<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
MFS(R) TOTAL RETURN FUND
SEMIANNUAL REPORT o MARCH 31, 1999
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 30
Notes to Financial Statements ............................................. 37
MFS' Year 2000 Readiness Disclosure ....................................... 44
Trustees and Officers ..................................................... 45
MFS CELEBRATES ITS DIAMOND ANNIVERSARY!
MARCH 21, 1999, MARKED THE 75TH ANNIVERSARY OF MFS' INVENTION OF
THE MUTUAL FUND. THE MUTUAL FUND INDUSTRY HAS BROUGHT THE POWER
OF INVESTING TO EVERY AMERICAN, OFFERING THEM THE OPPORTUNITY FOR
COLLEGE DEGREES, HOME OWNERSHIP, AND COMFORTABLE RETIREMENT.
IMAGINE TODAY'S WORLD WITHOUT MUTUAL -------------------------
FUNDS. WE COULDN'T. AND WHILE THE MFS 75 YEARS
YEARS AHEAD WILL BRING A NUMBER OF [graphic omitted]
CHALLENGES, OUR 75 YEARS OF EXPERIENCE -------------------------
WILL HELP GUIDE A NEW GENERATION OF EXPERIENCE THE FUTURE(SM)
INVESTORS INTO THE FUTURE. -------------------------
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
Since we launched Massachusetts Investors Trust, the nation's first mutual
fund, 75 years ago, MFS has weathered numerous market and economic cycles,
from the occasional recession to long periods of growth and prosperity.
Throughout that time, we have tried to give investors a realistic assessment
of the investment markets and, when necessary, to sound a note of caution --
even when market conditions appear quite favorable.
Although the equity markets have overcome last year's volatility, we still
think stocks are overdue for a correction that will rid them of the excesses
that have developed. Perhaps the most glaring measure of those excesses is the
high level of valuations, that is, the amount equity investors are paying for
each dollar of earnings. By mid-March, the price-to-earnings (P/E) ratio of
the average stock in the Standard & Poor's 500 Composite Index, a popular,
unmanaged index of common stock total return performance, was almost 28%
higher than it was a year ago. While P/E ratios keep going up, earnings have
essentially been flat, and we believe they are likely to stay that way, for a
few months at least. This leaves stock prices vulnerable to negative events
such as a domestic or international crisis, a sudden increase in interest
rates, or a slowing economy, any of which could lead to lower corporate
earnings.
While risks in the overall market have increased, one industry calls for
particular attention. For several months, Internet-related stocks have
exhibited extreme price volatility. The Internet's potential impact on the way
individuals and companies communicate and conduct business is certainly great,
but we feel that most of the recent run-up in the share prices of these
companies is unjustified. Many of them have not yet reported any profits, and
there is no way of knowing which of today's "hot" Internet stocks will be
successful -- or even in existence -- a few years from now. Therefore, we
think the frenzy surrounding even the best-known Internet stocks is purely
speculative.
However, there are some established companies offering Internet-related products
and services that may generate revenue. These include companies that provide
networking equipment, that make servers to store information, and that help
customers make better use of Internet services. Because they already have
profitable businesses as well as the potential to use the Internet to increase
their opportunities to generate revenue, these companies have been the focus of
our research efforts.
Although we think valuations for the overall equity market, and especially for
Internet stocks, are excessive, we see this situation as an opportunity for
our portfolio managers to capitalize on MFS(R) Original Research(SM). This is
a fundamental, company-by-company process that helps us find investments that
we believe are most likely to achieve long-term earnings growth, through both
negative and positive market cycles.
We also rely heavily on our research process when investing in the fixed-
income markets. Last year, turmoil in emerging markets and volatility in the
U.S. stock market helped create a "flight to quality," meaning that investors
moved toward U.S. Treasury securities, which are seen as carrying less risk,
and away from almost everything else. As a result, yields on non-Treasury
securities increased, while yields on Treasuries fell. Some of these yield
spreads, or differentials, have narrowed, but they have not returned to the
levels seen before last year's market turmoil. We think this has created
opportunities for our portfolio managers to find attractive yields in
these markets.
Individual investors, meanwhile, should keep in mind that the tremendous
increases in the broad stock market averages of the past several years
are a historical aberration and do not necessarily indicate future market
performance. If they are not already diversified across a range of
investments, including growth stock funds, value-oriented funds, and fixed-
income funds, investors may want to talk to their financial advisers about
developing well-diversified portfolios with greater potential to weather
unexpected changes in the markets. Doing so may help investors more
effectively meet their long-term financial goals. 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)
April 16, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of David M. Calabro]
David M. Calabro
For the six months ended March 31, 1999, Class A shares of the Fund provided a
total return of 6.85%, Class B shares 6.50%, Class C shares 6.56%, and Class I
shares 7.04%. These returns assume the reinvestment of distributions but exclude
the effects of any sales charges and compare to a 27.23% return for the Standard
& Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index of common
stock total return performance, for the same period. The Fund's returns also
compare to a -0.36% return for the Lehman Brothers Government/Corporate Bond
Index (the Lehman Index), an unmanaged, market-value-weighted index of U.S.
Treasury and government-agency securities, excluding mortgage-backed securities.
During the same period, the average balanced fund as tracked by Lipper
Analytical Services, Inc., an independent firm that reports mutual fund
performance, returned 12.58%.
Q. CAN YOU TELL US ABOUT THE FUND'S RECENT PERFORMANCE?
A. Performance should be viewed in the context of the Fund's investment style.
This is a conservative, value-oriented stock and bond fund. About 56% of
the portfolio's assets are invested in stocks. We look for stocks whose
prices do not yet, in our opinion, reflect the companies' true values based
on earnings or business prospects. Part of our strategy is to sell when we
think a stock has become fully valued. Because we are long-term investors,
we do not chase market trends. Our short-term performance has been hurt by
recent market conditions. Over the past year or so, most of the favorable
performance of the S&P 500 has come from a narrow band of 25 to 50 large-
company growth, not value, stocks. Over a typical six- or seven-year
period, returns of growth and value stocks are similar. But in 1998 and the
first quarter of 1999, divergence between growth and value stocks widened
dramatically. Also, many balanced funds have taken a more aggressive
approach recently, reducing their bond positions and investing in more
large-company growth and technology stocks. We have not done that. We won't
change our focus of seeking low price volatility and consistent returns.
Q. COULD YOU TALK ABOUT SOME INDUSTRIES THAT HAVE HELPED THE FUND OVER THE PAST
SIX MONTHS?
A. Financial services stocks came back from last summer's lows as investors
saw that these companies were not overly impacted by economic turmoil
overseas. For example, American Express has regained its stature as a high-
powered, blue-chip company capable of growing its earnings at a double-
digit rate over a sustained period. The company's credit card business is
signing up new customers in the United States, as well as in recovering
overseas markets, such as South Korea. The company is also making deals
with banks and other financial institutions around the world to issue
American Express cards. Another example is Equitable, which has benefited
from a huge rebound in its brokerage business. The company's profits have
improved dramatically in the past nine months.
Q. WHAT ABOUT OTHER INDUSTRIES?
A. We also have received good performance from some cable TV and
telecommunications stocks. The cable business has been growing very
steadily. Consolidation is helping these stocks because investors expect
the merged companies to cut costs and broaden their reach. Time Warner and
MediaOne, which AT&T has proposed taking over, are recent examples.
Telecommunications holdings, such as Sprint, also have benefited from
consolidation and takeover speculation. As phone companies merge, stock
prices of good properties are being bid up because there are so few left.
Q. COULD YOU TALK ABOUT SOME STOCKS THAT DIDN'T PERFORM QUITE SO WELL?
A. The utility sector has had poor earnings growth relative to the S&P 500. In
particular, the warm winter caused lower energy use and, in turn, caused
lower demand for electric power and natural gas. These factors led to lower
earnings. Also, stock prices of the regional Bell operating companies have
been disappointing. Investors are uncertain which companies will do well in
an industry that is changing so fast and opening up all markets to
competition.
Q. BUT DO YOU STILL THINK THE UTILITIES AND REGIONAL BELL COMPANIES ARE GOOD
BUSINESSES?
A. Absolutely. We believe there's a ton of value. These companies are
attractive based on projected earnings. As we look ahead, we think we will
see consistent earnings growth, which will drive up stock prices. In
addition, we expect electric utility deregulation to cause an incredible
amount of consolidation over the next five years. We think deregulation
will be very positive for the stocks as companies cut management expenses
and coordinate the use of power and gas lines.
Q. COULD YOU TALK ABOUT ANY AREAS IN WHICH YOU HAVE REDUCED POSITIONS?
A. We haven't made any dramatic reductions. Some pharmaceutical companies have
performed very well for us as their prices have gone up, but we sold or
reduced our positions in them because we thought their prices were getting
too high based on projected earnings. For example, we still think Bristol-
Myers Squibb is a good company, but we feel the stock has become fully
valued, so we trimmed our position.
Q. WHAT IS THE FUND'S INTERNATIONAL EXPOSURE?
A. Our international holdings are mostly in large, multinational companies
based in Western Europe, such as SmithKline Beecham and Glaxo in
pharmaceuticals, BP Amoco in energy, and AKZO Nobel, in chemicals and
pharmaceuticals. These are large, global companies with good businesses
that just happen to be domiciled outside the United States.
Q. WHAT IS YOUR OUTLOOK FOR THE EQUITY MARKETS?
A. We don't think corporate earnings are going to show much improvement over
the next several quarters. In fact, they may decline. Given the concern
over profits, as well as the global economic and political situation, we
still favor defensive sectors with good yields, such as energy companies or
utilities. The energy sector, for example, is starting to look better as
oil prices have risen, while the utilities sector appears to be poised for
a rebound. As a result, we think the stock prices of energy companies and
utilities have become more attractive, relative to their projected
earnings.
Q. WHAT ABOUT THE FUND'S BOND POSITION?
A. Thanks to continued prosperity in the United States, the fixed-income
markets are in quite good shape, and we're trying to take advantage of
that. For example, we have increased our corporate bond exposure to around
50% of fixed-income assets. To preserve the high quality of the fixed-
income portfolio, 25% of the remainder of those assets is invested in the
U.S. Treasury market, 20% in government-backed securities such as mortgage
securities, and the rest in "AAA"-rated asset-backed securities, such as
those backed by home equity and auto loans.
Q. WHY ARE YOU SO POSITIVE ON THE FIXED-INCOME MARKETS?
A. Even though the U.S. economy grew at a 6% annual rate in the fourth quarter
of 1998 and around 5% in the first quarter of 1999, inflationary pressures
have not emerged. Investors are more confident that income from bonds won't
be eroded by inflation, and issuers have had little trouble making their
debt payments. Because productivity gains have helped offset wage
increases, consumer and producer prices have risen only slightly. Also,
prices of imports continue to fall because of currency devaluations by
Asian countries seeking to maintain export growth. We think these factors
have created a stable fixed-income environment that is ideal for
investment-grade and high-yield corporate securities.
/s/ David M. Calabro
David M. Calabro
Lead Portfolio Manager
(On behalf of the MFS Total Return Fund Team)
The opinions expressed in this report are those of the 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.
It is not possible to invest directly in an index.
<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.
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This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
FUND FACTS
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 MARCH 31, 1999
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Investment results reflect the percentage change
in net asset value, including reinvestment of dividends. (See Notes to
Performance Summary for more information.)
<TABLE>
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH MARCH 31, 1999
CLASS A
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +6.85% +4.30% +49.44% +95.86% +235.87%
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Average Annual Total Return -- +4.30% +14.33% +14.39% + 12.88%
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SEC Results -- -0.66% +12.49% +13.29% + 12.33%
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</TABLE>
<TABLE>
CLASS B
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +6.50% +3.62% +46.37% +88.77% +221.86%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +3.62% +13.54% +13.55% + 12.40%
- -------------------------------------------------------------------------------------------------------------
SEC Results -- +0.10% +12.76% +13.31% + 12.40%
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</TABLE>
<PAGE>
<TABLE>
CLASS C
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +6.56% +3.61% +46.56% +90.02% +225.89%
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Average Annual Total Return -- +3.61% +13.59% +13.70% + 12.54%
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SEC Results -- +2.73% +13.59% +13.70% + 12.54%
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</TABLE>
<TABLE>
CLASS I
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +7.04% +4.66% +50.66% +97.49% +238.56%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +4.66% +14.64% +14.58% + 12.97%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 4.75% sales charge. Class
B share ("B") SEC results reflect the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C shares
("C") have no initial sales charge but, like B, have higher annual fees and
expenses than A. C SEC results reflect the 1% CDSC applicable to shares
redeemed within 12 months. Class I shares ("I") have no sales charge or Rule
12b-1 fees and are only available to certain institutional investors.
B and C results include the performance and the operating expenses
(e.g., Rule 12b-1 fees) of A for periods prior to the inception of B and C.
Because operating expenses of B and C are higher than those of A, B and C
performance generally would have been lower than A performance. The A
performance included in the B and C SEC performance has been adjusted to
reflect the CDSC generally applicable to B and C rather than the initial sales
charge generally applicable to A.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of I. Because operating expenses
of A are greater than those of I, I performance generally would have been
higher than A performance. The A performance included in the I performance has
been adjusted to reflect the fact that I have no initial sales charge.
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.
<PAGE>
PORTFOLIO CONCENTRATION AS OF MARCH 31, 1999
FIVE LARGEST STOCK SECTORS
UTILITIES & COMMUNICATIONS 23.2%
FINANCIAL SERVICES 22.3%
ENERGY 8.2%
CONSUMER STAPLES 7.7%
LEISURE 7.2%
<TABLE>
TOP 10 STOCK HOLDINGS
<S> <C>
BP AMOCO PLC 2.6% HARTFORD FINANCIAL SERVICES GROUP, INC. 1.6%
British oil and petrochemical company Multiline insurance company
GTE CORP. 1.9% MCDONALD'S CORP. 1.6%
Telecommunications company Fast-food restaurant owner/franchiser
EQUITABLE COS., INC. 1.9% ALLIED SIGNAL, INC. 1.6%
Diversified financial services company Aerospace, automotive, and environmental
products manufacturer
LINCOLN NATIONAL CORP. 1.8%
Multiline insurance company MOBIL CORP. 1.3%
International oil and gas company
CITIGROUP, INC. 1.6%
Diversified financial services company AMERICAN HOME PRODUCTS CORP. 1.3%
Pharmaceutical and home products company
</TABLE>
The portfolio is actively managed, and holdings are subject to change.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- March 31, 1999
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ISSUER SHARES VALUE
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<S> <C> <C>
U.S. Stocks - 47.1%
Aerospace - 2.0%
Allied Signal, Inc. 1,223,500 $ 60,180,906
General Dynamics Corp. 142,100 9,129,925
Gulfstream Aerospace Corp.* 51,350 2,227,306
Lockheed-Martin Corp. 60,000 2,261,250
Raytheon Co., "A" 633,053 36,558,811
Raytheon Co., "B" 164,500 9,643,813
United Technologies Corp. 69,248 9,378,776
--------------
$ 129,380,787
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Automotive - 1.0%
Delphi Automotive Systems Corp.* 320,400 $ 5,687,100
Federal-Mogul Corp. 100,000 4,300,000
Ford Motor Co. 271,100 15,384,925
TRW, Inc. 870,800 39,621,400
--------------
$ 64,993,425
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Banks and Credit Companies - 2.5%
Bank of New York, Inc. 973,808 $ 34,996,225
BankAmerica Corp. 313,600 22,148,000
BankBoston Corp. 45,000 1,949,063
Chase Manhattan Corp. 50,000 4,065,625
Mellon Bank Corp. 551,300 38,797,737
National City Corp. 78,800 5,230,350
PNC Bank Corp. 479,400 26,636,662
Washington Mutual, Inc. 57,000 2,329,875
Wells Fargo Co. 692,920 24,295,508
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$ 160,449,045
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Building - 0.1%
Sherwin Williams Co. 344,000 $ 9,675,000
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Business Machines - 1.6%
International Business Machines Corp. 117,300 $ 20,791,425
Motorola, Inc. 483,900 35,445,675
Xerox Corp. 906,200 48,368,425
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$ 104,605,525
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Cellular Telephones - 0.2%
Telephone & Data Systems, Inc. 194,060 $ 10,940,132
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Chemicals - 0.3%
Dow Chemical Co. 132,500 $ 12,347,344
Du Pont (E.I.) de Nemours & Co., Inc. 154,500 8,970,656
--------------
$ 21,318,000
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Computer Hardware - Systems - 0.2%
Hewlett-Packard Co. 167,700 $ 11,372,156
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Computer Software - Systems - 0.2%
BMC Software, Inc.* 317,300 $ 11,759,931
Computer Associates International, Inc. 120,000 4,267,500
--------------
$ 16,027,431
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Conglomerates - 0.3%
Eastern Enterprises 509,200 $ 18,522,150
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Consumer Goods and Services - 2.0%
Black & Decker Corp. 150,000 $ 8,315,625
Fortune Brands, Inc. 711,000 27,506,812
Gillette Co. 125,700 7,471,294
International Flavours 383,400 14,401,463
Kimberly-Clark Corp. 290,700 13,935,431
Newell Rubbermaid, Inc.* 83,000 3,942,500
Philip Morris Cos., Inc. 1,110,000 39,058,125
Procter & Gamble Co. 62,000 6,072,125
Tyco International Ltd. 135,420 9,716,385
--------------
$ 130,419,760
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Electrical Equipment - 1.0%
Cooper Industries, Inc. 575,200 $ 24,517,900
Emerson Electric Co. 631,900 33,451,206
General Electric Co. 50,044 5,536,118
--------------
$ 63,505,224
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Electronics - 0.1%
AMP, Inc. 89,031 $ 4,779,852
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Energy
BJ Services Co.* 65,000 $ 1,523,438
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Entertainment - 1.9%
Disney (Walt) Co. 920,100 $ 28,638,112
Harrah's Entertainment, Inc.* 290,000 5,528,125
MediaOne Group, Inc.* 732,000 46,482,000
Time Warner, Inc. 571,932 40,642,918
--------------
$ 121,291,155
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Financial Institutions - 2.4%
American Express Co. 167,500 $ 19,681,250
Associates First Capital Corp., "A" 577,210 25,974,450
Citigroup, Inc. 975,600 62,316,450
Edwards (A.G.), Inc. 362,900 11,862,294
Federal Home Loan Mortgage Corp. 628,400 35,897,350
Merrill Lynch & Co., Inc. 50,000 4,421,875
--------------
$ 160,153,669
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Financial Services
Waddell & Reed Financial, Inc. 72,686 $ 1,444,634
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Food and Beverage Products - 1.7%
Anheuser-Busch Cos., Inc. 125,000 $ 9,523,438
Archer-Daniels-Midland Co. 2,310,447 33,934,690
Bestfoods Co. 330,400 15,528,800
General Mills, Inc. 303,700 22,948,331
Hershey Foods Corp. 169,400 9,486,400
Hubbell, Inc. 109,000 4,360,000
McCormick & Co., Inc. 164,100 4,758,900
Quaker Oats Co. 86,700 5,424,169
Ralston-Ralston Purina Co. 164,800 4,398,100
--------------
$ 110,362,828
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Forest and Paper Products - 1.4%
Bowater, Inc. 735,200 $ 29,132,300
Champion International Corp. 707,000 29,031,187
International Paper Co. 33,000 1,392,188
Weyerhaeuser Co. 503,000 27,916,500
Willamette Industries, Inc. 184,300 6,957,325
--------------
$ 94,429,500
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Insurance - 5.9%
Allstate Corp. 483,800 $ 17,930,838
American International Group, Inc. 165,000 19,903,125
Chubb Corp. 416,600 24,397,138
CIGNA Corp. 470,600 39,442,162
Equitable Cos., Inc. 1,018,182 71,272,740
Hartford Financial Services Group, Inc. 1,095,900 62,260,819
Jefferson Pilot Corp. 377,100 25,548,525
Lincoln National Corp. 684,300 67,660,162
MONY Group, Inc.* 4,400 109,450
Nationwide Financial Services, Inc., "A" 135,000 5,670,000
ReliaStar Financial Corp. 657,200 28,013,150
Torchmark Corp. 80,400 2,542,650
Transamerica Corp. 268,400 19,056,400
--------------
$ 383,807,159
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Machinery - 0.1%
Eaton Corp. 80,000 $ 5,720,000
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Manufacturing - 0.1%
Illinois Tool Works, Inc. 155,800 $ 9,640,125
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Medical and Health Products - 2.0%
American Home Products Corp. 779,200 $ 50,842,800
Baxter International, Inc. 70,000 4,620,000
Becton Dickinson & Co. 317,600 12,168,050
Bristol-Myers Squibb Co. 198,900 12,791,756
Merck & Co., Inc. 195,000 15,636,563
Pharmacia & Upjohn, Inc. 515,900 32,179,262
--------------
$ 128,238,431
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Medical and Health Technology and Services - 0.4%
Columbia/HCA Healthcare Corp. 744,400 $ 14,097,075
United Healthcare Corp. 238,800 12,566,850
--------------
$ 26,663,925
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Metals and Minerals - 0.4%
Alcoa, Inc. 664,400 $ 27,364,975
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Oil Services - 0.2%
Cooper Cameron Corp.* 110,000 $ 3,726,250
Noble Drilling Corp.* 360,800 6,246,350
Schlumberger Ltd. 72,500 4,363,594
--------------
$ 14,336,194
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Oils - 2.5%
Chevron Corp. 177,500 $ 15,697,656
Conoco, Inc., "A"* 1,066,300 26,190,994
Devon Energy Corp. 54,100 1,491,131
Exxon Corp. 356,951 25,187,355
Mobil Corp. 580,920 51,120,960
Newfield Exploration Co.* 138,000 3,122,250
Texaco, Inc. 270,000 15,322,500
Unocal Corp. 696,850 25,652,791
--------------
$ 163,785,637
- ------------------------------------------------------------------------------------------------------
Photographic Products - 0.1%
Eastman Kodak Co. 89,300 $ 5,704,038
- ------------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
Browning Ferris Industries, Inc. 298,300 $ 11,503,194
- ------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.3%
Gannett Co., Inc. 179,100 $ 11,283,300
New York Times Co. 265,000 7,552,500
--------------
$ 18,835,800
- ------------------------------------------------------------------------------------------------------
Railroads - 0.7%
Burlington Northern Santa Fe Railway Co. 870,500 $ 28,617,687
Kansas City Southern Industries, Inc. 30,500 1,738,500
Norfolk Southern Corp. 330,900 8,727,488
Wisconsin Central Transportation Corp.* 500,000 6,625,000
--------------
$ 45,708,675
- ------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 1.0%
Arden Realty, Inc. 264,800 $ 5,891,800
Boston Properties, Inc. 62,800 1,986,050
CarrAmerica Realty Corp. 395,800 8,732,337
Equity Residential Properties Trust 270,000 11,137,500
Federal Realty Investment Trust 219,000 4,640,063
First Industrial Realty Trust, Inc. 225,000 5,385,937
Kilroy Realty Corp. 264,800 5,428,400
Mid-America Apartment Communities, Inc. 195,900 4,187,363
TriNet Corporate Realty Trust, Inc. 704,400 17,874,150
--------------
$ 65,263,600
- ------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 1.0%
McDonald's Corp. 1,371,600 $ 62,150,625
Wendy's International, Inc. 86,400 2,457,000
--------------
$ 64,607,625
- ------------------------------------------------------------------------------------------------------
Special Products and Services - 0.4%
MCN Energy Group, Inc. 729,100 $ 11,711,169
USEC, Inc. 1,250,200 17,033,975
--------------
$ 28,745,144
- ------------------------------------------------------------------------------------------------------
Stores - 1.2%
American Stores Co. 913,000 $ 30,129,000
Dayton Hudson Corp. 618,200 41,187,575
Rite Aid Corp. 169,300 4,232,500
--------------
$ 75,549,075
- ------------------------------------------------------------------------------------------------------
Supermarkets - 0.8%
Kroger Co.* 248,200 $ 14,860,975
Meyer (Fred), Inc.* 586,810 34,548,439
--------------
$ 49,409,414
- ------------------------------------------------------------------------------------------------------
Telecommunications - 3.7%
Alltel Corp. 78,000 $ 4,865,250
AT&T Corp. 284,200 22,682,713
Bell Atlantic Corp. 523,400 27,053,237
Century Telephone Enterprises, Inc. 70,000 4,917,500
Cincinnati Bell, Inc. 314,400 7,054,350
GTE Corp. 1,206,700 73,005,350
Intermedia Communications, Inc.* 157,200 4,185,450
SBC Communications, Inc. 1,053,848 49,662,587
Sprint Corp. 469,900 46,108,937
--------------
$ 239,535,374
- ------------------------------------------------------------------------------------------------------
Transportation - 0.1%
Union Pacific Corp. 100,000 $ 5,343,750
- ------------------------------------------------------------------------------------------------------
Utilities - Electric - 3.8%
Calpine Corp.* 104,350 $ 3,802,253
Carolina Power & Light Co. 830,600 31,407,062
CMS Energy Corp. 289,200 11,586,075
DTE Energy Co. 282,000 10,839,375
FirstEnergy Corp. 538,800 15,052,725
Florida Progress Corp. 288,000 10,872,000
GPU, Inc. 786,300 29,338,819
Illinova Corp. 240,000 5,085,000
Midamerica Energy Holdings Co.* 174,000 4,872,000
NIPSCO Industries, Inc. 150,000 4,050,000
Pacificorp 189,400 3,267,150
Peco Energy Co. 634,000 29,322,500
Pinnacle West Capital Corp. 906,300 32,966,662
Public Service Enterprise Group 407,000 15,542,312
Scana Corp. 195,000 4,229,063
Sempra Energy 320,800 6,155,350
Sierra Pacific Resources 396,600 13,955,363
Southern Co. 419,500 9,779,594
Texas Utilities Co. 162,400 6,770,050
--------------
$ 248,893,353
- ------------------------------------------------------------------------------------------------------
Utilities - Gas - 2.6%
Coastal Corp. 1,375,500 $ 45,391,500
Columbia Energy Group 734,820 38,394,345
Consolidated Natural Gas Co. 190,000 9,250,625
El Paso Energy Corp. 599,700 19,602,694
Enron Corp. 40,000 2,570,000
KN Energy, Inc. 244,600 4,876,713
National Fuel Gas Co. 207,000 8,124,750
NICOR, Inc. 297,900 10,705,781
Public Service Company, Inc. 170,000 4,823,750
Sonat, Inc. 250,000 7,500,000
UGI Corp. 475,000 7,926,562
Washington Gas Light Co. 321,800 7,280,725
Williams Cos., Inc. 105,100 4,151,450
--------------
$ 170,598,895
- ------------------------------------------------------------------------------------------------------
Utilities - Telephone - 0.7%
Frontier Corp. 873,500 $ 45,312,812
- ------------------------------------------------------------------------------------------------------
Total U.S. Stocks $3,069,760,906
- ------------------------------------------------------------------------------------------------------
Foreign Stocks - 4.9%
Bermuda - 0.1%
XI Capital Ltd (Insurance)* 80,000 $ 4,860,000
- ------------------------------------------------------------------------------------------------------
Canada - 0.7%
Northern Telecom Ltd. (Telecommunications) 243,600 $ 15,133,650
Canadian National Railway Co. (Railroads) 566,100 31,489,312
--------------
$ 46,622,962
- ------------------------------------------------------------------------------------------------------
France - 0.1%
Thomson CSF (Aerospace and Defense) 231,268 $ 7,073,708
- ------------------------------------------------------------------------------------------------------
Ireland - 0.1%
Jefferson Smurfit Group PLC, ADR (Containers) 325,000 $ 6,500,000
--------------
Italy - 0.2%
Telecom Italia S.p.A. (Telecommunications)* 1,121,100 $ 6,664,263
Telecom Italia S.p.A. (Telecommunications)* 660,300 7,022,335
--------------
$ 13,686,598
- ------------------------------------------------------------------------------------------------------
Netherlands - 1.1%
Akzo Nobel N.V. (Chemicals) 576,270 $ 21,363,149
ING Groep N.V. (Financial Services)* 358,964 19,805,772
Royal Dutch Petroleum Co., ADR (Oils) 531,900 27,658,800
--------------
$ 68,827,721
- ------------------------------------------------------------------------------------------------------
Sweden
Volvo AB, ADR (Automotive) 60,200 $ 1,553,913
- ------------------------------------------------------------------------------------------------------
Switzerland - 0.5%
Nestle S.A. (Food and Beverage Products) 17,640 $ 32,108,549
- ------------------------------------------------------------------------------------------------------
United Kingdom - 2.1%
BP Amoco PLC, ADR (Oils) 981,319 $ 99,051,886
Glaxo Wellcome PLC, ADR (Medical and Health
Products) 258,900 17,330,119
SmithKline-Beecham PLC, ADR (Medical and Health
Products) 306,600 21,921,900
--------------
$ 138,303,905
- ------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 319,537,356
- ------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $3,060,334,975) $3,389,298,262
- ------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------------------------------
U.S. Bonds - 37.4%
Airlines - 0.6%
Continental Airlines, Inc., 9.5s, 2001 $ 4,560 $ 4,679,700
Delta Airlines, Inc., 6.65s, 2004 3,900 3,939,780
Jet Equipment Trust, 9.41s, 2010## 3,365 3,855,382
Jet Equipment Trust, 8.64s, 2012## 3,137 3,445,589
Jet Equipment Trust, 11.44s, 2014## 4,700 5,889,100
Jet Equipment Trust, 10.69s, 2015## 1,250 1,513,975
Northwest Airlines, Inc., 7.625s, 2005 10,190 9,521,230
Northwest Airlines, Inc., 8.7s, 2007 4,550 4,438,753
--------------
$ 37,283,509
- ------------------------------------------------------------------------------------------------------
Apparel and Textiles - 0.1%
Jones Apparel Group, Inc., 6.25s, 2001 $ 8,560 $ 8,463,700
- ------------------------------------------------------------------------------------------------------
Automotive - 0.6%
Federal Mogul Corp., 7.5s, 2004 $ 7,335 $ 7,356,345
Federal Mogul Corp., 7.75s, 2006 2,530 2,530,025
Ford Motor Co., 8.9s, 2032 6,770 8,466,020
Ford Motor Credit Co., 5.75s, 2004 10,900 10,799,175
Ford Motor Credit Co., 5.8s, 2009 7,650 7,348,667
--------------
$ 36,500,232
- ------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 1.6%
Aristar, Inc., 5.85s, 2004 $ 14,765 $ 14,599,632
Beaver Valley Funding Corp., 9s, 2017 11,340 12,619,152
Capital One Financial Corp., 7.25s, 2003 4,845 4,841,657
Colonial Capital II, 8.92s, 2027 5,010 4,925,431
Gs Escrow Corp., 6.75s, 2001 28,610 28,687,562
Gs Escrow Corp., 7.125s, 2005 20,130 20,264,186
MBNA Capital, 8.278s, 2026 10,565 10,117,150
Riggs National Corp., 8.5s, 2006 2,025 2,064,204
Washington Mutual Capital I, 8.375s, 2027 4,590 4,820,418
--------------
$ 102,939,392
- ------------------------------------------------------------------------------------------------------
Beverages - 0.3%
Seagram (Joseph E) & Sons, Inc., 6.4s, 2003 $ 18,605 $ 18,596,814
- ------------------------------------------------------------------------------------------------------
Conglomerates - 0.2%
News America Holdings, Inc., 10.125s, 2012 $ 10,000 $ 11,535,200
- ------------------------------------------------------------------------------------------------------
Construction Services - 0.1%
Georgia Pacific Corp., 9.875s, 2021 $ 8,310 $ 9,237,313
- ------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.4%
Fingerhut Cos., Inc., 7.375s, 1999 $ 3,000 $ 3,020,040
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 7,415 7,267,367
Hilfiger (Tommy) USA, Inc., 6.85s, 2008 5,125 4,974,889
Protection One Alarm Monitoring, 7.375s, 2005 12,090 12,016,977
--------------
$ 27,279,273
- ------------------------------------------------------------------------------------------------------
Corporate Asset Backed - 4.2%
Advanta Credit Card Master Trust II, 5.039s, 2004 $ 15,000 $ 14,971,800
AT&T Universal Card Master Trust, 5.09s, 2004 12,000 11,996,160
Banamex Credit Card Merchant Voucher, 6.25s, 2003## 5,407 5,405,667
BCF LLC, 7.75s, 2026## 4,314 3,858,720
Charming Shoppes Master Trust, 7s, 1999 10,011 10,014,103
Contimorgage Home Equity, 6.13s, 2013 19,000 19,000,000
Continental Airlines Pass-Through Trust, Inc.,
6.648s, 2019 5,419 5,342,564
Continental Airlines, Inc., 9.5s, 2013 3,694 4,027,893
Continental Airlines, Inc., 10.22s, 2014 8,724 9,758,352
Criimi Mae Commercial Mortgage Trust, 7s, 2011 5,500 4,971,484
Cwabs, Inc., 6.5s, 2013 9,112 9,117,875
Discover Card Mount I, 5.029s, 2005 15,000 14,957,700
Ford Credit Auto Owner Trust, 5.31s, 2001 11,660 11,663,615
Ford Credit Auto Owner Trust, 5.8s, 2000 9,249 9,269,310
MBNA Master Credit Card Trust II, 5.14s, 2005 9,800 9,784,614
Merrill Lynch Mortgage Investors, Inc., 8.339s, 2022+ 4,000 3,743,125
Merrill Lynch Mortgage Investors, Inc., 9s, 2011 173 175,541
Merrill Lynch Mortgage Investors, Inc., 9.25s, 2011 32 31,836
Peoples Bank Credit Card Master Trust, 5.059s, 2004 21,015 20,825,865
Residential Accredit Loans, Inc., 6.75s, 2028 21,246 21,236,041
Residential Accredit Loans, Inc., 7s, 2028 9,068 9,170,015
Sears Credit Account Master Trust II, 5.65s, 2009 16,278 16,105,046
SLM Student Loan Trust, 5.175s, 2007 22,687 22,658,515
Time Warner Pass-Through Asset Trust, 6.1s, 2001## 32,650 32,903,038
--------------
$ 270,988,879
- ------------------------------------------------------------------------------------------------------
Entertainment - 1.1%
Circus Circus Enterprises, Inc., 7s, 2036 $ 4,883 $ 4,514,968
Hearst Argyle Television, Inc., 7s, 2018 3,525 3,426,406
Hearst Argyle Television, Inc., 7.5s, 2027 7,905 7,966,027
News America Holdings, Inc., 6.703s, 2004 12,847 13,009,129
News America Holdings, Inc., 9.5s, 2024 5,410 6,770,344
News America Holdings, Inc., 7.75s, 2045 2,575 2,649,418
Time Warner, Inc., 6.625s, 2029 9,800 9,343,026
Time Warner, Inc., 9.15s, 2023 10,398 12,930,225
Time Warner, Inc., 10.15s, 2012 8,710 11,352,788
--------------
$ 71,962,331
- ------------------------------------------------------------------------------------------------------
Financial Institutions - 3.6%
Associates Corp., 5.75s, 2003 $ 20,030 $ 19,900,606
Associates Corp., 5.5s, 2004 18,245 17,832,116
AT & T Capital Corp., 7.5s, 2000 3,075 3,153,474
AT & T Capital Corp., 6.25s, 2001 15,706 15,828,664
Bear Stearns Cos Inc., 6.15s, 2004 5,240 5,180,421
Donaldson Lufkin & Jenrette, 5.875s, 2002 9,760 9,723,400
Finova Capital Corp., 6.125s, 2004 10,550 10,550,000
First Empire Capital Trust I, 8.234s, 2027 6,895 7,088,612
General Motors Acceptance Corp., 5.75s, 2003 41,298 40,989,297
General Motors Acceptance Corp., 5.95s, 2003 19,270 19,291,968
General Motors Acceptance Corp., 6.15s, 2007 10,887 10,850,311
Goldman Sachs Group LP, 5.9s, 2003 5,300 5,254,950
Household Finance Corp., 5.875s, 2004 14,265 14,108,656
Leucadia Capital Trust, 8.65s, 2027 2,606 2,610,039
Merrill Lynch & Co., Inc., 6.07s, 2004 13,821 13,821,000
Natexis Ambs Co. LLC, 8.44s, 2049 5,100 4,972,500
Newcourt Credit Group, Inc., 6.875s, 2005 1,705 1,737,531
Providian National Bank, 6.65s, 2004 5,693 5,621,837
Providian National Bank, 6.7s, 2003 7,850 7,780,763
Providian National Bank, 6.75s, 2002 3,750 3,755,738
Salton Sea Funding Corp., 7.37s, 2005 4,360 4,438,546
Salton Sea Funding Corp., 7.84s, 2010 7,270 7,971,991
Salton Sea Funding Corp., 8.3s, 2011 2,500 2,658,875
United Cos. Financial Corp., 7.7s, 2004 2,650 530,000
--------------
$ 235,651,295
- ------------------------------------------------------------------------------------------------------
Food and Beverage Products
Pepsi Bottling Holdings, Inc., 5.625s, 2009 $ 1,720 $ 1,652,800
- ------------------------------------------------------------------------------------------------------
Food Products - 0.1%
Nabisco, Inc., 6.375s, 2035 $ 4,856 $ 4,774,322
- ------------------------------------------------------------------------------------------------------
Industrial
Lowes Cos., Inc., 6.875s, 2028 $ 2,700 $ 2,698,002
- ------------------------------------------------------------------------------------------------------
Insurance - 0.4%
Atlantic Mutual Insurance Co., 8.15s, 2028 $ 13,583 $ 11,691,024
Conseco, Inc., 1s, 2001 2,350 2,310,943
NGC Corp. Capital Trust I, 8.316s, 2027 3,645 3,680,356
Providian Capital I, 9.525s, 2027 9,350 9,168,610
--------------
$ 26,850,933
- ------------------------------------------------------------------------------------------------------
Medical and Health Products - 0.2%
Bausch & Lomb, Inc., 6.5s, 2005 $ 4,895 $ 4,751,919
Merck & Company, Inc., 5.95s, 2028 3,675 3,405,770
Sepracor, Inc., 7s, 2005 1,800 2,088,000
--------------
$ 10,245,689
- ------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services
Columbia/HCA Healthcare Corp., 6.875s, 2001 $ 2,250 $ 2,196,765
- ------------------------------------------------------------------------------------------------------
Oil Services - 0.4%
KCS Energy, Inc., 8.875s, 2008 $ 2,670 $ 854,400
McDermott, Inc., 9.375s, 2002 20,305 21,215,070
Ultramar Diamond Shamrock Corp., 7.2s, 2017 5,030 4,940,366
--------------
$ 27,009,836
- ------------------------------------------------------------------------------------------------------
Oils - 0.7%
Anadarko Petroleum Corp., 7.2s, 2029 $ 8,472 $ 8,345,598
Husky Oil Ltd., 8.9s, 2028 12,785 12,473,429
Lasmo USA, Inc., 7.125s, 2003 2,673 2,552,715
Occidental Petroleum Corp., 6.75s, 2002 3,170 3,147,271
Occidental Petroleum Corp., 10.125s, 2001 8,758 9,503,306
Oryx Energy Co., 8s, 2003 2,000 2,091,460
Oryx Energy Co., 8.375s, 2004 3,740 3,986,952
Seagull Energy Corp., 7.5s, 2027 4,193 3,184,290
--------------
$ 45,285,021
- ------------------------------------------------------------------------------------------------------
Railroads - 0.1%
Union Pacific Corp., 6.34s, 2003 $ 7,120 $ 7,167,063
- ------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
Circus Circus Enterprises, Inc., 6.7s, 2096 $ 4,500 $ 4,290,930
- ------------------------------------------------------------------------------------------------------
Stores - 0.9%
Dillards, Inc., 7.13s, 2018 $ 4,875 $ 4,655,235
Federated Department Stores, Inc., 8.5s, 2003 10,382 11,294,682
Federated Department Stores, Inc., 6.3s, 2009 12,875 12,715,350
Rite Aid Corp., 5.25s, 2002 2,000 2,070,000
Saks, Inc., 8.25s, 2008 20,080 21,605,076
Saks, Inc., 7.375s, 2019 3,047 2,957,509
--------------
$ 55,297,852
- ------------------------------------------------------------------------------------------------------
Supermarkets - 0.2%
Safeway, Inc., 5.875s, 2001 $ 10,400 $ 10,416,536
- ------------------------------------------------------------------------------------------------------
Telecommunications - 1.1%
AT&T Corp., 6s, 2009 $ 10,256 $ 10,210,156
Continental Cablevision, Inc., 11s, 2007 21,020 22,332,278
Qwest Communications International, Inc., 7.5s, 2008 7,680 8,006,400
TCI Communications Financing III, 9.65s, 2027 14,400 17,235,072
TKR Cable, Inc., 10.5s, 2007 7,500 8,090,850
Turner Broadcasting Systems, Inc., 8.375s, 2013 1,245 1,441,735
WorldCom, Inc., 8.875s, 2006 5,000 5,385,300
--------------
$ 72,701,791
- ------------------------------------------------------------------------------------------------------
Transportation - 0.1%
Amerco, 7.2s, 2002 $ 7,537 $ 7,547,024
- ------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 3.0%
Federal Home Loan Mortgage Corporation - 1.2%
FHLMC Gold, 6.5s, 2099 $ 77,100 $ 76,810,875
- ------------------------------------------------------------------------------------------------------
Federal National Mortgage Association - 1.8%
FNMA, 5.722s, 2009 $ 16,001 $ 15,953,497
FNMA, 6s, 2013 - 2014 61,426 60,965,069
FNMA, 6.5s, 2027 - 2029 43,123 42,921,184
--------------
$ 119,839,750
- ------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 196,650,625
- ------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 13.9%
Government National Mortgage Association - 4.2%
GNMA, 6.5s, 2027 - 2028 $ 46,175 $ 45,972,919
GNMA, 7s, 2027 - 2028 72,088 73,191,587
GNMA, 7.5s, 2023 - 2028 112,506 115,894,361
GNMA, 8s, 2024 - 2028 36,696 38,102,960
--------------
$ 273,161,827
- ------------------------------------------------------------------------------------------------------
Small Business Administration
SBA, 8.8s, 2011 $ 382 $ 416,346
- ------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 9.7%
U.S. Treasury Bonds, 5.25s, 2028 - 2029 $ 27,639 $ 25,885,327
U.S. Treasury Bonds, 5.5s, 2028 38,529 36,873,409
U.S. Treasury Bonds, 6.125s, 2027 47,391 49,182,854
U.S. Treasury Bonds, 6.375s, 2027 83,190 88,974,201
U.S. Treasury Bonds, 6.625s, 2027 75,250 82,951,085
U.S. Treasury Bonds, 9.875s, 2015 28,500 40,541,250
U.S. Treasury Bonds, 12.375s, 2004 25,000 32,777,250
U.S. Treasury Notes, 4.25s, 2003 4,915 4,731,474
U.S. Treasury Notes, 4.75s, 2008 13,446 12,952,263
U.S. Treasury Notes, 5.25s, 2003 2,890 2,894,971
U.S. Treasury Notes, 5.375s, 2000 3,500 3,517,500
U.S. Treasury Notes, 5.5s, 2003 19,892 20,100,269
U.S. Treasury Notes, 5.625s, 2008 19,915 20,272,873
U.S. Treasury Notes, 5.875s, 2005 6,408 6,584,220
U.S. Treasury Notes, 6.125s, 2007 111,500 116,726,005
U.S. Treasury Notes, 6.5s, 2005 - 2006 74,395 79,203,537
U.S. Treasury Notes, 7.25s, 2004 2,695 2,934,612
U.S. Treasury Notes, 7.5s, 2005 2,010 2,228,266
U.S. Treasury Notes, 7.875s, 2004 4,655 5,229,613
--------------
$ 634,560,979
- ------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 908,139,152
- ------------------------------------------------------------------------------------------------------
Utilities - Electric - 3.1%
CalEnergy Co., Inc., 7.23s, 2005 $ 5 $ 5,168
CalEnergy Co., Inc., 7.52s, 2008 12,765 13,585,024
CalEnergy Co., Inc., 8.48s, 2028 2,485 2,864,112
CalEnergy Co., Inc., 9.5s, 2006 7,985 8,800,428
Cleveland Electric Illuminating Co., 7.88s, 2017 11,110 11,847,593
Cleveland Electric Illuminating Co., 9s, 2023 9,644 10,592,873
CMS Panhandle Holding Co., 6.5s, 2009 9,270 9,246,825
Comed Financing II, 8.5s, 2027## 4,400 4,579,168
Connecticut Light & Power Co., 7.875s, 2024 6,000 6,270,420
Connecticut Light & Power Co., 8.59s, 2003 7,800 7,983,807
Edison Mission Energy, 7.33s, 2008## 1,450 1,484,525
El Paso Electric Co., 8.9s, 2006 3,810 4,256,418
GGIB Funding Corp., 7.43s, 2011 5,837 5,867,914
Gulf States Utilities Co., 8.21s, 2002 7,767 7,969,175
Illinois Power Special Purpose Trust, 5.26s, 2003 4,703 4,678,015
Long Island Lighting Co., 8.2s, 2023 5,950 6,413,683
Midamerican Funding LLC, 5.85s, 2001 9,980 10,000,958
Midamerican Funding LLC, 6.927s, 2029 5,795 5,727,778
Midland Cogeneration Venture Corp., 10.33s, 2002 8,373 8,902,376
Midland Funding Corp. II, "A", 11.75s, 2005 1,750 1,983,625
Midland Funding Corp., "B", 13.25s, 2006 4,070 5,018,432
Niagara Mohawk Power Corp., 1s, 2010 4,200 3,286,500
Niagara Mohawk Power Corp., 7.75s, 2006 6,125 6,617,389
Niagara Mohawk Power Corp., 8.5s, 2023 4,650 5,029,393
Niagara Mohawk Power Corp., 8.75s, 2022 7,190 7,841,414
North Atlantic Energy, 9.05s, 2002 4,846 4,982,463
Northeast Utilities, 8.58s, 2006 3,106 3,236,953
PacifiCorp, 5.65s, 2006 5,600 5,459,272
PP&L, Inc., 6.125s, 2001 7,790 7,866,264
Seabrook Station, 7.83s, 2019 4,742 5,057,960
Texas Utilities Co., 5.94s, 2001 3,250 3,276,748
Toledo Edison Co., 7.875s, 2004 7,275 7,566,291
Waterford 3 Funding Entergy Corp., 8.09s, 2017 6,297 6,619,733
--------------
$ 204,918,697
- ------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.3%
Coastal Corp., 6.375s, 2009 $ 2,000 $ 1,981,240
Marlin Water Trust & Capital, 7.09s, 2001 3,585 3,607,406
Tennessee Gas Pipeline Co., 7s, 2028 2,840 2,795,952
Tennessee Gas Pipeline Co., 7.625s, 2037 5,932 6,279,318
Texas Gas Transmission Corp., 7.25s, 2027 5,300 5,251,028
--------------
$ 19,914,944
- ------------------------------------------------------------------------------------------------------
Total U.S. Bonds $2,438,195,920
- ------------------------------------------------------------------------------------------------------
Foreign Bonds - 0.2%
Canada
Gulf Canada Resources Ltd., 9.25s, 2004 (Oils) $ 1,785 $ 1,818,237
- ------------------------------------------------------------------------------------------------------
Colombia - 0.1%
Republic of Colombia, 8.75s, 1999 (Government) $ 3,640 $ 3,640,000
- ------------------------------------------------------------------------------------------------------
Finland - 0.1%
UPM Kymmene Corp., 7.45s, 2027 (Forest and Paper Products) $ 6,760 $ 6,637,238
- ------------------------------------------------------------------------------------------------------
Mexico
Corporacion Andina de Fomento, 7.1s, 2003 (Banks
and Credit Cos.) $ 1,184 $ 1,168,016
- ------------------------------------------------------------------------------------------------------
Norway
Union Bank Norway, 7.35s, 2049 (Banks and Credit Cos.)## $ 2,273 $ 2,268,522
- ------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 15,532,013
- ------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $2,474,132,400) $2,453,727,933
- ------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 3.3%
- ------------------------------------------------------------------------------------------------------
SHARES
- ------------------------------------------------------------------------------------------------------
Banks and Credit Companies
McKesson Financing Trust, 5%*## 20,000 $ 1,820,000
- ------------------------------------------------------------------------------------------------------
Business Services
EVI, Inc., 5%*## 80,000 $ 2,560,000
- ------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.6%
Newell Financial Trust I, 5.25%* 230,600 $ 12,942,425
Newell Financial Trust I, 5.25%*## 365,700 20,524,912
Readers Digest, $1.9336* 99,700 3,003,463
--------------
$ 36,470,800
- ------------------------------------------------------------------------------------------------------
Containers - 0.1%
Sealed Air Corp., $2.00 86,000 $ 4,257,000
- ------------------------------------------------------------------------------------------------------
Entertainment - 0.3%
MediaOne Group, Inc., 4.5% 30,000 $ 3,856,875
MediaOne Group, Inc., 6.25% 160,000 13,240,000
--------------
$ 17,096,875
- ------------------------------------------------------------------------------------------------------
Financial Institutions - 0.2%
Finova Finance Trust, 5.5% 60,000 $ 4,320,000
Jefferson Pilot Corp., 7.25% 25,000 2,925,000
Merrill Lynch & Co., Inc., 5.75%* 301,000 3,235,750
Merrill Lynch & Co., Inc., 6.25% 80,000 1,800,000
Salomon, Inc., 6.25% 40,000 2,760,000
Salomon, Inc., 7.625% 40,000 1,680,000
--------------
$ 16,720,750
- ------------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.1%
Ralston Purina Co., 7% 100,000 $ 4,500,000
- ------------------------------------------------------------------------------------------------------
Insurance - 0.4%
American Heritage Life Investment Corp., 8.5% 27,400 $ 1,739,900
Frontier Financing Trust, 6.25%*## 45,000 1,698,750
Lincoln National Corp. 1.85% 184,200 3,499,800
Lincoln National Corp., 7.75% 677,900 17,964,350
--------------
$ 24,902,800
- ------------------------------------------------------------------------------------------------------
Restaurants and Lodging
Wendys Financing, 5% 11,500 $ 692,875
- ------------------------------------------------------------------------------------------------------
Stores
AnnTaylor Finance Trust, 8.5%* 15,000 $ 1,680,000
- ------------------------------------------------------------------------------------------------------
Telecommunications - 0.3%
Comcast Corp., 3.35%* 13,700 $ 1,089,150
Intermedia Communications, Inc., $3.25* 20,100 723,600
Intermedia Communications, Inc., 7%## 39,900 1,461,338
Qwest Trends Trust, 5.75%*## 234,700 14,786,100
--------------
$ 18,060,188
- ------------------------------------------------------------------------------------------------------
Utilities - Electric - 1.0%
CalEnergy Capital Trust III, 6.5% 70,000 $ 3,115,000
CalEnergy Capital Trust III, 6.5%*## 20,000 890,000
Devon Financing Trust, $3.25*## 45,000 2,334,375
ICX Communications, Inc., 7.25% 20,000 4,021,250
NIPSCO Industries, Inc., 7.75%* 328,000 16,564,000
Reliant Energy, Inc., 7.00% 183,000 22,051,500
Texas Utilities Co., 3.315% 69,200 3,036,150
Texas Utilities Co., 9.25% 305,000 16,260,312
--------------
$ 68,272,587
- ------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.3%
El Paso Energy Capital Trust I, 4.75% 377,300 $ 18,157,562
- ------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(Identified Cost, $189,021,750) $ 215,191,437
- ------------------------------------------------------------------------------------------------------
Aerospace
Loral Space & Communications, 6%* 42,500 $ 2,079,844
- ------------------------------------------------------------------------------------------------------
Automotive - 0.2%
Federal Mogul Financing Trust, 7.00%* 110,000 $ 5,995,000
Tower Automotive Capital Trust, 6.75% 60,000 2,565,000
Tower Automotive Capital Trust, 6.75%*## 39,800 1,701,450
--------------
$ 10,261,450
- ------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 0.1%
NB Capital Corp., 8.35% 268,000 $ 6,951,250
- ------------------------------------------------------------------------------------------------------
Computer Hardware -- Systems
Decs Trust IV, 7%* 149,500 $ 1,196,000
- ------------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.1%
Suiza Capital Trust II, 6%* 130,000 $ 4,420,000
- ------------------------------------------------------------------------------------------------------
Medical and Health Products - 0.1%
Alkermes, Inc., 6.5% 90,000 $ 4,950,000
- ------------------------------------------------------------------------------------------------------
Railroads - 0.2%
Union Pacific Capital Trust, 6.25%* 247,000 $ 12,350,000
- ------------------------------------------------------------------------------------------------------
Telecommunications
Morgan Stanley Group, Inc., 6%* 233,218 $ 2,040,657
- ------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
El Paso Tennessee Pipeline Co., 8.25% 50,000 $ 2,756,250
MCN Corp., 8.75% 105,200 1,821,275
--------------
$ 4,577,525
- ------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $51,194,722) $ 48,826,726
- ------------------------------------------------------------------------------------------------------
Convertible Bonds - 2.5%
- ------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- ------------------------------------------------------------------------------------------------------
U.S. Bonds - 2.4%
Business Machines - 0.3%
Xerox Corp., 0s, 2018## $ 16,400 $ 9,799,000
Xerox Corp., 0s, 2018 13,580 8,148,000
--------------
$ 17,947,000
- ------------------------------------------------------------------------------------------------------
Business Services - 0.1%
Concentra Managed Care, Inc., 4.5s, 2003 $ 2,000 $ 1,860,000
Interim Services, Inc., 4.5s, 2005 3,500 2,686,250
Personnel Group of America, Inc., 5.75s, 2004 2,994 2,312,865
--------------
$ 6,859,115
- ------------------------------------------------------------------------------------------------------
Computer Software - Services - 0.1%
Affiliated Computer Services, Inc., 4s, 2005* $ 2,995 $ 3,766,213
Sportsline USA, Inc., 5s, 2006 2,990 2,728,375
--------------
$ 6,494,588
- ------------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.2%
EMC Corp., 3.25s, 2002 $ 550 $ 3,153,562
Ingram Micro, Inc., 0s, 2018 7,000 2,231,250
Networks Assocs, Inc., 0s, 2018 10,010 3,628,480
SCI Systems, Inc., 5s, 2006## 1,000 1,217,500
--------------
$ 10,230,792
- ------------------------------------------------------------------------------------------------------
Consumer Goods and Services
At Home Corp., 0s, 2018## $ 1,900 $ 1,976,000
- ------------------------------------------------------------------------------------------------------
Electrical Equipment
LSI Logic Corp., 4.25s, 2004 $ 2,250 $ 2,697,188
- ------------------------------------------------------------------------------------------------------
Electronics - 0.1%
Micron Technology, Inc., 7s, 2004 $ 2,000 $ 2,140,000
Solectron Corp., 0s, 2019## 6,978 3,436,665
--------------
$ 5,576,665
- ------------------------------------------------------------------------------------------------------
Entertainment - 0.1%
CBS Radio, Inc., 7s, 2011## $ 2,000 $ 3,223,750
- ------------------------------------------------------------------------------------------------------
Financial Institutions - 0.1%
ADT Operations, Inc., 0s, 2010 $ 2,500 $ 4,906,250
Merrill Lynch & Co., Inc., 1s, 2006 2,993 2,903,210
--------------
$ 7,809,460
- ------------------------------------------------------------------------------------------------------
Financial Services - 0.7%
Bell Atlantic Financial Services, Inc., 4.25s, 2005## $ 39,488 $ 43,140,640
Elan Finance Corporation Ltd., 0s, 2018## 6,000 3,450,000
--------------
$ 46,590,640
- ------------------------------------------------------------------------------------------------------
Industrial - 0.1%
Waste Management, Inc., 4s, 2002 $ 2,746 $ 3,219,685
- ------------------------------------------------------------------------------------------------------
Medical and Health Products
Sepracor, Inc., 6.25s, 2005 $ 900 $ 2,196,000
- ------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.1%
HealthSouth Corp., 3.25s, 2003 $ 7,894 $ 6,433,610
Total Renal Care Holdings, Inc., 7s, 2009## 3,000 2,265,000
--------------
$ 8,698,610
- ------------------------------------------------------------------------------------------------------
Oil Services - 0.1%
Diamond Offshore Drilling, Inc., 3.75s, 2007 $ 2,760 $ 2,870,400
- ------------------------------------------------------------------------------------------------------
Pharmaceuticals
Omnicare, Inc., 5s, 2007 $ 1,497 $ 1,206,956
- ------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
CKE Restaurants, Inc., 4.25s, 2004 $ 6,000 $ 4,597,500
- ------------------------------------------------------------------------------------------------------
Retail
Office Depot, Inc., 0s, 2007 $ 1,100 $ 1,192,125
- ------------------------------------------------------------------------------------------------------
Stores - 0.1%
Home Depot, Inc., 3.25s, 2001 $ 1,200 $ 3,334,500
Office Depot, Inc., 0s, 2008 1,750 1,544,375
Rite Aid Corp., 5.25s, 2002 2,000 2,082,500
--------------
$ 6,961,375
- ------------------------------------------------------------------------------------------------------
Telecommunications - 0.2%
Global Telesystems Group, Inc., 5.75s, 2010 $ 4,000 $ 4,720,000
Jacor Communications, Inc., 0s, 2011 3,500 3,609,375
Tele Communications International, Inc., 4.5s, 2006 2,420 2,674,100
World Access, Inc., 4.5s, 2002 990 534,600
--------------
$ 11,538,075
- ------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 151,885,924
- ------------------------------------------------------------------------------------------------------
Foreign Bonds - 0.1%
Switzerland - 0.1%
Swiss Life Finance Ltd., 1.5s, 2003 (Finance) $ 3,793 $ 4,949,865
- ------------------------------------------------------------------------------------------------------
United Kingdom
Airtours, 5.75s, 2004 (Leisure)## $ 1,600 $ 2,969,394
- ------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 7,919,259
- ------------------------------------------------------------------------------------------------------
Total Convertible Bond (Identified Cost, $149,126,281) $ 159,805,183
- ------------------------------------------------------------------------------------------------------
Rights - 0.1%
- ------------------------------------------------------------------------------------------------------
SHARES
- ------------------------------------------------------------------------------------------------------
CVS Corp.* (Identified Cost, $8,022,319) 111,100 $ 9,499,050
- ------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------------------------------
Du Pont (E.I.) de Nemours & Co., Inc., due 4/05/99 $ 25,000 $ 24,986,667
Federal Farm Credit Bank, due 4/06/99 12,600 12,591,775
Federal Home Loan Bank, due 4/28/99 10,900 10,861,005
Federal Home Loan Mortgage Corp., due 4/06/99 - 5/24/99 252,320 251,327,583
Federal National Mortgage Association,
due 5/06/99 - 6/18/99 47,100 46,758,304
Lucent Technologies, Inc., due 4/16/99 15,000 14,969,812
- ------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 361,495,146
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $6,293,327,593) $6,637,843,737
Other Assets, Less Liabilities - (1.8)% (116,222,815)
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $6,521,620,922
- ------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
+Restricted security.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
MARCH 31, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $6,293,327,593) $6,637,843,737
Foreign currency, at value (identified cost, $57) 56
Receivable for Fund shares sold 12,476,087
Receivable for investments sold 43,176,376
Interest and dividend receivable 40,724,350
Other assets 93,651
--------------
Total assets $6,734,314,257
--------------
Liabilities:
Cash overdraft $ 275,368
Distributions Payable 2,363,454
Payable for Fund shares reacquired 11,008,769
Payable for investments purchased 198,241,633
Payable to affiliates -
Management fee 34,308
Shareholder servicing agent fee 20,188
Distribution and service fee 109,604
Administrative fee 1,028
Accrued expenses and other liabilities 638,983
--------------
Total liabilities $ 212,693,335
--------------
Net assets $6,521,620,922
==============
Net assets consist of:
Paid-in capital $5,943,627,396
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 344,511,489
Accumulated undistributed net realized gain on
investments and foreign currency transactions 256,882,445
Accumulated distributions in excess of net investment
income (23,400,408)
--------------
Total $6,521,620,922
==============
Shares of beneficial interest outstanding 442,182,728
===========
Class A shares:
Net asset value per share
(net assets of $3,869,159,011 / 262,363,102 shares of
beneficial interest outstanding) $14.75
======
Offering price per share (100 / 95.25) $15.48
======
Class B shares:
Net asset value and offering price per share
(net assets of $2,180,879,166 / 147,926,187 shares of
beneficial interest outstanding) $14.74
======
Class C shares:
Net asset value and offering price per share
(net assets of $453,652,904 / 30,677,821 shares of
beneficial interest outstanding) $14.79
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $17,929,841 / 1,215,618 shares of
beneficial interest outstanding) $14.75
======
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1999
- -------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 92,872,739
Dividends 40,096,741
Foreign taxes withheld (92,324)
------------
Total investment income $132,877,156
------------
Expenses -
Management fee $ 10,736,440
Trustees' compensation 78,228
Shareholder servicing agent fee 3,503,024
Distribution and service fee (Class A) 6,510,968
Distribution and service fee (Class B) 10,473,097
Distribution and service fee (Class C) 1,971,703
Administrative fee 125,489
Custodian fee 526,829
Printing 187,451
Postage 435,771
Auditing fees 4,307
Legal fees 12,763
Miscellaneous 1,351,155
------------
Total expenses $ 35,917,225
Fees paid indirectly (513,215)
------------
Net expenses $ 35,404,010
------------
Net investment income $ 97,473,146
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $270,580,625
Foreign currency transactions (138,347)
------------
Net realized gain on investment and foreign
currency transactions $270,442,278
------------
Change in unrealized appreciation -
Investments $ 28,662,934
Translation of assets and liabilities in
foreign currencies 24,633
------------
Net unrealized gain on investments and foreign
currency translation $ 28,687,567
------------
Net realized and unrealized gain on investments
and foreign currency $299,129,845
------------
Increase in net assets from operations $396,602,991
============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 97,473,146 $ 178,804,575
Net realized gain on investment and foreign currency
transactions 270,442,278 796,253,668
Net unrealized gain (loss) on investments and foreign
currency translation 28,687,567 (634,130,999)
-------------- --------------
Increase in net assets from operations $ 396,602,991 $ 340,927,244
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (73,515,259) $ (121,499,301)
From net investment income (Class B) (34,526,426) (54,239,945)
From net investment income (Class C) (6,482,873) (7,497,888)
From net investment income (Class I) (388,803) (682,347)
From net realized gain on investments and foreign
currency transactions (Class A) (456,614,242) (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 $ (881,931,446) $ (608,305,128)
-------------- --------------
Net increase in net assets from Fund share transactions $1,167,509,653 $ 994,203,939
-------------- --------------
Total increase in net assets $ 682,181,198 $ 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 $23,400,408 and
$5,960,193, respectively) $6,521,620,922 $5,839,439,724
============== ==============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ----------------------------------------------------------------
MARCH 31, 1999 1998 1997 1996 1995 1994
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.06 $16.92 $15.03 $14.46 $12.80 $13.70
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.26 $ 0.57 $ 0.60 $ 0.64 $ 0.64 $ 0.54
Net realized and unrealized gain (loss) on
investments and foreign currency 0.80 0.53 2.94 1.21 1.64 (0.69)
------ ------ ------ ------ ------ ------
Total from investment operations $ 1.06 $ 1.10 $ 3.54 $ 1.85 $ 2.28 $(0.15)
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.30) $(0.58) $(0.59) $(0.62) $(0.61) $(0.54)
From net realized gain on investments and
foreign currency transactions (2.07) (1.37) (1.06) (0.66) (0.01) (0.10)
In excess of net investment income -- (0.01) -- -- -- --
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- -- -- (0.11)
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(2.37) $(1.96) $(1.65) $(1.28) $(0.62) $(0.75)
------ ------ ------ ------ ------ ------
Net asset value - end of period $14.75 $16.06 $16.92 $15.03 $14.46 $12.80
====== ====== ====== ====== ====== ======
Total return(+) 6.85%++ 6.98% 25.27% 13.50% 18.36% (1.07)%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.90%+ 0.90% 0.93% 0.91% 0.87% 0.85%
Net investment income 3.39%+ 3.44% 3.84% 4.35% 4.82% 4.26%
Portfolio turnover 70% 126% 143% 140% 102% 91%
Net assets at end of period (000,000
omitted) $3,869 $3,503 $3,199 $2,568 $2,242 $1,857
+ 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. 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.
(S) The distributor voluntarily waived a portion of its fees 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 $ 0.52
Ratios (to average net assets):
Expenses## -- -- -- -- 0.97% 0.95%
Net investment income -- -- -- -- 4.72% 4.16%
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED -------------------------------------------------------------------
MARCH 31, 1999 1998 1997 1996 1995 1994
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.05 $16.92 $15.02 $14.46 $12.80 $13.70
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.21 $ 0.46 $ 0.50 $ 0.52 $ 0.53 $ 0.39
Net realized and unrealized gain
(loss) on investments and foreign
currency 0.80 0.53 2.95 1.21 1.64 (0.65)
------ ------ ------ ------ ------ ------
Total from investment operations $ 1.01 $ 0.99 $ 3.45 $ 1.73 $ 2.17 $(0.26)
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.25) $(0.48) $(0.49) $(0.51) $(0.50) $(0.43)
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) (0.10)
From paid in capital -- -- -- -- -- (0.11)
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(2.32) $(1.86) $(1.55) $(1.17) $(0.51) $(0.64)
------ ------ ------ ------ ------ ------
Net asset value - end of period $14.74 $16.05 $16.92 $15.02 $14.46 $12.80
====== ====== ====== ====== ====== ======
Total return 6.50%++ 6.22% 24.51% 12.49% 17.46% (1.93)%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.55%+ 1.55% 1.60% 1.67% 1.71% 1.70%
Net investment income 2.74%+ 2.80% 3.17% 3.56% 3.97% 3.45%
Portfolio turnover 70% 126% 143% 140% 102% 91%
Net assets at end of period (000,000
omitted) $2,181 $1,984 $1,707 $1,284 $1,005 $843
+ 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. For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for this expense offset arrangement.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED -----------------------------------------------------------------
MARCH 31, 1999 1998 1997 1996 1995 1994*
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $12.92
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.21 $ 0.46 $ 0.50 $ 0.53 $ 0.54 $ 0.08
Net realized and unrealized gain
(loss) on investments and foreign
currency 0.80 0.53 2.95 1.22 1.66 (0.13)
------ ------ ------ ------ ------ ------
Total from investment operations $ 1.01 $ 0.99 $ 3.45 $ 1.75 $ 2.20 $(0.05)
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.25) $(0.47) $(0.49) $(0.52) $(0.50) $(0.07)
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 $(2.32) $(1.85) $(1.55) $(1.18) $(0.51) $(0.07)
------ ------ ------ ------ ------ ------
Net asset value - end of period $14.79 $16.10 $16.96 $15.06 $14.49 $12.80
====== ====== ====== ====== ====== ======
Total return 6.56%++ 6.27% 24.39% 12.67% 17.66% (0.41)%++
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.55%+ 1.55% 1.60% 1.63% 1.67% 1.76%+
Net investment income 2.74%+ 2.80% 3.16% 3.67% 4.14% 4.08%+
Portfolio turnover 70% 126% 143% 140% 102% 91%
Net assets at end of period (000,000
omitted) $454 $336 $190 $83 $23 $1
* For the period from the inception of Class C, August 1, 1994, through September 30, 1994.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## 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.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997*
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
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 $ 0.29 $ 0.63 $ 0.48
Net realized and unrealized gain on investments and
foreign currency 0.80 0.53 2.23
------ ------ ------
Total from investment operations $ 1.09 $ 1.16 $ 2.71
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.33) $(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 $(2.40) $(2.02) $(0.49)
------ ------ ------
Net asset value - end of period $14.75 $16.06 $16.92
====== ====== ======
Total return 7.04%++ 7.35% 18.69%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.55%+ 0.55% 0.60%+
Net investment income 3.74%+ 3.79% 4.16%+
Portfolio turnover 70% 126% 143%
Net assets at end of period
(000,000 omitted) $18 $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.
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Total Return Fund (the Fund) is a diversified series of MFS Series Trust V
(the Trust). The Trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis
of valuations furnished by dealers or by a pricing service with consideration
to factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data, without exclusive reliance upon exchange or over-the-
counter prices. Short-term obligations, which mature in 60 days or less, are
valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Security Loans - The Fund may lend its securities to member banks of the Federal
Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. State Street Bank and Trust Company ("State Street"), as
agent, loans the securities 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 March 31, 1999, the value of securities loaned was $5,026,548. These loans
were collateralized by U.S. Treasury securities of $5,221,595. 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. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as 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.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at the following annual
rates:
BASED ON AVERAGE 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
$27,203 for the six months ended March 31, 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
$781,618 for the six months ended March 31, 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 $380,618 for the six months ended March 31, 1999. Fees incurred
under the distribution plan during the six months ended March 31, 1999, were
35% of average daily net assets attributable to Class A shares on an
annualized basis.
The Trustees have adopted a distribution plan relating solely to 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 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 $47,564 and $3,520 for
Class B and Class C shares, respectively, for the six months ended March 31,
1999. Fees incurred under the distribution plan during the six months ended
March 31, 1999, were 1.00% of each class' average daily net assets
attributable to Class B and Class C shares on an annualized basis.
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 six months ended March
31, 1999, were $27,715, $879,817, and $47,067 for Class A, Class B, and Class
C shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Fund's average daily net assets at an effective annual
rate of 0.1125%.
(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 $1,310,002,313 $ 863,664,126
-------------- --------------
Investments (non-U.S. government
securities) $3,501,152,429 $3,166,384,240
-------------- --------------
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 $6,293,327,593
--------------
Gross unrealized appreciation $ 476,232,478
Gross unrealized depreciation (131,716,334)
--------------
Net unrealized appreciation $ 344,516,144
==============
(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>
Class A Shares
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1999 YEAR ENDED SEPTEMBER 30, 1998
----------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 63,850,662 $964,868,050 55,504,066 $912,117,694
Shares issued to shareholders
in reinvestment of
distributions 31,810,494 469,655,654 21,559,401 342,963,749
Shares reacquired (51,435,437) (778,897,597) (47,976,585) (789,009,468)
----------- ------------ ----------- ------------
Net increase 44,225,719 $655,626,107 29,086,882 $466,071,975
=========== ============ =========== ============
</TABLE>
<TABLE>
Class B Shares
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1999 YEAR ENDED SEPTEMBER 30, 1998
----------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 21,482,829 $325,387,274 30,797,677 $506,466,396
Shares issued to shareholders
in reinvestment of
distributions 18,427,167 271,852,610 11,311,499 179,658,588
Shares reacquired (15,556,141) (235,353,902) (19,450,599) (317,610,824)
----------- ------------ ----------- ------------
Net increase 24,353,855 $361,885,982 22,658,577 $368,514,160
=========== ============ =========== ============
</TABLE>
<TABLE>
Class C Shares
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1999 YEAR ENDED SEPTEMBER 30, 1998
----------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 9,690,699 $147,328,104 10,590,618 $174,414,769
Shares issued to shareholders
in reinvestment of
distributions 3,243,816 47,980,590 1,346,898 21,473,802
Shares reacquired (3,107,325) (47,354,527) (2,309,571) (38,044,926)
----------- ------------ ----------- ------------
Net increase 9,827,190 $147,954,167 9,627,945 $157,843,645
=========== ============ =========== ============
</TABLE>
<TABLE>
Class I Shares
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1999 YEAR ENDED SEPTEMBER 30, 1998
----------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 60,369 $ 920,709 158,035 $ 2,631,813
Shares issued to shareholders
in reinvestment of
distributions 180,404 2,665,329 130,950 2,085,279
Shares reacquired (103,634) (1,542,641) (177,735) (2,942,933)
----------- ------------ ----------- ------------
Net increase 137,139 $ 2,043,397 111,250 $ 1,774,159
=========== ============ =========== ============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $720 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Fund shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Fund for the six months ended March 31, 1999, was $25,062. The Fund had
no borrowings during the period.
(7) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At March 31, 1999,
the Fund owned the following restricted securities (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,
are valued at fair value as determined in good faith by or at the direction of
the Trustees.
DATE OF SHARE/PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- --------------------------------------------------------------------------------
Merrill Lynch Mortgage
Investors, Inc.,
8.339s, 2022 June 1994 $4,000 $2,772,500 $3,743,125
<PAGE>
<TABLE>
MFS(R) TOTAL RETURN FUND
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Peter G. Harwood - Private Investor
CUSTODIAN
J. Atwood Ives - Chairman and Chief Executive State Street Bank and Trust Company
Officer, Eastern Enterprises (diversified
services company) INVESTOR INFORMATION
For MFS stock and bond market outlooks, call
Lawrence T. Perera - Partner, Hemenway toll free: 1-800-637-4458 anytime from a
& Barnes (attorneys) touch-tone telephone.
William J. Poorvu - Adjunct Professor, Harvard For information on MFS mutual funds, call your
University Graduate School of Business financial adviser or, for an information kit,
Administration call toll free: 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time (or leave a
Charles W. Schmidt - Private Investor message anytime).
Arnold D. Scott* - Senior Executive INVESTOR SERVICE
Vice President, Director, and Secretary, MFS Service Center, Inc.
MFS Investment Management P.O. Box 2281
Boston, MA 02107-9906
Jeffrey L. Shames* - Chairman, Chief
Executive Officer, and Director, For general information, call toll free:
MFS Investment Management 1-800-225-2606 any business day from 8 a.m. to
8 p.m. Eastern time. For service to speech- or
Elaine R. Smith - Independent Consultant hearing-impaired, call toll free:
1-800-637-6576 any business day from 9 a.m. to
David B. Stone - Chairman and Director, 5 p.m. Eastern time. (To use this service, your
North American Management Corp. phone must be equipped with a
(investment advisers) Telecommunications Device for the Deaf.)
INVESTMENT ADVISER For share prices, account balances, and
Massachusetts Financial Services Company exchanges, call toll free: 1-800-MFS-TALK
500 Boylston Street (1-800-637-8255) anytime from a touch-tone
Boston, MA 02116-3741 telephone.
DISTRIBUTOR WORLD WIDE WEB
MFS Fund Distributors, Inc. www.mfs.com
500 Boylston Street
Boston, MA 02116-3741
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
</TABLE>
<PAGE>
------------
MFS(R) TOTAL RETURN FUND Bulk Rate
U.S. Postage
Paid
[Logo] M F S (R) MFS
INVESTMENT MANAGEMENT ------------
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(c)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MTR-3 5/99 350M 15/215/315/815
