<PAGE>
{LOGO: M F S (R) ANNUAL REPORT FOR
THE FIRST NAME IN MUTUAL FUNDS] YEAR ENDED
NOVEMBER 30, 1995
MFS(R) INTERMEDIATE INCOME FUND
Front cover
A photo of the U.S. Capitol Building.
<PAGE>
<TABLE>
<S> <C>
MFS(R) INTERMEDIATE INCOME FUND
TRUSTEES SECRETARY
A. Keith Brodkin* - Chairman and President Stephen E. Cavan*
Richard B. Bailey* - Private Investor; ASSISTANT SECRETARY
Former Chairman and Director (until 1991), James R. Bordewick, Jr.*
Massachusetts Financial Services Company; CUSTODIAN
Director, Cambridge Bancorp; Director, State Street Bank and Trust Company
Cambridge Trust Company AUDITORS
Marshall N. Cohan - Private Investor Deloitte & Touche LLP
Lawrence H. Cohn, M.D. - Chief of Cardiac INVESTOR INFORMATION
Surgery, Brigham and Women's Hospital; For MFS stock and bond market outlooks,
Professor of Surgery, Harvard Medical School call toll free: 1-800-637-4458 anytime from
The Hon. Sir J. David Gibbons, KBE - Chief a touch-tone telephone.
Executive Officer, Edmund Gibbons Ltd.; For information on MFS mutual funds,
Chairman, Bank of N.T. Butterfield & Son Ltd. call your financial adviser or, for an
Abby M. O'Neill - Private Investor; information kit, call toll free:
Director, Rockefeller Financial Services, Inc. 1-800-637-2929 any business day from
(investment adviser) 9 a.m. to 5 p.m. Eastern time (or leave
Walter E. Robb, III - President and Treasurer, a message anytime).
Benchmark Advisors, Inc. (corporate financial INVESTOR SERVICE
consultants); President, Benchmark Consulting MFS Service Center, Inc.
Group, Inc. (office services); Trustee, P.O. Box 2281
Landmark Funds (mutual funds) Boston, MA 02107-9906
Arnold D. Scott* - Senior Executive Vice For general information, call toll free:
President, Director and Secretary, 1-800-225-2606 any business day from
Massachusetts Financial Services Company 8 a.m. to 8 p.m. Eastern time.
Jeffrey L. Shames* - President and Director, For service to speech- or hearing-impaired,
Massachusetts Financial Services Company call toll free: 1-800-637-6576 any business
J. Dale Sherratt - President, Insight Resources, day from 9 a.m. to 5 p.m. Eastern time.
Inc. (acquisition planning specialists) (To use this service, your phone must be
Ward Smith - Former Chairman (until 1994), equipped with a Telecommunications Device for
NACCO Industries; Director, Sundstrand the Deaf.)
Corporation For share prices, account balances and
INVESTMENT ADVISER exchanges, call toll free: 1-800-MFS-TALK
Massachusetts Financial Services Company (1-800-637-8255) anytime from a touch-tone
500 Boylston Street telephone.
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc. ----------------------------------------------------
500 Boylston Street TOP-RATED SERVICE
Boston, MA 02116-3741 DALBAR For the second year in a
PORTFOLIO MANAGERS row, MFS earned a
Richard O. Hawkins* MFS #1 MFS #1 ranking in
Steven E. Nothern* DALBAR, Inc.'s
TREASURER DALBAR Broker/Dealer Survey,
W. Thomas London* Main Office Operations
ASSISTANT TREASURER Service Quality category. The firm achieved a 3.49
James O. Yost* overall score - on a scale of 1 to 4 - in the 1995
survey. A total of 71 firms responded, offering input
on the quality of service they receive from 36 mutual
fund companies nationwide. The survey contained
questions about service quality in 17 categories,
including "knowledge of phone service contacts,"
"accuracy of transaction processing," and "overall
ease of doing business with the firm."
----------------------------------------------------
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
The past 12 months have been a good period for fixed-income markets, bringing
strong investment returns to the Fund. The Federal Reserve Board ended its
year-long string of tightening steps this past February and left interest
rates unchanged through the spring. The Fed subsequently lowered the federal
funds' target by 25 basis points (0.25%) to 5.75% on July 6, citing the
reduced threat of inflation moving higher. The fixed-income markets responded
positively to this, as well as to signs of economic slowdown and to evidence
that inflation pressures remained moderate. Two-year Treasury yields, which
were at 7.40% on November 30, 1994, declined to 5.35% by the end of November
1995, while yields on 10-year Treasuries declined from 7.90% to 5.74%. The
Fund, which is designed to provide investors with current income and
preservation of capital, was an active participant in this rally. The Fund's
net asset value, which stood at $7.96 on November 30, 1994, increased to $8.59
and $8.58 for Class A and Class B shares, respectively, on November 30, 1995,
when combined with the reinvestment of distributions, represents a total
return of 15.40% for Class A shares and 14.12% for Class B shares. 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) increased by 13.66%; the
Lehman Brothers Mortgage Index (which includes maturities of both 15 and 30
years) increased by 16.28%; 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) advanced 19.65%.
U.S. Government Sector
Moderate, but sustainable, growth appears to be the hallmark of the economic
expansion's fifth year. While initial estimates showed the U.S. economy
growing at an annual rate of 4.2% in the third quarter, this surprisingly
strong growth was mainly driven by a pickup in consumer spending and an
increase in business and government outlays. Although impressive, this growth
rate is not expected to continue in coming months. Recent retail sales have
been disappointing, in part because of rising levels of consumer debt. Growth
is not expected to get much help from the manufacturing sector, either, as
order flows from manufacturers have moderated. Export activity, meanwhile, is
also expected to remain modest as continued weakness abroad has limited demand
for many U.S. goods. However, the Fed's consistent and, so far, successful
efforts to fight inflation seem to be giving consumers and businesses enough
longer term confidence to help maintain modest growth in real (adjusted for
inflation) gross domestic product into 1996. Long-term interest rates,
meanwhile, have moved noticeably downward in recent months in anticipation of
more modest fourth-quarter growth with continued low inflation.
The Fund's strong performance over the last 12 months was primarily a
result of its being properly positioned for a drop in U.S. interest rates. We
maintained approximately two-thirds of the portfolio's assets in the U.S.
sector and positioned these in order to benefit from opportunities for capital
appreciation as the U.S. market rallied. The average duration of the U.S.
investments is 4.2 years, approximately equivalent to that of a five-year
Treasury. The Fund has maintained a substantial position in government-
sponsored and agency securities, as we were able to add attractive incremental
yield to the portfolio in this sector. The Fund's exposure to the mortgage
sector, however, was reduced, as assets were reallocated to intermediate-
maturity Treasuries, which outperformed during this period.
The Fund's holdings of mortgage-backed pass-through securities consist
mostly of 30-year issues. These securities have a price sensitivity equivalent
to that of five-year Treasuries, with yield spreads which are 1.20% to 1.60%
greater than those of comparable Treasuries (although principal value and
interest on Treasury securities are guaranteed by the U.S. Government if held
to maturity). The mortgage market has been an attractive segment recently,
given the wide yield spreads, low levels of issuance, and good call
protection, and we will likely increase exposure to this sector in the next
few months. Our ability to invest in both Treasuries and mortgage-backed
securities within a range of maturities has proven helpful in this rapidly
changing environment.
International Sector
As we anticipated, the dollar did recover somewhat during the last six months.
The Fund's foreign currency exposure was fully hedged ahead of the dollar
advance in order to protect the value of the Fund's foreign assets. Following
this strong rise, the hedges were reduced so the Fund could benefit from the
subsequent weaker trend of the dollar, because we believe the dollar cannot
begin a long-term rally until the United States becomes less reliant on
foreign capital to finance its investments. For next year, we expect that the
dollar's overall trend will remain downward, although slow U.S. growth, if it
continues, could lead to a cyclical improvement in our borrowing of foreign
capital, taking some of the pressure off the dollar.
The majority of our foreign-based holdings remains in Europe. The core
markets, such as Germany and the Netherlands, continue to provide solid
returns against a backdrop of slow growth, low inflation and declining
official interest rates and remain an important anchor to our foreign
holdings. Other European markets, such as Denmark, offer a combination of
higher yields with moderate growth and low inflation. The highest yielding
markets have recovered over the last six months, and the Fund has increased
both its bond and currency weightings in these markets. We believe the first
part of next year should be supportive of fixed-income investments. Moderate
to slow growth, with commensurate declines in overall inflation rates, could
lead to further reductions in official interest rates.
In addition to these economic developments, European governments are
engaged in multi-year programs to reduce their budget deficits and debt
levels. These programs are positive for bonds in that lower government
spending tends to reduce inflationary pressures, and lower issuance of
government debt reduces the supply pressures on the bond market.
In the Japanese market, powerful deflationary forces have supported a drop
in yields to historically low levels. We now feel this process may be drawing
to an end, given a reversal of priorities at the central bank from fighting
inflation, which is now non-existent, to offsetting the downward spiral of
deflation. Thus, the weighting in Japan, never too large because of the low
yields, will most likely be reduced in the coming year.
The high returns of the U.S. market have been echoed in other U.S. dollar-
bloc markets. Australia, New Zealand and Canada have all contributed to
performance over the last 12 months. The Australian market currently offers
significantly higher yields than the U.S. market and, we believe, represents
good value.
As always, we will continue to maintain our commitment to providing
competitive and consistent returns over the long term. We appreciate your
support and welcome any questions or comments you may have.
Respectfully,
/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
December 13, 1995
<PAGE>
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 10 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.
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.
As of January 1, 1996, Mr. Hawkins will become director of the International
Fixed Income Department of MFS. 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.
TAX FORM SUMMARY
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995.
PERFORMANCE
The information on the following page illustrates the historical performance
of MFS Intermediate Income Fund Class B shares in comparison to various market
indicators. Fund results in the graph do not reflect the deduction of any
contingent deferred sales charge (CDSC) since the CDSC is not applicable after
a six-year period. Benchmark comparisons are unmanaged and do not reflect any
fees or expenses. You cannot invest in an index. All results reflect the
reinvestment of all dividends and capital gains.
Please note that effective September 7, 1993, Class A shares were offered.
Information on Class A share performance appears on the next page.
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from August 1, 1988 to November 30, 1995)
Line graph representing the growth of a $10,000 investment for the eight-year
period ended November 30, 1995. The graph is scaled from $5,000 to $30,000 in
$5,000 segments. The years are marked in 12-month segments from 1988 to 1995.
There are five lines drawn to scale. One is a solid line representing MFS
Intermediate Income Fund (Class B), a second line of one long and one very-short
dash represents the J.P. Morgan Non-Dollar Government Bond Index, a third line
of short dashes represents the Lehman Brothers Intermediate Mortgage Index, a
fourth line of very-short dashes represents the Lehman Brothers Intermediate
Government Bond Index, and a fifth line of Medium-short dashes represents the
Consumer Price Index.
MFS Intermediate Income Fund (Class B) $15,977
J.P. Morgan Non-Dollar Government Bond Index $21,020
Lehman Brothers Mortgage Index $19,728
Lehman Brothers Intermediate Government Bond Index $18,587
Consumer Price Index $12,984
AVERAGE ANNUAL TOTAL RETURNS
Life of
Class
through
1 Year 3 Years 5 Years 11/30/95
- ------------------------------------------------------------------------------
MFS Intermediate Income Fund
(Class A) including 4.75% sales
charge + 9.88% -- -- + 2.03%*
- ------------------------------------------------------------------------------
MFS Intermediate Income Fund
(Class A) at net asset value +15.40% -- -- + 4.26%*
- ------------------------------------------------------------------------------
MFS Intermediate Income Fund
(Class B) with CDSC+ +10.12% + 4.57% + 5.80% + 6.60%++
- ------------------------------------------------------------------------------
MFS Intermediate Income Fund
(Class B) without CDSC +14.12% + 5.45% + 6.09% + 6.60%++
- ------------------------------------------------------------------------------
J.P. Morgan Non-Dollar
Government Bond Index(1) +19.65% +12.94% +11.26% +10.66%**
- ------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government Bond Index(2) +13.66% + 6.85% + 8.30% + 8.82%**
- ------------------------------------------------------------------------------
Lehman Brothers Mortgage Index(2) +16.28% + 7.10% + 8.82% + 9.71%**
- ------------------------------------------------------------------------------
Consumer Price Index(S)(2) + 2.61% + 2.65% + 2.80% + 3.62%**
- ------------------------------------------------------------------------------
* For the period from the commencement of offering of Class A shares,
September 7, 1993 to November 30, 1995.
+ These returns reflect the applicable Class B CDSC of 4%, 3% and 2% for the
1-, 3- and 5- year periods, respectively, and 0% for the period commencing
August 1, 1988.
++ For the period from the commencement of offering of Class B shares, August
1, 1988 to November 30, 1995.
** Benchmark comparisons begin on August 1, 1988.
(S) The Consumer Price Index is a popular measure of change in prices.
(1) Source: Asset Investment Management (AIM) software.
(2) Source: Lipper Analytical Services, Inc.
All results are historical and, therefore, are not an indication of future
results. The investment return and principal value of an investment in a
mutual fund will vary with changes in market conditions, and shares, when
redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO OF INVESTMENTS - November 30, 1995
Bonds - 96.8%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
U.S. Dollar Denominated - 60.4%
U.S. Federal Agencies - 13.5%
Farm Credit Systems Financial Assistance,
9.375s, 2003 $ 10,000 $ 12,062,500
Federal Home Loan Mortgage Corp., 8.61s,
2004 10,000 10,548,400
Federal Home Loan Mortgage Corp., 9.5s,
2025 5,801 6,149,055
Federal National Mortgage Assn., 8.71s,
2005 4,000 4,223,750
Federal National Mortgage Assn., 6.5s,
2008 75 74,783
Federal National Mortgage Assn., 9.5s,
2025 172 182,659
------------
$ 33,241,147
- -----------------------------------------------------------------------------
U.S. Government Guaranteed - 46.9%
Government National Mortgage Association - 17.6%
GNMA, 7.5s, 2023 - 2024 $ 15,097 $ 15,407,989
GNMA, 8.5s, 2001 - 2009 8,463 8,864,765
GNMA, 9s, 2024 - 2025 8,904 9,385,071
GNMA, 10.5s, 2020 8,412 9,371,863
------------
$ 43,029,688
- -----------------------------------------------------------------------------
U.S. Treasury Obligations - 29.3%
Stripped Principal Payments, 0s, 1999 $ 6,600 $ 5,548,686
U.S. Treasury Notes, 7.25s, 2004 24,000 26,343,840
U.S. Treasury Bonds, 13.75s, 2004 26,000 39,975,000
------------
$ 71,867,526
- -----------------------------------------------------------------------------
Total U.S. Government Guaranteed $114,897,214
- -----------------------------------------------------------------------------
Total U.S. Dollar Denominated $148,138,361
- -----------------------------------------------------------------------------
Foreign - Non-U.S. Dollar Denominated - 36.4%
Australia - 4.9%
Commonwealth of Australia, 8.75s, 2001 AUD 6,030 $ 4,655,380
Commonwealth of Australia, 9.5s, 2003 4,600 3,684,608
Queensland Treasury Corp., 8s, 2001 5,000 3,713,499
------------
$ 12,053,487
- -----------------------------------------------------------------------------
Canada - 2.2%
Government of Canada, 8.5s, 2000 CAD 7,000 $ 5,498,124
- -----------------------------------------------------------------------------
Denmark - 5.7%
Kingdom of Denmark, 9s, 1998 DKK 19,146 $ 3,700,318
Kingdom of Denmark, 6s, 1999 15,000 2,675,118
Kingdom of Denmark, 9s, 2000 24,170 4,764,517
Kingdom of Denmark, 8s, 2001 14,864 2,820,192
------------
$ 13,960,145
- -----------------------------------------------------------------------------
France - 1.6%
Government of France, 7.75s, 2000 FRF 18,290 $ 3,883,644
- -----------------------------------------------------------------------------
Germany - 9.5%
German Unity Fund, 8.5s, 2001 DEM 1,640 $ 1,294,200
Republic of Germany, 8.5s, 2000 4,920 3,874,096
Republic of Germany, 6.5s, 2003 2,050 $ 1,463,982
Republic of Germany, 6.875s, 2005 23,000 16,671,621
------------
$ 23,303,899
- -----------------------------------------------------------------------------
Ireland - 4.2%
Republic of Ireland, 8s, 2000 IEP 6,250 $ 10,347,075
- -----------------------------------------------------------------------------
Italy - 2.5%
Republic of Italy, 8.5s, 1999 ITL 5,620,000 $ 3,322,412
Republic of Italy, 9.5s, 1999 1,615,000 966,372
Republic of Italy, 8.5s, 2004 3,205,000 1,719,629
------------
$ 6,008,413
- -----------------------------------------------------------------------------
Netherlands - 2.2%
Dutch State Loan, 6.25s, 1998 NLG 1,210 $ 781,525
Government of Netherlands, 6.75s, 2005 6,980 4,495,798
------------
$ 5,277,323
- -----------------------------------------------------------------------------
New Zealand - 1.8%
Government of New Zealand, 9s, 1996 NZD 6,600 $ 4,348,232
- -----------------------------------------------------------------------------
Spain - 1.8%
Government of Spain, 8s, 2004 ESP 620,000 $ 4,429,218
- -----------------------------------------------------------------------------
Total Foreign - Non-U.S. Dollar Denominated $ 89,109,560
- -----------------------------------------------------------------------------
Total Bonds (Identified Cost, $231,543,174) $237,247,921
- -----------------------------------------------------------------------------
Call Options Purchased
- -----------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
- -----------------------------------------------------------------------------
Japanese Bonds
March/107.489 JPY 246,000 $ 36,162
December/112.062 155,000 23,560
- -----------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid,
$50,955) $ 59,722
- -----------------------------------------------------------------------------
Put Options Purchased
- -----------------------------------------------------------------------------
Australian Dollars
January/0.745 AUD 2,655 $ 36,251
Deutsche Marks/British Pounds
January/2.25 DEM 8,100 35,932
- -----------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid,
$81,537) $ 72,183
- -----------------------------------------------------------------------------
Repurchase Agreement - 0.6%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
Prudential Securities, dated 11/30/95, due
12/01/95, total to be received $1,426,231
(secured by $910,000 U.S. Treasury Notes,
11.25s, due 2/15/15, market value
$1,426,000), at Cost $ 1,426 $ 1,426,000
- -----------------------------------------------------------------------------
Total Investments (Identified Cost,
$233,101,666) $238,805,826
- -----------------------------------------------------------------------------
Call Options Written
- -----------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
- -----------------------------------------------------------------------------
Australian Dollars
February/0.7625 AUD 1,739 $ (11,061)
Deutsche Marks/British Pounds
January/2.1344 DEM 7,684 (16,743)
- -----------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $57,675) $ (27,804)
- -----------------------------------------------------------------------------
Put Options Written
- -----------------------------------------------------------------------------
Australian Dollars
January/0.745 AUD 2,655 $ (36,251)
February/0.72 1,642 (10,036)
Japanese Bonds
March/107.489 JPY 246,000 (33,457)
December/112.062 155,000 (2,326)
- -----------------------------------------------------------------------------
Total Put Options Written (Premiums Received, $95,024) $ (82,070)
- -----------------------------------------------------------------------------
Other Assets, Less Liabilities - 2.6% $ 6,274,662
=============================================================================
Net Assets - 100.0% $244,970,614
- -----------------------------------------------------------------------------
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 FRF = French Francs
CAD = Canadian Dollars IEP = Irish Punts
CHF = Swiss Francs ITL = Italian Lire
DEM = Deutsche Marks JPY = Japanese Yen
DKK = Danish Kroner NLG = Dutch Guilders
ESP = Spanish Pesetas NZD = New Zealand Dollars
FIM = Finnish Markkaa SEK = Swedish Kronor
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
November 30, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $233,101,666) $238,805,826
Cash 197
Net receivable for forward foreign currency exchange
contracts sold 3,370,413
Net receivable for closed forward foreign currency
exchange contracts 474,109
Premium receivable on options written 21,099
Receivable for Fund shares sold 1,613
Interest receivable 4,409,390
Other assets 3,988
------------
Total assets $247,086,635
------------
Liabilities:
Payable for Fund shares reacquired $ 528,736
Written options outstanding, at value (premiums received,
$152,699) 109,874
Net payable for forward foreign currency exchange
contracts purchased 1,190,287
Payable to affiliates -
Management fee 5,031
Shareholder servicing agent fee 2,282
Distribution fee 106,026
Accrued expenses and other liabilities 173,785
------------
Total liabilities $ 2,116,021
------------
Net assets $244,970,614
============
Net assets consist of:
Paid-in capital $245,138,059
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 8,380,763
Accumulated net realized loss on investments and foreign
currency transactions (4,834,284)
Accumulated distributions in excess of net investment
income (3,713,924)
------------
Total $244,970,614
============
Shares of beneficial interest outstanding 28,535,808
============
Class A shares:
Net asset value and redemption price per share
(net assets of $12,659,098 / 1,474,074 shares of
beneficial interest outstanding) $8.59
=====
Offering price per share (100/95.25) $9.02
=====
Class B shares:
Net asset value and offering price per share
(net assets of $232,311,516 / 27,061,734 shares of
beneficial interest outstanding) $8.58
=====
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
- ------------------------------------------------------------------------------
Year Ended November 30, 1995
- ------------------------------------------------------------------------------
Net investment income:
Interest income $21,432,295
-----------
Expenses -
Management fee $ 2,071,032
Trustees' compensation 42,907
Shareholder servicing agent fee (Class A) 11,184
Shareholder servicing agent fee (Class B) 572,549
Distribution and service fee (Class B) 2,602,496
Custodian fee 202,474
Auditing fees 75,175
Postage 70,292
Printing 27,919
Legal fees 3,344
Miscellaneous 216,070
-----------
Total expenses $ 5,895,442
Fees paid indirectly (48,739)
-----------
Net expenses $ 5,846,703
-----------
Net investment income $15,585,592
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 5,339,879
Written option transactions 1,494,653
Foreign currency transactions (5,736,335)
-----------
Net realized gain on investments and foreign currency
transactions $ 1,098,197
-----------
Change in unrealized appreciation -
Investments $15,551,561
Written options 131,311
Translation of assets and liabilities in foreign currencies 3,274,010
-----------
Net unrealized gain on investments $18,956,882
-----------
Net realized and unrealized gain on investments and
foreign currency $20,055,079
-----------
Increase in net assets from operations $35,640,671
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended November 30, 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 15,585,592 $ 20,998,514
Net realized gain (loss) on investments and foreign
currency transactions 1,098,197 (38,048,815)
Net unrealized gain (loss) on investments and foreign
currency translation 18,956,882 (3,803,215)
------------ -------------
Increase (decrease) in net assets from operations $ 35,640,671 $ (20,853,516)
------------ -------------
Distributions declared to shareholders -
From net investment income (Class A) $ (465,663) $ --
From net investment income (Class B) (15,003,559) --
Tax return of capital -- (23,336,946)
------------ -------------
Total distributions declared to shareholders $(15,469,222) $ (23,336,946)
------------ -------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 19,596,804 $ 23,051,653
Net asset value of shares issued to shareholders in
reinvestment of distributions 7,773,413 10,845,091
Cost of shares reacquired (98,621,737) (160,869,455)
------------ -------------
Decrease in net assets from Fund share transactions $(71,251,520) $(126,972,711)
------------ -------------
Total decrease in net assets $(51,080,071) $(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 $3,713,924 and
$1,286,788, respectively) $244,970,614 $ 296,050,685
============ =============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
<CAPTION>
- ---------------------------------------------------------------------------------------------
Year Ended November 30, 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<F4> -
Net investment income $ 0.57 $ 0.59 $ 0.11 $ 0.48 $ 0.47 $ 0.47
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions 0.61 (0.95) (0.17) 0.61 (0.92) 0.26
------ ------ ------ ------ ------ ------
Total from investment
operations $ 1.18 $(0.36) $(0.06) $ 1.09 $(0.45) $ 0.73
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.55) $ -- $(0.09) $(0.47) -- $(0.45)
From net realized gain on
investments and foreign
currency transactions -- -- (0.02) -- -- (0.16)
Tax return of capital -- (0.62) -- -- (0.52) (0.07)
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.55) $(0.62) $(0.11) $(0.47) $(0.52) $(0.68)
------ ------ ------ ------ ------ ------
Net asset value - end of
period $ 8.59 $ 7.96 $ 8.94 $ 8.58 $ 7.96 $ 8.93
====== ====== ====== ====== ====== ======
Total return<F6> 15.40% (4.27)% (0.66)%<F3> 14.12% (5.24)% 8.42%
Ratios (to average net assets)/Supplemental data:
Expenses<F5> 1.14% 1.18% 1.22%<F2> 2.23% 2.22% 2.15%
Net investment income 6.81% 7.10% 6.43%<F2> 5.79% 5.60% 5.19%
Portfolio turnover 275% 211% 376% 275% 211% 376%
Net assets at end of period
(000 omitted) $12,659 $3,432 $ 258 $232,312 $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> Per share data for the periods subsequent to November 30, 1992 is based on
average shares outstanding.
<F5> For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
<F6> 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.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
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 and
foreign currency transactions (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 and foreign
currency transactions (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%<F2>
Ratios (to average net assets)/Supplemental data:
Expenses 2.20% 2.24% 2.33% 2.47% 2.79%<F2>
Net investment income 6.70% 6.65% 6.80% 7.13% 17.14%<F2>
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.
See notes to financial statements
</TABLE>
<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 market 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. Options
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, 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.
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 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.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
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 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. During the year ended November 30, 1995, $2,543,506 was
reclassified from accumulated undistributed net realized loss on investments
and foreign currency transactions to accumulated distributions in excess of
net investment income, 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 November 30, 1995, the Fund, for federal income tax purposes, had a
capital loss carryforward of $5,760,666, 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.
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. 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.
(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 is computed daily and paid monthly at an annual rate of 0.32%
of average daily net assets and 5.65% of investment income.
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 of its independent Trustees and Mr.
Bailey. Included in Trustees' compensation is a net periodic pension expense
of $8,032 for the year ended November 30, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$1,929 for the year ended November 30, 1995, 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
distribution fee of 0.75% per annum, and a 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. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $62,367
for Class B shares for the year ended November 30, 1995. Fees incurred under
the distribution plan during the year ended November 30, 1995 were 1.00% of
average daily net assets attributable to Class B shares on an annualized
basis.
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 12 months following the share 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 year ended November 30, 1995 were
$1,884 and $874,514 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee 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 $439,454,221 $464,599,546
============ ============
Investments (non-U.S. Government securities) $279,039,432 $298,083,045
============ ============
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 $233,101,666
============
Gross unrealized appreciation $ 6,560,376
Gross unrealized depreciation (856,216)
------------
Net unrealized appreciation $ 5,704,160
============
(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:
Class A Shares
1995 1994
---------------------------- -----------------------------
Year Ended
November 30, Shares Amount Shares Amount
- ----------------- ------------------------------------------------------------
Shares sold 1,267,467 $ 10,593,433 431,707 $ 3,593,208
Shares issued
to shareholders
in reinvestment
of distributions 37,313 309,025 12,470 101,627
Shares reacquired (261,755) (2,164,838) (42,026) (348,132)
--------- ------------ ------- -----------
Net increase 1,043,025 $ 8,737,620 402,151 $ 3,346,703
========= ============ ======= ===========
Class B Shares
1995 1994
---------------------------- -----------------------------
Year Ended
November 30, Shares Amount Shares Amount
- ----------------- ------------------------------------------------------------
Shares sold 1,088,366 $ 9,003,371 2,258,937 $ 19,458,445
Shares issued
to shareholders
in reinvestment
of distributions 909,234 7,464,388 1,275,308 10,743,464
Shares reacquired (11,699,599) (96,456,899) (19,037,730) (160,521,323)
----------- ------------ ----------- -------------
Net decrease (9,701,999) $(79,989,140) (15,503,485) $(130,319,414)
=========== ============ =========== =============
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by 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 year ended November
30, 1995 was $2,297.
(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 and forward foreign currency
exchange 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.
<PAGE>
<TABLE>
Written Option Transactions
<CAPTION>
1995 Calls 1995 Puts
------------------------------ ------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING, BEGINNING OF PERIOD -
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 14,012 131,295 14,510 160,404
British Pounds 4,522 78,032 4,219 78,032
Canadian Dollars 6,218 13,041 13,125 51,744
Deutsche Marks 114,179 812,008 51,931 354,994
DeutscheMarks/British Pounds 14,974 93,952 -- --
Finnish Markkaa/Deutsche Marks -- -- 14,440 10,562
Italian Lire/Deutsche -- -- 11,569,773 125,455
Japanese Yen -- -- 4,044,360 268,206
Spanish Pesetas/ Deutsche Marks -- -- 413,969 27,129
Options terminated in closing
transactions -
Australian Dollars (17,036) (153,572) (10,213) (116,334)
British Pounds (4,522) (78,032) -- --
Canadian Dollars (6,218) (13,041) (16,963) (71,767)
Deutsche Marks (54,046) (369,417) (41,081) (275,512)
DeutscheMarks/British Pounds (7,290) (47,341) -- --
Italian Lire/Deutsche Marks -- -- (2,808,653) (21,015)
Japanese Yen -- -- (3,643,360) (217,252)
Japanese Yen/Deutsche Marks -- -- (1,544,027) (185,941)
Spanish Pesetas/Deutsche Marks -- -- (413,969) (27,129)
Options exercised -
Italian Lire/Deutsche Marks -- -- (6,121,995) (83,245)
Swiss Francs/Deutsche Marks (6,207) (26,135) -- --
Options expired -
British Pounds -- -- (4,219) (78,032)
Deutsche Marks (60,133) (442,591) (30,450) (188,788)
Finnish Markkaa/Deutsche Marks -- -- (14,440) (10,562)
Italian
Lire/Deutsche Marks -- -- (2,639,125) (21,195)
------ -------- --------- --------
OUTSTANDING, END OF PERIOD 9,423 $ 57,675 405,297 $ 95,024
====== ======== ======= ========
OPTIONS OUTSTANDING AT END OF PERIOD
CONSIST OF -
Australian Dollars 1,739 $ 11,064 4,297 $ 44,070
Deutsche Marks/British Pounds 7,684 46,611 -- --
Japanese Yen -- -- 401,000 50,954
------ -------- --------- --------
OUTSTANDING, END OF PERIOD 9,423 $ 57,675 405,297 $ 95,024
====== ======== ======= ========
</TABLE>
At November 30, 1995, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
<PAGE>
<TABLE>
Forward Foreign Currency Exchange Contracts
<CAPTION>
Net Unrealized
Contracts to Contracts Appreciation
Settlement Date Deliver/Receive at Value In Exchange for Depreciation)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales 12/01/95 - 12/07/95 AUD 5,510,577 $ 4,092,154 $ 4,102,803 $ 10,649
1/30/96 - 2/26/96 CAD 9,400,466 6,918,534 6,937,367 18,833
12/15/95 - 5/31/96 CHF 8,131,089 7,001,894 7,187,017 185,123
12/07/95 - 5/31/96 DEM 125,172,912 86,697,295 88,397,992 1,700,697
12/07/95 DKK 85,602,951 15,286,633 15,581,738 295,105
12/07/95 ESP 706,404,867 5,727,531 5,564,653 (162,878)
12/15/95 FIM 7,999,500 1,861,796 1,818,481 (43,315)
12/18/95 - 4/12/96 FRF 41,658,056 8,348,950 8,439,019 90,069
1/08/96 IEP 6,463,885 10,248,606 10,263,873 15,267
12/07/95 - 12/21/95 ITL 26,969,366,513 16,854,738 16,721,464 (133,274)
12/07/95 - 6/07/96 JPY 2,500,073,008 24,853,226 25,980,644 1,127,418
12/14/95 - 1/22/96 NLG 16,342,981 10,117,034 10,418,350 301,316
12/20/95 NZD 3,871,000 2,522,131 2,531,297 9,166
12/14/95 SEK 49,901,245 7,605,499 7,561,736 (43,763)
------------ ------------ -----------
$208,136,021 $211,506,434 $ 3,370,413
============ ============ ===========
Purchases 12/01/95 AUD 2,249,630 $ 1,670,800 $ 1,683,308 $ (12,508)
2/26/96 CAD 3,422,959 2,518,435 2,529,529 (11,094)
12/14/95 CHF 5,745,740 4,897,933 5,020,832 (122,899)
12/07/95 - 5/31/96 DEM 95,090,903 65,841,102 66,969,628 (1,128,526)
2/29/96 DKK 30,525,305 5,459,909 5,617,627 (157,718)
12/14/95 FIM 7,812,201 1,818,134 1,820,203 (2,069)
12/27/95 - 5/31/96 FRF 42,570,960 8,528,096 8,680,510 (152,414)
12/07/95 - 1/31/96 ITL 23,731,334,075 14,821,758 14,636,149 185,609
12/07/95 - 3/27/96 JPY 2,505,465,325 24,754,968 24,897,772 (142,804)
12/14/95 NLG 8,379,839 5,180,735 5,320,533 (139,798)
12/20/95 NZD 1,785,685 1,163,454 1,171,052 (7,598)
12/15/95 SEK 77,723,155 11,844,931 11,357,040 487,891
------------ ------------ -----------
$149,552,433 $150,742,720 $(1,190,287)
============ ============ ===========
</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 $474,109 at November 30, 1995.
At November 30, 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) as of November 30, 1995, the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended November 30, 1995 and 1994, and the
financial highlights for each of the years in the eight-year period ended
November 30, 1995. 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 November 30, 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 November 30, 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
January 5, 1996
---------------------------------------------
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>
IT'S EASY TO CONTACT US
MFS AUTOMATED INFORMATION
ACCOUNT INFORMATION:
Call 1-800-MFS-TALK (1-800-637-8255)
anytime.
MARKET OUTLOOK:
Call 1-800-637-4458 anytime for the MFS outlook
on the bond and stock markets.
MFS PERSONAL SERVICE
ACCOUNT SERVICE:
Call 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
PRODUCT INFORMATION:
Call 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time.
IRA SERVICE:
Call 1-800-637-1255 any business day
from 8 a.m. to 6 p.m. Eastern time.
SERVICE FOR THE HEARING-IMPAIRED:
Call 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time (TDD required).
MFS MAILING ADDRESSES
FOR PERSONAL ACCOUNTS:
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
FOR IRA ACCOUNTS:
MFS Service Center, Inc.
J.W. McCormack Station
P.O. Box 4501
Boston, MA 02101-9817
<PAGE>
MFS(R) [LOGO: -------------
INTERMEDIATE DALBAR BULK RATE
INCOME FUND MFS #1 MFS U.S. POSTAGE
DALBAR] PAID
500 Boylston Street PERMIT #55638
Boston, MA 02116 BOSTON, MA
-------------
[LOGO: M F S (R)
THE FIRST NAME IN MUTUAL FUNDS]
MII-2 1/96/19M 5/205
