[logo] M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
MFS(R) INTERMEDIATE
INCOME TRUST
ANNUAL REPORT o OCTOBER 31, 2001
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Results of Shareholder Meeting ............................................ 10
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 20
Independent Auditors' Report .............................................. 28
Trustees and Officers ..................................................... 30
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MFS(R) PRIVACY POLICY
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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
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LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
As I write this letter, it's been just over two months since the events of
September 11, among the most tragic events ever to occur on U.S. soil. The
human dimensions of September 11 have rightfully overshadowed all else, but
the terrorist attacks were also unprecedented in terms of a market event.
POTENTIAL RECOVERY PUSHED OUT
Prior to September 11, we felt that the market was approaching bottom and
might be on a slow, uneven, but upward trend toward recovery. On September 11
political uncertainty was added to the issues buffeting the economy, and the
market subsequently hit new lows. Due largely to a decrease in air travel and
the ripple effects in a large number of industries, companies announced a huge
number of employee layoffs in the weeks following the attacks.
On October 31, the U.S. Commerce Department announced that gross domestic
product (GDP) declined 0.4% in the third quarter, the first drop in GDP since
1993. With most economists expecting GDP growth to be negative in the fourth
quarter as well, this announcement virtually assured that the economy has
entered a recession. (A recession is generally defined as two or more
consecutive quarters of declining GDP growth.)
We think the implication for investors is that the current economic downturn
may last longer than we had previously expected, with a potential recovery
pushed out farther into the future. However, it is important to note that the
equity market had experienced a significant downturn prior to September 11,
with many stocks already factoring in a slow growth environment.
ENCOURAGING SIGNS AMID A DOWNTURN
We do, however, have a strong belief that the U.S. economy and economies
around the globe will indeed recover over time and perhaps emerge even
stronger. In our view, the U.S. economy is already demonstrating a tremendous
resiliency. After an initial slide when the market reopened after September
11, we witnessed a market rally that seemed amazing in light of the
enormity of the tragedy: as of November 14, the Dow Jones Industrial Average
is up 19%, the Standard & Poor's 500 Stock Index is up 18%, and the NASDAQ
Composite Index is up 34%, compared to their post-September 11 lows. And all
three indices are above their September 10 levels.(1)
Consumer spending, which accounts for about two-thirds of GDP, is certainly
down and may remain so for a while. However, it does appear to be recovering
slowly from the sharp drop we experienced immediately after September 11. In
fact, a Commerce Department report released on November 13 reported that
retail and food services sales jumped 7.1% in October, far exceeding
economists' projections of a 2% increase over September sales.(2)
Prior to September 11, corporations were responding to the economic slowdown
by trimming capacity, expenses, and payrolls, and the attacks accelerated that
trend. Our experience in previous downturns has been that this type of
environment, although painful in the short term, allows the best firms in
various industries to emerge leaner and stronger, setting the stage for a
healthier economy. A recent example is the economic slowdown of 1990 - 1991, a
period that included the Gulf War. Corporate earnings fell, and the markets
witnessed a large selloff; yet a short time later we began a nearly decade-
long climb to all-time highs in both earnings and stock prices.
GOVERNMENT IS DOING ITS PART
Also encouraging is the urgency with which the U.S. government has stepped in
to bolster the economy. As of November 14, the Federal Reserve Board (the Fed)
has cut interest rates three times since the attacks, bringing rates to their
lowest level in four decades. By decreasing the cost of borrowing money, rate
cuts encourage buying by both corporations and consumers. Rate cuts also make
interest rates on money market funds and certificates of deposit less
attractive. This may stimulate investors to move money off the sidelines and
into potentially higher-yielding investments -- such as corporate bonds and
stocks -- that may do more to drive the economy.
President Bush and Congress also seem determined to help bolster the economy,
and as of mid-November, several economic stimulus packages appear to be
working their way through the legislative process.
INVESTING IN UNCERTAIN TIMES
The events of September 11 have not changed what we do on a day-to-day basis.
Our investment approach is still based on our own in-depth, fundamental
research into companies and other issuers of securities. We remain bottom-up
investors, building our portfolios one stock or bond at a time. In equity
investing, we continue to believe that, over the long term, stock prices
follow earnings. We also remain convinced that valuation, or a stock's price
in relation to factors such as earnings and cash flow, is important. In our
view, a good company selling at an overly high price is not a good stock.
If anything, we think our investment approach is more valid than ever in the
current environment. Although September 11 changed the near-term outlook for
many companies, our experience has been that companies we believed were good
investments before that date are still, for the most part, good investments.
By lowering valuations somewhat indiscriminately across the market, the post-
attack downturn made some stocks even more attractive. From a long-term
valuation standpoint, one could argue that it may be less risky to be in the
market today than it has been in a long time.
At the present time, we see economic markets in the midst of tremendous short-
term uncertainty. But we also see the seeds of economic recovery beginning to
take root, and we believe that our fundamental, bottom-up investment process
continues to benefit long-term investors. For further guidance in these
difficult times, we believe it is critical for you to consult with your
investment professional. 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)
November 14, 2001
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.
(1) Source: Lipper Inc. and MFS research. The Dow Jones Industrial Average
(DJIA) is a price-weighted average of 30 blue-chip stocks that are
generally the leaders in their industry. The NASDAQ Composite Index is an
unmanaged, market-weighted index of all over-the-counter common stocks
traded on the National Association of Securities Dealers Automated
Quotation system. The Standard & Poor's 500 Stock Index is an unmanaged but
commonly used measure of common stock total return performance.
(2) Source: The Wall Street Journal Online, November 14, 2001.
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the 12 months ended October 31, 2001, the trust provided a total return of
16.93% based on its beginning and ending stock market prices and assuming the
reinvestment of any distributions paid during the period. The trust's total
return based on its net asset value (NAV) was 14.55%. This return compares to
returns of 14.77% and 10.38%, 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 is an unmanaged index, which
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 of actively traded government bonds
issued from 12 countries (excluding the United States) with remaining
maturities of at least one year.
The defining characteristic of the 12-month period was the gradual
deceleration of the U.S. economy. The Federal Reserve Board (the Fed) became
more aggressive in trying to support economic growth in 2001, by cutting
short-term interest rates from 6.5% at the beginning of the year to 2.5% at
the end of the period. Although businesses, particularly on the manufacturing
side, were beginning to stabilize over the summer, we believe the events of
September 11 will serve to further weaken consumer confidence and prolong an
economic slowdown.
During the period, these sharp declines in short-term interest rates caused
the yield curve -- a representation of the difference between short- and long-
term rates -- to steepen. To take advantage of this environment earlier in the
year, we diversified the portfolio by exposing it to more bonds with
maturities in the one- to three-year range. We think negative economic factors
will force the Fed to keep interest rates lower for a period of time and,
therefore, the entire U.S. curve, in our opinion, is expected to go lower than
present levels, with longer maturities benefiting the most. In our opinion,
this means intermediate-maturity Treasuries (three- to seven-year securities)
are poised to outperform. We have positioned the portfolio accordingly by
reducing our short-term exposure in favor of intermediate-term bonds, the
hallmark of the trust.
In this environment, we feel the market has had a bias toward high-quality
bonds, so overall we increased our government holdings, U.S. Treasuries in
particular. In our opinion, this sector could perform well, given the economic
environment, low inflation, and aggressive Fed easing. We do
not anticipate increasing mortgaged-backed securities since we see them as
less attractive, given expected increases in refinancings and their more
defensive nature.
Abroad, we have also seen signs of economic deceleration with a sharp decline
in Asian regions and moderating of growth in Europe. This could be positive
for bonds in those countries. Although we have increased our international
exposure because of good opportunities and in order to diversify the
portfolio, we invest overseas only if we feel these holdings could outperform
domestic bonds. We have invested mainly in bonds offered by the dollar-block
countries, including the United States, Australia, New Zealand, and Canada.
Due to their more stable economies, these holdings contributed positively to
performance in 2001. In addition, we have also invested a small portion of the
portfolio in Europe, particularly Germany, since we felt there are
opportunities for strong performance. We continued to stay away from investing
in Japan because, with its continued recession and deflation, we believed it
offered low yields and would not have provided sufficient income opportunity.
Our modest emerging markets debt holdings have delivered strong returns and
good diversification. We have focused on countries with stable or improving
fundamentals and limited financing needs. Importantly, by avoiding exposure in
Argentina (and Brazil) during the recent deterioration in Argentine
creditworthiness, we have steered clear of the only blemish on the asset
class' overall impressive performance this year. Our positions in Russia,
Bulgaria, Korea bank sub-debt, Peru and Panama have delivered substantially
positive returns. While the asset class has demonstrated a healthy and
encouraging decoupling from negative events in Argentina, we have maintained a
cautious approach to country selection in our emerging market debt allocations
in MIN.
We believe the economic recovery will take longer than initially anticipated
and, given this, that inflation will remain low. An economic recovery would
suggest a change in our interest-rate outlook, and we could expect to make
portfolio changes accordingly.
Respectfully,
/s/ Stephen C. Bryant /s/ Steven E. Nothern
Portfolio Manager Portfolio Manager
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.
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PORTFOLIO MANAGERS' PROFILES
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STEPHEN C. BRYANT IS SENIOR VICE PRESIDENT OF MFS INVESTMENT
MANAGEMENT(R) (MFS(R)) AND PORTFOLIO MANAGER OF OUR GLOBAL FIXED-INCOME
INSTITUTIONAL PRODUCTS AND THE GLOBAL GOVERNMENTS PORTFOLIOS OF OUR
MUTUAL FUNDS, VARIABLE ANNUITY PRODUCTS, AND CLOSED-END FUNDS. HE JOINED
MFS IN 1987 AS ASSISTANT VICE PRESIDENT. HE WAS NAMED VICE PRESIDENT IN
1989, PORTFOLIO MANAGER IN 1992, AND SENIOR VICE PRESIDENT IN 1993.
STEVE IS A GRADUATE OF WESLEYAN UNIVERSITY.
STEVEN E. NOTHERN, CFA, IS SENIOR VICE PRESIDENT OF MFS INVESTMENT
MANAGEMENT(R) (MFS(R)). HE IS PORTFOLIO MANAGER OF THE GOVERNMENT
SECURITIES PORTFOLIOS OF OUR MUTUAL FUNDS, VARIABLE ANNUITIES, OFFSHORE
INVESTMENT PRODUCTS, AND CLOSED-END FUNDS. STEVE JOINED MFS IN 1986 IN
THE FIXED INCOME DEPARTMENT AND WAS NAMED VICE PRESIDENT IN 1989,
PORTFOLIO MANAGER IN 1991, AND SENIOR VICE PRESIDENT IN 1993. HE IS A
GRADUATE OF MIDDLEBURY COLLEGE AND HOLDS A MASTER OF BUSINESS
ADMINISTRATION DEGREE FROM BOSTON UNIVERSITY. HE HOLDS THE CHARTERED
FINANCIAL ANALYST (CFA) DESIGNATION AND IS A MEMBER OF THE BOSTON
SECURITY ANALYSTS SOCIETY, INC.
ALL PORTFOLIO MANAGERS AT MFS ARE SUPPORTED BY AN INVESTMENT STAFF OF
OVER 160 PROFESSIONALS UTILIZING MFS ORIGINAL RESEARCH(R), A GLOBAL,
SECURITY-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 year ended October 31, 2001)
NET ASSET VALUE PER SHARE
October 31, 2000 $7.06
October 31, 2001 $7.54
NEW YORK STOCK EXCHANGE PRICE
October 29, 2000 $6.375
October 2, 2001 (high)* $7.00
November 21, 2000 (low)* $6.3125
October 31, 2001 $6.95
*For the period November 1, 2000, through October 31, 2001
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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 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 October 31, 2001, our records indicate that there are 10,108 registered
shareholders and approximately 61,700 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.
RESULTS OF SHAREHOLDER MEETINGS (Unaudited)
At the annual meeting of shareholders of MFS Intermediate Income Trust, which
was held on October 31, 2001, the following actions were taken:
ITEM 1. Trustees of the trust were elected as follows:
NUMBER OF SHARES
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NOMINEE FOR WITHHOLD
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Jeffrey L. Shames 189,086,297.426 1,342,563.658
John W. Ballen 189,112,945.426 1,315,915.658
Lawrence H. Cohn 189,019,517.339 1,409,343.745
J. David Gibbons, KBE 188,943,799.362 1,485,061.722
William R. Gutow 189,093,452.861 1,335,408.223
J. Atwood Ives 189,077,938.078 1,350,923.006
Abby M. O'Neill 188,961,344.534 1,467,516.550
Lawrence T. Perera 189,081,494.762 1,347,366.322
William J. Poorvu 189,051,921.078 1,376,940.006
Arnold D. Scott 189,117,969.397 1,310,891.687
Dale Sherratt 189,127,360.397 1,301,500.687
Elaine R. Smith 189,058,078.535 1,370,782.549
Ward Smith 188,993,933.907 1,434,927.177
ITEM 2. The authorization of the Trustees to adopt an Amended and Restated
Declaration of Trust.
NUMBER OF SHARES
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For 130,281,667.580
Against 3,735,123.736
Abstain 2,104,644.768
Broker non-votes 54,307,425.000
ITEM 3. The amendment or removal of certain fundamental investment policies.
NUMBER OF SHARES
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For 130,324,516.449
Against 3,544,603.077
Abstain 2,252,316.558
Broker non-votes 54,307,425.000
ITEM 4. The change of the Fund's investment policy relating to investments in
U.S. and foreign government securities from fundamental to non-
fundamental.
NUMBER OF SHARES
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For 129,435,693.119
Against 4,153,921.674
Abstain 2,531,821.291
Broker non-votes 54,307,425.000
ITEM 5. The approval of a new investment advisory agreement with Massachusetts
Financial Services Company.
NUMBER OF SHARES
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For 186,339,155.102
Against 1,888,305.241
Abstain 2,201,400.741
ITEM 6. The ratification of the election of Deloitte & Touche LLP as the
independent public accountants to be employed by the trust for the
fiscal year ending October 31, 2002.
NUMBER OF SHARES
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For 188,393,523.151
Against 600,228.758
Abstain 1,435,109.175
PORTFOLIO OF INVESTMENTS -- October 31, 2001
Bonds - 98.2%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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U.S. Bonds - 87.2%
Banks and Credit Companies
Societe Generale Capital Trust I, 7.875s, 2049 EUR 375 $ 367,716
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Corporate Asset-Backed - 0.3%
DLJ Commercial Mortgage Corp., 0s, 2005 (interest only) $ 95,100 $ 2,587,937
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Oil Services - 0.1%
Pemex Project Funding Master Trust, 8.5s, 2008 $ 1,400 $ 1,456,000
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Small Business Administration - 3.3%
SBA, 7.64s, 2010 $ 9,903 $ 11,211,934
SBA, 6.34s, 2021 4,350 4,545,883
SBA, 6.35s, 2021 6,838 7,150,023
SBA, 6.44s, 2021 4,000 4,199,135
SBA, 6.625s, 2021 4,500 4,765,795
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$ 31,872,770
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U.S. Government Agencies - 40.1%
AID, 6.625s, 2003 - 2004 $ 29,600 $ 31,708,460
FHLM, 4.5s, 2004 2,500 2,587,900
FHLM, 5s, 2004 16,000 16,769,920
FHLM, 6.625s, 2009 6,000 6,752,820
FNMA, 4.75s, 2004 4,000 4,165,000
FNMA, 5.125s, 2004 5,000 5,244,550
FNMA, 6.956s, 2007 5,469 6,039,138
FNMA, 6s, 2008 10,000 10,876,600
FNMA, 5.75s, 2010 3,650 3,534,445
FNMA, 6.5s, 2016 - 2031 TBA 47,276 48,818,825
FNMA, 7s, 2031 TBA 72,500 75,631,275
GNMA, 6.5s, 2028 TBA 44,489 46,024,424
GNMA, 7s, 2025 TBA 22,175 23,175,225
GNMA, 7s, 2023 - 2024 24,346 25,604,672
GNMA, 7.5s, 2022 - 2023 2,288 2,422,727
GNMA, 7.5s, 2027 TBA 28,633 30,111,392
GNMA, 8s, 2030 TBA 17,391 18,399,364
GNMA, 8.5s, 2008 TBA 1,090 1,169,341
GNMA, 8.5s, 2009 5,954 6,300,457
GNMA, 9.25s, 2001 842 843,548
HUD, 5.53s, 2008 11,000 11,515,625
HUD, 7.198s, 2009 6,000 6,788,400
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$ 384,484,108
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U.S. Treasury Obligations - 43.4%
U.S. Treasury Bonds, 11.875s, 2003 $ 43,000 $ 50,934,790
U.S. Treasury Bonds, 12.375s, 2004 34,500 42,488,820
U.S. Treasury Bonds, 10.375s, 2009 26,050 31,361,855
U.S. Treasury Bonds, 13.875s, 2011 25,500 36,465,000
U.S. Treasury Bonds, 10.375s, 2012 55,600 74,486,764
U.S. Treasury Bonds, 12s, 2013 52,500 76,855,275
U.S. Treasury Bonds, 6.125s, 2029 606 700,027
U.S. Treasury Notes, 3.5s, 2011 16,318 16,965,246
U.S. Treasury Notes, 5s, 2011 80,850 85,523,937
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$ 415,781,714
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Total U.S. Bonds $ 836,550,245
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Foreign Bonds - 11.0%
Bulgaria - 0.4%
National Republic of Bulgaria, 4.563s, 2011 $ 203 $ 159,062
National Republic of Bulgaria, 4.563s, 2012 486 393,660
National Republic of Bulgaria, 4.563s, 2024 3,898 3,069,675
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$ 3,622,397
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Canada - 4.1%
Government of Canada, 5.75s, 2006 CAD 12,826 $ 8,657,853
Government of Canada, 5.25s, 2008 $ 20,942 21,859,616
Government of Canada, 5.5s, 2009 CAD 13,820 9,128,535
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$ 39,646,004
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Dominica - 0.3%
Republic of Dominican, 9.5s, 2006## $ 2,363 $ 2,330,509
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Germany - 3.3%
Federal Republic of Germany, 4.5s, 2009 EUR 10,445 $ 9,499,418
Federal Republic of Germany, 4.75s, 2008 24,160 22,378,730
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$ 31,878,148
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Kazakhstan - 0.1%
Kaztransoil Co., 8.5s, 2006 (Oil Services)## KTS 627 $ 594,083
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Mexico - 0.9%
BBVA Bancomer Capital Trust I, 10.5s, 2011 (Banks &
Credit Cos.)## $ 1,893 $ 2,053,905
Bepensa S.A., 9.75s, 2004 (Food & Beverage Products) 479 493,370
Petroleos Mexicanos, 9.375s, 2008 (Oil Services) 2,318 2,500,543
United Mexican States, 8.375s, 2011 1,975 2,019,437
United Mexican States, 8.125s, 2019 860 819,150
United Mexican States, 11.5s, 2026 678 845,127
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$ 8,731,532
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New Zealand - 0.4%
Government of New Zealand, 8s, 2006 NZD 9,120 $ 4,138,548
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Panama - 0.2%
Republic of Panama, 4.75s, 2014 $ 2,440 $ 2,127,707
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Peru - 0.1%
Republic of Peru, 4s, 2017 $ 1,604 $ 1,054,498
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Russia - 0.1%
Finance Ministry of Russia, 3s, 2003 $ 1,291 $ 1,152,218
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South Korea - 0.2%
Hanvit Bank, 12.75s, 2010 (Banks and Credit Cos.)## $ 1,454 $ 1,541,240
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Spain - 0.9%
Kingdom of Spain, 7s, 2005 $ 7,800 $ 8,636,659
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Total Foreign Bonds $ 105,453,543
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Total Bonds (Identified Cost, $927,560,270) $ 942,003,788
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Warrants
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SHARES
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United Mexican States (Identified Cost, $0)* 3,307,000 $ 18,190
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Put Options Purchased
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PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
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Japanese Yen/November/125
(Premiums Paid, $394,268) JPY3,733,600 $ 63,471
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Short-Term Obligations - 7.7%
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PRINCIPAL AMOUNT
(000 OMITTED)
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Federal Home Loan Discount Note, 2.21s, due 12/11/01 $ 8,800 $ 8,778,391
Federal Home Loan Bank Discount Note, 2.38s, due 11/09/01 25,590 25,576,466
Ford Motor Credit Corp., 2.80s, due 11/14/01 37,789 37,750,791
Student Loan Marketing Association Discount Note,
2.46s, due 11/01/01 1,729 1,729,000
--------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 73,834,648
--------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,001,789,186) $1,015,920,097
--------------------------------------------------------------------------------------------------------
Put Options Written
--------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
--------------------------------------------------------------------------------------------------------
Japanese Yen/November/125
(Premiums Received, $238,950) JPY3,733,600 $ (63,471)
--------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (5.9)% (56,861,489)
--------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 958,995,137
--------------------------------------------------------------------------------------------------------
* Non-income producing security.
## 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 JPY = Japanese Yen
DKK = Danish Kroner NZD = New Zealand Dollars
EUR = Euro KTS = Kazakhstan Tenge
See notes to financial statements.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
-------------------------------------------------------------------------------
OCTOBER 31, 2001
-------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,001,789,186) $1,015,920,097
Investments of cash collateral for securities loaned,
(at value and identified cost) 215,476,176
Receivable for investments sold 75,173,438
Net receivable for forward foreign currency exchange
contracts 3,713,553
Net receivable for forward foreign currency exchange
contracts subject to master netting agreements 106,854
Interest receivable 17,571,463
Other assets 14,404
--------------
Total assets $1,327,975,985
--------------
Liabilities:
Payable to custodian $ 15,859
Payable to dividend disbursing agent 62,809
Collateral for securities loaned, at value 215,476,176
Payable for fund shares reacquired 304,279
Payable for investments purchased 149,621,875
Net payable for forward foreign currency exchange
contracts 235,534
Net payable for forward foreign currency exchange
contracts subject to master netting agreements 2,639,030
Written options outstanding, at value (premiums
received, $238,950) 63,471
Payable to affiliates -
Management fee 18,453
Transfer and dividend disbursing agent fee 17,621
Accrued expenses and other liabilities 525,741
--------------
Total liabilities $ 368,980,848
--------------
Net assets $ 958,995,137
==============
Net assets consist of:
Paid-in capital $ 992,975,845
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 15,240,963
Accumulated net realized loss on investments and
foreign currency transactions (47,530,715)
Accumulated distributions in excess of net investment
income (1,690,956)
--------------
Total $ 958,995,137
==============
Shares of beneficial interest outstanding (202,648,016
issued, less 75,512,700 treasury shares) 127,135,316
===========
Net asset value (net assets / shares of beneficial
interest outstanding) $7.54
=====
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Operations
-------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2001
-------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 69,876,039
Dividends 78,152
------------
Total investment income $ 69,954,191
------------
Expenses -
Management fee $ 6,957,736
Trustees' compensation 178,900
Transfer and dividend disbursing agent fee 213,625
Administrative fee 104,997
Investor communication expense 398,636
Custodian fee 382,652
Auditing fees 39,408
Postage 58,610
Printing 56,509
Legal fees 11,746
Interest expense 4,257
Registration fees 161,346
Miscellaneous 58,038
------------
Total expenses $ 8,626,460
Fees paid indirectly (111,589)
------------
Net expenses $ 8,514,871
------------
Net investment income $ 61,439,320
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 9,982,018
Written option transactions (1,856)
Foreign currency transactions (4,020,784)
------------
Net realized gain on investments and foreign currency
transactions $ 5,959,378
------------
Change in unrealized appreciation -
Investments $ 48,784,095
Written options 1,032,144
Translation of assets and liabilities in foreign currencies 4,756,323
------------
Net unrealized gain on investments and foreign currency
translation $ 54,572,562
------------
Net realized and unrealized gain on investments and
foreign currency $ 60,531,940
------------
Increase in net assets from operations $121,971,260
============
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
----------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2001 2000
----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 61,439,320 $ 64,536,392
Net realized gain (loss) on investments and foreign
currency transactions 5,959,378 (27,345,281)
Net unrealized gain on investments and foreign currency
translation 54,572,562 2,628,300
------------ ------------
Increase in net assets from operations $121,971,260 $ 39,819,411
------------ ------------
Distributions declared to shareholders -
From net investment income $(61,231,925) $(42,804,474)
From paid-in capital -- (27,519,561)
------------ ------------
Total distributions declared to shareholders $(61,231,925) $(70,324,035)
------------ ------------
Trust share (principal) transactions -
Cost of shares reacquired $ (7,552,898) $(40,697,949)
------------ ------------
Total increase (decrease) in net assets $ 53,186,437 $(71,202,573)
Net assets:
At beginning of year 905,808,700 977,011,273
------------ ------------
At end of year (including distributions in excess of net
investment income and accumulated undistributed net
investment income of $1,690,956 and $3,683,141,
respectively) $958,995,137 $905,808,700
============ ============
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
Financial Highlights
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2001 2000 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each year):
Net asset value - beginning of year $ 7.06 $ 7.25 $ 7.75 $ 7.76 $ 7.82
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.48 $ 0.49 $ 0.49 $ 0.51 $ 0.54
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.48 (0.20) (0.53) (0.01) (0.05)
------ ------ ------ ------ ------
Total from investment operations $ 0.96 $ 0.29 $(0.04) $ 0.50 $ 0.49
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(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 $(0.49) $(0.54) $(0.50) $(0.51) $(0.58)
------ ------ ------ ------ ------
Net increase from repurchase of capital shares $ 0.01 $ 0.06 $ 0.04 $ -- + $ 0.03
------ ------ ------ ------ ------
Net asset value - end of year $ 7.54 $ 7.06 $ 7.25 $ 7.75 $ 7.76
------ ------ ------ ------ ------
Per share market value - end of year $6.950 $6.375 $6.250 $6.938 $7.000
====== ====== ====== ====== ======
Total return at market value 16.93% 10.95% (2.92)% 6.56% 6.46%
Ratios (to average net assets)/Supplemental data:
Expenses## 0.93% 0.95% 0.93% 0.91% 0.91%
Net investment income 6.62% 6.93% 6.57% 6.59% 6.92%
Portfolio turnover 72% 93% 85% 184% 213%
Net assets at end of period (000,000 Omitted) $959 $906 $977 $1,091 $1,098
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
+ Per share amount was less than $0.01.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
(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. Option 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 management on the direction of
interest rates.
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 October 31, 2001, the value of securities loaned was $211,197,790. These
loans were collateralized by cash of $215,476,176 which was invested in the
following short-term obligations:
ISSUER SHARES VALUE
-------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 215,476,176 $215,476,176
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 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 original issue discount is amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
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 trust's 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.
The trust will adopt the provisions of the AICPA Audit and Accounting Guide for
Investment Companies, as revised, effective for fiscal years beginning after
December 15, 2000. As required, the trust will begin amortizing premiums on debt
securities effective November 1, 2001. Prior to this date, the trust did not
amortize premiums on debt securities. The cumulative effect of this accounting
change will have no impact on the total net assets of the trust. The impact of
this accounting change has not been determined, but will result in a decrease to
cost of securities and a corresponding increase in net unrealized appreciation.
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. During the year ended
October 31, 2001, accumulated undistributed net investment income decreased by
$5,581,492, accumulated undistributed net realized gain on investments and
foreign currency transactions increased by $6,574,669 and paid-in capital
decreased by $993,177 due to differences between book and tax accounting for
mortgage-backed securities and currency transactions. This change had no
effect on the net assets or net asset value per share.
At October 31, 2001, the trust, for federal income tax purposes, had a capital
loss carryforward of $47,525,556 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on:
EXPIRATION DATE AMOUNT
--------------------------------------------------
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 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). Included in Trustees' compensation is a net periodic pension
expense of $55,443 for the year ended October 31, 2001.
Administrator - The trust has an administrative services agreement with MFS to
provide the trust with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the trust pays MFS an administrative fee
at the following annual percentages of the trust 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 $514,239,738 $531,053,159
------------ ------------
Investments (non-U.S. government securities) $144,699,893 $142,592,912
------------ ------------
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 $1,001,794,350
--------------
Gross unrealized appreciation $ 29,427,123
Gross unrealized depreciation (15,301,376)
--------------
Net unrealized appreciation $ 14,125,747
==============
(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 202,648,016 full and fractional shares of beneficial interest.
Transactions in trust shares were as follows:
YEAR ENDED YEAR ENDED
OCTOBER 31, 2001 OCTOBER 31, 2000
--------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
Treasury shares reacquired 1,151,500 $7,552,898 6,476,000 $40,697,949
--------- ---------- --------- -----------
In accordance with the provisions of the trust's prospectus, 1,151,500 shares
of beneficial interest were purchased by the trust during year ended October
31, 2001, at an average price per share of $6.56 and a weighted average
discount of 8.63% per share. The trust repurchased 6,476,000 shares of
beneficial interest during the year ended October 31, 2000, at an average
price per shares of $6.28 and a weighted average discount of 11.46% per share.
(6) Line of Credit
The trust and other affiliated funds participate in a $1.225 billion 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. A commitment fee of $11,097 which is based on the average daily
unused portion of the line of credit is included in miscellaneous expense. The
trust had no significant borrowings during the year.
(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 year 2 $ 573,723
Options written 3 1,134,229
Options terminated in closing transactions (3) (1,057,435)
Options expired (1) (411,567)
-- -----------
Outstanding, end of year 1 $ 238,950
== ===========
At October 31, 2001, 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 IN CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE EXCHANGE FOR AT VALUE (DEPRECIATION)
----------------------------------------------------------------------------------------------------------
Sales
12/18/01 AUD 604,326 $ 310,019 $ 302,958 $ 7,061
12/18/01 EUR 49,641,842 45,791,320 44,556,928 1,234,392
12/18/01 GBP 4,156 6,088 6,021 67
12/18/01 JPY 7,592,668,801 64,610,395 62,159,623 2,450,772
12/18/01 NZD 2,252,570 946,079 924,818 21,261
------------ ------------ ----------
$111,663,901 $107,950,348 $3,713,553
============ ============ ==========
Purchases
12/18/01 CAD 4,540,333 $ 2,898,254 $ 2,860,745 $ (37,509)
12/18/01 DKK 8,082,363 984,933 974,313 (10,620)
12/18/01 EUR 14,988,664 13,595,926 13,453,345 (142,581)
12/18/01 GBP 2,748,707 4,026,856 3,982,032 (44,824)
------------ ------------ ----------
$ 21,505,969 $ 21,270,435 $ (235,534)
============ ============ ==========
At October 31, 2001, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net receivable of $57,735 with
Merrill Lynch and $49,119 with Warburg Dillon Read and a net payable of
$837,817 with CS First Boston, and $1,801,213 with Deutsche Bank.
At October 31, 2001, the trust had sufficient cash and/or securities to cover
any commitments under these contracts.
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of MFS Intermediate Income Trust:
We have audited the accompanying statement of assets and liabilities of MFS
Intermediate Income Trust (the "trust"), including the portfolio of
investments, as of October 31, 2001, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2001, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Intermediate Income Trust as of October 31, 2001, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 6, 2001
-------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
-------------------------------------------------------------------------------
IN JANUARY 2002, SHAREHOLDERS WILL BE MAILED A FORM 1099-DIV REPORTING
THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR
YEAR 2001.
-------------------------------------------------------------------------------
MFS(R) INTERMEDIATE INCOME TRUST
TRUSTEES CHAIRMAN AND PRESIDENT
Marshall N. Cohan+(1) - Private Investor Jeffrey L. Shames*
Lawrence H. Cohn, M.D.+(2) - Chief of Cardiac PORTFOLIO MANAGERS
Surgery, Brigham and Women's Hospital; Stephen C. Bryant*
Professor of Surgery, Harvard Medical School Steven E. Nothern*
The Hon. Sir J. David Gibbons, KBE+ (2) - Chief TREASURER
Executive Officer, Edmund Gibbons Ltd.; James O. Yost*
Chairman, Colonial Insurance Company, Ltd.
ASSISTANT TREASURERS
Abby M. O'Neill+(2) - Private Investor Mark E. Bradley*
Robert R. Flaherty*
Walter E. Robb, III+(1) - (Principal, Robb Ellen Moynihan*
Associates) (corporate financial consultants);
President, Benchmark Consulting Group, Inc. SECRETARY
(office services) Stephen E. Cavan*
Arnold D. Scott* - Senior Executive Vice ASSISTANT SECRETARY
President and Director, MFS Investment James R. Bordewick, Jr.*
Management
TRANSFER AGENT, REGISTRAR, AND
Jeffrey L. Shames* - Chairman and Chief DIVIDEND DISBURSING AGENT
Executive Officer, MFS Investment Management State Street Bank and Trust Company
c/o MFS Service Center, Inc.
J. Dale Sherratt+(1) - President, Insight P.O. Box 9024
Resources, Inc. (acquisition planning Boston, MA 02205-9824
specialists) 1-800-637-2304
Ward Smith+(1) - Private Investor CUSTODIAN
State Street Bank and Trust Company
INVESTMENT ADVISER
Massachusetts Financial Services Company AUDITORS
500 Boylston Street Deloitte & Touche LLP
Boston, MA 02116-3741
+ Independent Trustee
* MFS Investment Management
(1) Member of Audit Committee
(2) Member of Portfolio Trading Committee
MFS(R) INTERMEDIATE INCOME TRUST ------------
PRSRT STD
[logo] M F S(R) U.S. Postage
INVESTMENT MANAGEMENT Paid
MFS
500 Boylston Street ------------
Boston, MA 02116-3741
(C)2001 MFS Investment Management(R).
500 Boylston Street, Boston, MA 02116.
MINCE-2 12/01 76M