<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
[Graphic Omitted]
MFS(R) TOTAL
RETURN FUND
ANNUAL REPORT o SEPTEMBER 30, 2000
----------------------------------------------------
MUTUAL FUND GIFT KITS (see page 47)
----------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 5
Performance Summary ....................................................... 9
Portfolio of Investments .................................................. 13
Financial Statements ...................................................... 31
Notes to Financial Statements ............................................. 38
Independent Auditors' Report .............................................. 45
Trustees and Officers ..................................................... 49
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
If you've been reading our fund reports for any length of time, you've probably
sensed the pride we have in our research process. More than anything else, we
think MFS Original Research(R) -- and the performance results it has yielded for
shareholders -- makes us unique among investment management companies. We think
that uniqueness stems from three factors: philosophy, process, and people.
PHILOSOPHY
In over 75 years of managing mutual funds, we've developed a number of beliefs
about the best ways to invest over a variety of market conditions. First, we
believe in bottom-up research, which means we use a company-by-company,
one-security-at-a-time approach to building a portfolio. What we look for is the
truth about the fundamentals of a company's business -- things such as the
ability of management to execute its business plan, the ability of that plan to
be scaled up as the company grows, actual demand for the company's products and
services, cash flow, profits, and earnings.
Second, we believe that, over the long term, stock prices follow earnings. In
our view, stock prices are basically a multiple of projected earnings, with
the multiple increasing as the market perceives that a company has something
customers want and will continue to want. One of the major elements of
Original Research(SM) is doing our best to project a company's future earnings
and determine how much the market will pay for those earnings.
Third, we believe there are at least three ways to potentially achieve
competitive long-term performance: be early, uncover second chances, and avoid
mistakes. All of these are based on bottom-up research. In both domestic and
international markets, early discovery has historically been a hallmark of our
investment style. Some of the stocks with which MFS has been most successful are
those in which we've taken large positions before the market discovered or
believed in them. Similarly, some of our best fixed- income investments have
been early positions in companies or governments that our research revealed were
potential candidates for credit upgrades. (A credit upgrade causes the value of
a bond to rise because it indicates the market has increased confidence that
principal and interest on the bond will be repaid.)
"Second-chance" opportunities are companies whose stock prices have stumbled
but that we believe still have the potential to be market leaders. For
example, a quarterly earnings shortfall of a few cents may cause the market to
temporarily lose confidence in a company. If we believe the business remains
fundamentally strong, we may use the price decline as a buying opportunity.
Avoiding mistakes is another way we feel Original Research may help
performance. In fixed-income investing this means, among other things, trying
to be better than our peers at avoiding bond issuers that may default. In
equity investing, avoiding mistakes means we strive to know a company and its
industry well enough to distinguish truth from hype.
PROCESS
We acquire our information firsthand, by researching thousands of companies to
determine which firms may make good investments. Our analysis of an individual
company may include
o face-to-face contact with senior management as well as frontline workers
o analysis of the company's financial statements and balance sheets
o contact with the company's current and potential customers
o contact with the company's competitors
o our own forecasts of the company's future market share, cash flow, and
earnings
Our analysts and portfolio managers disseminate this information in the form
of daily notes e-mailed worldwide to all members of our investment team. This
ensures that our best ideas are shared throughout the company, without
barriers between equity and fixed-income, international and domestic, or value
and growth investment areas. We believe this allows each of our portfolio
managers -- and thus each of our investors -- to potentially benefit from any
relevant item of Original Research.
John Ballen, our President and Chief Investment Officer, has often said that
the thought he hopes managers will have when they read the daily notes is, "I
could never perform as well at any other investment company, because nowhere
else could the quality of the research be this good."
PEOPLE
Our team of research analysts and portfolio managers traces its roots back to
1932, when we created one of the first in-house research departments in the
industry. Today, we believe we have an investment team distinguished for its
unique blend of talent, continuity, and cohesiveness.
MFS' team culture and commitment to quality research have proven to be of
tremendous value in attracting some of the best and brightest talent from
leading business schools and from other investment management companies. Our
company culture was a key factor in our recognition by Fortune magazine in its
January 10, 2000, issue as one of the "100 Best Companies to Work For" in
America. As befits a great team, our people have tended to stick around -- the
average MFS tenure of our portfolio managers is
11 years, with over 16 years in the investment industry. Contributing to this
continuity is our policy that all equity portfolio managers are promoted from
within, after distinguishing themselves first as research analysts. And
because many of us who are now managing funds or managing the company itself
have been working together for well over a decade, we have a cohesiveness, a
shared philosophy of investing, and a unity of purpose that we believe bodes
well for the future of the company.
We also have scale. Our research analyst team is over 55 members strong and
growing. Each analyst is our in-house expert on a specific industry or group
of industries in a specific region of the globe. In pursuing their research,
our analysts and portfolio managers each year will visit more than 2,000
companies throughout the world, meet with representatives from more than 3,000
companies at one of our four worldwide offices, attend roughly 5,000 company
presentations sponsored by major Wall Street firms, and consult with over
1,000 analysts from hundreds of U.S. and foreign brokerage houses.
All of this culminates in our analysts making buy and sell recommendations on
a wide range of potential investments for all of our portfolios. In the end,
the goal of Original Research is to try to give our portfolio managers an
advantage over their peers -- to enable our managers to deliver competitive
performance by finding opportunities before they are generally recognized by
the market, and by avoiding mistakes whenever possible. Original Research
does, we believe, make a difference.
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)
October 16, 2000
A prospectus containing more complete information on any MFS product,
including all 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 12 months ended September 30, 2000, Class A shares of the fund provided
a total return of 15.06%, Class B shares 14.24%, Class C shares 14.27%, and
Class I shares 15.46%. These returns assume the reinvestment of any
distributions but exclude the effects of any sales charges and compare over the
same period to returns of 13.28% and 6.74%, respectively for the funds
benchmarks, the Standard & Poor's 500 Composite Index (the S&P 500), a popular,
unmanaged index of common stock total return performance, and 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 11.31%.
Q. OVER THE PAST SIX MONTHS, THE FUND'S BALANCED INVESTMENT STRATEGY HAS
OUTPERFORMED THE BROADER EQUITY MARKET AS REPRESENTED BY THE S&P 500. WHAT
OTHER FACTORS CONTRIBUTED TO THE FAVORABLE PERFORMANCE?
A. Several factors contributed to this performance. First and foremost,
investors paid more attention to stock valuations as prices for many stocks,
especially those in the technology and telecommunications sectors, became
extended. Fortunately, we've been successful at identifying and investing in
stocks that we believed were undervalued relative to their business
fundamentals. As a result, many of our holdings experienced significant
price appreciation during the past two fiscal quarters as the market
broadened. In addition, for the first time in a few years, most sectors of
the bond market outperformed equities. Given our disciplined approach to
asset allocation, the fixed-income component of the portfolio generally
provided a strong contribution to our performance.
Q. WHAT CHARACTERISTICS DO YOU LOOK FOR IN A VALUE STOCK?
A. We look for stocks that are cheaper than the overall market but which we
believe have equal or better-than-average appreciation potential. Often
these stocks are in mature or, out-of-favor industries or we believe a
company is making the right decisions and changes to turn around its
business. We also look closely at the balance sheet of each potential
investment and concentrate on finding companies that show a positive
catalyst for change. While we've recently seen a renewed interest in
cyclicals, value stocks, and undervalued growth companies, for the most part
we've experienced a two-year bear market in these areas. As a result, we
look for potential catalysts to ignite interest in our selections, such as
unique or compelling products, services, or business strategies.
Q. WHAT INVESTMENT THEMES HAVE CAUGHT YOUR EYE RECENTLY?
A. Early this year we determined that a number of multiline insurance companies
were poised for stronger earnings growth and had entered into a more
favorable pricing environment driven by higher earnings. We also believe
their favorable premium environment can last for several years. Another
trend we noticed was that investors continued to pour money into equity
investments and retirement plans. This trend led us to a broad range of
financial services companies including large insurance providers and asset
management companies, such as St. Paul Companies, AXA Financial, and
Hartford Financial Services. The market's harsh treatment of interest-rate
sensitive stocks also provided opportunities with mortgage loan providers
and related investments such as the Federal Home Loan Mortgage Corporation
(Freddie Mac). We believe the chances of further interest rate hikes are
unlikely in the near term and that concerns about Freddie Mac's potential
loss of the U.S. government's guaranteed backing were overdone.
Q. WHERE ELSE WERE YOU FINDING OPPORTUNITIES?
A. While there have been some warning signs on the global economic scene, we
remain comfortable with our long-term outlook for strong worldwide economic
growth. Therefore, we believe economically sensitive large-cap value stocks
offer good value, especially relative to large-cap growth stocks. In many
instances, these large-cap value stocks have remained depressed from the
late 1990s meltdown in many foreign economies. As a result, we have remained
focused on multinational industrial goods and services firms such as Akzo
Nobel, United Technologies, Boeing, and Deere & Co.
Q. WHICH STOCKS DETRACTED FROM THE FUND'S PERFORMANCE?
A. Despite their recent rebound, telecommunications companies such as Verizon
Communications and SBC Communications provided lackluster performance in
recent months. Concerns about increased competition, new technology, and
deregulation have hurt most of the telecommunications group; however, we've
maintained significant positions in Verizon and SBC because we believe their
long-term outlooks are still positive.
Q. HOW WAS THE BOND PORTFOLIO POSITIONED?
A. During the past quarter, the bond portfolio benefited from a
well-diversified mix of high-quality corporate bonds, mortgage-backed
securities, and an emphasis on U.S. Treasuries, which outperformed all other
sectors of the bond market and most equity indices. (Principal value and
interest on Treasury securities are guaranteed by the U.S. government if
held to maturity.)
Q. WHAT IS YOUR OUTLOOK GOING FORWARD?
A. This year we've witnessed sharp day-to-day price fluctuations in the stock
market, significant swings in investor sentiment, and sudden shifts in
market leadership. All of this volatility squeezed into a short period
underscores the fact that unpredictability is par for the course in
financial markets. The timing, extent, and duration of such episodes are
difficult to predict; therefore, we think it becomes increasingly important
for investors to maintain a diversified portfolio suited to their time
horizon, investment objectives, and tolerance for market risk. Once an
investment plan is in place, we believe it's best to stick with it and to
avoid the impulse to alter it based on short-term events -- whether they be
unsettling turbulence in the market or glittery returns from some particular
corner of the market. This has generally been the strategy we've pursued,
and we believe it can serve our investors well over the long term.
/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. His views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO MANAGERS' PROFILES
--------------------------------------------------------------------------------
DAVID M. CALABRO, SENIOR VICE PRESIDENT; KENNETH J. ENRIGHT, SENIOR VICE
PRESIDENT; DAVID S. KENNEDY, SENIOR VICE PRESIDENT; CONSTANTINOS MOKAS, VICE
PRESIDENT; AND LISA B. NURME, SENIOR VICE PRESIDENT, ARE THE FUND'S PORTFOLIO
MANAGERS. MR. CALABRO IS THE HEAD OF THE PORTFOLIO MANAGEMENT TEAM AND A
MANAGER OF THE COMMON STOCK PORTION OF THE FUND'S PORTFOLIO. MR. CALABRO HAS
BEEN EMPLOYED BY MFS SINCE 1992. MR. ENRIGHT, A MANAGER OF THE COMMON STOCK
PORTION OF THE FUND'S PORTFOLIO, HAS BEEN EMPLOYED BY MFS SINCE 1986. MR.
KENNEDY, THE MANAGER OF THE FUND'S FIXED-INCOME SECURITIES, HAS BEEN EMPLOYED
BY MFS SINCE JUNE 2000. MR. MOKAS, THE MANAGER OF THE FUND'S CONVERTIBLE
SECURITIES, HAS BEEN EMPLOYED BY MFS SINCE 1990. MS. NURME, A MANAGER OF
THE COMMON STOCK PORTION OF THE FUND'S PORTFOLIO, HAS BEEN EMPLOYED BY MFS
SINCE 1987.
ALL PORTFOLIO MANAGERS AT MFS INVESTMENT MANAGEMENT(R) ARE SUPPORTED BY
AN INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL
RESEARCH(R), 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 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>
--------------------------------------------------------------------------------
FUND FACTS
--------------------------------------------------------------------------------
OBJECTIVE: SEEKS TO PROVIDE ABOVE-AVERAGE INCOME (COMPARED
TO A PORTFOLIO ENTIRELY INVESTED IN STOCKS)
CONSISTENT WITH THE PRUDENT EMPLOYMENT OF
CAPITAL. THE FUND ALSO SEEKS TO PROVIDE
REASONABLE OPPORTUNITY FOR GROWTH OF CAPITAL AND
INCOME.
COMMENCEMENT OF
INVESTMENT OPERATIONS: OCTOBER 6, 1970
CLASS INCEPTION: CLASS A OCTOBER 6, 1970
CLASS B AUGUST 23, 1993
CLASS C AUGUST 1, 1994
CLASS I JANUARY 2, 1997
SIZE: $6.1 BILLION NET ASSETS AS OF SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and
reflect the percentage change in net asset value, including the reinvestment
of dividends. Benchmark comparisons are unmanaged and do not reflect any fees
or expenses. The performance of other share classes will be greater than or
less than the line shown. (See Notes to Performance Summary.) It is not
possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended September 30, 2000)
MFS Total S&P 500 Lehman Brothers
Return Composite Government/Corporate
Fund - Class A Index Bond Index
---------------------------------------------------------------
9/90 $ 9,425 $10,000 $10,000
9/92 15,467 14,566 13,119
9/94 18,108 17,066 14,015
9/96 25,745 26,644 16,748
9/98 29,485 40,807 20,711
9/00 33,925 59,081 21,748
<PAGE>
<TABLE>
TOTAL RATES OF RETURN THROUGH SEPTEMBER 30, 2000
CLASS A
<CAPTION>
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +15.06% +31.78% +87.35% +256.17%
--------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +15.06% + 9.63% +13.38% + 13.54%
--------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge + 9.59% + 7.87% +12.28% + 12.99%
--------------------------------------------------------------------------------------------------------
CLASS B
<CAPTION>
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +14.24% +29.16% +80.90% +237.99%
--------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +14.24% + 8.90% +12.59% + 12.95%
--------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +10.24% + 8.14% +12.34% + 12.95%
--------------------------------------------------------------------------------------------------------
CLASS C
<CAPTION>
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +14.27% +29.22% +81.08% +242.00%
--------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +14.27% + 8.92% +12.61% + 13.08%
--------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +13.27% + 8.92% +12.61% + 13.08%
--------------------------------------------------------------------------------------------------------
CLASS I
<CAPTION>
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +15.46% +33.16% +89.89% +260.99%
--------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +15.46% +10.02% +13.68% + 13.70%
--------------------------------------------------------------------------------------------------------
COMPARATIVE INDICES(+)
<CAPTION>
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average balanced fund+ +11.31% + 8.96% +12.73% + 13.00%
--------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# +13.28% +16.44% +21.69% + 19.44%
--------------------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Bond Index# + 6.74% + 5.82% + 6.30% + 8.08%
--------------------------------------------------------------------------------------------------------
(+) Average annual rates of return.
+ Source: Lipper Inc.
# Source: Standard & Poor's Micropal, Inc.
</TABLE>
<PAGE>
NOTES TO PERFORMANCE SUMMARY
Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 5.75% sales charge. Class B Share Performance
Including Sales Charge takes into account the deduction of the applicable
contingent deferred sales charge (CDSC), which declines over six years from 4%
to 0%. Class C Share Performance Including Sales Charge takes into account the
deduction of the 1% CDSC applicable to Class C shares redeemed within 12
months. Class I shares have no sales charge and are only available to certain
institutional investors.
Class B, C, and I share performance include the performance of the fund's
Class A shares for periods prior to their inception (blended performance).
Class B and C blended performance has been adjusted to take into account the
CDSC applicable to Class B and C shares rather than the initial sales charge
(load) applicable to Class A shares. Class I share blended performance has
been adjusted to account for the fact that Class I shares have no sales
charge. These blended performance figures have not been adjusted to take into
account differences in class-specific operating expenses. Because operating
expenses of Class B and C shares are higher than those of Class A, the blended
Class B and C share performance is higher than it would have been had Class B
and C shares been offered for the entire period. Conversely, because operating
expenses of Class I shares are lower than those of Class A, the blended Class
I share performance is lower than it would have been had Class I shares been
offered for the entire period.
All performance results reflect any applicable expense subsidies and waivers
in effect during the periods shown; without these, the results would have been
less favorable. See the prospectus for details. All results are historical and
assume the reinvestment of 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 SEPTEMBER 30, 2000
FIVE LARGEST STOCK SECTORS
FINANCIAL SERVICES 26.6%
UTILITIES & COMMUNICATIONS 20.3%
ENERGY 12.1%
INDUSTRIAL GOOD & SERVICES 7.6%
HEALTH CARE 6.8%
<TABLE>
TOP 10 STOCK HOLDINGS
<S> <C>
VERIZON COMMUNICATIONS 2.7% UNITED TECHNOLOGIES CORP. 1.9%
Integrated telecommunications company Aerospace, defense, and building equipment
company
ST. PAUL COMPANIES, INC. 2.6%
Commercial property-liability and life insurance FEDERAL HOME LOAN MORTGAGE CORPORATION 1.9%
company U.S. mortgage banker and underwriter
HARTFORD FINANCIAL SERVICES, GROUP, INC. 2.3% ROYAL DUTCH PETROLEUM CO. 1.8%
Multiline insurance company Oil exploration and production company
EXXONMOBIL CORP. 2.0% PNC BANK CORP. 1.8%
International oil and gas company Diversified financial services company
AKZO NOBEL N.V. 2.0% SBC COMMUNICATIONS, INC. 1.8%
Diversified Dutch chemical company Integrated telecommunications company
The portfolio is actively managed, and current holdings may be different.
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- September 30, 2000
Stocks - 56.5%
<CAPTION>
------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 50.5%
Aerospace - 3.4%
Boeing Co. 1,007,300 $ 63,459,900
General Dynamics Corp. 22,100 1,388,156
Honeywell International, Inc. 1,128,800 40,213,500
TRW, Inc. 759,300 30,846,563
United Technologies Corp. 1,012,396 70,108,423
--------------
$ 206,016,542
------------------------------------------------------------------------------------------------------
Agricultural Products
AGCO Corp. 49,300 $ 585,438
------------------------------------------------------------------------------------------------------
Automotive - 0.6%
Delphi Automotive Systems Corp. 1,221,900 $ 18,481,237
Ford Motor Co.* 552,124 13,975,639
Visteon Corp. 168,200 2,544,025
--------------
$ 35,000,901
------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 2.4%
Bank America Corp. 620,300 $ 32,488,213
Bank of New York Co., Inc. 83,008 4,653,636
Bank One Corp. 56,000 2,163,000
Chase Manhattan Corp. 728,600 33,652,212
National City Corp. 25,000 553,125
PNC Bank Corp. 1,026,500 66,722,500
Providian Financial Corp. 6,000 762,000
SunTrust Banks, Inc. 12,000 597,750
U.S. Bancorp 278,500 6,335,875
Washington Mutual, Inc. 10,000 398,125
--------------
$ 148,326,436
------------------------------------------------------------------------------------------------------
Biotechnology - 1.6%
Abbott Laboratories, Inc. 1,014,300 $ 48,242,644
Pharmacia Corp. 844,015 50,799,153
--------------
$ 99,041,797
------------------------------------------------------------------------------------------------------
Business Machines - 0.3%
Hewlett-Packard Co. 14,900 $ 1,445,300
International Business Machines Corp. 132,300 14,883,750
--------------
$ 16,329,050
------------------------------------------------------------------------------------------------------
Business Services - 0.4%
Automatic Data Processing, Inc. 360,900 $ 24,135,188
Computer Sciences Corp.* 11,800 876,150
United Parcel Service, Inc. 22,200 1,251,525
--------------
$ 26,262,863
------------------------------------------------------------------------------------------------------
Cellular Telephones - 0.6%
Motorola, Inc. 144,200 $ 4,073,650
Powertel, Inc.* 10,000 760,625
Telephone & Data Systems, Inc. 276,360 30,593,052
Voicestream Wireless Corp.* 5,000 580,313
--------------
$ 36,007,640
------------------------------------------------------------------------------------------------------
Chemicals - 1.0%
Air Products & Chemicals, Inc. 424,200 $ 15,271,200
Eastman Chemical Co. 10,000 369,375
Rohm & Haas Co. 1,462,100 42,492,281
--------------
$ 58,132,856
------------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 0.3%
Compaq Computer Corp. 740,300 $ 20,417,474
------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 0.7%
Microsoft Corp.* 677,200 $ 40,843,625
------------------------------------------------------------------------------------------------------
Conglomerates - 0.5%
Eastern Enterprises Co. 413,284 $ 26,372,685
Tyco International Ltd. 44,610 2,314,144
--------------
$ 28,686,829
------------------------------------------------------------------------------------------------------
Construction Services
Martin Marietta Materials, Inc. 10,000 $ 382,800
------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.4%
Fortune Brands, Inc. 637,400 $ 16,891,100
Kimberly-Clark Corp. 31,500 1,758,094
Procter & Gamble Co. 114,700 7,684,900
--------------
$ 26,334,094
------------------------------------------------------------------------------------------------------
Containers - 0.2%
Owens Illinois, Inc.* 1,600,900 $ 14,808,325
------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1%
Emerson Electric Co. 37,900 $ 2,539,300
General Electric Co. 27,132 1,565,177
--------------
$ 4,104,477
------------------------------------------------------------------------------------------------------
Energy - 0.6%
Devon Energy Corp. 632,200 $ 38,026,830
TXU Corp. 15,000 594,375
--------------
$ 38,621,205
------------------------------------------------------------------------------------------------------
Entertainment - 1.5%
Harrah's Entertainment, Inc.* 1,244,700 $ 34,229,250
Infinity Broadcasting Corp., "A"* 352,100 11,619,300
Metro Goldwyn Mayer, Inc.* 780,800 18,739,200
Time Warner, Inc. 155,700 12,183,525
USA Networks, Inc.* 328,500 7,206,469
Viacom, Inc., "B"* 173,435 10,145,947
--------------
$ 94,123,691
------------------------------------------------------------------------------------------------------
Financial Institutions - 2.4%
Associates First Capital Corp., "A" 804,000 $ 30,552,000
Citigroup, Inc. 326,333 17,642,378
Edwards (A.G.), Inc. 146,700 7,674,244
Federal National Mortgage Assn 236,500 16,909,750
FleetBoston Financial Corp. 20,000 780,000
Federal Home Loan Mortgage Corp. 1,284,800 69,459,500
Household International, Inc. 12,000 679,500
Merrill Lynch & Co., Inc. 42,602 2,811,732
Morgan (J.P.) & Co. 3,000 490,125
--------------
$ 146,999,229
------------------------------------------------------------------------------------------------------
Financial Services - 1.7%
AXA Financial, Inc. 1,103,264 $ 56,197,510
Mellon Financial Corp. 1,088,700 50,488,462
--------------
$ 106,685,972
------------------------------------------------------------------------------------------------------
Food and Beverage Products - 1.1%
Anheuser-Busch Cos., Inc. 233,800 $ 9,892,662
Archer-Daniels-Midland Co. 901,844 7,778,405
Coca-Cola Co. 148,300 8,175,038
General Mills, Inc. 320,100 11,363,550
Keebler Foods Co. 14,600 613,200
McCormick & Co., Inc. 85,100 2,531,725
PepsiCo., Inc. 320,200 14,729,200
Quaker Oats Co. 159,500 12,620,437
--------------
$ 67,704,217
------------------------------------------------------------------------------------------------------
Healthcare - 0.3%
HCA Healthcare Co. 491,400 $ 18,243,225
------------------------------------------------------------------------------------------------------
Insurance - 7.4%
AFLAC, Inc. 92,400 $ 5,919,375
Allstate Corp. 698,500 24,272,875
American General Corp. 150,500 11,739,000
American International Group, Inc. 269,025 25,742,330
Chubb Corp. 234,900 18,586,463
CIGNA Corp. 315,700 32,959,080
Gallagher (Arthur J.) & Co. 18,000 1,064,250
Hartford Financial Services Group, Inc. 1,135,285 82,804,850
Jefferson Pilot Corp. 315,100 21,387,412
Lincoln National Corp. 1,183,700 56,965,562
Marsh & McLennan Cos., Inc. 157,700 20,934,675
MetLife, Inc.* 582,380 15,251,076
Nationwide Financial Services, Inc., "A" 531,800 19,876,025
Safeco Corp. 748,500 20,396,625
St. Paul Cos., Inc. 1,928,500 95,099,156
--------------
$ 452,998,754
------------------------------------------------------------------------------------------------------
Machinery - 1.7%
Caterpillar, Inc. 191,300 $ 6,456,375
Deere & Co., Inc. 1,600,900 53,229,925
Grainger (W.W.), Inc. 889,100 23,394,444
Ingersoll Rand Co. 523,600 17,736,950
--------------
$ 100,817,694
------------------------------------------------------------------------------------------------------
Medical and Health Products - 1.0%
American Home Products Corp. 777,400 $ 43,971,687
Baxter International, Inc. 30,000 2,394,375
Bristol-Myers Squibb Co. 93,000 5,312,625
Schering Plough Corp. 242,200 11,262,300
--------------
$ 62,940,987
------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.1%
UnitedHealth Group, Inc.* 49,400 $ 4,878,250
------------------------------------------------------------------------------------------------------
Metals and Minerals - 1.1%
Alcoa, Inc. 1,262,700 $ 31,962,094
Phelps Dodge Corp. 898,600 37,516,550
--------------
$ 69,478,644
------------------------------------------------------------------------------------------------------
Oil Services - 2.1%
Baker Hughes, Inc. 20,000 $ 742,500
Burlington Resources, Inc. 12,000 441,750
Cooper Cameron Corp.* 114,900 8,466,694
Global Marine, Inc.* 614,200 18,963,425
Halliburton Co. 819,300 40,094,494
Kerr McGee Corp. 163,700 10,845,125
Kerr McGee Corp. Exchangeable 59,800 3,180,612
Noble Drilling Corp.* 737,800 37,074,450
Smith International, Inc.* 111,200 9,069,750
Weatherford International, Inc.* 20,000 860,000
--------------
$ 129,738,800
------------------------------------------------------------------------------------------------------
Oils - 3.2%
Anadarko Petroleum Corp. 10,000 $ 664,600
Apache Corp. 369,400 21,840,775
Coastal Corp. 642,775 47,645,697
Conoco, Inc. 45,000 1,212,187
Conoco, Inc., "A" 265,200 6,928,350
EOG Resources, Inc. 15,000 583,125
ExxonMobil Corp. 823,680 73,410,480
Occidental Petroleum Corp. 520,300 11,349,044
Phillips Petroleum Co. 108,500 6,808,375
R & B Falcon Corp.* 15,000 418,125
Santa Fe International Corp. 36,800 1,658,300
Transocean Sedco Forex, Inc. 305,200 17,892,350
Unocal Corp. 184,250 6,529,359
--------------
$ 196,940,767
------------------------------------------------------------------------------------------------------
Photographic Products - 0.1%
Polaroid Corp. 340,700 $ 4,578,156
------------------------------------------------------------------------------------------------------
Printing and Publishing - 1.0%
Gannett Co., Inc. 528,500 $ 28,010,500
New York Times Co. 354,700 13,944,144
Tribune Co. 381,800 16,656,025
--------------
$ 58,610,669
------------------------------------------------------------------------------------------------------
Railroads - 0.4%
Burlington Northern Santa Fe Railway Co. 1,056,300 $ 22,776,469
Union Pacific Corp. 15,800 614,225
--------------
$ 23,390,694
------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.8%
CarrAmerica Realty Corp. 344,300 $ 10,415,075
Equity Office Properties Trust 310,000 9,629,375
Equity Residential Properties Trust 487,700 23,409,600
Kilroy Realty Corp. 250,800 6,693,225
--------------
$ 50,147,275
------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.2%
MGM Mirage, Inc. 354,700 $ 13,545,106
------------------------------------------------------------------------------------------------------
Retail - 0.8%
CVS Corp. 12,200 $ 565,012
Gap, Inc. 570,000 11,471,250
Lowe's Cos., Inc. 18,000 807,750
Office Depot, Inc.* 889,200 6,946,875
TJX Cos., Inc. 15,000 337,500
Wal-Mart Stores, Inc. 582,600 28,037,625
--------------
$ 48,166,012
------------------------------------------------------------------------------------------------------
Special Products and Services
MCN Energy Group, Inc. 15,000 $ 384,375
------------------------------------------------------------------------------------------------------
Supermarkets - 1.5%
Kroger Co.* 2,171,128 $ 48,986,076
Safeway, Inc.* 932,700 43,545,431
--------------
$ 92,531,507
------------------------------------------------------------------------------------------------------
Telecommunications - 3.7%
Alltel Corp. 827,100 $ 43,164,281
AT&T Corp. 383,200 11,256,500
AT&T Corp., "A"* 30,000 540,000
CenturyTel, Inc. 273,700 7,458,325
Intermedia Communications, Inc. 1,198 35,341
SBC Communications, Inc. 1,316,348 65,817,400
Sprint Corp. 15,000 439,688
UnitedGlobalCom, Inc. 1,001 30,030
Verizon Communications 2,051,536 99,371,275
Winstar Communications, Inc.* 2,314 35,867
--------------
$ 228,148,707
------------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.4%
Comcast Corp., "A"* 643,600 $ 26,347,375
------------------------------------------------------------------------------------------------------
Utilities - Electric - 2.6%
AES Corp.* 11,000 $ 753,500
CMS Energy Corp. 63,200 1,702,450
CP&L Energy, Inc. 497,800 20,752,037
Duke Energy Corp. 358,800 30,767,100
Florida Progress Corp. 250,600 13,266,138
Keyspan Corp. 84,200 3,378,525
NiSource, Inc. 1,128,200 27,499,875
NSTAR Co. 298,100 11,998,525
Peco Energy Co. 288,600 17,478,338
Pinnacle West Capital Corp. 523,300 26,622,887
Public Service Enterprise Group 171,600 7,668,375
--------------
$ 161,887,750
------------------------------------------------------------------------------------------------------
Utilities - Gas - 2.4%
Columbia Energy Group 302,120 $ 21,450,520
National Fuel Gas Co. 901,700 50,551,556
NICOR, Inc. 205,400 7,432,913
Spinnaker Exploration Co.* 21,000 732,375
Washington Gas Light Co. 368,100 9,892,687
Williams Cos., Inc. 1,309,600 55,330,600
--------------
$ 145,390,651
------------------------------------------------------------------------------------------------------
Total U.S. Stocks $3,104,580,859
------------------------------------------------------------------------------------------------------
Foreign Stocks - 5.9%
Bermuda
Ace Ltd. (Insurance) 13,000 $ 510,250
------------------------------------------------------------------------------------------------------
Canada - 0.2%
Canadian National Railway Co. (Railroads) 366,000 $ 10,728,375
Talisman Energy, Inc. (Oils)* 15,000 525,938
--------------
$ 11,254,313
------------------------------------------------------------------------------------------------------
France - 0.2%
Total Fina S.A., ADR (Oils) 176,000 $ 12,925,000
------------------------------------------------------------------------------------------------------
Japan - 0.3%
Canon, Inc. (Special Products and Services) 146,000 $ 6,485,579
Tokyo Gas Co. Ltd. (Gas) 5,048,000 13,435,741
--------------
$ 19,921,320
------------------------------------------------------------------------------------------------------
Netherlands - 2.6%
Akzo Nobel N.V. (Chemicals) 1,689,370 $ 71,336,219
ING Groep N.V. (Financial Services)* 297,139 19,812,942
Royal Dutch Petroleum Co., ADR (Oils) 1,102,200 66,063,112
--------------
$ 157,212,273
------------------------------------------------------------------------------------------------------
Switzerland - 0.8%
Nestle S.A. (Food and Beverage Products) 16,851 $ 35,159,151
Novartis AG (Medical and Health Products) 10,800 16,587,458
--------------
$ 51,746,609
------------------------------------------------------------------------------------------------------
United Kingdom - 1.8%
BAE Systems PLC (Aerospace)* 39,699 $ 214,266
BP Amoco PLC, ADR (Oils) 730,639 38,723,867
CGU PLC (Insurance)* 841,386 11,943,906
Diageo PLC (Food and Beverage Products)* 3,145,945 28,120,776
HSBC Holdings PLC (Banks and Credit Cos.)* 1,995,100 28,380,472
Standard Chartered PLC (Banks and Credit Cos.)* 39,540 575,908
--------------
$ 107,959,195
------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 361,528,960
------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $2,918,297,832) $3,466,109,819
------------------------------------------------------------------------------------------------------
Bonds - 37.2%
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
------------------------------------------------------------------------------------------------------
U.S. Bonds - 19.4%
Advertising
Lamar Advertising Co., 5.25s, 2006 $ 996 $ 993,510
------------------------------------------------------------------------------------------------------
Aerospace - 0.1%
Boeing Capital Corp., 7.375s, 2010 $ 7,764 $ 7,831,392
------------------------------------------------------------------------------------------------------
Airlines - 0.2%
Jet Equipment Trust, 9.41s, 2010## $ 3,306 $ 3,564,042
Jet Equipment Trust, 8.64s, 2012## 2,999 3,080,587
Jet Equipment Trust, 11.44s, 2014## 4,700 5,256,010
Jet Equipment Trust, 10.69s, 2015## 1,250 1,348,600
--------------
$ 13,249,239
------------------------------------------------------------------------------------------------------
Automotive - 0.7%
Ford Motor Credit Co., 7.6s, 2005 $ 20,881 $ 21,097,536
Ford Motor Credit Co., 7.375s, 2009 8,224 8,035,012
Ford Motor Credit Co., 7.875s, 2010 7,672 7,751,405
General Motors Corp., 9.4s, 2021 5,049 5,804,886
--------------
$ 42,688,839
------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 1.3%
BCH Cayman Island Ltd., 7.7s, 2006 $ 8,859 $ 8,882,742
Beaver Valley Funding Corp. II, 9s, 2017 560 577,478
Capital One Financial Corp., 7.25s, 2003 4,845 4,768,464
Chase Manhattan Corp., 6.75s, 2004 2,466 2,447,554
Chase Manhattan Corp., 7.875s, 2010 9,917 10,276,690
Colonial Capital II, 8.92s, 2027 5,010 4,221,792
Fleet Norstar Financial Group, 9.9s, 2001 8,700 8,855,382
MidAmerican Funding LLC, 5.85s, 2001 9,980 9,926,297
MidAmerican Funding LLC, 6.927s, 2029 12,485 10,810,849
Midland Cogeneration Venture Corp., 10.33s, 2002 6 6,350
Midland Funding Corp., 10.33s, 2002 9,435 9,633,949
Riggs National Corp., 9.65s, 2009 1,425 1,425,000
Socgen Real Estate Co., 7.64s, 2049## 3,894 3,633,998
State Street Corp., 7.65s, 2010 3,042 3,114,430
--------------
$ 78,580,975
------------------------------------------------------------------------------------------------------
Business Services - 0.1%
Unisys Corp., 11.75s, 2004 $ 7,000 $ 7,402,500
------------------------------------------------------------------------------------------------------
Conglomerates - 0.5%
News America Holdings, Inc., 6.703s, 2004 $ 12,847 $ 12,589,803
News America Holdings, Inc., 6.625s, 2008 9,835 9,201,233
News America Holdings, Inc., 10.125s, 2012 1,085 1,167,113
News America Holdings, Inc., 7.3s, 2028 8,176 7,201,911
--------------
$ 30,160,060
------------------------------------------------------------------------------------------------------
Corporate Asset Backed - 3.0%
American Airlines Pass-Through Trust, 6.855s, 2009 $ 5,884 $ 5,803,516
Banamex Credit Card Merchant Voucher, 6.25s, 2003## 3,869 3,807,065
BCF LLC, 7.75s, 2006## 3,162 1,714,474
Bear Stearns Commercial Mortgage Securities, Inc.,
6.8s, 2008 11,409 11,360,109
Chase Commercial Mortgage Securities Corp., 6.39s, 2008 8,417 8,040,344
Chase Commercial Mortgage Securities Corp., 7.543s, 2009 3,311 3,353,578
Commerce 2000, 6.839s, 2011 10,730 10,569,050
Commerce 2000, 6.923s, 2011## 6,824 6,823,569
Contimorgage Home Equity, 6.13s, 2013 6,020 5,986,509
Continental Airlines Pass-Through Trust, Inc.,
9.5s, 2013 3,522 3,635,572
Continental Airlines Pass-Through Trust, Inc.,
6.648s, 2019 11,429 10,581,108
Continental Airlines Pass-Through Trust, Inc.,
7.256s, 2020 6,188 5,992,469
Criimi Mae Commercial Mortgage Trust, 7s, 2011 5,500 4,945,703
Criimi Mae Corp., 6.701s, 2008## 4,350 3,972,773
CWMBS, Inc. Pass-Through Trust, 8s, 2030 17,960 17,982,450
GS Mortgage Securities Corp. II, 6.06s, 2030 17,690 17,181,542
Istar Receivables Trust, 6.92s, 2022 4,298 4,299,091
Merrill Lynch Mortgage Investors, Inc., 8.484s, 2022+ 4,000 3,806,250
Northwest Airlines, Inc., 6.81s, 2020 1,486 1,371,148
Residential Accredit Loans, Inc., 6.75s, 2028 21,246 20,203,459
Residential Accredit Loans, Inc., 7s, 2028 9,068 8,623,927
Summit Acceptance Auto Investment LLC, 7.51s, 2007 5,940 5,999,400
Time Warner Pass-Through Asset Trust, 6.1s, 2001## 17,578 17,340,521
--------------
$ 183,393,627
------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1%
American Tower Corp., 5s, 2010## $ 6,310 $ 6,013,087
------------------------------------------------------------------------------------------------------
Entertainment - 0.6%
Hearst Argyle Television, Inc., 7.5s, 2027 $ 7,905 $ 6,873,002
Time Warner, Inc., 10.15s, 2012 17,570 20,676,728
Time Warner, Inc., 6.875s, 2018 4,532 4,099,511
Time Warner, Inc., 9.15s, 2023 3,421 3,744,387
--------------
$ 35,393,628
------------------------------------------------------------------------------------------------------
Finance - 0.1%
Countrywide Funding Corp., 6.25s, 2009 $ 6,410 $ 5,835,920
------------------------------------------------------------------------------------------------------
Financial Institutions - 1.9%
Associates Corp., 5.5s, 2004 $ 947 $ 904,470
AT&T Capital Corp., 6.25s, 2001 5,379 5,347,156
FleetBoston Financial Corp., 7.25s, 2005 3,500 3,523,695
General Motors Acceptance Corp., 5.5s, 2002 3,000 2,940,630
General Motors Acceptance Corp., 6.75s, 2002 29,500 29,362,235
General Motors Acceptance Corp., 5.95s, 2003 17,142 16,742,626
Goldman Sachs Group LP, 5.9s, 2003 5,300 5,159,285
GS Escrow Corp., 6.75s, 2001 18,807 18,517,222
Household Finance Corp., 7.875s, 2007 14,265 14,632,181
Salton Sea Funding Corp., 7.84s, 2010 7,270 7,067,894
Salton Sea Funding Corp., 8.3s, 2011 1,304 1,299,000
Sunamerica Institutional, 5.75s, 2009 9,589 8,543,799
United Companies Financial Corp., 7.7s, 2004 2,650 848,000
--------------
$ 114,888,193
------------------------------------------------------------------------------------------------------
Financial Services - 2.3%
AIG Sunamerica Global Financing I, 7.4s, 2003## $ 14,355 $ 14,411,272
AIG Sunamerica Global Financing II, 7.6s, 2005## 10,863 11,163,253
Deere (John) Capital Corp., 7s, 2002 6,261 6,278,656
General Electric Capital Corp., 7.5s, 2005 12,300 12,646,614
General Electric Capital Corp., 8.7s, 2007 9,646 10,539,934
General Electric Capital Corp., 8.75s, 2007 3,073 3,371,419
General Electric Capital Corp., 8.85s, 2007 4,572 5,033,726
General Electric Capital Corp., 8.5s, 2008 2,419 2,642,492
General Electric Capital Corp., 7.375s, 2010 11,464 11,780,750
Lehman Brothers Holdings, 7.75s, 2005 19,418 19,807,719
Morgan (JP) Commercial Mortgage Finance Corp.,
6.613s, 2030 4,018 3,892,106
Morgan Stanley Dean Witter, 7.75s, 2005 7,036 7,243,914
Morgan Stanley Group, Inc., 7.125s, 2003 9,600 9,644,928
Sprint Capital Corp., 6.5s, 2001 17,261 17,135,858
Sprint Capital Corp., 5.875s, 2004 4,418 4,223,519
--------------
$ 139,816,160
------------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.7%
Nabisco, Inc., 6.375s, 2035 $ 2,426 $ 2,252,662
Seagram (Joseph E) & Sons, Inc., 5.79s, 2001 12,771 12,647,377
Seagram (Joseph E) & Sons, Inc., 6.4s, 2003 17,630 17,275,284
Seagram (Joseph E) & Sons, Inc., 7.5s, 2018 11,012 10,778,546
--------------
$ 42,953,869
------------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.3%
Georgia-Pacific Corp., 9.95s, 2002 $ 4,320 $ 4,482,994
Georgia-Pacific Corp., 7.7s, 2015 3,100 2,956,935
Georgia-Pacific Corp., 9.875s, 2021 11,382 11,935,848
Georgia-Pacific Corp., 9.5s, 2022 1,000 1,045,600
--------------
$ 20,421,377
------------------------------------------------------------------------------------------------------
Housing - 0.1%
Residential Funding Mortgage Securities, Inc., 7.66s, 2012 $ 3,901 $ 3,935,095
------------------------------------------------------------------------------------------------------
Insurance - 0.6%
Aflac, Inc., 6.5s, 2009 $ 22,913 $ 21,278,386
Atlantic Mutual Insurance Co., 8.15s, 2028## 10,964 8,450,613
Providian Capital I, 9.525s, 2027## 11,526 8,579,839
--------------
$ 38,308,838
------------------------------------------------------------------------------------------------------
Oil Services - 0.2%
Kerr McGee Corp., 5.25s, 2010 $ 1,280 $ 1,590,400
Phillips Petroleum Co., 8.5s, 2005 6,703 7,085,473
Ultramar Diamond Shamrock Corp., 7.2s, 2017 5,030 4,651,593
--------------
$ 13,327,466
------------------------------------------------------------------------------------------------------
Oils - 0.2%
Alberta Energy Ltd., 7.65s, 2010 $ 3,235 $ 3,256,901
Alberta Energy Ltd., 8.125s, 2030 4,732 4,704,271
Occidental Petroleum Corp., 6.75s, 2002 1,712 1,696,626
Occidental Petroleum Corp., 6.4s, 2003 1,245 1,224,196
Oryx Energy Co., 8s, 2003 2,000 2,035,020
--------------
$ 12,917,014
------------------------------------------------------------------------------------------------------
Railroads - 0.2%
Union Pacific Corp., 5.78s, 2001 $ 7,488 $ 7,362,426
Union Pacific Corp., 6.34s, 2003 7,211 7,017,529
--------------
$ 14,379,955
------------------------------------------------------------------------------------------------------
Real Estate - 0.1%
EOP Operating Ltd., 8.1s, 2010 $ 3,671 $ 3,694,862
------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
MGM Mirage, Inc., 8.5s, 2010 $ 7,397 $ 7,391,008
------------------------------------------------------------------------------------------------------
Retail - 0.3%
Federated Department Stores, Inc., 8.5s, 2003 $ 9,959 $ 10,162,562
Federated Department Stores, Inc., 6.3s, 2009 12,875 11,150,136
--------------
$ 21,312,698
------------------------------------------------------------------------------------------------------
Supermarkets - 0.2%
Safeway, Inc., 5.875s, 2001 $ 10,400 $ 10,258,352
------------------------------------------------------------------------------------------------------
Telecommunications - 0.6%
Sprint Spectrum LP, 11s, 2006 $ 3,750 $ 4,150,050
TCI Communications Financing III, 9.65s, 2027 15,844 17,105,816
Telecomunicaciones de Puerto Rico, Inc., 6.65s, 2006 5,862 5,584,001
United Telecommunications Co., 9.5s, 2003 6,806 7,132,075
WorldCom, Inc., 8.875s, 2006 5,000 5,174,700
--------------
$ 39,146,642
------------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.2%
Belo Ah Corp., 7.75s, 2027 $ 5,420 $ 4,587,813
Comcast Corp., 10.25s, 2001 6,818 7,025,813
--------------
$ 11,613,626
------------------------------------------------------------------------------------------------------
Telecom - Wire Less - 0.3%
Qwest Capital Funding, Inc., 7.75s, 2006 $ 17,000 $ 17,295,460
------------------------------------------------------------------------------------------------------
Utilities - Electric - 3.4%
CalEnergy Co., Inc., 7.23s, 2005 $ 5 $ 4,974
Cleveland Electric Illuminating Co., 7.88s, 2017 7,403 7,247,759
Cleveland Electric Illuminating Co., 9s, 2023 8,396 8,635,118
CMS Energy Corp., 8s, 2001 5,859 5,807,013
CMS Energy Corp., 8.375s, 2003 5,651 5,519,191
CMS Panhandle Holding Co., 6.5s, 2009 9,270 8,375,723
Commonwealth Edison Co., 8.5s, 2022 7,370 7,284,213
Connecticut Light & Power Co., 7.875s, 2001 15,365 15,417,615
Connecticut Light & Power Co., 7.75s, 2002 3,900 3,936,036
Connecticut Light & Power Co., 8.59s, 2003 7,800 7,782,606
Dominion Resources, Inc., 7.625s, 2005 6,879 6,957,283
Entergy Mississippi, Inc., 6.2s, 2004 5,533 5,321,086
GGIB Funding Corp., 7.43s, 2011 4,339 4,191,812
Gulf States Utilities Co., 8.21s, 2002 4,445 4,473,403
Gulf States Utilities Co., 8.25s, 2004 2,781 2,860,064
Illinois Power Special Purpose Trust, 5.26s, 2003 2,765 2,743,739
Niagara Mohawk Power Corp., 7.25s, 2002 11,797 11,741,467
Niagara Mohawk Power Corp., 7.375s, 2003 1,843 1,852,694
Niagara Mohawk Power Corp., 7.75s, 2006 18,456 18,798,543
North Atlantic Energy, 9.05s, 2002 2,290 2,303,694
Northeast Utilities, 8.58s, 2006 7,783 7,917,217
NRG Energy, Inc., 8.7s, 2005## 4,525 4,788,717
NRG Energy South Central, 8.962s, 2016 6,408 6,568,997
NSTAR Co., 8s, 2010 6,108 6,247,751
PNPP II Funding Corp., 9.12s, 2016 2,228 2,300,633
PP&L, Inc., 6.125s, 2001 7,790 7,738,976
Texas Utilities Co., 5.94s, 2001 14,180 14,019,341
Toledo Edison Co., 7.875s, 2004 5,128 5,199,638
TXU Eastern Funding Co., 6.15s, 2002 7,759 7,591,018
Utilicorp United, Inc., 7s, 2004 3,499 3,395,884
Waterford 3 Funding Entergy Corp., 8.09s, 2017 10,945 10,673,525
--------------
$ 207,695,730
------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.8%
Coastal Corp., 6.2s, 2004 $ 14,755 $ 14,314,416
Coastal Corp., 7.75s, 2010 13,831 14,037,151
Enron Corp., 7.875s, 2003 4,793 4,899,932
Tennessee Gas Pipeline Co., 7.625s, 2037 5,338 5,071,313
Texas Gas Transmission Corp., 7.25s, 2027 6,288 5,787,444
Williams Gas Pipelines Central, Inc., 7.375s, 2006## 3,759 3,739,115
--------------
$ 47,849,371
------------------------------------------------------------------------------------------------------
Utilities - Telephone - 0.2%
U.S. West Communications, Inc., 7.625s, 2003 $ 10,355 $ 10,483,195
------------------------------------------------------------------------------------------------------
Total U.S. Bonds $1,189,231,688
------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 4.5%
Federal Home Loan Bank, 6.5s, 2028 $ 420 $ 403,131
Federal National Mortgage Assn., 5.722s, 2009 16,001 14,703,419
Federal National Mortgage Assn., 6.5s, 2028 42 40,235
Federal National Mortgage Assn., 6.625s, 2009 16,950 16,748,634
Federal National Mortgage Assn., 7s, 2005 - 2030 104,480 102,900,000
Federal National Mortgage Assn., 7.25s, 2010 92,973 95,878,406
Federal National Mortgage Assn., 7.5s, 2030 - 2030 46,000 45,893,841
------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 276,567,666
------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 12.7%
Government National Mortgage Assn., 7s, 2027 - 2028 $ 39,715 $ 39,133,406
Government National Mortgage Assn., 7.5s, 2023 - 2028 86,531 86,821,632
Government National Mortgage Assn., 8s, 2022 - 2030 303,419 308,973,847
Small Business Administration, 8.8s, 2011 250 258,480
U.S. Treasury Bonds, 6.125s, 2029 100,768 102,925,443
U.S. Treasury Bonds, 6.25s, 2030 19,257 20,237,952
U.S. Treasury Notes, 4.25s, 2010 32,929 33,618,351
U.S. Treasury Notes, 5.75s, 2010 68,300 68,022,702
U.S. Treasury Notes, 6.375s, 2001 - 2002 40,000 40,045,900
U.S. Treasury Notes, 6.5s, 2001 - 2010 30,834 31,700,600
U.S. Treasury Notes, 6.75s, 2005 43,700 45,270,578
------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 777,008,891
------------------------------------------------------------------------------------------------------
Foreign Bonds - 0.6%
Canada - 0.3%
AT&T Canada, Inc., 0s to 2003, 9.95s to 2008
(Telecommunications) $ 2,155 $ 1,799,123
Gulf Canada Resources Ltd., 9.25s, 2004 (Oils) 1,785 1,812,400
Province of Quebec, 7.5s, 2029 11,080 11,067,701
--------------
$ 14,679,224
------------------------------------------------------------------------------------------------------
Mexico - 0.2%
United Mexican States, 9.875s, 2010 $ 9,068 $ 9,657,420
------------------------------------------------------------------------------------------------------
Netherlands - 0.1%
KPN NV, 8s, 2010 (Telecommunications)## $ 2,332 $ 2,333,609
Telefonica Europe Bv, 7.35s, 2005
(Telecommunications) 8,419 8,451,918
--------------
$ 10,785,527
------------------------------------------------------------------------------------------------------
Norway
Union Bank of Norway, 7.35s, 2049 (Banks and Credit
Cos.)## $ 2,273 $ 2,240,451
------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 37,362,622
------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $2,296,172,271) $2,280,170,867
------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 2.1%
------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
------------------------------------------------------------------------------------------------------
U.S. Stocks - 2.0%
Banks and Credit Companies
Sovereign Bancorp, Inc. 7.5% 49,820 $ 2,758,783
------------------------------------------------------------------------------------------------------
Business Services - 0.1%
EVI, Inc., 5% 70,000 $ 3,333,750
------------------------------------------------------------------------------------------------------
Consumer Goods and Services
Newell Financial Trust I, 5.25% 80,400 $ 2,914,500
------------------------------------------------------------------------------------------------------
Containers - 0.1%
Owens-Illinois, Inc., 4.75% 210,600 $ 3,632,850
------------------------------------------------------------------------------------------------------
Financial Institutions - 0.1%
Salomon, Inc., 6.25% 51,000 $ 4,845,000
------------------------------------------------------------------------------------------------------
Insurance - 0.5%
Ace Ltd., 8.25% 44,000 $ 3,550,250
Lincoln National Corp. 1.85% 204,000 4,080,000
Lincoln National Corp., 7.75% 125,600 2,983,000
Metlife Capital Trust I, 8% 201,800 17,153,000
QBE Insurance Group Ltd., 8%## 52,000 2,782,000
--------------
$ 30,548,250
------------------------------------------------------------------------------------------------------
Oil Services - 0.1%
Enron Corp., 7% 140,200 $ 4,985,863
------------------------------------------------------------------------------------------------------
Oils - 0.1%
Apache Corp., 6.5% 50,000 $ 2,565,625
Coastal Corp., 5.58% 13,400 522,600
Coastal Corp., 6.625% 74,150 3,086,494
--------------
$ 6,174,719
------------------------------------------------------------------------------------------------------
Telecommunications - 0.3%
Cox Communications, Inc., 0.25% 92,000 $ 3,846,520
Cox Communications, Inc., 7.75% 17,600 1,282,688
Global Telesystems Group, Inc., 7.25%## 37,750 401,282
Intermedia Communications, Inc., $3.25 73,100 2,595,050
Intermedia Communications, Inc., 7%## 39,900 1,436,400
Qwest Trends Trust, 5.75%## 54,700 4,239,250
UnitedGlobalCom, Inc., "C", 7% 40,000 1,665,000
UnitedGlobalCom, Inc., "D", 7% 13,340 436,885
--------------
$ 15,903,075
------------------------------------------------------------------------------------------------------
Telecom - Wire Less
Crown Castle International Corp., 6.25%* 30,000 $ 1,507,500
------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.6%
AES Trust III, 6.75% 58,800 $ 6,085,800
AES Trust VII, 6%## 16,700 1,371,487
Calpine Capital Trust, 5.75% 15,000 2,681,250
CMS Energy Corp., 8.75% 186,800 5,954,250
NiSource, Inc., 7.75% 353,200 16,953,600
Southern Energy, Inc., 6.25% 4,300 282,188
TXU Corp., 9.25% 106,600 4,976,887
--------------
$ 38,305,462
------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
El Paso Energy Capital Trust I, 4.75% 80,000 $ 6,250,000
Semco Energy, Inc., 11% 158,700 1,745,700
--------------
$ 7,995,700
------------------------------------------------------------------------------------------------------
Utilities - Telephone
Williams Communications Group, 6.75%## 24,000 $ 1,020,000
------------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 123,925,452
------------------------------------------------------------------------------------------------------
Foreign Stocks - 0.1%
Bermuda - 0.1%
Global Crossing Ltd., 6.75% (Telecommunications) 2,600 $ 650,845
Global Crossing Ltd., 7% (Telecommunications)## 8,000 1,547,000
--------------
$ 2,197,845
------------------------------------------------------------------------------------------------------
Canada
Canadian National Railway Co., 5.25% (Railroads) 40,300 $ 1,798,387
------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 3,996,232
------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(Identified Cost, $112,464,988) $ 127,921,684
------------------------------------------------------------------------------------------------------
Convertible Bonds - 1.1%
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
------------------------------------------------------------------------------------------------------
U.S. Bonds - 1.1%
Banks and Credit Companies
Providian Financial Corp., 3.25s, 2005 $ 1,500 $ 1,526,250
------------------------------------------------------------------------------------------------------
Computer Software - Services
Affiliated Computer Services, Inc., 4s, 2005## $ 1,495 $ 1,950,975
------------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.1%
Analog Devices, Inc., 4.75s, 2005## $ 1,160 $ 1,194,081
Ingram Micro, Inc., 0s, 2018 6,200 2,325,000
Networks Assocs., Inc., 0s, 2018 10 3,787
--------------
$ 3,522,868
------------------------------------------------------------------------------------------------------
Conglomerates - 0.2%
Loews Corp., 3.125s, 2007 $ 12,100 $ 10,723,625
------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1%
American Tower Corp., 6.25s, 2009## $ 1,790 $ 3,007,200
Atmel Corp., 0s, 2018 2,000 1,700,000
--------------
$ 4,707,200
------------------------------------------------------------------------------------------------------
Electronics - 0.1%
Conexant Systems, Inc., 4.25s, 2006 $ 800 $ 1,446,016
SCI Systems, Inc., 3s, 2007 1,500 1,530,000
--------------
$ 2,976,016
------------------------------------------------------------------------------------------------------
Energy - 0.1%
Alliant Energy Resources, Inc., 7.25s to 2003,
2.25s to 2030## $ 30 $ 1,605,000
Devon Energy Corp., 0s, 2020## 3,300 1,555,851
--------------
$ 3,160,851
------------------------------------------------------------------------------------------------------
Financial Services - 0.2%
Bell Atlantic Financial Services, Inc., 4.25s, 2005## $ 3,000 3,384,300
Elan Finance Corp. Ltd., 0s, 2018## 8,000 6,389,920
--------------
$ 9,774,220
------------------------------------------------------------------------------------------------------
Internet
America Online, Inc., 0s, 2019 $ 3,500 $ 1,748,250
------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services
Health Management Associates, Inc., 0s, 2020## $ 3,500 $ 2,410,625
------------------------------------------------------------------------------------------------------
Oil Services
Global Marine, Inc., 0s, 2020 $ 2,000 $ 1,017,500
------------------------------------------------------------------------------------------------------
Oils - 0.1%
Diamond Offshore Drilling, Inc., 0s, 2020## $ 4,000 $ 2,000,000
Transocean Sedco Forex, Inc., 0s, 2020 1,700 1,064,625
--------------
$ 3,064,625
------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1%
Millennium Pharmaceuticals, 5.5s, 2007## $ 2,000 $ 3,772,500
------------------------------------------------------------------------------------------------------
Printing and Publishing
Tribune Co., 2s, 2029 $ 20 $ 2,395,000
------------------------------------------------------------------------------------------------------
Retail
Anntaylor Stores Corp., 0s, 2019## $ 4,000 $ 2,295,000
------------------------------------------------------------------------------------------------------
Telecommunications - 0.1%
Cox Communications, Inc., 0s, 2020 $ 6,500 $ 2,717,650
Echostar Communications Corp., 4.875s, 2007## 1,990 2,634,263
Liberty Media Group, 4s, 2029## 1,160 1,083,150
Transwitch Corp., 4.5s, 2005 880 1,078,000
--------------
$ 7,513,063
------------------------------------------------------------------------------------------------------
Telecommunications and Cable
Comcast Corp., 2s, 2029 $ 28 $ 1,897,450
------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 64,456,018
------------------------------------------------------------------------------------------------------
Foreign Bonds
Canada
Four Seasons Hotels, Inc., 0s, 2029 (Restaurants
and Lodging) $ 4,982 $ 2,045,609
------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $57,493,303) $ 66,501,627
------------------------------------------------------------------------------------------------------
Preferred Stocks - 0.1%
------------------------------------------------------------------------------------------------------
SHARES
------------------------------------------------------------------------------------------------------
Automotive - 0.1%
Tower Automotive Capital Trust, 6.75% 94,800 $ 2,512,200
------------------------------------------------------------------------------------------------------
Telecommunications
Global Telesystems Group, Inc., 7.25% 22,250 $ 230,844
WinStar Communications, Inc., 7%* 55,000 1,608,750
--------------
$ 1,839,594
------------------------------------------------------------------------------------------------------
Utilities - Electric
CMS Energy Corp.* 80,000 $ 2,026,000
------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $10,704,213) $ 6,377,794
------------------------------------------------------------------------------------------------------
Right - 0.1%
------------------------------------------------------------------------------------------------------
CVS Corp. (Identified Cost, $5,429,248) 78,100 $ 6,345,625
------------------------------------------------------------------------------------------------------
Short-Term Obligations - 1.9%
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
------------------------------------------------------------------------------------------------------
Aig Funding, Inc., due 10/02/00 $ 829 $ 828,847
American Express Credit Corp., due 10/02/00 9,581 9,579,220
Associates Corp. of North America, due 10/02/00 9,197 9,195,291
Barton Capital Corp., due 10/04/00^ 38,896 38,874,704
Electronic Data Systems Corp., due 10/02/00 3,129 3,128,419
Federal National Mortgage Assn., due 10/02/00 1,708 1,707,700
General Electric Capital Corp., due 10/02/00 14,175 14,172,382
General Electric Co., due 10/11/00 10,106 10,087,753
General Motors Acceptance Corp., due 10/02/00 1,259 1,258,765
Gillette Co., due 10/02/00 13,636 13,633,470
Goldman Sachs Group LP, due 10/02/00 7,699 7,697,574
Morgan Stanley Dean Witter, due 10/02/00 6,564 6,562,787
Salomon Smith Barney Holdings, Inc., due 10/02/00 3,675 3,674,320
------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 120,401,232
------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $5,520,963,087) $6,073,828,648
Other Assets, Less Liabilities - 1.0% 59,080,996
------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $6,132,909,644
------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
+ Restricted security.
^ 4(2) paper.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
---------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2000
---------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $5,520,963,087) $6,073,828,648
Investments of cash collateral for securities loaned, at identified cost and value 14,328,057
Cash 472,545
Foreign currency, at value (identified cost, $348) 320
Receivable for fund shares sold 6,385,818
Receivable for investments sold 113,781,924
Interest and dividends receivable 39,619,234
Other assets 93,651
--------------
Total assets $6,248,510,197
--------------
Liabilities:
Distributions payable $ 1,764,394
Payable for fund shares reacquired 16,670,610
Payable for investments purchased 80,997,315
Collateral for securities loaned, at value 14,328,057
Payable to affiliates -
Management fee 130,452
Shareholder servicing agent fee 33,688
Distribution and service fee 206,553
Administrative fee 3,754
Accrued expenses and other liabilities 1,465,730
--------------
Total liabilities $ 115,600,553
--------------
Net assets $6,132,909,644
==============
Net assets consist of:
Paid-in capital $5,420,618,631
Unrealized appreciation on investments and translation
of assets
and liabilities in foreign currencies 552,828,953
Accumulated undistributed net realized gain on
investments and foreign
currency transactions 162,314,342
Accumulated distributions in excess of net investment
income (2,852,281)
--------------
Total $6,132,909,644
==============
Shares of beneficial interest outstanding 403,753,022
===========
Class A shares:
Net asset value per share
(net assets of $3,570,342,548 / 235,079,765 shares of beneficial interest outstanding) $15.19
======
Offering price per share (100 / 95.25 of net asset value per share) $15.95
======
Class B shares:
Net asset value and offering price per share
(net assets of $2,014,088,756 / 132,655,859 shares of beneficial interest outstanding) $15.18
======
Class C shares:
Net asset value and offering price per share
(net assets of $497,319,602 / 32,648,951 shares of beneficial interest outstanding) $15.23
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $51,158,738 / 3,368,447 shares of beneficial interest outstanding) $15.19
======
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.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
----------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2000
----------------------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Interest $178,445,061
Dividends 80,891,046
Foreign taxes withheld (970,368)
------------
Total investment income $258,365,739
------------
Expenses -
Management fee $ 20,945,302
Trustees' compensation 129,647
Shareholder servicing agent fee 6,092,547
Distribution and service fee (Class A) 12,323,874
Distribution and service fee (Class B) 20,381,829
Distribution and service fee (Class C) 4,864,404
Administrative fee 478,392
Custodian fee 1,126,300
Printing 198,909
Postage 497,007
Auditing fees 40,749
Legal fees 24,704
Miscellaneous 3,682,837
------------
Total expenses $ 70,786,501
Fees paid indirectly (735,757)
------------
Net expenses $ 70,050,744
------------
Net investment income $188,314,995
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $181,801,804
Foreign currency transactions (2,206,180)
------------
Net realized gain on investments and foreign currency transactions $179,595,624
------------
Change in unrealized appreciation -
Investments $440,275,014
Translation of assets and liabilities in foreign currencies 2,205,880
------------
Net unrealized gain on investments and foreign currency translation $442,480,894
------------
Net realized and unrealized gain on investments and foreign currency $622,076,518
------------
Increase in net assets from operations $810,391,513
============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 188,314,995 $ 207,767,725
Net realized gain on investments and foreign currency
transactions 179,595,624 401,496,989
Net unrealized gain (loss) on investments and foreign
currency translation 442,480,894 (205,475,863)
-------------- --------------
Increase in net assets from operations $ 810,391,513 $ 403,788,851
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (116,270,542) $ (129,580,179)
From net investment income (Class B) (54,038,292) (59,446,051)
From net investment income (Class C) (12,844,370) (11,895,158)
From net investment income (Class I) (1,709,284) (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 $ (598,573,403) $ (968,937,938)
-------------- --------------
Net increase (decrease) in net assets from fund share
transactions $ (551,332,005) $1,198,132,902
-------------- --------------
Total increase (decrease) in net assets $ (339,513,895) $ 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 $2,852,281 and
$5,393,683, respectively) $6,132,909,644 $6,472,423,539
============== ==============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.48 $ 0.53 $ 0.57 $ 0.60 $ 0.64
Net realized and unrealized gain on investments
and foreign currency 1.55 0.56 0.53 2.94 1.21
------ ------ ------ ------ ------
Total from investment operations $ 2.03 $ 1.09 $ 1.10 $ 3.54 $ 1.85
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.47) $(0.51) $(0.58) $(0.59) $(0.62)
From net realized gain on investments and foreign
currency transactions (0.94) (2.07) (1.37) (1.06) (0.66)
In excess of net realized gain on investments and
foreign currency transactions -- -- (0.01) -- --
------ ------ ------ ------ ------
Total distributions declared to shareholders $(1.41) $(2.58) $(1.96) $(1.65) $(1.28)
------ ------ ------ ------ ------
Net asset value - end of period $15.19 $14.57 $16.06 $16.92 $15.03
====== ====== ====== ====== ======
Total return(+) 15.06% 7.06% 6.98% 25.27% 13.50%
Ratios (to average net assets)/Supplemental data:
Expenses## 0.90% 0.89% 0.90% 0.93% 0.91%
Net investment income 3.36% 3.45% 3.44% 3.84% 4.35%
Portfolio turnover 112% 151% 126% 143% 140%
Net assets at end of period (000,000 omitted) $3,570 $3,699 $3,503 $3,199 $2,568
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and 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
Financial Highlights - continued
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------
CLASS B
-----------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.39 $ 0.43 $ 0.46 $ 0.50 $ 0.52
Net realized and unrealized gain on investments
and foreign currency 1.54 0.58 0.53 2.95 1.21
------ ------ ------ ------ ------
Total from investment operations $ 1.93 $ 1.01 $ 0.99 $ 3.45 $ 1.73
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.38) $(0.42) $(0.48) $(0.49) $(0.51)
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) -- --
------ ------ ------ ------ ------
Total distributions declared to shareholders $(1.32) $(2.49) $(1.86) $(1.55) $(1.17)
------ ------ ------ ------ ------
Net asset value - end of period $15.18 $14.57 $16.05 $16.92 $15.02
====== ====== ====== ====== ======
Total return 14.24% 6.43% 6.22% 24.51% 12.49%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.54% 1.54% 1.55% 1.60% 1.67%
Net investment income 2.71% 2.80% 2.80% 3.17% 3.56%
Portfolio turnover 112% 151% 126% 143% 140%
Net assets at end of period (000,000 omitted) $2,014 $2,217 $1,984 $1,707 $1,284
# Per share data is based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------
CLASS C
-----------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.39 $ 0.43 $ 0.46 $ 0.50 $ 0.53
Net realized and unrealized gain on investments
and foreign currency 1.55 0.57 0.53 2.95 1.22
------ ------ ------ ------ ------
Total from investment operations $ 1.94 $ 1.00 $ 0.99 $ 3.45 $ 1.75
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.38) $(0.42) $(0.47) $(0.49) $(0.52)
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) -- --
------ ------ ------ ------ ------
Total distributions declared to shareholders $(1.32) $(2.49) $(1.85) $(1.55) $(1.18)
------ ------ ------ ------ ------
Net asset value - end of period $15.23 $14.61 $16.10 $16.96 $15.06
====== ====== ====== ====== ======
Total return 14.27% 6.41% 6.27% 24.39% 12.67%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.54% 1.54% 1.55% 1.60% 1.63%
Net investment income 2.70% 2.80% 2.80% 3.16% 3.67%
Portfolio turnover 112% 151% 126% 143% 140%
Net assets at end of period (000,000 omitted) $497 $508 $336 $190 $83
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, PERIOD ENDED
----------------------------------- SEPTEMBER 30,
2000 1999 1998 1997*
------------------------------------------------------------------------------------------------------------
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 $ 0.53 $ 0.58 $ 0.63 $ 0.48
Net realized and unrealized gain on investments and
foreign currency 1.55 0.57 0.53 2.23
------ ------ ------ ------
Total from investment operations $ 2.08 $ 1.15 $ 1.16 $ 2.71
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.52) $(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 $(1.46) $(2.64) $(2.02) $(0.49)
------ ------ ------ ------
Net asset value - end of period $15.19 $14.57 $16.06 $16.92
====== ====== ====== ======
Total return 15.46% 7.43% 7.35% 18.69%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.55% 0.54% 0.55% 0.60%+
Net investment income 3.71% 3.84% 3.79% 4.16%+
Portfolio turnover 112% 151% 126% 143%
Net assets at end of period (000,000 omitted) $ 51 $ 48 $ 17 $ 16
* For the period from the inception of Class I shares, January 2, 1997, through September 30, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Total Return Fund (the fund) is a diversified series of MFS Series Trust V
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The fund can
invest in foreign securities. Investments in foreign securities are vulnerable
to the effects of changes in the relative values of the local currency and the
U.S. dollar and to the effects of changes in each country's legal, political,
and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using last quoted bid
prices. Debt securities (other than short-term obligations which mature in 60
days or less), including listed issues and forward contracts, are valued on the
basis of valuations furnished by dealers or by a pricing service with
consideration to factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data, without exclusive reliance upon exchange
or over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. 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 cash and/or 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.
Cash collateral is invested in short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the fund and the lending agents. 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 September 30, 2000, the value of securities loaned was $45,405,619. These
loans were collateralized by U.S. Treasury securities of $36,728,216 and cash of
$14,328,057 which was invested in the following short-term obligations:
AMORTIZED COST
PRINCIPAL AMOUNT AND VALUE
--------------------------------------------------------------------------------
Salomon Smith Barney, Inc. 2002 14,328,057 $14,328,057
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. During the period, the fund's custodian fees were reduced by $656,942
under this arrangement. 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 $78,815 under this agreement. These
amounts are shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. During
the year ended September 30, 2000, distributions in excess of net investment
income decreased by $911,105, accumulated undistributed net realized gain on
investments and foreign currency transactions increased by $3,396,376, and paid
in capital from common shareholders decreased by $2,485,271 due to differences
in book and tax accounting for currency transactions and mortgage backed
securities. This change had no effect on the net assets or net asset value per
share.
Multiple Classes of Shares of Beneficial Interest - The fund offers multiple
classes of shares that 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:
<TABLE>
<CAPTION>
BASED ON AVERAGE NET ASSETS BASED ON GROSS INCOME
------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
First $200 million 0.250% First $14 million 3.57%
In excess of $200 million 0.212% In excess of $14 million 3.04%
</TABLE>
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 $45,777 for the year ended September 30, 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 $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$732,802 for the year ended September 30, 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 $692,950 for the year ended September 30,
2000. Fees incurred under the distribution plan during the year ended September
30, 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 $93,262 and $9,765 for Class B and Class C shares, respectively, for
the year ended September 30, 2000. Fees incurred under the distribution plan
during the year ended September 30, 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 year ended September 30,
2000, were $71,901, $3,686,071, and $114,325 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 $2,539,092,281 $2,465,762,616
-------------- --------------
Investments (non-U.S. government
securities) $4,120,697,369 $5,107,500,142
-------------- --------------
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 $5,441,459,577
--------------
Gross unrealized appreciation $ 680,326,674
Gross unrealized depreciation (168,358,862)
--------------
Net unrealized appreciation $ 511,967,812
==============
(5) Shares of Beneficial Interest
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
<TABLE>
Class A shares
<CAPTION>
YEAR ENDED SEPTEMBER 30, 2000 YEAR ENDED SEPTEMBER 30, 1999
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 93,955,325 $ 1,331,798,426 110,586,325 $ 1,674,314,695
Shares issued to shareholders in
reinvestment of distributions 22,064,256 308,357,353 34,947,572 517,032,870
Shares reacquired (134,782,749) (1,898,852,252) (109,828,347) (1,664,143,600)
------------ --------------- ------------ ---------------
Net increase (decrease) (18,763,168) $ (258,696,473) 35,705,550 $ 527,203,965
============ =============== ============ ===============
Class B shares
<CAPTION>
YEAR ENDED SEPTEMBER 30, 2000 YEAR ENDED SEPTEMBER 30, 1999
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------------------------
Shares sold 17,621,933 $ 250,155,798 38,673,047 $ 586,933,287
Shares issued to shareholders in
reinvestment of distributions 12,883,446 179,778,090 19,921,555 294,415,702
Shares reacquired (50,025,254) (696,003,696) (29,991,200) (454,715,848)
------------ --------------- ------------ ---------------
Net increase (decrease) (19,519,875) $ (266,069,808) 28,603,402 $ 426,633,141
============ =============== ============ ===============
Class C shares
<CAPTION>
YEAR ENDED SEPTEMBER 30, 2000 YEAR ENDED SEPTEMBER 30, 1999
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------------------------
Shares sold 7,034,780 $ 100,045,652 17,496,762 $ 266,491,500
Shares issued to shareholders in
reinvestment of distributions 2,934,602 41,083,330 3,561,406 52,786,839
Shares reacquired (12,081,436) (168,996,210) (7,147,794) (108,828,036)
------------ --------------- ------------ ---------------
Net increase (decrease) (2,112,054) $ (27,867,228) 13,910,374 $ 210,450,303
============ =============== ============ ===============
Class I shares
<CAPTION>
YEAR ENDED SEPTEMBER 30, 2000 YEAR ENDED SEPTEMBER 30, 1999
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------------------------
Shares sold 1,895,714 $ 26,863,733 2,364,510 $ 35,910,941
Shares issued to shareholders in
reinvestment of distributions 342,694 4,796,606 220,172 3,263,023
Shares reacquired (2,165,175) (30,358,835) (367,947) (5,328,471)
------------ --------------- ------------ ---------------
Net increase 73,233 $ 1,301,504 2,216,735 $ 33,845,493
============ =============== ============ ===============
</TABLE>
(6) Line of Credit
The fund and other affiliated funds participate in a $1.1 billion unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the fund for the year ended September
30, 2000, was $47,053. The fund had no significant borrowings during the year.
(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 September 30, 2000,
the fund owned the following restricted securities, excluding securities issued
under Rule 144A, constituting 0.06% of net assets which may not be publicly sold
without registration under the Securities Act of 1933. The fund does not have
the right to demand that such securities be registered. The value of these
securities is determined by valuations furnished by dealers or by a pricing
service, or if not available, in good faith, at fair value, by the Trustees.
<TABLE>
<CAPTION>
DATE OF PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Mortgage Investors, Inc.,
8.484s, 2022 June 1994 4,000,000 $2,772,500 $3,806,250
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust V and Shareholders of MFS Total Return Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Total Return Fund (one of the series comprising MFS Series Trust V), including
the portfolio of investments, as of September 30, 2000, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2000, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Total Return Fund as of September 30, 2000, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 2, 2000
<PAGE>
--------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
--------------------------------------------------------------------------------
IN JANUARY 2001, SHAREHOLDERS WILL BE MAILED A FORM 1099-DIV REPORTING
THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR
YEAR 2000.
THE FUND HAS DESIGNATED $354,887,123 AS A CAPITAL GAIN DIVIDEND FOR THE
YEAR ENDED SEPTEMBER 30, 2000.
FOR THE YEAR ENDED SEPTEMBER 30, 2000, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR
CORPORATIONS IS 27.80%.
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
MFS(R) TOTAL RETURN FUND
<S> <C>
TRUSTEES SECRETARY
J. Atwood Ives+ - Chairman and Chief Stephen E. Cavan*
Executive 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 AUDITORS
Administration Deloitte & Touche LLP
Charles W. Schmidt+ - Private Investor INVESTOR INFORMATION
For information on MFS mutual funds, call your
Arnold D. Scott* - Senior Executive investment professional or, for an information
Vice President, Director, and Secretary, kit, call toll free: 1-800-637-2929 any
MFS Investment Management business day from 9 a.m. to 5 p.m. Eastern time
(or leave a message anytime).
Jeffrey L. Shames* - Chairman and Chief
Executive Officer, MFS Investment Management INVESTOR SERVICE
MFS Service Center, Inc.
Elaine R. Smith+ - Independent Consultant P.O. Box 2281
Boston, MA 02107-9906
David B. Stone+ - Chairman, North American
Management Corp. (investment adviser) For general information, call toll free:
1-800-225-2606 any business day from
INVESTMENT ADVISER 8 a.m. to 8 p.m. Eastern time.
Massachusetts Financial Services Company
500 Boylston Street For service to speech- or hearing-impaired,
Boston, MA 02116-3741 call toll free: 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time. (To use
DISTRIBUTOR this service, your phone must be equipped with
MFS Fund Distributors, Inc. 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:
CHAIRMAN AND PRESIDENT 1-800-MFS-TALK (1-800-637-8255) anytime from a
Jeffrey L. Shames* touch-tone telephone.
LEAD PORTFOLIO MANAGER WORLD WIDE WEB
David M. Calabro* www.mfs.com
TREASURER
James O. Yost*
ASSISTANT TREASURERS
Mark E. Bradley*
Robert R. Flaherty*
Laura F. Healy*
Ellen Moynihan*
+ Independent Trustee
* MFS Investment Management
</TABLE>
<PAGE>
------------
MFS(R) TOTAL RETURN FUND PRSRT STD
U.S. POSTAGE
[Logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)2000 MFS Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
MTR-2 11/00 397.1M 15/215/315/815
