MFS GOVERNMENT MARKETS INCOME TRUST N-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF

REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-05078

MFS GOVERNMENT MARKETS INCOME TRUST

(Exact name of registrant as specified in charter)

111 Huntington Avenue, Boston, Massachusetts 02199

(Address of principal executive offices) (Zip code)

Susan S. Newton

Massachusetts Financial Services Company

111 Huntington Avenue

Boston, Massachusetts 02199

(Name and address of agents for service)

Registrant’s telephone number, including area code: (617) 954-5000

Date of fiscal year end: November 30

Date of reporting period: February 28, 2014

ITEM 1. SCHEDULE OF INVESTMENTS.

QUARTERLY REPORT

February 28, 2014

 

LOGO

 

MFS® GOVERNMENT MARKETS INCOME TRUST

 

LOGO

PORTFOLIO OF INVESTMENTS

2/28/14 (unaudited)

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

 

Issuer    Shares/Par     Value ($)  
    
Bonds - 96.4%                 
U.S. Bonds - 88.6%                 
Agency - Other - 9.3%                 
Financing Corp., 10.7%, 10/06/17    $ 4,095,000      $ 5,446,596   
Financing Corp., 9.4%, 2/08/18      3,085,000        4,011,296   
Financing Corp., 10.35%, 8/03/18      6,820,000        9,351,352   
    

 

 

  
      $ 18,809,244   
Asset-Backed & Securitized - 4.6%                 
Citigroup Commercial Mortgage Trust, FRN, 5.706%, 12/10/49    $ 1,000,000      $ 1,119,730   
Citigroup/Deutsche Bank Commercial Mortgage Trust, 5.322%, 12/11/49      1,200,000        1,324,550   
Commercial Mortgage Pass-Through Certificates, “A4”, 5.306%, 12/10/46      1,366,646        1,489,142   
Credit Suisse Commercial Mortgage Trust, “A4”, FRN, 5.756%, 9/15/39      502,644        553,488   
Credit Suisse Mortgage Capital Certificate, 5.311%, 12/15/39      500,000        544,498   
CWCapital Cobalt Ltd., “A4”, FRN, 5.77%, 5/15/46      638,472        710,214   
CWCapital LLC, 5.223%, 8/15/48      1,000,000        1,081,788   
Goldman Sachs Mortgage Securities Corp., FRN, 5.819%, 8/10/45      778,598        859,463   
JPMorgan Chase Commercial Mortgage Securities Corp., “A3”, FRN, 5.939%, 2/15/51      405,782        408,726   
JPMorgan Chase Commercial Mortgage Securities Corp., “A4”, FRN, 5.813%, 6/15/49      1,000,000        1,115,247   
    

 

 

  
      $ 9,206,846   
Cable TV - 0.6%                 
Time Warner Cable, Inc., 8.25%, 4/01/19    $ 1,000,000      $ 1,259,153   
Chemicals - 0.3%                 
Dow Chemical Co., 8.55%, 5/15/19    $ 500,000      $ 646,706   
Energy - Independent - 0.0%                 
Hess Corp., 8.125%, 2/15/19    $ 30,000      $ 37,895   
Food & Beverages - 0.6%                 
Kraft Foods Group, Inc., 6.125%, 8/23/18    $ 960,000      $ 1,126,528   
Local Authorities - 1.9%                 
Nashville & Davidson County, TN, Metropolitan Government Convention Center Authority (Build America Bonds), 6.731%, 7/01/43    $ 580,000      $ 690,670   
New Jersey Turnpike Authority Rev. (Build America Bonds), “F”, 7.414%, 1/01/40      32,000        45,391   
San Francisco, CA, City & County Public Utilities Commission, Water Rev. (Build America Bonds), 6%, 11/01/40      1,650,000        1,968,021   
State of California (Build America Bonds), 7.6%, 11/01/40      420,000        592,103   
University of California Rev. (Build America Bonds), 5.77%, 5/15/43      450,000        529,101   
    

 

 

  
      $ 3,825,286   
Major Banks - 0.7%                 
Bank of America Corp., 7.625%, 6/01/19    $ 170,000      $ 211,750   
Goldman Sachs Group, Inc., 3.625%, 1/22/23      446,000        439,816   
Merrill Lynch & Co., Inc., 6.05%, 5/16/16      750,000        825,263   
    

 

 

  
      $ 1,476,829   
Metals & Mining - 0.3%                 
Freeport-McMoRan Copper & Gold, Inc., 3.875%, 3/15/23    $ 500,000      $ 483,867   
Mortgage-Backed - 44.9%                 
Fannie Mae, 4.77%, 7/01/14    $ 425,388      $ 426,698   
Fannie Mae, 4.718%, 8/01/14      607,616        609,531   
Fannie Mae, 5.1%, 9/01/14      466,474        467,866   

 

1

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
U.S. Bonds - continued                 
Mortgage-Backed - continued                 
Fannie Mae, 4.82%, 1/01/15    $ 855,855      $ 870,310   
Fannie Mae, 4.86%, 1/01/15      135,779        138,061   
Fannie Mae, 4.85%, 2/01/15      302,723        308,861   
Fannie Mae, 4.89%, 3/01/15      359,044        367,592   
Fannie Mae, 4.74%, 4/01/15      344,918        354,163   
Fannie Mae, 4.87%, 5/01/15      320,116        329,839   
Fannie Mae, 4.815%, 6/01/15      513,430        529,334   
Fannie Mae, 4.78%, 8/01/15      479,484        497,357   
Fannie Mae, 5.463%, 11/01/15      772,924        815,555   
Fannie Mae, 5.432%, 2/01/16      614,865        659,784   
Fannie Mae, 5.845%, 6/01/16      161,434        169,559   
Fannie Mae, 6.5%, 11/01/16 - 2/01/37      1,445,507        1,620,332   
Fannie Mae, 5.09%, 12/01/16      492,556        540,382   
Fannie Mae, 5.05%, 1/01/17      495,405        535,292   
Fannie Mae, 5.3%, 4/01/17      540,489        586,787   
Fannie Mae, 1.9%, 6/01/17      164,509        167,192   
Fannie Mae, 6%, 8/01/17 - 7/01/37      2,744,123        3,022,897   
Fannie Mae, 5.5%, 9/01/17 - 3/01/38      8,789,857        9,732,602   
Fannie Mae, 4.88%, 3/01/20      195,837        213,708   
Fannie Mae, 2.41%, 5/01/23      136,313        130,766   
Fannie Mae, 2.55%, 5/01/23      117,501        113,956   
Fannie Mae, 2.59%, 5/01/23      74,116        72,043   
Fannie Mae, 3%, 4/01/27      787,313        816,108   
Fannie Mae, 2.5%, 5/01/28      248,986        250,679   
Fannie Mae, 5%, 6/01/35 - 3/01/40      1,324,088        1,452,602   
Fannie Mae, 4%, 2/01/41      2,135,313        2,240,560   
Fannie Mae, 4.5%, 2/01/41 - 4/01/41      1,157,406        1,247,546   
Fannie Mae, 3.5%, 4/01/43      860,376        873,319   
Fannie Mae, TBA, 3%, 3/01/29      814,000        842,617   
Fannie Mae, TBA, 4%, 3/01/44      4,726,000        4,953,439   
Fannie Mae, TBA, 4.5%, 5/01/44      4,915,000        5,247,530   
Freddie Mac, 3.034%, 10/25/20      291,000        301,911   
Freddie Mac, 1.426%, 8/25/17      1,112,000        1,120,652   
Freddie Mac, 2.699%, 5/25/18      800,000        833,624   
Freddie Mac, 2.412%, 8/25/18      1,152,000        1,186,440   
Freddie Mac, 2.303%, 9/25/18      275,000        281,396   
Freddie Mac, 2.323%, 10/25/18      499,000        510,307   
Freddie Mac, 2.13%, 1/25/19      1,575,000        1,591,342   
Freddie Mac, 5.085%, 3/25/19      752,000        856,165   
Freddie Mac, 4.186%, 8/25/19      600,000        660,648   
Freddie Mac, 6%, 5/01/21 - 10/01/38      1,460,701        1,633,291   
Freddie Mac, 2.682%, 10/25/22      189,000        184,358   
Freddie Mac, 3.32%, 2/25/23      433,000        441,015   
Freddie Mac, 3.3%, 4/25/23      429,471        437,097   
Freddie Mac, 3.06%, 7/25/23      181,000        179,683   
Freddie Mac, 3.458%, 8/25/23      367,000        375,695   
Freddie Mac, 4.5%, 9/01/24 - 8/01/40      1,500,133        1,610,674   
Freddie Mac, 5.5%, 10/01/24 - 6/01/36      1,872,392        2,079,516   
Freddie Mac, 2.5%, 5/01/28 - 7/01/28      5,501,797        5,541,443   
Freddie Mac, 6.5%, 5/01/37      390,717        438,603   
Freddie Mac, 5%, 4/01/40      4,277,491        4,670,279   
Freddie Mac, 3.5%, 5/01/42 - 7/01/43      6,688,570        6,773,690   
Freddie Mac, 3%, 4/01/43 - 5/01/43      2,539,431        2,467,689   

 

2

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
U.S. Bonds - continued                 
Mortgage-Backed - continued                 
Freddie Mac, 4%, 11/01/43    $ 643,774      $ 673,842   
Freddie Mac, TBA, 4%, 3/01/44      249,000        260,331   
Ginnie Mae, 5.5%, 7/15/33 - 1/20/42      2,247,103        2,499,364   
Ginnie Mae, 4%, 8/15/40 - 4/20/41      428,331        455,012   
Ginnie Mae, 4.5%, 9/20/41      474,140        516,389   
Ginnie Mae, 3.5%, 4/15/42 - 7/20/43      5,285,133        5,451,828   
Ginnie Mae, 3%, 7/20/43      1,430,721        1,421,087   
Ginnie Mae, 5.612%, 4/20/58      499,615        520,849   
Ginnie Mae, 6.357%, 4/20/58      386,821        407,576   
Ginnie Mae, TBA, 4%, 3/01/44      3,000,000        3,181,406   
    

 

 

  
      $ 90,768,069   
Natural Gas - Pipeline - 0.7%                 
Energy Transfer Partners LP, 8.5%, 4/15/14    $ 17,000      $ 17,149   
Enterprise Products Operating LLC, 3.9%, 2/15/24      29,000        29,186   
Kinder Morgan Energy Partners LP, 6.85%, 2/15/20      1,000,000        1,190,672   
Williams Partners LP, 5.4%, 3/04/44      58,000        58,635   
    

 

 

  
      $ 1,295,642   
Network & Telecom - 0.2%                 
Verizon Communications, Inc., 8.75%, 11/01/18    $ 292,000      $ 375,109   
Other Banks & Diversified Financials - 0.2%                 
Capital One Bank (USA) N.A., 3.375%, 2/15/23    $ 336,000      $ 325,995   
Citigroup, Inc., 8.5%, 5/22/19      80,000        103,044   
    

 

 

  
      $ 429,039   
Real Estate - 0.4%                 
Simon Property Group, Inc., REIT, 5.875%, 3/01/17    $ 750,000      $ 844,732   
Supranational - 0.1%                 
Inter-American Development Bank, 4.375%, 1/24/44    $ 158,000      $ 162,703   
Tobacco - 0.6%                 
Altria Group, Inc., 9.7%, 11/10/18    $ 111,000      $ 147,585   
Altria Group, Inc., 9.25%, 8/06/19      55,000        73,206   
Altria Group, Inc., 4%, 1/31/24      14,000        13,997   
Lorillard Tobacco Co., 8.125%, 6/23/19      796,000        992,630   
    

 

 

  
      $ 1,227,418   
U.S. Government Agencies and Equivalents - 3.0%                 
Aid-Egypt, 4.45%, 9/15/15    $ 1,755,000      $ 1,863,750   
Hashemite Kingdom of Jordan, 2.503%, 10/30/20      418,000        420,239   
Private Export Funding Corp., 1.875%, 7/15/18      460,000        466,065   
Small Business Administration, 6.35%, 4/01/21      213,201        233,846   
Small Business Administration, 6.34%, 5/01/21      172,473        188,423   
Small Business Administration, 6.44%, 6/01/21      185,223        204,706   
Small Business Administration, 6.625%, 7/01/21      197,772        217,849   
Small Business Administration, 5.52%, 6/01/24      367,311        402,199   
Small Business Administration, 2.21%, 2/01/33      313,219        295,838   
Small Business Administration, 2.22%, 3/01/33      534,691        505,143   
Small Business Administration, 3.15%, 7/01/33      446,858        448,757   
Small Business Administration, 3.62%, 9/01/33      400,000        412,412   
Tennessee Valley Authority, 1.75%, 10/15/18      292,000        294,176   

 

3

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
U.S. Bonds - continued                 
U.S. Government Agencies and Equivalents - continued                 
U.S. Department of Housing & Urban Development, 6.36%, 8/01/16    $ 70,000      $ 70,608   
U.S. Department of Housing & Urban Development, 6.59%, 8/01/16      113,000        113,788   
    

 

 

  
      $ 6,137,799   
U.S. Treasury Obligations - 20.2%                 
U.S. Treasury Bonds, 5.25%, 2/15/29    $ 1,448,000      $ 1,814,978   
U.S. Treasury Bonds, 4.75%, 2/15/37      2,000,000        2,425,000   
U.S. Treasury Bonds, 4.375%, 2/15/38      4,842,000        5,566,789   
U.S. Treasury Bonds, 4.5%, 8/15/39      5,097,100        5,977,145   
U.S. Treasury Bonds, 3.125%, 2/15/43      453,700        414,994   
U.S. Treasury Notes, 4%, 2/15/15      4,140,000        4,292,178   
U.S. Treasury Notes, 0.875%, 12/31/16      2,887,000        2,906,173   
U.S. Treasury Notes, 4.75%, 8/15/17 (f)      3,389,000        3,829,834   
U.S. Treasury Notes, 2.625%, 4/30/18      2,272,000        2,403,172   
U.S. Treasury Notes, 2.75%, 2/15/19      1,654,000        1,752,206   
U.S. Treasury Notes, 3.125%, 5/15/19      300,000        323,133   
U.S. Treasury Notes, 2.625%, 8/15/20      162,000        168,328   
U.S. Treasury Notes, 3.125%, 5/15/21      240,000        255,469   
U.S. Treasury Notes, 1.75%, 5/15/22      6,133,000        5,834,495   
U.S. Treasury Notes, 2.5%, 8/15/23      2,903,000        2,880,092   
    

 

 

  
      $ 40,843,986   
Total U.S. Bonds            $ 178,956,851   
Foreign Bonds - 7.8%                 
Brazil - 0.8%                 
Banco do Nordeste do Brasil (BNB), 3.625%, 11/09/15 (n)    $ 253,000      $ 256,479   
BNDES Participacoes S.A., 6.5%, 6/10/19 (n)      475,000        524,875   
Federative Republic of Brazil, 11%, 8/17/40      183,000        208,254   
Federative Republic of Brazil, 5.625%, 1/07/41      323,000        317,348   
Vale Overseas Ltd., 6.875%, 11/10/39      165,000        177,275   
Vale Overseas Ltd., 4.625%, 9/15/20      104,000        109,276   
    

 

 

  
      $ 1,593,507   
Canada - 1.2%                 
Barrick North America Finance LLC, 5.75%, 5/01/43    $ 108,000      $ 105,947   
Kinross Gold Corp., 5.95%, 3/15/24 (n)      413,000        414,169   
Rogers Communications, Inc., 6.8%, 8/15/18      1,000,000        1,199,762   
Talisman Energy, Inc., 7.75%, 6/01/19      650,000        791,854   
    

 

 

  
      $ 2,511,732   
Chile - 0.8%                 
Corporacion Nacional del Cobre de Chile, 3.75%, 11/04/20 (n)    $ 209,000      $ 214,054   
E.CL S.A., 5.625%, 1/15/21      566,000        600,792   
Empresa Nacional del Petroleo, 6.25%, 7/08/19      214,000        237,246   
Sociedad Quimica y Minera de Chile S.A., 6.125%, 4/15/16      429,000        457,922   
    

 

 

  
      $ 1,510,014   
China - 0.2%                 
Baidu, Inc., 3.25%, 8/06/18    $ 240,000      $ 245,243   
CNPC (HK) Overseas Capital Ltd., 4.5%, 4/28/21 (n)      226,000        234,662   
    

 

 

  
      $ 479,905   
Colombia - 0.1%                 
Republic of Colombia, 6.125%, 1/18/41    $ 104,000      $ 113,620   

 

4

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Foreign Bonds - continued                 
France - 0.3%                 
Electricite de France, FRN, 5.25%, 1/29/49 (n)    $ 650,000      $ 654,550   
Iceland - 0.4%                 
Republic of Iceland, 4.875%, 6/16/16 (n)    $ 667,000      $ 702,851   
Republic of Iceland, 5.875%, 5/11/22 (n)      101,000        107,944   
    

 

 

  
      $ 810,795   
Malaysia - 0.2%                 
Petronas Capital Ltd., 7.875%, 5/22/22    $ 370,000      $ 482,809   
Mexico - 1.3%                 
Pemex Project Funding Master Trust, 5.75%, 3/01/18    $ 160,000      $ 177,600   
Petroleos Mexicanos, 4.875%, 1/18/24 (z)      49,000        50,370   
Petroleos Mexicanos, 8%, 5/03/19      228,000        278,730   
Petroleos Mexicanos, 4.875%, 1/24/22      261,000        272,745   
Petroleos Mexicanos, 5.5%, 6/27/44      21,000        19,857   
Petroleos Mexicanos, 4.875%, 1/18/24      46,000        47,286   
Petroleos Mexicanos, 6%, 3/05/20      404,000        455,510   
Petroleos Mexicanos, 5.5%, 1/21/21      130,000        141,700   
United Mexican States, 3.625%, 3/15/22      1,164,000        1,172,730   
    

 

 

  
      $ 2,616,528   
Netherlands - 0.2%                 
ING Bank N.V., 5.8%, 9/25/23 (n)    $ 428,000      $ 457,770   
Peru - 0.1%                 
Republic of Peru, 8.75%, 11/21/33    $ 180,000      $ 259,200   
Romania - 0.1%                 
Republic of Romania, 4.375%, 8/22/23 (n)    $ 36,000      $ 35,640   
Republic of Romania, 4.875%, 1/22/24 (n)      58,000        59,233   
    

 

 

  
      $ 94,873   
Russia - 1.2%                 
Gaz Capital S.A., 3.85%, 2/06/20 (n)    $ 200,000      $ 194,000   
Gaz Capital S.A., 8.125%, 7/31/14 (n)      509,000        522,997   
Gaz Capital S.A., 5.999%, 1/23/21 (n)      796,000        834,805   
LUKOIL International Finance B.V., 4.563%, 4/24/23 (n)      226,000        211,027   
LUKOIL International Finance B.V., 4.563%, 4/24/23      213,000        198,889   
Rosneft, 4.199%, 3/06/22 (n)      200,000        182,500   
Russian Federation, 4.875%, 9/16/23 (n)      200,000        203,100   
VTB Capital S.A., 6.465%, 3/04/15 (n)      154,000        160,915   
    

 

 

  
      $ 2,508,233   
Slovakia - 0.5%                 
Republic of Slovakia, 4.375%, 5/21/22 (n)    $ 909,000      $ 974,903   
United Kingdom - 0.4%                 
Diageo Capital PLC, 5.75%, 10/23/17    $ 520,000      $ 599,932   
Royal Bank of Scotland PLC, 6%, 12/19/23      124,000        127,725   
    

 

 

  
      $ 727,657   

 

5

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
    
Bonds - continued                 
Foreign Bonds - continued                 
Uruguay - 0.0%                 
Oriental Republic of Uruguay, 4.5%, 8/14/24    $ 71,000      $ 72,278   
Total Foreign Bonds      $ 15,868,374   
Total Bonds            $ 194,825,225   
Money Market Funds - 10.4%                 
MFS Institutional Money Market Portfolio, 0.08%, at Net Asset Value (v)      20,948,075      $ 20,948,075   
Total Investments      $ 215,773,300   
Other Assets, Less Liabilities - (6.8)%        (13,726,834 ) 
Net Assets - 100.0%      $ 202,046,466   

 

(f) All or a portion of the security has been segregated as collateral for open futures contracts.
(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 $6,946,474, representing 3.4% of net assets.
(v) Underlying affiliated fund 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.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities:

 

Restricted Securities    Acquisition
Date		      Cost      Value  
Petroleos Mexicanos, 4.875%, 1/18/24      1/15/14         $48,732         $50,370   
% of Net assets         0.0%   

The following abbreviations are used in this report and are defined:

 

FRN   Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.
PLC   Public Limited Company
REIT   Real Estate Investment Trust
TBA   To Be Announced

Derivative Contracts at 2/28/14

Futures Contracts Outstanding at 2/28/14

 

Description    Currency      Contracts      Value    Expiration Date    Unrealized
Appreciation
(Depreciation)		  
Asset Derivatives               
Interest Rate Futures Contracts               
U.S. Treasury Ultra Bond (Long)      USD         11       $1,579,531    June - 2014      $734   
U.S. Treasury Note 5 yr (Short)      USD         70       8,390,156    June - 2014      6,530   
              

 

 

  
                 $7,264   
              

 

 

  
Liability Derivatives               
Interest Rate Futures Contracts               
U.S. Treasury Bond 30 yr (Short)      USD         24       $3,193,500    June - 2014      $(17,525 ) 
              

 

 

  

At February 28, 2014, the fund had liquid securities with an aggregate value of $97,187 to cover any commitments for certain derivative contracts.

See attached supplemental information. For more information see notes to financial statements as disclosed in the most recent semiannual or annual report.

 

6

Supplemental Information

2/28/14 (unaudited)

(1) Investment Valuations

Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price as provided by a third-party pricing service on the market on which they are primarily traded. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation as provided by a third-party pricing service on the market on which such futures contracts are primarily traded. 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. Values obtained from 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 fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as futures contracts. The following is a summary of the levels used as of February 28, 2014 in valuing the fund’s assets or liabilities:

 

Investments at Value    Level 1      Level 2      Level 3      Total  
U.S. Treasury Bonds & U.S. Government Agency & Equivalents      $—         $65,791,027         $—         $65,791,027   
Non-U.S. Sovereign Debt      —         10,333,493         —         10,333,493   
U.S. Corporate Bonds      —         13,028,206         —         13,028,206   
Residential Mortgage-Backed Securities      —         90,768,068         —         90,768,068   
Commercial Mortgage-Backed Securities      —         9,206,847         —         9,206,847   
Foreign Bonds      —         5,697,584         —         5,697,584   
Mutual Funds      20,948,075         —         —         20,948,075   
Total Investments      $20,948,075         $194,825,225         $—         $215,773,300   
Other Financial Instruments                            
Futures Contracts      $(10,261 )       $—         $—         $(10,261 ) 

For further information regarding security characteristics, see the Portfolio of Investments.

 

7

Supplemental Information (unaudited) – continued

 

(2) Portfolio Securities

The cost and unrealized appreciation and depreciation in the value of the investments owned by the fund, as computed on a federal income tax basis, are as follows:

 

Aggregate cost      $209,120,175   
Gross unrealized appreciation      10,169,310   
Gross unrealized depreciation      (3,516,185 ) 
Net unrealized appreciation (depreciation)      $6,653,125   

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

(3) Transactions in Underlying Affiliated Funds – 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 fund assumes the following to be an affiliated issuer:

 

Underlying Affiliated Fund    Beginning
Shares/Par
Amount		      Acquisitions
Shares/Par
Amount		      Dispositions
Shares/Par
Amount		      Ending
Shares/Par
Amount		  
MFS Institutional Money Market Portfolio      14,354,981         13,802,957         (7,209,863 )       20,948,075   
Underlying Affiliated Fund    Realized
Gain (Loss)		      Capital Gain
Distributions		      Dividend
Income		      Ending
Value		  
MFS Institutional Money Market Portfolio      $—         $—         $3,813         $20,948,075   

 

8

ITEM 2. CONTROLS AND PROCEDURES.

 

(a) Based upon their evaluation of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this Form N-Q, the registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

(b) There were no changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

ITEM 3. EXHIBITS.

File as exhibits as part of this Form a separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto.

Notice

A copy of the Amended and Restated Declaration of Trust, as amended, of the Registrant is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Registrant: MFS GOVERNMENT MARKETS INCOME TRUST

 

By (Signature and Title)*    JOHN M. CORCORAN
  John M. Corcoran, President

Date: April 14, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By (Signature and Title)*    JOHN M. CORCORAN
  John M. Corcoran, President (Principal Executive Officer)

Date: April 14, 2014

 

By (Signature and Title)*    DAVID L. DILORENZO
  David L. DiLorenzo, Treasurer (Principal Financial Officer and Accounting Officer)

Date: April 14, 2014

 

* Print name and title of each signing officer under his or her signature.