affiliates, or other companies.
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Why cant I limit all sharing?
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Federal law gives you the right to limit
only
sharing for affiliates everyday business purposes
information about your creditworthiness
affiliates
from using your information to market to you
sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to
limit sharing.
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Definitions
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Affiliates
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Companies related by common ownership or control.
They can be financial and nonfinancial companies.
MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice.
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Nonaffiliates
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Companies not related by common ownership or
control. They can be financial and nonfinancial companies.
MFS does not share with nonaffiliates so they can market to you.
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Joint marketing
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A formal agreement between nonaffiliated financial
companies that together market financial products or services to you.
MFS doesnt jointly market.
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Other important information
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If you own an MFS product or receive an
MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.
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50
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 7.
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DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
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A copy of the proxy voting policies and procedures are attached hereto as
EX-99.PROXYPOL.
ITEM 8.
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PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
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Portfolio Manager(s)
Information
regarding the portfolio manager(s) of the MFS Government Markets Income Trust (the Fund) is set forth below. Each portfolio manager is primarily responsible for the
day-to-day management of the Fund.
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Portfolio Manager
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Primary Role
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Since
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Title and Five Year History
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Geoffrey Schechter
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Lead and U.S. Government Securities Portfolio Manager
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2006
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Investment Officer of MFS; employed in the investment area of MFS since 1993.
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Ward Brown
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Emerging Markets Debt Instruments Portfolio Manager
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2012
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Investment Officer of MFS; Employed in the investment area of MFS since 2005.
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Robert Persons
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Investment Grade Debt Instruments Portfolio Manager
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2012
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Investment Officer of MFS; Employed in the investment area of MFS since 2000.
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Matt Ryan
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Emerging Markets Debt Instruments Portfolio Manager
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2012
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Investment Officer of MFS; Employed in the investment area of MFS since 1997.
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Compensation
MFS philosophy is to align portfolio manager compensation with the goal to provide shareholders with long-term value through a collaborative investment process. Therefore, MFS uses long-term
investment performance as well as contribution to the overall investment process and collaborative culture as key factors in determining portfolio manager compensation. In addition, MFS seeks to maintain total compensation programs that are
competitive in the asset management industry in each geographic market where it has employees. MFS uses competitive compensation data to ensure that compensation practices are aligned with its goals of attracting, retaining, and motivating the
highest-quality professionals.
MFS reviews portfolio manager compensation annually. In determining portfolio manager compensation, MFS uses
quantitative means and qualitative means to help ensure a sustainable investment process. As of December 31, 2018, portfolio manager total cash compensation is a combination of base salary and performance bonus:
Base Salary Base salary generally represents a smaller percentage of portfolio manager total cash compensation than performance bonus.
Performance Bonus Generally, the performance bonus represents more than a majority of portfolio manager total cash
compensation.
The performance bonus is based on a combination of quantitative and qualitative factors, generally with more weight given to
the former and less weight given to the latter.
The quantitative portion is primarily based on the
pre-tax performance of accounts managed by the portfolio manager over a range of fixed-length time periods, intended to provide the ability to assess performance over time periods consistent with a full
market cycle and a strategys investment horizon. The fixed-length time periods include the
portfolio managers full tenure on each fund and, when available, ten-, five-, and three-year periods. For portfolio managers who have served for less
than three years, shorter-term periods, including the one-year period, will also be considered, as will performance in previous roles, if any, held at the firm. Emphasis is generally placed on longer
performance periods when multiple performance periods are available. Performance is evaluated across the full set of strategies and portfolios managed by a given portfolio manager, relative to appropriate peer group universes and/or representative
indices (benchmarks). As of December 31, 2018, the following benchmarks were used to measure the following portfolio managers performance for the Fund:
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Fund
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Portfolio Manager
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Benchmark(s)
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MFS Government Markets Income Trust
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Geoffrey Schechter
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Bloomberg Barclays U.S. Credit Bond Index
Bloomberg Barclays U.S. Government/Mortgage Bond Index
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Ward Brown
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JPMorgan Emerging Markets Bond Index Global
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Robert Persons
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Bloomberg Barclays U.S. Credit Bond Index
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Matt Ryan
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JPMorgan Emerging Markets Bond Index Global
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Benchmarks may include versions and components of indices, custom indices, and linked indices that combine performance of
different indices for different portions of the time period, where appropriate.
The qualitative portion is based on the results of an annual
internal peer review process (where portfolio managers are evaluated by other portfolio managers, analysts, and traders) and managements assessment of overall portfolio manager contribution to the MFS investment process and the client
experience (distinct from fund and other account performance).
The performance bonus is generally a combination of cash and a deferred cash
award. A deferred cash award is issued for a cash value and becomes payable over a three-year vesting period if the portfolio manager remains in the continuous employ of MFS or its affiliates. During the vesting period, the value of the unfunded
deferred cash award will fluctuate as though the portfolio manager had invested the cash value of the award in an MFS Fund(s) selected by the portfolio manager.
MFS Equity Plan Portfolio managers also typically benefit from the opportunity to participate in the MFS Equity Plan. Equity interests are awarded by management, on a discretionary basis,
taking into account tenure at MFS, contribution to the investment process, and other factors.
Finally, portfolio managers also participate in
benefit plans (including a defined contribution plan and health and other insurance plans) and programs available generally to other employees of MFS. The percentage such benefits represent of any portfolio managers compensation depends upon
the length of the individuals tenure at MFS and salary level, as well as other factors.
Ownership of Fund Shares
The following table shows the dollar range of equity securities of the Fund beneficially owned by the Funds portfolio manager(s) as of the Funds fiscal year ended November 30, 2019. The
following dollar ranges apply:
N. None
A. $1 $10,000
B. $10,001 $50,000
C. $50,001 $100,000
D. $100,001 $500,000
E. $500,001 $1,000,000
F. Over $1,000,000
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Name of Portfolio Manager
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Dollar Range of Equity Securities in Fund
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Geoffrey Schechter
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N
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Ward Brown
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N
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Robert Persons
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N
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Matt Ryan
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N
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Other Accounts
In addition to the Fund, each portfolio manager of the Fund is named as a portfolio manager of certain other accounts managed or sub-advised by MFS or an affiliate.
The number and assets of these accounts were as follows as of the Funds fiscal year ended November 30, 2019:
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Registered
Investment
Companies*
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Other Pooled
Investment
Vehicles
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Other Accounts
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Name
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Number of
Accounts
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Total Assets
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Number of
Accounts
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Total Assets
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Number of
Accounts
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Total Assets
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Geoffrey Schechter
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14
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$
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23.2 billion
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4
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$
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726.5 million
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1
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$
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247.9 million
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Ward Brown
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7
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$
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8.2 billion
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7
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$
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4.0 billion
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6
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$
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1.7 billion
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Robert Persons
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18
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$
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31.5 billion
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11
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$
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4.5 billion
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9
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$
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1.2 billion
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Matt Ryan
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9
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$
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12.5 billion
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8
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$
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4.4 billion
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6
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$
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1.7 billion
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Advisory fees are not based upon performance of any of the accounts identified in the table above.
Potential Conflicts of Interest
MFS
seeks to identify potential conflicts of interest resulting from a portfolio managers management of both the Fund and other accounts, and has adopted policies and procedures designed to address such potential conflicts.
The management of multiple funds and accounts (including proprietary accounts) gives rise to conflicts of
interest if the funds and accounts have different objectives and strategies, benchmarks, time horizons and fees as a portfolio manager must allocate his or her time and investment ideas across multiple funds and accounts. In certain instances, there
are securities which are suitable for the Funds portfolio as well as for accounts of MFS or its subsidiaries with similar investment objectives. MFS trade allocation policies may give rise to conflicts of interest if the Funds
orders do not get fully executed or are delayed in getting executed due to being aggregated with those of other accounts of MFS or its subsidiaries. A portfolio manager may execute transactions for another fund or account that may adversely affect
the value of the Funds investments. Investments selected for funds or accounts other than the Fund may outperform investments selected for the Fund.
When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed by MFS to be fair and equitable to each.
Allocations may be based on many factors and may not always be pro rata based on assets managed. The allocation methodology could have a detrimental effect on the price or volume of the security as far as the Fund is concerned.
MFS and/or a portfolio manager may have a financial incentive to allocate favorable or limited opportunity investments or structure the timing of
investments to favor accounts other than the Fund, for instance, those that pay a higher advisory fee and/or have a performance adjustment and/or include an investment by the portfolio manager.
ITEM 9.
|
PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED
PURCHASERS.
|
MFS Government Markets Income Trust
|
|
|
|
|
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|
|
|
|
|
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|
|
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Period
|
|
(a)
Total number
of Shares
Purchased
|
|
|
(b)
Average
Price
Paid per
Share
|
|
|
(c)
Total Number
of Shares
Purchased
as
Part of Publicly
Announced
Plans or
Programs
|
|
|
(d)
Maximum
Number (or
Approximate
Dollar Value) of
Shares
that May
Yet Be Purchased
under the Plans
or Programs
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12/01/18-12/31/18
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0
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N/A
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|
|
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0
|
|
|
|
3,260,111
|
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1/01/19-1/31/19
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
3,260,111
|
|
2/01/19-2/28/19
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
3,260,111
|
|
3/01/19-3/31/19
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
3,260,111
|
|
4/01/19-4/30/19
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
3,260,111
|
|
5/01/19-5/31/19
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
3,260,111
|
|
6/01/19-6/30/19
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
3,260,111
|
|
7/01/19-7/31/19
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
3,260,111
|
|
8/01/19-8/31/19
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
3,260,111
|
|
9/01/19-9/30/19
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
3,260,111
|
|
10/1/19-10/31/19
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
3,260,111
|
|
11/1/19-11/30/19
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
3,260,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: The Board approved procedures to repurchase shares and reviews the results periodically. The notification to
shareholders of the program is part of the semi-annual and annual reports sent to shareholders. These annual programs begin on October 1st of each year. The programs conform to the conditions of Rule 10b-18 of
the Securities Exchange Act of 1934 and limit the aggregate number of shares that may be purchased in each annual period (October 1 through the following September 30) to 10% of the Registrants outstanding shares as of the first day of the
plan year (October 1). The aggregate number of shares available for purchase for the October 1, 2019 plan year is 3,260,111.
ITEM 10.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|
There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrants Board since the Registrant last provided disclosure as to
such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.