<PAGE>
[LOGO] M F S(SM) Annual Report
INVESTMENT MANAGEMENT for Year Ended
September 30, 1997
MFS(R) TOTAL RETURN FUND
[GRAPHIC OMITTED]
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
A Discussion with the Lead Portfolio Manager .............................. 3
Portfolio Managers' Profiles .............................................. 7
Portfolio Concentration ................................................... 7
Fund Facts ................................................................ 8
Performance Summary ....................................................... 8
Tax Form Summary .......................................................... 11
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 32
Notes to Financial Statements ............................................. 39
Independent Auditors' Report .............................................. 47
The MFS Family of Funds(R) ................................................ 48
Trustees and Officers ..................................................... 49
HIGHLIGHTS
o FOR THE 12 MONTHS ENDED SEPTEMBER 30, 1997, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 25.27%, CLASS B SHARES
24.51%, CLASS C SHARES 24.39%, AND CLASS I SHARES 25.59%. (SEE PERFORMANCE
SUMMARY FOR MORE INFORMATION.)
o THE FUND HAS BENEFITED FROM A POSITIVE ECONOMIC ENVIRONMENT OF LOW
INFLATION AND SOLID GROWTH, AS WELL AS FROM ITS HIGH WEIGHTINGS IN
FINANCIAL SERVICES AND ENERGY, TWO SECTORS THAT HAVE SEEN GOOD PERFORMANCE.
o A LITTLE OVER A THIRD OF THE FUND IS IN BONDS, WITH A DURATION (OR MEASURE
OF INTEREST-RATE SENSITIVITY) OF ABOUT 5.5 YEARS, WHICH WE CONSIDER TO BE
MODESTLY ABOVE OUR BENCHMARK.
o SEVERAL STOCKS CONTRIBUTED TO PERFORMANCE, INCLUDING BRITISH PETROLEUM AND
USX-MARATHON GROUP IN THE ENERGY SECTOR, NOVARTIS IN THE PHARMACEUTICAL
INDUSTRY, AND TORCHMARK, A LARGE LIFE INSURANCE COMPANY AND ASSET MANAGER.
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of A. Keith Brodkin]
A. Keith Brodkin
Dear Shareholders:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still uncomfortably
high. The rapid pace of growth seen in the first quarter slowed in the second
quarter, to an annual rate of 3.3%. While real (inflation-adjusted) growth could
moderate further in the third quarter, we believe economic momentum will carry
well into the first quarter of 1998. Although the economy appears to be in a
modest lull, the money supply is increasing at a rapid rate, and it still
appears that Christmas sales could be quite good. Because economic growth
continues to be impressive, markets are likely to begin focusing on the Federal
Reserve Board's (the Fed's) willingness to raise interest rates.
Although the U.S. equity market has seen increased price volatility of late, we
have been surprised by its overall strength thus far in 1997. Much of this is
the result of continuing gains in corporate earnings. Even as the current
recovery enters its seventh year, more and more U.S. companies have been
exceeding analysts' earnings estimates. In the first quarter of 1997, for
example, two-thirds of all companies met or exceeded analysts' expectations, a
trend that could be an important indicator of the U.S. equity market's future
direction. However, while the near-term outlook for profits is generally
favorable, we believe equity valuations have risen to a point where a cautious
investment approach seems warranted.
In the fixed-income markets, we have been encouraged by the Fed's decision at
its July meeting not to raise short-term interest rates. Inflation remains under
control, and events in the Pacific Rim countries appear to be clearly
disinflationary. At the same time, we are concerned that tight labor markets
could lead to inflationary pressures. As a result, our near-term outlook is
neutral to modestly positive. However, it is imperative that investors not lose
sight of the potential for a strengthening economy, which would encourage the
Fed to tighten monetary conditions.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
October 15, 1997
<PAGE>
A DISCUSSION WITH THE LEAD PORTFOLIO MANAGER
[Photo of David M. Calabro]
David M. Calabro
For the 12 months ended September 30, 1997, Class A shares of the Fund provided
a total return of 25.27%, Class B shares 24.51%, Class C shares 24.39%, and
Class I shares 25.59%. These returns assume the reinvestment of distributions
but exclude the effects of any sales charges and compare to a 40.45% return for
the Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged
index of common stock total return performance, for the same period. The Fund's
returns also compare to a 9.59% return for the Lehman Brothers
Government/Corporate Bond Index, an unmanaged, market-value-weighted index of
U.S. Treasury and government-agency securities, excluding mortgage-backed
securities.
Q. WHAT DO YOU SEE AS SOME OF THE REASONS FOR THE FUND'S PERFORMANCE?
A. First, the market has been keying off a positive economic environment
of low inflation and solid growth. On the equity side, the Fund has had high
weightings in the financial services and energy sectors. Both of these groups
have done very well, particularly financial services.
Q. WHY IS THAT?
A. Financial services companies have had good earnings, and earnings are always
key. But they also had fairly reasonable, or low, relative price-to- earnings
multiples at the beginning of the period. Since then, we've seen higher
multiples and good earnings growth. Plus, consolidation in the industry has
continued, and whenever there's consolidation, multiples tend to go up. It's
been a very positive economic environment for these companies, with steady
growth and low inflation.
Q. AND ENERGY?
A. Here, we're seeing very good earnings growth, first because of improved
productivity measures, and second because commodity prices have been
reasonably good. In particular, natural gas prices have continued to be
strong, and oil prices have held up, both of which have helped provide good
earnings. And, like financial services, this sector had reasonable valuations
at the beginning of the period.
Q. LAST YEAR, ABOUT 57% OF THE PORTFOLIO WAS IN STOCKS, WHICH YOU DESCRIBED AS
BEING SLIGHTLY CONSERVATIVE. THIS YEAR, THE STOCK PORTION HAS INCREASED
SLIGHTLY, TO ABOUT 59%. DO YOU STILL SEE THIS AS BEING CONSERVATIVE?
A. Yes, because actually 50% to 51% of assets have been in common stocks and
roughly 7% to 8% have been in convertibles, which we consider equity-like
securities, so I'd say we're still on the conservative side. We consider this
to be a value-driven portfolio, and with the market at this level, it's hard
to find really great values. We think the companies we own are excellent
companies and have great long-term prospects but, in the short term,
valuations are a bit stretched.
Q. WHAT ABOUT THE FUND'S BOND PORTFOLIO?
A. A little over a third of the Fund is in bonds, and we are more heavily
weighted in corporate bonds than in U.S. Treasuries. (Principal value and
interest on Treasury securities are guaranteed by the U.S. government if held
to maturity.) The duration (or measure of interest-rate sensitivity) is about
5.5 years, which we consider to be modestly above our benchmark. Generally,
we have positioned the bond portfolio for a flat to slightly downward
interest-rate environment.
Q. HOW WOULD YOU DESCRIBE THE FUND'S INVESTMENT PHILOSOPHY?
A. As a balanced fund, this Fund seeks to provide above-average income and to
give investors a reasonable opportunity for capital appreciation. We also aim
for low volatility, consistency, and solid returns. On the equity side of the
portfolio, we try to accomplish this by concentrating on a large- cap,
value-oriented style. We invest in big companies that we think are being
misvalued in the marketplace and have room for price movement, as well as in
companies that pay a solid dividend and tend to increase their dividend. We
now have more international names than we had a year ago. Generally, we
believe valuations in some overseas markets are more attractive and, given
the upward movement of the dollar, international companies seem better
positioned in the world economy. Also, MFS now has more analysts devoted to
covering international companies and, therefore, more research available to
help make better decisions.
Q. APART FROM ENERGY AND FINANCIAL SERVICES, ARE THERE OTHER SECTORS YOU LIKE?
A. Within industrial goods and services, we've taken positions in the two
largest pollution-control companies, Browning Ferris and WMX. That industry
looks appealing, partly because it had been such a poor performer until
recently. Lately, though, we have seen some consolidation, while the outlook
for pricing and earnings seems to have improved. These stocks largely missed
the bull market, and now we think there is a lot of value in this area.
Q. HOW ABOUT SECTORS YOU MIGHT BE AVOIDING?
A. Technology would be one. That's a place for growth-fund managers, not
large-cap value managers. While many of these companies are great and often
provide good long-term returns, this sector has a lot of price volatility and
a lot of one-product, high-growth, high-valuation companies that really don't
fit the objective of this portfolio. Another area in which we have a low
weighting is consumer staples. I think valuations in this area are very rich,
and I don't think the earnings growth rates are sustainable. Many of these
companies have been hurt by the dollar's rise. Over the past couple of
months, major U.S. beverage and personal care companies have said their
earnings growth rates would slow over the next 12 months, partly because of
the strong dollar.
Q. ANY STOCKS THAT HAVE PERFORMED BETTER THAN YOU EXPECTED?
A. Well, we thought British Petroleum was going to be a good stock, but it's
been a great stock. Another is USX-Marathon Group. Both companies have
benefited from strong pricing and good earnings growth. Novartis has been
another great stock. When Ciba-Geigy and Sandoz combined to become Novartis,
it created a lot of synergies. Since the merger, Novartis has reported good
earnings numbers, and more investors have started following it; it had been
underfollowed by U.S. investors before that. Another great stock has been
Torchmark, a large life insurance company and asset manager. That's a
prototypical stock for this portfolio, in that it's a well-run company with
high returns. It got into a couple of problems three or four years ago but
kept on running a solid business. So while the stock was cheap then, the
earnings are coming through again, and it's starting to get back the
valuations it used to have. That's been a real home run.
Q. NOW, ANY STOCKS THAT HAVE NOT PERFORMED SO WELL?
A. Eastman Kodak has fallen into the same problem that a lot of the consumer
nondurable companies are facing, but in Kodak's case, earnings are actually
declining. The company has been hit with just too much competition in
general. I thought this was reflected in the stock price, but obviously it
wasn't.
Q. LOOKING AHEAD, WHAT KIND OF MARKET OR ECONOMIC ENVIRONMENT DO YOU SEE, AND
HOW MIGHT THIS AFFECT SOME OF YOUR INVESTMENT DECISIONS FOR THE FUND?
A. I can't see the market continuing to compound these kinds of returns. At some
point, we're going to have to revert back toward the mean, although I'm not
sure what it's going to take for that to happen. Two things that might cause
a poor stock market are high inflation and, therefore, higher interest rates,
and poorer-than-expected earnings. I think we're more likely to see earnings
expectations coming down. Several very large, well- respected companies have
already talked about lower-than-expected earnings growth rates in the next
few quarters.
Q. SO HOW DO YOU POSITION THE PORTFOLIO FOR THAT?
A. The Fund's ongoing strategy is to try to get the best possible value in the
portfolio. We look for companies whose earnings growth is visible and whose
valuations are attractive, either on a price-to-earnings or price-to-cash
flow basis. And we try not to pay more than what we think future earnings are
worth. We believe this, coupled with the fact that we go after big companies
with good records of paying dividends, will help lead to favorable returns
and lower volatility.
/s/ David M. Calabro
David M. Calabro
(On behalf of the MFS Total Return Team)
<PAGE>
PORTFOLIO MANAGERS' PROFILES
DAVID M. CALABRO, VICE PRESIDENT; GEOFFREY L. KURINSKY, SENIOR VICE
PRESIDENT; JUDITH NOELLE LAMB, VICE PRESIDENT; LISA B. NURME, VICE
PRESIDENT; AND MAURA A. SHAUGHNESSY, VICE PRESIDENT, ARE THE FUND'S
PORTFOLIO MANAGERS. MR. CALABRO IS THE HEAD OF THIS PORTFOLIO MANAGEMENT
TEAM AND A MANAGER OF THE COMMON STOCK PORTION OF THE FUND'S PORTFOLIO.
MR. CALABRO HAS BEEN EMPLOYED BY MFS SINCE 1992. MR. KURINSKY, THE
MANAGER OF THE FUND'S FIXED-INCOME SECURITIES, HAS BEEN EMPLOYED BY MFS
SINCE 1987. MS. LAMB, THE MANAGER OF THE FUND'S CONVERTIBLE SECURITIES,
HAS BEEN EMPLOYED BY MFS SINCE 1992. MS. NURME, A MANAGER OF THE COMMON
STOCK PORTION OF THE FUND'S PORTFOLIO, HAS BEEN EMPLOYED BY MFS SINCE
1987. MS. SHAUGHNESSY, ALSO A MANAGER OF THE COMMON STOCK PORTION OF THE
FUND'S PORTFOLIO, HAS BEEN EMPLOYED BY MFS SINCE 1991.
PORTFOLIO CONCENTRATION AS OF SEPTEMBER 30, 1997
TOP 10 HOLDINGS
BRITISH PETROLEUM PLC, ADR TEXACO, INC.
Oil exploration and production International oil and gas company
company
ALLIED SIGNAL, INC.
BRISTOL-MYERS SQUIBB CO. Aerospace and automotive company
Pharmaceutical products company
USX-MARATHON GROUP
TYCO INTERNATIONAL LTD. Oil and gas exploration and production
Manufacturer of fire protection, company
packaging, and electronic equipment
AMERICAN EXPRESS CO.
PHILIP MORRIS COS., INC. U.S. financial services company
Tobacco, food, and beverage
conglomerate NATIONAL CITY CORP.
Central U.S. bank
CIGNA CORP.
Multi-line insurance company
LARGEST SECTORS
Other Sectors 30.1%
Financial Services 24.2%
Energy 13.5%
Utilities and Communications 13.0%
Industrial Goods and Services 11.1%
Basic Materials 8.1%
For a more complete breakdown, refer to the Portfolio of Investments.
<PAGE>
FUND FACTS
OBJECTIVE: THE FUND'S PRIMARY OBJECTIVE IS TO OBTAIN ABOVE-AVERAGE
INCOME (COMPARED TO A PORTFOLIO ENTIRELY INVESTED IN
EQUITY SECURITIES) CONSISTENT WITH PRUDENT EMPLOYMENT
OF CAPITAL.
COMMENCEMENT OF INVESTMENT OPERATIONS: OCTOBER 6, 1970
CLASS INCEPTION: CLASS A OCTOBER 6, 1970
CLASS B AUGUST 23, 1993
CLASS C AUGUST 1, 1994
CLASS I JANUARY 2, 1997
SIZE: $5.1 BILLION NET ASSETS AS OF SEPTEMBER 30, 1997
PERFORMANCE SUMMARY
The information below and on the following page illustrates the historical
performance of MFS(R) Total Return Fund -- Class A shares in comparison to
various market indicators. Class A share performance results reflect the
deduction of the 4.75% maximum sales charge; benchmark comparisons are unmanaged
and do not reflect any fees or expenses. The performance of other share classes
will be greater than or less than the line shown, based on differences in
charges and fees paid by shareholders investing in different classes. It is not
possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (For the 5-year period ended
September 30, 1997)
Lehman Brothers
Period MFS Total Return Consumer Price Government/Corporate S&P 500
End Fund - Class A Index - U.S. Bond Index Composite Index
--- -------------- ------------ ---------- ---------------
9/30/92 $ 9,525 $10,000 $10,000 $10,000
9/30/93 11,270 10,269 11,144 11,300
9/30/94 11,149 10,573 10,683 11,717
9/30/95 13,196 10,842 12,216 15,202
9/30/96 14,977 11,168 12,766 18,293
9/30/97 18,762 11,401 13,990 25,692
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (For the 10-year period ended
September 30, 1997)
Lehman Brothers
Period MFS Total Return Consumer Price Government/Corporate S&P 500
End Fund - Class A Index - U.S. Bond Index Composite Index
--- -------------- ------------ ---------- ---------------
9/30/87 $ 9,527 $10,000 $10,000 $10,000
9/30/89 11,387 10,870 12,554 11,656
9/30/91 13,142 11,931 15,527 13,876
9/30/93 17,457 12,618 19,593 17,413
9/30/95 20,440 13,322 21,478 23,425
9/30/97 29,062 14,009 24,597 39,590
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 1997
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Fund (Class A) including 4.75%
sales charge (SEC results) +19.31% +17.02% +13.41% +11.26%
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Fund (Class A) at net asset value +25.27% +18.94% +14.52% +11.80%
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Fund (Class B) with CDSC (SEC results) +20.51% +17.33% +13.54% +11.44%
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Fund (Class B) at net asset value +24.51% +18.05% +13.78% +11.44%
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Fund (Class C) with CDSC (SEC results) +23.39% +18.14% +14.02% +11.55%
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Fund (Class C) at net asset value +24.39% +18.14% +14.02% +11.55%
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Fund (Class I) at net asset value +25.59% +19.04% +14.57% +11.83%
- ------------------------------------------------------------------------------------------------------------------------------------
Average balanced fund* +24.03% +18.53% +13.73% +11.36%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Bond Index** + 9.59% + 9.41% + 6.95% + 9.42%
- ------------------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index** +40.45% +29.92% +20.77% +14.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index+** + 2.10% + 2.55% + 2.66% + 3.43%
- ------------------------------------------------------------------------------------------------------------------------------------
* Source: Lipper Analytical Services, Inc.
** Source: CDA/Wiesenberger.
+ The Consumer Price Index is published by the U.S. Bureau of Labor Statistics and measures the cost of living (inflation).
</TABLE>
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Class A share SEC results include the maximum 4.75% sales charge. Class B share
SEC results reflect the applicable contingent deferred sales charge (CDSC),
which declines over six years as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%. Class C
shares have no initial sales charge but, along with Class B shares, have higher
annual fees and expenses than Class A shares. Class C share purchases are
subject to a 1% CDSC if redeemed within 12 months of purchase. Class I shares
have no sales charge or Rule 12b-1 fees and are only available to certain
institutional investors.
Class B and Class C share results include the performance and the operating
expenses (e.g., Rule 12b-1 fees) of the Fund's Class A shares for periods prior
to the inception of Class B and Class C shares. Because operating expenses
attributable to Class B and Class C shares are higher than those of Class A
shares, Class B and Class C share performance generally would have been lower
than Class A share performance. The Class A share performance included within
the Class B and Class C share SEC performance has been adjusted to reflect the
CDSC generally applicable to Class B and Class C shares rather than the initial
sales charge generally applicable to Class A shares.
Class I share results include the performance and the operating expenses (e.g.,
Rule 12b-1 fees) of the Fund's Class A shares for periods prior to the inception
of Class I shares. Because operating expenses attributable to Class A shares are
greater than those of Class I shares, Class I share performance generally would
have been higher than Class A share performance. The Class A share performance
included within the Class I share performance has been adjusted to reflect the
fact that Class I shares have no initial sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies and
waivers may be discontinued at any time.
TAX FORM SUMMARY
IN JANUARY 1998, SHAREHOLDERS WILL BE MAILED A TAX FORM SUMMARY
REPORTING THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE
CALENDAR YEAR 1997.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
THE FUND HAS DESIGNATED $231,252,631 AS A LONG-TERM CAPITAL GAIN.
DIVIDENDS-RECEIVED DEDUCTION
FOR THE YEAR ENDED SEPTEMBER 30, 1997, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR
CORPORATIONS WAS 21.32%.
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - September 30, 1997
Stocks - 52.0%
- ------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 45.8%
Aerospace - 2.6%
Allied Signal, Inc. 956,000 $ 40,630,000
General Dynamics Corp. 265,000 23,088,125
Lockheed-Martin Corp. 211,038 22,501,927
Raytheon Co. 269,500 15,934,188
United Technologies Corp. 344,248 27,884,088
--------------
$ 130,038,328
- ------------------------------------------------------------------------------------------------
Airlines - 0.1%
America West Holding Corp., "B"* 424,800 $ 6,186,150
- ------------------------------------------------------------------------------------------------
Agricultural Products - 0.1%
AGCO Corp. 150,000 $ 4,753,125
- ------------------------------------------------------------------------------------------------
Apparel and Textiles - 0.1%
Springs Industries, Inc. 45,000 $ 2,362,500
VF Corp. 40,400 3,742,050
--------------
$ 6,104,550
- ------------------------------------------------------------------------------------------------
Automotive - 1.1%
Dana Corp. 99,200 $ 4,898,000
Ford Motor Co. 520,677 23,560,634
General Motors Corp. 48,669 3,257,781
Goodrich (B.F.) Co. 396,400 17,937,100
TRW, Inc. 110,000 6,036,250
--------------
$ 55,689,765
- ------------------------------------------------------------------------------------------------
Banks and Credit Companies - 4.5%
Banc One Corp. 19,470 $ 1,086,669
Bank of New York, Inc. 509,504 24,456,192
BankBoston Corp. 32,900 2,909,594
BB&T Corp. 214,900 11,483,719
Chase Manhattan Corp. 222,248 26,225,264
Comerica, Inc. 60,000 4,736,250
Compass Bancshares, Inc. 80,000 3,110,000
First Hawaiian, Inc. 130,000 5,167,500
Fleet/Norstor Financial Group, Inc. 324,900 21,301,256
National City Corp. 583,200 35,903,250
NationsBank Corp. 279,400 17,287,875
Northern Trust Corp. 406,100 24,010,663
Norwest Corp. 260,460 15,953,175
PNC Bank Corp. 494,200 24,123,138
Wells Fargo & Co. 37,001 10,175,275
--------------
$ 227,939,820
- ------------------------------------------------------------------------------------------------
Building
Newport News Shipbuilding, Inc. 40,000 $ 942,500
- ------------------------------------------------------------------------------------------------
Business Machines - 1.1%
Digital Equipment Corp.* 409,970 $ 17,756,826
International Business Machines Corp. 328,600 34,811,063
Texas Instruments, Inc. 28,500 3,851,063
--------------
$ 56,418,952
- ------------------------------------------------------------------------------------------------
Business Services - 0.1%
Storage Trust Realty 105,400 $ 2,753,575
- ------------------------------------------------------------------------------------------------
Cellular Telephones - 0.2%
Century Telephone Enterprises, Inc. 160,200 $ 7,048,800
Telephone & Data Systems, Inc. 105,860 4,763,700
--------------
$ 11,812,500
- ------------------------------------------------------------------------------------------------
Chemicals - 2.0%
Air Products & Chemicals, Inc. 363,600 $ 30,156,075
Dexter Corp. 181,800 7,283,363
Dow Chemical Co. 100,500 9,114,094
duPont (E.I.) de Nemours & Co., Inc. 501,200 30,855,125
Ferro Corp. 160,000 6,110,000
Lyondell Petrochemical Co. 1 5
Nalco Chemical Co. 165,000 6,610,313
PPG Industries, Inc. 40,000 2,507,500
Praxair, Inc. 59,400 3,040,538
Rohm & Haas Co. 60,300 5,785,031
Witco Corp. 19,010 867,331
--------------
$ 102,329,375
- ------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.2%
Lear Corp.* 166,300 $ 8,190,275
- ------------------------------------------------------------------------------------------------
Conglomerates - 0.1%
Eastern Enterprises 138,400 $ 5,164,050
- ------------------------------------------------------------------------------------------------
Construction Services - 0.3%
Champion International Corp. 288,500 $ 17,580,469
- ------------------------------------------------------------------------------------------------
Consumer Goods and Services - 2.5%
Colgate-Palmolive Co. 102,600 $ 7,149,938
Gillette Co. 10,000 863,125
Philip Morris Cos., Inc. 1,131,800 47,040,438
RJR Nabisco Holdings Corp. 345,000 11,859,375
Rubbermaid, Inc. 506,300 12,942,294
Tyco International Ltd.* 588,942 48,330,069
--------------
$ 128,185,239
- ------------------------------------------------------------------------------------------------
Containers - 0.2%
Jefferson Smurfit Corp.* 200,000 $ 4,000,000
Stone Container Corp. 429,600 6,685,650
--------------
$ 10,685,650
- ------------------------------------------------------------------------------------------------
Electrical Equipment - 1.4%
Cooper Industries, Inc. 540,800 $ 29,237,000
Emerson Electric Co. 92,000 5,301,500
General Electric Co. 517,744 35,238,951
Honeywell, Inc. 47,400 3,184,688
--------------
$ 72,962,139
- ------------------------------------------------------------------------------------------------
Electronics - 0.1%
Analog Devices, Inc.* 2 $ 55
Intel Corp. 40,000 3,692,500
Sony Corp. 10,000 939,375
--------------
$ 4,631,930
- ------------------------------------------------------------------------------------------------
Financial Institutions - 2.1%
American Express Co. 455,600 $ 37,302,250
Edwards (A.G.), Inc. 245,600 12,617,700
Federal Home Loan Mortgage Corp. 257,400 9,073,350
Federal National Mortgage Assn. 474,300 22,292,100
Franklin Resources, Inc. 37,200 3,464,250
Kilroy Realty Corp. 180,800 4,881,600
Liberty Property 132,700 3,574,606
Morgan Stanley, Dean Witter, Discover & Co. 159,500 8,622,969
Union Planters Corp. 100,000 5,587,500
--------------
$ 107,416,325
- ------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.9%
Anheuser Busch Cos, Inc. 67,000 $ 3,023,375
Archer-Daniels-Midland Co. 299,250 7,163,297
Dimon, Inc. 132,200 3,305,000
General Mills, Inc. 109,700 7,562,444
McCormick & Co., Inc. 94,100 2,264,281
PepsiCo, Inc. 306,400 12,428,350
Quaker Oats Co. 160,000 8,060,000
Ralston-Ralston Purina Co. 40,000 3,540,000
--------------
$ 47,346,747
- ------------------------------------------------------------------------------------------------
Forest and Paper Products - 1.1%
Boise Cascade Corp. 125,000 $ 5,257,813
Kimberly-Clark Corp. 341,000 16,687,688
Weyerhaeuser Co. 474,000 28,143,750
Willamette Industries, Inc. 182,400 6,976,800
--------------
$ 57,066,051
- ------------------------------------------------------------------------------------------------
Insurance - 4.4%
Aetna Inc. 30,000 $ 2,443,125
Allstate Corp. 139,000 11,172,125
Chubb Corp. 474,300 33,704,944
CIGNA Corp. 223,500 41,626,875
Conseco, Inc. 105,000 5,125,313
Equitable Companies, Inc. 323,232 13,272,714
Hartford Financial Services Group, Inc. 148,400 12,771,675
Hartford Life, Inc., "A"* 1,700 65,344
Lincoln National Corp. 437,100 30,433,088
Nationwide Financial Services, Inc., "A" 24,820 691,858
Provident Cos., Inc. 182,000 12,728,625
Reliastar Financial Corp. 206,000 8,201,375
St. Paul Cos., Inc. 200,370 16,342,678
Torchmark Corp. 576,000 22,608,000
Travelers Group, Inc. 226,538 15,461,219
--------------
$ 226,648,958
- ------------------------------------------------------------------------------------------------
Machinery - 0.5%
Deere & Co., Inc. 270,000 $ 14,512,500
Sundstrand Corp. 81,000 4,667,625
York International Corp. 86,900 3,888,775
--------------
$ 23,068,900
- ------------------------------------------------------------------------------------------------
Medical and Health Products - 1.6%
American Home Products Corp. 287,700 $ 21,002,100
Baxter International, Inc. 73,000 3,814,250
Bristol-Myers Squibb Co. 643,000 53,208,250
Rhone-Poulenc Rorer, Inc. 22,500 2,175,469
Schering Plough Corp. 20,000 1,030,000
--------------
$ 81,230,069
- ------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.7%
AmeriSource Health Corp., "A"* 105,000 $ 6,135,938
Tenet Healthcare Corp.* 365,000 10,630,625
United Healthcare Corp. 388,700 19,435,000
--------------
$ 36,201,563
- ------------------------------------------------------------------------------------------------
Metals and Minerals - 0.5%
Aluminum Cos. of America 239,600 $ 19,647,200
Phelps Dodge Corp. 78,460 6,090,458
--------------
$ 25,737,658
- ------------------------------------------------------------------------------------------------
Oil Services - 0.3%
Baker Hughes, Inc. 100,000 $ 4,375,000
Burlington Resources, Inc. 155,000 7,953,438
Schlumberger Ltd. 20,000 1,683,750
Tenneco, Inc. 77,400 3,705,525
--------------
$ 17,717,713
- ------------------------------------------------------------------------------------------------
Oils - 4.0%
Amoco Corp. 105,400 $ 10,157,925
Atlantic Richfield Co. 254,600 21,752,388
Chevron Corp. 332,100 27,626,569
Exxon Corp. 392,072 25,117,113
Mobil Corp. 273,700 20,253,800
Occidental Petroleum Corp. 253,000 6,562,188
Reading & Bates Corp.* 51,106 2,124,093
Sun Co., Inc. 44,582 1,953,249
Texaco, Inc. 674,200 41,421,163
Ultramar Diamond Shamrock 65,000 2,100,313
Unocal Corp. 191,750 8,293,188
USX-Marathon Group 1,002,400 37,276,750
--------------
$ 204,638,739
- ------------------------------------------------------------------------------------------------
Photographic Products - 0.2%
Eastman Kodak Co. 196,000 $ 12,727,750
- ------------------------------------------------------------------------------------------------
Pollution Control - 1.2%
Browning Ferris Industries, Inc. 677,900 $ 25,802,569
Waste Management, Inc. 977,900 34,165,381
--------------
$ 59,967,950
- ------------------------------------------------------------------------------------------------
Printing and Publishing - 0.1%
Gannett Co., Inc. 40,000 $ 4,317,500
- ------------------------------------------------------------------------------------------------
Railroads - 1.2%
Burlington Northern Santa Fe Railway Co. 237,600 $ 22,958,100
Canadian National Railway Co. 391,400 20,352,800
Illinois Central Corp. 327,400 12,031,950
Norfolk Southern Corp. 55,200 5,699,400
--------------
$ 61,042,250
- ------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 1.7%
Arden Realty, Inc. 274,900 $ 8,624,988
Boston Properties, Inc.* 335,100 10,995,469
Carramerica Realty Corp. 70,000 2,240,000
Cornerstone Properties, Inc. 115,400 2,207,025
Federal Realty Investment Trust 100,000 2,518,750
First Industrial Realty Trust, Inc. 206,000 7,004,000
Highwoods Properties, Inc. 286,200 10,124,325
Hospitality Properties Trust 270,000 9,551,250
Meditrust Corp. 205,800 8,540,700
Mid-America Apartment Communities, Inc. 106,900 3,173,594
National Health Investors, Inc. 130,200 5,061,525
Sovran Self Storage, Inc. 100,000 3,150,000
TriNet Corporate Realty Trust, Inc. 366,400 12,869,800
--------------
$ 86,061,426
- ------------------------------------------------------------------------------------------------
Special Products and Services - 0.1%
Royal Caribbean Cruises 14,950 $ 654,063
Stanley Works 40,100 1,724,300
--------------
$ 2,378,363
- ------------------------------------------------------------------------------------------------
Stores - 1.4%
CVS Corp. 48,800 $ 2,775,500
May Department Stores Co. 101,860 5,551,370
Penney (J.C.), Inc. 446,200 25,991,150
Rite Aid Corp. 566,100 31,383,169
Sears, Roebuck & Co. 129,200 7,356,325
--------------
$ 73,057,514
- ------------------------------------------------------------------------------------------------
Supermarkets - 0.2%
Kroger Co.* 239,000 $ 7,214,813
Meyer Fred, Inc.* 60,000 3,195,000
--------------
$ 10,409,813
- ------------------------------------------------------------------------------------------------
Telecommunications - 0.1%
Lucent Technologies, Inc. 19,601 $ 1,595,031
Telecom Italia SPA 10 39
--------------
$ 1,595,070
- ------------------------------------------------------------------------------------------------
Utilities - Electric - 2.5%
Carolina Power & Light Co. 281,800 $ 10,127,188
Cinergy Corp. 335,000 11,201,563
CMS Energy Corp. 209,700 7,758,900
DPL, Inc. 108,000 2,646,000
Duke Energy Corp. 184,653 9,128,783
FPL Group, Inc. 350,200 17,947,750
GPU, Inc. 100,000 3,587,500
New Century Energies, Inc.* 385,400 16,018,188
Pacificorp 361,600 8,090,800
Pinnacle West Capital Corp. 484,000 16,274,500
Public Service Co. of New Mexico 646,200 12,479,738
Scana Corp. 100,000 2,506,250
Sierra Pacific Resources 268,900 8,621,606
Texas Utilities Co. 79,000 2,844,000
--------------
$ 129,232,766
- ------------------------------------------------------------------------------------------------
Utilities - Gas - 2.0%
Coastal Corp. 389,200 $ 23,838,500
Columbia Gas System, Inc. 283,700 19,859,000
Enron Corp. 57,756 2,223,606
Keyspan Energy Corp. 150,000 5,006,250
KN Energy, Inc. 159,600 7,301,700
NGC Corp. Capital Trust 401,000 7,117,750
Pacific Enterprises 123,400 4,180,175
Questar Corp. 140,000 5,678,750
Sonat, Inc. 104,100 5,296,087
UGI Corp. 445,000 12,293,125
Williams Cos., Inc. 253,718 11,877,174
--------------
$ 104,672,117
- ------------------------------------------------------------------------------------------------
Utilities - Telephone - 2.3%
AT&T Corp. 508,200 $ 22,519,613
Bell Atlantic Corp. 88,396 7,110,353
BellSouth Corp. 205,000 9,481,250
GTE Corp. 654,000 29,675,250
MCI Communications Corp. 291,000 8,548,125
SBC Communications, Inc. 115,671 7,099,299
Sprint Corp. 545,800 27,290,000
US West Communications Group 125,000 4,812,500
--------------
$ 116,536,390
- ------------------------------------------------------------------------------------------------
Total U.S. Stocks $2,341,430,024
- ------------------------------------------------------------------------------------------------
Foreign Stocks - 6.2%
Argentina - 0.2%
YPF Sociedad Anonima, ADR (Oils) 224,800 $ 8,289,500
- ------------------------------------------------------------------------------------------------
Brazil - 0.1%
Uniao de Bancos Brasileiros S.A. GDR
(Bank and Credit Companies) 91,500 $ 3,351,188
- ------------------------------------------------------------------------------------------------
Chile - 0.1%
Chilectra SA, ADR (Utilities - Electric) 225,000 $ 7,102,688
- ------------------------------------------------------------------------------------------------
France - 0.5%
Alcatel Alsthom, ADR (Telecommunications) 580,700 $ 15,424,844
Sanofi (Medical and Health Products) 92,500 8,611,843
--------------
$ 24,036,687
- ------------------------------------------------------------------------------------------------
Germany - 0.6%
Bayer AG (Chemicals) 100,000 $ 3,989,332
Hoechst AG (Chemicals) 109,000 4,840,112
Henkel Kgaa (Consumer Goods and Services) 365,000 20,629,873
--------------
$ 29,459,317
- ------------------------------------------------------------------------------------------------
Italy - 0.2%
Eni S.p.A, ADR (Oils) 205,200 $ 12,889,125
- ------------------------------------------------------------------------------------------------
Netherlands - 1.1%
Akzo Nobel (Chemicals) 158,605 $ 27,178,697
Royal Dutch Petroleum Co., ADR (Oils) 549,400 30,491,700
--------------
$ 57,670,397
- ------------------------------------------------------------------------------------------------
Peru - 0.1%
Telefonica del Peru SA, ADR (Telecommunications) 205,945 $ 4,865,451
- ------------------------------------------------------------------------------------------------
Spain - 0.1%
Repsol S.A., ADR (Oil Services) 149,480 $ 6,483,695
- ------------------------------------------------------------------------------------------------
Sweden - 0.1%
Volvo AB, ADR (Automotive) 145,000 $ 4,114,375
- ------------------------------------------------------------------------------------------------
Switzerland - 0.6%
Novartis AG (Medical and Health Products) 20,413 $ 31,393,786
- ------------------------------------------------------------------------------------------------
United Kingdom - 2.5%
British Petroleum PLC, ADR (Oils) 744,182 $ 67,581,022
Gallaher Group PLC, ADR (Consumer Goods and
Services)* 40,000 767,500
Grand Metropolitan PLC (Food and Beverage
Products) 2,608,400 24,829,620
SmithKline-Beecham PLC, ADR (Medical and Health
Products) 716,000 34,994,500
--------------
$ 128,172,642
- ------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 317,828,851
- ------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,841,151,329) $2,678,034,907
- ------------------------------------------------------------------------------------------------
Preferred Stocks - 0.4%
- ------------------------------------------------------------------------------------------------
Printing and Publishing - 0.1%
NB Capital Corp., 8.35% 6,700 $ 6,759,295
- ------------------------------------------------------------------------------------------------
Utilities - Electric - 0.1%
Long Island Lighting Co., 7.95% 250,000 $ 6,515,625
- ------------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
El Paso Tennessee Pipeline Co., 8.25% 50,000 $ 2,750,000
- ------------------------------------------------------------------------------------------------
Oils - 0.1%
USX-Marathon Capital, LLC, 8.75% 228,400 $ 5,838,475
- ------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $20,843,330) $ 21,863,395
- ------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 4.4%
- ------------------------------------------------------------------------------------------------
Aerospace - 0.2%
Loral Space & Communications Corp., 6%## 209,050 $ 11,654,538
- ------------------------------------------------------------------------------------------------
Agricultural Products - 0.5%
Case Corp., $4.50 144,200 $ 23,216,200
- ------------------------------------------------------------------------------------------------
Airlines
Continental Airlines Finance Trust, 8.5% 15,000 $ 1,282,500
- ------------------------------------------------------------------------------------------------
Banks and Credit Companies - 0.4%
McKesson Financing Trust, 5%## 151,120 $ 11,069,540
National Australia Bank Ltd., 7.875% 70,000 2,056,250
WBK Trust 276,200 8,872,925
--------------
$ 21,998,715
- ------------------------------------------------------------------------------------------------
Business Services
Ikon Office Solutions, Inc., $5.04 30,000 $ 1,935,000
- ------------------------------------------------------------------------------------------------
Computer Software - Systems
Wang Labs, Inc., 6.5%## 25,000 $ 1,240,625
- ------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.1%
Corning Delaware L.P., 6% 30,000 $ 2,248,125
- ------------------------------------------------------------------------------------------------
Entertainment - 0.2%
American Radio Systems Corp., 7%## 55,000 $ 3,162,500
Books Financing Trust, 8.75s## 45,000 2,508,750
Houston Industries, Inc., 7%* 20,000 1,040,000
Royal Caribbean Cruises Ltd., 7.25% 31,000 2,201,000
--------------
$ 8,912,250
- ------------------------------------------------------------------------------------------------
Financial Institutions - 0.8%
Finova Finance Trust, 5.5% 158,060 $ 10,412,203
First Plus Finance 12,460 682,185
Greenfield Capital Trust, 6%## 45,000 2,137,500
Jefferson Pilot Corp., 7.25% 25,000 2,750,000
Merrill Lynch & Co., Inc. 30,000 1,158,750
Merrill Lynch & Co., Inc., 6.5% 60,000 5,790,000
Penncorp Financial Group, Inc., $3.50## 140,100 7,582,913
Salomon, Inc., 6.25% 43,300 2,435,625
Salomon, Inc., 7.625% 100,000 3,787,500
Tosco Financing Trust, 5.75%## 34,000 2,079,313
--------------
$ 38,815,989
- ------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.1%
Chiquita Brands International, Inc., $3.75 20,000 $ 1,230,000
Dole Food Co., 7% 70,000 3,027,500
Ralston Purina Co., 7%* 35,000 2,358,125
--------------
$ 6,615,625
- ------------------------------------------------------------------------------------------------
Forest and Paper Products
International Paper Capital Trust, 5.25% 5,000 $ 280,625
- ------------------------------------------------------------------------------------------------
Insurance - 0.6%
American Heritage Life Investment Corp., 8.5% 27,400 $ 1,698,800
Conseco, Inc., 7% 111,000 18,981,000
Frontier Financing Trust, 6.25%## 45,000 3,870,000
St. Paul Capital LLC, 6% 55,800 4,003,650
SunAmerica, Inc., $3.188 40,000 1,835,000
SunAmerica, Inc., $3.10 15,000 1,845,000
--------------
$ 32,233,450
- ------------------------------------------------------------------------------------------------
Metals and Minerals - 0.1%
Timet Capital Trust, 6.625%## 70,800 $ 4,035,600
- ------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
Browning Ferris Industries, Inc., 7.25% 290,000 $ 10,222,500
- ------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.5%
Hilton Hotels Corp., 8% 60,000 $ 1,860,000
Host Marriott Financial Trust, 6.75% 20,000 1,350,000
Host Marriott Financial Trust, 6.75%*## 343,680 23,198,400
Wendys Financing, 5% 22,000 1,146,750
--------------
$ 27,555,150
- ------------------------------------------------------------------------------------------------
Steel - 0.1%
AK Steel Holding Corp., 7% 23,300 $ 851,906
USX-Marathon Group, 6.75% 70,000 1,750,000
--------------
$ 2,601,906
- ------------------------------------------------------------------------------------------------
Stores - 0.1%
AnnTaylor Finance Trust, 8.5%* 20,000 $ 972,500
TJX Cos. Inc., $7.00 4,000 1,336,750
K-Mart Financing I, 7.75% 20,000 1,170,000
--------------
$ 3,479,250
- ------------------------------------------------------------------------------------------------
Telecommunications - 0.1%
ICG Funding LLC, 6.75%## 24,900 $ 1,245,000
Intermedia Communication, Inc., 7%## 39,900 1,281,788
IXC Communications Inc., 7.25%*## 5,091 738,141
Qualcomm Financial Trust, 5.75%## 8,000 434,000
--------------
$ 3,698,929
- ------------------------------------------------------------------------------------------------
Transportation
Hvide Capital Trust, 6.5%*## 19,940 $ 1,321,025
- ------------------------------------------------------------------------------------------------
Utilities - Electric - 0.2%
AES Corp., 5.375% 5,000 $ 341,250
Calenergy Capital Trust III, 6.5%## 50,000 2,375,000
Devon Financing Trust, $3.25## 45,000 3,628,125
Williams Cos., Inc., $3.50## 38,000 4,194,250
--------------
$ 10,538,625
- ------------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
Enron Corp., 6.25% 55,000 $ 1,234,063
MCN Corp., 8.75% 55,200 1,683,600
Unocal Capital Trust, 6.25%## 60,264 3,698,703
--------------
$ 6,616,366
- ------------------------------------------------------------------------------------------------
Utilities - Telephone - 0.1%
Compania Inversiones Telephone, 7%## 59,700 $ 4,089,450
- ------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $159,886,222) $ 224,592,443
- ------------------------------------------------------------------------------------------------
Bonds - 35.9%
- ------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------------------------
U.S. Bonds - 33.8%
Aerospace - 0.2%
Northrop Grumman Corp., 9.375s, 2024 $ 4,000 $ 4,630,120
Raytheon Co., 6.75s, 2007 4,755 4,766,888
Raytheon Co., 7.2s, 2027 2,000 2,022,500
--------------
$ 11,419,508
- ------------------------------------------------------------------------------------------------
Airlines - 1.1%
America West Airlines Pass Through, 6.86s, 2004 $ 1,730 $ 1,727,837
Continental Airlines, Inc., 9.5s, 2001 7,040 7,444,800
Continental Airlines Pass-Through Trust, 7.461s, 2015 1,500 1,579,920
Delta Air Lines, Inc., 8.5s, 2002 5,382 5,750,075
Delta Air Lines, Inc., 9.75s, 2021 8,155 10,182,088
Jet Equipment Trust, 8.64s, 2012## 3,266 3,637,080
Jet Equipment Trust, 9.41s, 2010## 3,365 3,976,417
Jet Equipment Trust, 10.69s, 2015## 1,250 1,585,150
Jet Equipment Trust, 11.44s, 2014## 4,700 6,058,958
Northwest Airlines, Inc., 8.7s, 2007 1,500 1,557,210
United Airlines Pass-Thru Trust, 7.27s, 2013 12,143 12,277,801
--------------
$ 55,777,336
- ------------------------------------------------------------------------------------------------
Automotive - 0.2%
Ford Motor Credit Co., 7.2s, 2007 $ 2,650 $ 2,730,958
Ford Motor Co., 7.7s, 2097 6,010 6,310,500
--------------
$ 9,041,458
- ------------------------------------------------------------------------------------------------
Banks and Credit Companies - 1.2%
BT Institutional Capital Trust, 7.75s, 2026## $ 5,000 $ 4,891,875
Capital One Financial Corp., 7.25s, 2003 4,845 4,828,483
Colonial Capital II, 8.92s, 2027 3,510 3,707,437
First Chicago NBD Institutional Capital, 7.95s, 2026## 2,600 2,615,314
Greenpoint Capital Trust I, 9.1s, 2027## 2,500 2,637,500
MBNA Capital, 8.278s, 2026 19,130 19,006,803
Riggs National Corp., 8.5s, 2006 2,025 2,116,125
Socgen Real Estate Co. LLC, 7.64s, 2049## 10,500 10,788,750
State Street Bank & Trust, 7.94s, 2026## 5,000 5,140,000
Washington Mutual Capital I, 8.375s, 2027 4,590 4,790,813
--------------
$ 60,523,100
- ------------------------------------------------------------------------------------------------
Building - 0.2%
Owens Corning Fiberglass Corp., 8.875s, 2002 $ 5,390 $ 5,864,050
Owens Corning Fiberglass Corp., 9.9s, 2015## 2,459 2,729,733
--------------
$ 8,593,783
- ------------------------------------------------------------------------------------------------
Business Machines - 0.1%
International Business Machines Corp., 7.125s,
2096 $ 5,275 $ 5,186,644
- ------------------------------------------------------------------------------------------------
Cellular Telephones - 0.1%
U.S. Cellular Corp., 7.25s, 2007 $ 5,000 $ 5,039,600
- ------------------------------------------------------------------------------------------------
Conglomerates - 0.2%
News America Holdings Inc., 10.125s, 2012 $ 10,000 $ 11,485,700
- ------------------------------------------------------------------------------------------------
Construction Services - 0.2%
Georgia Pacific Corp., 9.875s, 2021 $ 8,215 $ 9,255,101
- ------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.1%
Fingerhut Cos., Inc., 7.375s, 1999 $ 3,000 $ 3,030,000
Philip Morris Cos., Inc., 7.75s, 2027 3,000 3,075,090
--------------
$ 6,105,090
- ------------------------------------------------------------------------------------------------
Corporate Asset Backed - 5.6%
Advanta Credit Card Master Trust II, 5.756s, 2004 $ 15,000 $ 14,962,500
Advanta Mortgage Loan Trust, 5.886s, 2028 23,500 23,500,000
AT&T Universal Card Master Trust, 5.832s, 2004 12,000 11,985,000
BCF LLC, 7.75s, 2026## 4,430 4,179,301
Carco Auto Loan Master Trust, 5.706s, 2003 55,000 54,879,550
Chevy Chase Master Credit Card Trust, 5.806s, 2001 32,500 32,500,000
Citibank Credit Card Master Trust I, 6.839s, 2004 25,000 25,179,500
Contimortage Home Equity Loan Trust, 6.26s, 2012 25,000 24,996,095
Continental Airlines Pass-Through Trust, 9.5s, 2013 3,892 4,487,890
Continental Airlines Pass-Through Trust, 10.22s, 2014 9,114 11,050,120
Discover Card Master Trust 1, 5.746s, 2005 15,000 15,000,000
First USA Credit Card Master Trust, 5.786s, 2007 40,000 39,974,800
Green Tree Financial Corp., 6.49s, 2028 9,000 9,039,330
Merrill Lynch Mortgage Investors, Inc., 8.129s, 2023+ 4,000 3,730,000
Merrill Lynch Mortgage Investors, Inc., 9s, 2011 465 490,992
Merrill Lynch Mortgage Investors, Inc., 9.25s, 2011 154 157,214
Merrill Lynch Mortgage Investors, Inc., 9.7s, 2010 86 86,709
PNC Mortgage Securities Corp., 6.49s, 2026 15,000 15,032,812
--------------
$ 291,231,813
- ------------------------------------------------------------------------------------------------
Entertainment - 0.5%
Circus Circus Enterprises, Inc., 7s, 2036 $ 11,100 $ 11,113,098
Time Warner Pass-Through Asset Trust, 6.1s, 2001## 12,910 12,596,158
--------------
$ 23,709,256
- ------------------------------------------------------------------------------------------------
Financial Institutions - 2.7%
Banponce Trust I, 8.327s, 2027 $ 5,000 $ 5,168,250
Bear Stearns Cos., Inc., 6.5s, 2002 1,520 1,518,480
Contifinancial Corp., 7.5s, 2002## 6,814 6,882,140
Dynex Capital Corp., 7.875s, 2002 7,000 7,043,750
Felcor Suites Ltd. Partnership, 7.375s, 2004## 4,860 4,847,850
First Empire Capital Trust I, 8.234s, 2027 6,525 6,805,445
First Merchants Acceptance Corp., 9.5s, 2006 2,000 800,000
HSBC Americas Capital Trust II, 8.38s, 2027## 7,575 7,915,875
Lehman Brothers Holdings, Inc., 6.4s, 1999 6,500 6,522,880
Lehman Brothers, Inc., 7.125s, 2003 $ 4,500 $ 4,574,970
Lehman Brothers, Inc., 7.375s, 2004 750 773,617
Lehman Brothers, Inc., 7.5s, 2026 15,600 16,464,084
Leucadia Capital Trust I, 8.65s, 2027 2,606 2,729,785
MBNA Corp., 6.963s, 2002## 13,755 13,881,546
Nationwide Mutual Life Insurance Co., 7.5s, 2024## 10,925 10,766,369
Salomon, Inc., 7.25s, 2001 16,185 16,520,191
Salomon, Inc., 7.2s, 2004 2,700 2,763,612
Salton Sea Funding Corp., 7.37s, 2005 5,250 5,294,572
Salton Sea Funding Corp., 7.84s, 2010 7,270 7,492,026
Salton Sea Funding Corp., 8.3s, 2011## 2,500 2,673,725
United Cos. Financial Corp., 7s, 1998 2,080 2,089,547
United Cos. Financial Corp., 7.7s, 2004 2,650 2,662,058
--------------
$ 136,190,772
- ------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.1%
RJR Nabisco, Inc., 8.25s, 2004 $ 2,550 $ 2,629,152
RJR Nabisco, Inc., 8.75s, 2007 4,150 4,405,225
--------------
$ 7,034,377
- ------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.4%
Boise Cascade Co., 7.35s, 2004 $ 8,500 $ 8,563,750
Boise Cascade Co., 9.85s, 2002 6,375 7,181,437
Waterford 3 Funding, 8.09s, 2017 4,770 4,871,363
--------------
$ 20,616,550
- ------------------------------------------------------------------------------------------------
Insurance - 1.7%
Conseco Finance Trust III, 8.796s, 2027 $ 10,625 $ 11,328,906
Equitable Life Assurance Society, 7.7s, 2015## 8,513 8,795,461
Liberty Mutual Insurance Co., 8.2s, 2007## 12,495 13,627,547
NGC Corp. Capital Trust, 8.316s, 2027## 3,255 3,423,853
Providian Capital I, 9.525s, 2027## 9,350 9,934,375
Safeco Capital Trust I, 8.072s, 2037## 27,823 28,240,345
Travelers Capital III, 7.75s, 2036 10,405 10,600,094
--------------
$ 85,950,581
- ------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.2%
Tenet Healthcare Corp., 8s, 2005 $ 7,250 $ 7,395,000
Tenet Healthcare Corp., 8.625s, 2007 857 886,995
Tenet Healthcare Corp., 10.125s, 2005 1,978 2,165,910
--------------
$ 10,447,905
- ------------------------------------------------------------------------------------------------
Oil Services - 0.1%
Seacor Smit, Inc., 7.2s, 2009## $ 5,300 $ 5,339,750
- ------------------------------------------------------------------------------------------------
Oils - 0.8%
Chesapeake Energy Corp., 7.875s, 2004 $ 7,560 $ 7,314,300
Clark Oil Refining Corp., 10.5s, 2001 3,060 3,151,800
Enserch Exploration, Inc., 7.54s, 2009## 4,000 4,000,000
Gulf Canada, 9.25s, 2004 3,420 3,618,497
Louisiana Land & Exploration Co., 7.65s, 2023 7,500 7,815,825
Oryx Energy Co., 8.375s, 2004 7,240 7,710,600
Oryx Energy Co., 10s, 2001 4,423 4,851,146
Transocean Offshore, Inc., 8s, 2027 4,050 4,414,500
--------------
$ 42,876,668
- ------------------------------------------------------------------------------------------------
Precious Metals and Minerals - 0.1%
Freeport McMoRan Copper & Gold, 7.5s, 2006 $ 6,345 $ 6,464,349
- ------------------------------------------------------------------------------------------------
Railroads - 0.1%
Norfolk Southern Corp., 7.05s, 2037 $ 5,975 $ 6,197,629
- ------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.6%
Circus Circus Enterprises, Inc., 6.7s, 2096 $ 4,500 $ 4,438,980
Hilton Hotels Corp., 7.375s, 2002 2,475 2,524,500
Hilton Hotels Corp., 7.95s, 2007 18,250 19,190,422
Mirage Resorts, Inc., 6.75s, 2007 2,370 2,337,412
--------------
$ 28,491,314
- ------------------------------------------------------------------------------------------------
Stores - 0.1%
Sears Roebuck Acceptance Corp., 6.7s, 2007 $ 2,630 $ 2,620,348
- ------------------------------------------------------------------------------------------------
Telecommunications - 1.4%
Commonwealth Edison Co., 7.375s, 2004 $ 3,000 $ 3,038,640
Fox/Liberty Networks, Inc., 8.875s, 2007## 2,500 2,518,750
TCI Communications, 6.375s, 1999 18,000 17,985,780
TCI Communications Financing III, 9.65s, 2027 9,620 10,377,575
Tele-Communications, Inc., 7.38s, 2001 2,625 2,668,969
Tele-Communications, Inc., 7.385s, 2001 7,955 8,089,519
Tele-Communications, Inc., 7.49s, 2003 10,000 10,145,700
Tele-Communications, Inc., 8.25s, 2003 3,600 3,802,716
Tele-Communications, Inc., 9.25s, 2002 2,200 2,398,616
Worldcom, Inc., 7.75s, 2007 2,700 2,837,754
Worldcom, Inc., 8.875s, 2006 5,000 5,362,400
--------------
$ 69,226,419
- ------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 2.9%
Federal National Mortgage Assn., 7s, 2011 - 2012 $ 99,732 $ 100,666,265
Federal National Mortgage Assn., 8.5s, 2026 -2026 46,286 48,354,167
--------------
$ 149,020,432
- ------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 8.4%
Government National Mortgage Association - 2.2%
GNMA, 7.5s, 2026 - 2027 $ 39,798 $ 40,482,111
GNMA, 8s, 2007 - 2025 43,827 45,609,861
GNMA, 8.5s, 2026 - 2027 25,745 26,937,017
--------------
$ 113,028,989
- ------------------------------------------------------------------------------------------------
Small Business Administration
SBA, 8.8s, 2011 $ 482 $ 522,227
- ------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 6.2%
U S. Treasury Bonds, 6.375s, 2027 $ 11,000 $ 10,951,820
U.S. Treasury Bonds, 6.625s, 2027 101,963 104,400,935
U.S. Treasury Bonds, 9.875s, 2015 28,500 38,884,545
U.S. Treasury Bonds, 12.375s, 2004 25,000 33,402,250
U.S. Treasury Notes, 5.875s, 2000 5,000 5,000,800
U.S. Treasury Notes, 6.125s, 2007 1,142 1,142,537
U.S. Treasury Notes, 6.25s, 2002 - 2007 22,254 22,397,921
U.S. Treasury Notes, 6.5s, 2002 - 2006 22,353 22,799,500
U.S. Treasury Notes, 6.625s, 2002 - 2002 33,902 34,712,493
U.S. Treasury Notes, 7.25s, 2004 15,832 16,811,526
U.S. Treasury Notes, 8.5s, 2000 2,900 3,110,250
U.S. Treasury Notes, 9.125s, 1999 22,410 23,547,980
--------------
$ 317,162,557
- ------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 430,713,773
- ------------------------------------------------------------------------------------------------
Utilities - Electric - 3.8%
Bear Valley II Funding Corp., 8.25s, 2003 $ 5,780 $ 5,911,379
Bear Valley II Funding Corp., 8.625s, 2007 2,190 2,287,630
Cleveland Electric Illuminating Co., 9s, 2023 9,118 9,764,193
Cleveland Electric Illuminating Co., 9.375s, 2017 4,550 4,750,291
Comed Financing II, 8.5s, 2027 4,400 4,545,288
Commonwealth Edison Co., 6.4s, 2005 4,575 4,364,367
Commonwealth Edison Co., 7.625s, 2007 8,230 8,466,366
Connecticut Light & Power Co., 7.75s, 2002## 10,380 10,496,775
Edison Mission Energy Funding Corp., 7.33s, 2008## 1,450 1,482,016
El Paso Electric Co., 8.9s, 2006 1,800 1,951,902
First PV Funding Corp., 10.15s, 2016 3,873 4,122,189
First PV Funding Corp., 10.3s, 2014 3,865 4,173,620
Loewen Group, Inc., 6.7s, 1999## 8,100 8,083,476
Long Island Lighting Co., 7.5s, 2007 4,325 4,423,740
Long Island Lighting Co., 8.9s, 2019 11,928 12,723,836
Long Island Lighting Co., 9s, 2022 29,105 32,417,149
Long Island Lighting Co., 9.625s, 2024 1,395 1,443,783
Midland Cogeneration Venture Corp., 10.33s, 2002 2,700 2,935,143
Midland Funding Corp. II, "A", 11.75s, 2005 2,220 2,634,918
Midland Funding Corp., "B", 13.25s, 2006 $ 3,970 $ 5,018,001
Montana Power Co., 7.875s, 2026 2,275 2,324,936
Niagara Mohawk Power Corp., 6.875s, 2001 10,663 10,580,542
Niagara Mohawk Power Corp., 8.5s, 2023 4,650 4,744,163
Niagara Mohawk Power Corp., 8.75s, 2022 7,430 7,623,551
Niagara Mohawk Power Corp., 8.77s, 2018 13,940 14,706,003
North Atlantic Energy Corp., 9.05s, 2002 10,132 10,247,201
Southern Co. Capital Trust I, 8.19s, 2037 7,467 7,774,416
Texas Utilities Electric Co., 7.17s, 2007 6,190 6,293,806
--------------
$ 196,290,680
- ------------------------------------------------------------------------------------------------
Utilities - Gas - 0.5%
California Energy, Inc., 10.25s, 2004 $ 4,005 $ 4,347,067
Ras Laffan Liquified Natural Gas, 7.628s, 2006## 2,500 2,621,875
Ras Laffan Liquified Natural Gas, 8.294s, 2014## 4,225 4,515,469
Tennessee Gas Pipeline Co., 7.625s, 2037 6,500 6,760,000
Texas Gas Transmission Corp., 7.25s, 2027 5,300 5,333,125
--------------
$ 23,577,536
- ------------------------------------------------------------------------------------------------
Other - 0.2%
Burlington Industries, Inc., 7.25s, 2027 $ 3,050 $ 3,050,000
Federal Express Corp., 7.65s, 2014 4,350 4,632,750
--------------
$ 7,682,750
- ------------------------------------------------------------------------------------------------
Total U.S. Bonds $1,726,110,222
- ------------------------------------------------------------------------------------------------
Foreign Bonds - 2.1%
Argentina - 0.1%
Hidroelectrica Alicura, 8.375s, 1999## $ 6,244 $ 6,337,660
- ------------------------------------------------------------------------------------------------
Chile - 0.2%
Empresa Electrica Del Norts, 7.75s, 2006## $ 1,915 $ 1,919,443
Empresa Nacional De Electric, 7.325s, 2037 5,114 5,301,274
Enersis S.A., 6.9s, 2006 4,000 3,945,000
--------------
$ 11,165,717
- ------------------------------------------------------------------------------------------------
China - 0.1%
Dao Heng Bank Ltd., 7.75s, 2007## $ 5,150 $ 5,202,324
- ------------------------------------------------------------------------------------------------
Colombia - 0.3%
Financiera Energetica Nacional Colombia, 9.375s, 2006## $ 5,410 $ 5,842,800
Oleoducto Central S.A., 9.35s, 2005## 3,500 3,832,500
Republic of Colombia, 8.66s, 2016## 2,200 2,373,250
Republic of Colombia, 8.75s, 1999 3,640 3,785,600
--------------
$ 15,834,150
- ------------------------------------------------------------------------------------------------
Indonesia - 0.4%
Indah Kiat Finance Mautitius Ltd., 10s, 2007## $ 5,130 $ 5,033,812
PT Polysindo Eka Perkasa, 13s, 2001 5,627 6,295,206
Tjiwi Kimia Finance Maturities Ltd., 10s, 2004 9,260 9,074,800
--------------
$ 20,403,818
- ------------------------------------------------------------------------------------------------
Mexico - 0.1%
Banco Commercial S.A., 8.25s, 2007## $ 3,710 $ 3,803,863
- ------------------------------------------------------------------------------------------------
Panama - 0.1%
Republic of Panama, 7.875s, 2002## $ 2,965 $ 2,972,413
- ------------------------------------------------------------------------------------------------
Russia - 0.1%
Russian Federation, 10s, 2007## $ 6,000 $ 6,345,000
- ------------------------------------------------------------------------------------------------
South Korea - 0.5%
Korea Development Bank, 7.125s, 2001 $ 4,750 $ 4,775,270
Korea Development Bank, 6.75s, 2005 12,485 12,094,095
Korea Electric Power Corp., 7s, 2027 7,845 7,705,751
--------------
$ 24,575,116
- ------------------------------------------------------------------------------------------------
Thailand - 0.2%
Industrial Finance Corp., 7.375s, 2007## $ 5,350 $ 4,890,168
Jasmine Submarine Telecom Ltd., 8.483s, 2011## 8,000 7,890,000
--------------
$ 12,780,168
- ------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 109,420,229
- ------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,802,201,598) $1,835,530,451
- ------------------------------------------------------------------------------------------------
Convertible Bonds - 2.8%
- ------------------------------------------------------------------------------------------------
Advertising
Omnicom Group Inc., 4.25s, 2007## $ 1,700 $ 2,199,375
- ------------------------------------------------------------------------------------------------
Aerospace - 0.1%
Hexcel Corp., 7s, 2003 $ 2,000 $ 3,910,000
- ------------------------------------------------------------------------------------------------
Automotive - 0.1%
Daimler Benz, 0s, 2017 $ 10,850 $ 5,099,500
- ------------------------------------------------------------------------------------------------
Building
Continental Homes Holding Corp., 6.875s, 2002 $ 500 $ 636,250
- ------------------------------------------------------------------------------------------------
Business Services - 0.1%
Personnel Group of America, Inc., 5.75s, 2004 $ 1,994 $ 2,303,070
Protection One Alarm Monitoring, 6.75s, 2003 500 590,000
--------------
$ 2,893,070
- ------------------------------------------------------------------------------------------------
Chemicals - 0.2%
Valhi, Inc., 0s, 2007 $ 15,840 $ 9,900,000
- ------------------------------------------------------------------------------------------------
Computer Software - PC
Read Rite Corp., 6.5s, 2004 $ 1,000 $ 977,500
- ------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.3%
Adaptec, Inc., 4.75s, 2004## $ 1,492 $ 1,674,770
CUC International, Inc., 3s, 2002## 6,000 6,930,000
Data General Corp., 6s, 2004## 1,994 2,462,590
Safeguard Scientifics, Inc., 6s, 2006## 1,500 1,560,000
SCI Systems, Inc., 5s, 2006## 750 1,597,031
Solectron Corp., 6s, 2006## 1,000 1,440,000
System Software Associates, Inc., 7s, 2002 994 1,076,005
--------------
$ 16,740,396
- ------------------------------------------------------------------------------------------------
Corporate Asset Backed - 0.1%
Time Warner, Inc., 0s, 2013 $ 7,690 $ 3,720,038
- ------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1%
Integrated Process Equipment Corp., 6.25s, 2004 $ 1,495 $ 1,681,875
National Semiconductor Corp., 6.5s, 2002## 1,500 1,721,250
--------------
$ 3,403,125
- ------------------------------------------------------------------------------------------------
Electronics - 0.2%
ADT Operations, Inc., 0s, 2010 $ 9,140 $ 9,688,400
Dovatron International, Inc., 6s, 2002## 500 901,250
Photronics, Inc., 6s, 2004 739 944,996
Xilinx, Inc., 5.25s, 2002## 750 870,000
--------------
$ 12,404,646
- ------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.1%
Grand Metropolitan Public Ltd., 6.5s, 2000## $ 2,000 $ 2,765,000
- ------------------------------------------------------------------------------------------------
Medical and Health Products - 0.1%
North American Vaccine, Inc., 6.5s, 2003## $ 500 $ 525,625
Roche Holdings, Inc., 0s, 2008## 2,500 2,325,000
Roche Holdings, Inc., 0s, 2010## 4,230 2,136,150
Ventritex, Inc., 5.75s, 2001 880 1,061,500
--------------
$ 6,048,275
- ------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.1%
Dura Pharmaceuticals, Inc., 3.5s, 2002 $ 1,000 $ 1,065,000
National Health Investors, Inc., 7.75s, 2001 500 592,500
Omega Healthcare Investors Inc., 8.5s, 2001 500 630,625
Quintiles Transnational Corp., 4.25s, 2000## 1,250 1,482,813
Sunrise Assisted Living, Inc., 5.5s, 2002## 1,000 1,186,250
--------------
$ 4,957,188
- ------------------------------------------------------------------------------------------------
Oil Services - 0.4%
Diamond Offshore Drilling, Inc., 3.75s, 2007 $ 5,623 $ 8,069,005
Key Energy, 5s, 2004## 1,985 2,004,850
Nabors Industries, Inc., 5s, 2006 2,350 5,234,625
Parker Drilling Co., 5.5s, 2004 2,494 2,995,918
Seacorp Holdings, Inc., 5.375s, 2006## 2,000 2,302,500
--------------
$ 20,606,898
- ------------------------------------------------------------------------------------------------
Oils - 0.1%
Pogo Producing Co., 5.5s, 2006## $ 2,500 $ 2,900,000
- ------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
Sanifill, Inc., 5s, 2006 $ 1,250 $ 1,871,875
U.S. Filter Corp. New, 6s, 2005## 2,000 4,747,500
USA Waste Services, Inc., 4s, 2002 1,746 1,942,425
USA Waste Services, Inc., 7.125s, 2007 1,500 1,501,129
--------------
$ 10,062,929
- ------------------------------------------------------------------------------------------------
Real Estate - 0.1%
Liberty Property Trust, 8.2s, 2001 $ 3,930 $ 5,374,275
- ------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
Hilton Hotels Corp., 5s, 2006 $ 750 $ 881,250
Marriott International, Inc. 0s, 2011 3,000 1,972,500
--------------
$ 2,853,750
- ------------------------------------------------------------------------------------------------
Special Products and Services - 0.1%
Cemex, 4.25s, 1997## $ 2,000 $ 1,997,500
Halter Marine Group, Inc. 1,495 1,702,431
United Waste Systems, Inc., 4.5s, 2001## 2,250 3,240,000
--------------
$ 6,939,931
- ------------------------------------------------------------------------------------------------
Stores - 0.1%
Home Depot, Inc., 3.25s, 2001 $ 400 $ 489,000
Mens Wearhouse, Inc., 5.25s, 2003 750 932,813
Office Depot, Inc., 0s, 2008 1,750 1,069,688
Saks Holdings, Inc., 5.5s, 2006 2,245 1,908,250
Staples, Inc., 4.5s, 2000## 500 632,474
U.S. Office Products Co., 5.5s, 2001 1,500 1,607,500
--------------
$ 6,639,725
- ------------------------------------------------------------------------------------------------
Telecommunications - 0.2%
Smarttalk Teleservices, Inc., 5.75s, 2004 $ 1,495 $ 1,618,338
Jacor Communications Inc., 0s, 2011 2,000 1,270,000
Tele Communications International, Inc., 4.5s, 2006 2,420 2,023,725
Tel-Save Holdings, Inc., 4.5s, 2002 2,495 2,844,300
World Access, Inc., 4.5s 2002 1,990 2,119,350
--------------
$ 9,875,713
- ------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $108,215,066) $ 140,907,584
- ------------------------------------------------------------------------------------------------
Short-Term Obligations - 4.1%
- ------------------------------------------------------------------------------------------------
Associates Corp. of North America, due 10/01/97 $ 15,355 $ 15,355,000
Federal Home Loan Bank, due 10/08/97 - 11/19/97 15,065 15,001,066
Federal Home Loan Mortgage Corp., due 10/02/97 - 10/21/97 47,815 47,685,098
Federal National Mortgage Assn., due 10/06/97 - 12/15/97 121,600 120,877,166
Pfizer, Inc., due 10/16/97 12,000 11,972,650
- ------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 210,890,980
- ------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $4,143,188,525) $5,093,043,728
Other Assets, Less Liabilities - 0.4% 19,569,941
- ------------------------------------------------------------------------------------------------
Net Assets - 100.0% $5,112,613,669
- ------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
## SEC Rule 144A restriction.
+ Restricted security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
SEPTEMBER 30, 1997
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $4,143,188,525) $5,093,043,728
Cash 760,898
Receivable for daily variation margin on open futures
contracts 75,500
Receivable for Fund shares sold 8,599,208
Receivable for investments sold 37,664,719
Interest and dividends receivable 36,016,119
Other assets 75,851
--------------
Total assets $5,176,236,023
--------------
Liabilities:
Distributions payable $ 14,071,666
Payable for Fund shares reacquired 2,594,230
Payable for investments purchased 45,690,828
Payable to affiliates -
Management fee 143,158
Shareholder servicing agent fee 54,473
Distribution and service fee 247,223
Administrative fee 3,082
Accrued expenses and other liabilities 817,694
--------------
Total liabilities $ 63,622,354
--------------
Net assets $5,112,613,669
==============
Net assets consist of:
Paid-in capital $3,781,191,439
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 949,954,921
Accumulated undistributed net realized gain on
investments and foreign currency transactions 376,352,403
Accumulated undistributed net investment income 5,114,906
--------------
Total $5,112,613,669
==============
Shares of beneficial interest outstanding 302,154,171
===========
Class A shares:
Net asset value per share
(net assets of $3,198,768,893 / 189,050,501 shares of
beneficial interest outstanding) $16.92
======
Offering price per share (100 / 95.25) $17.76
======
Class B shares:
Net asset value and offering price per share
(net assets of $1,707,189,631 / 100,913,755 shares of
beneficial interest outstanding) $16.92
======
Class C shares:
Net asset value and offering price per share
(net assets of $190,290,923 / 11,222,686 shares of
beneficial interest outstanding) $16.96
======
Class I shares:
Net asset value, offering price and redemption price
per share (net assets of $16,364,222 / 967,229 shares
of beneficial interest outstanding) $16.92
======
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, Class
B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 146,084,288
Dividends 68,494,301
Foreign taxes withheld (681,418)
--------------
Total investment income $ 213,897,171
--------------
Expenses -
Management fee $ 16,190,722
Trustees' compensation 128,151
Shareholder servicing agent fee 4,511,440
Shareholder servicing agent fee (Class A) 717,088
Shareholder servicing agent fee (Class B) 620,329
Shareholder servicing agent fee (Class C) 35,690
Distribution and service fee (Class A) 10,062,075
Distribution and service fee (Class B) 14,777,960
Distribution and service fee (Class C) 1,323,929
Administrative fee 220,890
Postage 681,042
Custodian fee 475,523
Printing 265,633
Auditing fees 39,409
Legal fees 29,006
Miscellaneous 2,308,704
--------------
Total expenses $ 52,387,591
Fees paid indirectly (378,564)
--------------
Net expenses $ 52,009,027
--------------
Net investment income $ 161,888,144
--------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 425,307,259
Futures contracts (2,968,743)
Foreign currency transactions (113,717)
--------------
Net realized gain on investments and foreign
currency transactions $ 422,224,799
--------------
Change in unrealized appreciation -
Investments $ 421,921,436
Futures contracts 240,452
Translation of assets and liabilities in foreign
currencies 10,372
--------------
Net unrealized gain on investments and foreign
currency translation $ 422,172,260
--------------
Net realized and unrealized gain on investments
and foreign currency $ 844,397,059
--------------
Increase in net assets from operations $1,006,285,203
==============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 161,888,144 $ 147,726,656
Net realized gain on investments and foreign currency
transactions 422,224,799 290,242,988
Net unrealized gain on investments and foreign
currency translation 422,172,260 5,067,278
-------------- --------------
Increase in net assets from operations $1,006,285,203 $ 443,036,922
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (109,704,957) $ (103,128,807)
From net investment income (Class B) (46,073,857) (40,140,247)
From net investment income (Class C) (4,116,016) (1,719,502)
From net investment income (Class I) (494,322) --
From net realized gain on investments and foreign
currency transactions (Class A) (182,350,658) (104,083,151)
From net realized gain on investments and foreign
currency transactions (Class B) (93,208,564) (47,213,572)
From net realized gain on investments and foreign
currency transactions (Class C) (6,625,287) (1,295,700)
-------------- --------------
Total distributions declared to shareholders $ (442,573,661) $ (297,580,979)
-------------- --------------
Net increase in net assets from Fund share
transactions $ 613,016,871 $ 519,720,467
-------------- --------------
Total increase in net assets $1,176,728,413 $ 665,176,410
Net assets:
At beginning of year 3,935,885,256 3,270,708,846
-------------- --------------
At end of year (including accumulated undistributed
net investment income of $5,114,906 and $4,235,183,
respectively) $5,112,613,669 $3,935,885,256
============== ==============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $15.03 $14.46 $12.80 $13.70 $12.42
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.60 $ 0.64 $ 0.64 $ 0.54 $ 0.45
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 2.94 1.21 1.64 (0.69) 1.74
------ ------ ------ ------ ------
Total from investment operations $ 3.54 $ 1.85 $ 2.28 $(0.15) $ 2.19
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.59) $(0.62) $(0.61) $(0.54) $(0.59)
From net realized gain on investments and
foreign currency transactions (1.06) (0.66) (0.01) (0.10) (0.32)
In excess of net realized gain on investments
and foreign currency transactions -- -- -- (0.11) --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.65) $(1.28) $(0.62) $(0.75) $(0.91)
------ ------ ------ ------ ------
Net asset value - end of period $16.92 $15.03 $14.46 $12.80 $13.70
====== ====== ====== ====== ======
Total return(+) 25.27% 13.50% 18.36% (1.07)% 18.32%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.93% 0.91% 0.87% 0.85% 0.84%
Net investment income 3.84% 4.35% 4.82% 4.26% 4.51%
Portfolio turnover 143% 140% 102% 91% 95%
Average commission rate### $0.0476 $0.0547 $ -- $ -- $ --
Net assets at end of period (000,000 omitted) $ 3,199 $ 2,568 $ 2,242 $ 1,857 $ 1,702
# Per share data for the periods subsequent to September 30, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
### Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
(+) 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.
(S) The distributor did not impose a portion of its distribution fee for the periods indicated. If this fee had been incurred
by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ -- $ -- $ 0.63 $ 0.52 $ --
Ratios (to average net assets):
Expenses## -- -- 0.97% 0.95% --
Net investment income -- -- 4.72% 4.16% --
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.82 $10.25 $11.58 $10.13 $11.47
------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.65 $ 0.67 $ 0.64 $ 0.65 $ 0.62
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.75 1.57 (1.25) 1.71 (1.07)
------ ------ ------ ------ ------
Total from investment operations $ 1.40 $ 2.24 $(0.61) $ 2.36 $(0.45)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income** $(0.66) $(0.61) $(0.66) $(0.63) $(0.60)
From net realized gain on investments and
foreign currency transactions (0.14) (0.06) (0.06) (0.28) (0.08)
From paid in capital -- -- -- -- (0.21)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.80) $(0.67) $(0.72) $(0.91) $(0.89)
------ ------ ------ ------ ------
Net asset value - end of period $12.42 $11.82 $10.25 $11.58 $10.13
====== ====== ====== ====== ======
Total return(+) 12.26% 22.25% (5.59)% 23.46% (3.93)%
Ratios (to average net assets)/Supplemental data:
Expenses 0.84% 0.87% 0.85% 0.72% 0.71%
Net investment income 5.40% 5.89% 5.71% 5.97% 6.06%
Portfolio turnover 84% 74% 50% 53% 52%
Net assets at end of period (000,000 omitted) $1,198 $909 $707 $628 $508
** For the years ended September 30, 1992 and 1991, $0.0508 and $0.0596, respectively, of per share distributions from net
investment income have been redesignated as distributions from capital gains.
(+) Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to
October 1, 1989). If the charge had been included, the results would have been lower.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1997 1996 1995 1994 1993*
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $15.02 $14.46 $12.80 $13.70 $13.53
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.50 $ 0.52 $ 0.53 $ 0.39 $ 0.06
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 2.95 1.21 1.64 (0.65) 0.16
------ ------ ------ ------ ------
Total from investment operations $ 3.45 $ 1.73 $ 2.17 $(0.26) $ 0.22
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.49) $(0.51) $(0.50) $(0.43) $(0.05)
From net realized gain on investments and
foreign currency transactions (1.06) (0.66) -- -- --
In excess of net investment income -- -- (0.01) (0.10) --
From paid-in capital -- -- -- (0.11) --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.55) $(1.17) $(0.51) $(0.64) $(0.05)
------ ------ ------ ------ ------
Net asset value - end of period $16.92 $15.02 $14.46 $12.80 $13.70
====== ====== ====== ====== ======
Total return 24.51% 12.49% 17.46% (1.93)% 15.24%+
Ratios (to average net assets)/Supplemental data:
Expenses## 1.60% 1.67% 1.71% 1.70% 1.75%+
Net investment income 3.17% 3.56% 3.97% 3.45% 3.98%+
Portfolio turnover 143% 140% 102% 91% 95%
Average commission rate### $0.0476 $0.0547 $ -- $ -- $ --
Net assets at end of period (000,000 omitted) $ 1,707 $ 1,284 $ 1,005 $ 843 $ 532
* For the period from the commencement of the Fund's offering of Class B shares, August 23, 1993, through September 30, 1993.
+ Annualized.
# Per share data for the periods subsequent to September 30, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
### Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, PERIOD ENDED
--------------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994* 1997**
- --------------------------------------------------------------------------------------------------------------------------------
CLASS C CLASS I
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $15.06 $14.49 $12.80 $12.92 $14.70
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.50 $ 0.53 $ 0.54 $ 0.08 $ 0.48
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 2.95 1.22 1.66 (0.13) 2.23
------ ------ ------ ------ ------
Total from investment operations $ 3.45 $ 1.75 $ 2.20 $(0.05) $ 2.71
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.49) $(0.52) $(0.50) $(0.07) $(0.49)
From net realized gain on investments and
foreign currency transactions (1.06) (0.66) (0.01) -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.55) $(1.18) $(0.51) $(0.07) $(0.49)
------ ------ ------ ------ ------
Net asset value - end of period $16.96 $15.06 $14.49 $12.80 $16.92
====== ====== ====== ====== ======
Total return 24.39% 12.67% 17.66% (0.41)% 18.69%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.60% 1.63% 1.67% 1.76%+ 0.60%+
Net investment income 3.16% 3.67% 4.14% 4.08%+ 4.16%+
Portfolio turnover 143% 140% 102% 91% 143%
Average commision rate### $0.0476 $0.0547 $ -- $ -- $0.0476
Net assets at end of period (000,000 omitted) $ 190 $ 83 $ 23 $ 1 $ 16
* For the period from the commencement of the Fund's offering of Class C shares, August 1, 1994, through September 30, 1994.
** For the period from the commencement of the Fund's offering of Class I shares, January 2, 1997, through September 30, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
### Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Total Return Fund (the Fund) is a diversified series of MFS Series Trust V
(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
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 - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
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. 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. Futures contracts listed on commodities exchanges
are reported at market value using closing settlement prices. Short-term
obligations, which mature in 60 days or less, are valued at amortized cost,
which approximates market value. 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.
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 result from fluctuations in foreign currency exchange rates is not
separately disclosed.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities, currency, or contracts based on financial indices at a
fixed price on a future date. In entering such contracts, the Fund is required
to deposit either in cash or securities an amount equal to a certain percentage
of the contract amount. Subsequent payments are made or received by the Fund
each day, depending on the daily fluctuations in the value of the underlying
security, and are recorded for financial statement purposes as unrealized gains
or losses by the Fund. The Fund's investment in futures contracts is designed to
hedge against anticipated future changes in interest or exchange rates or
securities prices. 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 Fund'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 Fund 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 Fund may not achieve the anticipated
benefits of the futures contracts and may realize a loss.
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 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 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. The Fund 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. On contract settlement date, the gains or losses are
recorded as realized gains or losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date. Dividend and interest
payments received in additional securities are recorded on the ex- dividend or
ex-interest date in an amount equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. This fee is reduced according to an expense
offset arrangement with State Street Bank, the dividend disbursing agent, which
provides for partial reimbursement of custody fees based on a formula developed
to measure the value of cash deposited by the Fund with the Custodian and with
the dividend disbursing agent. 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 taxable
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.
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 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 accumulated net realized
gains. During the year ended September 30, 1997, $619,269 was reclassified from
accumulated undistributed net investment income to accumulated net realized gain
on investments 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.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares. The classes of shares differ in their respective distribution
and service fees. All shareholders bear the common expenses of the Fund pro rata
based on the settled shares outstanding 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 the following annual rates:
BASED ON AVERAGE NET ASSETS BASED ON GROSS INCOME
- -------------------------------------- --------------------------------
First $200 million 0.250% First $14 million 3.57%
In excess of $200 million 0.212% In excess of $14 million 3.04%
Administrator - Effective March 1, 1997, the Fund has an administrative services
agreement with MFS to provide the Fund with certain financial, legal,
shareholder servicing, compliance, and other administrative services. As a
partial reimbursement for the cost of providing these services, the Fund pays
MFS an administrative fee at the following percentages of the Fund's average
daily net assets provided that the administrative fee is not assessed on Fund
assets that exceed $3 billion:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
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 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 $38,976 for the year ended
September 30, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$1,022,760 for the year ended September 30, 1997, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class C
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Fund's 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. MFD retains the service fee for accounts not attributable
to a securities dealer, which amounted to $1,017,146 for the year ended
September 30, 1997. The 0.25% per annum service fee is reduced to 0.15% per
annum for shares purchased prior to October 1, 1989. Fees incurred under the
distribution plan during the year ended September 30, 1997, were 0.35% of
average daily net assets attributable to Class A shares on an annualized basis.
The Fund's 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 and Class C 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 and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be additional consideration for
services rendered by the dealer with respect to Class B and Class C shares. MFD
retains the service fee for accounts not attributable to a securities dealer,
which amounted to $189,517 and $10,184 for Class B and Class C shares,
respectively, for the year ended September 30, 1997. Fees incurred under the
distribution plan during the year ended September 30, 1997, were 1.00% of
average daily net assets attributable to Class B and Class C shares on an
annualized basis.
Purchases over $1 million of Class A shares and certain purchases by retirement
plans are subject to a contingent deferred sales charge in the event of a
shareholder redemption within 12 months following such 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. A contingent
deferred sales charge is imposed on shareholder redemptions of Class C shares in
the event of a shareholder redemption within 12 months of purchase. MFD receives
all contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended September 30, 1997, were $58,236, $1,791,715, and $35,597
for Class A, Class B, and Class C 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 Fund's average daily net assets at an effective annual rate of
0.13%. Prior to January 1, 1997, the fee was 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%, up to 0.22%, and up to 0.15% attributable to Class A, Class B, and
Class C 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 $2,072,323,861 $2,372,451,480
============== ==============
Investments (non-U.S. government securities) $4,386,613,299 $3,836,298,969
============== ==============
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 $4,144,333,758
==============
Gross unrealized appreciation $ 958,506,187
Gross unrealized depreciation (9,796,217)
--------------
Net unrealized appreciation $ 948,709,970
==============
(5) Shares of Beneficial Interest
The Funds Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED SEPTEMBER 30, 1997 YEAR ENDED SEPTEMBER 30, 1996
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 45,594,446 $ 706,971,591 32,544,619 $ 475,330,763
Shares issued to shareholders
in reinvestment of
distributions 16,846,895 254,622,294 11,900,327 171,688,507
Shares transferred to Class I (1,095,793) (16,108,156) -- --
Shares reacquired (43,162,914) (672,300,086) (28,608,019) (418,045,276)
---------- -------------- ---------- --------------
Net increase 18,182,633 $ 273,185,643 15,836,927 $228,973,994
========== ============== ========== ==============
<CAPTION>
Class B Shares
YEAR ENDED SEPTEMBER 30, 1997 YEAR ENDED SEPTEMBER 30, 1996
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 23,925,156 $ 372,473,531 23,526,173 $ 343,774,175
Shares issued to shareholders
in reinvestment of
distributions 8,414,036 126,899,049 5,276,202 76,064,908
Shares reacquired (16,916,364) (262,016,405) (12,818,714) (187,231,460)
---------- -------------- ---------- --------------
Net increase 15,422,828 $ 237,356,175 15,983,661 $ 232,607,623
========== ============== ========== ==============
<CAPTION>
Class C Shares
YEAR ENDED SEPTEMBER 30, 1997 YEAR ENDED SEPTEMBER 30, 1996
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,270,431 $ 97,948,906 4,404,959 $ 64,633,757
Shares issued to shareholders
in reinvestment of
distributions 619,727 9,399,041 182,264 2,639,373
Shares reacquired (1,207,600) (18,986,771) (624,347) (9,134,280)
---------- -------------- ---------- --------------
Net increase 5,682,558 $ 88,361,176 3,962,876 $ 58,138,850
========== ============== ========== ==============
<CAPTION>
Class I Shares
PERIOD ENDED SEPTEMBER 30, 1997*
--------------------------------
SHARES AMOUNT
- -------------------------------------------------------------------
<S> <C> <C>
Shares sold 67,857 $ 1,043,322
Shares issued to shareholders
in reinvestment of
distributions 28,182 440,472
Shares transferred from
Class A 1,095,793 16,108,156
Shares reacquired (224,603) (3,478,073)
-------------- ----------------
Net increase 967,229 $ 14,113,877
========== ==============
* For the period from the commencement of the Fund's offering of Class
I shares, January 2, 1997, through September 30, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 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 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 September 30, 1997, was $34,916.
(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. These financial instruments include futures contracts.
The notional or contractual amounts of these instruments represent the
investment the Fund has in particular classes of financial instruments and does
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
Futures Contracts
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION APPRECIATION
- -------------------------------------------------------------------------------
U.S. Treasury Notes December 1997 40 Short $ 2,297
U.S. Treasury Notes December 1997 584 Short 106,539
--------
$108,836
========
At September 30, 1997, the Fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At September 30, 1997,
the Fund owned the following restricted security (constituting 0.07% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933. The Fund does not have the right to demand that such security be
registered. The value of this security is determined by valuations supplied by a
pricing service or brokers or, if not available, in good faith by or at the
direction of the Trustees.
DATE OF
DESCRIPTION ACQUISITION PAR AMOUNT COST VALUE
- -------------------------------------------------------------------------------
Merrill Lynch Mortgage
Investors, Inc.,
8.129s, 2023 6/22/94 $4,000,000 $2,772,500 $3,730,000
---------- ----------
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust V and Shareholders of MFS Total Return Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Total Return Fund (one of the series
constituting MFS Series Trust V) as of September 30, 1997, the related statement
of operations for the year then ended, the statement of changes in net assets
for the years ended September 30, 1997 and 1996, and the financial highlights
for each of the years in the ten-year period ended September 30, 1997. 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
September 30, 1997, 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 Total Return
Fund at September 30, 1997, 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
October 31, 1997
--------------------------------------------
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>
MFS(R) Total Return Fund
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and Investors Bank & Trust Company
President
AUDITORS
Richard B. Bailey* - Private Investor; Deloitte & Touche LLP
Former Chairman and Director (until
1991), Massachusetts Financial INVESTOR INFORMATION
Services Company; Director, Cambridge For MFS stock and bond market
Bancorp; Director, Cambridge Trust outlooks, call toll free:
Company 1-800-637-4458 anytime from a
touch-tone telephone.
Peter G. Harwood - Private Investor
For information on MFS mutual funds,
J. Atwood Ives - Chairman and Chief call your financial adviser or, for an
Executive Officer, Eastern Enterprises information kit, call toll free:
1-800-637-2929 any business day from 9
Lawrence T. Perera - Partner, Hemenway a.m. to 5 p.m. Eastern time (or leave
& Barnes a message anytime).
William J. Poorvu - Adjunct Professor, INVESTOR SERVICE
Harvard University Graduate School of MFS Service Center, Inc.
Business Administration P.O. Box 2281
Boston, MA 02107-9906
Charles W. Schmidt - Private Investor
For general information, call toll free
Arnold D. Scott* - Senior Executive 1-800-225-2606 any business day from
Vice President, Director and 8 a.m. to 8 p.m. Eastern time.
Secretary, Massachusetts Financial
Services Company For service to speech- or
hearing-impaired, call toll free:
Jeffrey L. Shames* - President and 1-800-637-6576 any business day from 9
Director, Massachusetts Financial a.m. to 5 p.m. Eastern time. (To use
Services Company this service, your phone must be
equipped with a Telecommunications
Elaine R. Smith - Independent Device for the Deaf.)
Consultant
For share prices, account balances,
David B. Stone - Chairman, North and exchanges, call toll free:
American Management Corp. (investment 1-800-MFS-TALK (1-800-637-8255)
advisers) anytime from a touch-tone telephone.
INVESTMENT ADVISER WORLD WIDE WEB
Massachusetts Financial Services www.mfs.com
Company
500 Boylston Street
Boston, MA 02116-3741 [DALBAR For the fourth year in a row,
LOGO] MFS earned a #1 ranking in the
DISTRIBUTOR DALBAR, Inc. Broker/Dealer Survey,
MFS Fund Distributors, Inc. Main Office Operations Service Quality
500 Boylston Street Category. The firm achieved a 3.42
Boston, MA 02116-3741 overall score on a scale of 1 to 4 in
the 1997 survey. A total of 111 firms
LEAD PORTFOLIO MANAGER responded, offering input on the
David M. Calabro* quality of service they received from
29 mutual fund companies nationwide.
TREASURER The survey contained questions about
W. Thomas London* service quality in 11 categories,
including "knowledge of operations
ASSISTANT TREASURERS contact," "keeping you informed,"
Mark E. Bradley* "ease of doing business" with the firm.
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
<PAGE>
MFS(R) TOTAL --------------
RETURN FUND Bulk Rate
U.S. Postage
500 Boylston Street Paid
Boston, MA 02116-3741 MFS
--------------
[LOGO] M F S(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
[DALBAR LOGO]
TOP-RATED SERVICE
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MTR-2 11/97 350M 15/215/315/815
