<PAGE>
[Logo] MFS(SM) Semiannual Report
THE FIRST NAME IN MUTUAL FUNDS May 31, 1995
MFS(R) INTERMEDIATE INCOME FUND
[Graphic Omitted: Art work: Silhouette of two men talking in front of a large
window.]
<PAGE>
<TABLE>
<S> <C>
MFS(R) INTERMEDIATE INCOME FUND
TRUSTEES CUSTODIAN
A. Keith Brodkin<F1> - Chairman and President State Street Bank and Trust Company
Richard B. Bailey<F1> - Private Investor; AUDITORS
Former Chairman and Director (until 1991), Deloitte & Touche LLP
Massachusetts Financial Services Company
INVESTOR INFORMATION
Marshall N. Cohan - Private Investor For MFS stock and bond market outlooks,
call toll free: 1-800-637-4458 anytime from
Lawrence H. Cohn, M.D. - Chief of Cardiac Surgery, Brigham a touch-tone telephone.
and Women's Hospital; Professor of
Surgery, Harvard Medical School For information on MFS mutual funds,
call your financial adviser or, for an
The Hon. Sir J. David Gibbons, KBE - Chief information kit, call toll free:
Executive Officer, Edmund Gibbons Ltd.; 1-800-637-2929 any business day from
Chairman, Bank of N.T. Butterfield & Son Ltd. 9 a.m. to 5 p.m. Eastern time (or leave
a message anytime).
Abby M. O'Neill - Private Investor;
Director, Rockefeller Financial Services, Inc. INVESTOR SERVICE
(Investment Advisers) MFS Service Center, Inc.
P.O. Box 2281
Walter E. Robb, III - President and Treasurer, Boston, MA 02107-9906
Benchmark Advisors, Inc. (Corporate Financial
Consultants) For general information, call toll free:
1-800-225-2606 any business day from
Arnold D. Scott<F1> - Senior Executive Vice President 8 a.m. to 8 p.m. Eastern time.
and Secretary, Massachusetts Financial Services
Company For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business
Jeffrey L. Shames<F1> - President, Massachusetts day from 9 a.m. to 5 p.m. Eastern time.
Financial Services Company (To use this service, your phone must be
equipped with a Telecommunications
J. Dale Sherratt - President, Insight Resources, Inc. Device for the Deaf.)
(Acquisition Planning Specialists)
For share prices, account balances and
Ward Smith - Former Chairman (until 1994), exchanges, call toll free: 1-800-MFS-TALK
NACCO Industries; Director, Sundstrand (1-800-637-8255) anytime from a touch-tone
Corporation telephone.
INVESTMENT ADVISER
Massachusetts Financial Services Company -------------------------------------------
500 Boylston Street TOP-RATED SERVICE
Boston, Massachusetts 02116-3741 [SEAL] MFS was rated first when securities
firms evaluated the quality of
PORTFOLIO MANAGERS service they receive from 40
Richard O. Hawkins<F1> mutual fund companies. MFS got
Steven E. Nothern<F1> high marks for answering calls
quickly, processing transactions
TREASURER accurately and sending statements
W. Thomas London<F1> out on time.
(Source: 1994 DALBAR Survey)
ASSISTANT TREASURER -------------------------------------------
James O. Yost<F1>
SECRETARY
Stephen E. Cavan<F1>
ASSISTANT SECRETARY
James R. Bordewick, Jr.<F1>
<FN>
<F1>Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
During the past six months, Class A shares of the Fund achieved a total return
of +9.90%, while Class B shares had a total return of +9.31%. Both of these
returns assume the reinvestment of distributions but exclude the effects of any
sales charges. During this same period, the Lehman Brothers Intermediate
Government Bond Index (an unmanaged index comprised of issues of the U.S.
government and its agencies with remaining maturities of less than 10 years)
returned +8.69%; the Lehman Brothers Government/Mortgage Index (which includes
maturities of both 15 and 10 years) returned +11.02%; and the J.P. Morgan
Non-Dollar Government Bond Index (an aggregate of actively traded government
bonds of 12 countries with remaining maturities of at least one year) returned
+18.66%. These results are provided for comparison purposes only because the
Fund diversifies its assets among the broad groups represented by all three
indices, with a 50% maximum allocation to foreign bond markets.
U.S. Government Sector
As the U.S. economy enters its fifth year of expansion, it is evidencing a
decidedly decelerating trend from its robust pace of 1994, when gross domestic
product expanded by 4.1%. The Federal Reserve Board's efforts to dampen this
pace by raising short-term interest rates are clearly having their intended
effect, as growth in this year's first quarter diminished to an annual rate of
2.7%. Growth in the second quarter appears to have slowed even further as
employment, consumer spending and industrial production have all evidenced
considerable weakness. The result may be flat or even slightly negative growth
in the second quarter. However, we do not anticipate that the economy will lapse
into recession. Rather, we believe the economy will pursue a moderate growth
path for the remainder of this year, driven by export growth and an improving
consumer sector supported by moderate prevailing interest rates.
As evidence of a slowdown has continued to mount, U.S. fixed-income markets
have become increasingly convinced that the Federal Reserve has not only
concluded its monetary-tightening initiatives, but also that its next move may
be to lower interest rates. Furthermore, as the economy's ability to create jobs
and its use of available productive capacity has diminished, apprehension
concerning a cyclical upturn in inflation has receded. As a result, yields on
10-year U.S. Treasury securities, which were 7.90% at the end of November 1994,
declined to 6.28% by May 31, 1995. Yields on two-year Treasuries fell even more
sharply, from 7.40% to 5.84%.
Our overall strategy during the first six months of this fiscal year was to
increase the allocation to the U.S. government sector of the portfolio. We also
increased the average maturity and interest rate sensitivity of the Fund's
investments to those of a five-year Treasury security in order to benefit from
the opportunities for price appreciation as interest rates fell. Currently, the
Fund's U.S. government investments consist of a mixture of Treasury and agency
debentures, as well as mortgage-backed pass-through securities. The price
sensitivity of the portfolio is approximately equal to that of a five-year
Treasury security.
Treasury and agency debentures currently comprise 56% of this portion of
the portfolio. The Treasuries have maturities of three to 10 years because we
believe these areas of the Treasury yield curve have the best yield and return
characteristics. The agency securities have similar price characteristics to
Treasuries but also yield between 20 to 80 basis points (0.20% to 0.80%) more
(although principal value and interest on Treasury securities are guaranteed by
the U.S. government if held to maturity). Our mortgage investments have very low
price sensitivity and should be recognized more for their attractive yields than
their potential for price appreciation. These investments should not be overly
sensitive to volatile prepayments if we continue to see rates decline to 1993
levels. We have avoided any allocation of the Fund's assets to the more volatile
mortgage-derivative securities, which we believe has helped us to avoid the
pitfalls of investing in those securities which were revealed so dramatically
during the past year.
International Sector
The decline of the U.S. dollar and the improvement in major world bond markets
have benefited the Fund during the past six months. On the currency side, the
Fund's significant exposures to the Japanese yen and the European currencies,
primarily the German mark, have benefited from dollar weakness. The large
Japanese current-account surplus is a constant support to the yen, especially
since a weak domestic economy is preventing Japanese savings from venturing into
riskier assets offshore. The mark has strengthened against the dollar, and also,
as a safe haven, against the weaker European currencies. Given the large moves
of the last several months, the dollar may recover somewhat. Until the U.S. can
finance more of its investment needs internally, however, we believe the dollar
will likely remain in a long-term downward trend. The portfolio weightings may,
therefore, reflect near-term expectations of a bounce in the U.S. dollar, but,
on average, over the next several months, the Fund will most likely remain
neutral to underweight the dollar.
The deflationary environment in Japan, where goods prices are actually
falling, has created a very supportive environment for fixed-income holdings. As
a result, the Japanese bond market was the best performer during the first
quarter of 1995. Deflation is expected to persist and, thus, despite already low
yields, the Fund's holdings should remain good performers.
In the European bond sector, the Fund has concentrated on core markets such
as Germany and the Netherlands. These markets have led the rally in Europe,
supported by declining inflation and credible economic policies. Other holdings
have included countries such as France, the United Kingdom and Denmark, where we
believe higher yields offer attractive alternatives without assuming significant
fundamental risk. More recently, concerns about increasing inflation and/or
budget deficits in the high-yielding markets have caused them to underperform
most world bond markets and the Fund's limited exposure to these markets has
proven appropriate. Recently, these markets have recovered, but they continue to
lag the performance of the less risky European markets, where the majority of
our exposure is likely to remain.
The strength of the U.S. bond rally also has been reflected in the other
dollar-bloc markets. Our holdings in Australia have outpaced the U.S. market. In
addition, the Fund was hedged against the decline of the Australian dollar but
benefited from its exposure to a rising New Zealand dollar. Given our
expectation for a stable or improving U.S. market, we believe that these
markets, along with the Canadian bond market, should continue to perform well.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
[A 1 1/2" x 1 5/8" photo [A 1 1/2" x 1 5/8" photo [A 1 1/2" x 1 5/8" photo
of A. Keith Brodkin, of Richard O. Hawkins of Steven E. Nothern
Chairman and President] Portfolio Manager] Portfolio Manager]
/s/A. Keith Brodkin /s/Richard O. Hawkins /s/Steven E. Nothern
A. Keith Brodkin Richard O. Hawkins Steven E. Nothern
Chairman and President Portfolio Manager Portfolio Manager
June 23, 1995
<PAGE>
PORTFOLIO MANAGER PROFILES
Richard Hawkins joined MFS in 1988 as an Assistant Vice President --
Investments. A graduate of Brown University and the University of Pennsylvania's
Wharton Graduate School of Business Administration, he was named Vice President
-- Investments in 1991 and Senior Vice President in 1993. Mr. Hawkins has been a
Portfolio Manager of MFS Intermediate Income Fund since 1992.
Steven Nothern began his career at MFS in 1986 in the Fixed Income Department. A
graduate of Middlebury College and Boston University's Graduate School of
Management, he was named Assistant Vice President in 1987, Vice President in
1989 and Senior Vice President in 1993. Mr. Nothern has been a Portfolio Manager
of MFS Intermediate Income Fund since 1992.
OBJECTIVE AND POLICIES
The Fund's investment objective is to preserve capital and provide high current
income.
The Fund seeks to achieve its objective by investing in securities that are
issued or guaranteed as to principal and interest by the U.S. government, its
agencies, authorities or instrumentalities and in obligations issued or
guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies or instrumentalities.
The Fund will maintain an average weighted portfolio maturity of approximately
seven years or less and will invest substantially all of its assets in
securities with remaining maturities less than or equal to ten years. Under
normal market conditions, the Fund's average weighted portfolio maturity will
not be less than three years. This strategy should allow the Fund to preserve
capital while seeking high current income.
<PAGE>
PERFORMANCE SUMMARY
Because mutual funds like MFS Intermediate Income Fund are designed for
investors with long-term goals, we have provided cumulative results as well as
the average annual total returns for Class A and Class B shares for the
applicable time periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
Class A Investment Results
(net asset value change including reinvested distributions)
9/07/93+ --
6 Months 1 Year 5/31/95
-------------------------------------------------------------------------------
Cumulative Total Return* +9.90% +9.55% +4.51%
-------------------------------------------------------------------------------
Average Annual Total Return* -- +9.55% +2.58%
-------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the Securities and Exchange Commission
(the SEC), with all distri~ butions reinvested and reflecting the maximum sales
charge of 4.75% on the initial investment for the 1-year period ended March 31,
1995 and for the period from September 7, 1993+ to March 31, 1995, were -1.10%
and -2.66%, respectively.
Class B Investment Results
(net asset value change including reinvested distributions)
8/01/88+ --
6 Months 1 Year 5 Years 5/31/95
-------------------------------------------------------------------------------
Cumulative Total Return++ +9.31% +8.47% +36.28% +53.04%
-------------------------------------------------------------------------------
Average Annual Total Return++ -- +8.47% + 6.39% + 6.43%
-------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the SEC, with all distributions
reinvested and reflecting the contingent deferred sales charge (CDSC) of 4% and
2% for the 1- and 5-year periods ended March 31, 1995, respectively, and 0% for
the period from August 1, 1988+ to March 31, 1995, were -1.25%, +5.66% and
+6.00%, respectively.
All results represent past performance and are not necessarily an indication of
future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
+ Commencement of offering of this class of shares.
* These results do not include the sales charge. If the charge had been
included, the results would have been lower.
++ These results do not include any CDSC. If the charge had been included, the
results would have been lower.
<PAGE>
PORTFOLIO OF INVESTMENTS - May 31, 1995
Bonds - 98.9%
-----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
-----------------------------------------------------------------------------
U.S. Dollar Denominated - 65.2%
U.S. Federal Agencies - 19.7%
Farm Credit Systems Financial
Assistance, 9.375s, 2003 $ 10,000 $ 11,775,000
Federal Home Loan Mortgage Corp.,
7s, 1999 - 2000 4,209 4,262,803
Federal Home Loan Mortgage Corp.,
8.61s, 2004 10,000 10,310,900
Federal National Mortgage Assn.,
6.5s, 2008 77 76,413
Federal National Mortgage Assn.,
6.72s, 2004 10,000 9,875,000
Federal National Mortgage Assn.,
7.5s, 2001 - 2002 2,466 2,513,578
Federal National Mortgage Assn.,
8.71s, 2005 4,000 4,210,000
Federal National Mortgage Assn.,
9.5s, 2025 10,100 10,570,252
------------
$ 53,593,946
-----------------------------------------------------------------------------
U.S. Government Guaranteed - 45.5%
Government National Mortgage Association - 22.9%
GNMA, 7.5s, 2023 - 2025 $ 16,356 $ 16,458,234
GNMA, 8s, 2007 - 2008 641 661,523
GNMA, 8.5s, 2001 - 2024 16,959 17,659,693
GNMA, 9s, 2018 - 2025 12,417 13,018,212
GNMA, 9.5s, 2021 - 2025 3,960 4,177,803
GNMA, 10.5s, 2020 9,452 10,346,492
------------
$ 62,321,957
-----------------------------------------------------------------------------
U.S. Treasury Obligations - 22.6%
U.S. Treasury Notes, 8.75s, 1997 $ 25,500 $ 27,077,685
U.S. Treasury Notes, 8.25s, 1998 2,000 2,128,740
U.S. Treasury Notes, 6.5s, 2005 10,000 10,153,100
U.S. Treasury Bonds, 10.75s, 2005 16,550 21,890,023
------------
$ 61,249,548
-----------------------------------------------------------------------------
Total U.S. Government Guaranteed $123,571,505
-----------------------------------------------------------------------------
Total U.S. Dollar Denominated $177,165,451
-----------------------------------------------------------------------------
Foreign - Non-U.S. Dollar Denominated - 33.7%
Australia - 5.9%
Commonwealth of Australia, 6.25s, 1999 AUD 2,795 $ 1,887,716
Commonwealth of Australia, 10s, 2002 3,655 2,804,694
State Treasury Corp. of Victoria, 12s, 1998 4,600 3,676,925
Western Australian Treasury, 9s, 1999 10,250 7,530,331
------------
$ 15,899,666
-----------------------------------------------------------------------------
Canada - 1.4%
Government of Canada, 8.5s, 2000 CAD 5,000 $ 3,793,959
-----------------------------------------------------------------------------
Denmark - 5.0%
Kingdom of Denmark, 9s, 1998 DKK 34,010 $ 6,463,891
Kingdom of Denmark, 6s, 1999 15,000 2,579,055
Kingdom of Denmark, 9s, 2000 24,170 4,629,630
------------
$ 13,672,576
-----------------------------------------------------------------------------
France - 1.9%
Government of France, 8s, 1998 FRF 8,000 $ 1,663,542
Government of France, 7s, 1999 8,260 1,667,652
Government of France, 7.75s, 2000 8,420 1,747,483
------------
$ 5,078,677
-----------------------------------------------------------------------------
Germany - 2.4%
German Unity Fund, 8.5s, 2001 DEM 1,640 $ 1,284,841
Republic of Germany, 8.5s, 2000 4,920 3,840,595
Republic of Germany, 6.5s, 2003 2,050 1,438,482
------------
$ 6,563,918
-----------------------------------------------------------------------------
Italy - 1.5%
Republic of Italy, 9.5s, 1999 ITL 2,175,000 $ 1,226,344
Republic of Italy, 8.5s, 2004 4,445,000 2,210,281
Republic of Italy, 9.5s, 2005 1,075,000 566,394
------------
$ 4,003,019
-----------------------------------------------------------------------------
Netherlands - 3.9%
Dutch State Loan, 6.25s, 1998 NLG 1,210 $ 782,572
Government of Netherlands, 7.75s, 2005 5,340 3,620,940
Government of Netherlands, 8.25s, 2007 8,770 6,132,673
------------
$ 10,536,185
-----------------------------------------------------------------------------
New Zealand - 3.7%
Government of New Zealand, 8s, 1995 NZD 15,370 $ 10,164,345
-----------------------------------------------------------------------------
Spain - 1.8%
Government of Spain, 10.25s, 1998 ESP 620,000 $ 4,896,098
-----------------------------------------------------------------------------
United Kingdom - 6.2%
United Kingdom Gilts, 9s, 2000 GBP 10,100 $ 16,834,588
-----------------------------------------------------------------------------
Total Foreign - Non-U.S. Dollar Denominated $ 91,443,031
-----------------------------------------------------------------------------
Total Bonds (Identified Cost, $261,915,289) $268,608,482
-----------------------------------------------------------------------------
Call Options Purchased - 0.1%
-----------------------------------------------------------------------------
Principal Amount
Description/Expiration Month/Strike of Contracts
Price (000 Omitted)
-----------------------------------------------------------------------------
Canadian Dollars
August/1.34 CAD 3,959 $ 6,517
Japanese Bonds
September/108.284023 JPY 230,000 86,250
Japanese Bonds
September/108.577 207,000 111,159
-----------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $88,640) $ 203,926
-----------------------------------------------------------------------------
Put Options Purchased - 0.2%
-----------------------------------------------------------------------------
Deutsche Marks
June/1.401 DEM 22,675 $ 220,352
Deutsche Marks
August/1.45 29,435 315,334
Deutsche Marks/British Pounds
July/2.29 7,897 29,592
-----------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $606,706) $ 565,278
-----------------------------------------------------------------------------
Repurchase Agreement - 1.8%
-----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted)
-----------------------------------------------------------------------------
Prudential Securities, dated 5/31/
95, due 6/01/95, total to be
received $4,816,809 (secured by
$4,745,000 U.S. Treasury Notes,
7.375s, due 11/15/97, market
value $4,915,820), at Cost $ 4,816 $ 4,816,000
-----------------------------------------------------------------------------
Total Investments (Identified Cost, $267,426,635) $274,193,686
-----------------------------------------------------------------------------
Call Options Written - (0.2)%
-----------------------------------------------------------------------------
Principal Amount
Description/Expiration Month/Strike of Contracts
Price (000 Omitted) Value
-----------------------------------------------------------------------------
British Pounds
September/1.64 GBP 4,522 $ (41,765)
Deutsche Marks
June/1.34 DEM 21,687 (824)
Deutsche Marks
August/1.38 28,014 (364,318)
Deutsche Marks/British Pounds
July/2.1139 7,290 (3,864)
-----------------------------------------------------------------------------
Total Call Options Written (Premiums
Received, $495,950) $ (410,771)
-----------------------------------------------------------------------------
Put Options Written - (0.1)%
-----------------------------------------------------------------------------
British Pounds
September/1.53 GBP 4,219 $ (41,132)
Canadian Dollars
August/1.373 CAD 4,057 (31,831)
Deutsche Marks
August/1.5 DEM 30,450 (141,165)
Japanese Bonds
September/108.577 JPY 207,000 (9,729)
Japanese Bonds
September/108.284023 230,000 (17,250)
-----------------------------------------------------------------------------
Total Put Options Written (Premiums
Received, $355,461) $ (241,107)
-----------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.7)% $ (1,828,294)
-----------------------------------------------------------------------------
Net Assets - 100.0% $271,713,514
-----------------------------------------------------------------------------
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 DKK = Danish Kroner ITL = Italian Lire
CAD = Canadian Dollars ESP = Spanish Pesetas JPY = Japanese Yen
CHF = Swiss Francs FRF = French Francs NLG = Dutch Guilders
DEM = Deutsche Marks GBP = British Pounds NZD = New Zealand Dollars
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
------------------------------------------------------------------------------
May 31, 1995
------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $267,426,635) $274,193,686
Cash 12,663
Foreign currency, at value (identified cost, $396,590) 408,413
Net receivable for forward foreign currency exchange contracts 909,562
Receivable for Fund shares sold 95,090
Interest receivable 4,765,987
Other assets 3,988
------------
Total assets $280,389,389
------------
Liabilities:
Payable for Fund shares reacquired $ 3,964,913
Written options outstanding, at value (premiums received,
$851,411) 651,878
Net payable for forward foreign currency exchange contracts
purchased 256,829
Net payable for forward foreign currency exchange contracts
sold 3,462,161
Payable to affiliates -
Shareholder servicing agent fee 1,626
Distribution fee 5,451
Accrued expenses and other liabilities 333,017
------------
Total liabilities $ 8,675,875
------------
Net assets $271,713,514
------------
Net assets consist of:
Paid-in capital $275,616,752
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 4,226,223
Accumulated undistributed net realized loss on investments
and foreign currency transactions (6,924,643)
Accumulated distributions in excess of net investment income (1,204,818)
------------
Total $271,713,514
------------
Shares of beneficial interest outstanding 32,158,419
------------
Class A shares:
Net asset value and redemption price per share
(net assets of $6,674,583 / 789,930 shares of
beneficial interest outstanding) $8.45
-----
Offering price per share (100/95.25) $8.87
-----
Class B shares:
Net asset value and offering price per share
(net assets of $265,038,931 / 31,368,489 shares of
beneficial interest outstanding) $8.45
-----
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A and
Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
------------------------------------------------------------------------------
Six Months Ended May 31, 1995
------------------------------------------------------------------------------
Net investment income:
Interest income $11,439,934
-----------
Expenses -
Management fee $ 1,096,881
Trustees' compensation 17,986
Shareholder servicing agent fee (Class A) 3,201
Shareholder servicing agent fee (Class B) 302,223
Distribution and service fee (Class B) 1,373,741
Custodian fee 82,313
Auditing fees 36,350
Postage 30,102
Printing 1,011
Miscellaneous 162,908
-----------
Total expenses $ 3,106,716
-----------
Net investment income $ 8,333,218
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $ 731,357
Written option transactions 510,312
Foreign currency transactions 309,675
-----------
Net realized gain on investments and foreign currency
transactions $ 1,551,344
-----------
Change in unrealized appreciation (depreciation) -
Investments $16,614,452
Written options 288,018
Translation of assets and liabilities in foreign currencies (2,100,128)
-----------
Net unrealized gain on investments and foreign currency
translations $14,802,342
-----------
Net realized and unrealized gain on investments and
foreign currency $16,353,686
-----------
Increase in net assets from operations $24,686,904
-----------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
-----------------------------------------------------------------------------------------------
Six Months Ended Year Ended
May 31, 1995 November 30, 1994
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 8,333,218 $ 20,998,514
Net realized gain (loss) on investments and
foreign currency transactions 1,551,344 (38,048,815)
Net unrealized gain (loss) on investments
and foreign currency translation 14,802,342 (3,803,215)
------------ -------------
Increase (decrease) in net assets from
operations $ 24,686,904 $ (20,853,516)
------------ -------------
Distributions declared to shareholders -
From net investment income (Class A) $ (139,370) $ --
From net investment income (Class B) (8,111,878) --
Tax return of capital -- (23,336,946)
------------ -------------
Total distributions declared to
shareholders $ (8,251,248) $ (23,336,946)
------------ -------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 7,928,308 $ 23,051,653
Net asset value of shares issued to
shareholders in reinvestment of
distributions 4,083,707 10,845,091
Cost of shares reacquired (52,784,842) (160,869,455)
------------ -------------
Decrease in net assets from Fund share
transactions $(40,772,827) $(126,972,711)
------------ -------------
Total decrease in net assets $(24,337,171) $(171,163,173)
Net assets:
At beginning of period 296,050,685 467,213,858
------------ -------------
At end of period (including accumulated
distributions in excess of net investment
income of $1,204,818 and $1,286,788,
respectively) $271,713,514 $ 296,050,685
------------ -------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
----------------------------------------------------------------------------------------------------------------------
Six Months Year Ended Six Months Year Ended
Ended November 30, Ended November 30,
May 31, ------------------ May 31, -------------------
1995 1994 1993<F1> 1995 1994 1993
----------------------------------------------------------------------------------------------------------------------
Class A Class B
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -- beginning of period $ 7.96 $ 8.94 $ 9.11 $ 7.96 $ 8.93 $ 8.88
------ ------ ------ ------ ------ ------
Income from investment operations<F5> -
Net investment income $ 0.28 $ 0.59 $ 0.11 $ 0.24 $ 0.47 $ 0.47
Net realized and unrealized gain (loss)
on investments 0.49 (0.95) (0.17) 0.49 (0.92) 0.26
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.77 $(0.36) $(0.06) $ 0.73 $(0.45) $ 0.73
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.28) $ -- $(0.09) $(0.24) $ -- $(0.45)
From net realized gain on investments -- -- (0.02) -- -- (0.16)
Tax return of capital -- (0.62) -- -- (0.52) (0.07)
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.28) $(0.62) $(0.11) $(0.24) $(0.52) $(0.68)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.45 $ 7.96 $ 8.94 $ 8.45 $ 7.96 $ 8.93
------ ------ ------ ------ ------ ------
Total return<F4> 9.90%<F3> (4.27)% (0.66)%<F3> 9.31%<F3> (5.24)% 8.42%
Ratios (to average net assets)/Supplemental data:
Expenses 1.17%<F3> 1.18% 1.22%<F3> 2.24%<F3> 2.22% 2.15%
Net investment income 7.12%<F3> 7.10% 6.43%<F3> 5.95%<F3> 5.60% 5.19%
Portfolio turnover 132% 211% 376% 132% 211% 376%
Net assets at end of period (000 omitted) $6,675 $3,432 $258 $265,039 $292,619 $466,955
<FN>
<F1> For the period from the commencement of offering of Class A shares,
September 7, 1993 to November 30, 1993.
<F2> Annualized.
<F3> Not annualized.
<F4> Total returns for Class A shares do not include the applicable sales
charge. If the charge had been included, the results would have been
lower.
<F5> Per share data for the periods subsequent to November 30, 1992 are based
on average shares outstanding.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
-----------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
-----------------------------------------------------------------------------------------------------------------------------------
1992 1991 1990 1989 1988<F1>
-----------------------------------------------------------------------------------------------------------------------------------
Class B
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $ 9.31 $ 9.23 $ 9.50 $ 9.77 $ 9.47
------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.62 $ 0.58 $ 0.59 $ 0.68 $ 0.35
Net realized and
unrealized gain (loss) on
investments (0.26) 0.32 (0.02) (0.08) 0.10
------ ------ ------ ------ ------
Total from investment
operations $ 0.36 $ 0.90 $ 0.57 $ 0.60 $ 0.45
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.57) $(0.56) $(0.45) $(0.85) $(0.12)
From net realized gain on
investments (0.15) (0.14) -- (0.02) (0.03)
From paid-in capital (0.07) (0.12) (0.39) -- --
------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.79) $(0.82) $(0.84) $(0.87) $(0.15)
------ ------ ------ ------ ------
Net asset value - end of
period $ 8.88 $ 9.31 $ 9.23 $ 9.50 $ 9.77
------ ------ ------ ------ ------
Total return 3.93% 10.30% 6.59% 6.60% 14.21%<+>
Ratios (to average net assets)/Supplemental data:
Expenses 2.20% 2.24% 2.33% 2.47% 2.79%<+>
Net investment income 6.70% 6.65% 6.80% 7.13% 17.14%<+>
Portfolio turnover 372% 603% 579% 433% 120%
Net assets at end of period
(000 omitted) $347,588 $196,753 $126,245 $75,039 $30,858
<FN>
<F1> For the period from the commencement of investment operations, August 1, 1988 to November 30, 1988.
<F2> Annualized.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Intermediate Income Fund (the Fund) is a non-diversified series of MFS
Series Trust II (the Trust). The Trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company.
(2) Significant Accounting Policies
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues and forward contracts, 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 value. Non-U.S.
dollar denominated short-term obligations are valued at amortized cost as
calculated in the base currency and translated into U.S. dollars at the closing
daily exchange rate. Futures contracts, options and options on futures contracts
listed on commodities exchanges are valued at closing settlement prices.
Over-the-counter options are valued by brokers through the use of a pricing
model which takes into account closing bond valuations, implied volatility and
short-term repurchase rates. Securities for which there are no such quotations
or valuations are valued at fair value as determined in good faith by or at the
direction of the Trustees.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities purchased in a repurchase transaction be transferred to the custodian
in a manner sufficient to enable the Fund to obtain those securities in the
event of a default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
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 and 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.
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, 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 a part of an income producing strategy reflecting the view of
the Fund's management on the direction of interest rates.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities, currency or contracts based on financial indices at a
fixed price on a future date. In entering such contracts, the Fund is required
to deposit either in cash or securities an amount equal to a certain percentage
of the contract amount. Subsequent payments are made or received by the Fund
each day, depending on the daily fluctuations in the value of the underlying
security, and are recorded for financial statement purposes as unrealized gains
or losses by the Fund. The Fund's investment in futures contracts is designed to
hedge against anticipated future changes in interest or exchange rates or
securities prices. For example, interest rate futures may be used in modifying
the duration of the portfolio without incurring the additional transaction costs
involved in buying and selling the underlying securities. Should interest or
exchange rates or securities prices move unexpectedly, the Fund may not achieve
the anticipated benefits of the futures contracts and may realize a loss. The
Fund may also invest in futures contracts for non-hedging purposes, subject to
applicable law.
Security Loans - The Fund may lend its securities to member banks of the Federal
Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by cash or
securities with a market value at least equal to the market value of securities
loaned. As with other extensions of credit, the Fund may bear the risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or from all or a portion of the income from
investment of the collateral. The Fund would also continue to earn income on the
securities loaned. At May 31, 1995, the Fund had no securities on loan.
Forward Foreign Currency Exchange Contracts - The Fund 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 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 Fund will enter into forward
contracts for hedging purposes as well as for non-hedging purposes. For hedging
purposes, the Fund may enter into contracts to deliver or receive foreign
currency it will receive from or require for its normal investment activities.
It 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 Fund may enter into
contracts with the intent of changing the relative exposure of the Fund's
portfolio of securities to different currencies to take advantage of anticipated
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 for financial statement purposes as unrealized until the contract
settlement date.
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 are amortized or accreted for both financial statement
and tax reporting purposes as required by federal income tax regulations.
Interest payments received in additional securities are recorded on the
ex-interest date in an amount equal to the value of the security on such date.
Tax Matters and Distributions - The Fund'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 income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is provided. The Fund files a tax return annually
using tax accounting methods required under provisions of the Code which may
differ from generally accepted accounting principles, the basis on which these
financial statements are prepared. Accordingly, the amount of net investment
income and net realized gain reported on these financial statements may differ
from that reported on the Fund's tax return and, consequently, the character of
distributions to shareholders reported in the financial highlights may differ
from that reported to shareholders on Form 1099-DIV. Foreign taxes have been
provided for on interest and dividend income earned on foreign investments in
accordance with the applicable country's tax rates and to the extent
unrecoverable are recorded as a reduction of investment income. Distributions to
shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
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 accumulated net realized
gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A and
Class B shares. The two classes of shares differ in their respective shareholder
servicing agent, distribution and service fees. Shareholders of each class also
bear certain expenses that pertain only to that particular class. All
shareholders bear the common expenses of the Fund pro rata based on the average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses, including distribution and shareholder
service fees.
(3) Transactions with Affiliates
Investment Adviser - The Fund 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, computed daily and paid monthly at an effective annual rate of
0.32% of average daily net assets and 5.65% of investment income, amounted to
$1,096,881.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain of the officers and Trustees of
the Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD) and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all its independent Trustees. Included in Trustees' compensation is a net
periodic pension expense of $3,986 for the six months ended May 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$42 as its portion of the sales charge on sales of Class A shares of the Fund.
The Trustees have adopted separate distribution plans for Class A and Class B
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Class A Distribution Plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets attributable
to Class A shares, commissions to dealers and payments to MFD wholesalers for
sales at or above a certain dollar level, and other such distribution-related
expenses that are approved by the Fund. Payments will commence under the
distribution plan when the value of the net assets of the Fund attributable to
Class A shares first equals or exceeds $40 million.
The Class B Distribution Plan provides that the Fund will pay MFD a monthly
distribution fee, equal to 0.75% per annum, and a quarterly service fee of up to
0.25% per annum, of the Fund's average daily net assets attributable to Class B
shares. MFD will pay to securities dealers that enter into a sales agreement
with MFD, all or a portion of the service fee attributable to Class B shares.
The service fee is intended to be additional consideration for services rendered
by the dealer with respect to Class B shares. Fees incurred under the
distribution plan during the six months ended May 31, 1995 were 1.00% of average
daily net assets attributable to Class B shares on an annualized basis and
amounted to $1,373,741 (of which MFD retained $33,280).
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within twelve months following the shareholder purchase.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the six months ended May 31, 1995 were
$1,805 and $509,601 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$3,201 and $302,223 for Class A and Class B shares, respectively, for its
services as shareholder servicing agent. The fee is calculated as a percentage
of the average daily net assets of each class of shares at an effective annual
rate of up to 0.15% and up to 0.22% attributable to Class A and Class B shares,
respectively.
(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 $160,668,848 $150,092,960
------------ ------------
Investments (non-U.S. government securities) $199,196,971 $220,360,718
------------ ------------
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $267,426,635
------------
Gross unrealized appreciation $ 8,286,051
Gross unrealized depreciation (1,519,000)
------------
Net unrealized appreciation $ 6,767,051
------------
At November 30, 1994, the Fund, for federal income tax purposes, had a capital
loss carryforward of $10,275,193, which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on November 30, 2002.
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares Six Months Ended Year Ended
May 31, 1995 November 30, 1994
--------------------------------- -------------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 470,000 $ 3,865,658 431,707 $3,593,208
Shares issued to shareholders
in reinvestment of
distributions 12,866 103,594 12,470 101,627
Shares reacquired (123,985) (1,007,740) (42,026) (348,132)
------- --------- ------ ----------
Net increase
358,881 $ 2,961,512 402,151 $3,346,703
------ ----------- ------- ----------
<CAPTION>
Class B Shares Six Months Ended Year Ended
May 31, 1995 November 30, 1994
--------------------------------- -------------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 501,296 $ 4,062,650 2,258,937 $ 19,458,445
Shares issued to shareholders
in reinvestment of
distributions 494,834 3,980,113 1,275,308 10,743,464
Shares reacquired (6,391,374) (51,777,102) (19,037,730) (160,521,323)
---------- ------------ ----------- -------------
Net decrease (5,395,244) $(43,734,339) (15,503,485) $(130,319,414)
---------- ------------ ----------- -------------
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit
with a bank which permits borrowings up to $350 million, collectively.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
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 Fund for the six
months ended May 31, 1995 was $1,681.
(7) Financial Instruments
The Fund 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
and futures contracts.
The notional or contractual amounts of these instruments represent the
investment the Fund 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. A summary of
obligations under these financial instruments at May 31, 1995, is as follows:
<TABLE>
<CAPTION>
Written Option Transactions 1995 Calls 1995 Puts
-------------------------------- ------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
-------------------------------------------------------------------------------------------------
OUTSTANDING, BEGINNING OF PERIOD -
<S> <C> <C> <C> <C>
Australian Dollars 4,763 $ 33,341 -- $ --
Canadian Dollars -- -- 3,838 20,023
Deutsche Marks -- -- 19,600 109,306
Japanese Yen/Deutsche Marks -- -- 1,544,027 185,941
Swiss Francs/Deutsche Marks 6,207 26,135 -- --
Options written -
Australian Dollars 2,947 22,479 6,569 75,742
British Pounds 4,522 78,032 4,219 78,032
Canadian Dollars -- -- 9,433 38,535
Deutsche Marks 94,045 717,260 45,590 338,056
Deutsche Marks/British Pounds 7,290 47,341 -- --
Finnish Markkaa/Deutsche Marks -- -- 14,440 10,562
Japanese Yen -- -- 3,043,360 136,479
Spanish Pesetas/Deutsche Marks -- -- 413,969 27,129
Options terminated in closing transactions -
Australian Dollars (7,710) (55,820) (6,569) (75,742)
Canadian Dollars -- -- (9,214) (37,945)
Deutsche Marks (33,912) (274,669) (34,740) (258,574)
Japanese Yen -- -- (2,606,360) (68,451)
Japanese Yen/Deutsche Marks -- -- (1,544,027) (185,941)
SpanishPesetas/Deutsche Marks -- -- (413,969) (27,129)
Options exercised -
Swiss Francs/Deutsche Marks (6,207) (26,135) -- --
Options expired -
Deutsche Marks (10,432) (72,014) -- --
Finnish Markkaa/Deutsche Marks -- -- (14,440) (10,562)
------- -------- ---------- --------
OUTSTANDING, END OF PERIOD 61,513 $495,950 475,726 $355,461
------- -------- ---------- --------
Options outstanding at end of period consist of -
British Pounds 4,522 $ 78,032 4,219 $ 78,032
------- -------- ---------- --------
Canadian Dollars -- $ -- 4,057 $ 20,613
------- -------- ---------- --------
Deutsche Marks 49,701 $370,577 30,450 $188,788
------- -------- ---------- --------
Deutsche Marks/British Pounds 7,290 $ 47,341 -- $ --
------- -------- ---------- --------
Japanese Yen -- $ -- 437,000 $ 68,028
------- -------- ---------- --------
</TABLE>
At May 31, 1995, the Fund had sufficient cash and/or securities at least equal
to the value of the written options.
<PAGE>
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Net Unrealized
Contracts to Contracts In Exchange Appreciation
Settlement Date Deliver/Receive at Value for (Depreciation)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales 6/09/95 - 9/01/95 AUD 25,464,548 $ 18,278,866 $ 18,525,276 $ 246,410
6/09/95 - 7/07/95 CAD 5,252,462 3,828,754 3,751,155 (77,599)
7/19/95 CHF 5,340,767 4,600,778 4,646,570 45,792
6/01/95 - 8/30/95 DEM 108,652,172 77,033,920 76,695,391 (338,529)
6/08/95 DKK 69,268,599 12,551,401 12,757,118 205,717
6/21/95 - 7/10/95 ESP 1,423,655,562 11,618,151 10,872,988 (745,163)
7/19/95 - 8/02/95 FRF 56,700,944 11,402,277 11,625,605 223,328
6/09/95 - 7/07/95 GBP 7,640,455 12,115,000 12,166,262 51,262
6/05/95 - 9/11/95 ITL 13,335,059,818 8,094,382 8,063,645 (30,737)
7/07/95 - 8/25/95 JPY 2,905,379,957 34,594,585 31,474,967 (3,119,618)
6/26/95 NLG 24,519,059 15,533,854 15,719,584 185,730
6/09/95 - 11/15/95 NZD 16,520,272 10,903,048 10,794,294 (108,754)
------------ ------------ -----------
$220,555,016 $217,092,855 $(3,462,161)
============ ============ ===========
Purchases 7/05/95 - 8/25/95 AUD 5,931,858 $ 4,253,775 $ 4,430,820 $ (177,045)
7/07/95 CAD 2,628,953 1,915,268 1,864,413 50,855
7/12/95 CHF 5,962,928 5,134,105 5,308,780 (174,675)
6/01/95 - 9/05/95 DEM 172,412,216 122,236,551 123,395,363 (1,158,812)
6/21/95 - 7/05/95 ESP 717,250,695 5,853,340 5,575,653 277,687
8/02/95 FRF 33,392,335 6,714,998 6,585,578 129,420
6/21/95 GBP 2,287,691 3,627,843 3,642,298 (14,455)
6/05/95 - 6/09/95 ITL 7,978,459,228 4,873,528 4,868,948 4,580
6/16/95 - 8/01/95 JPY 2,153,398,524 25,637,292 24,782,322 854,970
6/26/95 NLG 10,161,538 6,437,761 6,459,805 (22,044)
6/09/95 - 11/15/95 NZD 8,121,812 5,342,476 5,369,786 (27,310)
------------ ------------ -----------
$192,026,937 $192,283,766 $ (256,829)
============ ============ ===========
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
and closed forward foreign currency exchange contracts excluded above amounted
to a net receivable of $909,562 at May 31, 1995.
At May 31, 1995, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust II and Shareholders of MFS Intermediate
Income Fund: We have audited the accompanying statement of assets and
liabilities, including the portfolio of investments, of MFS Intermediate Income
Fund (one of the series constituting MFS Series Trust II) at May 31, 1995, the
related statement of operations for the six months then ended, the statement of
changes in net assets for the six months then ended and the year ended November
30, 1994, and the financial highlights for the six months ended May 31, 1995 and
for each of the years in the seven-year period ended November 30, 1994. These
financial statements and financial highlights are the responsibility of the
Fund'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 generally accepted auditing
standards. 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 the securities owned at May
31, 1995 by correspondence with the custodian. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Intermediate
Income Fund at May 31, 1995, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 30, 1995
---------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
THE MFS FAMILY OF FUNDS(R)
Americas Oldest Mutual Fund Group
<TABLE>
The members of the MFS Family of Funds are grouped below according to the types of securities
in their portfolios. For free prospectuses containing more complete information, including the
exchange privilege and all charges and expenses, please contact your financial adviser or call
MFS at 1-800-637-2929 any business day from 9 a.m. to 5 p.m. Eastern time (or, leave a message
any time). This material should be read carefully before investing or sending money.
<CAPTION>
STOCK LIMITED MATURITY BOND
<S> <C>
Massachusetts Investors Trust MFS(R) Government Limited Maturity Fund
Massachusetts Investors Growth Stock Fund MFS(R) Limited Maturity Fund
MFS(R) Capital Growth Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) Emerging Growth Fund
MFS(R) Gold & Natural Resources Fund WORLD
MFS(R) Growth Opportunities Fund MFS(R) World Asset Allocation Fund
MFS(R) Managed Sectors Fund MFS(R) World Equity Fund
MFS(R) OTC Fund MFS(R) World Governments Fund
MFS(R) Research Fund MFS(R) World Growth Fund
MFS(R) Value Fund MFS(R) World Total Return Fund
STOCK AND BOND NATIONAL TAX-FREE BOND
MFS(R) Total Return Fund MFS(R) Municipal Bond Fund
MFS(R) Utilities Fund MFS(R) Municipal High Income Fund
(closed to new investors)
BOND MFS(R) Municipal Income Fund
MFS(R) Bond Fund
MFS(R) Government Mortgage Fund STATE TAX-FREE BOND
MFS(R) Government Securities Fund Alabama, Arkansas, California,
MFS(R) High Income Fund Florida, Georgia, Louisiana, Maryland,
MFS(R) Intermediate Income Fund Massachusetts, Mississippi, New York,
MFS(R) Strategic Income Fund North Carolina, Pennsylvania, South
(formerly MFS(R) Income & Opportunity Fund) Carolina, Tennessee, Texas, Virginia,
Washington, West Virginia
MONEY MARKET
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
</TABLE>
<PAGE>
MASSACHUSETTS -------------
INTERMEDIATE [LOGO: NUMBER 1 DALBAR BULK RATE
INCOME FUND TOP RATED SERVICE] U.S. POSTAGE
PAID
500 Boylston Street PERMIT #55638
Boston, MA 02116 BOSTON, MA
-------------
[LOGO: M F S
THE FIRST NAME IN MUTUAL FUNDS]
MII-3 7/95 20M 5/205
