<PAGE>
[Logo] MFS(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) TOTAL RETURN FUND
SEMIANNUAL REPORT o MARCH 31, 1998
NOW TWO MFS IRA CHOICES (see page 48)
<PAGE>
IN MEMORIAM
A. KEITH BRODKIN
1935 - 1998
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MFS INVESTMENT MANAGEMENT(SM)
[Photo of A. Keith Brodkin]
On February 2, 1998, Keith Brodkin, a friend
and leader to everyone at MFS, died
unexpectedly at age 62. His thoughtful
letters to shareholders on the markets and
economy have been an integral part of
MFS shareholder reports like this one for
many years.
Keith joined MFS in 1970 as the firm's first
fixed-income manager, managing the bond portion
of MFS(R) Total Return Fund. He went on to manage our first pure bond fund,
MFS(R) Bond Fund, when it was introduced in 1974, and he was considered a
pioneer in the art of active bond management.
Keith was named President and Chief Investment Officer of MFS in 1987 and
four years later became Chairman and Chief Executive Officer. During his
stewardship, MFS has achieved significant growth in total assets under
management, rising from some $25 billion in 1991 to the over $80 billion
today entrusted to us by three million individual and institutional investors
worldwide. Under Keith's leadership, MFS has carefully but steadily built its
domestic and international investment capabilities through the introduction
of a range of new products and a still-growing staff that now numbers over
100 equity and fixed-income professionals.
Throughout his career, Keith was very active in a wide range of
charitable endeavors. He is survived by his wife and three children.
His leadership, friendship, and wise counsel will be sorely missed.
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 2
A Discussion with the Lead Portfolio Manager .............................. 4
Portfolio Managers' Profiles .............................................. 7
Fund Facts ................................................................ 8
Performance Summary ....................................................... 8
Portfolio Concentration ................................................... 10
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 31
Notes to Financial Statements ............................................. 39
MFS Investment Opportunities .............................................. 46
The MFS Family of Funds(R) ................................................ 47
The MFS(R) Roth IRA ....................................................... 48
Trustees and Officers ..................................................... 49
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HIGHLIGHTS
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o FOR THE SIX MONTHS ENDED MARCH 31, 1998, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 9.60%, CLASS B SHARES 9.18%,
CLASS C SHARES 9.29%, AND CLASS I SHARES 9.79%. (SEE PERFORMANCE SUMMARY
FOR MORE INFORMATION.)
o THE FUND HAS BENEFITED FROM HOLDINGS IN THE FINANCIAL SERVICES INDUSTRY, A
SECTOR IN WHICH COMPANIES' VALUATIONS ARE LOW RELATIVE TO THE S&P 500 WHILE
THEIR EARNINGS VISIBILITY IS HIGHER THAN THAT OF THE AVERAGE COMPANY.
o PHARMACEUTICAL HOLDINGS HAVE ALSO CONTRIBUTED TO PERFORMANCE, AS THESE
COMPANIES HAVE HAD EXCELLENT EARNINGS AND STOCK PRICE MOVEMENTS OVER THE
PAST SEVERAL YEARS DUE TO CONSOLIDATION AND STRONG SALES.
o BASED ON OUR OUTLOOK FOR INTEREST RATES REMAINING LOW, THE DURATION, OR
SENSITIVITY TO CHANGES IN INTEREST RATES, OF THE FUND'S BOND ALLOCATION IS
SLIGHTLY LONGER THAN THAT OF ITS FIXED-INCOME BENCHMARK.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders:
As investment managers we take a long-term view of the world's economies, as
well as of the stock and bond markets, and try to avoid getting caught up in
short-term fluctuations. However, it is hard to ignore unexpected events such
as the Asian economic turmoil or closely watched companies that miss their
quarterly earnings estimates. Given the potential for these events and their
possible impact on major market indices, we think it's important to offer some
perspective about recent market behavior and to let you know what MFS is doing
in an effort to provide you with favorable long-term investment performance.
The most notable recent event affecting investment markets has been the Asian
turmoil, which began in the summer of 1997 as a result of slowing growth rates
in the region and excess speculation in real estate markets. Since then, most
countries in the region have begun to implement the economic and regulatory
restructuring needed to put themselves on a stronger financial foundation.
While it may be a few years before some of these countries return to solid
economic footing, and while there will probably be a relatively short-term
impact on the U.S. economy, we believe the long-term outlook for the region is
quite positive.
The Asian situation has brought home the lesson that major events can quickly
impact investment markets around the world, including those of the United
States. Although U.S. equities have enjoyed a bull market lasting more than 15
years and have continued to set records in the first few months of 1998, there
have been brief bouts of volatility associated with the Asian turmoil, as well
as with perceived downturns for certain industries such as technology.
While we believe the long-term outlook for the equity markets is favorable, we
also believe we are overdue for a market correction in which prices will
remain relatively flat or decline, possibly for an extended period of time.
Since no one can predict market cycles, that makes it even more important to
find companies that can keep growing in the face of the occasional downturn
and even gain market share. For us, this means using original, bottom-up
research to examine each company's earnings potential and position as well as
the overall prospects for its industry. To that end, MFS continues to increase
the research support available to portfolio managers of MFS funds.
On the fixed-income side, MFS uses active portfolio management based on
extensive research and credit analysis to reduce the potential for price
declines and enhance the opportunity for price appreciation. For both equity
and fixed-income managers, this means visiting and meeting with thousands of
companies and issuers of credit every year, as well as attending many
presentations and closely following sources of industry research.
We believe this approach, based on thorough research, teamwork, innovative
thinking, and the free exchange of ideas, is the best way to get the most
performance for shareholders in MFS funds -- in any market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
April 14, 1998
JEFFREY L. SHAMES, A GRADUATE OF WESLEYAN UNIVERSITY AND THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, JOINED
MFS IN 1983. AFTER FOUR YEARS AS AN INDUSTRY ANALYST AND PORTFOLIO
MANAGER, HE WAS NAMED CHIEF EQUITY OFFICER IN 1987 AND PRESIDENT AND A
MEMBER OF THE BOARD OF DIRECTORS IN 1993. MR. SHAMES WAS APPOINTED
CHAIRMAN AND CHIEF EXECUTIVE OFFICER IN FEBRUARY 1998.
<PAGE>
A DISCUSSION WITH THE LEAD PORTFOLIO MANAGER
[Photo of David M. Calabro]
David M. Calabro
For the six months ended March 31, 1998, Class A shares of the Fund provided a
total return of 9.60%, Class B shares 9.18%, Class C shares 9.29%, and Class I
shares 9.79%. These returns assume the reinvestment of distributions but
exclude the effects of any sales charges and compare to a 17.22% return for
the Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged
index of common stock total return performance, for the same period. The
Fund's returns also compare to a 4.77% return for the Lehman Brothers
Government/Corporate Bond Index (the Lehman Index), an unmanaged, market-
value-weighted index of U.S. Treasury and government-agency securities,
excluding mortgage-backed securities.
Q. WHAT DO YOU SEE AS SOME OF THE MAJOR REASONS FOR THE FUND'S PERFORMANCE
OVER THE PAST YEAR?
A. Mainly, it's a function of the Fund's weightings in stocks, bonds, and
convertibles. For most of the period, the Fund's equity weighting was about
58%, with 51% or 52% of that in stocks and 6% or 7% in convertibles and
preferred securities. That's a fairly conservative weighting relative to
the balanced-fund peer group. Also, the kind of stocks we own -- we're
always looking for value -- tend to do better in a market that isn't as
strong as the one we've had for the past few years.
Q. YOU SAID YOU'RE LOOKING FOR VALUE. COULD YOU DISCUSS THAT A LITTLE MORE?
A. We are looking for large companies that we believe are "mispriced" in the
marketplace. We are focused on finding stocks that we think have the
potential for double-digit returns over time with less downside risk than
the average stock in the S&P 500.
Q. HOW WOULD YOU DESCRIBE THE FUND'S INVESTMENT PHILOSOPHY?
A. It's a balanced fund that seeks to provide above-average income and to give
investors a reasonable opportunity for capital appreciation. We also aim
for low volatility and consistency.
Q. THE FUND'S BIGGEST SECTOR IS FINANCIAL SERVICES. WHY IS THIS SECTOR
ATTRACTIVE?
A. Financial services companies have a lot of the traits we're looking for.
Their valuations relative to the S&P 500 are low, but their earnings
visibility is higher than that of the average company. Earnings growth is
in the double digits, and their yields are good. Add to that the huge
consolidation that's going on in financial services, and we think you have
a great sector in which to invest. Holdings here include National City and
PNC in banking and Lincoln National and CIGNA in insurance.
Q. ANOTHER LARGE SECTOR IS UTILITIES AND COMMUNICATIONS. WHAT CAN YOU TELL US
ABOUT THAT AREA?
A. We see some attractive valuations in that sector. On the electric side,
we think growth is modest but valuations are good relative to the
S&P 500. In telecommunications, we see not only good valuations but also a
lot of consolidation and attractive long-term growth rates.
Q. MEANWHILE, HEALTH CARE IS NOW THE FOURTH-LARGEST SECTOR, WHEN IT USED TO
BE NUMBER FIVE.
A. This sector has moved up because of appreciation in the stocks we own, as
well as our having added some companies. This industry has had fantastic
earnings and stock price movements over the past several years due to
strong sales and the potential for further consolidation.
Q. WHILE FINANCIAL SERVICES AND PHARMACEUTICAL COMPANIES HAVE DONE WELL,
COULD YOU TALK ABOUT SOME GROUPS THAT HAVE UNDERPERFORMED?
A. Energy stocks have not performed that well over the past six months
as prices slipped due to fears of a supply glut utility stocks have
also been out of favor.
Q. WHAT CAN YOU TELL US ABOUT THE FUND'S BOND ALLOCATION?
A. Based on our outlook for interest rates remaining low, the duration, or
sensitivity to changes in interest rates, of this portion of the portfolio
is slightly longer than that of the Lehman Index. The bond allocation is
overweighted in the corporate sector.
Q. WHAT KIND OF RISK TO THE FUND DO YOU SEE GOING FORWARD?
A. The biggest risk is probably high valuations. We've had a deceleration in
earnings growth in the S&P 500 over the past several months, brought about
in part by the Asian crisis but also because we're in the latter stages of
this economic expansion. Still, stock prices have continued to go up, which
means we have higher prices but decelerating earnings growth. As a result,
the valuation risk is greater than it used to be. At these levels stocks
can't afford any negative surprises. I still think the long-term
fundamentals are fine and corporate America is in good shape, but it makes
me a little nervous when I see stock prices keep going up in the face of
lower earnings.
/s/ David M. Calabro]
David M. Calabro
(On behalf of the MFS Total Return Team)
The opinions expressed in this report are those of the lead portfolio manager
and are only through the end of the period of the report as stated on the
cover. The manager's views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
<PAGE>
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PORTFOLIO MANAGERS' PROFILES
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DAVID M. CALABRO, SENIOR VICE PRESIDENT; GEOFFREY L. KURINSKY, SENIOR
VICE PRESIDENT; CONSTANTINOS MOKAS, VICE PRESIDENT; LISA B. NURME,
SENIOR VICE PRESIDENT; AND MAURA A. SHAUGHNESSY, SENIOR 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. MR. MOKAS REPLACED JUDITH LAMB AS THE
MANAGER OF THE FUND'S CONVERTIBLE SECURITIES ON APRIL 1, 1998, AND HAS
BEEN EMPLOYED BY MFS SINCE 1990. 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.
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. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS ABOVE-AVERAGE INCOME (COMPARED TO A PORTFOLIO
ENTIRELY INVESTED IN STOCKS) CONSISTENT WITH THE
PRUDENT EMPLOYMENT OF CAPITAL. THE FUND ALSO SEEKS
GROWTH OF CAPITAL AND INCOME.
COMMENCEMENT OF
INVESTMENT OPERATIONS: OCTOBER 6, 1970
CLASS INCEPTION: CLASS A OCTOBER 6, 1970
CLASS B AUGUST 23, 1993
CLASS C AUGUST 1, 1994
CLASS I JANUARY 2, 1997
SIZE: $5.8 BILLION NET ASSETS AS OF MARCH 31, 1998
PERFORMANCE SUMMARY
Because mutual funds like MFS(R) 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, 1998
<TABLE>
CLASS A INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +9.60% +27.27% +76.63% +96.63% +266.52%
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Average Annual Total Return -- +27.27% +20.88% +14.48% + 13.87%
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SEC Results -- +21.22% +18.94% +13.37% + 13.32%
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CLASS B INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +9.18% +26.37% +72.76% +89.60% +253.53%
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Average Annual Total Return -- +26.37% +19.99% +13.65% + 13.46%
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SEC Results -- +22.37% +19.29% +13.40% + 13.46%
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CLASS C INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +9.29% +26.46% +73.02% +91.95% +257.92%
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Average Annual Total Return -- +26.46% +20.05% +13.93% + 13.60%
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SEC Results -- +25.46% +20.05% +13.93% + 13.60%
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CLASS I INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +9.79% +27.73% +77.46% +97.49% +268.45%
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Average Annual Total Return -- +27.73% +21.07% +14.58% + 13.93%
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</TABLE>
Class A share ("A") SEC results include the maximum 4.75% sales charge. Class
B share ("B") SEC results reflect the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C shares
("C") have no initial sales charge but, like B, have higher annual fees and
expenses than A. C SEC results reflect the 1% CDSC applicable to shares
redeemed within 12 months. Class I shares ("I") have no sales charge or Rule
12b-1 fees and are only available to certain institutional investors.
B and C results include the performance and the operating expenses
(e.g., Rule 12b-1 fees) of A for periods prior to the inception of B and C.
Because operating expenses of B and C are higher than those of A, B and C
performance generally would have been lower than A performance. The A
performance included in the B and C SEC performance has been adjusted to
reflect the CDSC generally applicable to B and C rather than the initial sales
charge generally applicable to A.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of I. Because operating expenses
of A are greater than those of I, I performance generally would have been
higher than A performance. The A performance included in the I performance has
been adjusted to reflect the fact that I have no initial sales charge.
Peformance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and capital
gains.
<PAGE>
PORTFOLIO CONCENTRATION AS OF MARCH 31, 1998
LARGEST STOCK SECTORS
Financial Services 26.6%
Utilities and Communications 16.0%
Other Sectors 14.4%
Energy 10.6%
Health Care 9.3%
Industrial Goods and Services 8.0%
Consumer Staples 6.2%
Basic Materials 5.2%
Miscellaneous 3.7%
(Conglomerates, special products/services)
For a more complete breakdown, refer to the Portfolio of Investments.
TOP 10 STOCK HOLDINGS
BRITISH PETROLEUM PLC 2.2% INTERNATIONAL BUSINESS MACHINES CORP. 1.5%
Oil exploration and production Computer and business equipment company
company
LINCOLN NATIONAL CORP. 1.5%
BRISTOL-MYERS SQUIBB CO. 2.2% Multiline insurance company
Pharmaceutical products company
PHILIP MORRIS COS., INC. 1.3%
AMERICAN HOME PRODUCTS CO. 1.7% Tobacco, food, and beverage conglomerate
Pharmaceutical and home products
company ALLIED SIGNAL, INC. 1.3%
Aerospace, automotive, and environmental
NATIONAL CITY BANKSHARES 1.7% products manufacturer
Central U.S. bank
TYCO INTERNATIONAL LTD. 1.3%
GTE CORP. 1.7% Fire protection, packaging, and electronic
Telecommunications company equipment manufacturer
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- March 31, 1998
<CAPTION>
Stocks - 53.5%
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ISSUER SHARES VALUE
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<S> <C> <C>
U.S. Stocks - 47.1%
Aerospace - 2.7%
Allied Signal, Inc. 1,056,000 $ 44,352,000
General Dynamics Corp. 119,460 10,288,493
Goodrich (B.F.) Co. 396,400 20,241,175
Lockheed-Martin Corp. 284,037 31,954,162
Raytheon Co., "A" 396,803 22,568,171
Raytheon Co., "B" 299,500 17,483,312
United Technologies Corp. 117,448 10,841,919
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$ 157,729,232
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Automotive - 1.0%
Ford Motor Co. 545,677 $ 35,366,691
TRW, Inc. 450,400 24,828,300
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$ 60,194,991
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Banks and Credit Companies - 4.4%
Banc One Corp. 131,417 $ 8,312,125
Bank of New York, Inc. 390,504 24,528,532
BankBoston Corp. 22,900 2,524,725
Chase Manhattan Corp. 128,248 17,297,449
Corestates Financial Corp. 386,300 34,670,425
Fleet Financial Group, Inc. 270,800 23,034,925
National City Corp. 805,100 59,023,894
NationsBank Corp. 260,400 18,992,925
Northern Trust Corp. 203,300 15,196,675
Norwest Corp. 330,920 13,753,863
PNC Bank Corp. 623,200 37,353,050
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$ 254,688,588
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Building - 0.2%
Sherwin Williams Co. 317,200 $ 11,260,600
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Business Machines - 1.0%
International Business Machines Corp. 497,600 $ 51,688,200
Xerox Corp. 50,000 5,321,875
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$ 57,010,075
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Business Services
Storage Trust Realty 105,400 $ 2,602,063
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Cellular Telephones - 0.1%
Telephone & Data Systems, Inc. 105,860 $ 5,028,350
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Chemicals - 0.6%
Air Products & Chemicals, Inc. 326,600 $ 27,066,975
Dow Chemical Co. 28,700 2,791,075
Praxair, Inc. 145,000 7,458,437
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$ 37,316,487
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Computer Hardware - Systems - 0.1%
Digital Equipment Corp.* 65,900 $ 3,447,394
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Conglomerates - 0.1%
Eastern Enterprises 137,300 $ 5,903,900
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Consumer Goods and Services - 2.6%
Colgate-Palmolive Co. 30,600 $ 2,650,725
International Flavours 100,000 4,712,500
Philip Morris Cos., Inc. 1,098,800 45,806,225
Revlon, Inc., "A"* 200,000 9,950,000
RJR Nabisco Holdings Corp. 312,100 9,772,631
Rubbermaid, Inc. 556,300 15,854,550
Service Corp. International 350,000 14,853,125
Tyco International Ltd. 808,984 44,190,751
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$ 147,790,507
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Containers - 0.2%
Jefferson Smurfit Corp.* 200,000 $ 3,387,500
Stone Container Corp.* 629,600 7,870,000
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$ 11,257,500
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Electrical Equipment - 1.8%
Cooper Industries, Inc. 491,800 $ 29,231,362
Emerson Electric Co. 92,000 5,997,250
General Electric Co. 507,344 43,726,711
Honeywell, Inc. 47,400 3,919,388
Hubbell, Inc. 363,000 18,286,125
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$ 101,160,836
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Electronics
Analog Devices, Inc.* 1 $ 33
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Entertainment - 0.4%
Viacom, Inc., "B"* 415,100 $ 22,311,625
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Financial Institutions - 2.0%
American Express Co. 166,000 $ 15,240,875
Beneficial Corp. 166,500 20,698,031
Edwards (A.G.), Inc. 157,900 6,908,125
Federal Home Loan Mortgage Corp. 325,400 15,436,162
Federal National Mortgage Assn 385,300 24,370,225
Merrill Lynch & Co., Inc. 49,100 4,075,300
Morgan (J.P.) & Co. 80,700 10,839,019
Morgan Stanley, Dean Witter, Discover & Co. 126,500 9,218,687
Union Planters Corp. 130,000 8,084,375
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$ 114,870,799
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Financial Services - 0.2%
Washington Mutual, Inc. 150,000 $ 10,757,813
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Food and Beverage Products - 0.5%
Anheuser Busch Cos., Inc. 47,000 $ 2,176,688
Archer-Daniels-Midland Co. 349,250 7,661,672
General Mills, Inc. 99,700 7,577,200
McCormick & Co., Inc. 114,100 3,679,725
Pepsi Co., Inc. 109,900 4,691,356
Ralston-Ralston Purina Co. 40,000 4,240,000
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$ 30,026,641
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Forest and Paper Products - 1.1%
Champion International Corp. 159,000 $ 8,635,687
Kimberly-Clark Corp. 361,000 18,095,125
Weyerhaeuser Co. 518,000 29,267,000
Willamette Industries, Inc. 182,400 6,851,400
--------------
$ 62,849,212
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Insurance - 5.7%
Allstate Corp. 18,200 $ 1,673,263
American General Corp. 248,000 16,042,500
Chubb Corp. 512,300 40,151,512
CIGNA Corp. 162,400 33,292,000
Equitable Cos., Inc. 691,732 39,039,625
Hartford Financial Services Group, Inc. 175,900 19,085,150
Hartford Life, Inc., "A" 101,700 4,735,406
Jefferson Pilot Corp. 225,400 20,046,513
Life Re Corp. 59,400 4,380,750
Lincoln National Corp. 593,900 50,407,262
Mid Ocean Ltd. 5,300 410,750
Provident Cos., Inc. 364,000 12,489,750
Reliastar Financial Corp. 206,000 9,488,875
Torchmark Corp. 608,400 27,872,325
Transamerica Corp. 180,000 20,970,000
Travelers Group, Inc. 497,307 29,838,420
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$ 329,924,101
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Machinery - 0.3%
Deere & Co., Inc. 103,200 $ 6,391,950
Lear Corp.* 85,500 4,820,063
York International Corp. 86,900 3,910,500
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$ 15,122,513
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Medical and Health Products - 2.7%
American Home Products Corp. 625,600 $ 59,666,600
AmeriSource Health Corp., "A"* 105,000 6,313,125
Baxter International, Inc. 73,000 4,024,125
Bristol-Myers Squibb Co. 712,000 74,270,500
Pharmacia & Upjohn, Inc. 180,000 7,875,000
Schering Plough Corp. 20,000 1,633,750
--------------
$ 153,783,100
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Medical and Health Technology and Services - 1.0%
Columbia/HCA Healthcare Corp. 442,300 $ 14,264,175
HealthSouth Corp.* 300,000 8,418,750
Medpartners, Inc.* 250,000 2,562,500
Tenet Healthcare Corp.* 290,000 10,530,625
United Healthcare Corp. 323,700 20,959,575
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$ 56,735,625
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Metals and Minerals - 0.4%
Aluminum Cos. of America 239,800 $ 16,501,237
Phelps Dodge Corp. 78,460 5,065,574
--------------
$ 21,566,811
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Oil Services - 0.1%
Baker Hughes, Inc. 150,000 $ 6,037,500
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Oils - 3.4%
Amoco Corp. 88,400 $ 7,635,550
Atlantic Richfield Co. 254,600 20,017,925
Exxon Corp. 591,772 40,018,581
Mobil Corp. 371,600 28,473,850
Occidental Petroleum Corp. 245,000 7,181,563
R & B Falcon Corp. 15,805 468,223
Texaco, Inc. 465,600 28,052,400
Unocal Corp. 605,450 23,423,347
USX-Marathon Group 1,037,400 39,032,175
--------------
$ 194,303,614
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Photographic Products - 0.1%
Eastman Kodak Co. 89,000 $ 5,773,875
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Pollution Control - 0.2%
Browning Ferris Industries, Inc. 409,400 $ 13,356,675
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Printing and Publishing - 0.1%
Gannett Co., Inc. 80,000 $ 5,750,000
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Railroads - 0.6%
Burlington Northern Santa Fe Railway Co. 220,546 $ 22,936,784
Illinois Central Corp. 181,600 7,139,150
Norfolk Southern Corp. 169,900 6,350,012
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$ 36,425,946
- --------------------------------------------------------------------------------------------------------
Real Estate - 0.1%
Post Properties, Inc. 115,800 $ 4,624,763
- --------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 1.8%
Arden Realty, Inc. 306,900 $ 8,746,650
Boston Properties, Inc. 127,800 4,496,962
Cabot Industrial Trust* 94,100 2,240,756
Federal Realty Investment Trust 175,000 4,298,438
Highwood Properties, Inc. 381,200 13,461,125
Hospitality Properties Trust 386,000 13,678,875
Kilroy Realty Corp. 210,800 6,020,975
Mid-America Apartment Communities, Inc. 156,900 4,422,619
National Health Investors, Inc. 105,200 4,194,850
Patriot American Hospitality, Inc. 200,000 5,400,000
Prime Group Realty Trust 344,400 6,888,000
Starwood Lodging Trust 80,000 4,275,000
Tower Realty Trust, Inc. 170,600 4,201,025
TriNet Corporate Realty Trust, Inc. 543,400 20,819,012
--------------
$ 103,144,287
- --------------------------------------------------------------------------------------------------------
Special Products and Services
Stanley Works 40,100 $ 2,235,575
- --------------------------------------------------------------------------------------------------------
Stores - 1.7%
CVS Corp. 31,800 $ 2,400,900
May Department Stores Co. 46,860 2,975,610
Penney (J.C.), Inc. 564,700 42,740,731
Rite Aid Corp. 1,082,200 37,065,350
Sears, Roebuck & Co. 265,900 15,272,631
--------------
$ 100,455,222
- --------------------------------------------------------------------------------------------------------
Supermarkets - 0.6%
Kroger Co.* 249,000 $ 11,500,688
Meyer (Fred), Inc.* 285,250 13,174,984
Safeway, Inc.* 200,000 7,387,500
--------------
$ 32,063,172
- --------------------------------------------------------------------------------------------------------
Telecommunications - 0.9%
Century Telephone Enterprises, Inc. 144,200 $ 8,814,225
Intermedia Communications, Inc.* 836 66,566
Lucent Technologies, Inc. 1 128
MCI Communications Corp. 257,900 12,766,050
Sprint Corp. 404,900 27,406,669
WorldCom, Inc.* 100,000 4,306,250
--------------
$ 53,359,888
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 3.1%
Carolina Power & Light Co. 430,400 $ 19,475,600
Cinergy Corp. 570,000 21,090,000
CMS Energy Corp. 151,300 7,101,644
Florida Progress Corp. 200,000 8,337,500
FPL Group, Inc. 127,300 8,179,025
GPU, Inc. 410,000 18,142,500
Houston Industries, Inc. 100,000 2,875,000
New Century Energies, Inc. 515,250 25,955,719
Pacificorp 344,400 8,480,850
Pinnacle West Capital Corp. 364,000 16,175,250
Public Service Co. of New Mexico 282,600 6,906,037
Scana Corp. 290,800 8,996,625
Sierra Pacific Resources 199,900 7,508,744
Southern Co. 301,500 8,347,781
Texas Utilities Co. 147,100 5,782,869
Unicom Corp. 150,000 5,250,000
--------------
$ 178,605,144
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 2.5%
Coastal Corp. 607,400 $ 39,556,925
Columbia Gas System, Inc. 478,880 37,232,920
Consolidated Natural Gas Co. 80,000 4,615,000
Keyspan Energy Corp. 330,000 11,983,125
KN Energy, Inc. 349,900 20,665,969
NGC Corp. Capital Trust 272,500 3,985,312
Pacific Enterprises 64,400 2,628,325
Questar Corp. 200,000 8,312,500
UGI Corp. 455,000 12,853,750
Williams Cos., Inc. 164,836 5,274,752
--------------
$ 147,108,578
- --------------------------------------------------------------------------------------------------------
Utilities - Telephone - 2.8%
AT&T Corp. 492,100 $ 32,294,063
Bell Atlantic Corp. 198,596 20,356,090
BellSouth Corp. 208,400 14,080,025
GTE Corp. 954,700 57,162,662
SBC Communications, Inc. 846,448 36,926,294
--------------
$ 160,819,134
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks $2,717,402,169
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - 6.4%
Argentina - 0.1%
YPF Sociedad Anonima, ADR (Oils) 150,000 $ 5,100,000
- --------------------------------------------------------------------------------------------------------
Bermuda
Exel Ltd. (Insurance) 16,500 $ 1,278,750
- --------------------------------------------------------------------------------------------------------
Canada - 0.4%
Canadian National Railway Co. (Railroads) 365,300 $ 23,379,200
- --------------------------------------------------------------------------------------------------------
Chile - 0.1%
Chilectra S.A., ADR (Utilities - Electric) 271,700 $ 7,335,900
- --------------------------------------------------------------------------------------------------------
France - 0.5%
Alcatel Alsthom Compagnie, ADR (Telecommunications) 531,700 $ 20,204,600
Sanofi S.A. (Medical and Health Products) 73,500 8,438,454
--------------
$ 28,643,054
- --------------------------------------------------------------------------------------------------------
Germany - 0.8%
Bayer AG (Chemicals) 120,000 $ 5,492,615
Henkel KGaA (Chemicals) 422,700 30,736,829
Hoechst AG (Chemicals) 188,000 7,369,258
--------------
$ 43,598,702
- --------------------------------------------------------------------------------------------------------
Italy - 0.1%
Eni S.P.A., ADR (Oils) 111,200 $ 7,533,800
- --------------------------------------------------------------------------------------------------------
Japan
Sony Corp., ADR (Electronics) 10,000 $ 850,625
- --------------------------------------------------------------------------------------------------------
Netherlands - 1.4%
Akzo Nobel N.V. (Chemicals) 208,905 $ 42,458,736
ING Groep N.V. (Financial Services)* 412,700 23,430,633
Royal Dutch Petroleum Co., ADR (Oils) 227,800 12,941,887
--------------
$ 78,831,256
- --------------------------------------------------------------------------------------------------------
Sweden - 0.3%
Astra AB, "A", ADR (Medical and Health Products) 2 $ 41
Volvo AB, ADR (Automotive) 479,800 15,293,625
--------------
$ 15,293,666
- --------------------------------------------------------------------------------------------------------
Switzerland - 0.3%
Novartis AG (Pharmaceuticals) 8,813 $ 15,602,017
- --------------------------------------------------------------------------------------------------------
United Kingdom - 2.4%
British Petroleum PLC, ADR (Oils) 895,250 $ 77,047,453
Diageo (Food & Beverage Products) 554,169 6,537,103
Glaxo Wellcome PLC (Medical & Health Products) 450,900 24,404,962
SmithKline-Beecham PLC, ADR (Medical and Health Products) 382,200 23,911,388
Zeneca Group (Medical & Health Products) 180,000 7,748,312
--------------
$ 139,649,218
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 367,096,188
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $2,177,940,995) $3,084,498,357
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
U.S. Bonds - 35.7%
Aerospace - 0.1%
K & F Industries, Inc., 9.25s, 2007 $ 700 $ 724,500
Northrup Grumman Corp., 9.375s, 2024 4,000 4,731,160
Raytheon Co., 6.75s, 2018 1,484 1,472,128
--------------
$ 6,927,788
- --------------------------------------------------------------------------------------------------------
Airlines - 1.1%
Continental Airlines Pass-Through Trust, Inc., 6.648s, 2019 $ 6,725 $ 6,687,407
Continental Airlines Pass-Through Trust, Inc., 7.461s, 2015 1,500 1,597,350
Continental Airlines, Inc., 9.5s, 2001 9,440 10,112,600
Delta Air Lines, Inc., 8.5s, 2002 5,382 5,764,015
Jet Equipment Trust, 8.64s, 2012## 3,221 3,646,212
Jet Equipment Trust, 9.41s, 2010## 3,365 4,032,481
Jet Equipment Trust, 10.69s, 2015## 1,250 1,623,050
Jet Equipment Trust, 11.44s, 2014## 4,700 6,274,923
Northwest Airlines, Inc., 7.625s, 2005 9,700 9,748,500
Northwest Airlines, Inc., 8.7s, 2007 1,500 1,554,855
United Airlines Pass-Through Trust, 7.27s, 2013 11,836 12,225,865
--------------
$ 63,267,258
- --------------------------------------------------------------------------------------------------------
Apparel and Textiles - 0.1%
Unifi, Inc., 6.5s, 2008 $ 3,326 $ 3,261,808
- --------------------------------------------------------------------------------------------------------
Automotive - 0.3%
Ford Motor Co., 6.625s, 2028 $ 12,850 $ 12,464,757
Hayes Wheels International, Inc., 9.125s, 2007 2,025 2,136,375
--------------
$ 14,601,132
- --------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 1.9%
Beaver Valley Funding Corp., 9s, 2017 $ 20,993 $ 23,607,468
BT Institutional Capital Trust, 7.75s, 2026## 5,000 5,121,200
Capital One Financial Corp., 7.25s, 2003 4,845 4,899,264
Chase Manhattan Corp., 6.375s, 2008 5,115 5,080,832
Colonial Capital II, 8.92s, 2027 3,510 3,840,677
First Chicago NBD Institutional Capital, 7.95s, 2026## 2,600 2,722,148
MBNA Capital, 8.278s, 2026 19,130 19,662,771
MBNA Corp., 6.963s, 2002## 13,755 13,988,835
Providian National Bank, 6.7s, 2003 7,850 7,894,156
Riggs National Corp., 8.5s, 2006 2,025 2,123,597
Socgen Real Estate Co., 7.64s, 2049## 10,500 10,448,340
State Street Bank & Trust l, 7.94s, 2026## 5,000 5,325,300
Washington Mutual Capital I, 8.375s, 2027 4,590 4,932,139
--------------
$ 109,646,727
- --------------------------------------------------------------------------------------------------------
Building - 0.4%
American Standard, Inc., 7.125s, 2003 $ 2,555 $ 2,516,675
American Standard, Inc., 7.625s, 2010 2,555 2,516,675
McDermott, Inc., 9.375s, 2002 10,300 11,028,416
Owens Corning Fiberglass Corp., 8.875s, 2002 5,390 5,843,191
Owens Corning Fiberglass Corp., 9.9s, 2015## 2,395 2,709,618
--------------
$ 24,614,575
- --------------------------------------------------------------------------------------------------------
Business Services
Magna International, Inc., 4.875s, 2005 $ 2,000 $ 2,342,500
- --------------------------------------------------------------------------------------------------------
Cellular Telephones - 0.1%
U.S. Cellular Corp., 7.25s, 2007 $ 3,270 $ 3,362,279
U.S. West Capital Funding, Inc., 7.3s, 2007 3,000 3,165,240
--------------
$ 6,527,519
- --------------------------------------------------------------------------------------------------------
Chemicals - 0.2%
Solutia, Inc., 7.375s, 2027 $ 8,655 $ 8,848,959
- --------------------------------------------------------------------------------------------------------
Conglomerates - 0.8%
News America Holdings, Inc., 6.75s, 2038 $ 5,200 $ 5,110,872
News America Holdings, Inc., 7.75s, 2045 13,200 13,745,688
News America Holdings, Inc., 8s, 2016 12,920 13,922,592
News America Holdings, Inc., 10.125s, 2012 10,000 11,669,600
--------------
$ 44,448,752
- --------------------------------------------------------------------------------------------------------
Construction Services - 0.2%
Georgia Pacific Corp., 9.875s, 2021 $ 8,310 $ 9,348,168
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.3%
Fingerhut Cos., Inc., 7.375s, 1999 $ 3,000 $ 3,047,880
Heinz (H.J.) Co., 6s, 2008 2,500 2,466,750
Philip Morris Cos., Inc., 7.75s, 2027 3,500 3,739,995
Revlon Consumer Products Corp., 8.625s, 2008 7,500 7,603,125
--------------
$ 16,857,750
- --------------------------------------------------------------------------------------------------------
Corporate Asset Backed - 5.0%
Advanta Credit Card Master Trust II, 5.788s, 2004 $ 15,000 $ 14,967,150
Advanta Mortgage Loan Trust, 5.918s, 2028 21,757 21,757,050
AT&T Universal Card Master Trust, 5.715s, 2004 12,000 12,003,720
BCF LLC, 7.75s, 2026## 4,393 4,308,922
Carco Auto Loan Master Trust, 5.738s, 2003 55,000 54,844,900
Charming Shoppes Master Trust, 7s, 1999 10,011 10,086,083
Citibank Credit Card Master Trust I, 6.839s, 2004 25,000 25,382,750
Continental Airlines, Inc., 9.5s, 2013 3,816 4,473,735
Continental Airlines, Inc., 10.22s, 2014 8,911 10,871,202
Discover Card Master Trust I, 5.778s, 2005 15,000 14,971,800
First USA Credit Card Master Trust, 5.818s, 2007 40,000 39,974,800
Loewen Group, Inc., 6.7s, 1999## 3,380 3,368,643
MBNA Master Credit Card Trust II, 5.704s, 2005 9,800 9,800,000
MBNA Master Credit Card Trust II, 5.798s, 2005 25,000 25,031,250
Merrill Lynch Mortgage Investors, Inc., 8.173s, 2023+ 4,000 3,852,500
Merrill Lynch Mortgage Investors, Inc., 9s, 2011 366 374,587
Merrill Lynch Mortgage Investors, Inc., 9.25s, 2011 110 111,514
Merrill Lynch Mortgage Investors, Inc., 9.7s, 2010 19 18,749
Navistar Financial Owner Trust, 5.956s, 2000 7,500 7,511,719
Peoples Bank Credit Card Master Trust, 5.745s, 2004 21,015 21,015,000
--------------
$ 284,726,074
- --------------------------------------------------------------------------------------------------------
Entertainment - 1.4%
Circus Circus Enterprises, Inc., 7s, 2036 $ 11,100 $ 11,377,722
Hearst Argyle Television, Inc., 7s, 2018 3,525 3,467,049
Hearst Argyle Television, Inc., 7.5s, 2027 7,905 8,172,426
Time Warner, Inc., 0s to 2016, 8.3s to 2036 31,700 9,416,168
Time Warner, Inc., 6.95s, 2028 7,470 7,240,372
Time Warner, Inc., 9.125s, 2013 12,230 14,552,232
Time Warner, Inc., 9.15s, 2023 10,048 12,308,700
Time Warner Pass-Through Asset Trust, 6.1s, 2001## 12,910 12,686,270
--------------
$ 79,220,939
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 2.5%
Banponce Trust I, 8.327s, 2027 $ 5,000 $ 5,334,750
Bear Stearns Co., Inc., 6.2s, 2003 7,670 7,641,237
Bear Stearns, Inc., 6.75s, 2007 6,300 6,372,324
Contifinancial Corp., 7.5s, 2002 6,814 6,675,403
Donaldson Lufkin & Jenrette, 6.5s, 2008 5,400 5,343,030
First Empire Capital Trust I, 8.234s, 2027 11,525 12,407,469
First Merchants Acceptance Corp., 9.5s, 2006 2,000 800,000
Goldman Sachs Group L P, 5.9s, 2003 11,000 10,780,000
Greenpoint Capital Trust I, 9.1s, 2027 2,500 2,750,275
Lehman Brothers Holdings, Inc., 6.15s, 2000 13,712 13,871,059
Lehman Brothers Holdings, Inc., 6.625s, 2002 6,500 6,563,440
Lehman Brothers, Inc., 7.375s, 2004 750 781,140
Lehman Brothers, Inc., 7.5s, 2026 20,100 21,286,302
Leucadia Capital Trust, 8.65s, 2027 2,606 2,798,297
Salomon, Inc., 7.2s, 2004 2,700 2,805,408
Salomon, Inc., 7.25s, 2001 16,185 16,651,452
Salton Sea Funding Corp., 7.37s, 2005 5,250 5,357,730
Salton Sea Funding Corp., 7.84s, 2010 7,270 7,785,588
Salton Sea Funding Corp., 8.3s, 2011 2,500 2,727,850
United Cos. Financial Corp., 7s, 1998 2,080 2,078,919
United Cos. Financial Corp., 7.7s, 2004 2,650 2,593,635
--------------
$ 143,405,308
- --------------------------------------------------------------------------------------------------------
Food Products - 0.1%
Nabisco, Inc., 6.375s, 2035 $ 4,856 $ 4,777,333
- --------------------------------------------------------------------------------------------------------
Forest and Paper Products
Waterford 3 Funding Corp., 8.09s, 2017 $ 1,770 $ 1,839,579
- --------------------------------------------------------------------------------------------------------
Industrial - 0.2%
Network Associates, Inc., 0s, 2018 $ 7,480 $ 3,394,050
Interace, Inc., 7.3s, 2008 7,200 7,199,568
Lowes Cos., Inc., 6.875s, 2028 2,700 2,710,989
--------------
$ 13,304,607
- --------------------------------------------------------------------------------------------------------
Information, Paging and Technology
NEXTEL Communications, Inc., 0s to 1999, 9.75s to 2004 $ 2,325 $ 2,237,813
- --------------------------------------------------------------------------------------------------------
Insurance - 1.3%
Conseco Finance Trust III, 8.796s, 2027 $ 10,625 $ 11,865,150
Equitable Life Assurance Society, 7.7s, 2015## 8,513 9,101,929
NGC Corp. Capital Trust I, 8.316s, 2027 3,255 3,703,442
Providian Capital I, 9.525s, 2027 9,350 10,212,070
Safeco Capital Trust I, 8.072s, 2037 27,823 28,825,463
Travelers Capital III, 7.75s, 2036 10,405 10,700,918
--------------
$ 74,408,972
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.4%
Columbia/HCA Healthcare Corp., 6.5s, 1999 $ 4,059 $ 4,004,853
Columbia/HCA Healthcare Corp., 6.875s, 2001 4,100 3,944,733
Columbia/HCA Healthcare Corp., 7.69s, 2025 6,078 5,594,009
Healthsouth Corp., 3.25s, 2003 1,994 1,998,985
Tenet Healthcare Corp., 8s, 2005 7,250 7,431,250
Tenet Healthcare Corp., 8.625s, 2007 857 889,137
Tenet Healthcare Corp., 10.125s, 2005 1,978 2,165,910
--------------
$ 26,028,877
- --------------------------------------------------------------------------------------------------------
Metal Fabrication
Metals USA, Inc., 8.625s, 2008 $ 1,350 $ 1,346,625
- --------------------------------------------------------------------------------------------------------
Metals and Minerals
Kaiser Aluminum & Chemical Corp., 10.875s, 2006 $ 2,000 $ 2,180,000
- --------------------------------------------------------------------------------------------------------
Oil Services - 0.4%
Clark Refining & Marketing Inc., 8.375s, 2007 $ 2,670 $ 2,693,362
KCS Energy, 8.875s, 2008 2,670 2,639,963
Seacorp Smit, Inc., 7.2s, 2009 9,600 9,777,888
Ultramar Diamond Shamrock Corp., 7.2s, 2017 5,030 5,119,534
Vintage Petroleum, Inc., 8.625s, 2009 2,670 2,770,125
--------------
$ 23,000,872
- --------------------------------------------------------------------------------------------------------
Oils - 0.9%
Belco Oil & Gas Corp., 8.875s, 2007 $ 2,670 $ 2,750,100
Cliffs Drilling Co., 10.25s, 2003 2,670 2,883,600
Lasmo USA, Inc., 7.125s, 2003 2,673 2,714,859
Lasmo USA, Inc., 7.3s, 2027 6,324 6,247,227
Lasmo USA, Inc., 8.375s, 2023 1,000 1,055,840
Louisiana Land & Exploration Co., 7.65s, 2023 12,400 13,309,664
Oryx Energy Co., 8.375s, 2004 7,240 7,816,738
Petroleum Geo Services A/S, 7.125s, 2028 6,900 6,882,888
Synder Oil Corp., 8.75s, 2007 1,330 1,369,900
Transocean Offshore, Inc., 8s, 2027 4,050 4,598,816
Wiser Oil Co., 9.5s, 2007 2,670 2,576,550
--------------
$ 52,206,182
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.4%
Circus Circus Enterprises, Inc., 6.7s, 2096 $ 4,500 $ 4,496,490
Hilton Hotels Corp., 7.95s, 2007 16,150 16,980,756
Mirage Resorts, Inc., 6.75s, 2007 2,370 2,330,231
--------------
$ 23,807,477
- --------------------------------------------------------------------------------------------------------
Retail
Cole National Group, Inc., 8.625s, 2007 $ 1,000 $ 1,020,000
- --------------------------------------------------------------------------------------------------------
Special Products and Services
Polymer Group, Inc., 9s, 2007 $ 750 $ 778,125
- --------------------------------------------------------------------------------------------------------
Stores
Rite Aid Corp., 5.25s, 2002 $ 2,000 $ 2,342,500
- --------------------------------------------------------------------------------------------------------
Supermarkets
Kroger Co., 6.375s, 2008 $ 3,000 $ 2,953,200
- --------------------------------------------------------------------------------------------------------
Telecommunications - 1.7%
Allbritton Communications Corp., 8.875s, 2008 $ 1,000 $ 1,007,500
Continental Cablevision, Inc., 9s, 2008 3,400 3,948,454
Continental Cablevision, Inc., 11s, 2007 6,440 7,084,000
EchoStar Communications Corp., 0s to 1999, 12.875s to 2004 2,025 1,944,000
Fox/Liberty Networks LLC, Inc., 8.875s, 2007## 2,500 2,593,750
Intermedia Communications, Inc., 0s to 2002, 11.125s to 2007 2,000 1,500,000
ITC Deltacom, Inc., 11s, 2007 650 737,750
Lin Television Corp., 8.375s, 2008 2,025 2,040,187
Pagemart Wireless, Inc., 0s to 2003, 11.25s to 2008 2,110 1,308,200
Qwest Communications International, Inc., 0s to 2003,
8.29s to 2008 2,000 1,400,000
TCI Communications Financing III, 9.65s, 2027 9,620 11,305,135
TCI Communications, Inc., 7.125s, 2028 8,190 8,041,556
TCI Communications, Inc., 7.875s, 2026 3,585 3,882,627
Tele-Communications, Inc., 6.34s, 2002 10,035 9,952,111
Tele-Communications, Inc., 7.49s, 2003 10,000 10,338,800
Tele-Communications, Inc., 8.25s, 2003 7,050 7,527,567
WorldCom, Inc., 7.75s, 2007 16,025 17,470,477
WorldCom, Inc., 8.875s, 2006 5,000 5,449,900
--------------
$ 97,532,014
- --------------------------------------------------------------------------------------------------------
Textiles - 0.1%
Burlington Industries, Inc., 7.25s, 2027 $ 3,050 $ 3,161,142
- --------------------------------------------------------------------------------------------------------
Transportation - 0.1%
Federal Express Corp., 7.65s, 2014 $ 4,286 $ 4,583,710
- --------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 0.9%
Federal National Mortgage Association - 0.9%
FNMA, 6.5s, 2001 - 2013 $ 50,519 $ 50,645,285
- --------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 11.2%
Government National Mortgage Association - 3.2%
GNMA, 7.5s, 2026 - 2027 $ 38,053 $ 39,015,720
GNMA, 8s, 2007 - 2028 141,261 146,137,084
--------------
$ 185,152,804
- --------------------------------------------------------------------------------------------------------
Small Business Administration
SBA, 8.8s, 2011 $ 455 $ 495,769
- --------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 8.0%
U.S. Treasury Bonds, 6.125s, 2027 $ 175,852 $ 180,330,951
U.S. Treasury Bonds, 9.875s, 2015 28,500 40,492,230
U.S. Treasury Bonds, 12.375s, 2004 25,000 33,468,750
U.S. Treasury Notes, 5.5s, 2003 7,000 6,958,420
U.S. Treasury Notes, 5.5s, 2008 2,700 2,667,087
U.S. Treasury Notes, 5.75s, 2000 5,391 5,406,149
U.S. Treasury Notes, 6.125s, 2007 62,688 64,470,847
U.S. Treasury Notes, 6.25s, 2002 45,403 46,395,964
U.S. Treasury Notes, 6.5s, 2006 23,703 24,873,217
U.S. Treasury Notes, 7.875s, 2004 21,800 24,354,742
U.S. Treasury Notes, 8.5s, 2000 9,425 9,903,601
U.S. Treasury Notes, 9.125s, 1999 22,410 23,253,960
--------------
$ 462,575,918
- --------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 648,224,491
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 3.2%
Beaver Valley II Funding Corp., 8.25s, 2003 $ 5,348 $ 5,487,208
Beaver Valley II Funding Corp., 8.625s, 2007 2,190 2,345,271
CalEnergy Co., Inc., 7.63s, 2007 3,500 3,484,460
CalEnergy Co., Inc., 10.25s, 2004 4,005 4,299,968
Cleveland Electric Illuminating Co., 7.88s, 2017## 9,700 10,237,962
Cleveland Electric Illuminating Co., 9s, 2023 9,118 9,931,143
Comed Financing II, 8.5s, 2027## 4,400 4,676,672
Commonwealth Edison Co., 7.625s, 2007 8,230 8,730,302
Connecticut Light & Power Co., 7.75s, 2002 6,400 6,538,240
Edison Mission Energy, 7.33s, 2008## 1,450 1,520,079
El Paso Electric Co., 8.9s, 2006 1,800 1,995,822
First PV Funding Corp., 10.15s, 2016 3,070 3,236,640
First PV Funding Corp., 10.3s, 2014 3,738 3,944,861
Long Island Lighting Co., 7.5s, 2007 4,325 4,479,532
Long Island Lighting Co., 8.2s, 2023 7,350 7,846,640
Long Island Lighting Co., 8.9s, 2019 8,753 9,334,987
Long Island Lighting Co., 9s, 2022 17,555 20,010,593
Long Island Lighting Co., 9.625s, 2024 1,395 1,405,867
Midland Cogeneration Venture Corp., 10.33s, 2002 2,448 2,643,353
Midland Funding Corp. II, "A", 11.75s, 2005 1,750 2,098,880
Midland Funding Corp., "B", 13.25s, 2006 4,070 5,227,020
Montana Power Co., 7.875s, 2026 2,275 2,540,311
Niagara Mohawk Power Corp., 7.75s, 2006 7,575 8,059,118
Niagara Mohawk Power Corp., 8.5s, 2023 4,650 4,973,733
Niagara Mohawk Power Corp., 8.77s, 2018 15,680 16,885,478
North Atlantic Energy, 9.05s, 2002 4,023 4,130,495
Texas & New Mexico Power Co., 12.5s, 1999 10,485 10,946,864
Texas Utilities Co., 6.375s, 2008 9,890 9,679,046
Toledo Edison Co., 7.875s, 2004 7,250 7,590,242
United Illuminating Co., 6.25s, 2002 3,100 3,079,850
--------------
$ 187,360,637
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.5%
Consumers Energy Co., 6.375s, 2008 $ 4,100 $ 4,052,809
Louis Dreyfus Natural Gas Corp., 6.875s, 2007 5,590 5,578,932
Tennessee Gas Pipeline Co., 7.625s, 2037 6,500 6,974,630
Texas Gas Transmission Corp., 7.25s, 2027 5,300 5,455,343
--------------
$ 22,061,714
- --------------------------------------------------------------------------------------------------------
Total U.S. Bonds $2,063,846,412
- --------------------------------------------------------------------------------------------------------
Foreign Bonds - 0.7%
Argentina - 0.1%
Hidroelectrica Alicura, 8.375s, 1999## $ 6,244 $ 6,212,780
- --------------------------------------------------------------------------------------------------------
Canada - 0.1%
Gulf Canada, 9.25s, 2004 $ 3,420 $ 3,593,599
Rogers Cantel, Inc., 9.375s, 2008 2,025 2,151,562
--------------
$ 5,745,161
- --------------------------------------------------------------------------------------------------------
Chile - 0.1%
Empresa Nacional de Electric, 7.325s, 2037 $ 5,114 $ 5,097,737
- --------------------------------------------------------------------------------------------------------
Colombia - 0.1%
Republic of Colombia, 8.75s, 1999 $ 3,640 $ 3,735,550
- --------------------------------------------------------------------------------------------------------
Finland - 0.1%
UPM Kymmene Corp., 7.45s, 2027 $ 6,760 $ 6,815,162
- --------------------------------------------------------------------------------------------------------
Mexico - 0.1%
Banco Commercial S.A., 8.25s, 2007 $ 3,710 $ 3,691,450
Corporacion Andina de Fomento, 7.1s, 2003 3,584 3,685,069
--------------
$ 7,376,519
- --------------------------------------------------------------------------------------------------------
Panama
Republic of Panama, 7.875s, 2002 $ 2,965 $ 2,973,895
- --------------------------------------------------------------------------------------------------------
Thailand - 0.1%
Jasmine Submarine Telecom Ltd., 8.483s, 2011 $ 4,438 $ 3,787,980
- --------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 41,744,784
- --------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $2,075,604,574) $2,105,591,196
- --------------------------------------------------------------------------------------------------------
Convertible Bonds - 1.8%
- --------------------------------------------------------------------------------------------------------
Advertising
Omnicom Group, Inc., 4.25s, 2007 $ 1,700 $ 2,643,500
- --------------------------------------------------------------------------------------------------------
Aerospace - 0.1%
Hexcel Corp., 7s, 2003 $ 2,000 $ 3,640,000
- --------------------------------------------------------------------------------------------------------
Automotive - 0.1%
Daimler Benz, 0s, 2017 $ 12,850 $ 6,312,563
- --------------------------------------------------------------------------------------------------------
Building
Continental Homes Holding Corp., 6.875s, 2002 $ 500 $ 981,250
- --------------------------------------------------------------------------------------------------------
Business Services - 0.1%
Concentra Managed Care, Inc., 4.5s, 2003 $ 2,000 $ 1,995,000
Personnel Group of America, Inc., 5.75s, 2004 1,994 2,811,540
Protection One Alarm Monitoring, 6.75s, 2003 500 652,500
--------------
$ 5,459,040
- --------------------------------------------------------------------------------------------------------
Chemicals
Sepracor, Inc., 6.25s, 2005 $ 1,998 $ 2,275,223
- --------------------------------------------------------------------------------------------------------
Computer Software - Services
Affiliated Computer Services, Inc., 4s, 2005 $ 1,495 $ 1,492,197
- --------------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.1%
EMC Corp., 3.25s, 2002 $ 500 $ 882,500
Safeguard Scientifics, Inc., 6s, 2006 1,500 1,927,500
SCI Systems, Inc., 5s, 2006## 750 1,220,625
Solectron Corp., 6s, 2006## 1,000 1,382,500
--------------
$ 5,413,125
- --------------------------------------------------------------------------------------------------------
Corporate Asset Backed - 0.1%
Time Warner, Inc., 0s, 2013 $ 7,690 $ 4,325,625
- --------------------------------------------------------------------------------------------------------
Electrical Equipment
National Semiconductor Corp., 6.5s, 2002## $ 1,500 $ 1,447,500
- --------------------------------------------------------------------------------------------------------
Electronics
Dovatron International, Inc., 6s, 2002## $ 500 $ 610,000
Photronics, Inc., 6s, 2004 1,239 1,513,129
--------------
$ 2,123,129
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 0.2%
ADT Operations, Inc., 0s, 2010 $ 6,940 $ 10,271,200
- --------------------------------------------------------------------------------------------------------
Industrial
Quintiles Transnational Corp., 4.25s, 2000 $ 400 $ 523,000
- --------------------------------------------------------------------------------------------------------
Medical and Health Products - 0.1%
North American Vaccine, Inc., 6.5s, 2003## $ 500 $ 391,250
Roche Holdings, Inc., 0s, 2010## 4,230 2,453,400
Ventritex, Inc., 5.75s, 2001 880 1,062,600
--------------
$ 3,907,250
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.1%
National Health Investors, Inc., 7.75s, 2001 $ 500 $ 620,000
Omega Healthcare Investors, Inc., 8.5s, 2001 500 655,000
Quintiles Transnational Corp., 4.25s, 2000 1,250 1,634,375
Sunrise Assisted Living, Inc., 5.5s, 2002## 1,000 1,360,000
--------------
$ 4,269,375
- --------------------------------------------------------------------------------------------------------
Oil Services - 0.1%
Diamond Offshore Drilling, Inc., 3.75s, 2007 $ 1,750 $ 2,272,812
Key Energy, 5s, 2004## 1,985 1,602,888
Parker Drilling Co., 5.5s, 2004 2,494 2,578,172
Seacorp Holdings, Inc., 5.375s, 2006## 2,000 2,217,500
--------------
$ 8,671,372
- --------------------------------------------------------------------------------------------------------
Pharmaceuticals
Omnicare, Inc., 5s, 2007 $ 1,497 $ 1,800,143
- --------------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
Sanifill, Inc., 5s, 2006 $ 1,250 $ 2,029,687
U.S. Filter Corp., 6s, 2005## 2,000 3,842,500
USA Waste Services, Inc., 4s, 2002 1,746 2,055,915
USA Waste Services, Inc., 7.125s, 2007 1,500 1,547,850
--------------
$ 9,475,952
- --------------------------------------------------------------------------------------------------------
Real Estate - 0.1%
Capstar Hotel Co., 4.75s, 2004 $ 1,995 $ 1,942,631
Liberty Property L.P., 8.3s, 2001 3,930 5,236,725
--------------
$ 7,179,356
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
Hilton Hotels Corp., 5s, 2006 $ 750 $ 843,750
Marriot International, Inc., 0s, 2011 3,000 2,137,500
--------------
$ 2,981,250
- --------------------------------------------------------------------------------------------------------
Special Products and Services - 0.1%
Halter Marine Group, Inc., 4.5s, 2004 $ 1,495 $ 1,259,538
United Waste Systems, Inc., 4.5s, 2001## 2,250 3,476,250
--------------
$ 4,735,788
- --------------------------------------------------------------------------------------------------------
Stores - 0.1%
Home Depot, Inc., 3.25s, 2001 $ 400 $ 600,500
Mens Wearhouse, Inc., 5.25s, 2003 750 912,187
Office Depot, Inc., 0s, 2008 1,750 1,308,125
Saks Holdings, Inc., 5.5s, 2006 2,245 2,065,400
Staples, Inc., 4.5s, 2000## 500 801,250
--------------
$ 5,687,462
- --------------------------------------------------------------------------------------------------------
Telecommunications - 0.2%
Jacor Communications, Inc., 0s, 2011 $ 5,000 $ 2,886,240
Smarttalk Teleservices, Inc., 5.75s, 2004 1,495 1,962,187
Tele-Communications International, Inc., 4.5s, 2006 2,420 2,199,175
World Access, Inc., 4.5s, 2002 1,990 2,104,425
--------------
$ 9,152,027
- --------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $82,137,964) $ 104,767,327
- --------------------------------------------------------------------------------------------------------
Preferred Stocks - 0.7%
- --------------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------------
Aerospace - 0.2%
Loral Space & Communications, 6%* 120,050 $ 9,003,750
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services
Medpartners, Inc., 6.5% 150,000 $ 1,959,375
- --------------------------------------------------------------------------------------------------------
Oils
USX-Marathon Capital, LLC, 8.75% 68,600 $ 1,723,575
- --------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.1%
NB Capital Corp., 8.35%* 6,700 $ 7,081,900
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.3%
Houston Industries, Inc., 7%* 110,000 $ 7,129,374
Long Island Lighting Co., 7.95% 250,000 6,656,250
--------------
$ 13,785,624
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
El Paso Tennessee Pipeline Co., 8.25% 50,000 $ 2,812,500
MCN Corp., 8.75% 55,200 1,800,900
--------------
$ 4,613,400
- --------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $29,121,319) $ 38,167,624
- --------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 3.6%
- --------------------------------------------------------------------------------------------------------
Airlines
Continental Airlines Finance Trust, 8.5% 15,000 $ 1,771,875
- --------------------------------------------------------------------------------------------------------
Agricultural Products
Case Corp., $4.50 13,000 $ 2,039,375
- --------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 0.3%
McKesson Financing Trust, 5%## 141,120 $ 11,466,000
National Australia Bank Ltd., 7.875% 35,000 1,015,000
WBK Trust, 10% 61,200 2,084,625
--------------
$ 14,565,625
- --------------------------------------------------------------------------------------------------------
Business Services - 0.3%
Central Parking Finance Trust, 5.25% 49,850 $ 1,296,100
EVI Inc., 5%* 59,800 2,646,150
Sealed Air Corp., $2.00 15,000 953,437
Suiza Capital Trust II, 5.5% 197,300 9,963,650
--------------
$ 14,859,337
- --------------------------------------------------------------------------------------------------------
Computer Software - Services
Cendant Corp., 7.5%* 29,900 $ 1,558,538
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.5%
Corning Delaware L.P., 6% 20,000 $ 1,370,000
Newell Financial Trust Co., 5.25%* 408,100 23,108,663
Readers Digest, $1.93* 99,700 2,648,281
--------------
$ 27,126,944
- --------------------------------------------------------------------------------------------------------
Entertainment - 0.2%
American Radio Systems Corp., 7%## 55,000 $ 4,097,500
Books Financing Trust, 8.75%*## 45,000 2,497,500
Royal Caribbean Cruises Ltd., 7.25% 41,000 4,530,500
Chancellor Media Corp., $3.00 10,000 948,750
--------------
$ 12,074,250
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 0.6%
Finova Finance Trust, 5.5% 158,060 $ 12,407,710
Greenfield Capital Trust, 6%## 45,000 2,362,500
Jefferson Pilot Corp., 7.25% 25,000 3,140,625
Merrill Lynch & Co., Inc., 6.25% 25,000 950,000
Merrill Lynch & Co., Inc., 6.5% 60,000 6,675,000
Salomon, Inc., 6.25% 38,300 2,556,525
Salomon, Inc., 7.625% 100,000 4,500,000
Tosco Financing Trust, 5.75%## 34,000 2,078,250
Tosco Financing Trust, 5.75% 10,000 611,250
--------------
$ 35,281,860
- --------------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.1%
Dole Food Co., 7% 80,000 $ 3,620,000
Ralston Purina Co., 7%* 45,000 2,840,625
--------------
$ 6,460,625
- --------------------------------------------------------------------------------------------------------
Forest and Paper Products
International Paper Capital Trust, 5.25% 25,000 $ 1,284,375
- --------------------------------------------------------------------------------------------------------
Insurance - 0.6%
American Heritage Life Investment Corp., 8.5% 27,400 $ 1,678,250
Conseco, Inc., 9% 131,300 6,868,631
Conseco, Inc., 7% 71,000 13,747,375
Frontier Financing Trust, 6.25%*## 45,000 2,896,875
Life Re Capital Trust II, 6% 49,600 3,534,000
SunAmerica, Inc., $3.10 15,000 2,130,000
SunAmerica, Inc., $3.188 40,000 1,937,500
--------------
$ 32,792,631
- --------------------------------------------------------------------------------------------------------
Metals and Minerals
Timet Capital Trust, 6.625%##* 46,600 $ 2,230,975
- --------------------------------------------------------------------------------------------------------
Pollution Control - 0.1%
Browning Ferris Industries, Inc., 7.25% 190,000 $ 6,080,000
- --------------------------------------------------------------------------------------------------------
Railroads - 0.2%
Union Pacific Capital Trust, 6.25% 205,800 $ 10,933,125
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
Host Marriott Financial Trust, 6.25%* 41,650 $ 2,374,050
- --------------------------------------------------------------------------------------------------------
Special Products and Services
Fleetwood Capital Trust, 6%* 34,900 $ 2,032,925
- --------------------------------------------------------------------------------------------------------
Steel
USX-Marathon Group, 6.75%* 70,000 $ 1,470,000
- --------------------------------------------------------------------------------------------------------
Stores - 0.1%
AnnTaylor Finance Trust, 8.5% * 20,000 $ 1,060,000
K-mart Financing I, 7.75% 25,000 1,568,750
TJX Cos., Inc., $7.00 4,000 1,920,000
--------------
$ 4,548,750
- --------------------------------------------------------------------------------------------------------
Telecommunications - 0.1%
ICG Funding LLC, 6.75%*## 24,900 $ 2,365,500
Intermedia Communications, Inc., 7%* 5,000 250,000
Intermedia Communications, Inc., 7%*## 39,900 2,104,725
IXC Communications, Inc., 7.25%*## 5,275 1,331,938
Qualcomm Financial Trust I, 5.75%* 13,000 612,625
Qualcomm Financial Trust I, 5.75%*## 8,000 384,000
Winstar Communications, Inc., 7% 19,940 1,071,775
--------------
$ 8,120,563
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.3%
AES Trust., 5.375% 10,000 $ 798,750
CalEnergy Capital Trust III, 6.5% 10,000 456,875
CalEnergy Capital Trust III, 6.5%*## 247,700 11,316,794
Devon Financing Trust, $3.25## 45,000 3,124,687
--------------
$ 15,697,106
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
Unocal Capital Trust, 6.25%## 85,264 $ 4,764,126
- --------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $163,179,935) $ 208,067,055
- --------------------------------------------------------------------------------------------------------
Short-Term Obligations - 4.1%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
Federal Farm Credit Bank, due 4/07/98 - 7/15/98 $ 320 $ 316,899
Federal Home Loan Bank, due 4/08/98 - 5/22/98 25,800 25,661,196
Federal Home Loan Mortgage Corp., due 4/01/98 - 5/13/98 171,575 171,107,769
Federal National Mortgage Assn., due 5/11/98 20,100 19,980,293
General Electric Co., due 4/01/98 19,300 19,300,000
- --------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 236,366,157
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $4,764,350,944) $5,777,457,716
Other Assets, Less Liabilities - (0.1)% (2,853,474)
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $5,774,604,242
- --------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
+ Restricted security.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------
MARCH 31, 1998
- --------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $4,764,350,944) $5,777,457,716
Receivable for investments sold 67,998,374
Receivable for Fund shares sold 15,674,529
Dividends and interest receivable 40,370,686
Other assets 58,374
--------------
Total assets $5,901,559,679
--------------
Liabilities:
Cash overdraft $ 55,092
Payable for investments purchased 114,418,435
Payable for Fund shares reacquired 8,930,032
Payable for daily variation margin on open futures
contracts 248,438
Payable to affiliates -
Management fee 183,668
Shareholder servicing agent fee 52,882
Distribution and service fee 279,274
Administrative fee 3,065
Accrued expenses and other liabilities 2,784,551
--------------
Total liabilities $ 126,955,437
--------------
Net assets $5,774,604,242
==============
Net assets consist of:
Paid-in capital $4,458,702,837
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 1,013,347,939
Accumulated undistributed net realized gain on
investments and foreign currency transactions 301,385,305
Accumulated undistributed net investment income 1,168,161
--------------
Total $5,774,604,242
==============
Shares of beneficial interest outstanding 344,612,597
===========
Class A shares:
Net asset value per share
(net assets of $3,574,762,029 / 213,340,172 shares of
beneficial interest outstanding) $16.76
======
Offering price per share (100 / 95.25) $17.60
======
Class B shares:
Net asset value and offering price per share
(net assets of $1,915,768,805 / 114,355,081 shares of
beneficial interest outstanding) $16.75
======
Class C shares:
Net asset value and offering price per share
(net assets of $265,517,356 / 15,809,844 shares of
beneficial interest outstanding) $16.79
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $18,556,052 / 1,107,500 shares of
beneficial interest outstanding) $16.75
======
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 79,283,474
Dividends 35,642,071
Foreign taxes withheld (426,401)
------------
Total investment income $114,499,144
------------
Expenses -
Management fee $ 9,081,790
Trustees' compensation 72,927
Shareholder servicing agent fee 3,189,224
Distribution and service fee (Class A) 5,740,012
Distribution and service fee (Class B) 8,792,356
Distribution and service fee (Class C) 1,081,313
Administrative fee 163,860
Custodian fee 631,270
Postage 344,441
Printing 104,852
Auditing fees 25,815
Legal fees 4,441
Miscellaneous 1,435,692
------------
Total expenses $ 30,667,993
Fees paid indirectly (341,584)
------------
Net expenses $ 30,326,409
------------
Net investment income $ 84,172,735
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $345,112,041
Foreign currency transactions (27,285)
------------
Net realized gain on investment and foreign currency
transactions $345,084,756
------------
Change in unrealized appreciation -
Investments $ 63,079,207
Futures contracts 306,664
Translation of assets and liabilities in foreign currencies 7,146
------------
Net unrealized gain on investments and foreign currency
translation $ 63,393,017
------------
Net realized and unrealized gain on investments and
foreign currency $408,477,773
------------
Increase in net assets from operations $492,650,508
============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment income $ 84,172,735 $ 161,888,144
Net realized gain on investment and foreign currency
transactions 345,084,756 422,224,799
Net unrealized gain on investments and foreign
currency translation 63,393,017 422,172,260
-------------- --------------
Increase in net assets from operations $ 492,650,508 $1,006,285,203
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (58,812,570) $ (109,704,957)
From net investment income (Class B) (25,812,013) (46,073,857)
From net investment income (Class C) (3,156,800) (4,116,016)
From net investment income (Class I) (338,096) (494,322)
From net realized gain on investments and foreign
currency transactions (Class A) (261,131,649) (182,350,658)
From net realized gain on investments and foreign
currency transactions (Class B) (141,020,364) (93,208,564)
From net realized gain on investments and foreign
currency transactions (Class C) (16,513,122) (6,625,287)
From net realized gain on investments and foreign
currency transactions (Class I) (1,386,719) --
-------------- --------------
Total distributions declared to shareholders $ (508,171,333) $ (442,573,661)
-------------- --------------
Net increase in net assets from Fund share transactions $ 677,511,398 $ 613,016,871
-------------- --------------
Total increase in net assets $ 661,990,573 $1,176,728,413
Net assets:
At beginning of period 5,112,613,669 3,935,885,256
-------------- --------------
At end of period (including undistributed net
investment income of $1,168,161 and $5,114,906,
respectively) $5,774,604,242 $5,112,613,669
============== ==============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ---------------------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.92 $15.03 $14.46 $12.80 $13.70
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.28 $ 0.60 $ 0.64 $ 0.64 $ 0.54
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 1.22 2.94 1.21 1.64 (0.69)
------ ------ ------ ------ ------
Total from investment operations $ 1.50 $ 3.54 $ 1.85 $ 2.28 $(0.15)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.29) $(0.59) $(0.62) $(0.61) $(0.54)
From net realized gain on investments and
foreign currency transactions (1.37) (1.06) (0.66) (0.01) (0.10)
In excess of net realized gain on investments
and foreign currency transactions -- -- -- -- (0.11)
------ ------ ------ ------ ------
Total distributions declared to shareholders $(1.66) $(1.65) $(1.28) $(0.62) $(0.75)
------ ------ ------ ------ ------
Net asset value - end of period $16.76 $16.92 $15.03 $14.46 $12.80
====== ====== ====== ====== ======
Total return(+) 9.60%++ 25.27% 13.50% 18.36% (1.07)%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.92%+ 0.93% 0.91% 0.87% 0.85%
Net investment income 3.42%+ 3.84% 4.35% 4.82% 4.26%
Portfolio turnover 56% 143% 140% 102% 91%
Average commission rate### $0.0599 $0.0476 $0.0547 $ -- $ --
Net assets at end of period (000,000 omitted) $ 3,575 $ 3,199 $ 2,568 $2,242 $1,857
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to September 30, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
### Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
(S) The distributor did not impose a portion of its distribution fee for the period indicated. If the fee had been incurred
by the Fund, the net investment income per share and the ratios would have been:
Net investment income -- -- -- $ 0.63 $ 0.52
Ratios (to average net assets):
Expenses## -- -- -- 0.97% 0.95%
Net investment income -- -- -- 4.72% 4.16%
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $12.42 $11.82 $10.25 $11.58 $10.13 $11.47
------ ------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.45 $ 0.65 $ 0.67 $ 0.64 $ 0.65 $ 0.62
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 1.74 0.75 1.57 (1.25) 1.71 (1.07)
------ ------ ------ ------ ------ ------
Total from investment operations $ 2.19 $ 1.40 $ 2.24 $(0.61) $ 2.36 $(0.45)
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income** $(0.59) $(0.66) $(0.61) $(0.66) $(0.63) $(0.60)
From net realized gain on investments
and foreign currency transactions (0.32) (0.14) (0.06) (0.06) (0.28) (0.08)
From paid in capital -- -- -- -- -- (0.21)
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.91) $(0.80) $(0.67) $(0.72) $(0.91) $(0.89)
------ ------ ------ ------ ------ ------
Net asset value - end of period $13.70 $12.42 $11.82 $10.25 $11.58 $10.13
====== ====== ====== ====== ====== ======
Total return(+) 18.32% 12.26% 22.25% (5.59)% 23.46% (3.93)%
Ratios (to average net assets)/
Supplemental data:
Expenses 0.84% 0.84% 0.87% 0.85% 0.72% 0.71%
Net investment income 4.51% 5.40% 5.89% 5.71% 5.97% 6.06%
Portfolio turnover 95% 84% 74% 50% 53% 52%
Net assets at end of period
(000,000 omitted) $1,702 $1,198 $909 $707 $628 $508
** For the years ended September 30, 1992 and 1991, $0.0508 and $0.0596, respectively, of per share distributions from net
investment income have been redesignated as distributions from capital gains.
(+) Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to
October 1, 1989). If the charge had been included, the results would have been lower.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ----------------------------------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994 1993*
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.92 $15.02 $14.46 $12.80 $13.70 $13.53
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.23 $ 0.50 $ 0.52 $ 0.53 $ 0.39 $ 0.06
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 1.21 2.95 1.21 1.64 (0.65) 0.16
------ ------ ------ ------ ------ ------
Total from investment operations $ 1.44 $ 3.45 $ 1.73 $ 2.17 $(0.26) $ 0.22
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.24) $(0.49) $(0.51) $(0.50) $(0.43) $(0.05)
From net realized gain on investments
and foreign currency transactions (1.37) (1.06) (0.66) -- -- --
In excess of net investment income -- -- -- (0.01) (0.10) --
From paid in capital -- -- -- -- (0.11) --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.61) $(1.55) $(1.17) $(0.51) $(0.64) $(0.05)
------ ------ ------ ------ ------ ------
Net asset value - end of period $16.75 $16.92 $15.02 $14.46 $12.80 $13.70
====== ====== ====== ====== ====== ======
Total return 9.18%++ 24.51% 12.49% 17.46% (1.93)% 15.24%++
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.56%+ 1.60% 1.67% 1.71% 1.70% 1.75%+
Net investment income 2.77%+ 3.17% 3.56% 3.97% 3.45% 3.98%+
Portfolio turnover 56% 143% 140% 102% 91% 95%
Average commission rate### $ 0.0599 $ 0.0476 $ 0.0547 $ -- $ -- $ --
Net assets at end of period
(000,000 omitted) $ 1,916 $ 1,707 $ 1,284 $1,005 $ 843 $ 532
* For the period from the inception of Class B, August 23, 1993, through September 30, 1993.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to September 30, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
### Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ----------------------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994*
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.96 $15.06 $14.49 $12.80 $12.92
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.23 $ 0.50 $ 0.53 $ 0.54 $ 0.08
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 1.21 2.95 1.22 1.66 (0.13)
------ ------ ------ ------ ------
Total from investment operations $ 1.44 $ 3.45 $ 1.75 $ 2.20 $(0.05)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.24) $(0.49) $(0.52) $(0.50) $(0.07)
From net realized gain on investments and
foreign currency transactions (1.37) (1.06) (0.66) (0.01) --
------ ------ ------ ------ ------
Total distributions declared to shareholders $(1.61) $(1.55) $(1.18) $(0.51) $(0.07)
------ ------ ------ ------ ------
Net asset value - end of period $16.79 $16.96 $15.06 $14.49 $12.80
====== ====== ====== ====== ======
Total return 9.29%++ 24.39% 12.67% 17.66% (0.41)%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.57%+ 1.60% 1.63% 1.67% 1.76%+
Net investment income 2.77%+ 3.16% 3.67% 4.14% 4.08%+
Portfolio turnover 56% 143% 140% 102% 91%
Average commission rate### $0.0599 $0.0476 $0.0547 $ -- $ --
Net assets at end of period (000,000 omitted) $ 266 $ 190 $ 83 $ 23 $ 1
* For the period from the inception of Class C, August 1, 1994, through September 30, 1994.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
### Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997**
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------
CLASS I
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.92 $14.70
------ ------
Income from investment operations# -
Net investment income $ 0.31 $ 0.48
Net realized and unrealized gain on investments and foreign
currency transactions 1.21 2.23
------ ------
Total from investment operations $ 1.52 $ 2.71
------ ------
Less distributions declared to shareholders -
From net investment income $(0.32) $(0.49)
From net realized gain on investments and foreign currency
transactions (1.37) --
------ ------
Total distributions declared to shareholders $(1.69) $(0.49)
------ ------
Net asset value - end of period $16.75 $16.92
====== ======
Total return 9.79%++ 18.69%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.57%+ 0.60%+
Net investment income 3.77%+ 4.16%+
Portfolio turnover 56% 143%
Average commission rate $0.0599 $0.0476
Net assets at end of period (000,000 omitted) $ 19 $ 16
** For the period from the inception of Class I, January 2, 1997, through September 30, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<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 reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues and forward contracts, are
valued on the basis of valuations furnished by dealers or by a pricing service
with consideration to factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data, without exclusive reliance
upon exchange or over-the-counter prices. Short-term obligations, which mature
in 60 days or less, are valued at amortized cost, which approximates market
value. Futures contracts listed on commodities exchanges are reported at
market value using closing settlement prices. Securities for which there are
no such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the Fund is
required to deposit with the broker either in cash or securities an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the Fund each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes
as unrealized gains or losses by the 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.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month-end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Fund's tax return
and, consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on Form
1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund 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. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at the following annual
rates:
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
- ---------------------------------------- ----------------------------------
First $200 million 0.250% First $14 million 3.57%
In excess of $200 million 0.212% In excess of $14 million 3.04%
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain officers and
Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Fund has an unfunded
defined benefit plan for all of its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of
$50,425 for the six months ended March 31, 1998.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$631,587 for the six months ended March 31, 1998, 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
paid 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 and 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. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $528,857
for the six months ended March 31, 1998. Fees incurred under the distribution
plan during the six months ended March 31, 1998, 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 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 $108,281 and $25,207
for Class B and Class C shares, respectively, for the six months ended March
31, 1998. Fees incurred under the distribution plan during the six months
ended March 31, 1998, were 1.00% and 1.00% of average daily net assets
attributable to Class B and Class C shares on an annualized basis.
Certain Class A shares and Class C shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months
following purchase. A contingent deferred sales charge is imposed on
shareholder redemptions of Class B shares in the event of a shareholder
redemption within six years of purchase. MFD receives all contingent deferred
sales charges. Contingent deferred sales charges imposed during the six months
ended March 31, 1998, were $20,435, $1,035,489, and $28,840 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 0.1125%. Prior to January 1, 1998, the fee was calculated as a
percentage of the average daily net assets at an effective annual rate of
0.13%.
(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 $ 761,421,062 $ 784,019,290
-------------- --------------
Investments (non-U.S. government securities) $2,287,906,494 $2,007,605,753
-------------- --------------
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $4,764,350,944
--------------
Gross unrealized appreciation $1,026,274,524
Gross unrealized depreciation (13,167,752)
--------------
Net unrealized appreciation $1,013,106,772
==============
(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>
Class A Shares
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1998 YEAR ENDED SEPTEMBER 30, 1997
----------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 26,206,787 $425,487,001 45,594,446 $706,971,591
Shares issued to shareholders
in reinvestment of
distributions 18,090,093 286,062,503 16,846,895 254,622,294
Shares transferred to Class I -- -- (1,095,793) (16,108,156)
Shares reacquired (20,007,209) (326,317,383) (43,162,914) (672,300,086)
---------- ------------ ---------- ------------
Net increase 24,289,671 $385,232,121 18,182,633 $273,185,643
========== ============ ========== ============
<CAPTION>
Class B Shares
SIX MONTHS ENDED MARCH 31, 1998 YEAR ENDED SEPTEMBER 30, 1997
----------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 13,954,040 $226,910,602 23,925,156 $372,473,531
Shares issued to shareholders
in reinvestment of
distributions 9,685,430 152,975,376 8,414,036 126,899,049
Shares reacquired (10,198,144) (164,131,222) (16,916,364) (262,016,405)
---------- ------------ ---------- ------------
Net increase 13,441,326 $215,754,756 15,422,828 $237,356,175
========== ============ ========== ============
<CAPTION>
Class C Shares
SIX MONTHS ENDED MARCH 31, 1998 YEAR ENDED SEPTEMBER 30, 1997
----------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,266,838 $ 69,631,521 6,270,431 $ 97,948,906
Shares issued to shareholders
in reinvestment of
distributions 1,106,650 17,527,119 619,727 9,399,041
Shares reacquired (786,330) (12,896,089) (1,207,600) (18,986,771)
---------- ------------ ---------- ------------
Net increase 4,587,158 $ 74,262,551 5,682,558 $ 88,361,176
========== ============ ========== ============
<CAPTION>
Class I Shares
SIX MONTHS ENDED MARCH 31, 1998 PERIOD ENDED SEPTEMBER 30, 1997*
----------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 91,233 $ 1,522,736 67,857 $ 1,043,322
Shares issued to shareholders
in reinvestment of
distributions 109,013 1,724,933 28,182 440,472
Shares transferred from
Class A -- -- 1,095,793 16,108,156
Shares reacquired (59,974) (985,699) (224,603) (3,478,073)
---------- ------------ ---------- ------------
Net increase 140,272 $ 2,261,970 967,229 $ 14,113,877
========== ============ ========== ============
* For the period from the inception of Class I, January 2, 1997, through September 30, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Fund shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Fund for the six months ended March 31, 1998, was $15,456.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates. These financial instruments include
futures contracts. The notional or contractual amounts of this instrument
represents the investment the Fund has in this particular class of financial
instruments and does not necessarily represent the amount potentially subject
to risk. The measurement of the risks associated with this instrument is
meaningful only when all related and offsetting transactions
are considered.
Futures Contracts
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION APPRECIATION
- --------------------------------------------------------------------------------
U.S. Treasury Bonds June 1998 530 Long $415,500
At March 31, 1998, 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, 1998, the
Fund owned the following restricted security (constituting 0.07% of net assets)
which may not be publicly sold without registration under the Securities Act of
1933. The Fund does not have the right to demand that such security be
registered. The value of this security is determined by valuations furnished by
dealers or by a pricing service, or if not available, are valued at fair value
as determined in good faith by or at the direction of the Trustees.
DESCRIPTION DATE OF ACQUISITION PRINCIPAL AMOUNT COST VALUE
- --------------------------------------------------------------------------------
Merrill Lynch Mortgage
Investors, Inc.,
8.173s, 2023 June 1994 $4,000,000 $2,772,500 $3,852,500
<PAGE>
MFS(R) TOTAL RETURN FUND
TRUSTEES CUSTODIAN
Richard B. Bailey* - Private Investor; State Street Bank and Trust Company
Former Chairman and Director (until
1991), MFS Investment Management INVESTOR INFORMATION
For MFS stock and bond market
Peter G. Harwood - Private Investor outlooks, call toll free:
1-800-637-4458 anytime from a
J. Atwood Ives - Chairman and Chief touch-tone telephone.
Executive Officer, Eastern Enterprises
For information on MFS mutual funds,
Lawrence T. Perera - Partner, Hemenway call your financial adviser or, for an
& Barnes information kit, call toll free:
1-800-637-2929 any business day from 9
William J. Poorvu - Adjunct Professor, a.m. to 5 p.m. Eastern time (or leave
Harvard University Graduate School of a message anytime).
Business Administration
INVESTOR SERVICE
Charles W. Schmidt - Private Investor MFS Service Center, Inc.
P.O. Box 2281
Arnold D. Scott* - Senior Executive Boston, MA 02107-9906
Vice President, Director, and
Secretary, MFS Investment Management For general information, call toll
free: 1-800-225-2606 any business day
Jeffrey L. Shames* - Chairman, Chief from 8 a.m. to 8 p.m. Eastern time.
Executive Officer, and Director,
MFS Investment Management For service to speech- or
hearing-impaired, call toll free:
Elaine R. Smith - Independent 1-800-637-6576 any business day from 9
Consultant a.m. to 5 p.m. Eastern time. (To use
this service, your phone must be
David B. Stone - Chairman, North equipped with a Telecommunications
American Management Corp. (investment Device for the Deaf.)
advisers)
For share prices, account balances,
INVESTMENT ADVISER and exchanges, call toll free:
Massachusetts Financial Services 1-800-MFS-TALK (1-800-637-8255)
Company anytime from a touch-tone telephone.
500 Boylston Street
Boston, MA 02116-3741 WORLD WIDE WEB
www.mfs.com
DISTRIBUTOR
MFS Fund Distributors, Inc. [DALBAR Logo] For the fourth year in a
500 Boylston Street row, MFS earned a #1 ranking in the
Boston, MA 02116-3741 DALBAR, Inc. Broker/Dealer Survey,
Main Office Operations Service Quality
LEAD PORTFOLIO MANAGER Category. The firm achieved a 3.42
David M. Calabro* overall score on a scale of 1 to 4 in
the 1997 survey. A total of 111 firms
TREASURER responded, offering input on the
W. Thomas London* quality of service they received from
29 mutual fund companies nationwide.
ASSISTANT TREASURERS The survey contained questions about
Mark E. Bradley* service quality in 11 categories,
Ellen Moynihan* including "knowledge of operations
James O. Yost* contact," "keeping you informed," and
"ease of doing business" with the
SECRETARY firm.
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
<PAGE>
MFS{R} TOTAL RETURN FUND --------------
BULK RATE
[Graphic omitted] MFS(SM) U.S. POSTAGE
INVESTMENT MANAGEMENT PAID
We invented the mutual fund(SM) MFS
--------------
500 Boylston Street
Boston, MA 02116-3741
[DALBAR Logo]
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MTR-3 5/98 354M 15/215/315/815
