[logo] M F S(R)
INVESTMENT MANAGEMENT
MFS(R) INTERMEDIATE
INCOME TRUST
SEMIANNUAL REPORT o APRIL 30, 2002
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 14
Notes to Financial Statements ............................................. 18
Trustees and Officers ..................................................... 27
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MFS(R) PRIVACY POLICY
At MFS(R), we are committed to protecting your privacy.
On behalf of the MFS Family of Funds(R), the MFS(R) Institutional Trusts, the
Vertex(SM) Funds, Massachusetts Financial Services Company, and certain
affiliates(1) (collectively, "MFS," "we," "us" or "our"), this privacy policy
outlines certain of our policies designed to maintain the privacy of your
nonpublic personal information.
Nonpublic personal information includes much of the information you provide to
us and the related information about you and your transactions involving your
MFS investment product or service. Examples of nonpublic personal information
include the information you provide on new account applications for MFS
investment products or services, your share balance or transactional history,
and the fact that you are a customer of MFS.
We may collect nonpublic personal information about you from the following
sources:
o information we receive from you on applications or other forms
o information about your transactions with us, our affiliates, or others, and
o information we receive from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may disclose all of
the information we collect, as described above, to companies that perform
marketing services on our behalf or to other financial institutions with whom
we have joint marketing arrangements.
We restrict access to nonpublic personal information about you to personnel
who are necessary or appropriate to provide products or services to you. We
maintain physical, electronic, and procedural safeguards that comply with
federal regulations to guard your nonpublic personal information.
Our privacy policy applies only to individual MFS investors who have a direct
relationship with us. If you own MFS products or receive MFS investment
services in the name of a third-party broker-dealer, bank, investment adviser
or other financial service provider, that third-party's privacy policies may
apply to you and our privacy policy may not.
If you have any questions with respect to MFS' privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
(1) MFS Institutional Advisors, Inc., Vertex Investment Management, Inc., MFS
Original Research Advisors, LLC, MFS Original Research Partners, LLC, and
MFS(R) Heritage Trust Company(SM).
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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LETTER FROM THE CHAIRMAN
[PHOTO OF JEFFREY L. SHAMES]
Jeffrey L. Shames
Dear Shareholders,
Despite a fourth-quarter rally in 2001, the market volatility we witnessed
over the past two years has continued into 2002. As I write this in mid-May,
many U.S. equity indices have retreated since December; bond performance has
been decidedly mixed year to date; and many international equity indices have
outperformed the U.S. market this year. Federal Reserve Board (Fed) Chairman
Alan Greenspan has declared that, in fact, the recession is over, and many
financial experts have agreed with him. We think the questions on many
investors' minds are:
o Is the recession genuinely over?
o If it is, should I change my portfolio to prepare for a recovery?
THE WORST SEEMS TO BE OVER
According to many economists, the recession is technically over. We are
beginning to see growth again in the U.S. economy and in economies around the
globe. But we would qualify that with a caution that the exciting growth rates
of the 1990s are not coming back any time soon.
Our view of the situation is that corporate profits still look weak, despite
the recession being over. We think the markets may be bumping along the bottom
for a bit longer before a recovery gathers steam. Firms in many industries are
still dogged by excess capacity built up in the 1990s, and we think that may
slow the growth of corporate profits for a while longer. Our analysts and fund
managers talk frequently with corporate managements; a common theme they have
seen lately is a wait-and-see attitude. Corporations are postponing spending
decisions until their own business improves.
SHOULD I CHANGE MY PORTFOLIO?
Should you be adjusting your portfolio to anticipate an eventual recovery?
This is a question best discussed with your investment professional. However,
we would contend that changing one's portfolio in response to short-term
events, known as market timing, is a strategy that few investors have been
able to execute successfully over the long term. Our experience has been that
a long-term financial plan, developed with the help of an investment
professional, may offer a better chance of riding out economic cycles and
working toward your long-term investment goals.
Recent events, we think, offer evidence to support that view. For example, two
traditional elements of a long-term financial plan are setting reasonable
expectations and diversifying among asset classes -- such as growth stocks,
value stocks, and bonds.
In the late 1990s, it was tempting to raise our long-term expectations as we
experienced several years of over-20% growth in equity markets. News stories
often suggested this was the new norm, declaring that a "new economy" had
vanquished the "old economy" -- and its historical average annual returns that
had been closer to 10% for stocks.
Adjusting one's financial plan to agree with that view, however, could have
proven disastrous over the past few years. Yes, the Standard & Poor's 500 Stock
Index (the S&P 500), a commonly used measure of the broad stock market, returned
an average of 28.6% per year for the years 1995 through 1999. But the same index
returned -10.5% annually for the years 2000 through 2001.(1) A look at history
might have prepared an investor for more realistic long-term returns. For
example, for the 50-year period ended March 31, 2002, which includes the up and
down periods just mentioned, the average annual return for the S&P 500 was
11.9%.(2)
In addition to unrealistic expectations, another investment trap of the 1990s
was believing that growth stocks would always reign supreme. A financial plan
that included a range of asset classes, however -- recognizing that individual
asset classes frequently go in and out of favor -- could have helped an
investor over the past two difficult years, when both bonds and value stocks
significantly outperformed growth stocks.(3)
We should, however, note that if your personal situation or financial goals
change, your financial plan may need to change as well. For that reason, we
suggest that you and your investment professional revisit your long-term plan
regularly to assess your progress and make course corrections as necessary.
DEJA VU
The points we've just made, of course, are familiar to most investors.
As baseball great Yogi Berra said, "This is like deja vu all over again."
What's new, however, is the historical context that validates the old
familiar strategies.
This spring marks the second anniversary of the start of a severe market
downturn that generally is recognized as the worst time for investors since
the 1970s. But the downturn also demonstrated, in our opinion, that short-term
events are significantly less important for investors than tried-and-true
strategies, including sticking to a long-term plan, setting realistic
expectations, and diversifying among asset classes.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
May 15, 2002
(1) Source: Lipper Inc.
(2) Source: Weisenberger.
(3) For the two-year period ended March 31, 2002, bonds, as represented by the
Lehman Brothers Aggregate Bond Index, delivered an average annual return of
8.88%; value stocks, as represented by the Russell 1000 Value Index,
delivered an average annual return of 2.31%; and growth stocks, as
represented by the Russell 1000 Growth Index, delivered an average annual
return of -25.08%. Source: Lipper Inc.
The Lehman Brothers Aggregate Bond Index is unmanaged and is composed of
all publicly issued obligations of the U.S. Treasury and government
agencies, all corporate debt guaranteed by the U.S. government, all fixed-
rate nonconvertible investment-grade domestic corporate debt, and all
fixed-rate securities backed by mortgage pools of the Government National
Mortgage Association (GNMA), the Federal Home Loan Mortgage Corporation
(FHLMC), and the Federal National Mortgage Association (FNMA). The Russell
1000 Value Index measures the performance of large-cap U.S. value stocks.
The Russell 1000 Growth Index measures the performance of large-cap U.S.
growth stocks.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
It is not possible to invest directly in an index.
MANAGEMENT REVIEW AND OUTLOOK
[PHOTO OF JAMES J. CALMAS]
James J. Calmas
Dear Shareholders,
For the six months ended April 30, 2002, the trust provided a total return of
1.80% based on its beginning and ending stock market prices and assuming the
reinvestment of any dividends and capital gain distributions paid during the
period. The trust's total return based on its net asset value (NAV) was 0.27%.
These returns compare to returns of -0.10% and -2.19%, respectively, for the
trust's benchmarks, the Salomon Brothers Medium Term (1- to 10-year) Treasury
Government Sponsored Index (the Salomon Index), and the J.P. Morgan Non-Dollar
Government Bond Index (the Morgan Index). The Salomon Index includes bonds
issued by the U.S. government or by government agencies with a maturity range
greater than or equal to one year, and less than 10 years. The Morgan Index is
an unmanaged aggregate index of actively traded government bonds issued from
12 countries (excluding the United States) with remaining maturities of at
least one year.
At the beginning of the period, short-term interest rates had fallen to levels
not seen since the early 1960s and bond yields moved lower as their prices
moved higher. This came after a series of Federal Reserve Board (Fed) interest
rate cuts designed to avoid recession, and the tragic events of September
11\t/\h/, when the Fed stepped in again to avoid a dramatic downturn. In this
environment of lower yields and higher prices, the trust slightly reduced its
duration, a measure of interest rate sensitivity, to approximately 3.7. We
also continued to look for opportunities, particularly in the mortgage-backed
sector, in order to add yield to the portfolio. Toward the end of the year,
interest rates and bond yields grew more volatile based on changing sentiment
about the strength of the economy and the future direction of interest rates.
Mortgage-backed securities contributed positively to performance, particularly
during the last four months of the period. Homeowner refinancings and
prepayment have become less prevalent now that there has been upward pressure
on interest rates. Prepayment occurs when homeowners refinance their
mortgages, causing the mortgage pools that make up the securities to prepay.
Investors generally dislike prepayments because it potentially forces them to
reinvest at lower interest rates. In addition, mortgages are considered to be
high-quality assets in this uncertain environment and thus, there has been
solid demand from banks and other financial institutions, particularly given
uncertainty in the corporate sector.
Government agency securities, i.e., those issued by FNMA, GNMA, FHLMC, etc.,
were also strong performers during the period. In our opinion, the agency
market also benefited from this more risk-averse environment where investors
were seeking higher-quality investment options. In addition, agency securities
rebounded earlier in the year when the agencies made some conciliatory moves
to address questions that had arisen around their implicit government backing.
Our international position was helped by our belief in a strong dollar over
the last six months. With most of our international holdings hedged back to
dollars, we invested mainly in the United States, Australia, and New Zealand.
Due to their more stable economies, these holdings contributed positively to
performance. Another country where we found opportunity was Canada, an area we
considered to be undervalued. The Canadian dollar has been weak but the
Canadian economy remained strong, with little inflation and strong
fundamentals. Throughout the period, we invested overseas only if we felt
these opportunities would outperform domestic bonds.
Our small but well-diversified emerging market holdings were strong performers
over the period, particularly in Russia and Mexico. These countries performed
well because their geo-political situations were improving and as a result,
they became upgrade candidates. In fact, Mexico's bond rating was upgraded,
crossing over from below-investment grade to investment grade. When a bond is
upgraded, it is considered less risky and therefore its price rises.
Over the past six months, we primarily owned shorter-maturity securities which
performed well, given how steep the yield curve -- a representation of the
difference between short- and long-term rates -- had become and the better
performance of shorter maturities. We now expect rates to rise and short-term
rates to be hurt more than longer rates. We will position the portfolio
accordingly.
The manufacturing sector continued to show signs of improvement and economic
reports have generally been better than anticipated. In this environment, it's
not clear that the Fed can remain as accommodative as they have been with
regard to interest rates. Yet, we also believe that the Fed is unlikely to
raise interest rates while questions about the recovery continue and inflation
remains well contained. We feel that the market has built in more of a Fed
tightening than we think will occur and therefore, bonds continue to offer the
possibility of positive returns in a relatively unstable economic environment.
Going forward, we plan to reduce our exposure to U.S. Treasuries and maintain
our position in mortgage-backed and agency holdings since we believe these
sectors may outperform Treasuries. In general, our outlook for international
markets is very positive, and we believe a number of catalysts are in place
that will help produce sustained growth around the world. We expect to
increase non-dollar exposure in Canada and Europe as a defensive play, and we
continue to see opportunity in Russia and Mexico.
Respectfully,
/s/ James J. Calmas
James J. Calmas
Portfolio Manager
Effective March 18, 2002, James J. Calmas became portfolio manager of the trust.
The opinions expressed in this report are those of MFS and are current only
through the end of the period of the report as stated on the cover. These views
are subject to change at any time based on market and other conditions, and no
forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
ADDRESS CHANGE
Please use our new mailing address, effective immediately.
State Street Bank & Trust Company
c/o MFS Service Center, Inc.
P.O. Box 55024
Boston, MA 02205-5024
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PORTFOLIO MANAGER'S PROFILE
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JAMES J. CALMAS IS VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R)
(MFS(R)) AND PORTFOLIO MANAGER OF THE LIMITED MATURITY PORTFOLIOS OF OUR
MUTUAL FUNDS, VARIABLE ANNUITIES, AND OFFSHORE INVESTMENT PRODUCTS. HE
IS A MEMBER OF THE MFS FIXED INCOME STRATEGY GROUP.
JIM JOINED MFS IN 1988 AND WAS NAMED ASSISTANT VICE PRESIDENT IN 1991,
VICE PRESIDENT IN 1993, AND PORTFOLIO MANAGER IN 1998.
HE IS A GRADUATE OF DARTMOUTH COLLEGE AND HOLDS AN M.B.A. DEGREE FROM
THE AMOS TUCK SCHOOL OF BUSINESS ADMINISTRATION OF DARTMOUTH COLLEGE.
ALL PORTFOLIO MANAGERS AT MFS ARE SUPPORTED BY AN INVESTMENT STAFF OF
OVER 160 PROFESSIONALS UTILIZING MFS ORIGINAL RESEARCH(R), A GLOBAL,
ISSUER-ORIENTED, BOTTOM-UP PROCESS OF SELECTING SECURITIES.
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In accordance with Section 23(c) of the Investment Company Act of 1940, the
trust hereby gives notice that it may from time to time repurchase shares of
the trust in the open market at the option of the Board of Trustees and on
such terms as the Trustees shall determine.
OBJECTIVE: To preserve capital and provide high current income.
NEW YORK STOCK EXCHANGE SYMBOL: MIN
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PERFORMANCE SUMMARY
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(For the six months ended April 30, 2002)
NET ASSET VALUE PER SHARE
October 31, 2001 $7.54
April 30, 2002 $7.32
NEW YORK STOCK EXCHANGE PRICE
October 31, 2001 $6.95
November 7, 2001 (high)* $7.00
December 17, 2001 (low)* $6.52
April 30, 2002 $6.85
*For the period November 1, 2001, through April 30, 2002
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RISK CONSIDERATIONS
Investments in foreign securities may be unfavorably affected by interest rate
and currency-exchange-rate changes as well as by market, economic, and
political conditions of the countries where investments are made. There may be
greater returns but also greater risk than with U.S. investments.
The portfolio may invest in derivative securities, which may include
futures and options. These types of hedging instruments can increase
price fluctuation.
As a nondiversified portfolio, the portfolio invests in a limited number of
companies and may have more risk because a change in one security's value may
have a more significant effect on the portfolio's net asset value. An
investment in the portfolio is not a complete investment program.
Government guarantees apply to the underlying securities only and not to the
prices and yields of the portfolio.
These risks may increase share price volatility. See the prospectus for
details.
NUMBER OF SHAREHOLDERS
As of April 30, 2002, our records indicate that there are 9,692 registered
shareholders and approximately 60,500 shareholders owning trust shares in
"street" name, such as through brokers, banks, and other financial
intermediaries.
If you are a "street" name shareholder and wish to directly receive our reports,
which contain important information about the trust, please write or call:
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
1-800-637-2304
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
MFS offers a Dividend Reinvestment and Cash Purchase Plan that allows you to
reinvest either all of the distributions paid by the trust or only the long-
term capital gains. Purchases are made at the market price unless that price
exceeds the net asset value (the shares are trading at a premium). If the
shares are trading at a premium, purchases will be made at a discounted price
of either the net asset value or 95% of the market price, whichever is
greater.
Twice each year you can also buy shares. Investments from $100 to $2,500 can
be made in January and July on the 15th of the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee,
you can ask the firm or nominee to participate in the plan on your behalf.
If the nominee does not offer the plan, you may wish to request that your
shares be re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the trust. However, when shares are
bought on the New York Stock Exchange or otherwise on the open market, each
participant pays a pro rata share of the commissions. The automatic
reinvestment of distributions does not relieve you of any income tax that may
be payable (or required to be withheld) on the distributions.
To enroll in or withdraw from the plan, or if you have any questions, call
1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time. Please
have available the name of the trust and your account and Social Security
numbers. For certain types of registrations, such as corporate accounts,
instructions must be submitted in writing. Please call for additional details.
When you withdraw, you can receive the value of the reinvested shares in one
of two ways: a check for the value of the full and fractional shares, or a
certificate for the full shares and a check for the fractional shares.
PORTFOLIO OF INVESTMENTS (Unaudited) -- April 30, 2002
Bonds - 97.4%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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U.S. Bonds - 84.0%
Corporate Asset-Backed - 2.4%
Commercial Mortgage Corp., 1.222s, 2008 $107,302 $ 5,693,992
Commercial Mortgage Corp., 6.04s, 2030 6,000 6,069,120
DLJ Commercial Mortgage Corp., 0s, 2005 (interest only) 95,100 2,264,864
Falcon Auto Dealership LLC, 3.406s, 2023 18,141 2,647,509
First Union Lehman Brothers Bank, 6.56s, 2035 5,000 5,261,610
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$ 21,937,095
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Small Business Administration - 4.3%
SBA, 7.64s, 2010 $ 9,314 $ 10,199,796
SBA, 5.34s, 2021 10,000 9,620,010
SBA, 6.34s, 2021 4,272 4,371,040
SBA, 6.35s, 2021 6,694 6,850,858
SBA, 6.44s, 2021 3,941 4,051,695
SBA, 6.625s, 2021 4,437 4,601,856
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$ 39,695,255
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U.S. Government Agencies - 49.2%
FHLMC, 7s, 2010 $ 44,000 $ 48,255,680
FHLMC, 5.75s, 2012 30,833 30,948,624
FNMA, 3.875s, 2005 21,450 21,399,807
FNMA, 5.5s, 2006 22,500 23,308,650
FNMA, 5.75s, 2010 3,650 3,376,384
FNMA, 5.859s, 2006 6,937 7,151,017
FNMA, 6s, 2008 10,000 10,437,500
FNMA, 6s, 2016 21,406 21,724,549
FNMA, 6.5s, 2016 - 2031 51,999 52,917,146
FNMA, 6.956s, 2007 5,434 5,838,434
FNMA, 7.125s, 2005 18,400 19,923,704
GNMA, 6.5s, 2028 - 2029 39,300 39,967,591
GNMA, 6.5s, 2032 8,224 8,346,492
GNMA, 7s, 2031 - 2032 66,207 68,307,608
GNMA, 7s, 2023 - 2025 40,767 42,352,169
GNMA, 7.5s, 2022 - 2026 14,166 14,881,691
GNMA, 7.5s, 2027 8,490 8,917,415
GNMA, 8.5s, 2003 - 2007 654 704,328
GNMA, 8.5s, 2008 194 209,260
GNMA, 8.5s, 2009 4,904 5,201,263
GNMA, 8.5s, 2026 3,901 4,136,011
HUD, 5.53s, 2008 11,000 11,697,813
HUD, 7.198s, 2009 6,000 6,564,180
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$456,567,316
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U.S. Treasury Obligations - 28.1%
U.S. Treasury Bonds, 11.875s, 2003 $ 11,000 $ 12,483,240
U.S. Treasury Bonds, 12.375s, 2004 34,500 40,656,180
U.S. Treasury Bonds, 10.375s, 2009 26,050 30,197,681
U.S. Treasury Bonds, 13.875s, 2011 25,500 34,408,935
U.S. Treasury Bonds, 10.375s, 2012# 55,600 70,490,236
U.S. Treasury Bonds, 12s, 2013 52,500 72,441,600
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$260,677,872
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Total U.S. Bonds $778,877,538
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Foreign Bonds - 13.4%
Brazil - 0.7%
Banco Nacional de Desenvolvi, 12.262s, 2008 (Banks &
Credit Cos.)## $ 2,352 $ 2,238,732
Federal Republic of Brazil, 11s, 2012 675 600,750
Federal Republic of Brazil, 3.063s, 2024 4,828 3,466,248
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$ 6,305,730
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Bulgaria - 0.5%
Republic of Bulgaria, 7.5s, 2013 EUR 2,446 $ 2,105,557
Republic of Bulgaria, 8.25s, 2015 $ 2,409 2,312,640
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$ 4,418,197
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Canada - 5.2%
Government of Canada, 5.75s, 2006 CAD 12,826 $ 8,399,827
Government of Canada, 5.25s, 2008 20,942 21,115,148
Government of Canada, 5.5s, 2009 14,123 9,027,583
Government of Canada, 5.5s, 2010 14,555 9,238,720
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$ 47,781,278
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Dominican Republic - 0.3%
Republic of Dominican, 9.5s, 2006 $ 2,363 $ 2,504,780
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France
Societe Generale Capital Trust I, 7.875s, 2049 (Banks) GBP 375 $ 370,050
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Germany - 2.5%
Federal Republic of Germany, 4.75s, 2008 EUR 14,719 $ 13,137,832
KFW International Finance, Inc., 4.25s, 2005
(Financial Institutions) $ 10,000 10,041,800
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$ 23,179,632
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Kazakhstan
Kaztransoil Co., 8.5s, 2006 (Oil Services)## KTS 137 $ 134,603
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Malaysia - 0.2%
Petroliam Nasional Berhad, 7.75s, 2015 (Oils) $ 1,681 $ 1,791,623
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Mexico - 1.0%
BBVA Bancomer Capital Trust I, 10.5s, 2011 (Banks & Credit Cos.)## $ 3,993 $ 4,412,265
Pemex Project Funding Master Trust, 9.125s, 2010 (Oil) 1,036 1,136,513
Petroleos Mexicanos, 9.375s, 2008 (Oil Services) 2,318 2,567,185
Petroleos Mexicanos, 9.5s, 2027 (Oil Services) 560 627,200
United Mexican States, 11.5s, 2026 678 904,113
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$ 9,647,276
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New Zealand - 0.5%
Government of New Zealand, 8s, 2006 NZD 9,120 $ 4,300,006
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Panama - 0.3%
Republic of Panama, 9.625s, 2011 $ 1,268 $ 1,321,890
Republic of Panama, 10.75s, 2020 1,629 1,840,770
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$ 3,162,660
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Peru - 0.1%
Republic of Peru, 4s, 2017 $ 1,602 $ 1,185,480
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Philippines - 0.2%
Republic of Philippines, 8.375s, 2009 $ 1,939 $ 1,963,238
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Russia - 0.6%
Ministry of Finance, 12.75s, 2028 $ 2,627 $ 3,204,940
Mobile Telesystems Finance S.A., 10.95s, 2004 (Telecom - Wireless) 1,835 1,894,637
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$ 5,099,577
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South Korea - 0.3%
Hanvit Bank, 12.75s, 2010 (Banks & Credit Cos.) $ 2,531 $ 2,980,253
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Spain - 0.9%
Kingdom of Spain, 7s, 2005 $ 7,800 $ 8,427,611
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Tunisia
Banque Centrale De Tunisie, 7.375s, 2012 (Banks & Credit Cos.) $ 197 $ 194,538
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Turkey - 0.1%
Republic of Turkey, 11.875s, 2030 $ 1,182 $ 1,229,280
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Total Foreign Bonds $124,675,812
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Total Bonds (Identified Cost, $882,065,391) $903,553,350
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Warrants
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SHARES
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Foreign Bonds
United Mexican States (Identified Cost, $0)* 5,057,000 $ 7,585
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Repurchase Agreement - 0.9%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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Goldman Sachs, dated 04/30/02, due 05/01/02, total to
be received $7,816,419 (secured by various U.S.
Treasury and Federal Agency obligations in a
jointly traded account), at Cost $ 7,816 $ 7,816,000
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Short-Term Obligations - 3.0%
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Federal National Mortgage Association Discount Notes,
1.75s, due 5/08/02, at Amortized Cost $ 28,000 $ 27,990,472
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Total Investments (Identified Cost, $917,871,863) $939,367,407
Other Assets, Less Liabilities - (1.3)% (11,979,352)
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Net Assets - 100.0% $927,388,055
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*Non-income producing security.
#Security segregated as collateral for an open futures contract.
##SEC Rule 144A restriction.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. dollar. A list of abbreviations is shown
below.
AUD = Australian Dollars GBP = British Pounds
CAD = Canadian Dollars NZD = New Zealand Dollars
DKK = Danish Kroner KTS = Kazakhstan Tenge
EUR = Euro
See notes to financial statements.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
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APRIL 30, 2002
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Assets:
Investments, at value (identified cost, $917,871,863) $ 939,367,407
Investments of cash collateral for securities loaned,
(at value and identified cost) 116,269,894
Cash 21,975
Receivable for investments sold 10,214,870
Net receivable for forward currency exchange contracts 446,934
Net receivable for forward foreign currency exchange
contracts subject to master netting agreements 608,419
Interest receivable 16,935,005
Other assets 14,405
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Total assets $1,083,878,909
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Liabilities:
Payable to dividend disbursing agent $ 363,752
Collateral for securities loaned, at value 116,269,894
Payable for fund shares reacquired 20
Payable for investments purchased 38,175,328
Payable for daily variation margin on open futures
contracts 24,375
Net payable for forward foreign currency exchange
contracts 707,298
Net payable for forward foreign currency exchange
contracts subject to master netting agreements 352,817
Payable to affiliates -
Management fee 33,196
Transfer and dividend disbursing agent fee 15,807
Administrative fee 445
Accrued expenses and other liabilities 547,922
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Total liabilities $ 156,490,854
--------------
Net assets $ 927,388,055
==============
Net assets consist of:
Paid-in capital $ 989,770,565
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 20,271,179
Accumulated net realized loss on investments and
foreign currency transactions (77,107,527)
Accumulated distribution in excess of net investment
income (5,546,162)
--------------
Total $ 927,388,055
==============
Shares of beneficial interest outstanding
(135,059,966 issued, less 8,404,650 treasury shares) 126,655,316
===========
Net asset value
(net assets / shares of beneficial interest outstanding) $7.32
=====
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
---------------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30, 2002
---------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 28,697,011
Dividends 8,678
-------------
Total investment income $ 28,705,689
-------------
Expenses -
Management fee $ 3,313,359
Trustees' compensation 89,581
Transfer and dividend disbursing agent fee 93,029
Administrative fee 53,285
Investor communication expense 327,198
Custodian fee 211,422
Auditing fees 24,034
Postage 23,408
Printing 32,552
Legal fees 2,582
Miscellaneous 131,206
-------------
Total expenses $ 4,301,656
Fees paid indirectly (21,333)
-------------
Net expenses $ 4,280,323
-------------
Net investment income $ 24,425,366
-------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ (3,018,068)
Written option transactions 238,951
Foreign currency transactions 589,627
-------------
Net realized loss on investments and foreign currency
transactions $ (2,189,490)
-------------
Change in unrealized depreciation -
Investments $ (20,022,689)
Written options (175,479)
Futures contracts (1,247,656)
Translation of assets and liabilities in foreign
currencies (911,282)
-------------
Net unrealized loss on investments and foreign
currency translation $ (22,357,106)
-------------
Net realized and unrealized loss on investments and
foreign currency $ (24,546,596)
-------------
Decrease in net assets from operations $ (121,230)
=============
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
--------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2002 YEAR ENDED
(UNAUDITED) OCTOBER 31, 2001
--------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 24,425,366 $ 61,439,320
Net realized gain (loss) on investments and foreign
currency transactions (2,189,490) 5,959,378
Net unrealized gain (loss) on investments and foreign
currency translation (22,357,106) 54,572,562
------------- --------------
Increase (decrease) in net assets from operations $ (121,230) $ 121,971,260
------------- --------------
Distributions declared to shareholders -
From net investment income $ (28,280,572) $ (61,231,925)
------------- --------------
Trust share (principal) transactions -
Cost of shares reacquired $ (3,205,280) $ (7,552,898)
------------- --------------
Total increase (decrease) in net assets $ (31,607,082) $ 53,186,437
Net assets:
At beginning of period 958,995,137 905,808,700
------------- --------------
At end of period (including accumulated distributions in
excess of net investment income of $5,546,162 and
$1,690,956, respectively) $ 927,388,055 $ 958,995,137
============= ==============
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Financial Highlights
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
SIX MONTHS ENDED ---------------------------------------------------------------------------
APRIL 30, 2002 2001 2000 1999 1998 1997
(UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of
period $ 7.54 $ 7.06 $ 7.25 $ 7.75 $ 7.76 $ 7.82
------- ------- ------- ------- ------- -------
Income from investment operations# -
Net investment income(S)(S) $ 0.19 $ 0.48 $ 0.49 $ 0.49 $ 0.51 $ 0.54
Net realized and unrealized
loss on investments and
foreign currency
transactions (0.19) 0.48 (0.20) (0.53) (0.01) (0.05)
------- ------- ------- ------- ------- -------
Total from investment
operations $ 0.00 $ 0.96 $ 0.29 $ (0.04) $ 0.50 $ 0.49
------- ------- ------- ------- ------- -------
Less distributions declared to shareholders -
From net investment income $ (0.22) $ (0.49) $ (0.33) $ (0.45) $ (0.46) $ (0.54)
In excess of net realized
gain on investments and
foreign currency
transactions -- -- -- -- -- (0.04)
From paid in capital -- -- (0.21) (0.05) (0.05) --
------- ------- ------- ------- ------- -------
Total distributions
declared to
shareholders $ (0.22) $ (0.49) $ (0.54) $ (0.50) $ (0.51) $ (0.58)
------- ------- ------- ------- ------- -------
Net increase from repurchase of
capital shares $ 0.00+++ $ 0.01 $ 0.06 $ 0.04 $ 0.00+++ $ 0.03
------- ------- ------- ------- ------- -------
Net asset value - end of period $ 7.32 $ 7.54 $ 7.06 $ 7.25 $ 7.75 $ 7.76
------- ------- ------- ------- ------- -------
Per share market value - end of
period $ 6.850 $ 6.950 $ 6.375 $ 6.250 $ 6.938 $ 7.000
======= ======= ======= ======= ======= =======
Total return at market value 1.80%++ 16.93% 10.95% (2.92)% 6.56% 6.46%
Ratios (to average net assets)/
Supplemental data:
Expenses## 0.93%+ 0.93% 0.95% 0.93% 0.91% 0.91%
Net investment income(S)(S) 5.30%+ 6.62% 6.93% 6.57% 6.59% 6.92%
Portfolio turnover 71% 72% 93% 85% 184% 213%
Net assets at end of period
(000,000 Omitted) $927 $959 $906 $977 $1,091 $1,098
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data is are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(S)(S) As required, effective November 1, 2001, the series has adopted the provisions of the AICPA Audit and Accounting Guide
for Investment Companies and began amortizing premiums on debt securities. The effect of this change for the six months
ended April 30, 2002, was the decrease net investment income per share by $0.03, and increase realized and unrealized
gains and losses per share by $0.03, and decrease the ratio of net investment income to average net assets by 0.81%. Per
share ratios and supplemental data for periods prior to November 1, 2001 have not been restated to reflect this change in
presentation.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Intermediate Income Trust (the trust) is a non-diversified series of MFS
Series Trust (the trust). The trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as a closed-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The trust
can invest 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 country's
legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, forward foreign
currency exchange contracts, and swap agreements, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data, without exclusive reliance upon exchange or over-the-
counter prices. Short-term obligations, which mature in 60 days or less, are
valued at amortized cost, which approximates market value. Futures contracts,
and options contracts listed on commodities exchanges are reported at market
value using closing settlement prices. Over-the-counter options on securities
are valued by brokers. Over-the-counter currency options are valued through
the use of a pricing model which takes into account foreign currency exchange
spot and forward rates, implied volatility, and short-term repurchase rates.
Securities for which there are no such quotations or valuations are valued in
good faith at the direction of the Trustees.
Repurchase Agreements - The trust may enter into repurchase agreements with
institutions that the trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The trust
requires that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the trust to
obtain those securities in the event of a default under the repurchase
agreement. The trust monitors, on a daily basis, the value of the collateral
to ensure that its value, including accrued interest, is greater than amounts
owed to the trust under each such repurchase agreement. The trust, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Trustee Compensation - Under a Deferred Compensation Plan (the Plan)
independent Trustees may elect to defer receipt of all or a portion of their
annual compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the trust or other MFS trust selected
by the Trustee. Deferred amounts represent an unsecured obligation of the
trust until distributed in accordance with the Plan.
Written Options - The trust may write call or put options in exchange for a
premium. The premium is initially recorded as a liability, which is
subsequently adjusted to the current value of the option contract. When a
written option expires, the trust realizes a gain equal to the amount of the
premium received. When a written call option is exercised or closed, the
premium received is offset against the proceeds to determine the realized gain
or loss. When a written put option is exercised, the premium reduces the cost
basis of the security purchased by the trust. The trust as writer of an
option, may have no control over whether the underlying securities may be sold
(call) or purchased (put) and, as a result, bears the market risk of an
unfavorable change in the price of the securities underlying the written
option. In general, written call options may serve as a partial hedge against
decreases in value in the underlying securities to the extent of the premium
received. Written options may also be used as part of an income producing
strategy reflecting the view of the trust's management on the direction of
interest rates.
Futures Contracts - The trust may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the trust is
required to deposit with the broker either in cash or securities an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the trust each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes
as unrealized gains or losses by the trust. The trust's investment in futures
contracts is designed to hedge against anticipated future changes in interest
or exchange rates or securities prices. Investments in interest rate futures
for purposes other than hedging may be made to modify the duration of the
portfolio without incurring the additional transaction costs involved in
buying and selling the underlying securities. Investments in currency futures
for purposes other than hedging may be made to change the trust relative
position in one or more currencies without buying and selling portfolio
assets. Investments in index contracts or contracts on related options for
purposes other than hedging, may be made when the trust has cash on hand and
wishes to participate in anticipated market appreciation while the cash is
being invested. Should interest or exchange rates or securities prices move
unexpectedly, the trust may not achieve the anticipated benefits of the
futures contracts and may realize a loss.
Security Loans - State Street Bank and Trust Company ("State Street") and
Chase Manhattan Bank ("Chase"), as lending agents, may loan the securities of
the trust to certain qualified institutions (the "Borrowers") approved by the
trust. The loans are collateralized at all times by cash and/or U.S. Treasury
securities in an amount at least equal to the market value of the securities
loaned. State Street provides the trust with indemnification against Borrower
default. The trust bears the risk of loss with respect to the investment of
cash collateral.
Cash collateral is invested in short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the trust and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the trust and the lending agent. Income
from securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned
is accounted for in the same manner as other dividend and interest income.
At April 30, 2002, the value of securities loaned was $113,986,707. These
loans were collateralized by cash of $116,269,894 which was invested in the
following short-term obligations:
ISSUER SHARES VALUE
-------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 116,269,894 $116,269,894
Forward Foreign Currency Exchange Contracts - The trust may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The trust may enter
into forward foreign currency exchange contracts for hedging purposes as well
as for non-hedging purposes. For hedging purposes, the trust may enter into
contracts to deliver or receive foreign currency it will receive from or
require for its normal investment activities. The trust may also use contracts
in a manner intended to protect foreign currency-denominated securities from
declines in value due to unfavorable exchange rate movements. For non-hedging
purposes, the trust may enter into contracts with the intent of changing the
relative exposure of the trust's portfolio of securities to different
currencies to take advantage of anticipated changes. The forward foreign
currency exchange contracts are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded as unrealized until
the contract settlement date. On contract settlement date, the gains or losses
are recorded as realized gains or losses on foreign currency transactions.
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 generally accepted accounting principles. Dividends received
in cash are recorded on the ex-dividend date. Dividend and interest payments
received in additional securities are recorded on the ex-dividend or ex-
interest date in an amount equal to the value of the security on such date.
Some securities may be purchased on a "when-issued" or "forward delivery"
basis, which means that the securities will be delivered to the trust at a
future date, usually beyond customary settlement time.
The trust may enter in "TBA" (to be announced) purchase commitments to
purchase securities for a fixed unit price at a future date. Although the unit
price has been established, the principal value has not been finalized.
However, the principal amount of the commitments will not fluctuate more than
1.0%. The trust holds, and maintains until settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price, or the
trust may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to settlement date, which is in addition to the risk
of decline in the value of the trusts' other assets. Unsettled TBA purchase
commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Investment
Valuations" above.
The trust may enter into "TBA" (to be announced) sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction.
Fees Paid Indirectly - The trust's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the trust. This amount is shown as a reduction of total expenses on the
Statement of Operations.
Tax Matters and Distributions - The trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The trust
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, mortgage-backed securities, derivatives,
real estate investment trusts, defaulted bonds, capital losses, and
amortization and accretion on debt securities.
The tax character of distributions declared for the years ended October 31,
2001 and October 31, 2000 was as follows:
OCTOBER 31, 2001 OCTOBER 31, 2000
------------------------------------------------------------------------------
Distributions declared from:
Ordinary income $61,231,925 $42,804,474
Tax return of capital -- 27,519,561
----------- -----------
Total distributions declared $61,231,925 $70,324,035
=========== ===========
As of October 31, 2001, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $ --
Undistributed long-term capital gain --
Capital loss carryforward (47,525,556)
Unrealized gain 14,279,337
Other temporary differences (734,495)
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on:
EXPIRATION DATE
------------------------------------
October 31, 2002 $ 3,662,159
October 31, 2003 6,526,984
October 31, 2004 645,525
October 31, 2006 13,874,621
October 31, 2007 11,376,973
October 31, 2008 11,439,294
-----------
Total $47,525,556
===========
(3) Transactions with Affiliates
Investment Adviser - The trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.32%
of the trust's, average daily net assets and 5.65% of investment income.
The trust pays the compensation of the Independent Trustees in the form of
both a retainer and attendance fees and pays no compensation directly to its
Trustees who are officers of the investment adviser, or to officers of the
trust, all of whom receive remuneration for their services to the trust from
MFS. Certain officers and Trustees of the trust are officers or directors of
MFS and MFS Service Center, Inc. (MFSC). On January 1, 2002, the Trustees
terminated the Independent Trustee unfunded defined benefit plan for active
Trustees and converted it to an unfunded retirement benefit deferral plan for
active Trustees. Under the new plan, the unfunded pension liability was
converted into an equivalent value of notional shares of the trust that will
fluctuate with the performance of the trust.
Administrator - The trust has an administrative services agreement with MFS to
provide the trust with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the trust pays MFS an administrative fee
at the following annual percentages of the trust's average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Transfer Agent - MFSC acts as registrar and dividend disbursing agent for the
Trust. The agreement provides that the Trust will pay MFSC an account
maintenance fee of no more than $9.00 and a dividend services fee of $0.75 per
reinvestment and will reimburse MFSC for reasonable out-of-pocket expenses.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
-------------------------------------------------------------------------------
U.S. government securities $520,156,354 $545,707,769
------------ ------------
Investments (non-U.S. government securities) $130,030,248 $116,039,963
------------ ------------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the trust, as computed on a federal income tax basis, are
as follows:
Aggregate cost $917,877,027
------------
Gross unrealized appreciation $ 46,018,318
Gross unrealized depreciation (24,527,938)
------------
Net unrealized appreciation $ 21,490,380
============
(5) Shares of Beneficial Interest
The trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. The Trustees have
authorized 135,059,966 full and fractional shares of beneficial interest.
Transactions in trust shares were as follows:
SIX MONTHS ENDED APRIL 30, 2002 YEAR ENDED OCTOBER 31, 2001
------------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------
Treasury shares acquired 480,000 $3,205,280 1,151,500 $7,552,898
------- ---------- --------- ----------
In accordance with the provisions of the trust's prospectus, 480,000 shares of
beneficial interest were purchased by the trust during the six months ended
April 30, 2002 at an average price per share of $6.67 and a weighted average
discount of 8.54% per share. The trust repurchased 1,151,500 shares of
beneficial interest during the year ended October 31, 2001, at an average
price per shares of $6.56 and a weighted average discount of 8.63% per share.
(6) Line of Credit
The trust and other affiliated funds participate in an $800 million unsecured
line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the bank's base rate.
In addition, a commitment fee, based on the average daily unused portion of
the line of credit, is allocated among the participating funds at the end of
each quarter. The commitment fee allocated to the trust for the six months
ended April 30, 2002, was $4,926. The trust had no borrowings during the
period.
(7) Financial Instruments
The trust trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency
exchange contracts, swap agreements, and futures contracts. The notional or
contractual amounts of these instruments represent the investment the trust
has in particular classes of financial instruments and does not necessarily
represent the amounts potentially subject to risk. The measurement of the
risks associated with these instruments is meaningful only when all related
and offsetting transactions are considered.
Written Option Transactions
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
---------------------------------------------------------------------------------------------------------
Outstanding, beginning of period 1 $ 238,950
Options terminated in closing transactions (1) (238,950)
-- ---------
Outstanding, end of period -- $ --
== =========
At April 30, 2002, the trust had sufficient cash and/or securities at least
equal to the value of the written options.
Forward Foreign Currency Exchange Contracts
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
----------------------------------------------------------------------------------------------------------
Sales
06/18/02 AUD 16,961,334 $ 8,776,271 $ 9,073,966 $(297,695)
06/18/02 CAD 60,574,593 38,411,664 38,618,603 (206,939)
06/18/02 NZD 10,395,536 4,444,404 4,625,089 (180,685)
----------- ----------- ---------
$51,632,339 $52,317,658 $(685,319)
=========== =========== =========
Purchases
06/18/02 AUD 17,164,087 $ 9,204,413 $ 9,182,434 $(21,979)
06/18/02 CAD 50,987,623 32,086,875 32,506,547 419,672
06/18/02 DKK 8,082,363 949,470 976,732 27,262
----------- ----------- ---------
$42,240,758 $42,665,713 $ 424,955
=========== =========== =========
At April 30, 2002, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net receivable of $3,920 with
C.S. First Boston and $604,499 with UBS Warburg and a net payable of $233,672
with Deutsche Bank and $119,145 with Merrill Lynch.
At April 30, 2002, the trust had sufficient cash and/or securities to cover
any commitments under these contracts.
Futures Contracts
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION (DEPRECIATION)
---------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes 5 Yr Futures 6/02 520 Short ($1,247,656)
At April 30, 2002, the trust had sufficient cash and/or securities to cover
any margin requirements under these contracts.
(8) Change in Accounting Principle
As required, effective November 1, 2001, the trust adopted the provision of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium and accreting market discount on debt securities. Prior to
November 1, 2001, the fund did not amortize premium nor accrete market
discount on debt securities. The cumulative effect of this accounting change
had no impact on total net assets of the fund, but resulted in a $27,387,322
reduction in cost of securities and a corresponding $27,387,322 increase in
net unrealized appreciation, based on securities held by the fund on November
1, 2001.
The effect of this change for the six months ended April 30, 2002 was to
decrease net investment income by $3,748,604, decrease net unrealized
depreciation by $3,594,112, and increase net realized gains by $154,492. The
Statement of Changes in Net Assets and Financial Highlights for prior periods
has not been restated to reflect this change in presentation.
MFS(R) INTERMEDIATE INCOME TRUST
The following tables present certain information regarding the Trustees and
officers of the Trust, including their principal occupations, which, unless
specific dates are shown, are of more than five years duration, although the
titles may not have been the same throughout.
NAME, POSITION WITH THE TRUST, AGE, PRINCIPAL OCCUPATION, AND OTHER DIRECTORSHIPS(1)
TRUSTEES
JEFFREY L. SHAMES* (born 06/02/55) Trustee, ABBY M. O'NEILL (born 04/27/28) Trustee
Chairman and President Private investor; Rockefeller Financial Services,
Massachusetts Financial Services Company, Chairman Inc. (investment advisers), Chairman and Chief
and Chief Executive Officer Executive Officer
JOHN W. BALLEN* (born 09/12/59) Trustee LAWRENCE T. PERERA (born 06/23/35) Trustee
Massachusetts Financial Services Company, Hemenway & Barnes (attorneys), Partner
President and Director
WILLIAM J. POORVU (born 04/10/35) Trustee
KEVIN J. PARKE* (born 12/14/59) Trustee Harvard University Graduate School of Business
Massachusetts Financial Services Company, Chief Administration, Adjunct Professor; CBL &
Investment Officer, Executive Vice President and Associates Properties, Inc. (real estate
Director investment trust), Director; The Baupost Fund (a
mutual fund), Vice Chairman and Trustee
LAWRENCE H. COHN, M.D. (born 03/11/37) Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38) Trustee
Surgery; Harvard Medical School, Professor of Insight Resources, Inc. (acquisition planning
Surgery specialists), President; Wellfleet Investments
(investor in health care companies), Managing
THE HON. SIR J. DAVID GIBBONS, KBE (born 06/15/27) General Partner (since 1993); Paragon Trade
Trustee Brands, Inc. (disposable consumer products),
Edmund Gibbons Limited (diversified holding Director; Cambridge Nutraceuticals (professional
company), Chief Executive Officer; Colonial nutritional products), Chief Executive Officer
Insurance Company Ltd., Director and Chairman; (until May 2001)
Bank of Butterfield, Chairman (until 1997)
ELAINE R. SMITH (born 04/25/46) Trustee
WILLIAM R. GUTOW (born 09/27/41) Trustee Independent health care industry consultant
Private investor and real estate consultant;
Capitol Entertainment Management Company (video WARD SMITH (born 09/13/30) Trustee
franchise), Vice Chairman Private investor; Sundstrand Corporation
(manufacturer of highly engineered products for
J. ATWOOD IVES (born 05/01/36) Trustee industrial and aerospace applications), Director
Private investor; KeySpan Corporation (energy (until June 1999)
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee
and Chief Executive Officer (until November 2000)
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
* "Interested person" of MFS 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 Trust. The address of MFS is
500 Boylston Street, Boston, Massachusetts 02116.
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) Trustee, ROBERT R. FLAHERTY (born 09/18/63) Assistant
Chairman and President Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
and Chief Executive Officer President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
JAMES R. BORDEWICK, JR. (born 03/06/59) Assistant
Secretary and Assistant Clerk ELLEN MOYNIHAN (born 11/13/57) Assistant Treasurer
Massachusetts Financial Services Company, Senior Massachusetts Financial Services Company, Vice
Vice President and Associate General Counsel President (since September 1996)
MARK E. BRADLEY (born 11/23/59) Assistant JAMES O. YOST (born 06/12/60) Assistant Treasurer
Treasurer Massachusetts Financial Services Company, Senior
Massachusetts Financial Services Company, Vice Vice President
President (since March 1997)
STEPHEN E. CAVAN (born 11/06/53) Secretary and
Clerk
Massachusetts Financial Services Company, Senior
Vice President, General Counsel and Secretary
The Trust holds annual shareholder meetings for the purpose of electing Trustees. Trustees are not elected for
fixed terms. This means that each Trustee will be elected to hold office until his or her successor is chosen
and qualified or until his or her earlier death, resignation, retirement or removal. Each officer will hold
office until his or her successor is chosen and qualified, or until he or she retires, resigns or is removed
from office.
Messrs. Shames, Cohn, Gibbons, Sherratt and Smith, and Ms. O'Neill have served in their capacity as Trustee of
the Trust continuously since originally elected or appointed. Messrs. Ballen, Gutow, Ives, Perera and Poorvu,
and Ms. Smith were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr.
Parke has served as a Trustee of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 117 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
INVESTMENT ADVISER TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING
Massachusetts Financial Services Company AGENT
500 Boylston Street State Street Bank and Trust Company
Boston, MA 02116-3741 c/o MFS Service Center, Inc.
P.O. Box 55024
PORTFOLIO MANAGER Boston, MA 02205-5024
James J. Calmas+ 1-800-637-2304
CUSTODIAN
State Street Bank and Trust Company
+ MFS Investment Management
MFS(R) INTERMEDIATE INCOME TRUST -------------
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INVESTMENT MANAGEMENT MFS
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500 Boylston Street
Boston, MA 02116-3741
(C)2002 MFS Investment Management(R)
500 Boylston Street, Boston, MA 02116. MINCE-3 6/02 84M