<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[Graphic Omitted]
MFS(R) TOTAL
RETURN FUND
ANNUAL REPORT o SEPTEMBER 30, 1999
<PAGE>
Table of Contents
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 32
Notes to Financial Statements ............................................. 39
Independent Auditors' Report .............................................. 46
MFS' Year 2000 Readiness Disclosure ....................................... 48
Trustees and Officers ..................................................... 49
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
Letter from the Chairman
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
The current investment and economic environment bears little resemblance to
last year's. One year ago, global economies were floundering, and the crisis
in Asia threatened an already weak U.S. economy. Corporate earnings were flat,
and economists used the word "deflation" for the first time in recent memory.
Entering 1999, expectations for corporate earnings growth were lowered
dramatically. In an attempt to foster U.S. growth, the Federal Reserve Board
(the Fed) lowered interest rates.
As a result, this year the U.S. economy is booming and unemployment is low. Many
corporations are focused on improving their profitability, and investors have
been rewarded with positive surprises across a variety of industries. Our
analysts predict that corporate earnings growth for 1999 will average 12% - 15%.
Global economies also are showing signs of strength, and the Asian crisis has
passed. In fact, Japan's economic woes seem to have reached bottom. Although the
process is in its infancy, some Japanese corporations not only are talking about
restructuring and cost cutting, they also are beginning to take action, looking
within to become more competitive and improve returns on equity. While still
lagging the United States, Europe is beginning to restructure and consolidate.
These signs of international growth have contributed to concerns that the U.S.
economy now may be too strong. In June, and again in August, the Fed raised
rates by one-quarter of a percentage point to help ward off the specter of
inflation.
After an unprecedented four years of 20% annual returns in the U.S. equity
market, we fear that many investors have become accustomed to high returns and
have lost sight of the risks they take on to achieve them. In the current market
many investors are taking on additional risk - whether through day trading or
investing in speculative Internet stocks.
Risks are as much a part of the market today as they were one year ago. We
believe the market remains overvalued, with stocks priced 30% above our
analysts' earnings projections. And market narrowness has not abated; the top 25
stocks in the Standard & Poor's 500 Composite Index, a popular, unmanaged index
of common stock total return performance, are still the most overvalued. Such
extreme overvaluation makes the stock market sensitive to interest-rate news and
any negative earnings surprises. The Year 2000 (Y2K) computer problem is another
factor causing investor concern. While we believe corporate America is well
prepared to address any Y2K situations that may arise at year-end, no one can
predict investor behavior. In our opinion, it is investor behavior that has the
greatest potential to create market volatility.
We believe the best way to address Y2K and other market risks is through our
continuing commitment to MFS Original Research(R) and our fundamental investment
tenet of long-term investing. Whether markets are up or down, MFS analysts focus
on analyzing industries and visiting companies to determine the long-term
winners and the prices that will make them attractive opportunities. Because all
companies will not benefit equally from the improving international environment,
bottom-up research remains critical to identifying those that we believe are
successfully restructuring, consolidating, and gaining market share.
Changes in market and economic conditions can't be predicted but should always
be expected. The changes we have seen over the past year only reinforce our
commitment to long-term planning and investing. We believe volatility helps to
create opportunity for long-term investors to buy solid companies at attractive
prices. For this reason, we are continuing to expand our domestic and
international capabilities to ensure that MFS has primary, in-house research on
companies worldwide. We believe that we have built the right investment team,
backed by MFS Original Research, to take advantage of those opportunities for
our shareholders.
We appreciate your confidence 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(R)
October 15, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of David M. Calabro]
David M. Calabro
For the 12 months ended September 30, 1999, Class A shares of the Fund provided
a total return of 7.06%, Class B shares 6.43%, Class C shares 6.41%, and Class I
shares 7.43%. These returns assume the reinvestment of any distributions but
exclude the effects of any sales charges. For the same period, the Standard &
Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index of common
stocks total return performance, returned 27.81%. The Lehman Brothers
Government/Corporate Bond Index (the Lehman Index), an unmanaged,
market-value-weighted index of U.S. Treasury and government-agency securities
that excludes mortgage-backed securities, returned -1.62%. According to Lipper
Analytical Services, Inc., an independent firm that reports mutual fund
performance, the average balanced fund returned 12.54% during the period.
Q. WHAT'S BEHIND THE STOCK MARKET'S STRONG PERFORMANCE OVER THE PAST YEAR?
A. We started out with stocks at a low and a lot of fear driving the market.
Fortunately, the Federal Reserve Board lowered interest rates at the end of
September 1998 and again in October. That, along with progress overseas,
restored investor confidence, and the market took off. Strong economic
growth at home kept the market climbing throughout the winter and spring,
with large-company growth stocks taking the lead. Value stocks lagged
considerably and only rebounded briefly last April and May. Growth stocks
moved back into favor during the summer, but gave up some ground late in the
period as investors worried about valuation levels, earnings
disappointments, a weaker dollar, and the possibility of higher interest
rates.
Q. WHY HAS IT BEEN SUCH A CHALLENGING TIME FOR VALUE STOCKS -- AND THE FUND?
A. Value stocks are usually in mature industries such as energy, financials,
and industrials that need to be able to raise prices to grow earnings.
Unfortunately, there really hasn't been any pricing flexibility in the
economy during the period. So that has hurt the value names. By contrast,
growth stocks tend to have proprietary products and high gross margins, so
they don't really need price increases. Obviously, a balanced fund like ours
-- which typically has about 40% of its assets in fixed-income investments
and 60% in stocks -- is going to lag when the stock market is favoring
growth stocks. Our Fund also has a value orientation -- a style we've
followed for the past 29 years. As a result, we didn't own many top-
performing technology stocks during the period. But we did have sizable
investments in weaker sectors like financials and electric utilities. We
take a long-term approach, however, and stick with our discipline regardless
of what's in favor. Over long periods, the returns on growth and value
stocks have been very similar.
Q. WHY DID YOU HOLD ON TO FINANCIALS AND ELECTRIC UTILITIES?
A. We saw good value in financials, especially insurance companies. We focused
on companies with strong prospects like Hartford Financial. Here's a solid
company with a strong management team and demonstrated earnings growth.
Plus, the company looks like a good acquisition candidate in an industry
where consolidation seems imminent. The stock has been disappointing lately,
but we believe it has strong potential. Chubb is another example of a
company with good assets that has struggled because of weak pricing. We
think prices will most likely move up, so we held on. By contrast, we
trimmed our stake in electric utilities, which had disappointing earnings.
Since deregulation is taking longer than expected, we decided there were
better opportunities elsewhere.
Q. WHICH STOCKS WERE AMONG YOUR BEST PERFORMERS DURING THE PERIOD?
A. Some of our best returns came from the energy and telecommunications
sectors. Rising oil prices, a promising supply/demand outlook, and industry
consolidation helped boost energy stocks. BP Amoco, our largest investment,
also did well during the period thanks to synergies from its recent Amos
merger and the prospect of new ones from its purchase of ArCo. Our holdings
in Mobil, which is being acquired by Exxon, and Coastal Corp., a diversified
energy company, also posted strong gains for the period. In the
telecommunications sector, stocks continued to benefit from tremendous
growth in wireless communications and the Internet. We had sizable stakes in
GTE and Bell Atlantic, both of which did especially well following the
announcement of their merger. Sprint was another strong performer. We also
benefited from owning stocks like AlliedSignal, which took off after its
announced merger with Honeywell; Time Warner, which rebounded as investors
recognized the value of its cable assets; McDonald's, which changed its
growth strategy in the United States; and American Express, which continued
to deliver double-digit earnings growth.
Q. WHERE ELSE HAVE YOU FOUND GOOD VALUES?
A. We're always looking for strong companies that have stumbled. For example,
we bought shares of Motorola -- a technology company whose stock was selling
at a discount due to problems in its cellular handset division and a slump
in semiconductor sales industry wide. The stock has since made a great
comeback. We also added to natural gas utilities, including Sonat and El
Paso, which have steady cash flows from their gas pipelines and also benefit
from rising oil prices in their exploration and production businesses.
Another area we like is Europe, where corporations are way behind the United
States in terms of restructuring. As companies like Royal Dutch, SmithKline
Beecham, and Akzo Nobel reorganize and cut costs to compete globally, we
expect to see better earnings growth. By the end of the period, we had
drained down our cash and increased our equity stake to 58% of net assets,
up from 52% a year earlier.
Q. DID YOU MAKE CHANGES ON THE BOND SIDE OF THE PORTFOLIO?
A. Not many. We continued to keep roughly 38% of our net assets in bonds, with
about two-thirds of that in corporate bonds and the rest in U.S. Treasuries
and mortgage-backed securities. We did, however, lower the Fund's duration
-- an indicator of its sensitivity to changes in interest rates -- to 5.3
years from 6.2 years. We did this last winter because we expected the bias
on interest rates to be up. And the shorter a bond's duration, the less its
price will fall as interest rates rise. To shorten duration, we increased
our stake in bonds that mature in less than two years. This turned out to be
the right move, given that interest rates did move up during the period.
Since then, bonds have pretty much stayed within a narrow range as inflation
concerns have battled flat inflation numbers.
Q. WHAT'S YOUR OUTLOOK FOR THE COMING SIX MONTHS?
A. We expect strong, but more moderate, economic growth with few inflation
worries. There appears to be an upward bias on interest rates, given the
current strength of the U.S. economy and high employment levels. And any
rise in interest rates would cool off the economy a bit. Regardless of what
happens, we believe the bonds we own should continue to provide the Fund
with steady income and a measure of downside protection. On the stock side,
we're cautious about the overall market, given how high valuations are.
However, we feel the Fund's long-term value focus and bond weighting should
help us over the long term to weather whatever volatility lies ahead.
/s/ [David M. Calabro]
David M. Calabro
Lead Portfolio Manager
(on behalf of the MFS Total Return Team)
The opinions expressed in this report are those of the lead portfolio manager
and are current 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; Kenneth J. Enright, Vice President;
Geoffrey L. Kurinsky, Senior Vice President; Constantinos Mokas, Vice President;
and Lisa B. Nurme, Senior Vice President, are the Fund's portfolio managers. Mr.
Calabro is the head of the 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. Enright, a manager of the common stock portion of the Fund's
portfolio, has been employed by MFS since 1986. Mr. Kurinsky, the manager of the
Fund's fixed-income securities, has been employed by MFS since 1987. Mr. Mokas,
the manager of the Fund's convertible securities, 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.
All portfolio managers at MFS Investment Management(R) are supported by an
investment staff of over 100 professionals utilizing MFS(R) Original
Research(SM), a company-oriented, bottom-up process of selecting securities.
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 consultant, 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: $6.5 billion net assets as of September 30, 1999
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and
reflect the percentage change in net asset value, including reinvestment of
dividends. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. The performance of other share classes will be greater than or less
than the line shown. (See Notes to Performance Summary for more information.)
It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended September 30, 1999)
MFS TOTAL S&P 500 LEHMAN BROTHERS
RETURN FUND COMPOSITE GOVERNMENT/
- CLASS A INDEX CORPORATE BOND INDEX
- -------------------------------------------------------------
9/89 $ 9,525 $10,000 $10,000
9/91 10,994 11,904 12,368
9/93 14,603 14,938 15,608
9/95 17,095 20,096 17,109
9/97 24,306 33,964 19,595
9/99 27,837 47,334 21,752
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH SEPTEMBER 30, 1999
CLASS A
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales
Charge + 7.06% +43.49% +92.72% +192.26%
- ------------------------------------------------------------------------------
Average Annual Total Return Excluding
Sales Charge + 7.06% +12.79% +14.02% + 11.32%
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Average Annual Total Return Including
Sales Charge + 1.97% +10.97% +12.92% + 10.78%
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CLASS B
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales
Charge + 6.43% +40.76% +85.99% +179.32%
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Average Annual Total Return Excluding
Sales Charge + 6.43% +12.07% +13.21% + 10.82%
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Average Annual Total Return Including
Sales Charge + 2.80% +11.29% +12.97% + 10.82%
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CLASS C
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales
Charge + 6.41% +40.66% +86.46% +182.56%
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Average Annual Total Return Excluding
Sales Charge + 6.41% +12.04% +13.27% + 10.95%
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Average Annual Total Return Including
Sales Charge + 5.50% +12.04% +13.27% + 10.95%
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CLASS I
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales
Charge + 7.43% +44.90% +94.65% +195.18%
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Average Annual Total Return Excluding
Sales Charge + 7.43% +13.16% +14.25% + 11.43%
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COMPARATIVE INDICES
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------
Average balanced fund+ +12.54% +13.10% +14.35% + 11.25%
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Standard & Poor's 500 Composite Index# +27.81% +25.09% +25.03% + 16.82%
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Lehman Brothers Government/Corporate
Bond Index# - 1.62% + 6.75% + 7.77% + 8.08%
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+Source: Lipper Analytical Services, Inc.
#Source: Standard & Poor's Micropal, Inc.
<PAGE>
NOTES TO PERFORMANCE SUMMARY
Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 5.75% sales charge. Class B Share Performance Including
Sales Charge takes into account the deduction of the applicable contingent
deferred sales charge (CDSC), which declines over six years from 4% to 0%. Class
C Share Performance Including Sales Charge takes into account the deduction of
the 1% CDSC applicable to Class C shares redeemed within 12 months. Class I
shares have no sales charge and are only available to certain institutional
investors
Class B, C, and I share performance include the performance of the Fund's Class
A shares for periods prior to their inception (blended performance). Class B and
C blended performance has been adjusted to take into account the CDSC applicable
to Class B and C shares rather than the initial sales charge (load) applicable
to Class A shares. Class I share blended performance has been adjusted to
account for the fact that Class I shares have no sales charge. These blended
performance figures have not been adjusted to take into account differences in
class-specific operating expenses. Because operating expenses of Class B and C
shares are higher than those of Class A, the blended Class B and C share
performance is higher than it would have been had Class B and C shares been
offered for the entire period. Conversely, because operating expenses of Class I
shares are lower than those of Class A, the blended Class I share performance is
lower than it would have been had Class I shares been offered for the entire
period.
All performance 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.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
PORTFOLIO CONCENTRATION AS OF SEPTEMBER 30, 1999
FIVE LARGEST STOCK SECTORS
UTILITIES & COMMUNICATIONS 25.2%
FINANCIAL SERVICES 19.4%
ENERGY 11.2%
LEISURE 8.8%
CONSUMER STAPLES 7.1%
TOP 10 STOCK HOLDINGS
BP AMOCO PLC 2.7% SBC COMMUNICATIONS, INC. 1.5%
British oil and petrochemical company Integrated telecommunications company
GTE CORP. 2.7% LINCOLN NATIONAL CORP. 1.4%
Telecommunications company Multiline insurance company
COASTAL CORP. 1.9% MOBIL CORP. 1.4%
Oil and natural gas company International oil and gas company
ALLIEDSIGNAL, INC. 1.8% MOTOROLA, INC. 1.3%
Aerospace, automotive, and Wireless communications equipment
environmental products manufacturer manufacturer
MCDONALD'S CORP. 1.6% TRW, INC. 1.3%
Fast-food restaurant owner/franchiser Automotive and transport equipment
manufacturer
The portfolio is actively managed, and current holdings may be different.
<PAGE>
Portfolio of Investments -- September 30, 1999
Stocks - 51.8%
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ISSUER SHARES VALUE
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U.S. Stocks - 45.1%
Aerospace - 1.0%
General Dynamics Corp. 52,100 $ 3,252,994
Lockheed-Martin Corp. 517,800 16,925,587
Raytheon Co., "A" 665,353 32,269,620
United Technologies Corp. 227,596 13,499,288
--------------
$ 65,947,489
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Automotive - 1.3%
Delphi Automotive Systems Corp. 746,600 $ 11,992,262
Federal-Mogul Corp. 125,000 3,445,313
Ford Motor Co. 302,100 15,161,644
Lear Corp.* 50,000 1,759,375
TRW, Inc. 1,015,200 50,506,200
--------------
$ 82,864,794
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Banks and Credit Companies - 2.5%
Bank America Corp. 729,500 $ 40,624,031
Bank of New York Co., Inc. 810,808 27,111,392
Chase Manhattan Corp. 66,200 4,989,825
Mellon Bank Corp. 1,021,600 34,479,000
PNC Bank Corp. 895,700 47,192,194
Wells Fargo Co. 115,120 4,561,630
--------------
$ 158,958,072
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Building - 0.1%
Sherwin Williams Co. 414,000 $ 8,668,125
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Business Machines - 1.4%
Hewlett-Packard Co. 160,200 $ 14,738,400
International Business Machines Corp. 232,100 28,171,137
Motorola, Inc. 558,400 49,139,200
--------------
$ 92,048,737
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Cellular Telephones - 0.4%
Telephone & Data Systems, Inc. 314,060 $ 27,892,454
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Chemicals - 1.2%
Dow Chemical Co. 88,600 $ 10,067,175
Engelhard Corp. 1,197,400 21,777,712
PPG Industries, Inc. 330,000 19,800,000
Rohm & Haas Co. 753,000 27,202,125
--------------
$ 78,847,012
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Coal - 0.1%
CONSOL Energy, Inc. 356,700 $ 5,194,444
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Conglomerates - 1.8%
AlliedSignal, Inc. 1,140,100 $ 68,334,744
Eastern Enterprises Co. 674,200 31,308,162
Tyco International Ltd. 154,655 15,968,129
--------------
$ 115,611,035
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Consumer Goods and Services - 0.7%
Clorox Co. 203,000 $ 7,764,750
Fortune Brands, Inc. 302,500 9,755,625
International Flavours 408,400 14,089,800
Kimberly-Clark Corp. 139,700 7,334,250
Newell Rubbermaid, Inc. 128,700 3,675,994
Philip Morris Cos., Inc. 117,100 4,003,356
--------------
$ 46,623,775
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Containers - 0.2%
Owens Illinois, Inc.* 654,400 $ 12,965,300
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Electrical Equipment - 1.0%
Cooper Industries, Inc. 183,370 $ 8,572,548
Emerson Electric Co. 764,600 48,313,162
General Electric Co. 50,044 5,933,342
Honeywell, Inc. 23,600 2,626,975
--------------
$ 65,446,027
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Energy - 0.4%
BJ Services Co.* 179,600 $ 5,713,525
Devon Energy Corp. 98,200 4,069,163
Sierra Pacific Resources 595,404 13,247,739
--------------
$ 23,030,427
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Entertainment - 1.4%
CBS Corp.* 75,000 $ 3,468,750
Disney (Walt) Co. 672,100 17,390,587
Harrah's Entertainment, Inc.* 536,500 14,887,875
Infinity Broadcasting Corp.* 300,000 8,793,750
MediaOne Group, Inc.* 185,200 12,651,475
Time Warner, Inc. 521,932 31,707,369
--------------
$ 88,899,806
- -----------------------------------------------------------------------------
Financial Institutions - 1.7%
American Express Co. 128,500 $ 17,299,312
Associates First Capital Corp., "A" 228,500 8,226,000
Citigroup, Inc. 463,900 20,411,600
Edwards (A.G.), Inc. 632,900 16,692,738
Federal Home Loan Mortgage Corp. 213,800 11,117,600
Household International, Inc. 175,000 7,021,875
Merrill Lynch & Co., Inc. 104,300 7,007,656
State Street Corp. 312,270 20,180,449
--------------
$ 107,957,230
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Food and Beverage Products - 1.9%
Anheuser-Busch Cos., Inc. 103,900 $ 7,279,494
Archer-Daniels-Midland Co. 2,674,254 32,592,471
Bestfoods Co. 377,700 18,318,450
General Mills, Inc. 223,700 18,147,662
Hershey Foods Corp. 97,300 4,737,294
Hubbell, Inc. 20,000 637,500
McCormick & Co., Inc. 164,100 5,425,556
Nabisco Holdings Corp., "A" 222,000 7,672,875
Quaker Oats Co. 141,900 8,780,063
Ralston-Ralston Purina Co. 179,500 4,992,344
Seagram Limited 339,400 15,760,887
--------------
$ 124,344,596
- -----------------------------------------------------------------------------
Forest and Paper Products - 1.2%
Bowater, Inc. 684,800 $ 35,952,000
Champion International Corp. 245,000 12,586,875
International Paper Co. 340,800 16,379,700
Weyerhaeuser Co. 177,000 10,199,625
--------------
$ 75,118,200
- -----------------------------------------------------------------------------
Insurance - 5.0%
Allstate Corp. 587,900 $ 14,660,756
American International Group, Inc. 241,250 20,973,672
Aon Corp. 250,000 7,390,625
Axa Financial, Inc.* 401,382 22,402,133
Chubb Corp. 316,600 15,770,638
CIGNA Corp. 552,400 42,949,100
Hartford Financial Services Group, Inc. 1,180,900 48,269,287
Jefferson Pilot Corp. 422,100 26,671,444
Lincoln National Corp. 1,376,100 51,689,756
MONY Group, Inc. 4,400 127,050
Nationwide Financial Services, Inc., "A" 183,000 6,473,625
ReliaStar Financial Corp. 1,072,800 35,670,600
St. Paul Cos., Inc. 1,080,900 29,724,750
--------------
$ 322,773,436
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Machinery - 0.4%
Deere & Co., Inc. 631,400 $ 24,427,288
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Medical and Health Products - 1.0%
American Home Products Corp. 718,500 $ 29,817,750
Baxter International, Inc. 70,000 4,217,500
Bristol-Myers Squibb Co. 73,900 4,988,250
Pharmacia & Upjohn, Inc. 492,800 24,455,200
--------------
$ 63,478,700
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 0.1%
United Healthcare Corp. 129,900 $ 6,324,506
- -----------------------------------------------------------------------------
Metals and Minerals - 0.3%
Alcoa, Inc. 188,200 $ 11,680,163
USEC, Inc. 987,000 10,116,750
--------------
$ 21,796,913
- -----------------------------------------------------------------------------
Oil Services - 0.7%
Cooper Cameron Corp.* 115,300 $ 4,352,575
Halliburton Co. 355,000 14,555,000
Kerr McGee Corp.* 100,000 5,506,250
Kerr McGee Corp.* 59,800 2,332,200
Noble Drilling Corp.* 919,500 20,114,063
--------------
$ 46,860,088
- -----------------------------------------------------------------------------
Oils - 4.5%
Apache Corp. 337,500 $ 14,575,781
Atlantic Richfield Co. 72,300 6,407,587
Chevron Corp. 306,400 27,193,000
Coastal Corp. 1,794,675 73,469,508
Conoco, Inc. 43,500 1,190,812
Conoco, Inc., "A" 1,333,900 37,015,725
Exxon Corp. 296,951 22,549,717
Mobil Corp. 531,520 53,550,640
Newfield Exploration Co.* 114,800 3,781,225
Phillips Petroleum Co. 405,000 19,743,750
Texaco, Inc. 72,000 4,545,000
Unocal Corp. 747,450 27,702,366
Vastar Resources, Inc. 43,600 2,727,725
--------------
$ 294,452,836
- -----------------------------------------------------------------------------
Photographic Products - 0.4%
Eastman Kodak Co. 18,000 $ 1,357,875
Polaroid Corp. 863,100 22,440,600
--------------
$ 23,798,475
- -----------------------------------------------------------------------------
Printing and Publishing - 1.1%
Gannett Co., Inc. 474,900 $ 32,857,144
New York Times Co. 650,000 24,375,000
Tribune Co. 351,800 17,502,050
--------------
$ 74,734,194
- -----------------------------------------------------------------------------
Railroads - 0.4%
Burlington Northern Santa Fe Railway Co. 653,500 $ 17,971,250
Norfolk Southern Corp. 42,900 1,051,050
Wisconsin Central Transportation Corp.* 327,400 4,481,288
--------------
$ 23,503,588
- -----------------------------------------------------------------------------
Real Estate Investment Trusts - 0.6%
Boston Properties, Inc. 42,800 $ 1,313,425
CarrAmerica Realty Corp. 395,800 8,682,862
Equity Residential Properties Trust 270,000 11,441,250
First Industrial Realty Trust, Inc. 225,000 5,568,750
Kilroy Realty Corp. 264,800 5,593,900
Mid-America Apartment Communities, Inc. 195,900 4,211,850
TriNet Corporate Realty Trust, Inc. 39,174 932,831
--------------
$ 37,744,868
- -----------------------------------------------------------------------------
Restaurants and Lodging - 1.0%
Hilton Hotels Corp. 267,200 $ 2,638,600
McDonald's Corp. 1,424,100 61,236,300
Promus Hotel Corp.* 100,000 3,256,250
--------------
$ 67,131,150
- -----------------------------------------------------------------------------
Special Products and Services - 0.7%
MCN Energy Group, Inc. 729,100 $ 12,531,406
Xerox Corp. 713,200 29,909,825
--------------
$ 42,441,231
- -----------------------------------------------------------------------------
Stores - 0.2%
Dayton Hudson Corp. 153,200 $ 9,201,575
Office Depot, Inc.* 190,100 1,936,644
Rite Aid Corp. 242,500 3,349,531
--------------
$ 14,487,750
- -----------------------------------------------------------------------------
Supermarkets - 0.5%
Albertsons, Inc. 264,808 $ 10,476,466
Kroger Co.* 954,028 21,048,243
--------------
$ 31,524,709
- -----------------------------------------------------------------------------
Telecommunications - 4.1%
Alltel Corp. 65,000 $ 4,574,375
AT&T Corp. 246,300 10,714,050
Bell Atlantic Corp. 617,500 41,565,469
CenturyTelephone Enterprises, Inc. 134,100 5,447,812
GTE Corp. 1,336,700 102,758,813
Intermedia Communications, Inc.* 190,000 4,132,500
MCI WorldCom, Inc.* 22,500 1,617,188
SBC Communications, Inc. 1,082,248 55,262,288
Sprint Corp. 720,500 39,087,125
Winstar Communications, Inc.* 899 35,117
--------------
$ 265,194,737
- -----------------------------------------------------------------------------
Utilities - Electric - 2.7%
Carolina Power & Light Co. 567,600 $ 20,078,850
CMS Energy Corp. 296,000 10,045,500
Duke Energy Corp. 588,200 32,424,525
FirstEnergy Corp. 448,800 11,444,400
Florida Progress Corp. 288,000 13,320,000
FPL Group, Inc. 100,000 5,037,500
GPU, Inc. 556,300 18,149,287
NiSource, Inc. 150,000 3,318,750
NSTAR Co.* 40,000 1,550,000
Peco Energy Co. 321,700 12,063,750
Pinnacle West Capital Corp. 902,100 32,813,887
Public Service Enterprise Group 207,500 8,014,688
Sempra Energy 90,800 1,889,775
Southern Co. 71,500 1,841,125
Texas Utilities Co. 124,800 4,656,600
--------------
$ 176,648,637
- -----------------------------------------------------------------------------
Utilities - Gas - 3.1%
Columbia Energy Group 827,520 $ 45,823,920
Consolidated Natural Gas Co. 220,000 13,722,500
Dynegy, Inc. 49,617 1,026,452
El Paso Energy Corp. 575,800 22,924,037
Keyspan Corp. 190,000 5,438,750
National Fuel Gas Co. 689,700 32,545,219
NICOR, Inc. 322,900 12,007,844
Public Service Company, Inc. 141,200 4,377,200
Sonat, Inc. 723,200 28,702,000
UGI Corp. 105,900 2,462,175
Washington Gas Light Co. 406,800 11,034,450
Williams Cos., Inc. 523,600 19,602,276
--------------
$ 199,666,823
- -----------------------------------------------------------------------------
Total U.S. Stocks $2,917,407,452
- -----------------------------------------------------------------------------
Foreign Stocks - 6.7%
Canada - 0.3%
Abitibi-Consolidated, Inc. (Forest and Paper
Products) 230,000 $ 2,774,375
Canadian National Railway Co. (Railroads) 652,200 19,769,812
--------------
$ 22,544,187
- -----------------------------------------------------------------------------
France - 0.5%
Axa (Insurance) 235,200 $ 29,724,454
- -----------------------------------------------------------------------------
Germany - 0.2%
Henkel KGaA, Preferred (Chemicals) 220,000 $ 13,808,129
- -----------------------------------------------------------------------------
Ireland - 0.1%
Jefferson Smurfit Group PLC, ADR (Containers) 257,000 $ 7,533,313
- -----------------------------------------------------------------------------
Japan - 0.8%
Fuji Heavy Industries, Ltd. (Automotive) 1,200,000 $ 9,510,962
Hitachi (Electronics) 690,000 7,627,881
Mitsubishi Motor (Automotive) 1,150,000 6,227,281
Nippon Telegraph & Telephone Co., ADR
(Utilities - Telephone) 91,900 5,669,081
Nippon Telephone & Telegraph Co. (Utilities -
Telephone) 1,500 18,409,219
Uni-Charm Corp. (Forest and Paper Products) 58,700 3,536,078
--------------
$ 50,980,502
- -----------------------------------------------------------------------------
Netherlands - 1.7%
Akzo Nobel N.V. (Chemicals) 1,141,570 $ 48,333,222
ING Groep N.V. (Financial Services)* 386,354 20,961,180
Koninklijke Philips Electronics N.V.
(Electronics) 119,000 11,962,967
Royal Dutch Petroleum Co., ADR (Oils) 541,900 32,005,969
--------------
$ 113,263,338
- -----------------------------------------------------------------------------
Switzerland - 0.7%
Nestle S.A. (Food and Beverage Products) 24,240 $ 45,507,490
- -----------------------------------------------------------------------------
United Kingdom - 2.4%
BP Amoco PLC, ADR (Oils) 912,519 $ 101,118,512
British Telecommunications PLC
(Telecommunications) 1,000,000 15,141,366
Diageo PLC (Food and Beverage Products)* 2,360,800 24,089,518
SmithKline-Beecham PLC, ADR (Medical and
Health Products) 240,100 13,835,763
--------------
$ 154,185,159
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 437,546,572
- -----------------------------------------------------------------------------
Total Stocks (Identified Cost, $3,189,409,323) $3,354,954,024
- -----------------------------------------------------------------------------
Bonds - 38.1%
- -----------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -----------------------------------------------------------------------------
U.S. Bonds - 37.8%
Advertising
Lamar Advertising Co., 5.25s, 2006 $ 996 $ 1,260,563
- -----------------------------------------------------------------------------
Airlines - 0.4%
Delta Airlines, Inc., 6.65s, 2004 $ 14,308 $ 13,940,141
Jet Equipment Trust, 9.41s, 2010## 3,365 3,697,563
Jet Equipment Trust, 8.64s, 2012## 3,098 3,225,347
Jet Equipment Trust, 11.44s, 2014## 4,700 5,628,156
Jet Equipment Trust, 10.69s, 2015## 1,250 1,439,350
--------------
$ 27,930,557
- -----------------------------------------------------------------------------
Apparel and Textiles - 0.2%
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 $ 7,415 $ 7,128,855
Jones Apparel Group, Inc., 6.25s, 2001 4,280 4,212,291
--------------
$ 11,341,146
- -----------------------------------------------------------------------------
Automotive - 2.0%
Daimler Chrysler North America, 6.9s, 2004 $ 6,231 $ 6,251,438
Daimler Chrysler North America, 7.2s, 2009 15,836 15,912,646
Federal Mogul Corp., 7.5s, 2004 7,335 7,017,248
Federal Mogul Corp., 7.375s, 2006 4,338 4,013,812
Federal Mogul Corp., 7.75s, 2006 11,584 10,902,745
Ford Motor Co., 7.45s, 2031 13,270 13,083,689
Ford Motor Co., 8.9s, 2032 6,770 7,820,704
Ford Motor Credit Co., 5.75s, 2004 9,425 9,048,943
Ford Motor Credit Co., 6.7s, 2004 35,861 35,659,461
General Motors Corp., 9.4s, 2021 5,049 6,027,951
Lear Corp., 7.96s, 2005## 9,092 9,026,265
TRW, Inc., 7.125s, 2009## 6,360 6,168,945
--------------
$ 130,933,847
- -----------------------------------------------------------------------------
Banks and Credit Companies - 1.1%
Beaver Valley Funding Corp. II, 9s, 2017 $ 11,340 $ 11,682,695
Capital One Financial Corp., 7.25s, 2003 4,845 4,787,929
Colonial Capital II, 8.92s, 2027 5,010 4,655,198
Midland Funding Corp., 10.33s, 2002 17,784 18,524,555
Midland Funding Corp. II, "A", 11.75s, 2005 11,000 12,158,190
Providian National Bank, 6.75s, 2002 3,750 3,684,488
Providian National Bank, 6.7s, 2003 7,850 7,633,575
Providian National Bank, 6.65s, 2004 5,693 5,461,181
Riggs National Corp., 9.65s, 2009 1,425 1,508,149
Washington Mutual Capital I, 8.375s, 2027 4,590 4,396,715
--------------
$ 74,492,675
- -----------------------------------------------------------------------------
Business Services - 0.3%
Harrahs Operating Inc., 7.5s, 2009 4 2,300 $ 2,162,782
Unisys Corp., 12s, 2003 7,012 7,590,490
Unisys Corp., 11.75s, 2004 7,000 7,787,500
--------------
$ 17,540,772
- -----------------------------------------------------------------------------
Computer Software - Services
Siebel Systems, Inc., 5.5s, 2006## $ 1,246 $ 1,217,965
- -----------------------------------------------------------------------------
Conglomerates - 0.2%
News America Holdings, Inc., 10.125s, 2012 $ 10,000 $ 11,003,600
- -----------------------------------------------------------------------------
Construction Services - 0.3%
Georgia Pacific Corp., 9.95s, 2002 $ 1,250 $ 1,341,425
Georgia Pacific Corp., 9.875s, 2021 11,382 12,403,421
Georgia Pacific Corp., 9.5s, 2022 1,000 1,082,940
Georgia Pacific Corp., 7.25s, 2028 3,163 2,886,395
--------------
$ 17,714,181
- -----------------------------------------------------------------------------
Consumer Goods and Services - 0.1%
Protection One Alarm Monitoring, 7.375s, 2005 $ 8,806 $ 7,619,039
- -----------------------------------------------------------------------------
Corporate Asset Backed - 2.5%
American Airlines Pass- Through Trust,
6.855s, 2009 $ 6,289 $ 6,280,887
Banamex Credit Card Merchant Voucher,
6.25s, 2003## 4,911 4,867,610
BCF LLC, 7.75s, 2026## 3,234 1,778,564
Contimortgage Home Equity, 6.13s, 2013 19,000 18,857,500
Continental Airlines Pass-Through Trust, Inc.,
6.545s, 2019 2,611 2,374,574
Continental Airlines Pass-Through Trust, Inc.,
6.648s, 2017 20,612 18,778,088
Continental Airlines Pass-Through Trust, Inc.,
7.256s, 2020 6,485 6,201,476
Continental Airlines, Inc., 9.5s, 2013 3,694 3,891,282
Continental Airlines, Inc., 10.22s, 2014 8,718 9,453,755
Criimi Mae Commercial Mortgage Trust, 7s, 2011 5,500 4,667,266
Cwabs, Inc., 6.5s, 2013 6,513 6,494,527
Ford Credit Auto Owner Trust, 5.8s, 2000 2,353 2,351,839
Ford Credit Auto Owner Trust, 6.2s, 2002 15,698 15,658,221
Merrill Lynch Mortgage Investors, Inc.,
9s, 2011 85 85,148
Merrill Lynch Mortgage Investors, Inc.,
8.43s, 2022+ 4,000 3,735,000
Northwest Airlines, Inc., 7.575s, 2019 7,577 7,513,505
Northwest Airlines, Inc., 6.81s, 2020 1,533 1,380,215
Residential Accredit Loans, Inc., 6.75s, 2028 21,246 20,183,700
Residential Accredit Loans, Inc., 7s, 2028 9,068 8,801,628
Time Warner Pass-Through Asset Trust,
6.1s, 2001## 17,578 17,481,848
--------------
$ 160,836,633
- -----------------------------------------------------------------------------
Electronics
Conexant Systems, Inc., 4.25s, 2006## $ 1,700 $ 2,907,000
- -----------------------------------------------------------------------------
Entertainment - 0.5%
Hearst Argyle Television, Inc., 7.5s, 2027 $ 7,905 $ 7,235,842
News America Holdings, Inc., 6.703s, 2004 12,847 12,442,962
Time Warner, Inc., 10.15s, 2012 8,710 10,418,553
Time Warner, Inc., 9.15s, 2023 2,300 2,622,414
--------------
$ 32,719,771
- -----------------------------------------------------------------------------
Finance - 0.5%
Countrywide Funding Corp., 6.25s, 2009 $ 6,410 $ 5,886,752
Green Tree Financial Corp., 10.25s, 2002 10,000 10,449,700
Merrill Lynch & Company, Inc., 6.07s, 2004 13,821 13,403,467
--------------
$ 29,739,919
- -----------------------------------------------------------------------------
Financial Institutions - 2.7%
Aristar, Inc., 7.375s, 2004 $ 14,765 $ 14,917,080
Aristar, Inc., 7.25s, 2006 7,962 7,890,740
Associates Corp., 5.5s, 2004 947 901,430
AT & T Capital Corp., 6.25s, 2001 5,379 5,326,286
Bear Stearns Companies, Inc., 6.45s, 2002 3,165 3,135,027
Duke Capital Corp., 7.25s, 2004 10,696 10,701,241
Duke Capital Corp., 7.5s, 2009 3,351 3,336,256
Finova Capital Corp., 6.125s, 2004 12,550 12,035,575
First Empire Capital Trust I, 8.234s, 2027 6,895 6,534,943
General Motors Acceptance Corp., 5.95s, 2003 11,568 11,257,156
General Motors Acceptance Corp., 6.15s, 2007 10,887 10,241,075
Goldman Sachs Group LP, 5.9s, 2003 5,300 5,168,666
Goldman Sachs Group LP, 2s, 2006 2,000 1,922,500
GS Escrow Corp., 6.75s, 2001 18,807 18,405,452
GS Escrow Corp., 7.125s, 2005 29,933 27,746,364
Household Finance Corp., 5.875s, 2004 14,265 13,585,273
Salton Sea Funding Corp., 7.37s, 2005 4,254 4,193,241
Salton Sea Funding Corp., 7.84s, 2010 7,270 7,140,158
Salton Sea Funding Corp., 8.3s, 2011 2,268 2,294,104
Sunamerica Institutional, 5.75s, 2009 9,589 8,762,812
United Companies Financial Corp., 7.7s, 2004 2,650 795,000
--------------
$ 176,290,379
- -----------------------------------------------------------------------------
Financial Services - 0.3%
Fleet Boston Corp., 9.9s, 2001 $ 8,700 $ 9,145,875
General Electric Capital Corp., 8.625s, 2008 7,290 8,076,154
--------------
$ 17,222,029
- -----------------------------------------------------------------------------
Food and Beverage Products - 0.5%
Nabisco, Inc., 6.375s, 2035 $ 4,856 $ 4,598,923
Seagram (Joseph E) & Sons, Inc., 5.79s, 2001 12,771 12,525,031
Seagram (Joseph E) & Sons, Inc., 6.4s, 2003 17,630 17,110,444
--------------
$ 34,234,398
- -----------------------------------------------------------------------------
Insurance - 0.8%
Aflac, Inc., 6.5s, 2009 $ 32,501 $ 30,644,868
Atlantic Mutual Insurance Co., 8.15s, 2028## 10,964 8,538,763
Conseco, Inc., 1s, 2001 2,350 2,301,369
Providian Capital I, 9.525s, 2027## 11,526 10,119,021
--------------
$ 51,604,021
- -----------------------------------------------------------------------------
Medical and Health Products
Sepracor, Inc., 7s, 2005## $ 1,800 $ 1,667,250
- -----------------------------------------------------------------------------
Oil Services - 0.4%
McDermott, Inc., 9.375s, 2002 $ 20,305 $ 21,058,925
Ultramar Diamond Shamrock Corp., 7.2s, 2017 5,030 4,591,434
--------------
$ 25,650,359
- -----------------------------------------------------------------------------
Oils - 0.5%
Husky Oil Ltd., 8.9s, 2028 $ 4,528 $ 4,253,513
Lasmo USA, Inc., 7.125s, 2003 2,673 2,629,564
Occidental Petroleum Corp., 10.125s, 2001 13,405 14,218,817
Occidental Petroleum Corp., 6.75s, 2002 1,712 1,684,437
Occidental Petroleum Corp., 6.5s, 2005 1,458 1,399,534
Oryx Energy Co., 8s, 2003 2,000 2,036,000
Seagull Energy Corp., 7.5s, 2027 4,193 3,480,190
--------------
$ 29,702,055
- -----------------------------------------------------------------------------
Railroads - 0.2%
Union Pacific Corp., 5.78s, 2001 $ 7,639 $ 7,492,943
Union Pacific Corp., 6.34s, 2003 2,920 2,840,605
--------------
$ 10,333,548
- -----------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
Circus Circus Enterprises, Inc., 6.7s, 2096 $ 4,500 4,212,495
- -----------------------------------------------------------------------------
Special Products and Services - 0.1%
Osprey Trust, Inc., 8.31s, 2003 $ 8,071 $ 8,121,444
- -----------------------------------------------------------------------------
Stores - 1.1%
Federated Department Stores, Inc., 8.5s, 2003 $ 10,382 $ 10,854,485
Federated Department Stores, Inc., 6.3s, 2009 12,875 11,846,288
Rite Aid Corp., 5.25s, 2002## 2,000 1,605,000
Rite Aid Corp., 6s, 2003## 11,041 9,202,453
Rite Aid Corp., 7.125s, 2007 3,954 3,139,278
Saks, Inc., 7.25s, 2004 5,303 5,053,192
Saks, Inc., 8.25s, 2008 17,726 17,677,253
Wal-Mart Stores, Inc., 6.55s, 2004 12,530 12,573,103
--------------
$ 71,951,052
- -----------------------------------------------------------------------------
Supermarkets - 0.3%
Safeway, Inc., 5.875s, 2001 $ 10,400 $ 10,217,584
Safeway, Inc., 7.25s, 2004 10,069 10,057,018
--------------
$ 20,274,602
- -----------------------------------------------------------------------------
Telecommunications - 1.9%
AT&T Corp., 6.5s, 2002 $ 25,000 $ 24,986,500
AT&T Corp., 6.5s, 2029 4,300 3,807,177
Cable & Wireless Communication, 6.625s, 2005 13,800 13,909,986
Cable & Wireless Communications, 6.75s, 2008 4,242 4,300,540
Cd Radio Inc., 8.75s, 2009 2,392 2,505,620
Qwest Communications International, Inc.,
7.5S, 2008 13,915 13,522,040
Sprint Capital Corp., 6.125s, 2008 12,000 11,157,480
Sprint Capital Corp., 6.9s, 2019 12,000 11,113,800
Sprint Spectrum LP, 11s, 2006 3,750 4,198,313
TCI Communications Financing III, 9.65s, 2027 11,525 13,075,343
Telecomunicaciones De Puerto, 6.65s, 2006## 5,862 5,575,934
TKR Cable, Inc., 10.5s, 2007 3,400 3,588,972
United Telecommunications Co., 9.5s, 2003 4,950 5,322,141
WorldCom, Inc., 8.875s, 2006 5,000 5,276,350
WorldCom, Inc., 6.95s, 2028 588 547,869
--------------
$ 122,888,065
- -----------------------------------------------------------------------------
Telecommunications and Cable - 0.1%
Comcast Corp., 10.25s, 2001 $ 6,818 $ 7,145,673
- -----------------------------------------------------------------------------
Transportation
Amerco, 7.2s, 2002 $ 2,487 $ 2,441,861
- -----------------------------------------------------------------------------
U.S. Federal Agencies - 3.6%
Federal Home Loan Bank - 0.3%
Federal Home Loan Bank, 5.7s, 2009 $ 17,325 $ 16,187,960
Federal Home Loan Bank, 6.5s, 2029 2,259 2,167,236
--------------
$ 18,355,196
- -----------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation - 0.2%
FHLMC, 6.5s, 2029 - 2029 $ 11,711 $ 11,235,163
- -----------------------------------------------------------------------------
Federal National Mortgage Association - 3.1%
FNMA, 5.25s, 2009 $ 23,051 $ 20,817,819
FNMA, 5.722s, 2009 16,001 14,593,412
FNMA, 6.5s, 2027 - 2029 150,732 144,514,601
FNMA, 8s, 2029 19,600 19,998,076
--------------
$ 199,923,908
- -----------------------------------------------------------------------------
Total U.S. Federal Agencies $ 229,514,267
- -----------------------------------------------------------------------------
U.S. Government Guaranteed - 12.6%
Government National Mortgage Association - 4.3%
GNMA, 6.5s, 2027 - 2029 $ 59,395 $ 56,777,165
GNMA, 7s, 2027 - 2028 43,636 42,803,615
GNMA, 7.5s, 2023 - 2028 98,992 99,322,148
GNMA, 8s, 2022 - 2029 80,090 81,781,347
--------------
$ 280,684,275
- -----------------------------------------------------------------------------
Small Business Administration
SBA, 8.8s, 2011 $ 305 $ 318,067
- -----------------------------------------------------------------------------
U.S. Treasury Obligations - 8.3%
U.S. Treasury Bonds, 5.25s, 2028 - 2029 $ 33,845 $ 29,383,918
U.S. Treasury Bonds, 6.125s, 2027 - 2029 212,381 214,280,954
U.S. Treasury Bonds, 6.625s, 2027 25,250 26,078,452
U.S. Treasury Notes, 5.625s, 2001 157,000 157,042,233
U.S. Treasury Notes, 6s, 2004 - 2009 71,609 72,213,981
U.S. Treasury Notes, 7.875s, 2001 26,350 27,371,062
U.S. Treasury Notes, 8s, 2001 7,500 7,770,675
--------------
$ 534,141,275
- -----------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 815,143,617
- -----------------------------------------------------------------------------
Utilities - Electric - 4.0%
CalEnergy Co., Inc., 7.23s, 2005 $ 5 $ 4,900
CalEnergy Co., Inc., 7.63s, 2007 2,913 2,893,774
CalEnergy Co., Inc., 8.48s, 2028 5,144 5,286,489
Cleveland Electric Illuminating Co.,
7.88s, 2017 7,403 7,332,449
Cleveland Electric Illuminating Co., 9s, 2023 10,709 11,440,532
CMS Energy Corp., 8s, 2001 5,859 5,841,775
CMS Energy Corp., 8.375s, 2003 4,651 4,534,725
CMS Panhandle Holding Co., 6.5s, 2009 9,270 8,644,275
Comed Financing II, 8.5s, 2027## 4,400 4,406,820
Connecticut Light & Power Co., 7.875s, 2001 14,965 15,154,906
Connecticut Light & Power Co., 7.75s, 2002 10,000 10,124,900
Connecticut Light & Power Co., 8.59s, 2003 7,800 7,830,186
Connecticut Light & Power Co., 7.875s, 2024 6,000 6,027,180
El Paso Electric Co., 8.9s, 2006 3,810 4,103,141
Entergy Mississippi, Inc., 6.2s, 2004 8,314 8,005,800
GGIB Funding Corp., 7.43s, 2011 2,976 2,875,299
Gulf States Utilities Co., 8.21s, 2002 7,767 7,967,311
Illinois Power Special Purpose Trust,
5.26s, 2003 4,703 4,658,886
Indiana Michigan Power Co., 6.875s, 2004 6,341 6,237,642
Long Island Lighting Co., 8.2s, 2023 5,950 5,935,125
Midamerican Funding LLC, 5.85s, 2001## 9,980 9,884,621
Midamerican Funding LLC, 6.927s, 2029## 5,795 5,181,453
Midland Cogeneration Venture Corp.,
10.33s, 2002 8,659 9,019,645
Midland Funding Corp., "B", 13.25s, 2006 9,695 11,698,956
Niagara Mohawk Power Corp., 9.5s, 2000 15,000 15,304,200
Niagara Mohawk Power Corp., 7.625s, 2005 4,468 4,495,571
Niagara Mohawk Power Corp., 0s to 2003,
8.5s to 2010, 4,200 3,161,340
Niagara Mohawk Power Corp., 8.75s, 2022 7,277 7,471,296
Niagara Mohawk Power Corp., 8.5s, 2023 4,650 4,853,949
North Atlantic Energy, 9.05s, 2002 3,613 3,698,158
Northeast Utilities, 8.58s, 2006 3,106 3,147,977
PacifiCorp, 5.65s, 2006 5,600 4,982,544
PP&L, Inc., 6.125s, 2001 7,790 7,780,730
Seabrook Station, 7.83s, 2019 4,742 4,808,441
Texas Utilities Co., 5.94s, 2001 12,830 12,649,995
Toledo Edison Co., 7.875s, 2004 7,275 7,361,136
Waterford 3 Funding Entergy Corp.,
8.09s, 2017 11,805 11,619,737
--------------
$ 256,425,864
- -----------------------------------------------------------------------------
Utilities - Gas - 0.5%
CE Generation LLC, 7.416s, 2018## $ 1,900 $ 1,772,700
Coastal Corp., 6.2s, 2004 14,755 14,228,837
Marlin Water Trust & Capital, 7.09s, 2001## 2,897 2,895,589
Tennessee Gas Pipeline Co., 7.625s, 2037 5,405 5,193,394
Texas Gas Transmission Corp., 7.25s, 2027 5,300 4,896,617
Williams Companies, Inc., 7.625s, 2019 3,935 3,781,299
--------------
$ 32,768,436
- -----------------------------------------------------------------------------
Total U.S. Bonds $2,444,849,083
- -----------------------------------------------------------------------------
Foreign Bonds - 0.3%
Canada - 0.1%
Gulf Canada Resources Ltd., 9.25s, 2004 (Oils) $ 1,785 $ 1,795,246
Province of Quebec, 7.5s, 2029 4,080 4,082,978
--------------
$ 5,878,224
- -----------------------------------------------------------------------------
Finland - 0.1%
UPM Kymmene Corp., 7.45s, 2027
(Forest and Paper Products)## $ 3,820 $ 3,579,531
- -----------------------------------------------------------------------------
Norway
Union Bank Norway, 7.35s, 2049
(Banks and Credit Cos.)## $ 2,273 $ 2,234,041
- -----------------------------------------------------------------------------
United Kingdom - 0.1%
TXU Eastern Funding Co. (Utilities -
Electric), 6.15s, 2002## $ 6,287 $ 6,215,643
- -----------------------------------------------------------------------------
Total Foreign Bonds $ 17,907,439
- -----------------------------------------------------------------------------
Total Bonds (Identified Cost, $2,525,439,233) $2,462,756,522
- -----------------------------------------------------------------------------
Convertible Preferred Stocks - 2.7%
- -----------------------------------------------------------------------------
SHARES
- -----------------------------------------------------------------------------
Business Services
EVI, Inc., 5%##* 70,000 $ 2,598,750
- -----------------------------------------------------------------------------
Consumer Goods and Services - 0.3%
Newell Financial Trust I, 5.25% 105,400 $ 4,268,700
Newell Financial Trust I, 5.25%##* 365,700 14,810,850
Readers Digest, $1.9336 90,000 2,542,500
--------------
$ 21,622,050
- -----------------------------------------------------------------------------
Containers - 0.2%
Owens Illinois, Inc., 4.75% 316,960 $ 10,380,440
Sealed Air Corp., $2.00 75,000 3,806,250
--------------
4 14,186,690
- -----------------------------------------------------------------------------
Entertainment - 0.3%
MediaOne Group, Inc., 4.5% 17,000 $ 2,295,000
MediaOne Group, Inc., 6.25% 150,000 15,740,625
--------------
$ 18,035,625
- -----------------------------------------------------------------------------
Financial Institutions - 0.2%
Finova Finance Trust, 5.5% 67,000 $ 3,375,125
Jefferson Pilot Corp., 7.25% 21,000 1,921,500
Merrill Lynch & Co., Inc., 5.75%* 301,000 3,574,375
Merrill Lynch & Co., Inc., 6.25% 70,000 1,220,625
Morgan Stanley Group, Inc., 6% 300,000 2,250,000
Salomon, Inc., 6.25% 51,000 3,468,000
--------------
$ 15,809,625
- -----------------------------------------------------------------------------
Food and Beverage Products - 0.1%
Ralston Purina Co., 7% 100,000 $ 4,700,000
- -----------------------------------------------------------------------------
Insurance - 0.3%
Lincoln National Corp. 1.85% 204,000 $ 3,876,000
Lincoln National Corp., 7.75% 677,900 14,193,531
--------------
$ 18,069,531
- -----------------------------------------------------------------------------
Oil Services - 0.1%
Enron Corp., 7.00%* 140,200 $ 3,005,538
- -----------------------------------------------------------------------------
Oils - 0.1%
Apache Corp., 6.5% 80,000 $ 3,200,000
- -----------------------------------------------------------------------------
Telecommunications - 0.3%
Global Telesystems Group, Inc., 7.25%##* 37,750 $ 1,476,969
Intermedia Communications, Inc., 7.00%* 73,100 2,193,000
Intermedia Communications, Inc., 7%##* 39,900 1,192,012
PSINet, Inc., 6.75% 90,000 3,622,500
Qualcomm Financial Trust I, 5.75% 9,800 2,655,800
Qwest Trends Trust, 5.75%##* 54,700 2,735,000
UnitedGlobalCom, Inc., 7.00%##* 70,000 3,622,500
Winstar Communications, Inc. 7.25%##* 997 822,525
--------------
$ 18,320,306
- -----------------------------------------------------------------------------
Utilities - Electric - 0.5%
CalEnergy Capital Trust III, 6.5% 65,000 $ 2,860,000
CalEnergy Capital Trust III, 6.5%##* 20,000 880,000
Devon Financing Trust, $3.25##* 25,000 1,698,438
Houston Industries, Inc., 7.00% 108,000 11,016,000
Texas Utilities Co., 3.315% 69,200 3,036,150
Texas Utilities Co., 9.25% 285,000 14,054,062
--------------
$ 33,544,650
- -----------------------------------------------------------------------------
Utilities - Gas - 0.3%
El Paso Energy Capital Trust I, 4.75% 384,700 $ 20,148,662
- -----------------------------------------------------------------------------
Total Convertible Preferred Stocks
(Identified Cost, $172,079,877) $ 173,241,427
- -----------------------------------------------------------------------------
Preferred Stocks - 1.2%
- -----------------------------------------------------------------------------
U.S. Stocks - 1.2%
Automotive - 0.1%
Federal Mogul Financing Trust, 7.00% 70,000 $ 2,791,250
Tower Automotive Capital Trust, 6.75% 55,000 2,371,875
Tower Automotive Capital Trust, 6.75%##* 39,800 1,691,500
--------------
$ 6,854,625
- -----------------------------------------------------------------------------
Banks and Credit Companies - 0.1%
NB Capital Corp., 8.35% 268,000 $ 6,247,750
- -----------------------------------------------------------------------------
Consumer Goods and Services
Newfield Finance Trust I, 6.5%* 14,940 $ 828,236
- -----------------------------------------------------------------------------
Food and Beverage Products - 0.1%
Suiza Capital Trust II, 6%* 130,000 $ 4,582,500
- -----------------------------------------------------------------------------
Medical and Health Products - 0.1%
Alkermes, Inc., 6.5% 90,000 $ 5,040,000
- -----------------------------------------------------------------------------
Oils - 0.1%
Coastal Corp., 5.58%* 107,550 $ 2,427,404
Coastal Corp., 6.625%* 159,650 4,160,878
--------------
$ 6,588,282
- -----------------------------------------------------------------------------
Pharmaceuticals
Caremark Rx, Inc., 7.00%##* 19,930 $ 916,780
- -----------------------------------------------------------------------------
Railroads
Union Pacific Capital Trust, 6.25% 56,000 $ 2,548,000
- -----------------------------------------------------------------------------
Telecommunications - 0.3%
Cox Communications, Inc., 0.25%* 284,500 $ 14,469,670
McLeodUSA, Inc., 6.75%* 4,700 1,856,500
WinStar Communications, Inc., 7.00%* 55,000 2,598,750
--------------
$ 18,924,920
- -----------------------------------------------------------------------------
Utilities - Electric - 0.4%
CMS Energy Corp., 8.75% 227,600 $ 8,321,625
NiSource, Inc., 7.75% 322,500 13,827,187
--------------
$ 22,148,812
- -----------------------------------------------------------------------------
Utilities - Gas
El Paso Tennessee Pipeline Co., 8.25% 50,000 $ 2,650,000
- -----------------------------------------------------------------------------
Total U.S. Stocks $ 77,329,905
- -----------------------------------------------------------------------------
Foreign Stocks
Canada
Canadian National Railway Co., 5.25%
(Railroads) 45,000 $ 2,325,938
- -----------------------------------------------------------------------------
Total Preferred Stocks
(Identified Cost, $82,868,226) $ 79,655,843
- -----------------------------------------------------------------------------
Convertible Bonds - 2.5%
- ----------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- ----------------------------------------------------------------------------
U.S. Bonds - 2.3%
Business Machines - 0.3%
Xerox Corp., 0s, 2018## $ 29,980 $ 17,136,650
- -----------------------------------------------------------------------------
Business Services
Interim Services, Inc., 4.5s, 2005 $ 3,200 $ 2,492,000
- -----------------------------------------------------------------------------
Computer Software - Services - 0.1%
Affiliated Computer Services, Inc., 4s, 2005## $ 2,995 $ 3,386,156
Safeguard Scientifics, Inc., 5s, 2006## 995 1,084,550
Sportsline USA, Inc., 5s, 2006## 3,500 2,646,875
--------------
$ 7,117,581
- -----------------------------------------------------------------------------
Computer Software - Systems - 0.2%
EMC Corp., 3.25s, 2002 $ 850 $ 5,276,375
Ingram Micro, Inc., 0s, 2018 7,000 2,248,750
Networks Assocs, Inc., 0s, 2018 10 3,413
VERITAS Software Corp., 1.856s, 2006 2,490 2,617,612
--------------
$ 10,146,150
- -----------------------------------------------------------------------------
Conglomerates - 0.2%
Loews Corp., 3.125s, 2007 $ 13,800 $ 11,661,000
- -----------------------------------------------------------------------------
Consumer Goods and Services
At Home Corp., 0s, 2018## $ 4,150 $ 2,671,563
- -----------------------------------------------------------------------------
Electrical Equipment - 0.1%
American Tower Corp., 6.25s, 2009## $ 1,000 $ 1,007,500
LSI Logic Corp., 4.25s, 2004## 2,000 3,547,500
--------------
$ 4,555,000
- -----------------------------------------------------------------------------
Electronics - 0.1%
Atmel Corp., 0s, 2018## $ 8,100 $ 4,293,000
Solectron Corp., 0s, 2019## 6,978 4,265,302
--------------
$ 8,558,302
- -----------------------------------------------------------------------------
Financial Institutions - 0.2%
ADT Operations, Inc., 0s, 2010 $ 1,990 $ 5,591,900
Merrill Lynch & Co., Inc., 0s, 2006 1,495 1,379,137
Merrill Lynch & Co., Inc., 1s, 2006 2,993 2,405,624
--------------
$ 9,376,661
- -----------------------------------------------------------------------------
Financial Services - 0.7%
Bell Atlantic Financial Services, Inc., 4.25s,
2005## $ 40,530 $ 42,201,862
Elan Finance Corporation Ltd., 0s, 2018## 8,000 4,480,000
--------------
$ 46,681,862
- -----------------------------------------------------------------------------
Insurance
Mutual Risk Management Ltd., 0s, 2015 $ 2,600 $ 1,072,500
- -----------------------------------------------------------------------------
Internet - 0.1%
America Online, Inc., 4s, 2002 $ 300 $ 2,446,500
VerticalNet, Inc., 5.25s, 2004## 996 976,080
--------------
$ 3,422,580
- -----------------------------------------------------------------------------
Medical and Health Products - 0.1%
Alpharma, Inc., 3s, 2006## $ 2,800 $ 3,374,000
Sepracor, Inc., 6.25s, 2005 1,100 1,794,375
--------------
$ 5,168,375
- -----------------------------------------------------------------------------
Medical and Health Technology and Services
Total Renal Care Holdings, Inc., 7s, 2009## $ 1,500 $ 982,500
- -----------------------------------------------------------------------------
Oil Services
Diamond Offshore Drilling, Inc., 3.75s, 2007 $ 2,490 $ 2,651,850
- -----------------------------------------------------------------------------
Restaurants and Lodging
Four Seasons Hotels, Inc., 0s, 2029 $ 4,982 $ 1,214,612
- -----------------------------------------------------------------------------
Retail
Office Depot, Inc., 0s, 2007 $ 2,600 $ 1,709,500
- -----------------------------------------------------------------------------
Stores - 0.1%
Home Depot, Inc., 3.25s, 2001 $ 1,700 $ 5,038,375
Office Depot, Inc., 0s, 2008 1,750 1,146,250
Rite Aid Corp., 5.25s, 2002 1,500 1,203,750
--------------
$ 7,388,375
- -----------------------------------------------------------------------------
Telecommunications - 0.1%
Global Telesystems Group, Inc., 5.75s, 2010 $ 1,600 $ 1,464,000
Jacor Communications, Inc., 0s, 2011 3,500 4,318,125
--------------
$ 5,782,125
- -----------------------------------------------------------------------------
Total U.S. Bonds $ 149,789,186
- -----------------------------------------------------------------------------
Foreign Bonds - 0.2%
Japan - 0.1%
Orix Corp., 0s, 2005 (Financial Services) $454,000 $ 4,606,990
- -----------------------------------------------------------------------------
Netherlands
STMicroelectronics Co., 0s, 2009 (Electronics) $ 996 $ 796,800
- -----------------------------------------------------------------------------
Switzerland - 0.1%
Swiss Life Finance Ltd., 1.5s, 2003 (Finance)# $ 4,711 $ 7,090,055
- -----------------------------------------------------------------------------
Total Foreign Bonds $ 12,493,845
- -----------------------------------------------------------------------------
Total Convertible Bonds
(Identified Cost, $151,028,413) $ 162,283,031
- -----------------------------------------------------------------------------
Rights - 0.2%
- -----------------------------------------------------------------------------
SHARES
- -----------------------------------------------------------------------------
CVS Corp.* (Identified Cost, $9,019,422) 126,100 $ 9,544,194
- -----------------------------------------------------------------------------
Short-Term Obligations - 6.4%
- -----------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -----------------------------------------------------------------------------
Associates Corp. of North America,
due 10/01/99 $100,000 $ 100,000,000
Federal Home Loan Bank, due 10/20/99
- 10/22/99 107,500 107,193,492
Federal Home Loan Mortgage Corp.,
due 10/01/99 - 10/21/99 86,895 86,701,723
Federal National Mortgage Assn., due 10/04/99
- 10/14/99 105,520 105,392,916
Student Loan Marketing Assn., due 10/01/99 16,000 16,000,000
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 415,288,131
- -----------------------------------------------------------------------------
Total Investments (Identified Cost,
$6,545,132,625) $6,657,723,172
Other Assets, Less Liabilities - (2.9)% (185,299,633)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $6,472,423,539
- -----------------------------------------------------------------------------
*Non-income producing security.
##SEC Rule 144A restriction.
+Restricted security.
See notes to financial statements.
<PAGE>
Financial Statements
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $6,545,132,625) $6,657,723,172
Cash 118,121
Foreign currency, at value (identified cost, $54) 53
Receivable for Fund shares sold 6,687,733
Receivable for investments sold 207,610,647
Interest and dividends receivable 41,056,922
Other assets 93,651
--------------
Total assets $6,913,290,299
--------------
Liabilities:
Distributions payable $ 1,895,997
Net payable for forward foreign currency exchange
contracts to purchase 2,283,460
Payable for Fund shares reacquired 46,435,340
Payable for investments purchased 389,181,369
Payable to affiliates -
Management fee 63,738
Shareholder servicing agent fee 17,732
Distribution and service fee 109,777
Administrative fee 1,027
Accrued expenses and other liabilities 878,320
--------------
Total liabilities $ 440,866,760
--------------
Net assets $6,472,423,539
==============
Net assets consist of:
Paid-in capital $5,974,435,907
Unrealized appreciation on investments and translation
of assets
and liabilities in foreign currencies 110,348,059
Accumulated undistributed net realized gain on
investments and foreign
currency transactions 393,033,256
Accumulated distributions in excess of net investment
income (5,393,683)
--------------
Total $6,472,423,539
==============
Shares of beneficial interest outstanding 444,074,886
===========
Class A shares:
Net asset value per share
(net assets of $3,699,382,290 / 253,842,933 shares of
beneficial interest outstanding) $14.57
======
Offering price per share (100 / 95.25 of net asset
value per share) $15.30
======
Class B shares:
Net asset value and offering price per share
(net assets of $2,217,042,401 / 152,175,734 shares of
beneficial interest outstanding) $14.57
======
Class C shares:
Net asset value and offering price per share
(net assets of $507,977,656 / 34,761,005 shares of
beneficial interest outstanding) $14.61
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $48,021,192 / 3,295,214 shares of
beneficial interest outstanding) $14.57
======
On sales of $100,000 or more, the offering price of Class A
shares is reduced. A contingent deferred sales charge may be
imposed on redemptions of Class A, Class B, and Class C shares.
See notes to financial statements.
<PAGE>
Financial Statements -- continued
Statement of Operations
- ------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------
Net investment loss:
Income -
Interest $ 193,993,646
Dividends 88,663,330
Foreign taxes withheld (838,689)
-------------
Total investment income $ 281,818,287
-------------
Expenses -
Management fee $ 22,547,369
Trustees' compensation 160,881
Shareholder servicing agent fee 6,907,464
Distribution and service fee (Class A) 13,466,187
Distribution and service fee (Class B) 21,953,236
Distribution and service fee (Class C) 4,478,752
Administrative fee 313,503
Custodian fee 1,328,178
Printing 240,936
Postage 662,440
Auditing fees 43,526
Legal fees 27,606
Miscellaneous 3,005,419
-------------
Total expenses $ 75,135,497
Fees paid indirectly (1,084,935)
-------------
Net expenses $ 74,050,562
-------------
Net investment income $ 207,767,725
-------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 406,490,204
Foreign currency transactions (4,993,215)
-------------
Net realized gain on investments and foreign
currency transactions $ 401,496,989
-------------
Change in unrealized appreciation (depreciation) -
Investments $(203,262,663)
Translation of assets and liabilities in foreign
currencies (2,213,200)
-------------
Net unrealized loss on investments and foreign
currency translation $(205,475,863)
-------------
Net realized and unrealized gain on investments
and foreign currency $ 196,021,126
-------------
Increase in net assets from operations $ 403,788,851
=============
See notes to financial statements.
<PAGE>
Financial Statements -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 207,767,725 $ 178,804,575
Net realized gain on investments and foreign currency
transactions 401,496,989 796,253,668
Net unrealized loss on investments and foreign
currency translation (205,475,863) (634,130,999)
-------------- --------------
Increase in net assets from operations $ 403,788,851 $ 340,927,244
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (129,580,179) $ (121,499,301)
From net investment income (Class B) (59,446,051) (54,239,945)
From net investment income (Class C) (11,895,158) (7,497,888)
From net investment income (Class I) (975,400) (682,347)
From net realized gain on investments and foreign
currency transactions (Class A) (456,637,307) (261,131,649)
From net realized gain on investments and foreign
currency transactions (Class B) (261,186,854) (141,020,364)
From net realized gain on investments and foreign
currency transactions (Class C) (46,940,472) (16,513,122)
From net realized gain on investments and foreign
currency transactions (Class I) (2,276,517) (1,386,719)
In excess of net investment income (Class A) --
(2,862,953)
In excess of net investment income (Class B) --
(1,278,085)
In excess of net investment income (Class C) --
(176,677)
In excess of net investment income (Class I) --
(16,078)
-------------- --------------
Total distributions declared to shareholders $ (968,937,938) $ (608,305,128)
-------------- --------------
Net increase in net assets from Fund share transactions $1,198,132,902 $ 994,203,939
-------------- --------------
Total increase in net assets $ 632,983,815 $ 726,826,055
Net assets:
At beginning of period 5,839,439,724 5,112,613,669
-------------- --------------
At end of period (including accumulated distributions
in excess of net investment income of $5,393,683 and
$5,960,193, respectively) $6,472,423,539 $5,839,439,724
============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
Financial Statements -- continued
Financial Highlights
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 16.06 $ 16.92 $ 15.03 $ 14.46 $ 12.80
--------- --------- --------- --------- ---------
Income from investment operations# -
Net investment income(S) $ 0.53 $ 0.57 $ 0.60 $ 0.64 $ 0.64
Net realized and unrealized gain on investments
and foreign currency 0.56 0.53 2.94 1.21 1.64
--------- --------- --------- --------- ---------
Total from investment operations $ 1.09 $ 1.10 $ 3.54 $ 1.85 $ 2.28
--------- --------- --------- --------- ---------
Less distributions declared to shareholders -
From net investment income $ (0.51) $ (0.58) $ (0.59) $ (0.62) $ (0.61)
From net realized gain on investments and foreign
currency transactions (2.07) (1.37) (1.06) (0.66) (0.01)
In excess of net realized gain on investments and
foreign currency transactions -- (0.01) -- -- --
--------- --------- --------- --------- ---------
Total distributions declared to shareholders $ (2.58) $ (1.96) $ (1.65) $ (1.28) $ (0.62)
--------- --------- --------- --------- ---------
Net asset value - end of period $ 14.57 $ 16.06 $ 16.92 $ 15.03 $ 14.46
========= ========= ========= ========= =========
Total return(+) 7.06% 6.98% 25.27% 13.50% 18.36%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.89% 0.90% 0.93% 0.91% 0.87%
Net investment income 3.45% 3.44% 3.84% 4.35% 4.82%
Portfolio turnover 151% 126% 143% 140% 102%
Net assets at end of period (000,000 omitted) $ 3,699 $ 3,503 $ 3,199 $ 2,568 $ 2,242
(S) The distributor voluntarily waived a portion of its fee for certain of the periods indicated. If this fee had been incurred
by the Fund, the net investment income per share and the ratios would have been:
Net investment income -- -- -- -- $ 0.63
Ratios (to average net assets):
Expenses## -- -- -- -- 0.97%
Net investment income -- -- -- -- 4.72%
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's
expenses are calculated without reduction for this expense offset arrangement.
(+) 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.
</TABLE>
See notes to financial statements.
<PAGE>
Financial Statements -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 16.05 $ 16.92 $ 15.02 $ 14.46 $ 12.80
--------- --------- --------- --------- ---------
Income from investment operations# -
Net investment income $ 0.43 $ 0.46 $ 0.50 $ 0.52 $ 0.53
Net realized and unrealized gain on investments
and foreign currency 0.58 0.53 2.95 1.21 1.64
--------- --------- --------- --------- ---------
Total from investment operations $ 1.01 $ 0.99 $ 3.45 $ 1.73 $ 2.17
--------- --------- --------- --------- ---------
Less distributions declared to shareholders -
From net investment income $ (0.42) $ (0.48) $ (0.49) $ (0.51) $ (0.50)
From net realized gain on investments and foreign
currency transactions (2.07) (1.37) (1.06) (0.66) --
In excess of net investment income -- (0.01) -- -- (0.01)
--------- --------- --------- --------- ---------
Total distributions declared to shareholders $ (2.49) $ (1.86) $ (1.55) $ (1.17) $ (0.51)
--------- --------- --------- --------- ---------
Net asset value - end of period $ 14.57 $ 16.05 $ 16.92 $ 15.02 $ 14.46
========= ========= ========= ========= =========
Total return 6.43% 6.22% 24.51% 12.49% 17.46%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.54% 1.55% 1.60% 1.67% 1.71%
Net investment income 2.80% 2.80% 3.17% 3.56% 3.97%
Portfolio turnover 151% 126% 143% 140% 102%
Net assets at end of period (000,000 omitted) $ 2,217 $ 1,984 $ 1,707 $ 1,284 $ 1,005
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's
expenses are calculated without reduction for this expense offset arrangement.
</TABLE>
See notes to financial statements.
<PAGE>
Financial Statements -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 16.10 $ 16.96 $ 15.06 $ 14.49 $ 12.80
--------- --------- --------- --------- ---------
Income from investment operations# -
Net investment income $ 0.43 $ 0.46 $ 0.50 $ 0.53 $ 0.54
Net realized and unrealized gain on investments
and foreign currency 0.57 0.53 2.95 1.22 1.66
--------- --------- --------- --------- ---------
Total from investment operations $ 1.00 $ 0.99 $ 3.45 $ 1.75 $ 2.20
--------- --------- --------- --------- ---------
Less distributions declared to shareholders -
From net investment income $ (0.42) $ (0.47) $ (0.49) $ (0.52) $ (0.50)
From net realized gain on investments and foreign
currency transactions (2.07) (1.37) (1.06) (0.66) (0.01)
In excess of net investment income -- (0.01) -- -- --
--------- --------- --------- --------- ---------
Total distributions declared to shareholders $ (2.49) $ (1.85) $ (1.55) $ (1.18) $ (0.51)
--------- --------- --------- --------- ---------
Net asset value - end of period $ 14.61 $ 16.10 $ 16.96 $ 15.06 $ 14.49
========= ========= ========= ========= =========
Total return 6.41% 6.27% 24.39% 12.67% 17.66%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.54% 1.55% 1.60% 1.63% 1.67%
Net investment income 2.80% 2.80% 3.16% 3.67% 4.14%
Portfolio turnover 151% 126% 143% 140% 102%
Net assets at end of period (000,000 omitted) $ 508 $ 336 $ 190 $ 83 $ 23
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's
expenses are calculated without reduction for this expense offset arrangement.
</TABLE>
See notes to financial statements.
<PAGE>
Financial Statements -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, PERIOD ENDED
---------------------------- SEPTEMBER 30,
1999 1998 1997*
- -------------------------------------------------------------------------------------------------------------------------------
CLASS I
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 16.06 $ 16.92 $ 14.70
------- ------- -------
Income from investment operations# -
Net investment income $ 0.58 $ 0.63 $ 0.48
Net realized and unrealized gain on investments and foreign
currency 0.57 0.53 2.23
------- ------- -------
Total from investment operations $ 1.15 $ 1.16 $ 2.71
------- ------- -------
Less distributions declared to shareholders -
From net investment income $ (0.57) $ (0.64) $ (0.49)
From net realized gain on investments and foreign currency
transactions (2.07) (1.37) --
In excess of net investment income -- (0.01) --
------- ------- -------
Total distributions declared to shareholders $ (2.64) $ (2.02) $ (0.49)
------- ------- -------
Net asset value - end of period $ 14.57 $ 16.06 $ 16.92
======= ======= =======
Total return 7.43% 7.35% 18.69%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.54% 0.55% 0.60%+
Net investment income 3.84% 3.79% 4.16%+
Portfolio turnover 151% 126% 143%
Net assets at end of period (000,000 omitted) $ 48 $ 17 $ 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 has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without reduction for this
expense offset arrangement.
</TABLE>
See notes to financial statements.
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Total Return Fund (the Fund) is a diversified series of MFS Series Trust V
(the Trust). The Trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The Fund
can invest in foreign securities. 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 in good faith by 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.
Deferred Trustee Compensation - Effective July 24, 1999, under a Deferred
Compensation Plan (the Plan) independent Trustees may elect to defer receipt of
all or a portion of their annual compensation. Deferred amounts are treated as
though equivalent dollar amounts had been invested in shares of the Fund or
other MFS funds selected by the Trustee. Deferred amounts represent an unsecured
obligation of the fund until distributed in accordance with the Plan.
Security Loans - State Street Bank and Trust Company ("State Street"), as agent,
may loan the securities of the fund to certain brokers (the "Borrowers")
approved by the Fund. The loans are collateralized at all times by U.S. Treasury
securities in an amount at least equal to the market value of the securities
loaned. State Street provides the Fund with indemnification against Borrower
default.
At September 30, 1999, the value of securities loaned was $46,589,130. These
loans were collateralized by U.S. Treasury securities of $49,071,340. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the Fund and State Street. Income from
securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned
is accounted for in the same manner as other dividend and interest income.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund may enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All 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. During the period, the Fund's custodian fees were reduced by
$1,084,935 under this arrangement.
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.
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 be reported in the financial statements as distributions from paid-in
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. During
the year ended September 30, 1999, $5,119,165 and $185,262 were reclassified to
accumulated undistributed net realized gain on investments and foreign currency
transactions and paid-in capital, respectively, from accumulated distributions
in excess of net investment income due to differences between book and tax
accounting for currency transactions and mortgage-backed securities. This change
had no effect on the net assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. 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 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%
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 $56,051, for the year ended
September 30, 1999.
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%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$1,495,210, for the year ended September 30, 1999, 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 (0.15% per annum on assets attributable to Class A shares sold prior to
October 1, 1989) 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 $774,152, for the year
ended September 30, 1999. Fees incurred under the distribution plan during the
year ended September 30, 1999, 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 $96,537, and $8,867, for Class B and Class C shares, respectively,
for the year ended September 30, 1999. Fees incurred under the distribution plan
during the year ended September 30, 1999, were 1.00% of average daily net assets
attributable to Class B and Class C shares.
Certain Class A 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 year ended September 30,
1999, were $46,452, $3,273,481, and $169,201, 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 0.10%. Prior to April 1, 1999, the fee was calculated as a percentage
of the Fund's average daily net assets at an effective annual rate of 0.1125%.
(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 $3,857,978,415 $9,042,162,507
-------------- --------------
Investments (non-U.S. government securities) $6,218,779,223 $ 192,274,440
-------------- --------------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $6,565,808,346
--------------
Gross unrealized appreciation $ 379,464,876
Gross unrealized depreciation (287,550,050)
--------------
Net unrealized appreciation $ 91,914,826
==============
(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. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED SEPTEMBER 30, 1999 YEAR ENDED SEPTEMBER 30, 1998
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 110,586,325 $ 1,674,314,695 55,504,066 $ 912,117,694
Shares issued to shareholders in
reinvestment of distributions 34,947,572 517,032,870 21,559,401 342,963,749
Shares reacquired (109,828,347) (1,664,143,600) (47,976,585) (789,009,468)
--------------- --------------- --------------- ---------------
Net increase 35,705,550 $ 527,203,965 29,086,882 $ 466,071,975
=============== =============== =============== ===============
<CAPTION>
Class B Shares
YEAR ENDED SEPTEMBER 30, 1999 YEAR ENDED SEPTEMBER 30, 1998
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 38,673,047 $ 586,933,287 30,797,677 $ 506,466,396
Shares issued to shareholders in
reinvestment of distributions 19,921,555 294,415,702 11,311,499 179,658,588
Shares reacquired (29,991,200) (454,715,848) (19,450,599) (317,610,824)
--------------- --------------- --------------- ---------------
Net increase 28,603,402 $ 426,633,141 22,658,577 $ 368,514,160
=============== =============== =============== ===============
<CAPTION>
Class C Shares
YEAR ENDED SEPTEMBER 30, 1999 YEAR ENDED SEPTEMBER 30, 1998
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 17,496,762 $ 266,491,500 10,590,618 $ 174,414,769
Shares issued to shareholders in
reinvestment of distributions 3,561,406 52,786,839 1,346,898 21,473,802
Shares reacquired (7,147,794) (108,828,036) (2,309,571) (38,044,926)
--------------- --------------- --------------- ---------------
Net increase 13,910,374 $ 210,450,303 9,627,945 $ 157,843,645
=============== =============== =============== ===============
<CAPTION>
Class I Shares
YEAR ENDED SEPTEMBER 30, 1999 YEAR ENDED SEPTEMBER 30, 1998
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,364,510 $ 35,910,941 158,035 $ 2,631,813
Shares issued to shareholders in
reinvestment of distributions 220,172 3,263,023 130,950 2,085,279
Shares reacquired (367,947) (5,328,471) (177,735) (2,942,933)
--------------- --------------- --------------- ---------------
Net increase 2,216,735 $ 33,845,493 111,250 $ 1,774,159
=============== =============== =============== ===============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $820 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Fund shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Fund for the year ended September 30, 1999, was $48,353.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange contracts. The
notional or contractual amounts of these instruments represent the investment
the Fund has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET
SETTLEMENT CONTRACTS TO IN EXCHANGE CONTRACTS UNREALIZED
DATE DELIVER/RECEIVE FOR AT VALUE DEPRECIATION
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 12/01/99 JPY 4,974,653,965 46,164,198 $47,009,167 $ (844,970)
Purchases 12/01/99 JPY 4,974,653,965 48,447,658 $47,009,167 $(1,438,490)
----------- -----------
$ 0 $(2,283,460)
=========== ===========
</TABLE>
At September 30, 1999, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At September 30,
1999, the Fund owned the following restricted securities, excluding securities
issued under Rule 144A, constituting 0.06% 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 securities be registered. The
value of these securities is determined by valuations furnished by dealers or
by a pricing service, or if not available, in good faith by the Trustees.
<TABLE>
<CAPTION>
DATE OF PRINCIPAL AMOUNT
DESCRIPTION ACQUISITION (000 OMITTED) COST VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Mortgage Investors, Inc., 8.43s, 2022 June 1994 $4,000 $2,772,500 $3,735,000
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust V and Shareholders of MFS Total Return
Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Total Return Fund (one of the series
constituting MFS Series Trust V) as of September 30, 1999, the related statement
of operations for the year then ended, the statement of changes in net assets
for the years ended September 30, 1999 and 1998, and the financial highlights
for each of the years in the five-year period ended September 30, 1999. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
September 30, 1999, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Total Return
Fund at September 30, 1999, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 4, 1999
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
In January 2000, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 1999.
The Fund has designated $696,441,820 as a capital gain dividend.
For the year ended September 30, 1999, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations came to
27.80%.
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and on behalf of the MFS
funds, is committed to the effective use of technology in managing our portfolio
investments, delivering high-quality service to MFS fund shareholders,
retirement plan participants, and MFS' institutional clients, and supporting the
financial consultants who sell our products. With that in mind, we created a
separately funded Year 2000 Program Management Office in 1996 comprised of a
specialized staff reporting directly to MFS senior management.
The Year 2000 (Y2K) problem arises because calendar-year fields in computers and
software applications traditionally have used two-digit codes so that, for
example, the year 1998 is coded as "98," with the "19" being implied. In the
year 2000, unless necessary corrections have been made, computer applications
may assume "00" refers to 1900 rather than 2000, thus resulting in systems
failures or miscalculations. To address this issue, our team of dedicated
business and technology managers, working with outside experts, is taking steps
to ascertain the Y2K readiness of MFS' internal systems and is working with our
external systems vendors to determine whether they expect their systems to be
ready.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness. Each year, MFS' research analysts and portfolio managers conduct
more than 1,000 on-site meetings with companies whose securities are, or may be,
held in fund and client portfolios, and host an additional 1,500 meetings at
MFS' headquarters. When assessing the Y2K readiness of these companies, MFS'
research analysts and portfolio managers may rely upon discussions at these
meetings as well as SEC disclosure documents and third-party reports.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While MFS
is taking significant steps to protect the integrity of its internal systems,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on MFS, shareholders of MFS funds, participants in retirement
plans administered by MFS, or MFS' institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com or contact the MFS Year 2000 Program
Management Office by e-mail at [email protected] or by letter at 500 Boylston Street,
Boston, MA 02116-3741.
<PAGE>
MFS(R) TOTAL RETURN FUND
TRUSTEES SECRETARY
Richard B. Bailey* - Private Stephen E. Cavan*
Investor; Former Chairman and
Director (until 1991), MFS ASSISTANT SECRETARY
Investment Management James R. Bordewick, Jr.*
J. Atwood Ives - Chairman and Chief CUSTODIAN
Executive Officer, Eastern State Street Bank and Trust Company
Enterprises (diversified services
company) AUDITORS
Deloitte & Touche LLP
Lawrence T. Perera - Partner,
Hemenway & Barnes (attorneys) INVESTOR INFORMATION
For MFS stock and bond market
William J. Poorvu - Adjunct outlooks, call toll free:
Professor, Harvard University 1-800-637-4458 anytime from a
Graduate School of Business touch-tone telephone.
Administration
For information on MFS mutual funds,
Charles W. Schmidt - Private call your financial consultant or,
Investor for an informa- tion kit, call toll
free: 1-800-637-2929 any business
Arnold D. Scott* - Senior Executive day from 9 a.m. to 5 p.m. Eastern
Vice President, Director, and time (or leave a message anytime).
Secretary, MFS Investment Management
INVESTOR SERVICE
Jeffrey L. Shames* - Chairman, Chief MFS Service Center, Inc.
Executive Officer, and Director, MFS P.O. Box 2281
Investment Management Boston, MA 02107-9906
Elaine R. Smith - Independent For general information, call toll
Consultant free: 1-800-225-2606 any business
day from 8 a.m. to 8 p.m. Eastern
David B. Stone - Chairman and time.
Director, North American Management
Corp. (investment advisers) For service to speech- or
hearing-impaired, call toll free:
INVESTMENT ADVISER 1-800-637-6576 any business day from
Massachusetts Financial Services Company 9 a.m. to 5 p.m. Eastern time. (To
500 Boylston Street use this service, your phone must be
Boston, MA 02116-3741 equipped with a Telecommunications
Device for the Deaf.)
DISTRIBUTOR
MFS Fund Distributors, Inc. For share prices, account balances,
500 Boylston Street and exchanges, call toll free:
Boston, MA 02116-3741 1-800-MFS-TALK (1-800-637-8255)
anytime from a touch-tone telephone.
CHAIRMAN AND PRESIDENT
Jeffrey L. Shames* WORLD WIDE WEB
www.mfs.com
LEAD PORTFOLIO MANAGER
David M. Calabro*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
<PAGE>
MFS(R) TOTAL RETURN FUND ------------
BULK RATE
U.S. POSTAGE
[Logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)1999 MFS Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MTR-2 11/99 385M 15/215/315/815
