<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) TOTAL
RETURN FUND
SEMIANNUAL REPORT o MARCH 31, 2000
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 5
Performance Summary ....................................................... 9
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 30
Notes to Financial Statements ............................................. 37
Trustees and Officers ..................................................... 45
MFS(R) ORIGINAL RESEARCH(SM)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- -------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
Historically, there have been two ways that shareholders in stocks and stock
mutual funds could potentially make money: capital gains from share price
appreciation and dividend payments. Over the past decade, however, it appears
to us that dividends have become less and less relevant as a means of
profiting from stock investments. Investors who in the past may have counted
on dividend payments from stocks or stock funds as a source of income are
sometimes finding their payments are no longer meeting their needs. In the
balance of this letter, we'd like to address why that has happened, why this
may in some ways be good for investors, and what investors may want to do to
adjust to the new reality of shrinking dividends.
A FUNDAMENTAL CHANGE
When a company pays a dividend, it is essentially sharing its profits with
stockholders. Until the 1950s, paying a dividend was standard practice for a
majority of American companies; dividend payments were virtually required to
compensate investors for taking on the risks associated with investing
in stocks.
What has happened in the ensuing decades, however, is a fundamental change in
the way investors view the stock market. The tremendous popularity of
Individual Retirement Accounts and 401(k) retirement plans has introduced a
flood of new investors to stocks and stock mutual funds, and a generally
rising market through most of the past decade has made the experience a very
positive one for many of those shareholders.
As a result, investors appear to be focusing much more on share price and on
company earnings -- which we believe are the strongest long-term driver of
share prices -- than on dividend payments. Summing up the trend, The New York
Times commented on January 4, 2000, that "a growing portion of corporate
America appears to be concluding that dividends are no longer needed to
attract investors and are therefore an unnecessary cost of doing business.
Fewer companies are raising dividends, and more and more major companies do
not bother to pay them at all."
BENEFITS FOR INVESTORS
In assessing whether or not this trend is good for investors, it may help to
look at what shareholders have traditionally regarded as the benefits of
dividends. One benefit was that a dividend payment served as an indication
that a company was in good health, because it was generating profits that it
could share with its investors. However, there are other ways for a
corporation to use its profits that over the long term may benefit
shareholders more than a dividend.
As part of the MFS Original Research(R) process that we use in evaluating
potential investments, one thing we look for is companies that are investing
their profits back in their businesses. Profits can be used to fund additional
research, product development, marketing, and other areas that may improve the
earnings of a company and potentially result in higher stock prices. Share
buybacks are another way we like to see a company reinvest its profits. By
buying back its own shares and thus reducing the number of shares outstanding,
a company may increase the value of existing shares. Over the long term, we
believe such actions may benefit shareholders more than a dividend payment. An
additional reason we feel dividends are an inefficient way for a company to
use its profits is that dividend payouts are subject to double taxation: once
as corporate profits and a second time as ordinary income to shareholders.
POTENTIAL DOWNSIDE PROTECTION
"Downside protection" is a second potential benefit that investors have
historically attributed to dividends. The reasoning went that, during a bad
market period, a stockholder could at least count on dividend payments to
somewhat counteract the effect of declining share prices. We believe, however,
that the best long-term protection against market volatility is simply
investing in good businesses -- which is why our research is focused on
identifying companies with the potential to grow earnings over the long haul,
taking down markets in their stride.
And although dividend payments may appear to provide some short-term
protection against volatility, over the past decade stock prices in general
have risen much faster than dividends, making most dividend payments too small
to provide significant protection. In 1999, for example, the average dividend
yield of stocks in the Standard & Poor's 500 Composite Index was only 1.21%(1)
- -- whereas yields had averaged in the 3% - 4% range or greater during the
decades of the 1960s, '70s, and '80s.(2)
ALTERNATE INCOME STREAMS
A third benefit of stock dividend payments has traditionally been that they
may provide a steady stream of income, allowing an investor to receive money
from stock or stock mutual fund investments without selling shares. This
benefit has often been used to provide retirement income. Over the past
decade, however, many investors have found their dividend checks shrinking
while the value of their holdings may have appreciated considerably.
Intuitively, receiving a stream of dividend income without reducing the
principal in one's account may seem preferable to selling shares to generate
income. But investors should also bear in mind the tax consequences of
dividend income. Dividends are federally taxed as ordinary income, whereas
profits from selling stock or mutual fund shares held more than one year are
taxed at the capital gains rate of 20% -- which for many investors is lower
than their ordinary income tax bracket. Many shareholders may find themselves
paying lower taxes on profits from share appreciation than on dividend income.
Given the current reality of low and declining stock dividends, we would
suggest that investors seeking an income stream from their equity portfolio
talk with their investment professionals about alternate payout methods. Two
possible strategies are systematic withdrawals and bond investing.
With a systematic withdrawal, an investor's account is set up to sell shares
in order to pay out a fixed amount on a regular schedule. The advantage of
this approach is that the payout amount is always the same, regardless of
market fluctuations or variations in dividends paid by the holdings in the
account. In a period when the market is rising, share price appreciation may
in fact compensate for some selling of holdings. Of course, the disadvantage
of a systematic withdrawal is that, depending on the payout amount, the
principal balance in the account will most likely shrink as shares are sold.
At some point an investor can potentially run out of money.
For investors who feel more comfortable not drawing down their account
principal, bond funds may present an attractive alternative for providing an
income stream. High-yield bond funds, in particular, may offer the potential
for higher dividend yields than many stock funds are offering today. A
disadvantage is that, historically, bond funds have not tended to offer as
much potential for long-term share price appreciation as have stock funds.
Investors should also understand that, although investments in lower-rated
securities such as high-yield bonds may provide greater returns, they are also
associated with greater than average risk.(3) We suggest that investors work
with their investment professionals to determine whether a bond fund or
systematic withdrawal plan may meet their needs within their expected
time frame.
As with most major changes in the financial markets, the overall decline in
stock dividend payments presents a combination of challenges and potential
benefits for investors. We feel that most investors will be best served by
working with their investment professionals to continually monitor such
changes in the financial markets, as well as changes in their own situations,
and adjusting their portfolios accordingly. As always, we appreciate your
confidence in MFS 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 18, 2000
- ------------
(1) Source: Standard & Poor's. The Standard & Poor's 500 Composite Index (the
S&P 500) is a popular, unmanaged index of common stock total return
performance. It is not possible to invest directly in an index.
(2) Source: FactSet Research. The dividend yield of a stock is calculated by
dividing the dividend per share by the current market price per share.
(3) These risks may increase share price volatility. Please see a prospectus
for details.
A prospectus containing more complete information on any MFS product,
including charges and expenses, can be obtained from your investment
professional. Please read it carefully before you invest or send money.
Investments in mutual funds will fluctuate and may be worth more or less upon
redemption.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of David M. Calabro]
David M. Calabro
For the six months ended March 31, 2000, Class A shares of the Fund provided a
total return of 4.55%, Class B shares 4.14%, Class C shares 4.20%, and Class I
shares 4.73%. These returns assume the reinvestment of any distributions but
exclude the effects of any sales charges and compare to a 17.50% return for the
Fund's benchmark, 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 2.27% return for the Lehman
Brothers Government/Corporate Bond Index, an unmanaged, market-value-weighted
index of U.S. Treasury and government-agency securities that excludes
mortgage-backed securities. During the same period, the average balanced fund
tracked by Lipper Inc., an independent firm that reports mutual fund
performance, returned 10.51%.
Q. WHAT FACTORS CAUSED THE FUND TO LAG THE S&P 500 AND ITS LIPPER PEER GROUP?
A. During most of the period, our balanced investment approach of emphasizing
equities and fixed-income securities detracted from relative performance, as
equities outperformed bonds by a wide margin. Toward the end of the period,
however, we started to experience the benefits of the portfolio's broad
diversification, as the equity market, especially technology stocks,
experienced extreme volatility. Unlike many balanced funds, which may
maintain a larger exposure to equities, we follow a disciplined asset
allocation strategy toward managing this portfolio. We believe this strategy
offers investors the ability to pursue long-term growth while also helping
to reduce risks and volatility through broad diversification across
different asset classes. As a result, the Fund's typical asset allocation
has remained consistent, at about 60% stocks and 40% bonds and short-term
investments.
Q. CAN YOU TELL US A BIT MORE ABOUT YOUR INVESTMENT STRATEGY GIVEN THE
MARKET'S EXTREME VOLATILITY?
A. Our equity strategy tends toward a value approach, with a focus on companies
that exhibit improving business fundamentals, strong management teams,
positive earnings outlooks, and strong franchises that we believe have been
overlooked by the market. In our view, today's environment of extreme market
speculation and volatility creates opportunities for our style of portfolio
management. Despite the recent sell-off in technology stocks, the market's
obsession with technology and telecommunications companies has caused
investors to ignore what we believe are high-quality companies in other
sectors with promising earnings outlooks and strong cash flows. We have
tried to take advantage of recent market volatility to increase our
positions in companies that we believe represent solid long-term growth
opportunities at reasonable valuations.
Q. WHAT COMPANIES AND SECTORS REPRESENT ATTRACTIVE OPPORTUNITIES TO YOU?
A. Some good examples of companies that have met our strict investment criteria
include Bell Atlantic and Emerson Electric. Despite relatively lackluster
stock performance recently, we believe their market leadership positions and
encouraging prospects for earnings growth should translate into better stock
performance. Other stocks that we think look attractive are energy companies
such as BP Amoco, Exxon Mobil, and Coastal Corp. We believe investors have
incorrectly overlooked these companies despite their strong balance sheets,
bright earnings outlooks, and rising oil and natural gas prices. We're also
finding opportunities among a wide range of financial services, leisure, and
consumer goods stocks. In our view, a number of stocks in these sectors
appear attractively valued and are poised to benefit from the strong U.S.
economy and robust consumer spending. Despite the possibility of higher
interest rates, we believe attractive stock valuations, the benefits of a
healthy economy, and a potential increase in mergers and acquisitions
activity could be the catalysts to strong stock performance in the financial
services sector.
Q. HOW DID YOU POSITION THE BOND HOLDINGS IN THE PORTFOLIO?
A. It has been a difficult environment for bonds due to the Federal Reserve
Board's bias toward raising interest rates and the market's extreme
nervousness about inflation. We currently hold approximately 37% of our net
assets in bonds. About 21% of these assets are in investment-grade corporate
bonds, with the rest in U.S. Treasuries and mortgage-backed securities
(Principal value and interest on Treasury securities are guaranteed by the
U.S. government if held to maturity). While the portfolio's overall exposure
to bonds has remained fairly stable, my colleague, Geoffrey Kurinsky,
lowered the average duration -- an indicator of a bond's sensitivity to
changes in interest rates -- of the bond holdings to roughly 5.1 years, from
5.3 years toward the end of 1999.
Q. YOU'VE INCREASED THE PORTFOLIO'S HOLDINGS IN FOREIGN SECURITIES TO
APPROXIMATELY 10% OF NET ASSETS. DO YOU ANTICIPATE THIS PERCENTAGE GOING
MUCH HIGHER?
A. We're comfortable with the portfolio's current position in foreign
securities; however, it could increase if we continue to find attractive
opportunities. In our view, the situation overseas is very encouraging, as
many companies in Europe and Japan are displaying many of the beneficial
characteristics that American businesses exhibited several years ago. More
specifically, European and Japanese companies are starting to benefit from a
wave of restructuring and consolidation that has helped to lower costs and
improve their competitiveness. We believe this trend should continue to
benefit our holdings in these regions.
Q. WHAT'S YOUR OUTLOOK FOR THE STOCK MARKET IN THE COMING MONTHS?
A. Although we haven't seen optimal conditions for value stocks for some time
now, as we've seen in the past, the market could shift its focus toward
value stocks very quickly. Looking at the stock market from the late 1960s
to the early 1980s, value investing was a highly successful strategy, as
value-oriented stock pickers were able to post reasonable gains in an
otherwise flat stock market. Value stocks also have tended to become market
leaders when we have emerged from some kind of economic or market
difficulty. This is a backdrop we haven't seen for some time, except for
short periods such as the second quarter of 1999. At that time, the rebound
in global economic growth helped spur a rally in value stocks. Otherwise,
growth stocks have dominated the market in the last few years, driven by the
unprecedented expansion of the U.S. economy. Nevertheless, we've recently
started to see a renewed interest in value stocks due in part to heightened
concerns about inflation and high valuations in the technology sector. Our
feeling is that these are pretty good reasons for this recent trend toward
value stocks to continue.
/s/ David M. Calabro
David M. Calabro
Lead Portfolio Manager
(On behalf of the MFS Total Return team)
The opinions expressed in this report are those of the lead portfolio manager
and are current only through the end of the period of the report as stated on
the cover. The manager's views are subject to change at any time based on
market and other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
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PORTFOLIO MANAGERS' PROFILES
- --------------------------------------------------------------------------------
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 EQUITY PORTION OF THE FUND'S
PORTFOLIO. MR. CALABRO HAS BEEN EMPLOYED BY MFS SINCE 1992. MR. ENRIGHT,
A MANAGER OF THE EQUITY 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,
A MANAGER OF THE EQUITY PORTION OF THE FUND'S PORTFOLIO, HAS BEEN
EMPLOYED BY MFS SINCE 1990. MS. NURME, A MANAGER OF THE EQUITY PORTION
OF THE FUND'S PORTFOLIO, HAS BEEN EMPLOYED BY MFS SINCE 1987.
ALL PORTFOLIO MANAGERS AT MFS INVESTMENT MANAGEMENT(R) ARE SUPPORTED BY
AN INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS(R) ORIGINAL
RESEARCH(SM), A COMPANY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING
SECURITIES.
- --------------------------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your investment professional, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS ABOVE-AVERAGE INCOME (COMPARED TO A PORTFOLIO
ENTIRELY INVESTED IN STOCKS) CONSISTENT WITH THE
PRUDENT EMPLOYMENT OF CAPITAL. THE FUND ALSO SEEKS
GROWTH OF CAPITAL AND INCOME.
COMMENCEMENT OF
INVESTMENT OPERATIONS: OCTOBER 6, 1970
CLASS INCEPTION: CLASS A OCTOBER 6, 1970
CLASS B AUGUST 23, 1993
CLASS C AUGUST 1, 1994
CLASS I JANUARY 2, 1997
SIZE: $5.9 BILLION NET ASSETS AS OF MARCH 31, 2000
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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.)
<TABLE>
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH MARCH 31, 2000
<CAPTION>
CLASS A
6 Months 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge +4.55% +4.75% +39.04% +92.98% +206.91%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding
Sales Charge -- +4.75% +11.61% +14.05% + 11.87%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including
Sales Charge -- -0.23% + 9.82% +12.95% + 11.32%
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
6 Months 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge +4.14% +4.07% +36.27% +86.28% +192.17%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding
Sales Charge -- +4.07% +10.87% +13.25% + 11.32%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including
Sales Charge -- +0.26% +10.09% +13.00% + 11.32%
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
6 Months 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge +4.20% +4.06% +36.34% +86.54% +195.73%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding
Sales Charge -- +4.06% +10.89% +13.28% + 11.45%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including
Sales Charge -- +3.10% +10.89% +13.28% + 11.45%
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<CAPTION>
CLASS I
6 Months 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge +4.73% +5.12% +40.52% +95.25% +210.52%
- -------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding
Sales Charge -- +5.12% +12.01% +14.32% + 12.00%
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</TABLE>
NOTES TO PERFORMANCE SUMMARY
Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 4.75% sales charge. Class B Share Performance
Including Sales Charge takes into account the deduction of the applicable
contingent deferred sales charge (CDSC), which declines over six years from 4%
to 0%. Class C Share Performance Including Sales Charge takes into account the
deduction of the 1% CDSC applicable to Class C shares redeemed within 12
months. Class I shares have no sales charge and are only available to certain
institutional investors.
Class B, C, and I share performance include the performance of the Fund's
Class A shares for periods prior to their inception (blended performance).
Class B and C blended performance has been adjusted to take into account the
CDSC applicable to Class B and C shares rather than the initial sales charge
(load) applicable to Class A shares. Class I share blended performance has
been adjusted to account for the fact that Class I shares have no sales
charge. These blended performance figures have not been adjusted to take into
account differences in class-specific operating expenses. Because operating
expenses of Class B and C shares are higher than those of Class A, the blended
Class B and C share performance is higher than it would have been had Class B
and C shares been offered for the entire period. Conversely, because operating
expenses of Class I shares are lower than those of Class A, the blended Class
I share performance is lower than it would have been had Class I shares been
offered for the entire period.
All performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and
capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE
RECENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
PORTFOLIO CONCENTRATION AS OF MARCH 31, 2000
FIVE LARGEST STOCK SECTORS
FINANCIAL SERVICES 22.2%
UTILITIES & COMMUNICATIONS 21.5%
ENERGY 14.4%
LEISURE 7.3%
BASIC MATERIALS 6.4%
TOP 10 STOCK HOLDINGS
GTE CORP. 2.6% TRW, INC. 1.9%
Telecommunications company Automotive and transport equipment
manufacturer
HARTFORD FINANCIAL SERVICES NOBLE DRILLING CORP. 1.7%
GROUP, INC. 2.2% Oil and natural gas services and
Multiline insurance company equipment company
COASTAL CORP. 2.2% AKZO NOBEL N.V. 1.7%
Oil and natural gas company Diversified Dutch chemical company
EXXON MOBIL CORP. 2.0% WILLIAMS COS., INC. 1.5%
International oil and gas company Natural gas pipeline company
BP AMOCO PLC 1.9% ST. PAUL COS., INC. 1.5%
British oil and petrochemical company International property-casualty and
life insurance company
The portfolio is actively managed, and current holdings may be different.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- March 31, 2000
<CAPTION>
Stocks - 56.7%
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ISSUER SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 50.3%
Aerospace - 2.6%
Boeing Co. 326,400 $ 12,382,800
General Dynamics Corp. 317,100 15,775,725
Honeywell International, Inc. 612,800 32,286,900
TRW, Inc. 1,166,100 68,216,850
United Technologies Corp. 414,996 26,222,560
--------------
$ 154,884,835
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Agricultural Products
AGCO Corp. 35,000 $ 398,125
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Automotive - 0.9%
Delphi Automotive Systems Corp. 1,782,000 $ 28,512,000
Ford Motor Co. 485,100 22,284,281
--------------
$ 50,796,281
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Banks and Credit Companies - 2.2%
Bank America Corp. 940,500 $ 49,317,469
Bank of New York Co., Inc. 415,608 17,273,707
Bank One Corp. 165,000 5,671,875
Chase Manhattan Corp. 82,300 7,175,531
PNC Bank Corp. 1,122,200 50,569,137
Providian Financial Corp. 6,100 528,413
Washington Mutual, Inc. 17,100 453,150
--------------
$ 130,989,282
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Business Machines - 1.0%
Hewlett-Packard Co. 68,200 $ 9,040,763
International Business Machines Corp. 415,500 49,029,000
Xerox Corp. 161,000 4,186,000
--------------
$ 62,255,763
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Business Services - 0.3%
Automatic Data Processing, Inc. 288,400 $ 13,915,300
Computer Sciences Corp.* 6,200 490,575
United Parcel Service, Inc. 35,200 2,217,600
--------------
$ 16,623,475
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Cellular Telephones - 0.6%
Telephone & Data Systems, Inc. 293,560 $ 32,585,160
- --------------------------------------------------------------------------------------------------------
Chemicals - 1.4%
Air Products & Chemicals, Inc. 883,100 $ 25,113,156
Dow Chemical Co. 11,700 1,333,800
Eastman Chemical Co. 110,000 5,005,000
PPG Industries, Inc. 234,900 12,288,206
Rohm & Haas Co. 802,300 35,802,638
--------------
$ 79,542,800
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Computer Hardware - Systems
Compaq Computer Corp. 18,000 $ 479,250
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Conglomerates - 0.5%
Eastern Enterprises Co. 413,284 $ 24,745,380
Tyco International Ltd. 34,910 1,741,136
--------------
$ 26,486,516
- --------------------------------------------------------------------------------------------------------
Construction Services
Martin Marietta Materials, Inc. 10,000 $ 475,000
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.6%
Fortune Brands, Inc. 524,000 $ 13,100,000
International Flavours & Fragrances, Inc. 355,300 12,457,706
Kimberly-Clark Corp. 129,700 7,263,200
--------------
$ 32,820,906
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Containers - 0.2%
Owens Illinois, Inc.* 808,300 $ 13,640,063
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Electrical Equipment - 0.9%
Emerson Electric Co. 972,900 $ 51,442,088
General Electric Co. 24,044 3,731,328
--------------
$ 55,173,416
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Energy - 0.8%
Devon Energy Corp. 904,600 $ 43,929,638
Energy East Corp. 21,600 427,950
Sierra Pacific Resources Co. 332,808 4,160,100
--------------
$ 48,517,688
- --------------------------------------------------------------------------------------------------------
Entertainment - 1.4%
Carnival Corp. 20,000 $ 496,250
CBS Corp.* 142,700 8,080,388
Disney (Walt) Co. 664,400 27,489,550
Harrah's Entertainment, Inc.* 1,135,000 21,068,437
Infinity Broadcasting Corp. "A"* 292,500 9,469,687
MediaOne Group, Inc.* 47,700 3,863,700
Time Warner, Inc. 130,700 13,070,000
--------------
$ 83,538,012
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Financial Institutions - 2.2%
Associates First Capital Corp., "A" 661,800 $ 14,187,337
Citigroup, Inc. 323,000 19,157,937
Edwards (A.G.), Inc. 822,900 32,916,000
Federal Home Loan Mortgage Corp. 641,600 28,350,700
FleetBoston Financial Corp. 26,400 963,600
Franklin Resources, Inc. 15,000 501,563
Household International, Inc. 14,000 522,375
Merrill Lynch & Co., Inc. 218,500 22,942,500
Morgan (J.P.) & Co. 3,800 500,650
Morgan Stanley Dean Witter & Co. 9,000 734,063
State Street Corp. 93,200 9,028,750
--------------
$ 129,805,475
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Financial Services - 1.1%
AXA Financial, Inc. 996,564 $ 35,751,733
Mellon Financial Corp. 1,007,700 29,727,150
--------------
$ 65,478,883
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Food and Beverage Products - 2.2%
Anheuser-Busch Cos., Inc. 225,500 $ 14,037,375
Archer-Daniels-Midland Co. 2,408,354 24,986,672
General Mills, Inc. 558,100 20,196,244
Hershey Foods Corp. 250,100 12,192,375
Keebler Foods Co. 20,000 573,750
McCormick & Co., Inc. 164,100 5,292,225
Quaker Oats Co. 494,000 29,948,750
Seagram Ltd. 420,900 23,359,950
--------------
$ 130,587,341
- --------------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.9%
Bowater, Inc. 663,800 $ 35,430,325
International Paper Co. 86,800 3,710,700
Weyerhaeuser Co. 276,900 15,783,300
--------------
$ 54,924,325
- --------------------------------------------------------------------------------------------------------
Furniture and Home Appliances
Maytag Corp. 10,000 $ 331,250
- --------------------------------------------------------------------------------------------------------
Insurance - 6.5%
Allstate Corp. 496,800 $ 11,830,050
American International Group, Inc. 179,350 19,638,825
Aon Corp. 1,211,700 39,077,325
Chubb Corp. 107,600 7,269,725
CIGNA Corp. 284,200 21,528,150
Gallagher (Arthur J.) & Co. 20,000 650,000
Hartford Financial Services Group, Inc. 1,544,800 81,488,200
Jefferson Pilot Corp. 351,900 23,423,343
Lincoln National Corp. 1,607,900 53,864,650
Marsh & McLennan Cos., Inc. 121,900 13,447,094
Nationwide Financial Services, Inc., "A" 490,500 14,347,125
ReliaStar Financial Corp. 1,301,800 44,098,475
St. Paul Cos., Inc. 1,619,200 55,255,200
--------------
$ 385,918,162
- --------------------------------------------------------------------------------------------------------
Machinery - 1.0%
Deere & Co., Inc. 954,900 $ 36,286,200
Ingersoll Rand Co. 319,400 14,133,450
W.W. Grainger, Inc. 188,600 10,231,550
--------------
$ 60,651,200
- --------------------------------------------------------------------------------------------------------
Medical and Health Products - 3.0%
Abbott Laboratories, Inc. 992,900 $ 34,937,669
American Home Products Corp. 669,400 35,896,575
Baxter International, Inc. 50,000 3,134,375
Bristol-Myers Squibb Co. 714,800 41,279,700
Pharmacia & Upjohn, Inc. 867,700 51,411,225
Schering Plough Corp. 334,100 12,278,175
--------------
$ 178,937,719
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.2%
United Healthcare Corp. 170,600 $ 10,172,025
- --------------------------------------------------------------------------------------------------------
Metals and Minerals - 0.1%
Alcoa, Inc. 55,200 $ 3,877,800
Reynolds Metals Co. 10,000 668,750
--------------
$ 4,546,550
- --------------------------------------------------------------------------------------------------------
Oil Services - 2.3%
Baker Hughes, Inc. 30,000 $ 907,500
Burlington Resources, Inc. 10,000 370,000
Cooper Cameron Corp.* 232,700 15,561,813
Halliburton Co. 757,600 31,061,600
Kerr McGee Corp. 173,000 9,990,750
Noble Drilling Corp.* 1,522,300 63,080,306
Smith International, Inc.* 177,000 13,717,500
Weatherford International, Inc.* 12,000 707,250
--------------
$ 135,396,719
- --------------------------------------------------------------------------------------------------------
Oils - 4.9%
Anadarko Petroleum Corp. 12,000 $ 464,250
Apache Corp. 570,900 28,402,275
Atlantic Richfield Co. 10,000 850,000
Chevron Corp. 148,000 13,680,750
Coastal Corp. 1,712,875 78,792,250
Conoco, Inc. 183,400 4,699,625
Conoco, Inc., "A" 1,066,700 26,267,487
EOG Resources, Inc. 381,700 8,087,269
Exxon Mobil Corp. 948,880 73,834,725
Newfield Exploration Co.* 140,500 4,952,625
Occidental Petroleum Corp. 584,700 12,132,525
Phillips Petroleum Co. 542,700 25,099,875
Transocean Sedco Forex, Inc.* 22,200 1,139,138
Unocal Corp. 371,550 11,053,612
--------------
$ 289,456,406
- --------------------------------------------------------------------------------------------------------
Photographic Products - 0.1%
Eastman Kodak Co. 18,000 $ 977,625
Polaroid Corp. 304,300 7,227,125
--------------
$ 8,204,750
- --------------------------------------------------------------------------------------------------------
Printing and Publishing - 1.5%
Gannett Co., Inc. 522,300 $ 36,756,863
New York Times Co. 693,100 29,759,981
Tribune Co. 587,700 21,487,781
--------------
$ 88,004,625
- --------------------------------------------------------------------------------------------------------
Railroads - 0.3%
Burlington Northern Santa Fe Railway Co. 902,500 $ 19,967,813
- --------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.4%
CarrAmerica Realty Corp. 344,300 $ 7,273,337
Equity Residential Properties Trust 234,900 9,440,044
Kilroy Realty Corp. 230,400 4,852,800
--------------
$ 21,566,181
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
McDonald's Corp. 216,100 $ 8,117,256
- --------------------------------------------------------------------------------------------------------
Stores - 0.1%
CVS Corp. 12,200 $ 458,263
Office Depot, Inc.* 376,000 4,347,500
TJX Cos., Inc. 40,000 887,500
--------------
$ 5,693,263
- --------------------------------------------------------------------------------------------------------
Supermarkets - 0.9%
Kroger Co.* 1,883,128 $ 33,072,436
Safeway, Inc.* 482,900 21,851,225
--------------
$ 54,923,661
- --------------------------------------------------------------------------------------------------------
Telecommunications - 3.9%
Alltel Corp. 8,700 $ 548,644
AT&T Corp. 320,700 18,039,375
AT&T Corp. "A"* 10,000 592,500
Bell Atlantic Corp. 589,900 36,057,637
GTE Corp. 1,334,100 94,721,100
Intermedia Communications, Inc.* 541 26,137
Motorola, Inc. 195,200 27,791,600
SBC Communications, Inc. 1,097,848 46,109,616
Sprint Corp. 65,200 4,107,600
Winstar Communications, Inc.* 987 59,220
--------------
$ 228,053,429
- --------------------------------------------------------------------------------------------------------
Telecommunications and Cable
Comcast Corp., "A"* 5,000 $ 216,875
- --------------------------------------------------------------------------------------------------------
Transportation
Union Pacific Corp. 15,800 $ 618,175
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 2.3%
AES Corp.* 7,000 $ 551,250
Carolina Power & Light Co. 497,800 16,147,387
CMS Energy Corp. 146,000 2,646,250
Duke Energy Corp. 459,900 24,144,750
Florida Progress Corp. 250,600 11,496,275
FPL Group, Inc. 122,500 5,642,656
GPU, Inc. 352,300 9,644,213
Keyspan Corp. 481,800 13,309,725
NiSource, Inc. 425,000 7,171,875
NSTAR Co. 348,300 14,628,600
Peco Energy Co. 314,900 11,611,937
Pinnacle West Capital Corp. 692,900 19,531,119
Texas Utilities Co. 15,000 445,313
--------------
$ 136,971,350
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 2.9%
Columbia Energy Group 373,920 $ 22,154,760
El Paso Energy Corp. 885,200 35,739,950
National Fuel Gas Co. 852,900 38,007,356
NICOR, Inc. 280,900 9,252,144
Washington Gas Light Co. 368,100 10,007,719
Williams Cos., Inc. 1,284,700 56,446,506
--------------
$ 171,608,435
- --------------------------------------------------------------------------------------------------------
Utilities - Telephone
U.S. West, Inc. 10,000 $ 726,250
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks $2,980,084,690
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - 6.4%
Canada - 0.3%
Canadian National Railway Co. (Railroads) 366,000 $ 9,767,625
Seagrams Ltd. (Conglomerates) 109,600 6,521,200
Talisman Energy, Inc. (Oils) 20,000 571,250
--------------
$ 16,860,075
- --------------------------------------------------------------------------------------------------------
France - 0.7%
Axa (Insurance) 176,600 $ 25,035,043
Total Fina S.A., ADR (Oils) 183,000 13,473,375
--------------
$ 38,508,418
- --------------------------------------------------------------------------------------------------------
Ireland - 0.1%
Jefferson Smurfit Group PLC, ADR (Containers) 293,700 $ 7,929,900
- --------------------------------------------------------------------------------------------------------
Japan - 0.6%
Fuji Heavy Industries Ltd. (Automotive) 1,044,000 $ 8,472,837
Nippon Telegraph & Telephone Corp.
(Utilities - Telephone) 880 13,975,059
Nippon Telegraph & Telephone Corp., ADR
(Utilities - Telephone) 200,800 15,825,550
--------------
$ 38,273,446
- --------------------------------------------------------------------------------------------------------
Netherlands - 2.2%
Akzo Nobel N.V. (Chemicals) 1,421,092 $ 60,667,994
ING Groep N.V. (Financial Services)* 386,354 20,931,697
Royal Dutch Petroleum Co., ADR (Oils) 826,600 47,581,162
--------------
$ 129,180,853
- --------------------------------------------------------------------------------------------------------
Switzerland - 0.6%
Nestle S.A. (Food and Beverage Products) 21,206 $ 38,025,080
- --------------------------------------------------------------------------------------------------------
United Kingdom - 1.9%
BP Amoco PLC, ADR (Oils) 1,280,638 $ 67,953,854
British Aerospace PLC (Aerospace)* 1,935,500 10,781,889
CGU PLC (Insurance)* 650,700 9,020,541
Diageo PLC (Food and Beverage Products)* 2,804,345 21,123,004
SmithKline- Beecham PLC, ADR (Medical and Health
Products) 67,200 4,439,400
--------------
$ 113,318,688
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 382,096,460
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $3,105,138,818) $3,362,181,150
- --------------------------------------------------------------------------------------------------------
Bonds - 37.2%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
U.S. Bonds - 36.4%
Advertising
Lamar Advertising Co., 5.25s, 2006 $ 996 $ 1,115,520
- --------------------------------------------------------------------------------------------------------
Airlines - 0.5%
Delta Airlines, Inc., 6.65s, 2004 $ 14,308 $ 13,608,625
Jet Equipment Trust, 9.41s, 2010## 3,365 3,655,534
Jet Equipment Trust, 8.64s, 2012## 3,045 3,103,765
Jet Equipment Trust, 11.44s, 2014## 4,700 5,462,857
Jet Equipment Trust, 10.69s, 2015## 1,250 1,421,650
--------------
$ 27,252,431
- --------------------------------------------------------------------------------------------------------
Apparel and Textiles - 0.2%
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 $ 7,415 $ 6,834,925
Jones Apparel Group, Inc., 6.25s, 2001 4,280 4,164,654
--------------
$ 10,999,579
- --------------------------------------------------------------------------------------------------------
Automotive - 2.1%
Daimler Chrysler North America, 7.4s, 2005 $ 16,684 $ 16,644,793
Ford Credit Auto Owner Trust, 6.2s, 2002 15,618 15,563,815
Ford Motor Co., 6.625s, 2028 6,263 5,507,620
Ford Motor Co., 8.9s, 2032 6,770 7,721,862
Ford Motor Credit Co., 5.75s, 2004 21,540 20,306,404
Ford Motor Credit Co., 6.7s, 2004 4,594 4,464,863
Ford Motor Credit Co., 7.5s, 2005 16,242 16,251,907
Ford Motor Credit Co., 7.75s, 2007 13,898 13,830,456
Ford Motor Credit Co., 7.375s, 2009 19,723 19,321,834
General Motors Corp., 9.4s, 2021 5,049 5,944,844
--------------
$ 125,558,398
- --------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 1.6%
Bank of America, 7.8s, 2010 $ 2,180 $ 2,212,874
Beaver Valley Funding Corp. II, 9s, 2017 9,152 9,331,654
Capital One Financial Corp., 7.25s, 2003 4,845 4,754,922
Chase Manhattan Corp., 6.75s, 2004 2,466 2,406,767
Colonial Capital II, 8.92s, 2027 5,010 4,607,422
Fleet Boston Corp., 9.9s, 2001 8,700 8,969,004
Fleet National Bank, 5.75s, 2009 7,321 6,473,301
Midamerican Funding LLC, 5.85s, 2001 9,980 9,843,444
Midamerican Funding LLC, 6.927s, 2029 12,485 11,091,419
Midland Cogeneration Venture Corp., 10.33s, 2002 8 7,713
Midland Funding Corp., 10.33s, 2002 757 775,637
Midland Funding Corp. II, "A", 11.75s, 2005 11,000 11,927,740
Midland Funding Corp., "B", 13.25s, 2006 9,695 11,425,751
Riggs National Corp., 9.65s, 2009 1,425 1,400,063
Socgen Real Estate Co., 7.64s, 2049## 3,894 3,700,974
Washington Mutual Capital I, 8.375s, 2027 4,590 4,330,895
--------------
$ 93,259,580
- --------------------------------------------------------------------------------------------------------
Business Services - 0.2%
Harrahs Operating Inc., 7.5s, 2009 $ 2,300 $ 2,203,239
Unisys Corp., 12s, 2003 2,012 2,132,720
Unisys Corp., 11.75s, 2004 7,000 7,542,500
--------------
$ 11,878,459
- --------------------------------------------------------------------------------------------------------
Conglomerates - 0.4%
Eaton Corp., 6.95s, 2004 $ 4,382 $ 4,317,015
News America Holdings, Inc., 10.125s, 2012 1,085 1,159,691
News America Holdings, Inc., 7.3s, 2028 8,176 7,227,502
News America Holdings, Inc., 6.703s, 2034 12,847 12,411,230
--------------
$ 25,115,438
- --------------------------------------------------------------------------------------------------------
Corporate Asset Backed - 2.9%
American Airlines Pass-Through Trust, 6.855s, 2009 $ 6,289 $ 6,173,408
Banamex Credit Card Merchant Voucher, 6.25s, 2003## 4,398 4,284,683
BCF LLC, 7.75s, 2026## 3,196 1,741,753
Bear Stearns Commercial Mortgage Secs, Inc., 6.8s, 2008 11,634 11,334,365
BTC Mortgage Investors Trust, 6.95s, 2009 3,572 3,527,335
Chase Commercial Mortgage Securities Corp., 6.39s, 2008 8,417 7,832,194
Commerce 2000, 6.318s, 2011 7,494 7,499,855
Contimorgage Home Equity, 6.13s, 2013 16,195 16,063,813
Continental Airlines Pass-Through Trust, Inc.,
6.648s, 2017 11,607 10,573,399
Continental Airlines Pass-Through Trust, Inc.,
6.545s, 2019 2,543 2,342,702
Continental Airlines Pass-Through Trust, Inc.,
7.256s, 2020 6,433 6,169,948
Continental Airlines, Inc., 9.5s, 2013 3,522 3,653,008
Criimi Mae Commercial Mortgage Trust, 7s, 2011 5,500 4,798,750
Criimi Mae Corp., 6.701s, 2008 4,350 3,961,898
Cwabs, Inc., 6.5s, 2013 3,966 3,940,676
Fleet Credit Card Master Trust, 6.224s, 2007 10,000 10,025,000
Illinois Power Special Purpose Trust, 5.26s, 2003 4,703 4,647,128
Merrill Lynch Mortgage Investors, Inc., 8.437s, 2022+ 4,000 3,797,500
Merrill Lynch Mortgage Investors, Inc., 9s, 2011 17 17,011
Morgan (J P) Commercial Mortgage Finance Corp.,
6.613s, 2030 4,018 3,776,997
Northwest Airlines, Inc., 7.575s, 2019 7,538 7,342,457
Northwest Airlines, Inc., 6.81s, 2020 1,511 1,357,572
Residential Accredit Loans, Inc., 6.75s, 2028 21,246 20,170,315
Residential Accredit Loans, Inc., 7s, 2028 9,068 8,575,940
Residential Funding Mortgage Securities, Inc.,
7.66s, 2012 3,901 3,898,562
Time Warner Pass-Through Asset Trust, 6.1s, 2001## 17,578 17,202,710
--------------
$ 174,708,979
- --------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1%
American Tower Corp., 5s, 2010 $ 3,710 $ 4,215,488
- --------------------------------------------------------------------------------------------------------
Electronics
Conexant Systems, Inc., 4.25s, 2006 $ 800 $ 2,550,000
- --------------------------------------------------------------------------------------------------------
Entertainment - 0.7%
Hearst Argyle Television, Inc., 7.5s, 2027 $ 7,905 $ 7,319,476
Time Warner Entertainment Co. LP, 8.375s, 2033 7,337 7,672,741
Time Warner, Inc., 10.15s, 2012 15,295 17,772,790
Time Warner, Inc., 8.375s, 2023 5,128 5,339,838
Time Warner, Inc., 9.15s, 2023 2,300 2,580,462
--------------
$ 40,685,307
- --------------------------------------------------------------------------------------------------------
Finance - 0.1%
Countrywide Funding Corp., 6.25s, 2009 $ 6,410 $ 5,821,498
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 2.5%
Aristar, Inc., 7.375s, 2004 $ 4,765 $ 4,736,363
Aristar, Inc., 7.25s, 2006 7,962 7,711,356
Associates Corp., 5.5s, 2004 947 883,362
AT & T Capital Corp., 6.25s, 2001 5,379 5,316,926
General Motors Acceptance Corp., 5.5s, 2002 3,000 2,903,370
General Motors Acceptance Corp., 6.75s, 2002 29,500 29,145,115
General Motors Acceptance Corp., 5.95s, 2003 17,142 16,449,772
Goldman Sachs Group LP, 5.9s, 2003 5,300 5,081,004
GS Escrow Corp., 6.75s, 2001 18,807 18,137,997
Household Finance Corp., 7.875s, 2007 14,265 14,370,276
Merrill Lynch & Co., Inc., 6.07s, 2004 13,821 13,163,811
Morgan Stanley Group, Inc., 7.125s, 2003 9,600 9,536,928
Salton Sea Funding Corp., 7.37s, 2005 4,148 4,019,611
Salton Sea Funding Corp., 7.84s, 2010 7,270 7,096,247
Salton Sea Funding Corp., 8.3s, 2011 2,035 2,040,245
Sunamerica Institutional, 5.75s, 2009 9,589 8,495,470
United Companies Financial Corp., 7.7s, 2004 2,650 1,060,000
--------------
$ 150,147,853
- --------------------------------------------------------------------------------------------------------
Financial Services - 1.8%
Bellsouth Capital Funding Corp., 7.75s, 2010 $ 13,779 $ 14,038,459
Conseco Finance Corp., 10.25s, 2002 7,497 7,712,839
Deere (John) Capital Corp., 7s, 2002 6,261 6,206,717
General Electric Capital Corp., 7.25s, 2005 12,300 12,331,980
General Electric Capital Corp., 8.7s, 2007 9,646 10,327,191
General Electric Capital Corp., 8.75s, 2007 3,073 3,344,069
General Electric Capital Corp., 8.85s, 2007 4,572 4,991,390
Sprint Capital Corp., 6.5s, 2001 17,261 17,063,879
Sprint Capital Corp., 5.875s, 2004 4,418 4,179,163
Sprint Capital Corp., 6.125s, 2008 12,000 10,924,680
Sprint Capital Corp., 6.9s, 2019 12,000 11,014,920
Sprint Capital Corp., 6.875s, 2028 2,738 2,455,356
--------------
$ 104,590,643
- --------------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.7%
Nabisco, Inc., 6.375s, 2035 $ 4,856 $ 4,531,716
Seagram (Joseph E) & Sons, Inc., 5.79s, 2001 12,771 12,574,199
Seagram (Joseph E) & Sons, Inc., 6.4s, 2003 17,630 16,811,968
Seagram (Joseph E) & Sons, Inc., 7.5s, 2018 6,912 6,434,035
Seagram (Joseph E) & Sons, Inc., 7.6s, 2028 4,100 3,774,911
--------------
$ 44,126,829
- --------------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.6%
Georgia-Pacific Corp., 9.95s, 2002 $ 4,320 $ 4,514,961
Georgia Pacific Corp., 7.7s, 2015 6,200 6,064,530
Georgia-Pacific Corp., 9.875s, 2021 11,382 12,072,091
Georgia-Pacific Corp., 9.5s, 2022 1,000 1,060,070
Georgia-Pacific Corp., 7.75s, 2029 12,460 11,667,793
--------------
$ 35,379,445
- --------------------------------------------------------------------------------------------------------
Insurance - 0.7%
Aflac, Inc., 6.5s, 2009 $ 22,913 $ 20,970,894
Atlantic Mutual Insurance Co., 8.15s, 2028 10,964 8,683,707
Providian Capital I, 9.525s, 2027 11,526 9,666,050
--------------
$ 39,320,651
- --------------------------------------------------------------------------------------------------------
Medical and Health Products
Sepracor, Inc., 7s, 2005 $ 1,800 $ 2,351,250
- --------------------------------------------------------------------------------------------------------
Oil Services - 0.4%
Kerr McGee Corp., 5.25s, 2010 $ 1,280 $ 1,480,000
McDermott, Inc., 9.375s, 2002 20,305 18,406,483
Ultramar Diamond Shamrock Corp., 7.2s, 2017 5,030 4,663,363
--------------
$ 24,549,846
- --------------------------------------------------------------------------------------------------------
Oils - 0.1%
Occidental Petroleum Corp., 6.75s, 2002 $ 1,712 $ 1,672,419
Occidental Petroleum Corp., 6.4s, 2003 1,245 1,210,252
Oryx Energy Co., 8s, 2003 2,000 1,996,380
--------------
$ 4,879,051
- --------------------------------------------------------------------------------------------------------
Railroads - 0.2%
Union Pacific Corp., 5.78s, 2001 $ 4,513 $ 4,384,966
Union Pacific Corp., 6.34s, 2003 7,211 6,885,279
--------------
$ 11,270,245
- --------------------------------------------------------------------------------------------------------
Stores - 0.4%
Federated Department Stores, Inc., 8.5s, 2003 $ 9,959 $ 10,202,398
Federated Department Stores, Inc., 6.3s, 2009 12,875 11,621,876
--------------
$ 21,824,274
- --------------------------------------------------------------------------------------------------------
Supermarkets - 0.2%
Safeway, Inc., 5.875s, 2001 $ 10,400 $ 10,143,744
- --------------------------------------------------------------------------------------------------------
Telecommunications - 1.0%
Qwest Communications International, Inc., 7.5s, 2008 $ 20,492 $ 19,928,470
Sprint Spectrum LP, 11s, 2006 3,750 4,092,038
TCI Communications Financing III, 9.65s, 2027 15,844 18,449,863
Telecomunicaciones de Puerto Rico, Inc., 6.65s, 2006 5,862 5,570,239
United Telecommunications Co., 9.5s, 2003 6,806 7,152,017
WorldCom, Inc., 8.875s, 2006 5,000 5,211,800
--------------
$ 60,404,427
- --------------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.2%
Belo Ah Corp., 7.75s, 2027 $ 8,035 $ 7,576,925
Comcast Corp., 10.25s, 2001 6,818 7,083,697
--------------
$ 14,660,622
- --------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 4.6%
Federal Home Loan Bank - 0.3%
Federal Home Loan Bank, 5.7s, 2009 $ 9,375 $ 8,496,094
Federal Home Loan Bank, 6.5s, 2028 9,399 8,824,308
--------------
$ 17,320,402
- --------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation
FHLMC, 6.5s, 2028 - 2028 $ 4,237 $ 3,977,489
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association - 4.3%
FNMA, 5.25s, 2009 $ 24,590 $ 21,520,184
FNMA, 5.722s, 2009 16,001 14,390,899
FNMA, 6.5s, 2027 - 2029 146,176 137,335,955
FNMA, 6.625s, 2009 7,950 7,645,674
FNMA, 7.25s, 2010 72,069 72,553,304
--------------
$ 253,446,016
- --------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 274,743,907
- --------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 9.0%
Government National Mortgage Association - 5.4%
GNMA, 6.5s, 2027 - 2029 $ 57,458 $ 54,219,092
GNMA, 7s, 2027 - 2028 41,738 40,461,690
GNMA, 7.5s, 2023 - 2028 93,068 92,335,148
GNMA, 8s, 2022 - 2030 128,147 129,760,751
--------------
$ 316,776,681
- --------------------------------------------------------------------------------------------------------
Small Business Administration
SBA, 8.8s, 2011 $ 286 $ 292,063
- --------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 3.6%
United States Treasury Bonds, 6.125s, 2029 $ 121,385 $ 123,718,020
United States Treasury Bonds, 6.25s, 2030 31,454 33,252,854
United States Treasury Notes, 4.25s, 2010 55,077 56,152,654
--------------
$ 213,123,528
- --------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 530,192,272
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 4.7%
CalEnergy Co., Inc., 7.23s, 2005 $ 5 $ 4,838
CE Generation LLC, 7.416s, 2018 1,349 1,254,570
Cleveland Electric Illuminating Co., 7.67s, 2004 14,534 14,402,904
Cleveland Electric Illuminating Co., 7.88s, 2017 7,403 7,163,661
Cleveland Electric Illuminating Co., 9s, 2023 7,396 7,591,476
CMS Energy Corp., 8.375s, 2003 5,651 5,463,466
CMS Energy Corp., 8s, 2011 5,859 5,757,159
CMS Panhandle Holding Co., 6.5s, 2009 9,270 8,160,937
Commonwealth Edison Company, 8.5s, 2022 13,043 13,198,342
Connecticut Light & Power Co., 7.875s, 2001 9,365 9,379,890
Connecticut Light & Power Co., 7.75s, 2002 13,900 13,864,972
Connecticut Light & Power Co., 8.59s, 2003 7,800 7,726,134
Connecticut Light & Power Co., 7.875s, 2024 6,000 6,369,600
El Paso Electric Co., 8.25s, 2003 5,914 5,990,823
El Paso Electric Co., 8.9s, 2006 3,810 3,989,070
Entergy Mississippi, Inc., 6.2s, 2004 5,533 5,241,245
GGIB Funding Corp., 7.43s, 2011 4,372 4,125,062
Gulf States Utilities Co., 8.21s, 2002 4,445 4,482,827
Gulf States Utilities Co., 8.25s, 2004 2,781 2,807,364
Long Island Lighting Co., 8.2s, 2023 5,950 5,782,865
Niagara Mohawk Power Corp., 9.5s, 2000 15,000 15,052,800
Niagara Mohawk Power Corp., 7.25s, 2002 17,126 16,907,936
Niagara Mohawk Power Corp., 7.375s, 2003 1,843 1,816,645
Niagara Mohawk Power Corp., 7.625s, 2005 4,468 4,394,823
Niagara Mohawk Power Corp., 7.75s, 2006 18,456 18,298,570
Niagara Mohawk Power Corp., 8.75s, 2022 7,277 7,471,951
Niagara Mohawk Power Corp., 8.5s, 2023 4,650 4,682,410
North Atlantic Energy, 9.05s, 2002 3,477 3,503,669
Northeast Utilities, 8.58s, 2006 3,845 3,860,627
NRG Energy, Inc., 8.7s, 2005 4,525 4,525,000
NRG Energy, Inc., 8.962s, 2016 6,556 6,613,365
NSTAR Co., 8s, 2010 6,108 6,199,254
PP&L, Inc., 6.125s, 2001 7,790 7,714,047
Seabrook Station, 7.83s, 2019 1 4
Texas Utilities Co., 5.94s, 2001 14,180 13,906,184
Toledo Edison Co., 7.875s, 2004 7,411 7,332,962
Txu Eastern Funding Co., 6.15s, 2002 7,759 7,491,314
Utilicorp United, Inc., 7s, 2004 3,499 3,347,493
Waterford 3 Funding Entergy Corp., 8.09s, 2017 10,945 10,377,014
--------------
$ 276,253,273
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.5%
Coastal Corp., 6.2s, 2004 $ 14,755 $ 13,993,494
Tennessee Gas Pipeline Co., 7.625s, 2037 5,338 5,036,243
Texas Gas Transmission Corp., 7.25s, 2027 6,288 5,821,292
Williams Gas Pipelines Central, Inc., 7.375s, 2006 3,759 3,713,103
--------------
$ 28,564,132
- --------------------------------------------------------------------------------------------------------
Total U.S. Bonds $2,156,563,141
- --------------------------------------------------------------------------------------------------------
Foreign Bonds - 0.8%
Canada - 0.1%
AT&T Canada, Inc., 0s to 2003, 9.95s to 2008,
(Telecommunications) $ 2,155 $ 1,721,759
Gulf Canada Resources Ltd., 9.25s, 2004 (Oils) 1,785 1,803,136
Province of Quebec, 7.5s, 2029 4,080 4,099,543
--------------
$ 7,624,438
- --------------------------------------------------------------------------------------------------------
Norway - 0.1%
Union Bank of Norway, 7.35s, 2049 (Banks and
Credit Cos.)## $ 2,273 $ 2,195,718
- --------------------------------------------------------------------------------------------------------
United Kingdom - 0.6%
Cable & Wireless Communications, 6.625s, 2005
(Telecommunications) $ 13,800 $ 13,706,160
Cable & Wireless Communications, 6.75s, 2008
(Telecommunications) 23,638 23,755,727
--------------
$ 37,461,887
- --------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 47,282,043
- --------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $2,251,999,070) $2,203,845,184
- --------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 2.6%
- --------------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------------
U.S. Stocks - 2.5%
Banks and Credit Companies
Sovereign Bancorp, Inc., 7.5%* 49,820 $ 2,428,725
- --------------------------------------------------------------------------------------------------------
Business Services - 0.1%
EVI, Inc., 5% 70,000 $ 3,368,750
- --------------------------------------------------------------------------------------------------------
Computer Software - Systems
PSInet, Inc., 7%* 30,000 $ 1,316,250
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services
Newell Financial Trust I, 5.25% 80,400 $ 2,919,525
- --------------------------------------------------------------------------------------------------------
Containers - 0.2%
Owens-Illinois, Inc., 4.75% 397,960 $ 10,769,792
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 0.1%
Finova Finance Trust, 5.5% 67,000 $ 2,211,000
Salomon, Inc., 6.25% 51,000 5,610,000
--------------
$ 7,821,000
- --------------------------------------------------------------------------------------------------------
Insurance - 0.3%
Lincoln National Corp., 1.85% 204,000 $ 3,060,000
Lincoln National Corp., 7.75% 648,400 13,130,100
--------------
$ 16,190,100
- --------------------------------------------------------------------------------------------------------
Oil Services - 0.1%
Enron Corp., 7.00% 140,200 $ 3,093,163
Kerr McGee Corp., 5.5%* 59,800 2,691,000
--------------
$ 5,784,163
- --------------------------------------------------------------------------------------------------------
Oils - 0.1%
Apache Corp., 6.5% 63,700 $ 2,866,500
Coastal Corp., 5.58% 13,400 326,625
Coastal Corp., 6.625% 74,150 2,099,372
--------------
$ 5,292,497
- --------------------------------------------------------------------------------------------------------
Telecommunications - 0.7%
Cox Communications, Inc., 0.25% 259,500 $ 15,251,853
Cox Communications, Inc., 7.75% 91,800 10,947,150
Global Telesystems Group, Inc., 7.25%## 37,750 1,420,268
Intermedia Communications, Inc., $3.25* 73,100 4,678,400
Intermedia Communications, Inc., 7%##* 39,900 2,493,750
Qwest Trends Trust, 5.75%##* 54,700 4,136,688
UnitedGlobalCom, Inc., 7.00% 13,340 890,445
UnitedGlobalCom, Inc., 7.00%## 40,000 3,765,000
--------------
$ 43,583,554
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.5%
AES Trust III, 6.75% 58,800 $ 3,969,000
Calpine Capital Trust, 5.75%* 20,000 1,742,500
NiSource, Inc., 7.75% 353,200 12,891,800
Texas Utilities Co., 9.25% 231,000 9,110,062
--------------
$ 27,713,362
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.3%
El Paso Energy Capital Trust I, 4.75% 362,500 $ 19,031,250
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 146,218,968
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - 0.1%
Bermuda - 0.1%
Global Crossings Ltd., 7.00%## (Telecommunications) 8,000 $ 1,942,000
- --------------------------------------------------------------------------------------------------------
Canada
Canadian National Railway Co., 5.25% (Railroads) 40,300 $ 1,682,525
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 3,624,525
- --------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(Identified Cost, $144,635,421) $ 149,843,493
- --------------------------------------------------------------------------------------------------------
Convertible Bonds - 1.7%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
U.S. Bonds - 1.7%
Advertising
Young & Rubicam, Inc., 3s, 2005 $ 2,000 $ 1,850,000
- --------------------------------------------------------------------------------------------------------
Business Machines - 0.2%
Xerox Corp., 0s, 2018 $ 20,080 $ 10,943,600
- --------------------------------------------------------------------------------------------------------
Computer Software - Services
Affiliated Computer Services, Inc., 4s, 2005## $ 1,495 $ 1,519,294
- --------------------------------------------------------------------------------------------------------
Computer Software - Systems
Ingram Micro, Inc., 0s, 2018 $ 6,200 $ 2,154,500
Networks Assocs., Inc., 0s, 2018 10 3,800
--------------
$ 2,158,300
- --------------------------------------------------------------------------------------------------------
Conglomerates - 0.4%
Loews Corp., 3.125s, 2007 $ 25,220 $ 22,130,550
- --------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1%
American Tower Corp., 6.25s, 2009 $ 1,790 $ 3,810,463
- --------------------------------------------------------------------------------------------------------
Electronics - 0.2%
Atmel Corp., 0s, 2018 $ 8,100 $ 11,704,500
SCI Systems, Inc., 3s, 2007 1,500 1,732,500
--------------
$ 13,437,000
- --------------------------------------------------------------------------------------------------------
Energy - 0.1%
Alliant Energy Resources, Inc.*, 7.5s, 2030 $ 30 $ 2,482,500
- --------------------------------------------------------------------------------------------------------
Financial Services - 0.4%
Bell Atlantic Financial Services, Inc., 4.25s, 2005## $ 11,220 $ 16,072,650
E Trade Group Inc., 6s, 2007 1,000 1,375,850
Elan Finance Corp. Ltd., 0s, 2018## 8,000 5,700,000
--------------
$ 23,148,500
- --------------------------------------------------------------------------------------------------------
Internet
America Online, Inc., 0s, 2019 $ 3,500 $ 1,925,000
- --------------------------------------------------------------------------------------------------------
Medical and Health Products
Roche Holdings Inc., 0s, 2015 $ 2,000 $ 1,682,500
- --------------------------------------------------------------------------------------------------------
Pharmaceuticals
Millennium Pharmaceuticals, 5.5s, 2007 $ 2,000 $ 1,805,000
- --------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.1%
Tribune Co., 2s, 2029 $ 20 $ 3,105,000
- --------------------------------------------------------------------------------------------------------
Retail
Anntaylor Stores Corp., 0s, 2019 $ 4,000 $ 1,730,000
- --------------------------------------------------------------------------------------------------------
Telecommunications - 0.1%
Echostar Communications Corp.##, 4.875s, 2007 $ 1,990 $ 3,350,662
Liberty Media Group##, 4s, 2029 1,160 1,808,150
--------------
$ 5,158,812
- --------------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.1%
Comcast Corp., 2s, 2029 $ 28 $ 3,476,350
- --------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 100,362,869
- --------------------------------------------------------------------------------------------------------
Foreign Bonds
Canada
Four Seasons Hotels, Inc., 0s, 2029 (Restaurants
and Lodging) $ 4,982 $ 1,394,960
- --------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $80,697,411) $ 101,757,829
- --------------------------------------------------------------------------------------------------------
Preferred Stocks - 0.4%
- --------------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------------
Automotive - 0.1%
Federal Mogul Financing Trust, 7.00% 70,000 $ 2,056,250
Tower Automotive Capital Trust, 6.75% 94,800 3,424,650
--------------
$ 5,480,900
- --------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 0.1%
NB Capital Corp., 8.35% 168,737 $ 3,638,392
- --------------------------------------------------------------------------------------------------------
Telecommunications - 0.1%
Global Telesystems Group, Inc., 7.25% 22,250 $ 901,125
WinStar Communications, Inc., 7%* 55,000 5,080,625
--------------
$ 5,981,750
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.1%
CMS Energy Corp., 8.75% 241,800 $ 6,407,700
- --------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $26,972,901) $ 21,508,742
- --------------------------------------------------------------------------------------------------------
Right - 0.2%
- --------------------------------------------------------------------------------------------------------
CVS Corp.* (Identified Cost, $11,365,019) 159,100 $ 10,749,194
- --------------------------------------------------------------------------------------------------------
Short-Term Obligation - 0.6%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
Associates Corp. of North America, due 4/03/00,
at Amortized Cost $ 37,400 $ 37,387,055
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $5,658,195,695) $5,887,272,647
Other Assets, Less Liabilities - 0.6% 36,278,273
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $5,923,550,920
- --------------------------------------------------------------------------------------------------------
* 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, 2000
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $5,658,195,695) $5,887,272,647
Cash 496,194
Receivable for Fund shares sold 11,723,471
Receivable for investments sold 34,029,386
Interest and dividends receivable 40,135,593
Other assets 93,651
--------------
Total assets $5,973,750,942
--------------
Liabilities:
Distributions payable $ 1,918,956
Payable for Fund shares reacquired 15,482,982
Payable for investments purchased 31,763,275
Payable to affiliates -
Management fee 56,547
Shareholder servicing agent fee 16,097
Distribution and service fee 98,795
Administrative fee 1,868
Accrued expenses and other liabilities 861,502
--------------
Total liabilities $ 50,200,022
--------------
Net assets $5,923,550,920
==============
Net assets consist of:
Paid-in capital $5,688,610,254
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 229,075,379
Accumulated undistributed net realized gain on
investments and foreign currency transactions 8,729,033
Accumulated distributions in excess of net investment
income (2,863,746)
--------------
Total $5,923,550,920
==============
Shares of beneficial interest outstanding 442,290,913
===========
Class A shares:
Net asset value per share
(net assets of $3,457,259,858 / 246,501,799 shares of
beneficial interest outstanding) $14.03
======
Offering price per share (100 / 95.25 of net asset
value per share) $14.73
======
Class B shares:
Net asset value and offering price per share
(net assets of $1,951,666,187 / 139,195,859 shares of
beneficial interest outstanding) $14.02
======
Class C shares:
Net asset value and offering price per share
(net assets of $471,988,609 / 33,553,247 shares of
beneficial interest outstanding) $14.07
======
Class I shares:
Net asset value, offering price, and redemption price
per share (net assets of $42,636,266 / 3,040,008
shares of beneficial interest outstanding) $14.03
======
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, 2000
- -------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 92,667,647
Dividends 40,968,369
Foreign taxes withheld (311,876)
--------------
Total investment income $ 133,324,140
--------------
Expenses -
Management fee $ 10,745,469
Trustees' compensation 63,200
Shareholder servicing agent fee 3,114,312
Distribution and service fee (Class A) 6,250,085
Distribution and service fee (Class B) 10,579,485
Distribution and service fee (Class C) 2,478,691
Administrative fee 136,346
Custodian fee 740,610
Printing 170,937
Postage 333,654
Auditing fees 1,396
Legal fees 2,865
Miscellaneous 1,644,154
--------------
Total expenses $ 36,261,204
Fees paid indirectly (442,063)
--------------
Net expenses $ 35,819,141
--------------
Net investment income $ 97,504,999
--------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 31,712,071
Foreign currency transactions (2,305,379)
--------------
Net realized gain on investments and foreign currency
transactions $ 29,406,692
--------------
Change in unrealized appreciation -
Investments $ 116,486,405
Translation of assets and liabilities in foreign
currencies 2,240,915
--------------
Net unrealized gain on investments and foreign currency
translation $ 118,727,320
--------------
Net realized and unrealized gain on investments and
foreign currency $ 148,134,012
--------------
Increase in net assets from operations $ 245,639,011
==============
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 97,504,999 $ 207,767,725
Net realized gain on investments and foreign currency
transactions 29,406,692 401,496,989
Net unrealized gain (loss) on investments and foreign
currency translation 118,727,320 (205,475,863)
-------------- --------------
Increase in net assets from operations $ 245,639,011 $ 403,788,851
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (59,316,899) $ (129,580,179)
From net investment income (Class B) (28,229,398) (59,446,051)
From net investment income (Class C) (6,593,868) (11,895,158)
From net investment income (Class I) (834,897) (975,400)
From net realized gain on investments and foreign
currency transactions (Class A) (236,088,862) (456,637,307)
From net realized gain on investments and foreign
currency transactions (Class B) (141,602,847) (261,186,854)
From net realized gain on investments and foreign
currency transactions (Class C) (32,927,178) (46,940,472)
From net realized gain on investments and foreign
currency transactions (Class I) (3,092,028) (2,276,517)
-------------- --------------
Total distributions declared to shareholders $ (508,685,977) $ (968,937,938)
-------------- --------------
Net increase (decrease) in net assets from Fund
share transactions $ (285,825,653) $1,198,132,902
-------------- --------------
Total increase (decrease) in net assets $ (548,872,619) $ 632,983,815
Net assets:
At beginning of period 6,472,423,539 5,839,439,724
-------------- --------------
At end of period (including accumulated distributions
in excess of net investment income of $2,863,746 and
$5,393,683, respectively) $5,923,550,920 $6,472,423,539
============== ==============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ----------------------------------------------------------
MARCH 31, 2000 1999 1998 1997 1996 1995
(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 $14.57 $16.06 $16.92 $15.03 $14.46 $12.80
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.24 $ 0.53 $ 0.57 $ 0.60 $ 0.64 $ 0.64
Net realized and unrealized gain on investments
and foreign currency 0.39 0.56 0.53 2.94 1.21 1.64
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.63 $ 1.09 $ 1.10 $ 3.54 $ 1.85 $ 2.28
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.23) $(0.51) $(0.58) $(0.59) $(0.62) $(0.61)
From net realized gain on investments and
foreign currency transactions (0.94) (2.07) (1.37) (1.06) (0.66) (0.01)
In excess of net realized gain on investments
and foreign currency transactions -- -- (0.01) -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.17) $(2.58) $(1.96) $(1.65) $(1.28) $(0.62)
------ ------ ------ ------ ------ ------
Net asset value - end of period $14.03 $14.57 $16.06 $16.92 $15.03 $14.46
====== ====== ====== ====== ====== ======
Total return(+) 4.55%++ 7.06% 6.98% 25.27% 13.50% 18.36%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.89%+ 0.89% 0.90% 0.93% 0.91% 0.87%
Net investment income 3.38%+ 3.45% 3.44% 3.84% 4.35% 4.82%
Portfolio turnover 55% 151% 126% 143% 140% 102%
Net assets at end of period (000,000 omitted) $3,457 $3,699 $3,503 $3,199 $2,568 $2,242
(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
Ratios (to average net assets):
Expenses## -- -- -- -- -- 0.97%
Net investment income -- -- -- -- -- 4.72%
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(+) 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.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ----------------------------------------------------------
MARCH 31, 2000 1999 1998 1997 1996 1995
(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 $14.57 $16.05 $16.92 $15.02 $14.46 $12.80
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.19 $ 0.43 $ 0.46 $ 0.50 $ 0.52 $ 0.53
Net realized and unrealized gain on investments
and foreign currency 0.39 0.58 0.53 2.95 1.21 1.64
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.58 $ 1.01 $ 0.99 $ 3.45 $ 1.73 $ 2.17
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.19) $(0.42) $(0.48) $(0.49) $(0.51) $(0.50)
From net realized gain on investments and
foreign currency transactions (0.94) (2.07) (1.37) (1.06) (0.66) --
In excess of net investment income -- -- (0.01) -- -- (0.01)
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.13) $(2.49) $(1.86) $(1.55) $(1.17) $(0.51)
------ ------ ------ ------ ------ ------
Net asset value - end of period $14.02 $14.57 $16.05 $16.92 $15.02 $14.46
====== ====== ====== ====== ====== ======
Total return 4.14%++ 6.43% 6.22% 24.51% 12.49% 17.46%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.53%+ 1.54% 1.55% 1.60% 1.67% 1.71%
Net investment income 2.73%+ 2.80% 2.80% 3.17% 3.56% 3.97%
Portfolio turnover 55% 151% 126% 143% 140% 102%
Net assets at end of period (000,000 omitted) $1,952 $2,217 $1,984 $1,707 $1,284 $1,005
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ----------------------------------------------------------
MARCH 31, 2000 1999 1998 1997 1996 1995
(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 $14.61 $16.10 $16.96 $15.06 $14.49 $12.80
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.19 $ 0.43 $ 0.46 $ 0.50 $ 0.53 $ 0.54
Net realized and unrealized gain on investments
and foreign currency 0.40 0.57 0.53 2.95 1.22 1.66
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.59 $ 1.00 $ 0.99 $ 3.45 $ 1.75 $ 2.20
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.19) $(0.42) $(0.47) $(0.49) $(0.52) $(0.50)
From net realized gain on investments and
foreign currency transactions (0.94) (2.07) (1.37) (1.06) (0.66) (0.01)
In excess of net investment income -- -- (0.01) -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.13) $(2.49) $(1.85) $(1.55) $(1.18) $(0.51)
------ ------ ------ ------ ------ ------
Net asset value - end of period $14.07 $14.61 $16.10 $16.96 $15.06 $14.49
====== ====== ====== ====== ====== ======
Total return 4.20%++ 6.41% 6.27% 24.39% 12.67% 17.66%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.53%+ 1.54% 1.55% 1.60% 1.63% 1.67%
Net investment income 2.74%+ 2.80% 2.80% 3.16% 3.67% 4.14%
Portfolio turnover 55% 151% 126% 143% 140% 102%
Net assets at end of period (000,000 omitted) $472 $508 $336 $190 $83 $23
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 30, PERIOD ENDED
SIX MONTHS ENDED ------------------------------ SEPTEMBER 30,
MARCH 31, 2000 1999 1998 1997*
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $14.57 $16.06 $16.92 $14.70
------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.26 $ 0.58 $ 0.63 $ 0.48
Net realized and unrealized gain on investments
and foreign currency 0.40 0.57 0.53 2.23
------ ------ ------ ------
Total from investment operations $ 0.66 $ 1.15 $ 1.16 $ 2.71
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.26) $(0.57) $(0.64) $(0.49)
From net realized gain on investments and
foreign currency transactions $(0.94) $(2.07) $(1.37) --
In excess of net investment income -- -- (0.01) --
------ ------ ------ ------
Total distributions declared to shareholders $(1.20) $(2.64) $(2.02) $(0.49)
------ ------ ------ ------
Net asset value - end of period $14.03 $14.57 $16.06 $16.92
====== ====== ====== ======
Total return 4.73%++ 7.43% 7.35% 18.69%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.53%+ 0.54% 0.55% 0.60%+
Net investment income 3.73%+ 3.84% 3.79%+ 4.16%+
Portfolio turnover 55% 151% 126% 143%
Net assets at end of period
(000,000 omitted) $43 $48 $17 $16
* For the period from the inception of Class I, January 2, 1997, through September 30, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expenses reductions from certain expense offset arrangements.
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. The Fund
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues and forward contracts, are
valued on the basis of valuations furnished by dealers or by a pricing service
with consideration to factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data, without exclusive reliance
upon exchange or over-the-counter prices. Short-term obligations, which mature
in 60 days or less, are valued at amortized cost, which approximates market
value. Securities for which there are no such quotations or valuations are
valued in good faith, at fair value, by the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Trustee Compensation - Effective July 24, 1999, under a Deferred
Compensation Plan (the Plan) independent Trustees may elect to defer receipt
of all or a portion of their annual compensation. Deferred amounts are treated
as though equivalent dollar amounts had been invested in shares of the fund or
other MFS funds selected by the Trustee. Deferred amounts represent an
unsecured obligation of the Fund until distributed in accordance with the
Plan.
Security Loans - State Street Bank and Trust Company ("State Street") and
Chase Manhattan Bank ("Chase"), as lending agents, may loan the securities of
the Fund to certain qualified institutions (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 and Chase provide the Fund with indemnification against Borrower
default.
On loans collateralized by U.S. Treasury securities, a fee is received from
the Borrower, and is allocated between the Fund and the lending agents. 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.
At March 31, 2000, the value of securities loaned was $10,710,542. These loans
were collateralized by U.S. Treasury securities of $11,315,620.
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 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. The Fund has entered into a directed brokerage agreement, under
which the broker will credit the Fund a portion of the commissions generated,
to offset certain expenses of the Fund. For the period, the Fund's custodian
fees were reduced by $45,255 under this agreement.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax
is provided.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits be reported in the financial statements as distributions from paid-in
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits, which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or net realized gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses. Class B shares
will convert to Class A shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at the following annual
rates:
BASED ON AVERAGE NET ASSETS BASED ON GROSS INCOME
- ------------------------------------------ -----------------------------------
First $200 million 0.250% First $14 million 3.57%
In excess of $200 million 0.212% In excess of $14 million 3.04%
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain officers and
Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Fund has an unfunded
defined benefit plan for all of its independent Trustees. Included in
Trustees' compensation is a net periodic pension expense of $24,955 for the
six months ended March 31, 2000.
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 incurs 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
$374,600 for the six months ended March 31, 2000, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class
C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD of
up to 0.25% per annum of the Fund's average daily net assets attributable to
Class A shares which are attributable to that securities dealer and a
distribution fee to MFD of up to 0.10% per annum of the Fund's average daily
net assets attributable to Class A shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $333,021
for the six months ended March 31, 2000. Fees incurred under the distribution
plan during the six months ended March 31, 2000, were 0.35% of average daily
net assets attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Fund's average daily net assets attributable to Class B and
Class C shares. MFD will pay to securities dealers that enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended
to be consideration for services rendered by the dealer with respect to Class
B and Class C shares. MFD retains the service fee for accounts not
attributable to a securities dealer, which amounted to $47,282 and $7,929 for
Class B and Class C shares, respectively, for the six months ended March 31,
2000. Fees incurred under the distribution plan during the six months ended
March 31, 2000, were 1.00% of average daily net assets attributable to Class B
and Class C shares.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ended March
31, 2000, were $53,455, $1,943,688, and $83,159 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 annual rate of
0.10%.
(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 $1,086,694,462 1,301,407,320
-------------- -------------
Investments (non-U.S. government securities) $2,234,939,781 2,562,191,753
-------------- -------------
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 $5,658,195,695
--------------
Gross unrealized appreciation $ 497,976,082
Gross unrealized depreciation (268,899,130)
--------------
Net unrealized appreciation $ 229,076,952
==============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
SIX MONTHS ENDED MARCH 31, 2000 YEAR ENDED SEPTEMBER 30, 1999
-------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 48,911,547 $ 681,306,319 110,586,325 $ 1,674,314,695
Shares issued to shareholders
in reinvestment of distributions 18,732,790 259,976,587 34,947,572 517,032,870
Shares reacquired (74,985,471) (1,036,363,287) (109,828,347) (1,664,143,600)
----------- --------------- ------------ ---------------
Net increase (decrease) (7,341,134) $ (95,080,381) 35,705,550 $ 527,203,965
=========== =============== ============ ===============
<CAPTION>
Class B Shares
SIX MONTHS ENDED MARCH 31, 2000 YEAR ENDED SEPTEMBER 30, 1999
-------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 9,892,450 $ 138,192,009 38,673,047 $ 586,933,287
Shares issued to shareholders
in reinvestment of distributions 11,272,854 156,411,957 19,921,555 294,415,702
Shares reacquired (34,145,179) (466,893,155) (29,991,200) (454,715,848)
----------- --------------- ------------ ---------------
Net increase (decrease) (12,979,875) $ (172,289,189) 28,603,402 $ 426,633,141
=========== =============== ============ ===============
<CAPTION>
Class C Shares
SIX MONTHS ENDED MARCH 31, 2000 YEAR ENDED SEPTEMBER 30, 1999
-------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,444,973 $ 62,258,264 17,496,762 $ 266,491,500
Shares issued to shareholders
in reinvestment of distributions 2,549,737 35,479,218 3,561,406 52,786,839
Shares reacquired (8,202,468) (112,823,244) (7,147,794) (108,828,036)
----------- --------------- ------------ ---------------
Net increase (decrease) (1,207,758) $ (15,085,762) 13,910,374 $ 210,450,303
=========== =============== ============ ===============
<CAPTION>
Class I Shares
SIX MONTHS ENDED MARCH 31, 2000 YEAR ENDED SEPTEMBER 30, 1999
-------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 343,477 $ 4,819,191 2,364,510 $ 35,910,941
Shares issued to shareholders
in reinvestment of distributions 282,644 3,924,285 220,172 3,263,023
Shares reacquired (881,327) (12,113,797) (367,947) (5,328,471)
----------- --------------- ------------ ---------------
Net increase (decrease) (255,206) $ (3,370,321) 2,216,735 $ 33,845,493
=========== =============== ============ ===============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $820 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Fund shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Fund for the six months ended March 31, 2000, was $22,663. 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, 2000,
the Fund owned the following restricted security, excluding securities issued
under Rule 144A, constituting 0.10% of net assets which may not be publicly
sold without registration under the Securities Act of 1933. The Fund does not
have the right to demand that such security be registered. The value of this
security is determined by valuations furnished by dealers or by a pricing
service, or if not available, in good faith, at fair value, by the Trustees.
DATE OF PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- --------------------------------------------------------------------------------
Merrill Lynch Mortgage
Investors, Inc., 8.43s, 2022 June 1994 $4,000 $2,772,500 $3,797,500
<PAGE>
<TABLE>
MFS(R) TOTAL RETURN FUND
<S> <C>
TRUSTEES SECRETARY
J. Atwood Ives+ - Chairman and Chief Executive Stephen E. Cavan*
Officer, Eastern Enterprises (diversified services
company) ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Lawrence T. Perera+ - Partner, Hemenway
& Barnes (attorneys) CUSTODIAN
State Street Bank and Trust Company
William J. Poorvu+ - Adjunct Professor, Harvard
University Graduate School of Business INVESTOR INFORMATION
Administration For information on MFS mutual funds, call your
investment professional or, for an information
Charles W. Schmidt+ - Private Investor kit, call toll free: 1-800-637-2929 any business
day from 9 a.m. to 5 p.m. Eastern time (or leave a
Arnold D. Scott* - Senior Executive message anytime).
Vice President, Director, and Secretary,
MFS Investment Management INVESTOR SERVICE MFS Service Center, Inc.
P.O. Box 2281
Jeffrey L. Shames* - Chairman and Chief Boston, MA 02107-9906
Executive Officer, MFS Investment Management
For general information, call toll free:
Elaine R. Smith+ - Independent Consultant 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
David B. Stone+ - Chairman,
North American Management Corp. For service to speech- or hearing-impaired,
(investment adviser) call toll free: 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time. (To use
INVESTMENT ADVISER this service, your phone must be equipped with
Massachusetts Financial Services Company a Telecommunications Device for the Deaf.)
500 Boylston Street
Boston, MA 02116-3741 For share prices, account balances, exchanges,
or stock and bond outlooks, call toll free:
DISTRIBUTOR 1-800-MFS-TALK (1-800-637-8255) anytime from a
MFS Fund Distributors, Inc. touch-tone telephone.
500 Boylston Street
Boston, MA 02116-3741 WORLD WIDE WEB
www.mfs.com
CHAIRMAN AND PRESIDENT
Jeffrey L. Shames*
LEAD PORTFOLIO MANAGER
David M. Calabro*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
+Independent Trustee
*MFS Investment Management
</TABLE>
<PAGE>
MFS(R) TOTAL RETURN FUND ------------
BULK RATE
[Logo] M F S(R) U.S. POSTAGE
INVESTMENT MANAGEMENT PAID
We invented the mutual fund(R) MFS
------------
500 Boylston Street
Boston, MA 02116-3741
(c)2000 MFS Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MTR-3 5/00 399M 15/215/315/815
