M F S (SM)
INVESTMENT MANAGEMENT
MFS(R) Intermediate Income Trust
[SILHOUETTE OF MAN & WOMAN]
Semiannual Report
April 30, 1998
<PAGE>
In Memoriam
A. Keith Brodkin
1935 - 1998
Chairman and Chief Executive Officer
MFS Investment Management(SM)
[Photo of A. Keith Brodkin]
On February 2, 1998, Keith Brodkin, a friend and leader to everyone at MFS, died
unexpectedly at age 62. His thoughtful letters to shareholders on the markets
and economy have been an integral part of MFS shareholder reports like this one
for many years.
Keith joined MFS in 1970 as the firm's first fixed-income manager, managing the
bond portion of MFS[RegTM] Total Return Fund. He went on to manage our first
pure bond fund, MFS[RegTM] Bond Fund, when it was introduced in 1974, and he was
considered a pioneer in the art of active bond management.
Keith was named President and Chief Investment Officer of MFS in 1987 and four
years later became Chairman and Chief Executive Officer. During his
stewardship, MFS has achieved significant growth in total assets under
management, rising from some $25 billion in 1991 to the over $80 billion today
entrusted to us by three million individual and institutional investors
worldwide. Under Keith's leadership, MFS has carefully but steadily built its
domestic and international investment capabilities through the introduction of
a range of new products and a still-growing staff that now numbers over 100
equity and fixed-income professionals.
Throughout his career, Keith was very active in a wide range of charitable
endeavors. He is survived by his wife and three children. His leadership,
friendship, and wise counsel will be sorely missed.
<PAGE>
Dear Shareholders:
To most investors, the surprise of this past year has been that robust economic
growth, especially this late in the economic cycle, has coincided with a
dramatic improvement in inflation trends and an overall decline in interest
rates. Even though economic activity for much of the year exceeded a level that
the Federal Reserve Board (the Fed) would consider noninflationary, and in
spite of the fact that the Fed increased the federal funds rate to 5.50% in
March of 1997, two trends worked in favor of the market and helped lower rates
over the year. The first was the sharp decline in the U.S. government's
borrowing needs. In fact, for the 12-month period ended January 1998, the
government was running a surplus of about $17 billion, and for the fiscal year
ending this October the surplus may be significantly higher. The second
favorable factor was the declining trend in inflation. Much to the surprise of
most economists, inflation moved significantly lower over the course of the
year, with the Consumer Price Index, for example, declining to 1.70% in 1997
from 3.30% in 1996.
The Trust's stock market price, which stood at $7.000 on October 31, 1997,
decreased to $6.875 on April 30, 1998, while its net asset value (NAV)
decreased from $7.76 to $7.74, representing a total return of 1.83% based on
market price and 3.41% based on NAV. For comparative purposes, the Salomon
Brothers Medium Term (1- to 10-year) Treasury Government Sponsored Index, an
unmanaged index of medium-term U.S. Treasuries and agency securities,
appreciated by 3.06% over this period, while the J.P. Morgan Nondollar
Government Bond Index, an unmanaged index of actively traded government bonds
issued by 12 countries (excluding the United States) with remaining maturities
of at least one year, decreased by 0.36% in local currency terms.
U.S. Government Sector
The fixed-income environment, although at times volatile, was generally
positive over the past six months. With the general decline in interest rates,
coupon income was augmented by opportunities for capital appreciation,
particularly in longer-maturity securities. For example, an investment in the
two-year sector would have returned approximately 2.68%, whereas the total
return in the 10-year sector was approximately 3.69%. With household income,
job growth, and consumer confidence quite strong, the rally in shorter
maturities was somewhat limited by concerns that the Fed would again find it
necessary to raise short-term interest rates. The very favorable performance on
the inflation and fiscal fronts, however, provided a very positive underpinning
for Treasuries, one from which longer maturities were able to benefit. This
environment benefited the Trust, given our overweighting in longer-maturity
Treasury and agency securities.
For most of the year, the portfolio's duration, or sensitivity to changes in
interest rates, was 5% to 10% longer than those of the appropriate benchmarks.
Strength in employment and overall economic activity, along with the risk that
the Fed might raise interest rates, argued for caution. Thus, we did not
position duration more aggressively. The many positive underpinnings to the
market, however, did suggest that we should position the portfolio to benefit
from opportunities for capital appreciation as fears of Fed action receded.
Looking ahead, the economic environment, especially prospects for the
fixed-income market, is particularly positive. The supply-side nature of the
economic expansion (with growth in supply outstripping that of demand) and the
boom in global production capacity have helped suppress inflation. Declining
inflation at this stage of the economic expansion is remarkable, and any
slowdown in economic growth could quickly trigger even lower inflation
expectations. Investors have yet to embrace the idea that the economy is at or
close to price stability. Though the economy shows few signs of weakening,
interest rates will have considerable room to fall after economic activity
cools and the view is more broadly accepted that we are indeed close to the
long-term objective of price stability.
2
<PAGE>
International Sector
Over the past six months we continued to shift the Trust's assets from the
developed foreign markets back into the United States, as the latter has become
increasingly attractive from a global perspective. At present, only 7% of
assets are allocated to these foreign markets. Throughout this process we
retained our emphasis on the higher-yielding European markets. According to the
J.P. Morgan indices, these markets, including Italy, Sweden, Spain, and the
United Kingdom, provided the best local currency performance among the major
sovereign bond markets. Our 5% allocation to emerging market instruments turned
in an even stronger performance. The Trust also benefited from our decision to
hedge virtually all its foreign assets back into the U.S. dollar, which
appreciated sharply against all major currencies. Our investments in New
Zealand have been disappointing as, thus far, economic weakness induced by the
Asian crisis has translated into sharply lower currencies rather than lower
interest rates. Over time, we expect this market to tighten versus the United
States.
Although the crisis atmosphere has abated, the situation in Asia still
dominates the global outlook. Thus far, the crisis has had only a modest impact
on economies outside the region. The full impact should become more apparent
over the next few quarters. The potential for slower global growth and low
inflation should keep Europe and the United States well supported, with the
potential for a further rally if the downturn is severe. The risk is that the
impact is not sufficient to tame the vibrant U.S. economy. In that case, the
Fed might be forced to hike interest rates. Ironically, this could then trigger
a sharper drop in global growth, a reversal of the Fed's intent, and a bond
rally. It is too soon to tell how the saga will play out, but we are generally
constructive on the major markets over the long term. We believe the emerging
markets remain vulnerable to the ups and downs of the Asian recovery process.
As the process unfolds, we will be looking for opportunities to acquire assets
at what we view as attractive valuations. At present, however, spreads are too
tight to warrant increasing our allocation.
As we expected, European monetary union (EMU) is set to proceed with a broad
group of 11 countries. For all practical purposes, the sovereign debt of the
initial participants already trades as a single market, with only isolated
opportunities for adding value through market and security selection within the
EMU zone. The major nonparticipants--the United Kingdom, Sweden, Denmark, and
Greece--are therefore likely to play an even more important role within the
European segment of the portfolio.
The dollar has been on an appreciation trend versus major foreign currencies
for roughly three years. Several factors suggest that this trend may have
ended. First, investors are gaining confidence that the new European currency,
the Euro, will be strong. It may therefore play a more important role in world
trade and investment flows than the combined role of the 11 currencies it will
replace. In addition, the U.S. current-account deficit continues to widen,
forcing foreign investors to hold more dollars. No doubt there is a limit to
their appetite. However, interest rate levels, growth, and productivity
differentials still favor the dollar. At present, the Trust remains fully
hedged back into dollars, but we will be watching this situation closely.
3
<PAGE>
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ JEFFREY L. SHAMES
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
/s/ STEVEN E. NOTHERN
Steven E. Nothern
Portfolio Manager
/s/ CHRISTOPHER D. PIROS
Christopher D. Piros
Portfolio Manager
May 14, 1998
The opinions expressed in this report are those of the portfolio managers and
are only through the end of the period of the report as stated on the cover.
The managers' views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
- --------------------------------------------------------------------------------
In accordance with Section 23(c) of the Investment Company Act of 1940, the
Trust hereby gives notice that it may from time to time repurchase shares of
the Trust in the open market at the option of the Board of Trustees and on such
terms as the Trustees shall determine.
- --------------------------------------------------------------------------------
Performance Summary
(For the period ended April 30, 1998)
<TABLE>
<S> <C>
Net Asset Value Per Share
October 31, 1997 $ 7.76
April 30, 1998 $ 7.74
New York Stock Exchange Price
October 31, 1997 $ 7.000
February 4, 1998 (high)* $ 7.500
April 27, 1998 (low)* $ 6.750
April 30, 1998 $ 6.875
</TABLE>
*For the period November 1, 1997, through April 30, 1998.
- --------------------------------------------------------------------------------
Number of Employees
The Trust is organized as a Massachusetts business trust and is registered
under the Investment Company Act of 1940, as amended, as a closed-end,
nondiversified, management investment company and has no employees.
Number of Shareholders
As of April 30, 1998, our records indicate that there are 15,061 registered
shareholders and approximately 101,000 shareholders owning Trust shares in
"street" name, such as through brokers, banks, and other financial
intermediaries.
New York Stock Exchange Symbol
The New York Stock Exchange symbol is MIN.
Investment Objective and Policies
The investment objective of the Trust is to preserve capital and provide high
current income.
The Trust will attempt to achieve this objective by investing in obligations
issued or guaranteed 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 Trust 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 Trust's average-weighted portfolio
maturity will not be less than three years. The Trust may enter into options
and futures transactions and
4
<PAGE>
forward foreign currency exchange contracts and purchase securities on a
"when-issued" basis.
Dividend Reinvestment and
Cash Purchase Plan
The Trust offers a Dividend Reinvestment and Cash Purchase Plan which allows
you to reinvest either all of the distributions or only the long-term capital
gains paid by the Trust. Unless the shares are trading at a premium (exceeding
net asset value), purchases are made at the market price. Otherwise purchases
will be made at a discounted price of either the net asset value or 95% of the
market price, whichever is greater. You can also buy shares of the Trust.
Investments from $100 to $500 can be made in January and July on the 15th of
the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee, you
can ask the firm or nominee to participate in the Plan on your behalf. If the
nominee does not offer the Plan, you may wish to request that your shares be
re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the Trust. However, when shares are
bought on the New York Stock Exchange or otherwise on the open market, each
participant pays a pro rata share of the commissions. A service fee
of $0.75 is charged for each cash purchase as well as a pro rata share of the
brokerage commissions, if any. The automatic reinvestment of distributions does
not relieve you of any income tax that may be payable (or required to be
withheld) on the distributions.
To enroll in or withdraw from the Plan or to receive a brochure providing a
complete description of the Plan, please contact the Plan agent at the address
and telephone number located on the back cover
of this report. Please have available the name of the Trust and your account
and Social Security numbers. For certain types of registrations, such as
corporate accounts, instructions must be submitted in writing. When you
withdraw from the Plan, you can receive the value of the reinvested shares in
one of two ways: a check for the value of the full and fractional shares, or a
certificate for the full shares and a check for the fractional shares.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
5
<PAGE>
Portfolio of Investments - April 30, 1998
Bonds - 96.3%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds - 85.5%
U.S. Federal Agencies - 12.8%
Agency for International
Development, 6.625s, 2004 ............... $14,600 $ 15,136,258
Federal National Mortgage Assn.,
6.5s, 2013 .............................. 9,254 9,285,746
Federal National Mortgage Assn.,
6.65s, 2002 ............................. 8,000 8,000,200
Federal National Mortgage Assn.,
7.5s, 2003 .............................. 16,002 16,309,173
Federal National Mortgage Assn.,
7.55s, 2007 ............................. 18,000 18,399,420
Federal National Mortgage Assn.,
8.33s, 2005 ............................. 20,000 20,831,200
Federal National Mortgage Assn.,
9s, 2008 ................................ 41 43,083
Guaranteed Trade Trust, 7.39s,
2006 .................................... 34,000 35,906,380
State of Israel, 6.625s, 2003 ............. 15,000 15,522,600
--------------
$ 139,434,060
--------------
U.S. Government Guaranteed - 72.7%
U.S. Treasury Obligations - 39.1%
U.S. Treasury Notes, 8s, 2001 ............. $32,000 $ 34,080,000
U.S. Treasury Notes, 6.25s,
2002 .................................... 27,500 28,084,375
U.S. Treasury Bonds, 14.25s,
2002 .................................... 5,000 6,450,000
U.S. Treasury Notes, 5.75s, 2003........... 62,000 61,888,586
U.S. Treasury Bonds, 11.875s,
2003 .................................... 23,000 29,619,630
U.S. Treasury Bonds, 12.375s,
2004### ................................. 34,500 46,041,285
U.S. Treasury Bonds, 10.375s,
2009 .................................... 18,350 22,808,499
U.S. Treasury Bonds, 13.875s,
2011 .................................... 25,500 38,477,205
U.S. Treasury Bonds, 10.375s,
2012### ................................. 84,600 111,949,488
U.S. Treasury Bonds, 12s,
2013 .................................... 31,500 46,162,313
--------------
$ 425,561,381
--------------
Government National Mortgage
Association - 33.6%
GNMA, 6.5s, 2028 TBA ...................... $81,766 $ 81,024,737
GNMA, 7s, 2012 - 2025 TBA ................. 95,500 97,191,052
GNMA, 7s, 2023-2024 ....................... 40,907 41,478,483
GNMA, 7.5s, 2022-2023 ..................... 5,510 5,672,388
GNMA, 7.5s, 2026 TBA ...................... 67,807 69,649,929
GNMA, 8s, 2026 TBA ........................ 40,013 41,513,315
GNMA, 8.5s, 2006 TBA ...................... 5,271 5,539,306
GNMA, 8.5s, 2009 .......................... 17,201 18,094,540
Bonds - continued
U.S. Government Guaranteed - continued
GNMA, 9.25s, 2001 .................... $ 6,029 $ 6,366,338
--------------
$ 366,530,088
--------------
Total U.S. Government
Guaranteed ............................ $ 792,091,469
--------------
Total U.S. Bonds ........................ $ 931,525,529
--------------
Foreign Bonds - 10.8%
Argentina - 0.4%
Republic of Argentina,
8.726s, 2005 ....................... $ 4,400 $ 4,433,000
--------------
Brazil - 0.5%
Republic of Brazil, 9.375s,
2008 ............................... $ 5,800 $ 5,597,000
--------------
Bulgaria - 0.4%
National Republic of
Bulgaria, 6.563s, 2024 ............. $ 5,700 $ 4,645,500
--------------
Denmark - 0.8%
Danish Nykredit, 6s, 2026 ............ DKK 31,076 $ 4,455,710
Danish Nykredit, 7s, 2024 ............ 30,266 4,462,068
--------------
$ 8,917,778
--------------
Germany - 1.0%
Germany Federal Republic,
6s, 2007 ........................... DEM 4,550 $ 2,713,012
Germany Federal Republic,
6.25s, 2006 ........................ 8,377 5,069,614
Treuhandanstalt, 6.625s,
2003 ............................... 5,622 3,408,602
--------------
$ 11,191,228
--------------
Italy - 0.7%
Republic of Italy, 5.75s,
2002 ............................... ITL 6,595,000 $ 3,855,567
Republic of Italy, 7.75s,
2006 ............................... 5,655,000 3,759,254
--------------
$ 7,614,821
--------------
Mexico - 1.4%
United Mexican States,
9.875s, 2007 ....................... $ 8,700 $ 9,269,850
United Mexican States,
8.625s, 2008 ....................... 5,800 5,771,000
--------------
$ 15,040,850
--------------
New Zealand - 1.8%
Government of New
Zealand, 8s, 2001 .................. NZD 12,160 $ 6,802,703
Government of New
Zealand, 8s, 2004 .................. 17,550 10,104,810
Government of New
Zealand, 10s, 2002 ................. 5,055 3,036,528
--------------
$ 19,944,041
--------------
</TABLE>
6
<PAGE>
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds - continued
Panama - 0.5%
Republic of Panama, 8.25s,
2008 ............................. $ 5,000 $ 4,937,500
--------------
Russia - 0.5%
Vnesheconombank, 6.719s,
2015 ............................. $ 7,000 $ 5,031,250
--------------
South Korea - 0.3%
Republic of Korea, 8.875s,
2008 ............................. $ 3,100 $ 3,091,940
--------------
United Kingdom - 2.5%
United Kingdom Treasury,
8.5s, 2005 ....................... GBP 8,870 $ 17,138,062
United Kingdom Treasury,
9.75s, 2002 ...................... 5,511 10,463,790
--------------
$ 27,601,852
--------------
Total Foreign Bonds ...................................... $ 118,046,760
--------------
Total Bonds (Identified Cost,
$1,049,135,126) ........................................ $1,049,572,289
--------------
Shares
Warrants
Republic of Venezuela*,
(Identified Cost, $0) ............ 37,500 $ 0
--------------
Call Options Purchased
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted)
Japanese Government Bond/
June/102.121 ....................JPY 555,400 $29,315
Russian Principal Callable/
May/63.25 ........................ $ 5,000 65,500
-------
Total Call Options Purchased
(Premiums Paid, $123,400) .......................... $94,815
-------
Principal Amount
(000 Omitted)
Short-Term Obligations - 1.1%
CSFB Russia Note, due
5/01/98, at Amortized Cost $11,750 $11,750,000
-----------
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Repurchase Agreement - 7.5%
Goldman Sachs, dated 4/30/98,
due 5/1/98, total to be
received $81,343,448
(secured by various U.S.
U.S. Treasury and Federal
Agency obligations in a
jointly traded account),
at cost ................... $81,331 $ 81,331,000
--------------
Total Investments
(Identified Cost,
$1,142,339,526) ........................... $1,142,748,104
--------------
Call Options Written
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted)
<S> <C> <C>
Japanese Government Bonds/
June/104.247 ....................... JPY 555,400 $ (7,220)
--------------
(Premiums Received,
$8,533) ................................................. $ (7,220)
--------------
Put Options Written
Issuer/Expiration Month/Strike Price
Canadian Dollars/July/1.43 ........... CAD 10,983 $ (55,782)
Deutsche Marks/June/1.87 ............. DEM 28,511 (32,417)
Japanese Government Bonds/
June/100 ........................... JPY 555,400 (7,775)
--------------
Total Put Options Written
(Premiums Received,
$223,762) ............................................... $ (95,974)
--------------
Other Assets,
Less Liabilities - (4.9)% ................................. (53,067,490)
--------------
Net Assets - 100.0% ......................................... $1,089,577,420
--------------
</TABLE>
###Security segregated as collateral for written option.
*Nonincome producing security.
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 ESP = Spanish Pesetas
CAD = Canadian Dollars GBP = British Pounds
CHF = Swiss Francs ITL = Italian Lire
DEM = Deutsche Marks JPY = Japanese Yen
DKK = Danish Kroner NZD = New Zealand Dollars
See notes to financial statements
7
<PAGE>
Statement of Assets and Liabilities - April 30, 1998
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $1,142,339,526) ................................ $1,142,748,104
Cash ................................................................................... 270
Foreign currency, at value (identified cost, $292,319) ................................. 291,749
Net receivable for forward foreign currency exchange contracts to sell ................. 217,756
Interest receivable .................................................................... 18,491,801
Other assets ........................................................................... 10,053
--------------
Total assets ....................................................................... $1,161,759,733
--------------
Liabilities:
Payable to dividend disbursing agent ................................................... $ 530,754
Payable for investments purchased ...................................................... 68,376,969
Net payable for forward foreign currency exchange contracts to purchase ................ 1,760,352
Net payable for forward currency exchange contracts either closed or subject to master
netting agreements ..................................................................... 982,518
Written options outstanding, at value (premiums received, $232,295) .................... 103,194
Payable to affiliates -
Management fee ....................................................................... 12,874
Administrative fee ................................................................... 716
Transfer and dividend disbursing agent fee ........................................... 22,326
Accrued expenses and other liabilities ................................................. 392,610
--------------
Total liabilities .................................................................. $ 72,182,313
--------------
Net assets ............................................................................... $1,089,577,420
==============
Net assets consist of:
Paid-in capital ........................................................................ $1,122,757,745
Unrealized depreciation on investments and translation of assets and liabilities in
foreign currencies ..................................................................... (1,977,213)
Accumulated net realized loss on investments and foreign currency transactions ......... (22,889,791)
Accumulated distributions in excess of net investment income ........................... (8,313,321)
--------------
Total .............................................................................. $1,089,577,420
==============
Shares of beneficial interest outstanding (202,648,016 issued less 61,901,100 treasury
shares) ................................................................................ 140,746,916
===========
Net asset value (net assets [divided by] shares of beneficial interest outstanding) ...... $7.74
=====
</TABLE>
See notes to financial statements
8
<PAGE>
Statement of Operations - Six Months Ended April 30, 1998
<TABLE>
<S> <C>
Net investment income:
Interest income ............................................................. $40,782,828
-----------
Expenses -
Management fee ............................................................ $ 4,035,377
Trustees' compensation .................................................... 71,820
Transfer and dividend disbursing agent fee ................................ 133,939
Administrative fee ........................................................ 71,189
Custodian fee ............................................................. 187,308
Postage ................................................................... 40,933
Auditing fees ............................................................. 34,337
Printing .................................................................. 8,952
Legal fees ................................................................ 2,421
Miscellaneous ............................................................. 408,177
-----------
Total expenses .......................................................... $ 4,994,453
Fees paid indirectly ...................................................... (79,031)
-----------
Net expenses ............................................................ $ 4,915,422
-----------
Net investment income ................................................. $35,867,406
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions ..................................................... $(9,765,802)
Written option transactions ................................................. (917,353)
Foreign currency transactions ............................................... 11,480,550
Interest rate swaps ......................................................... 129,136
Futures contracts ........................................................... (186,058)
-----------
Net realized gain on investments and foreign currency transactions ...... $ 740,473
-----------
Change in unrealized appreciation (depreciation) -
Investments ................................................................. $ 4,472,901
Written options ............................................................. 1,491,400
Translation of assets and liabilities in foreign currencies ................. (8,546,136)
Interest rate swaps ......................................................... (95,080)
-----------
Net unrealized loss on investments and foreign currency translation ..... $(2,676,915)
-----------
Net realized and unrealized loss on investments and foreign currency .. $(1,936,442)
-----------
Increase in net assets from operations .............................. $33,930,964
===========
</TABLE>
See notes to financial statements
9
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1998 October 31, 1997
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income ............................................................... $ 35,867,406 $ 77,333,786
Net realized gain on investments and foreign currency transactions .................. 740,473 1,807,453
Net unrealized loss on investments and foreign currency translation ................. (2,676,915) (9,214,847)
-------------- --------------
Increase in net assets from operations ............................................ $ 33,930,964 $ 69,926,392
-------------- --------------
Distributions declared to shareholders -
From net investment income .......................................................... $ (35,867,406) $ (77,333,786)
In excess of net investment income .................................................. (1,112,904) (5,944,231)
-------------- --------------
Total distributions declared to shareholders ...................................... $ (36,980,310) $ (83,278,017)
-------------- --------------
Trust share (principal) transactions -
Cost of Treasury shares acquired .................................................... $ (5,740,890) $ (47,959,918)
-------------- --------------
Total decrease in net assets ................................................... $ (8,790,236) $ (61,311,543)
Net assets:
At beginning of period .............................................................. 1,098,367,656 1,159,679,199
-------------- --------------
At end of period (including accumulated distributions in excess of net investment
income of $8,313,321 and $7,200,417, respectively)................................... $1,089,577,420 $1,098,367,656
============== ==============
</TABLE>
See notes to financial statements
10
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Six Months
Ended
Per share data (for a share outstanding April 30, 1998
throughout each period): ----------------
<S> <C>
Net asset value - beginning of period .............. $ 7.76
-------
Income from investment operations # -
Net investment income ............................ $ 0.25
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions .................................... (0.01)
-------
Total from investment operations ................ $ 0.24
-------
Less distributions declared to shareholders -
From net investment income ....................... $(0.25)
From net realized gain on investments and
foreign currency transactions ................... -
In excess of net investment income ............... (0.01)
From paid in capital ............................. -
-------
Total distributions declared to shareholders .... $(0.26)
-------
Net increase from repurchase of capital shares ..... -+
-------
Net asset value - end of period .................... $ 7.74
-------
Per share market value - end of period ............. $ 6.875
=======
Total return ....................................... 1.83%**
Ratios (to average net assets)/Supplemental data:
Expenses## ........................................ 0.92%*
Net investment income ............................. 6.60%*
Portfolio turnover ................................. 126%
Net assets at end of period (000 omitted) .......... $ 1,090
<CAPTION>
Year Ended October 31,
----------------------------------------------------------------------
Per share data (for a share outstanding 1997 1996 1995 1994 1993
throughout each period): ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period .............. $ 7.82 $ 7.83 $ 7.33 $ 8.18 $ 8.07
------ ------- ------- -------- -------
Income from investment operations # -
Net investment income ............................ $ 0.54 $ 0.53 $ 0.55 $ 0.51 $ 0.58
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions .................................... (0.05) (0.03) 0.32 (0.78) 0.21
------- ------- ------- -------- -------
Total from investment operations ................. $ 0.49 $ 0.50 $ 0.87 $ (0.27) $ 0.79
------- ------- ------- -------- -------
Less distributions declared to shareholders -
From net investment income ....................... $(0.54) $ (0.53) $ (0.53) (0.03) $ (0.52)
From net realized gain on investments and
foreign currency transactions ................... - - - - (0.16)
In excess of net investment income ............... (0.04) (0.04) - (0.13) -
From paid in capital ............................. - - - (0.42) -
------- ------- ------- -------- -------
Total distributions declared to shareholders ..... $(0.58) $ (0.57) $ (0.53) $ (0.58) $ (0.68)
------- ------- ------- -------- -------
Net increase from repurchase of capital shares ..... 0.03 0.06 0.16 - -
------- ------- ------- -------- -------
Net asset value - end of period .................... $ 7.76 $ 7.82 $ 7.83 $ 7.33 $ 8.18
------- ------- ------- -------- -------
Per share market value - end of period ............. $7.000 $ 7.125 $ 6.625 $ 6.125 $ 7.625
======= ======= ======= ======== =======
Total return ....................................... 6.46% 17.40% 17.08% (12.58)% 4.14%
Ratios (to average net assets)/Supplemental data:
Expenses## ........................................ 0.91% 0.97% 1.02% 0.91% 0.95%
Net investment income ............................. 6.92% 6.75% 7.13% 6.61% 7.13%
Portfolio turnover ................................. 213% 257% 242% 213% 270%
Net assets at end of period (000 omitted) .......... $1,098 $ 1,160 $ 1,247 $ 1,411 $ 1,597
</TABLE>
* Annualized.
**Not annualized.
# Per share data for the periods subsequent to October 31, 1993, are based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, the Trust's expenses are
calculated without reduction for fees paid indirectly.
+ For the year ended April 30, 1998, the net increase from repurchase of capital
shares was less than $0.01 per share.
See notes to financial statements
11
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31,
-----------------------------------------------------------------------
Per share data (for a share outstanding 1992 1991 1990 1989 1988***
throughout each period): ------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period ................... $ 8.24 $ 8.45 $ 8.87 $ 9.16 $ 9.30
-------- ------- -------- ------- --------
Income from investment operations -
Net investment income[sec] ............................ $ 0.66 $ 0.67 $ 0.75 $ 0.83 $ 0.48
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ......................................... (0.02) 0.17 (0.12) (0.07) (0.10)
-------- ------- -------- -------- --------
Total from investment operations ...................... $ 0.64 $ 0.84 $ 0.63 $ 0.76 $ 0.38
-------- ------- -------- -------- --------
Less distributions declared to shareholders -
From net investment income ............................. $ (0.60) $ (0.62) $ (0.63) $ (0.92) $ (0.39)
From paid in capital ................................... (0.21) (0.43) (0.42) (0.13) (0.13)
-------- -------- -------- -------- --------
Total distributions declared to shareholders .......... $ (0.81) $ (1.05) $ (1.05) $ (1.05) $ (0.52)
-------- -------- -------- -------- --------
Net asset value - end of period ......................... $ 8.07 $ 8.24 $ 8.45 $ 8.87 $ 9.16
-------- -------- -------- -------- --------
Per share market value - end of period .................. $ 8.000 $ 8.000 $ 7.625 $ 8.750 $ 9.375
======== ======== ======== ======== ========
Total return ............................................ 10.35% 19.55% (0.94)% 4.94% (1.17)%*
Ratios (to average net assets)/Supplemental data[sec]:
Expenses ............................................... 1.01% 1.00% 1.01% 1.10% 0.99%*
Net investment income .................................. 7.96% 8.10% 8.74% 9.34% 8.39%*
Portfolio turnover ...................................... 401% 1,004% 554% 546% 206%
Net assets at end of period (000 omitted) ............... $ 1,615 $ 1,644 $ 1,695 $ 1,791 $ 1,837
</TABLE>
* Annualized.
*** For the period from the commencement of investment operations, March 17,
1988, through October 31, 1988.
[sec]The investment adviser voluntarily waived a portion of its management fee
amounting to $.0018 per share for the year October 31, 1990. If this fee
had been incurred by the Trust, the ratio of expenses and net investment
income to average net assets would have been 1.03% and 8.72%, respectively.
See notes to financial statements
12
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Intermediate Income Trust (the Trust) is non-diversified. The Trust is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as a closed-end management
investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, forward contracts,
and swap agreements, are valued on the basis of valuations furnished by dealers
or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Non-U.S. dollar denominated
short-term obligations are valued at amortized cost as calculated in the
foreign 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 reported at market value using closing settlement
prices. Over-the-counter options on securities are valued by brokers.
Over-the-counter currency options are valued through the use of a pricing model
which takes into account foreign currency exchange spot and forward rates,
implied volatility, and short-term repurchase rates. Equity securities listed
on securities exchanges or reported through the NASDAQ system are reported at
market value using last sales prices. Unlisted equity securities or listed
equity securities for which last sale prices are not available are reported at
market value using last quoted bid prices. 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 Trust may enter into repurchase agreements with
institutions that the Trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Trust requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the Trust to obtain those
securities in the event of a default under the repurchase agreement. The Trust
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the Trust
under each such repurchase agreement. The Trust, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize a joint
trading account for the purpose of entering into one or more repurchase
agreements.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on
13
<PAGE>
Notes to Financial Statements - continued
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 Trust may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the options contract. When a written option
expires, the Trust realizes a gain equal to the amount of the premium received.
When a written call option is exercised or closed, the premium received is
offset against the proceeds to determine the realized gain or loss. When a
written put option is exercised, the premium reduces the cost basis of the
security purchased by the Trust. The Trust, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options
may also be used as part of an income producing strategy reflecting the view of
the Trust's management on the direction of interest rates.
Futures Contracts - The Trust may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the Trust is
required to deposit with the broker either in cash or securities an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the Trust each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes as
unrealized gains or losses by the Trust. The Trust's investment in futures
contracts is designed to hedge against anticipated future changes in interest
or exchange rates or securities prices. Investments in interest rate futures
for purposes other than hedging may be made to modify the duration of the
portfolio without incurring the additional transaction costs involved in buying
and selling the underlying securities. Investments in currency futures for
purposes other than hedging may be made to change the Trust's relative position
in one or more currencies without buying and selling portfolio assets.
Investments in equity index contracts or contracts on related options for
purposes other than hedging may be made when the Trust has cash on hand and
wishes to participate in anticipated market appreciation while the cash is
being invested. Should interest or exchange rates or securities prices move
unexpectedly, the Trust may not achieve the anticipated benefits of the futures
contracts and may realize a loss.
Forward Foreign Currency Exchange Contracts - The Trust may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Trust will enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Trust may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Trust may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Trust may
enter into contracts with the intent of changing the relative exposure of the
Trust's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
14
<PAGE>
Swap Agreements - The Trust may enter into swap agreements. A swap is an
exchange of cash payments between the Trust and another party which is based on
a specific financial index. Cash payments are exchanged at specified intervals
and the expected income or expense is recorded on the accrual basis. The value
of the swap is adjusted daily and the change in value is recorded as unrealized
appreciation or depreciation. Risks may arise upon entering into these
agreements from the potential inability of counterparties to meet the terms of
their contract and from unanticipated changes in the value of the financial
index on which the swap agreement is based. The Trust uses swaps for both
hedging and non-hedging purposes. For hedging purposes, the Trust may use swaps
to reduce its exposure to interest and foreign exchange rate fluctuations. For
non-hedging purposes, the Trust may use swaps to take a position on anticipated
changes in the underlying financial index.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount are amortized for financial statement and tax reporting purposes
as required by federal income tax regulations. Dividends received in cash are
recorded on the ex-dividend date.
Fees Paid Indirectly - The Trust's custody fee is calculated as a percentage of
the Trust's average monthly net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
Trust. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Trust 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 Trust'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. Distributions to shareholders are recorded on the ex-dividend date.
The Trust distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax 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 net realized gains.
At October 31, 1997, the Trust, for federal income tax purposes, had a capital
loss carryforward of $23,200,041, which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on October 31, 2005, $509,910, October 31, 2003, $6,526,984, and
October 31, 2002, $16,163,147.
(3) Transactions with Affiliates
Investment Adviser - The Trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.32% of
average daily net assets and 5.65% of investment income.
15
<PAGE>
Notes to Financial Statements - continued
Administrator - The Trust has an administrative services agreement with MFS to
provide the Trust with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Trust pays MFS an administrative fee
at the following annual percentages of the Trust's average daily net assets:
<TABLE>
<S> <C>
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
</TABLE>
The Trust pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Trust, all of whom receive
remuneration for their services to the Trust from MFS. Certain officers and
Trustees of the Trust are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Trust 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 $27,520
for the period ended April 30, 1998.
Transfer Agent - MFSC acts as registrar and dividend disbursing agent for the
Trust. The agreement provides that the Trust will pay MFSC an account
maintenance fee of no more than $9.00 and a dividend services fee of $0.75 per
reinvestment and will reimburse MFSC for reasonable out-of-pocket expenses.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. government securities ............................ $1,237,177,000 $1,197,072,040
============== ==============
Investments (non-U.S. government securities) .......... $ 101,413,378 $ 135,581,679
============== ==============
</TABLE>
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Trust, as computed on a federal income tax basis, are
as follows:
<TABLE>
<S> <C>
Aggregate cost ........................ $1,142,339,526
==============
Gross unrealized appreciation ......... 11,620,838
Gross unrealized depreciation ......... $ (11,212,260)
--------------
Net unrealized appreciation ........... $ 408,578
==============
</TABLE>
(5) Shares of Beneficial Interest
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1998 October 31, 1997
------------------ -----------------
<S> <C> <C>
Treasury shares acquired ......... 807,000 6,728,100
======= =========
</TABLE>
In accordance with the provisions of the Trust's prospectus, 807,000 shares of
beneficial interest were purchased by the Trust during the period ended April
30, 1998, at an average price per share of $7.11 and a weighted average
discount of 8.84% per share. The Trust repurchased 6,728,100 shares of
beneficial interest during the year ended October 31, 1997, at an average price
per share of $7.13 and a weighted average discount of 8.43% per share. Shares
held in Treasury were repurchased in an attempt to return the market value of
the discount to the shareholders in the form of higher monthly distributions.
16
<PAGE>
(6) Line of Credit
The Trust and other affiliated trusts participate in a $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Trust shares. Interest is charged to each trust, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Trust for the period ended April 30, 1998, was $2,905.
(7) Financial Instruments
The Trust trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to market
risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency
exchange contracts, swap agreements, and futures contracts. The notional or
contractual amounts of these instruments represent the investment the Trust has
in particular classes of financial instruments and does not necessarily
represent the amounts potentially subject to risk. The measurement of the risks
associated with these instruments is meaningful only when all related and
offsetting transactions are considered.
Written Option Transactions
<TABLE>
<CAPTION>
1998 Calls 1998 Puts
--------------------------------------- -------------------------------------
Principal Amounts of Principal Amounts of
Contracts (000 Omitted) Premiums Contracts (000 Omitted) Premiums
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period -
Swiss Francs/Deutsche Marks .................. 48,509 $ 338,285 - $ -
Options written -
Canadian Dollars ............................. - - 10,983 41,090
Deutsche Marks ............................... - - 28,511 163,899
Japanese Government Bonds .................... 555,400 8,533 555,400 18,773
Options terminated in closing transactions -
Swiss Francs/Deutsche Marks .................. (48,509) (338,285) - -
---------- ----------
Outstanding, end of period ..................... $ 8,533 $223,762
---------- ----------
Options outstanding at end of period consist of:
Canadian Dollars .............................. - - 10,983 41,090
Deutsche Marks ................................ - - 28,511 163,899
Japanese Government Bonds ..................... 555,400 8,533 555,400 18,773
---------- ----------
Outstanding, end of period ..................... $ 8,533 $223,762
---------- ----------
</TABLE>
At April 30, 1998, the Trust had sufficient cash and/or securities at least
equal to the value of the written options.
17
<PAGE>
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Contracts to Contracts at Net Unrealized
Settlement Date Deliver/Receive In Exchange for Value Appreciation (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 5/15/98 .......... AUD 6,855,359 4,594,050 $ 4,463,605 130,445
5/15/98 .......... CAD 7,357,874 5,127,438 5,147,664 (20,226)
5/15/98 .......... CHF 441,124 309,322 294,457 14,865
5/15/98 .......... DEM 83,077,948 46,679,439 46,324,436 355,003
5/15/98 .......... DKK 183,482,507 26,745,268 26,878,760 (133,492)
5/15/98 .......... GBP 4,409,680 7,237,541 7,366,380 (128,839)
---------- ---------- --------
$ 90,693,058 $ 90,475,302 $ 217,756
------------ ------------ ------------
Purchases 5/15/98 .......... CAD 6,481,883 4,594,050 $ 4,534,809 $ (59,241)
5/15/98 .......... CHF 44,629,319 31,529,682 29,790,784 (1,738,898)
5/15/98 .......... DEM 11,061,285 6,121,763 6,167,798 46,035
5/15/98 .......... DKK 109,394,587 16,015,734 15,992,636 (23,098)
5/15/98 .......... ESP 3,564,032,863 23,744,389 23,397,875 (346,514)
5/15/98 .......... GBP 13,006,591 21,384,683 21,727,537 342,854
5/15/98 .......... NZD 8,769,788 4,834,346 4,852,856 18,510
------------ ------------ ------------
$108,224,647 $106,464,295 $ (1,760,352)
------------ ------------ ------------
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net receivable of $291,713 with Banker's Trust
Bank and $470,155 with Merrill Lynch, a net payable of $346,857 with Deutsche
Bank, $1,300,391 with First Boston, and $97,138 Swiss Bank at April 30, 1998.
At April 30, 1998, the Trust had sufficient cash and/or securities to cover any
commitments under these contracts.
18
<PAGE>
Independent Auditor's Report
To the Trustees and Shareholders of MFS Intermediate Income Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Intermediate Income Trust as of April 30
1998, the related statement of operations for the six months then ended, the
statements of changes in net assets for the six months then ended and the year
ended October 31, 1997, and the financial highlights for the six months ended
April 30,1998, and for each of the years in the ten-year period ended October
31, 1997. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with 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
April 30,1998 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Intermediate
Income Trust at April 30, 1998, 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 5, 1998
19
<PAGE>
MFS[RegTM] Intermediate Income Trust
Trustees
Richard B. Bailey* (2)
Private Investor; Former Chairman and
Director (until 1991), MFS Investment Management
Marshall N. Cohan(1)
Private Investor
Lawrence H. Cohn, M.D.(2)
Chief of Cardiac Surgery,
Brigham and Women's Hospital;
Professor of Surgery, Harvard
Medical School
The Hon. Sir J. David
Gibbons, KBE(2)
Chief Executive Officer,
Edmund Gibbons Ltd.
Abby M. O'Neill(2)
Private Investor
Walter E. Robb, III(1)
President and Treasurer,
Benchmark Advisors, Inc.
(corporate financial consultants);
President, Benchmark Consulting
Group, Inc. (office services)
Arnold D. Scott*
Senior Executive Vice President,
Director, and Secretary,
MFS Investment Management
Jeffrey L. Shames*
Chairman, Chief Executive Officer,
and Director, MFS Investment
Management
J. Dale Sherratt(1)
President, Insight Resources, Inc.
(acquisition planning specialist)
Ward Smith(1)
Former Chairman (until 1994),
NACCO Industries (holding company)
Portfolio Managers
Steven E. Nothern*
Christopher D. Piros*
Treasurer
W. Thomas London*
Assistant Treasurers
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
Transfer Agent,
Registrar, and Dividend
Disbursing Agent
State Street Bank and
Trust Company
c/o MFS Service Center, Inc.
P.O. Box 9024
Boston, MA 02205-9824
1-800-637-2304
Custodian
State Street Bank and
Trust Company
Independent Auditors
Deloitte & Touche LLP
Investment Adviser
Massachusetts Financial
Services Company
500 Boylston Street
Boston, MA 02116-3741
* Affiliated with the Investment Adviser.
(1) Member of Audit Committee.
(2) Member of Portfolio Trading Committee.
[Recycle Symbol] This report is printed on recycled paper. MINCE-3 6/98 112 M
