[MFS LOGO](SM) Semiannual Report
INVESTMENT MANAGEMENT March 31, 1997
MFS(R) Total Return Fund
[Graphic image of woman speaking to a man, large window in the background]
Learning financial basics the easy way (see page 42)
<PAGE>
Table of Contents
Letter from the Chairman ............ 1
Portfolio Managers' Overview ...... 3
Portfolio Managers' Profiles ...... 5
Fund Facts ........................ 6
Performance Summary .................. 6
Portfolio Concentration ............ 8
Portfolio of Investments ............ 9
Financial Statements ............... 26
Notes to Financial Statements ...... 35
The ABCs of Investing ............... 42
It's Easy to Contact Us ............ 43
The MFS Family of Funds[RegTM] ...... 44
Trustees and Officers ............... 45
Highlights
[bullet] For the six months ended March 31, 1997, Class A shares of the Fund
provided a total return at net asset value of 7.87%, Class B shares
7.57%, Class C shares 7.49%, and Class I shares 7.95%.
[bullet] The Fund has been helped by the strong pace of economic activity over
the past six months, with the U.S. economy growing at an annual rate of
3.8% in the last quarter of 1996 and 3.5% in the first quarter of 1997.
[bullet] Energy and financial services stocks both did well during the period.
Energy stocks were helped by generally higher oil prices, while
financial services companies reported solid earnings as well as
continued high consolidation activity.
[bullet] The performance of aerospace and defense stocks has been disappointing,
in part because investors are concerned that the industry is in for a
period of slow growth. However, we still believe these companies can
continue to produce solid earnings over the long term.
<PAGE>
Letter from the Chairman
[Photo of A. Keith Brodkin]
A. Keith Brodkin
Dear Shareholders:
After more than six years of expansion, the U.S. economy is experiencing another
year of moderate growth in 1997, although a few signs point to the possibility
of a modest rise in inflation during the year. On the positive side, the pattern
of moderate growth and inflation set over the past few years now seems fairly
well entrenched in the economy and, short of a major international or domestic
crisis, appears to have enough momentum to remain on track for some time. Also,
gains in such important sectors as housing, automobiles, industrial production,
and exports indicate a fair amount of underlying strength in the economy.
However, some reason for caution can be seen in the continuing high levels of
consumer debt and rising personal bankruptcies, as well as in the ongoing
tightness in the labor market, which could add some inflationary pressures to
the economy. Given these somewhat conflicting indicators, we expect real
(inflation-adjusted) growth to revolve around 2% in 1997, with more strength
occurring earlier in the year.
We continue to urge U.S. equity investors to lower their expectations for 1997.
Just as the slowdown in corporate earnings growth and increases in interest
rates in 1996 raised some near-term concerns, further interest rate increases
and the fear of an acceleration of inflation have negatively affected the stock
market in 1997. However, while the U.S. equity market has enjoyed several years
without a major correction, we would like to point out that such downturns are a
natural part of the investment environment and, when they end, they often result
in more attractive valuations for stocks. Also, as the year progresses, we
expect to see some improvement in corporate earnings and a leveling off of
interest rates. As a result, we believe this year's correction should help
provide a more solid foundation for the long-term viability of the equity
market.
In the bond markets, conflicting signals over the strength of the economy have
created near-term volatility, and the Federal Reserve Board has begun taking
measured steps to control inflation by raising short-term interest rates. Should
additional signs of more rapid economic growth and, particularly, of higher
inflation appear, we would expect the Fed to continue its anti-inflationary
stance. While inflationary forces largely remained in check in 1996, the
continued strength in the labor market means that a pickup in inflation is still
possible. At the same time, the U.S. budget deficit continues to decline and, as
a percentage of gross domestic product, is now less
1
<PAGE>
Letter from the Chairman - continued
than 2%, which we consider a positive development for the bond markets. Although
interest rates may move higher over the coming months, we believe that, at
current levels, fixed-income markets remain equitably valued.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
[Signature of A. Keith Brodkin]
A. Keith Brodkin
Chairman and President
April 14, 1997
2
<PAGE>
Portfolio Managers' Overview
[Photo of David M. Calabro]
David M. Calabro
Dear Shareholders:
For the six months ended March 31, 1997, Class A shares of the Fund provided a
total return of 7.87%, Class B shares 7.57%, Class C shares 7.49%, and Class I
shares 7.95%. These returns assume the reinvestment of distributions but exclude
the effects of any sales charges and compare to an 11.20% return over the same
period for the Standard & Poor's 500 Composite Index (the S&P 500), a popular,
unmanaged index of common stock total return performance. The Fund's returns
also compare to a 2.17% 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.
In general, the Fund has been helped by the strong pace of economic activity
over the past six months, with the U.S. economy growing at an annual rate of
3.8% in the last quarter of 1996 and 3.5% in the first quarter of 1997.
Employment levels have also been strong, and March ended with an unemployment
rate of just 5.2%. While inflation has not been a problem in recent years,
prices did edge up over the past six months, and we are keeping a close eye out
for any signs of a more serious increase. And although interest rates fell in
the last few months of 1996, they rose sharply in the first quarter of this year
as the pace of economic growth picked up and no slowdown appeared imminent.
Major foreign economies continued to show sluggishness relative to the United
States. However, we believe the rise in the dollar's value over the past year
should help improve the competitiveness of many foreign corporations, which
could serve to accelerate foreign economies and decelerate the U.S. economy in
the near future. Still, investors have remained bullish on corporate America,
and stock prices generally rose throughout most of the period. Bonds moved
higher at the beginning of the period but declined sharply over the last six
weeks.
3
<PAGE>
Portfolio Managers' Overview - continued
Our allocations remain conservative. At the end of March, 56% of the portfolio
was invested in stocks, preferred stocks, and convertible bonds. We generally
consider a 60% stock weighting neutral and anything over 65% aggressive. We have
been maintaining this conservative equity posture for some time because, in our
view, equities are not cheap by historical standards. Specifically, the yield on
the S&P 500 is just 2%, which is close to an all-time low.
In selecting stocks for the Fund, we prefer to own companies in which we
anticipate stable earnings growth. We also like to pay a price for these
securities (as measured by price-to-earnings ratios, dividend yields, and
price-to-book ratios) that is below the average for the market. We have found
these characteristics in the financial services and energy sectors, both of
which did well during the period. Energy stocks were helped by generally higher
oil prices, while financial services stocks reported solid earnings as well as
continued high consolidation activity.
We continue to be underweighted in the technology and the consumer nondurable
goods sectors. While we feel there are many fine companies in both of these
sectors, we do not think their valuations have been compelling in recent months.
The performance of aerospace and defense stocks has been disappointing, in part
because, after years of consolidation, the market is beginning to fear that the
industry is in for a period of slow growth. However, we still find this sector
attractive because we believe these companies can continue to produce solid
earnings over the long term. Another disappointment came in the utility sector,
where the pace of deregulation continues to pick up, bringing uncertainty and
placing lower values on the sector.
Looking ahead, we see a modest growth rate in the U.S. economy over the next 12
months. Over the near term, however, we believe the Federal Reserve Board will
keep a close watch on wage inflation and general economic activity and may raise
interest rates again should economic indicators suggest a stronger-than-expected
economy.
Our bond portfolio represents approximately 37% of the Fund, with two-thirds in
corporates and one-third in Treasuries. The duration, or interest rate
sensitivity, of the bond portfolio has been approximately 5.5 years over the
period.
4
<PAGE>
Portfolio Managers' Overview - continued
Given where equity valuations are today, we feel comfortable with our asset
allocation. However, should the stock market continue to correct, we would be
looking to buy additional stocks.
Respectfully,
[Signature of David M. Calabro]
David M. Calabro
(On behalf of the MFS Total Return Team)
Portfolio Managers' Profiles
David M. Calabro, Vice President; Geoffrey L. Kurinsky, Senior Vice President;
Judith N. 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.
5
<PAGE>
Fund Facts
Strategy: The Fund's primary objective is to provide
above-average current income consistent with prudent
employment of capital.
Commencement of
investment operations: Class A: October 6, 1970
Class B: August 23, 1993
Class C: August 1, 1994
Class I: January 2, 1997
Size: $4.3 billion net assets as of March 31, 1997
Performance Summary
Because mutual funds like MFS[RegTM] Total Return Fund are designed for
investors with long-term goals, we have provided cumulative results as well as
the average annual total returns for Class A, Class B, Class C, and Class I
shares for the applicable time periods.
Average Annual and Cumulative Total Rates of Return
as of March 31, 1997
Class A Investment Results
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
---------- --------- --------- ---------
Cumulative Total Return +7.87% +12.58% +80.93% +178.38%
- ---------------------------- ------- -------- -------- ---------
Average Annual Total Return -- +12.58% +12.59% + 10.78%
- ---------------------------- ------- -------- -------- ---------
SEC Results -- + 7.26% +11.50% + 10.24%
- ---------------------------- ------- -------- -------- ---------
Class B Investment Results
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
---------- --------- --------- ---------
Cumulative Total Return +7.57% +11.78% +75.76% +170.43%
- ---------------------------- ------- -------- -------- ---------
Average Annual Total Return -- +11.78% +11.94% + 10.46%
- ---------------------------- ------- -------- -------- ---------
SEC Results -- + 7.78% +11.68% + 10.46%
- ---------------------------- ------- -------- -------- ---------
Class C Investment Results
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
---------- --------- --------- ---------
Cumulative Total Return +7.49% +11.86% +77.65% +173.38%
- ---------------------------- ------- -------- -------- ---------
Average Annual Total Return -- +11.86% +12.18% + 10.58%
- ---------------------------- ------- -------- -------- ---------
SEC Results -- +10.86% +12.18% + 10.58%
- ---------------------------- ------- -------- -------- ---------
6
<PAGE>
Performance Summary - continued
Class I Investment Results
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
---------- --------- --------- ---------
Cumulative Total Return +7.95% +12.65% +81.01% +178.62%
- ---------------------------- ------- -------- -------- ---------
Average Annual Total Return -- +12.65% +12.60% + 10.79%
- ---------------------------- ------- -------- -------- ---------
SEC Results -- +12.65% +12.60% + 10.79%
- ---------------------------- ------- -------- -------- ---------
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 SEC results include the maximum 4.75% sales charge. Class B 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, which became available
on January 2, 1997, 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 operating expenses
(e.g., Rule 12b-1 fees) of the Fund's Class A shares for periods prior to the
commencement of offering of Class B and Class C shares. Because operating
expenses attributable to Class A shares are lower than those of Class B and
Class C shares, Class B and Class C share performance generally would have been
lower than Class A share performance. The Class A share performance included in
the Class B and Class C share performance with CDSC has been adjusted to reflect
the CDSC generally applicable to Class B and Class C shares rather than the
sales charge generally applicable to Class A shares.
Class I share results include the performance and operating expenses (e.g., Rule
12b-1 fees) of Class A shares for periods prior to the commencement of offering
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 in 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.
7
<PAGE>
Portfolio Concentration as of March 31, 1997
Top 10 Equity Holdings
United Technologies Corp.
Aerospace, defense, and building equipment company
British Petroleum PLC
Oil exploration and production company
Philip Morris Cos., Inc.
Tobacco, food, and beverage conglomerate
Texaco, Inc.
International oil and gas company
Royal Dutch Petroleum Co.
Oil exploration and production company
GTE Corp.
Telecommunications company
SmithKline-Beecham PLC
Pharmaceutical products company
CIGNA Corp.
Multi-line insurance company
Mobil Corp.
International oil and gas company
Exxon Corp.
International oil and gas company
Largest Sectors
[Pie chart]
Energy 13.7%
Utilities & Communications 15.3%
Industrial Goods & Services 12.6%
Health Care 7.7%
Miscellaneous 27.6%
Financial Services 23.1%
[End pie chart]
For a more complete breakdown, refer to the Portfolio of Investments.
8
<PAGE>
Portfolio of Investments (Unaudited) - March 31, 1997
Non-Convertible Bonds - 38.1%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- ----------------------------------------------------------- ----------------- --------------
<S> <C> <C>
Aerospace - 0.1%
Northrop Grumman Corp., 9.375s, 2024 $ 4,000 $ 4,252,000
- ---------------------------------------------------------- -------- -------------
Banks and Credit Companies - 1.4%
Advanta Capital Trust, 8.99s, 2026## $ 4,750 $ 4,720,313
Advanta Corp., 6.925s, 2002 4,745 4,513,207
BT Institutional Capital Trust, 7.75s, 2026## 4,000 3,672,220
BT Institutional Capital Trust, "A", 8.09s, 2026 1,000 937,340
Capital One Bank, 6.97s, 2002 13,755 13,501,220
Capital One Financial Corp., 7.25s, 2003 4,845 4,637,246
Colonial Capital Corp., 8.92s, 2027## 3,510 3,457,350
Dao Heng Bank, 7.75s, 2007## 5,150 5,017,284
First Chicago NBD Corp., 7.95s, 2026## 2,600 2,471,092
First USA Capital Trust, 9.33s, 2027## 5,270 5,712,206
MBNA Capital Corp., "A", 8.278s, 2026 5,775 5,549,948
Riggs National Corp., 8.5s, 2006 2,025 2,045,250
State Street Institutional Capital, "A", 7.94s, 2026## 5,000 4,875,000
-------------
$ 61,109,676
- ---------------------------------------------------------- -------- -------------
Building - 0.2%
Owens Corning Fiberglass Corp., 8.875s, 2002 $ 5,390 $ 5,718,898
Owens Corning Fiberglass Corp., 9.9s, 2015## 2,500 2,730,000
-------------
$ 8,448,898
- ---------------------------------------------------------- -------- -------------
Business Machines - 0.1%
International Business Machines Credit Corp., 7.125s,
2066 $ 5,275 $ 4,725,081
- ---------------------------------------------------------- -------- -------------
Construction Services - 0.2%
Georgia-Pacific Corp., 9.875s, 2021 $ 8,215 $ 8,941,370
- ---------------------------------------------------------- -------- -------------
Consumer Goods and Services - 0.1%
Fingerhut Cos., Inc., 7.375s, 1999 $ 3,000 $ 2,985,600
- ---------------------------------------------------------- -------- -------------
Corporate Asset Backed - 4.0%
Advanta Credit Card Master Trust, 5.7875s, 2004 $15,000 $ 14,967,150
BCF LLC 96-R1, 7.75s, 2026## 4,471 4,194,009
Carco Auto Loan Master Trust, 5.4875s, 2003 55,000 54,879,550
Case Equipment Loan Trust, 6s, 2004 15,000 14,793,750
Chevy Chase Master Credit Card Trust, 5.8375s, 2005 32,500 32,500,000
Citibank Credit Card Master Trust, 6.839s, 2004 25,000 24,671,750
Continental Air, Inc., 96-2,10.22s, 2014 5,736 6,580,062
Merrill Lynch Mortgage Investors, Inc., 9.7s, 2010 168 170,345
Merrill Lynch Mortgage Investors, Inc., 9.25s, 2011 197 202,137
Merrill Lynch Mortgage Investors, Inc., 8.9s, 2011 1,765 1,757,839
Merrill Lynch Mortgage Investors, Inc., 9s, 2011 580 595,748
Merrill Lynch Mortgage Investors, 8.0933s, 2021+ 4,000 3,368,125
People's Bank Credit Card Master Trust, 5.745s, 2002 15,000 15,000,000
-------------
$173,680,465
- ---------------------------------------------------------- -------- -------------
Entertainment - 1.4%
Circus Circus Entertainment, 6.7s, 2003 $ 4,500 $ 4,303,755
News Corp. Ltd., 0s, 1999 10,320 8,720,400
9
<PAGE>
Portfolio of Investments (Unaudited) - continued
Non-Convertible Bonds - continued
- --------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------- ----------------- --------------
Entertainment - continued
Paramount Communications, 7.5s, 2002 $22,500 $ 22,195,575
Time Warner, Inc., 8.375s, 2023 11,006 10,863,252
Time Warner, Inc., 6.1s, 2001## 16,035 15,055,262
-------------
$ 61,138,244
- ---------------------------------------------------------- -------- -----------
Financial Institutions - 2.6%
AFC Capital Trust, 8.207s, 2027## $ 7,685 $ 7,567,804
Banponce Trust, 7, 8.327s, 2027 5,000 4,882,950
Bear Stearns Cos., Inc., 7s, 2007 3,400 3,261,314
Contifinancial Corp., 8.375s, 2003 3,250 3,282,500
Fairfax Financial Holdings, 8.3s, 2026 5,225 5,239,160
First Empire Capital Trust, 8.234s, 2027 6,525 6,354,893
First Merchants Acceptance Corp., 9.5s, 2006 2,500 2,434,375
Hubco Capital Trust, 8.98s, 2027 2,000 2,025,000
Humpuss Funding Corp., 7.72s, 2009## 2,000 1,949,612
Lehman Brothers Holdings, Inc., 6.4s, 1999 6,500 6,399,575
Lehman Brothers Holdings, Inc., 7.125s, 2003 4,500 4,415,670
Lehman Brothers, Inc., 7.5s, 2026 15,600 15,720,276
Leucadia Capital Trust, 8.65s, 2027## 2,606 2,475,700
Nationwide Mutual Insurance Co., 7.5s, 2024## 10,925 9,829,332
Salomon, Inc., 7.25s, 2001 16,185 16,156,676
Salomon, Inc., 7.2s, 2004 2,700 2,647,431
Salton Sea Funding Corp., 7.37s, 2005 5,250 5,124,945
Salton Sea Funding Corp., 7.84s, 2010 7,270 7,025,728
Salton Sea Funding Corp., 8.3s, 2011 2,500 2,527,825
United Cos. Financial Corp., 7.7s, 2004 2,650 2,572,276
United Cos. Financial Corp., 7s, 1998 2,080 2,077,795
-------------
$113,970,837
- ---------------------------------------------------------- -------- -----------
Food and Beverage Products - 0.6%
Borden, Inc., 0s, 1997## $10,000 $ 9,910,400
Nabisco, Inc., 7.55s, 2015 9,160 8,805,050
RJR Nabisco, Inc., 8.75s, 2007 6,075 5,948,701
-------------
$ 24,664,151
- ---------------------------------------------------------- -------- -----------
Foreign - U.S. Dollar Denominated - 2.1%
Banco Comercial S.A., 8.25s, 2007## $ 3,710 $ 3,612,279
Companhia Energitica de Minas Gerias, 9.125s, 2004 2,000 1,980,000
Empresa Nacional de Electricidad S.A., 7.325s, 2037 5,114 4,969,274
Enersis S.A., 6.9s, 2006 4,000 3,770,000
Financiera Energetica Nacional S.A., 9.375s, 2006## 1,360 1,414,400
Hidroelectrica Alicura 8.375s, 1999## 6,244 6,204,975
Industrial Finance Corp. of Thailand PLC,
7.375s, 2007## 5,350 5,190,623
Korea Development Bank, 6.75s, 2005 12,485 11,780,097
Korea Electric Power, 7s, 2007 7,845 7,637,343
Montell America Finance Corp., 7.6s, 2007## 2,400 2,400,000
Naples, Italy, 7.52s, 2006 4,489 4,534,535
Ocensa, 9.35s, 2005## 3,500 3,648,750
Pepsi-Gemex S.A., 9.75s, 2004## 2,600 2,587,000
10
<PAGE>
Portfolio of Investments (Unaudited) - continued
Non-Convertible Bonds - continued
- --------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------- ----------------- -------------
Foreign - U.S. Dollar Denominated - continued
Petroleum Geo-Services, 7.5s, 2007 $1,300 $ 1,273,935
Province of Quebec, Canada, 6.5s, 2006 3,125 2,926,406
Republic of Argentina, 9.25s, 2001 3,000 3,041,250
Republic of Argentina, 11.375s, 2017 1,850 1,933,250
Republic of Colombia, 8.75s, 1999 3,640 3,799,250
Republic of Colombia, 7.625s, 2007 4,050 3,875,445
Republic of Colombia, 8.66s, 2016## 2,200 2,187,988
Republic of Colombia, 8.7s, 2016 7,610 7,508,407
Republic of Italy, 5s, 2001 1,000 982,500
Republic of Panama, 7.875s, 2002## 2,965 2,853,813
Total Access Communications, 8.375s, 2006## 2,225 2,179,543
------------
$92,291,063
- ---------------------------------------------------------- -------- -----------
Forest and Paper Products - 0.6%
Boise Cascade Corp., 9.85s, 2002 $6,075 $ 6,694,954
Boise Cascade Corp., 7.35s, 2004 8,500 8,287,500
Westvaco Corp., 7.65s, 2027 11,015 10,769,806
------------
$25,752,260
- ---------------------------------------------------------- -------- -----------
Insurance - 1.5%
American RE Corp., 7.45s, 2026 $5,000 $ 4,773,300
Conseco Finance Trust, 8.796s, 2027 2,625 2,606,284
Equitable Life Assurance Society, 7.7s, 2015## 8,513 8,211,384
Jackson National Life Insurance Co., 8.15s, 2027## 8,150 8,001,996
Liberty Mutual Insurance Co., 8.2s, 2007## 12,495 12,960,564
Metropolitan Life Insurance, 7.7s, 2015## 4,750 4,586,239
New York Life Insurance Co., 7.5s, 2023 3,600 3,295,872
Providian Capital Corp., 9.525s, 2027 6,350 6,254,750
Traveler Capital, 7.75s, 2036 10,405 9,728,675
Travelers' Group, Inc., 7.875s, 2025 5,085 5,027,794
------------
$65,446,858
- ---------------------------------------------------------- -------- -----------
Medical and Health Technology and Services - 0.3%
Tenet Healthcare Corp., 8.625s, 2003 $2,835 $ 2,863,350
Tenet Healthcare Corp., 8s, 2005 8,000 7,780,000
------------
$10,643,350
- ---------------------------------------------------------- -------- -----------
Oil Services - 0.1%
Transcontinental Gas Pipeline Corp., 7.25s, 2026 $4,500 $ 4,381,875
- ------------------------------------------------------ ------- ------------
Oils - 1.2%
Chesapeake Energy Corp., 7.875s, 2004## $5,390 $ 5,228,300
Enserch Exploration, Inc., 7.54s, 2009## 4,000 3,855,000
Gulf Canada Resources Ltd., 8.25s, 2017 3,775 3,717,696
Husky Oil Ltd., 7.125s, 2006 5,000 4,819,150
Mitchell Energy & Development Corp., 6.75s, 2004 3,400 3,155,132
Oryx Energy Co., 10s, 2001 4,423 4,785,598
Oryx Energy Co., 8.375s, 2004 7,240 7,421,000
Petroliam Nasional Berhad, 7.625s, 2026## 4,500 4,368,960
Tosco Corp., 7.625s, 2006 9,000 8,995,140
Tosco Corp., 7.8s, 2027## 5,195 5,070,969
------------
$51,416,945
- ---------------------------------------------------------- -------- -----------
11
<PAGE>
Portfolio of Investments (Unaudited) - continued
Non-Convertible Bonds - continued
- --------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ----------------------------------------------------- ----------------- -------------
Precious Metals - 0.1%
Freeport McMoRan Copper & Gold, Inc., 7.5s, 2006 $ 6,345 $ 6,129,460
- ---------------------------------------------------- -------- ------------
Printing and Publishing - 0.6%
News America Holdings, Inc., 10.125s, 2012 $10,000 $11,253,100
News America Holdings, Inc., 9.5s, 2024 5,300 5,812,722
News America Holdings, Inc., 8.15s, 2036 9,800 9,270,114
------------
$26,335,936
- ---------------------------------------------------- -------- ------------
Special Products and Services - 0.7%
Loewen Group International, Inc., 7.5s, 2001 $19,675 $19,133,938
Mark IV Industries, 7.75s, 2006 8,800 8,360,000
Stewart Enterprises, 6.7s, 2003 3,700 3,542,750
------------
$31,036,688
- ---------------------------------------------------- -------- ------------
Steel - 0.1%
USX Marathon Group, 9.8s, 2001 $ 5,000 $ 5,448,100
- ---------------------------------------------------- -------- ------------
Stores - 0.3%
Federated Department Stores, Inc., 10s, 2001 $10,000 $10,793,600
- ---------------------------------------------------- -------- ------------
Telecommunications - 1.3%
360 Communications Co., 7.5s, 2006 $ 2,293 $ 2,240,376
360 Communications Co., 7.6s, 2009 1,500 1,458,420
Tele-Communications, Inc., 7.38s, 2001 2,625 2,577,146
Tele-Communications, Inc., 7.385s, 2001 10,505 10,315,595
Tele-Communications, Inc., 9.25s, 2002 2,200 2,312,376
Tele-Communications, Inc., 6.275s, 2003 6,750 6,750,486
Tele-Communications, Inc., 7.49s, 2003 10,000 9,687,000
Tele-Communications, Inc., 10.125s, 2022 3,975 4,283,420
Tele-Communications, Inc., 9.65s, 2027 9,620 9,367,475
Viacom, Inc., 7.625s, 2016 3,540 3,188,797
Worldcom, Inc., 7.75s, 2027 2,650 2,625,302
------------
$54,806,393
- ---------------------------------------------------- -------- ------------
Transportation - 1.0%
Continental Airlines, Inc., 9.5s, 2001 $ 7,040 $ 7,128,000
Continental Airlines, Inc., 9.5s, 2013 3,892 4,237,508
Continental Airlines Pass-Thru, 7.461s, 2016 1,500 1,466,154
Delta Air Lines, Inc. 8.5s, 2002 5,382 5,594,966
JET Equipment Trust, 9.41s, 2010## 3,365 3,756,481
JET Equipment Trust, 8.64s, 2015## 3,299 3,463,746
JET Equipment Trust, 11.44s, 2014## 4,700 5,427,231
JET Equipment Trust, "C", 10.69s, 2015## 1,250 1,468,425
Northwest Airlines Corp., 8.7s, 2007 1,500 1,485,060
United Airlines, Inc., 9.125s, 2012 2,500 2,667,525
United Airlines, Inc., 7.27s, 2013 4,965 4,712,344
------------
$41,407,440
- ---------------------------------------------------- -------- ------------
U.S. Government Guaranteed - 7.5%
Small Business Administration
SBA, 8.8s, 2011 $ 498 $ 524,695
- ---------------------------------------------------- -------- ------------
U.S. Treasury Obligations - 7.5%
U.S. Treasury Notes, 8.875s, 1998 $38,900 $40,370,809
U.S. Treasury Notes, 5.875s, 1999 8,000 7,867,520
U.S. Treasury Notes, 8.875s, 1999 10,000 10,426,600
12
<PAGE>
Portfolio of Investments (Unaudited) - continued
Non-Convertible Bonds - continued
- --------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------ ----------------- --------------
U.S. Treasury Obligations - continued
U.S. Treasury Notes, 9.125s, 1999 $ 58,310 $ 61,298,387
U.S. Treasury Notes, 5.875s, 2000 23,000 22,572,430
U.S. Treasury Notes, 8.5s, 2000 2,900 3,067,214
U.S. Treasury Notes, 6.25s, 2002 5,000 4,894,550
U.S. Treasury Bonds, 12.375s, 2004 25,000 32,582,000
U.S. Treasury Bonds, 12s, 2005 23,275 30,468,372
U.S. Treasury Bonds, 6.5s, 2006 14,950 14,485,205
U.S. Treasury Bonds, 6.25s, 2007 15,399 14,674,785
U.S. Treasury Bonds, 12.75s, 2010 23,500 32,037,080
U.S. Treasury Bonds, 9.875s, 2015 16,100 20,472,116
U.S. Treasury Bonds, 6.5s, 2026 8,091 7,448,736
U.S. Treasury Bonds, 6.75s, 2026 23,287 22,064,432
-------------
$324,730,236
- ----------------------------------------------------- --------- -------------
Total U.S. Government Guaranteed $325,254,931
- ----------------------------------------------------- -------------
U.S. Government Agencies - 4.5%
Federal National Mortgage Association - 3.4%
FNMA, 8s, 2026 $145,816 $146,362,589
- ----------------------------------------------------- --------- -------------
Government National Mortgage Association - 1.1%
GNMA, 8s, 2007-2011 $ 25,229 $ 25,828,128
GNMA, 8s, 2025 21,000 21,072,030
-------------
$ 46,900,158
- ----------------------------------------------------- --------- -------------
Total U.S. Government Agencies $193,262,747
- ----------------------------------------------------- -------------
Utilities - Electric 4.8%
Arkansas Power & Light Co., 8.75s, 2026 $ 750 $ 728,752
Central Maine Power Co., 7.5s, 1997 1,000 1,001,840
Central Maine Power Co., 7.45s, 1999 2,500 2,460,225
Cleveland Electric Illuminating Co., 9.25s, 1999 10,450 10,859,013
Cleveland Electric Illuminating Co., 8.68s, 2001 3,500 3,599,225
Cleveland Electric Illuminating Co., 9.375s, 2017 9,750 9,946,560
Cleveland Electric Illuminating Co., 9s, 2023 6,518 6,584,810
Cleveland Electric Illuminating Co., 8.55s, 2001 475 486,096
Coastal Corp., 7.42s, 2037 23,176 21,636,650
Commonwealth Edison Co., 8.5s, 2027## 2,000 1,920,000
Commonwealth Electric Co., 8.375s, 2006 1,575 1,638,457
Edison Mission Energy Funding, 7.33s, 2008## 1,450 1,409,893
El Paso Electric Co., 8.9s, 2006 7,000 7,297,150
Empresa Electrica del Norte, 7.75s, 2006## 1,915 1,873,808
First PV Funding Corp., 10.3s, 2014 7,650 8,166,375
First PV Funding Corp., 10.15s, 2016 5,160 5,450,250
Long Island Lighting Co., 9s, 2022 20,615 22,057,225
Long Island Lighting Co., 7.5s, 2007 4,200 4,096,386
Long Island Lighting Co., 8.9s, 2019 24,825 25,928,471
Long Island Lighting Co., 8.2s, 2023 6,500 6,574,230
Long Island Lighting Co., 9.625s, 2024 4,090 4,210,900
Louisiana Power & Light Co., 10.67s, 2017 1,000 1,069,840
Louisiana Power & Light Co., 10.67s, 2017 2,065 2,209,137
Louisiana Power & Light Co., 8.75s, 2026 1,075 1,060,842
13
<PAGE>
Portfolio of Investments (Unaudited) - continued
Non-Convertible Bonds - continued
- --------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------- ----------------- ----------------
Utilities - continued
Midland Cogeneration Venture Corp., 10.33s, 2002 $ 2,939 $ 3,115,763
Midland Funding Corp. II, "A", 11.75s, 2005 2,220 2,521,587
Midland Funding Corp., "B", 13.25s, 2006 3,970 4,680,987
Montana Power Co., 7.875s, 2026 2,275 2,166,937
Niagara Mohawk Power Co., 6.875s, 2001 6,043 5,836,994
Niagara Mohawk Power Co., 6.875s, 2003 3,270 3,072,786
Niagara Mohawk Power Co., 8s, 2004 11,340 11,133,725
North Atlantic Energy, 9.05s, 2002 7,781 7,609,740
Southern Co. Capital Trust, 8.19s, 2037## 7,735 7,551,294
System Energy Resources, 7.38s, 2000 4,700 4,609,290
Texas & New Mexico Power Co., 12.5s, 1999 2,848 3,066,214
Toledo Edison Co., 9.5s, 2001 2,000 2,038,200
---------------
$ 209,669,652
- -------------------------------------------------------------- -------- ---------------
Utilities - Gas - 0.7%
California Energy Co., 0s, 2004 $ 4,005 $ 4,355,437
Louis Dreyfus Natural Gas, 9.25s, 2004 9,325 9,767,938
NGC Corp., 7.625s, 2026 3,900 3,733,938
Ras Laffan Liquefied Natural Gas, 7.628s, 2006## 2,500 2,493,750
Ras Laffan Liquefied Natural Gas, 8.294s, 2014## 4,225 4,214,438
Tennessee Gas Pipeline, 7.625s, 2037 6,500 6,394,375
---------------
$ 30,959,876
- -------------------------------------------------------------- -------- ---------------
Utilities - Telephone
U.S. West Capital Funding, Inc., 7.9s, 2027 $ 2,060 $ 2,003,659
- -------------------------------------------------------------- -------- ---------------
Total Non-Convertible Bonds (Identified Cost, $1,671,104,810) $1,650,957,155
- -------------------------------------------------------------- ---------------
Convertible Bonds - 2.7%
- --------------------------------------------------------------
Advertising
Omnicom Group, Inc., 4.25s, 2007## $ 1,700 $ 1,802,000
- -------------------------------------------------------------- -------- ---------------
Aerospace - 0.1%
Hexcel Corp., 7s, 2003 $ 2,000 $ 2,637,500
- -------------------------------------------------------------- -------- ---------------
Automotive - 0.1%
Daimler Benz, 0s, 2017## $10,850 $ 4,692,625
- -------------------------------------------------------------- -------- ---------------
Building
Continental Homes Holding Corp., 6.875s, 2002 $ 1,000 $ 967,500
- -------------------------------------------------------------- -------- ---------------
Business Services
Laidlaw, Inc., 6s, 1999## $ 1,000 $ 1,390,000
Protection One Alarm, Inc., 6.75s, 2003 500 468,750
---------------
$ 1,858,750
- -------------------------------------------------------------- -------- ---------------
Chemicals - 0.2%
Valhi, Inc., 0s, 1997 $15,840 $ 7,128,000
- -------------------------------------------------------------- -------- ---------------
Computer Software - Systems - 0.3%
Adaptec, Inc., 4.75s, 2004## $ 1,492 $ 1,460,295
CUC International, Inc., 3s, 2002## 6,000 5,925,000
HMT Technology Corp., 5.75s, 2004## 1,750 1,511,563
Safeguard Scientifics, Inc., 6s, 2006## 1,500 1,293,750
14
<PAGE>
Portfolio of Investments (Unaudited) - continued
Convertible Bonds - continued
- --------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------- ----------------- -------------
Computer Software - Systems - continued
SCI Systems, Inc., 5s, 2006## $ 750 $ 926,250
Solectron Corp., 6s, 2006## 1,000 1,050,000
------------
$12,166,858
- ------------------------------------------------------ ------- ------------
Consumer Goods and Services
Coleman Worldwide Corp., 0s, 1998 $3,000 $ 870,000
- ------------------------------------------------------ ------- ------------
Electrical Equipment
National Semiconductor, 6.5s, 2002## $1,500 $ 1,500,000
- ------------------------------------------------------ ------- ------------
Electronics - 0.2%
ADT Operations, Inc., 0s, 2010 $8,240 $ 5,871,000
Dovatron International, Inc., 6s, 2002## 500 472,500
Thermo-Electron, 4.25s, 2003## 1,250 1,300,000
Xilinx, Inc. 5.25s, 2002## 750 850,312
------------
$ 8,493,812
- ------------------------------------------------------ ------- ------------
Food and Beverage Products
Grand Metropolitan Public Ltd., 6.5s, 2000## $2,000 $ 2,365,000
- ------------------------------------------------------ ------- ------------
Insurance - 0.2%
Equitable Cos., Inc. 6.125s, 2024 $8,000 $ 9,440,000
- ------------------------------------------------------ ------- ------------
Medical and Health Products - 0.3%
Alza Corp., 0s, 1999 $7,000 $ 3,001,250
North American Vaccine, 6.5s, 2003## 1,000 925,000
Roche Holdings, Inc., 0s, 2008## 5,000 4,475,000
Roche Holdings, Inc., 0s, 2010## 4,230 1,945,800
Ventritex, Inc. 5.75s, 2001 1,300 1,501,500
------------
$11,848,550
- ------------------------------------------------------ ------- ------------
Medical and Health Technology and Services - 0.1%
Healthsource, Inc., 5s, 2003 $ 250 $ 243,125
National Data Corp., 5s, 2003 1,100 1,078,000
National Health Investors, 7.75s, 2001 500 593,125
Omega Healthcare Investors, 8.5s, 2001 500 561,875
Quintiles Transnational, 4.25s, 2000## 1,250 1,204,687
------------
$ 3,680,812
- ------------------------------------------------------ ------- ------------
Oil Services - 0.3%
Diamond Offshore, Inc., 3.75s, 2007 $8,883 $ 9,482,602
Nabors Industries, Inc., 5s, 2006 1,350 1,701,000
Seacor Holdings, Inc., 5.375s, 2006## 2,000 2,102,500
------------
$13,286,102
- ------------------------------------------------------ ------- ------------
Oils - 0.1%
Pogo Producing, 5.5s, 2006## $2,500 $ 2,625,000
- ------------------------------------------------------ ------- ------------
Pollution Control - 0.2%
Sanifill, Inc. 5s, 2006 $1,250 $ 1,771,875
Thermo Instrument Systems, Inc., "A", 4.5s, 2003## 1,000 1,010,000
Thermo Terratech, Inc., 4.625s, 2003## 500 439,375
U.S. Filter Corp., 6s, 2005## 2,000 3,495,000
USA Waste Services, Inc., 4s, 2002 1,746 1,850,760
------------
$ 8,567,010
- ------------------------------------------------------ ------- ------------
15
<PAGE>
Portfolio of Investments (Unaudited) - continued
Convertible Bonds - continued
- --------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------- ----------------- -------------
Real Estate Investment Trusts - 0.1%
Liberty Property Trust, 8s, 2001 $ 3,930 $ 4,848,637
- -------------------------------------------------------- -------- -------------
Restaurants and Lodging - 0.1%
HFS, Inc., 4.75s, 2003 $ 250 $ 289,063
Hilton Hotels Corp., 5s, 2006 750 742,500
Marriott, Inc., 0s, 2011## 2,000 1,105,000
Marriott International, Inc., 0s, 1999 1,000 550,000
-------------
$ 2,686,563
- -------------------------------------------------------- -------- -------------
Special Products and Services - 0.1%
Cemex, S.A., 4.25s, 1997## $ 2,000 $ 1,960,000
Checkpoint Systems, 5.25s, 2005 500 560,000
United Waste Systems, Inc., 4.5s, 2001## 2,250 2,877,187
-------------
$ 5,397,187
- -------------------------------------------------------- -------- -------------
Stores - 0.2%
Home Depot, Inc., 3.25s, 2001 $ 400 $ 400,000
Men's Wearhouse, Inc., 5.25s ,2003 750 804,375
Office Depot, Inc., 0s, 2008 3,500 2,165,625
Saks Holdings, Inc., 5.5s, 2006 1,745 1,710,100
Staples, Inc., 4.5s, 2000## 500 556,250
U.S. Office Products Co., 5.5s, 2001 500 575,000
U.S. Office Products Co., 5.5s, 2003 1,000 840,000
-------------
$ 7,051,350
- -------------------------------------------------------- -------- -------------
Telecommunications - 0.1%
Jacor Communications, 0s, 2011 $ 2,000 $ 940,000
Tele-Communications, 4.5s, 2006 2,420 1,808,950
-------------
$ 2,748,950
- -------------------------------------------------------- -------- -------------
Total Convertible Bonds (Identified Cost, $107,027,636) $116,662,206
- -------------------------------------------------------- -------------
Preferred Stock - 0.1%
- -----------------------------------------------------------------------------------------------
Shares
- -------------------------------------------------------- -------- -------------
Steel
USX Capital LLC, 8.75% (Identified cost, $5,534,330) 228,400 $ 5,738,550
- -------------------------------------------------------- -------- -------------
Common Stocks - 48.1%
- -----------------------------------------------------------------------------------------------
U.S. Stocks - 46.1%
Aerospace - 3.0%
Allied Signal, Inc. 270,000 $ 19,237,500
General Dynamics Corp. 211,400 14,243,075
Lockheed Martin Corp. 217,038 18,231,192
McDonnell Douglas Co. 95,000 5,795,000
Raytheon Co. 262,500 11,845,313
United Technologies Corp. 780,648 58,743,762
-------------
$128,095,842
- -------------------------------------------------------- -------- -------------
16
<PAGE>
Portfolio of Investments (Unaudited) - continued
Common Stocks - continued
- --------------------------------------------------------------------------------
Issuer Shares Value
- ------------------------------------------ --------- -------------
Agricultural Products - 0.2%
AGCO Corp. 300,000 $ 8,287,500
Case Corp. 39,100 1,984,325
------------
$10,271,825
- ----------------------------------------- -------- ------------
Airlines - 0.2%
America West Airlines, "B" 424,800 $ 6,637,500
- ----------------------------------------- -------- ------------
Apparel and Textiles - 0.5%
Springs Industries, Inc. 45,000 $ 2,013,750
VF Corp. 270,500 18,089,688
------------
$20,103,438
- ----------------------------------------- -------- ------------
Automotive - 1.3%
Dana Corp. 209,000 $ 6,870,875
Ford Motor Co. 520,677 16,336,241
General Motors Corp. 58,669 3,248,796
Goodrich (B.F.) Co. 533,500 19,539,437
TRW, Inc. 100,000 5,175,000
Volvo Aktiebolaget, "B", ADR 165,000 4,290,000
------------
$55,460,349
- ----------------------------------------- -------- ------------
Building
Newport News Shipbuilding, Inc. 30,000 $ 435,000
- ----------------------------------------- -------- ------------
Business Machines - 0.8%
Digital Equipment Corp.* 449,970 $12,317,929
International Business Machines Corp. 144,000 19,782,000
Texas Instruments, Inc. 34,500 2,583,188
------------
$34,683,117
- ----------------------------------------- -------- ------------
Business Services - 0.1%
Storage Trust Realty 247,500 $ 6,373,125
- ----------------------------------------- -------- ------------
Cellular Phones - 0.1%
Telephone & Data Systems, Inc. 105,860 $ 4,062,378
- ----------------------------------------- -------- ------------
Chemicals - 2.0%
Air Products & Chemicals, Inc. 286,600 $19,452,975
Betzdearborn, Inc. 70,000 4,418,750
Dexter Corp. 241,800 7,284,225
Dow Chemical Co. 62,200 4,976,000
du Pont (E. I.) de Nemours & Co. 193,200 20,479,200
Ferro Corp. 170,000 5,100,000
PPG Industries, Inc. 40,000 2,160,000
Praxair, Inc. 253,000 11,353,375
Rohm & Haas Co. 82,000 6,139,750
Witco Corp. 104,010 3,536,340
------------
$84,900,615
- ----------------------------------------- -------- ------------
Construction Services
Martin Marietta Materials, Inc. 51,739 $ 1,332,279
- ----------------------------------------- -------- ------------
17
<PAGE>
Portfolio of Investments (Unaudited) - continued
Common Stocks - continued
- --------------------------------------------------------------------------------
Issuer Shares Value
- ------------------------------------- --------- -------------
Consumer Goods and Services - 1.6%
American Brands, Inc. 159,200 $ 8,059,500
Colgate-Palmolive Co. 104,300 10,390,888
Gillette Co. 35,000 2,541,875
Philip Morris Cos., Inc. 362,600 41,381,725
Rubbermaid, Inc. 171,300 4,261,088
Sherwin Williams Co. 89,400 4,827,600
-------------
$ 71,462,676
- ------------------------------------- --------- -------------
Containers - 0.1%
Jefferson Smurfit Corp. 150,000 $ 1,781,250
Stone Container Corp. 200,000 2,225,000
-------------
$ 4,006,250
- ------------------------------------- --------- -------------
Electrical Equipment - 1.5%
Cooper Industries 270,000 $ 11,711,250
Emerson Electric Co. 92,000 4,140,000
General Electric Co. 303,372 30,109,671
Honeywell, Inc. 262,700 17,830,763
-------------
$ 63,791,684
- ------------------------------------- --------- -------------
Electronics - 0.1%
Analog Devices, Inc.* 2 $ 37
Intel Corp. 35,000 4,869,375
-------------
$ 4,869,412
- ------------------------------------- --------- -------------
Financial Institutions - 6.4%
Advanta Corp., "B" 111,300 $ 2,879,888
American Express Co. 392,000 23,471,000
Bank of Boston Corp. 178,600 11,966,200
Bank of New York, Inc. 371,504 13,652,772
Beneficial Corp 95,000 6,139,375
Chase Manhattan Corp. 295,248 27,642,594
Comerica, Inc. 60,000 3,382,500
Edwards (A.G.), Inc. 186,600 5,737,950
Federal Home Loan Mortgage Corp. 333,400 9,085,150
Federal National Mortgage Assn. 425,500 15,371,188
First Hawaiian, Inc. 150,000 4,668,750
First USA, Inc. 80,000 3,390,000
Fleet Financial Group, Inc. 450,900 25,814,025
Franklin Resources, Inc. 131,700 6,716,700
Liberty Property Trust 350,900 8,597,050
Morgan (J.P.) & Co. 30,000 2,947,500
National City Corp. 624,200 29,103,325
NationsBank Corp. 425,000 23,534,375
Northern Trust Co. 243,000 9,112,500
Norwest Corp. 320,160 14,807,400
PNC Bank Corp. 335,200 13,408,000
Southern National Corp. 274,900 10,240,025
Union Planters Corp. 175,000 7,109,375
Wells Fargo & Co. 2 568
-------------
$278,778,210
- ------------------------------------- --------- -------------
18
<PAGE>
Portfolio of Investments (Unaudited) - continued
Common Stocks - continued
- --------------------------------------------------------------------------------
Issuer Shares Value
- ----------------------------------------- --------- -------------
Food and Beverage Products - 0.8%
Anheuser-Busch Cos., Inc. 100,000 $ 4,212,500
Dimon, Inc. 172,200 3,960,600
General Mills, Inc. 153,700 9,548,613
McCormick & Co. Inc. 94,100 2,305,450
PepsiCo, Inc. 339,800 11,085,975
Quaker Oats Co. 70,900 2,587,850
-------------
$ 33,700,988
- ----------------------------------------- --------- -------------
Forest and Paper Products - 0.4%
Kimberly Clark Corp. 70,500 $ 7,005,938
Weyerhaeuser Co. 133,700 5,966,363
Willamette Industries, Inc. 73,900 4,618,750
-------------
$ 17,591,051
- ----------------------------------------- --------- -------------
Insurance - 3.0%
Allstate Corp. 224,200 $ 13,311,875
Chubb Corp. 437,300 23,559,537
CIGNA Corp. 216,500 31,636,062
CIGNA Corp. 183,200 4,190,700
ITT Hartford Group, Inc. 98,400 7,097,100
Nationwide Financial Services, Inc.* 86,300 2,222,225
Penncorp Financial Group, Inc. 90,000 2,880,000
Provident Cos., Inc. 30,000 1,642,500
Reliastar Financial Corp. 103,000 6,089,875
St. Paul Cos., Inc. 172,370 11,182,503
Torchmark Corp. 273,000 15,117,375
Travelers, Inc. 277,138 13,267,981
-------------
$132,197,733
- ----------------------------------------- --------- -------------
Machinery - 0.5%
Deere & Co., Inc. 295,000 $ 12,832,500
Sundstrand Corp. 91,000 3,947,125
York International Corp. 95,900 4,015,813
-------------
$ 20,795,438
- ----------------------------------------- --------- -------------
Medical and Health Products - 2.5%
Allegiance Corp. 5,000 $ 110,625
American Home Products Corp. 314,600 18,876,000
Astra AB, ADR 70,100 3,259,650
Baxter International, Inc. 98,000 4,226,250
Bristol-Myers Squibb Co. 335,000 19,765,000
Pharmacia & Upjohn 299,500 10,969,188
Rhone-Poulenc Rorer, Inc. 258,300 19,114,200
Schering Plough Corp. 10,000 727,500
SmithKline-Beecham PLC, ADR 452,000 31,640,000
-------------
$108,688,413
- ----------------------------------------- --------- -------------
19
<PAGE>
Portfolio of Investments (Unaudited) - continued
Common Stocks - continued
- --------------------------------------------------------------------------------
Issuer Shares Value
- -------------------------------------------------- ----------- --------------
Medical and Health Technology and Services - 0.7%
Columbia HCA Healthcare 74,000 $ 2,488,250
Pacificare Health Systems, Inc., "B" 70,000 6,037,500
Tenet Healthcare Corp. 315,000 7,756,875
United Healthcare Corp. 278,400 13,258,800
-------------
$ 29,541,425
- -------------------------------------------------- ----------- --------------
Metals and Minerals - 0.5%
Aluminum Companies of America 234,800 $ 15,966,400
Phelps Dodge Corp. 78,460 5,737,388
-------------
$ 21,703,788
- -------------------------------------------------- ----------- --------------
Oil Services - 0.3%
Schlumberger Ltd. 83,112 $ 8,913,762
Tenneco, Inc. 107,400 4,188,600
-------------
$ 13,102,362
- -------------------------------------------------- ----------- --------------
Oils - 6.1%
Amoco Corp. 144,400 $ 12,508,650
Atlantic Richfield Co. 117,500 15,862,500
British Petroleum PLC, ADR 339,338 46,574,136
Chevron Corp. 140,000 9,747,500
Exxon Corp. 279,936 30,163,104
Mobil Corp. 232,000 30,305,000
Occidental Petroleum Corp. 364,400 8,973,350
Reading & Bates Corp.* 51,106 1,156,273
Repsol S.A., ADR 199,480 8,128,810
Royal Dutch Petroleum Co., ADR 183,000 32,025,000
Sun Co., Inc. 44,582 1,164,704
Texaco, Inc. 322,100 35,269,950
Ultramar Corp. 85,000 2,698,750
USX-Marathon Group 1,011,400 28,192,775
-------------
$262,770,502
- -------------------------------------------------- ----------- --------------
Photographic Products - 0.7%
Eastman Kodak Co. 389,500 $ 29,553,312
- -------------------------------------------------- ---------- -------------
Pollution Control - 0.5%
Browning-Ferris Industries, Inc. 233,700 $ 6,748,088
WMX Technologies, Inc. 491,400 15,049,125
-------------
$ 21,797,213
- -------------------------------------------------- ----------- --------------
Printing and Publishing - 0.3%
Gannett Co., Inc. 135,000 $ 11,593,125
- -------------------------------------------------- ---------- -------------
Railroads - 0.9%
Burlington Northern Santa Fe 308,400 $ 22,821,600
CSX Corp. 98,500 4,580,250
Illinois Central Corp. 327,400 10,313,100
-------------
$ 37,714,950
- -------------------------------------------------- ----------- --------------
Restaurants and Lodging - 0.1%
Boykin Lodging Co. 133,200 $ 2,913,750
- -------------------------------------------------- ---------- -------------
20
<PAGE>
Portfolio of Investments (Unaudited) - continued
Common Stocks - continued
- --------------------------------------------------------------------------------
Issuer Shares Value
- -------------------------------------------- --------- -------------
Real Estate Investment Trusts - 1.2%
Arden Realty Group, Inc. 98,800 $ 2,692,300
First Industrial Realty 186,000 5,882,250
Hospitalities Properties Trust 459,000 14,056,875
Meditrust Corp. 254,800 9,491,300
Mid-America Apartment Communities, Inc. 86,900 2,433,200
National Health Investors, Inc. 130,200 4,833,675
Public Storage, Inc. 2,200 63,800
Trinet Corp. Realty Trust, Inc. 416,400 13,168,650
-------------
$ 52,622,050
- -------------------------------------------- --------- -------------
Special Products and Services - 0.1%
Stanley Works 40,100 $ 1,518,787
TIG Holdings, Inc. 100,000 3,175,000
-------------
$ 4,693,787
- -------------------------------------------- --------- -------------
Stores - 1.2%
May Department Stores Co. 101,860 $ 4,634,630
Penney (J.C.), Inc. 102,000 4,857,750
Rite Aid Corp. 503,100 21,130,200
Sears, Roebuck & Co. 338,400 17,004,600
Talbots, Inc. 183,800 5,812,675
-------------
$ 53,439,855
- -------------------------------------------- --------- -------------
Supermarkets - 0.1%
Kroger Co. 117,000 $ 5,937,750
- ------------------------------------------- -------- -------------
Telecommunications - 0.2%
Lucent Technologies 19,601 $ 1,033,953
Telefonica del Peru, "B", ADR 443,045 9,857,751
-------------
$ 10,891,704
- -------------------------------------------- --------- -------------
Utilities - Electric - 3.0%
Allegheny Power System 65,000 $ 1,925,625
Carolina Power & Light Co. 311,800 11,302,750
Cinergy Corp. 120,000 4,095,000
CMS Energy Corp. 319,000 10,487,125
DPL, Inc. 108,000 2,605,500
FPL Group, Inc. 345,200 15,231,950
GPU, Inc. 470,000 15,098,750
Long Island Lighting Co. 200,000 4,800,000
PacifiCorp 100,000 2,137,500
PECO Energy Co. 98,100 1,998,787
Pinnacle West Capital Corp. 350,000 10,543,750
Portland Gen Corp. 404,500 14,106,937
Public Service Co. of Colorado 136,300 5,281,625
Public Service Company of New Mexico 751,200 12,958,200
Scana Corp. 100,000 2,537,500
Sierra Pacific Resources 273,900 8,045,813
Texas Utilities Co. 128,700 4,407,975
-------------
$127,564,787
- -------------------------------------------- --------- -------------
21
<PAGE>
Portfolio of Investments (Unaudited) - continued
Common Stocks - continued
- --------------------------------------------------------------------------------
Issuer Shares Value
- ------------------------------------------------------- ----------- ----------------
Utilities - Gas - 2.7%
Brooklyn Union Gas Co. 100,000 $ 2,750,000
Coastal Corp. 306,400 14,707,200
Columbia Gas System, Inc. 320,000 18,520,000
Eastern Enterprises 174,400 5,384,600
Energen Corp. 36,700 1,096,412
K N Energy, Inc. 243,600 9,622,200
National Fuel Gas Co. 70,000 2,992,500
Pacific Enterprises 188,400 5,699,100
Panenergy Corp. 548,800 23,667,000
Questar Corp. 140,000 5,022,500
Sonat, Inc. 120,000 6,540,000
UGI Corp. 445,000 10,568,750
Williams Cos., Inc. 217,718 9,688,451
---------------
$ 116,258,713
- ------------------------------------------------------- ----------- ----------------
Utilities - Telephone - 2.4%
BellSouth Corp. 273,000 $ 11,534,250
GTE Corp. 686,000 31,984,750
MCI Communications Corp. 316,400 11,271,750
NYNEX Corp. 128,100 5,844,562
Pacific Telesis Group 646,800 24,416,700
Sprint Corp. 435,300 19,806,150
---------------
$ 104,858,162
- ------------------------------------------------------- ----------- ----------------
Total U.S. Stocks $1,995,194,558
- ------------------------------------------------------- ----------- ----------------
Foreign Stocks - 2.0%
Canada - 0.1%
Canadian National Railway (Railroads) 175,600 $ 6,211,850
- ------------------------------------------------------ ---------- ---------------
Germany - 0.3%
BASF AG (Chemicals) 70,000 $ 2,641,030
Henkel KGaA (Chemicals) 254,200 14,005,505
---------------
$ 16,646,535
- ------------------------------------------------------- ----------- ----------------
Hong Kong - 0.1%
Hong Kong Land Holdings 1,369,689 $ 3,177,678
- ------------------------------------------------------ ---------- ---------------
Netherlands - 0.2%
Akzo Nobel NV (Chemicals) 46,605 $ 6,692,278
- ------------------------------------------------------ ---------- ---------------
Switzerland - 0.7%
Ciba Specialty Chemicals AG (Chemicals)* 14,533 $ 1,200,407
Novartis AG (Pharmaceuticals)* 23,813 29,520,383
---------------
$ 30,720,790
- ------------------------------------------------------- ----------- ----------------
United Kingdom - 0.6%
Grand Metropolitan PLC (Food Products) 2,443,400 $ 19,725,080
PowerGen PLC (Utilities - Electric) 520,700 5,071,618
---------------
$ 24,796,698
- ------------------------------------------------------- ----------- ----------------
Total Foreign Stocks $ 88,245,829
- ------------------------------------------------------- ----------- ----------------
Total Common Stocks (Identified Cost, $1,563,402,888) $2,083,440,387
- ------------------------------------------------------- ----------- ----------------
22
<PAGE>
Portfolio of Investments (Unaudited) - continued
Convertible Preferred Stocks - 5.1%
- --------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------- --------- -------------
Aerospace - 0.2%
Loral Space & Communications Ltd., 6%## 209,050 $10,086,662
- --------------------------------------------- -------- ------------
Agricultural Products - 0.5%
Case Corp., $4.50 159,200 $19,860,200
- --------------------------------------------- -------- ------------
Airlines
Continental Air Finance Trust, 8.5% 15,000 $ 1,098,750
- --------------------------------------------- -------- ------------
Apparel and Textiles
Owens Corning Capital, 6.5%, MIPS## 30,000 $ 1,638,750
- --------------------------------------------- -------- ------------
Banks and Credit Companies - 0.4%
McKesson Financing Trust, 2.5%## 101,120 $ 5,346,720
National Australia Bank, 7.875% 411,850 10,296,250
------------
$15,642,970
- --------------------------------------------- -------- ------------
Business Services - 0.1%
IKON Office Solutions, Inc., $5.04 30,000 $ 2,426,250
- --------------------------------------------- -------- ------------
Computer Software - Systems
Wang Labs, Inc., "B", 6.5%## 25,000 $ 1,168,750
- --------------------------------------------- -------- ------------
Consumer Goods - and Services - 0.1%
Corning Delaware LP, 6% 55,000 $ 3,898,125
- --------------------------------------------- -------- ------------
Entertainment - 0.1%
American Radio Systems Co., 7%## 55,000 $ 2,585,000
Golden Books Financing, 8.75%## 45,000 2,154,375
Royal Caribbean Cruises Ltd., 7.25% 31,000 1,736,000
------------
$ 6,475,375
- --------------------------------------------- -------- ------------
Financial Institutions - 0.8%
Finova Group Financing Trust, 5.5%, TORPS 183,060 $ 9,564,885
First USA, Inc., 6.25% 10,000 720,000
Greenfield Capital Trust, 6%, Prides## 45,000 1,867,500
Insignia Financial Group, Inc., 6.50%## 25,000 1,131,250
Jefferson Pilot Co., 7.25% 35,000 3,456,250
Merrill Lynch & Co., 6.5%, STRYPES 60,000 3,930,000
Merrill Lynch & Co., STRYPES, 2001 45,000 1,698,750
Penncorp Financial Group, Inc., $3.50## 140,100 8,020,725
Salomon, Inc., 7.625% 100,000 3,087,500
Tosco Financing Trust, 5.75%## 34,000 1,836,000
------------
$35,312,860
- --------------------------------------------- -------- ------------
Food and Beverage Products - 0.1%
Chiquita Brands International, $3.75, "B" 20,000 $ 1,210,000
Dole Food Co., 7% 70,000 2,782,500
------------
$ 3,992,500
- --------------------------------------------- -------- ------------
Insurance - 0.5%
Conseco, Inc., 7%, Prides 111,000 $14,055,375
Frontier Financing Trust, 6.25%## 45,000 2,452,500
St. Paul Capital LLC, 6%, MIPS 55,800 3,320,100
SunAmerica, Inc., 8.5% 40,000 1,580,000
SunAmerica, Inc., $3.10, "E" 15,000 1,327,500
------------
$22,735,475
- --------------------------------------------- -------- ------------
23
<PAGE>
Portfolio of Investments (Unaudited) - continued
Convertible Preferred Stocks - continued
- --------------------------------------------------------------------------------
Issuer Shares Value
- ------------------------------------------------------------------- --------- -------------
Machinery
Cooper Industries, Inc. 10,000 $ 182,500
- ------------------------------------------------------------------ -------- -------------
Medical and Health Technology and Services - 0.1%
SCI Finance LLC, $3.125, "A" 35,000 $ 3,570,000
- ------------------------------------------------------------------ -------- -------------
Metals and Minerals - 0.1%
Timet Capital Trust, 6.625%## 117,400 $ 5,444,425
- ------------------------------------------------------------------ -------- -------------
Oils - 0.1%
Atlantic Richfield Co., 9% 30,500 $ 671,000
El Paso Tennessee Pipeline Co., "A", 8.25% 50,000 2,650,000
-------------
$ 3,321,000
- ------------------------------------------------------------------ -------- -------------
Pollution Control - 0.2%
Browning-Ferris Industries, 7.25s, ACES* 292,000 $ 8,723,500
- ------------------------------------------------------------------ -------- -------------
Restaurants and Lodging - 0.6%
Hilton Hotels Corp., 8%, Prides 60,000 $ 1,402,500
Host Marriott Financial Trust, 6.75%## 408,680 22,988,250
Wendy's Financing, Inc., 5% 22,000 1,113,750
-------------
$ 25,504,500
- ------------------------------------------------------------------ -------- -------------
Steel - 0.1%
AK Steel Holdings Corp., 7% 33,300 $ 1,078,087
USX Marathon, 6.75% 70,000 1,356,250
-------------
$ 2,434,337
- ------------------------------------------------------------------ -------- -------------
Stores - 0.1%
Ann Taylor Financing Trust, 8.5% 15,000 $ 892,500
K Mart Financing, Inc., 7.75% 20,000 1,070,000
TJX Cos., Inc., $7.00, "E" 4,000 960,000
-------------
$ 2,922,500
- ------------------------------------------------------------------ -------- -------------
Telecommunications
IXC Communications, Inc., 7%## 5,000 $ 500,000
- ------------------------------------------------------------------ -------- -------------
Utilities - Electric - 0.3%
AES Trust, 5.375% 5,000 $ 243,125
Devon Financing Trust, $3.25## 45,000 2,711,250
Long Island Lighting Co., 7.95% 250,000 6,343,750
Williams Cos., Inc., $3.50## 38,000 4,056,500
-------------
$ 13,354,625
- ------------------------------------------------------------------ -------- -------------
Utilities - Gas - 0.5%
Enron Corp., 6.25% 372,400 $ 8,006,600
MCN Corp., 8.75%, Prides 55,200 1,476,600
Unocal Corp., 6.25% 213,040 11,663,940
-------------
$ 21,147,140
- ------------------------------------------------------------------ -------- -------------
Utilities - Telephone - 0.2%
Cointel, 7%, Prides## 79,700 $ 4,801,925
Salomon, Inc., 6.25% 43,300 2,554,700
-------------
$ 7,356,625
- ------------------------------------------------------------------ -------- -------------
Total Convertible Preferred Stocks (Identified Cost $196,449,736) $218,797,819
- ------------------------------------------------------------------ -------- -------------
24
<PAGE>
Portfolio of Investments (Unaudited) - continued
Short-Term Obligations - 5.6%
- --------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------- ----------------- ---------------
Federal Farm Credit Bank, due 4/02/97 $ 1,185 $ 1,184,827
Federal Home Loan Bank, due 4/24/97 5,000 4,983,261
Federal Home Loan Mortgage Corp.,
due 4/02/97- 4/25/97 44,235 44,163,156
Federal National Mortgage Assn., due 4/10/97-5/02/97 123,320 123,115,298
General Electric Co., due 4/01/97 30,395 30,395,000
Heinz (H.J.) Co., due 4/08/97 10,500 10,489,282
Merrill Lynch & Co., due 4/15/97 7,860 7,843,891
Southern New England Telephone, due 4/21/97-5/8/97 11,100 11,050,622
Tennessee Valley Authority, due 4/14/97 11,120 11,099,119
- --------------------------------------------------------- ----------------- ---------------
Total Short-Term Obligations, at Amortized Cost $ 244,324,456
- --------------------------------------------------------- ----------------- ---------------
Total Investments (Identified Cost, $3,787,843,856) $4,319,920,573
Other Assets, Less Liabilities - 0.3% 10,428,259
- --------------------------------------------------------- ----------------- ---------------
Net Assets - 100.0% $4,330,348,832
- --------------------------------------------------------- ----------------- ---------------
</TABLE>
+Restricted security.
##SEC Rule 144A restriction.
See notes to financial statements
25
<PAGE>
Financial Statements
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $3,787,843,856) $4,319,920,573
Cash 33,942
Receivable for daily variation margin on open futures contracts 36,500
Receivable for Fund shares sold 8,885,428
Receivable for investments sold 17,252,978
Interest and dividends receivable 38,075,866
Other assets 71,968
---------------
Total assets $4,384,277,255
---------------
Liabilities:
Distributions payable $ 13,238,428
Payable for Fund shares reacquired 9,976,869
Payable for investments purchased 29,567,020
Payable to affiliates -
Management fee 137,388
Shareholder servicing agent fee 62,330
Distribution fee 277,292
Accrued expenses and other liabilities 669,096
---------------
Total liabilities $ 53,928,423
---------------
Net assets $4,330,348,832
---------------
Net assets consist of:
Paid-in capital $3,617,419,792
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 532,800,769
Accumulated undistributed net realized gain on investments and foreign
currency transactions 175,606,070
Accumulated undistributed net investment income 4,522,201
---------------
Total $4,330,348,832
---------------
Shares of beneficial interest outstanding 291,814,291
---------------
Class A shares:
Net asset value per share
(net assets of $2,784,916,839 [divided by] 187,665,056 shares of
beneficial interest outstanding) $14.84
------
Offering price per share (100 [divided by] 95.25) $15.58
------
Class B shares:
Net asset value and offering price per share
(net assets of $1,405,867,632 [divided by] 94,761,625 shares of
beneficial interest outstanding) $14.84
------
Class C shares:
Net asset value and offering price per share
(net assets of $124,666,807 [divided by] 8,383,743 shares of
beneficial interest outstanding) $14.87
------
Class I shares:
Net asset value per share
(net assets of $14,897,554 [divided by] 1,003,867 shares of
beneficial interest outstanding) $14.84
------
</TABLE>
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
26
<PAGE>
Financial Statements - continued
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Net investment income:
Income -
Interest $ 70,193,884
Dividends 32,821,133
Foreign taxes withheld (370,180)
-------------
Total investment income $ 102,644,837
-------------
Expenses -
Management fee $ 7,618,811
Trustees' compensation 61,512
Shareholder servicing agent fee (Class A) 717,088
Shareholder servicing agent fee (Class B) 620,329
Shareholder servicing agent fee (Class C) 35,690
Shareholder servicing agent fee (Common) 1,405,411
Distribution and service fee (Class A) 4,761,136
Distribution and service fee (Class B) 6,909,707
Distribution and service fee (Class C) 525,227
Postage 395,054
Custodian fee 126,284
Printing 74,173
Administrative fee 32,877
Auditing fees 20,805
Legal fees 17,479
Miscellaneous 1,168,361
-------------
Total expenses $ 24,489,944
Fees paid indirectly (92,898)
-------------
Net expenses $ 24,397,046
-------------
Net investment income $ 78,247,791
-------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 222,459,714
Foreign currency transactions (49,084)
Futures contracts (306,559)
-------------
Net realized gain on investment and foreign currency transactions $ 222,104,071
-------------
Change in unrealized appreciation -
Investments $ 4,142,924
Translation of assets and liabilities in foreign currencies 16,529
Futures contracts 858,655
-------------
Net unrealized gain on investment and foreign currency translation $ 5,018,108
-------------
Net realized and unrealized gain on investments and foreign currency $ 227,122,179
-------------
Increase in net assets from operations $ 305,369,970
-------------
</TABLE>
See notes to financial statements
27
<PAGE>
Financial Statements - continued
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1997 Year Ended
(Unaudited) September 30, 1996
------------------ -------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 78,247,791 $ 147,726,656
Net realized gain on investments and foreign
currency transactions 222,104,071 290,242,988
Net unrealized gain on investments and
foreign currency translation 5,018,108 5,067,278
--------------- ---------------
Increase in net assets from operations $ 305,369,970 $ 443,036,922
--------------- ---------------
Distributions declared to shareholders -
From net investment income (Class A) $ (53,814,762) $ (103,128,807)
From net investment income (Class B) (22,274,419) (40,140,247)
From net investment income (Class C) (1,703,348) (1,719,502)
From net investment income (Class I) (168,244) --
From net realized gain on investments and
foreign currency transactions (Class A) (182,356,310) (104,083,151)
From net realized gain on investments and
foreign currency transactions (Class B) (93,209,353) (47,213,572)
From net realized gain on investments and
foreign currency transactions (Class C) (6,625,182) (1,295,700)
--------------- ---------------
Total distributions declared to shareholders $ (360,151,618) $ (297,580,979)
--------------- ---------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 604,623,893 $ 883,738,695
Net asset value of shares issued to
shareholders in reinvestment of
distributions 320,758,487 250,392,788
Cost of shares reacquired (476,137,156) (614,411,016)
--------------- ---------------
Increase in net assets from Fund share
transactions $ 449,245,224 $ 519,720,467
--------------- ---------------
Total increase in net assets $ 394,463,576 $ 665,176,410
Net assets:
At beginning of period 3,935,885,256 3,270,708,846
--------------- ---------------
At end of period (including accumulated
undistributed net investment income of
$4,522,201 and $4,235,183, respectively) $ 4,330,348,832 $ 3,935,885,256
--------------- ---------------
</TABLE>
See notes to financial statements
28
<PAGE>
Financial Statements - continued
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended September 30,
March 31, -----------------------------------------------
1997
(Unaudited) 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[sec] $ 0.30 $ 0.64 $ 0.64 $ 0.54 $ 0.45
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.82 1.21 1.64 (0.69) 1.74
---------- --------- ------- ------- --------
Total from investment operations $ 1.12 $ 1.85 $ 2.28 $ (0.15) $ 2.19
---------- --------- ------- ------- --------
Less distributions declared to shareholders -
From net investment income $ (0.25) $ (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 $ (1.31) $ (1.28) $ (0.62) $ (0.75) $ (0.91)
---------- ---------- ------- ------- --------
Net asset value - end of period $ 14.84 $ 15.03 $ 14.46 $ 12.80 $ 13.70
---------- ---------- ------- ------- --------
Total return[dbldag] 7.87%++ 13.50% 18.36% (1.07)% 18.32%
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## 0.92%+ 0.91% 0.87% 0.85% 0.84%
Net investment income 3.95%+ 4.35% 4.82% 4.26% 4.51%
Portfolio turnover 75% 140% 102% 91% 95%
Average commission rate### $0.0547 $0.0547 -- -- --
Net assets at end of period (000,000 omitted) $ 2,785 $ 2,568 $ 2,242 $ 1,857 $ 1,702
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to September 30, 1993 is 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.
[dbldag]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.
[sec]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
29
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30, 1992 1991 1990 1989
- -------------------------------------------------- ----------- ----------- ----------- -----------
Class A
- --------------------------------------------------------------------------------------------------
<S> <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
------- ------- -------- -------
Income from investment operations -
Net investment income $ 0.65 $ 0.67 $ 0.64 $ 0.65
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.75 1.57 (1.25) 1.71
------- ------- -------- -------
Total from investment operations $ 1.40 $ 2.24 $ (0.61) $ 2.36
------- ------- -------- -------
Less distributions declared to shareholders -
From net investment income* $ (0.66) $ (0.61) $ (0.66) $ (0.63)
From net realized gain on investments and
foreign currency transactions (0.14) (0.06) (0.06) (0.28)
------- ------- -------- --------
Total distributions declared to
shareholders $ (0.80) $ (0.67) $ (0.72) $ (0.91)
------- ------- -------- --------
Net asset value - end of period $ 12.42 $ 11.82 $ 10.25 $ 11.58
------- ------- -------- --------
Total return[dbldag] 12.26% 22.25% (5.59)% 23.46%
Ratios (to average net assets)/Supplemental data:
Expenses 0.84% 0.87% 0.85% 0.72%
Net investment income 5.40% 5.89% 5.71% 5.97%
Portfolio turnover 84% 74% 50% 53%
Net assets at end of period (000,000 omitted) $ 1,198 $ 909 $ 707 $ 628
[dbldag]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.
*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.
</TABLE>
See notes to financial statements
30
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30, 1988 1987
- ------------------------------------------------------------- ----------- -----------
Class A
- -------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 11.47 $ 9.77
-------- --------
Income from investment operations -
Net investment income $ 0.62 $ 0.56
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (1.07) 2.07
-------- --------
Total from investment operations $ (0.45) $ 2.63
-------- --------
Less distributions declared to shareholders -
From net investment income $ (0.60) $ (0.56)
From net realized gain on investments and foreign currency
transactions (0.08) (0.36)
From paid-in capital (0.21) (0.01)
-------- --------
Total distributions declared to shareholders $ (0.89) $ (0.93)
-------- --------
Net asset value - end of period $ 10.13 $ 11.47
-------- --------
Total return[dbldag] (3.93)% 26.81%
Ratios (to average net assets)/Supplemental data:
Expenses 0.71% 0.63%
Net investment income 6.06% 5.05%
Portfolio turnover 52% 58%
Net assets at end of period (000,000 omitted) $ 508 $ 551
[dbldag]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
31
<PAGE>
Financial Statements - continued
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended September 30,
March 31, 1997 --------------------------------------------
(Unaudited) 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 $ 0.24 $ 0.52 $ 0.53 $ 0.39 $ 0.06
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions 0.85 1.21 1.64 (0.65) 0.16
--------- ------- ------- ------- -------
Total from investment operations $ 1.09 $ 1.73 $ 2.17 $ (0.26) $ 0.22
--------- ------- ------- ------- -------
Less distributions declared to shareholders -
From net investment income $(0.21) $ (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
and foreign currency transactions -- -- (0.01) (0.10) --
From paid-in capital -- -- -- (0.11) --
--------- -------- ------- ------- --------
Total distributions declared to
shareholders $(1.27) $ (1.17) $ (0.51) $ (0.64) $ (0.05)
--------- -------- ------- ------- --------
Net asset value - end of period $14.84 $ 15.02 $ 14.46 $ 12.80 $ 13.70
--------- -------- ------- ------- --------
Total return 7.57%++ 12.49% 17.46% (1.93)% 15.24%+
Ratios (to average net assets)/Supplemental data:
Expenses## 1.61%+ 1.67% 1.71% 1.70% 1.75%+
Net investment income 3.26%+ 3.56% 3.97% 3.45% 3.98%+
Portfolio turnover 75% 140% 102% 91% 95%
Average commission rate### $0.0547 $0.0547 -- -- --
Net assets at end of period (000,000 omitted) $ 1,406 $ 1,284 $ 1,005 $ 843 $ 532
</TABLE>
*For the period from the commencement of offering of Class B shares, August
23, 1993, to September 30, 1993.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to September 30, 1993 is 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.
See notes to financial statements
32
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 1997 ---------------------------------------
(Unaudited) 1996 1995 1994*
- ----------------------------------------------------------------------------------------------------------------
Class C
- ----------------------------------------------------------------------------------------------------------------
<S> <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
---------- --------- -------- --------
Income from investment operations# -
Net investment income $ 0.24 $ 0.53 $ 0.54 $ 0.08
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.84 1.22 1.66 (0.13)
---------- --------- -------- ---------
Total from investment operations $ 1.08 $ 1.75 $ 2.20 $ (0.05)
---------- --------- -------- ---------
Less distributions declared to shareholders -
From net investment income $ (0.21) $ (0.52) $ (0.50) $ (0.07)
From net realized gain on investments and
foreign currency transactions (1.06) (0.66) (0.01) --
---------- ---------- -------- ---------
Total distributions declared to
shareholders $ (1.27) $ (1.18) $ (0.51) $ (0.07)
---------- ---------- -------- ---------
Net asset value - end of period $ 14.87 $ 15.06 $ 14.49 $ 12.80
---------- ---------- -------- ---------
Total return 7.49%++ 12.67% 17.66% (0.41)%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.61%+ 1.63% 1.67% 1.76%+
Net investment income 3.28%+ 3.67% 4.14% 4.08%+
Portfolio turnover 75% 140% 102% 91%
Average commission rate### $ 0.0547 $ 0.0547 -- --
Net assets at end of period (000,000 omitted) $ 125 $ 83 $ 23 $ 1
</TABLE>
*For the period from the commencement of offering of Class C shares, August 1,
1994, to September 30, 1994.
+Annualized.
++Not annualized.
#Per share data is 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.
See notes to financial statements
33
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
Six Months Ended
March 31, 1997*
(Unaudited)
- ---------------------------------------------------------------------------
Class I
- ---------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 14.70
Income from investment operations# -
Net investment income $ 0.15
Net realized and unrealized gain on investments and
foreign currency transactions 0.15
----------
Total from investment operations $ 0.30
----------
Less distributions declared to shareholders
from net investment income $ (0.16)
----------
Net asset value - end of period $ 14.84
----------
Total return 7.95%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.61%+
Net investment income 4.10%+
Portfolio turnover 75%
Average commission rate### $0.0547
Net assets at end of period (000,000 omitted) $ 15
+Annualized.
++Not annualized.
*For the period from the commencement of offering of Class I shares, January
2, 1997 to March 31, 1997.
#Per share data is based on average shares outstanding.
##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.
See notes to financial statements
34
<PAGE>
Notes to Financial Statements (Unaudited)
(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 valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are not
available are valued at 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.
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.
35
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
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. 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.
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. Dividend
income is recorded on the ex-dividend date for dividends received in cash.
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 custodian bank calculates its fee based on the
Funds'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
36
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
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 net income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is provided. The Fund files a tax return annually
using tax accounting methods required under provisions of the Code which may
differ from generally accepted accounting principles, the basis on which these
financial statements are prepared. Accordingly, the amount of net investment
income and net realized gain reported on these financial statements may differ
from that reported on the Fund's tax return and, consequently, the character of
distributions to shareholders reported in the financial highlights may differ
from that reported to shareholders on Form 1099-DIV. Foreign taxes have been
provided for on interest and dividend income earned on foreign investments in
accordance with the applicable country's tax rates and to the extent
unrecoverable are recorded as a reduction of investment income. Distributions to
shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a 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.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B, Class C, and Class I shares. The four classes of shares differ in their
respective distribution and service fees. All shareholders bear the common
expenses of the Fund pro rata based on average daily net assets of each class,
without distinction between share classes. Dividends are declared separately for
each class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate of
0.21% of average daily net assets and 3.11% of investment income.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain officers and Trustees of the
37
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
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 $18,687 for the period ended
March 31, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$513,758 for the period ended March 31, 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 $497,118 for the period ended March 31,
1997. Fees incurred under the distribution plan during the period ended March
31, 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 $91,396 and $1,757 for Class B and Class C shares,
respectively, for the period ended March 31, 1997. Fees incurred under the
distribution plan during the period ended March 31, 1997 were 1.00% and 1.00% of
average daily net assets attributable to Class B and Class C shares on an
annualized basis, respectively.
38
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
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 twelve months of purchases made on
or after April 1, 1996. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the period ended March 31, 1997
were $21,203, $838,803 and $18,001 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 $ 935,226,747 $1,155,103,071
Investments (non-U.S. government securities) $2,201,541,484 $1,918,280,129
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 $3,787,843,856
---------------
Gross unrealized appreciation $ 595,247,271
Gross unrealized depreciation 63,170,580
---------------
Net unrealized appreciation $ 532,076,691
---------------
39
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
Period Ended March 31, 1997 Year Ended September 30, 1996
---------------------------------- ------------------------------------
Shares Amount Shares Amount
--------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Shares sold 23,729,735 $ 359,608,687 32,544,619 $ 475,330,763
Shares issued to shareholders
in reinvestment of
distributions 13,853,230 207,326,067 11,900,327 171,688,507
Shares transferred to Class I (1,095,793) (16,108,156) -- --
Shares reacquired (19,689,983) (298,877,082) (28,608,019) (418,045,276)
------------- -------------- ------------- --------------
Net increase 16,797,189 $ 251,949,516 15,836,927 $ 228,973,994
------------- -------------- ------------- --------------
Class B Shares
Period Ended March 31, 1997 Year Ended September 30, 1996
---------------------------------- ------------------------------------
Shares Amount Shares Amount
--------------- ---------------- ---------------- -----------------
Shares sold 12,203,198 $ 185,331,008 23,526,173 $ 343,774,175
Shares issued to shareholders
in reinvestment of
distributions 7,085,161 105,896,679 5,276,202 76,064,908
Shares reacquired (10,017,661) (151,763,121) (12,818,714) (187,231,460)
------------- -------------- ------------- --------------
Net increase 9,270,698 $ 139,464,566 15,983,661 $ 232,607,623
------------- -------------- ------------- --------------
Class C Shares
Period Ended March 31, 1997 Year Ended September 30, 1996
---------------------------------- ------------------------------------
Shares Amount Shares Amount
--------------- ---------------- ---------------- -----------------
Shares sold 2,840,925 $ 43,202,990 4,404,959 $ 64,633,757
Shares issued to shareholders
in reinvestment of
distributions 495,282 7,422,358 182,264 2,639,373
Shares reacquired (492,592) (7,509,178) (624,347) (9,134,280)
------------- -------------- ------------- --------------
Net increase 2,843,615 $ 43,116,170 3,962,876 $ 58,138,850
------------- -------------- ------------- --------------
Class I Shares
Period Ended March 31, 1997
----------------------------------
Shares Amount
--------------- ----------------
Shares sold 25,073 $ 373,052
Shares issued to shareholders
in reinvestment of
distributions 7,473 113,383
Shares transferred from Class A 1,095,793 16,108,156
Shares reacquired (124,472) (1,879,619)
------------- --------------
Net increase 1,003,867 $ 14,714,972
------------- --------------
</TABLE>
40
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $400 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the period ended March 31,
1997 was $20,694.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include 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
Expiration Contracts Position Appreciation
- ---------------------------- ----------- ---------- -------------
US Treasury Notes 6/30/97 584 Short $727,039
At March 31, 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 March 31, 1997, the
Fund owned the following restricted security (constituting 0.1% of net assets)
which may not be publicly sold without registration under the Securities Act of
1933 (the 1933 Act). The value of this security is determined by valuations
supplied by a pricing service or brokers.
<TABLE>
<CAPTION>
Par
Description Date of Acquisition Amount Cost Value
- --------------------------- --------------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Merrill Lynch Mortgage
Investors, 8.0933s, 2021 6/22/94 $4,000,000 $2,772,500 $3,368,125
----------
</TABLE>
------------------------------------------------------------------------
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.
41
<PAGE>
Introducing a quick and easy way to learn some financial basics:
The ABCs of Investing
part of MFS(R) Heritage Planning(SM)
[graphic of cartoon couple juggling alphabet blocks]
This series of brief messages provides an overview of investment topics,
including:
[bullet] Dollar-cost Averaging: a simple method of investing that could work for
anyone
[bullet] Interest Rate Changes: what every fixed-income investor should know
[bullet] Lump-sum Rollovers: how to handle a windfall
[bullet] Professional Financial Advisers: why even smart investors may need one
[bullet] Straw into Gold: tips for weaving small lifestyle changes into dollars
to invest
[bullet] Weathering Market Downturns: how to maintain perspective
[bullet] Basic Steps Smart Investors Take Automatically
The series will include messages on other topics as they become available.
You can read through each topic quickly -- in five minutes at most. Of course,
these materials are not designed to turn you into an expert. Your financial
adviser can provide more information on any of the ABC subjects. A
conversation with your adviser might also provide an opportune occasion to
review your portfolio and to assess your present and future financial needs.
To request your free copy of The ABCs of Investing series, call MFS at
1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time.
As part of MFS Heritage Planning, your adviser has access to a wide range of
MFS materials he or she would be happy to share with you on topics related to
the intergenerational concerns of people today. These include financing
college tuition and a secure retirement, eldercare, tax-smart gifting
strategies, estate and health care planning, and other issues.
42
<PAGE>
It's Easy to Contact Us
[telephone dingbat]
MFS Automated Information
Account Information:
Call 1-800-MFS-TALK (1-800-637-8255)
anytime for account balances, fund prices, exchanges.
Investment Outlook:
Call 1-800-637-4458 anytime for the MFS outlook
on the bond and stock markets.
[question mark dingbat]
MFS Personal Service
Account Service/Literature:
Call 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
Product Information:
Call 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time.
IRA Service:
Call 1-800-637-1255 any business day
from 9 a.m. to 5 p.m. Eastern time.
Service for the Hearing-Impaired:
Call 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time (TDD required).
[envelope dingbat]
MFS Addresses
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
World Wide Web
www.mfs.com
43
<PAGE>
The MFS Family of Funds(R)
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-225-2606
any business day from 8 a.m. to 8 p.m. Eastern time. This material should be
read carefully before investing or sending money.
Stock
- -------------------------------------------------------------
Massachusetts Investors Trust
Massachusetts Investors Growth Stock Fund
MFS(R) Capital Growth Fund
MFS(R) Emerging Growth Fund
MFS(R) Gold & Natural Resources Fund
MFS(R) Growth Opportunities Fund
MFS(R) Managed Sectors Fund
MFS(R) OTC Fund
MFS(R) Research Fund
MFS(R) Research Growth and Income Fund
MFS(R) Strategic Growth Fund
MFS(R) Value Fund
Stock and Bond
- -------------------------------------------------------------
MFS(R) Total Return Fund
MFS(R) Utilities Fund
Bond
- -------------------------------------------------------------
MFS(R) Bond Fund
MFS(R) Government Mortgage Fund
MFS(R) Government Securities Fund
MFS(R) High Income Fund
MFS(R) Intermediate Income Fund
MFS(R) Strategic Income Fund
Limited Maturity Bond
- -------------------------------------------------------------
MFS(R) Government Limited Maturity Fund
MFS(R) Limited Maturity Fund
MFS(R) Municipal Limited Maturity Fund
- -------------------------------------------------------------
World
- ----------------------------------------------------------------
MFS(R)/Foreign & Colonial Emerging Markets Equity Fund
MFS(R)/Foreign & Colonial International Growth Fund
MFS(R)/Foreign & Colonial International Growth and Income Fund
MFS(R) World Asset Allocation Fund(SM)
MFS(R) World Equity Fund
MFS(R) World Governments Fund
MFS(R) World Growth Fund
MFS(R) World Total Return Fund
National Tax-Free Bond
- ----------------------------------------------------------------
MFS(R) Municipal Bond Fund
MFS(R) Municipal High Income Fund
MFS(R) Municipal Income Fund
State Tax-Free Bond
- ----------------------------------------------------------------
Alabama, Arkansas, California, Florida, Georgia, Maryland,
Massachusetts, Mississippi, New York, North Carolina,
Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia
Money Market
- ----------------------------------------------------------------
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
44
<PAGE>
MFS(R) Total Return Fund
Trustees
A. Keith Brodkin* - Chairman and President
Richard B. Bailey* - Private Investor; Former Chairman and Director (until
1991), Massachusetts Financial Services Company; Director, Cambridge Bancorp;
Director, Cambridge Trust Company
Peter G. Harwood - Private Investor
J. Atwood Ives - Chairman and Chief Executive Officer, Eastern Enterprises
Lawrence T. Perera - Partner, Hemenway & Barnes
William J. Poorvu - Adjunct Professor, Harvard University Graduate School of
Business Administration
Charles W.schmidt - Private Investor
Arnold D. Scott* - Senior Executive Vice President, Director and Secretary,
Massachusetts Financial Services Company
Jeffrey L. Shames* - President and Director, Massachusetts Financial Services
Company
Elaine R. Smith - Independent Consultant
David B. Stone - Chairman, North American Management Corp. (investment
advisers)
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
Portfolio Managers
David M. Calabro*
Geoffrey L. Kurinsky*
Judith N. Lamb*
Lisa B. Nurme*
Maura A. Shaughnessy*
Treasurer
W. Thomas London*
Assistant Treasurer
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
Custodian
Investors Bank & Trust Co.
Investor Information
For MFS stock and bond market outlooks, call toll free: 1-800-637-4458 anytime
from a touch-tone telephone.
For information on MFS mutual funds, call your financial adviser or, for an
information kit, call toll free: 1-800-637-2929 any business day from 9 a.m. to
5 p.m. Eastern time (or leave a message anytime).
Investor Service
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free: 1-800-225-2606 any business day from 8
a.m. to 8 p.m. Eastern time.
For service to speech- or hearing-impaired, call toll free: 1-800-637-6576 any
business day from 9 a.m. to 5 p.m. Eastern time. (To use this service, your
phone must be equipped with a Telecommunications Device for the Deaf.)
For share prices, account balances, and exchanges, call toll free:
1-800-MFS-TALK (1-800-637-8255) anytime from a touch-tone telephone.
World Wide Web
www.mfs.com
[DALBAR #1 logo]
For the third year in a row, MFS earned a #1 ranking in the DALBAR, Inc.
Broker/Dealer Survey, Main Office Operations Service Quality Category. The firm
achieved a 3.48 over-all score on a scale of 1 to 4 in the 1996 survey. A total
of 110 firms responded, offering input on the quality of service they received
from 29 mutual fund companies nationwide. The survey contained questions about
service quality in 15 categories, including "knowledge of phone service
contacts," "accuracy of transaction processing," and "overall ease of doing
business with the firm."
45
<PAGE>
[back cover]
MFS(R)
Total Return
Fund
500 Boylston Street
Boston, MA 02116-3741
[silhouette logo] MFS(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
[DALBAR #1 logo]
[indicia]
Bulk Rate
U.S. Postage
PAID
Permit #55638
Boston, MA
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MTR-3 5/97 385M 15/214/315
