<PAGE>
Semiannual
Report
-------------------
April 30, 1996
(Unaudited)
[LOGO OF COMMON SENSE TRUST]
Common Sense(R)
<PAGE>
Common Sense Trust Highlights
<TABLE>
<CAPTION>
Common Sense Trust Performance
For the Period
For Period Ended 4/30/96 Ended 3/31/96
--------------------------------------------------------------------------
With Maximum With Maximum
At Net Asset Value Sales Charge* Sales Charge*
--------------------------------------------------------------------------
Cumulative Average Annual Average Annual Average Annual
Total Return Total Return Total Return Total Return
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Sense Growth Fund
Six Months 12.33% --- --- ---
One Year 29.96% 29.96% 18.94% 20.30%
Five Years 94.47% 14.23% 12.21% 11.75%
Inception (4/14/87) 167.12% 11.47% 10.38% 10.32%
- ------------------------------------------------------------------------------------------------------------------
Common Sense Growth and Income Fund
Six Months 13.64% --- --- ---
One Year 27.59% 27.59% 16.77% 19.88%
Five Years 92.27% 13.97% 11.96% 11.84%
Inception (4/14/87) 153.25% 10.81% 9.73% 9.80%
- ------------------------------------------------------------------------------------------------------------------
Common Sense Government Fund
Six Months (.18%) --- --- ---
One Year 6.49% 6.49% (.71)% 1.54%
Five Years 39.88% 6.94% 5.47% 5.88%
Inception (4/14/87) 91.11% 7.42% 6.60% 6.75%
- ------------------------------------------------------------------------------------------------------------------
Common Sense Municipal Bond Fund
Six Months .96% --- --- ---
One Year 7.11% 7.11% 1.98% 3.03%
Five Years 41.89% 7.25% 6.20% 6.60%
Inception (7/13/88) 76.44% 7.55% 6.89% 7.05%
- ------------------------------------------------------------------------------------------------------------------
Common Sense Money Market Fund
Six Months 2.28% --- ** ---
One Year 4.86% 4.86% ** 4.94%**
Five Years 19.73% 3.67% ** 3.69%**
Inception (12/15/87) 52.90% 5.20% ** 5.20%**
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Performance data quoted represents past performance, which is not indicative of
future performance. On portfolios other than the Money Market Fund, the
investment return and principal value may fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original value.
*Maximum sales charges range from 4.75% to 8.50%.
**The 7-day yield for Common Sense Money Market Fund was 3.99% as of 4/30/96. An
investment in the Fund is neither insured nor guaranteed by the U.S. Government,
and there can be no assurance that the Fund will be able to maintain a stable
net asset value of $1.00 per share.
<PAGE>
Shareholders' Message
June 1, 1996
[PHOTO OF DON G. POWELL]
Don G. Powell
Dear Shareholder,
During the six-month period covered by this report, November 1, 1995 through
April 30, 1996, we saw the end of a solid year for the financial markets--and
the beginning of a new year that promises to offer investment challenges and
opportunities.
The Trustees of Common Sense Trust have proposed to the Common Sense II
Fund shareholders the mergers of Common Sense II Growth Fund, Common Sense II
Growth and Income Fund and Common Sense II Government Fund into the respective
Common Sense Growth Fund, Common Sense Growth and Income Fund and Common Sense
Government Fund. The proposed mergers require no action by any Common Sense Fund
shareholder. Upon the completion of the mergers, currently anticipated on or
before July 31, 1996, the investment choices within the Common Sense Family of
Funds will be expanded by the addition of an International Equity Fund and an
Emerging Growth Fund. Common Sense Trust provides you numerous investment
options, making it easier to allocate the assets in your investment portfolio.
Asset allocation--dividing your investments among different asset categories
such as stocks, bonds and money market instruments--may help you achieve your
long-range goals and add diversification to your holdings. Your representative
can help you design a portfolio of Common Sense funds to help meet your specific
investment objectives.
- --------------------------------------------------------------------------------
Common Sense Trust Funds Available Through Restructuring Proposal
. Emerging Growth Fund . International Fund
. Government Fund . Money Market Fund
. Growth Fund . Municipal Bond Fund
. Growth & Income Fund
- --------------------------------------------------------------------------------
Market Overview
The stock market demonstrated solid performance during the reporting
period. From November 1, 1995 to April 30, 1996, the total return of the
Standard & Poor's 500 Stock Index was 13.75 percent, including reinvestment of
all distributions. However, not all sectors kept pace with the larger indexes.
Technology stocks, for instance, showed some signs of weakness after leading the
market for several months.
When Federal Reserve Board Chairman Alan Greenspan indicated in early
February of this year that economic growth remained on track, stocks moved
downward--similar to the bond market's reaction. The markets interpreted Mr.
Greenspan's comments to mean that a further near-term cut in interest rates by
the Fed was unlikely. His comments were substantiated by strong employment
statistics in early March, which precipitated a slump in the stock and bond
markets. While bonds have not recovered, stocks did.
1
<PAGE>
Market Outlook
The economy rebounded in the first quarter of 1996 despite poor weather in
the East and the remnants of a slow fourth quarter in 1995, which was hurt by
weak construction activity, two government shutdowns and a strike at Boeing. We
believe the momentum of the first quarter can carry into the second, due in part
to renewed auto production in the aftermath of the strike at several General
Motors plants and an end to the budget stalemate between the White House and
Congress. We expect a modest slowdown in the summer months, as higher interest
rates could slow activity in interest-sensitive sectors of the economy, such as
housing.
The Fed's protracted period of easing, and still relatively neutral stance
on interest rates, favors the growth we are currently experiencing. Given the
strong employment situation and recent commodity price increases, we believe the
Fed will await further economic evidence before acting again--probably
summertime at the earliest. So far, guides such as the Consumer Price Index
continue to demonstrate relatively modest levels of inflation. More importantly,
we continue to see little sign of emerging inflation in either unit labor
costs, hourly earnings or the employment cost index, all of which have tended to
be important drivers of inflation.
For the municipal bond sector, the tax reform debate--and the possible
threat to the tax-exempt status of municipal bonds--may grow as the November
elections approach. We believe the outcome in the long run will be positive, or
at worst neutral, for the sector.
We expect corporate earnings, which gave stocks a boost in 1995, to slow
this year. Sluggish demand and a tougher pricing environment continue to squeeze
profit margins. Profit margins may have peaked in the fourth quarter of 1995.
However, the long-term outlook for the stock market remains positive. Steady and
moderate growth is always welcome--and more comforting to the markets than big
moves up or down.
Falling interest rates and strong earnings helped drive the market in 1995.
While there are positive signs for 1996, it will be difficult to match the
outstanding stock market performance of last year. We expect 1996 will be a good
year--just not as good as 1995.
Throughout this report, you can read more abut your Fund's performance
during the past six months. We hope this information is helpful as you review
your investment in Common Sense Trust. We look forward to communicating with you
on a regular basis about your Fund's performance. We appreciate your continued
confidence in your portfolio management team.
Sincerely,
/s/ Don G. Powell
Don G. Powell
President
2
<PAGE>
Portfolio Perspective
The following is an interview with the portfolio management team of the Common
Sense Trust stock funds. The team includes: Stephen L. Boyd, Common Sense
Growth Fund; James A. Gilligan, Common Sense Growth and Income Fund; and Alan
T. Sachtleben, executive vice president, equity investments.
Q. What factors had the greatest impact on the performance of the stock funds
during the six months ended April 30, 1996?
A. Overall, the stock market averages posted solid gains throughout this
reporting period. In this positive environment, investors flocked to
stocks, which helped to push the market to record high levels in the
beginning of 1996.
The positive stock market environment was further encouraged by many
factors--including the Fed lowering its key lending rate by one-quarter of
a percentage point in December. This helps the stock market because falling
interest rates positively impact corporations by reducing their cost of
borrowing, which provides a direct boost to profits. Additionally, lower
interest rates are an indication that the stock market is not concerned
about inflation (which remained low throughout the past six months).
In contrast to the first half of this reporting period, the stock market
did experience a slow-down in mid-February. This was due to the market's
reaction to the February employment report--an indicator of economic
growth--showing a significant reduction in unemployment rates. This data
was interpreted as an indication that the economy was healthier than
previously thought, and dampened hopes for a further interest rate cut in
March. In reaction to this, the stock market stopped moving up and
experienced some volatility during this period.
In a similar fashion, the March unemployment report also reiterated
strength in the labor markets, spurred inflation fears, and resulted in
further volatility in the markets. The markets have since calmed and stocks
have subsequently recovered.
Certain sectors were strong performers during this period, while others
experienced some volatility. For example, utility stocks, which performed
well in the fourth quarter of 1995, were the worst sector during the first
quarter of 1996. The technology sector, after enjoying unprecedented
growth, fell victim to dramatic price fluctuations at the very end of the
year. Technology stocks have since resumed a steady growth rate. Energy
stocks, however, have kept up with the market, and showed signs of
increasing strength as the prices of oil and gas have continued to rise.
Q. What changes did you make to the portfolios to meet the changing economic
conditions?
A. The Common Sense Growth Fund made three notable changes during the
reporting period:
. We have increased technology holdings to take advantage of bargain
prices that resulted from weaker-than-expected performance at the end
of 1995. This sector has since started to show improved performance,
and as of the date of this report, the Fund's technology holdings have
been strong performers.
. We increased the Fund's holdings in smaller company stocks throughout
the period. We've diversified across many industries to help control
risk.
. We increased our focus on energy stocks, especially those related to
natural gas. This was partially because of last winter's severe
weather, which caused gas demand and prices to increase.
3
<PAGE>
Due to a strengthening economy and higher yields in the bond market, the
Common Sense Growth and Income Fund reduced its holdings invested in financial
services companies (such as banks), consumer services, and health care
companies. We subsequently increased the Fund's holdings in cyclical companies
(automobile manufacturers and industrial firms), which are most responsive to
changing economic conditions. Examples of the Fund's cyclical holdings include
Phelps Dodge, Union Carbide, TRW, and Magna International. We also added to our
holdings in technology stocks such as General Instruments.
The diversification of both Funds is shown by the charts at right.
Common Sense Growth Fund Holdings by Industry
Percentage of Net Assets
4/30/96
[PIE CHART APPEARS HERE]
CONSUMER DISTRIBUTION 6%
CONSUMER NON-DURABLES 5%
CONSUMER SERVICES 6%
ENERGY 9%
FINANCE 13%
HEALTH CARE 7%
PRODUCER MANUFACTURING 9%
RAW MATERIALS/PROCESSING INDUSTRIES 8%
TECHNOLOGY 21%
UTILITIES 6%
OTHER 10%
Q. How did the Funds perform during the six months ended April 30, 1996?
A. Common Sense Growth Fund Class A shares achieved a total return at net asset
value (without a sales charge) of 12.33 percent.
Common Sense Growth and Income Fund achieved a total return at net asset
value of 13.64 percent, including reinvestment of dividends totaling $1.96 per
share. By comparison, the Standard & Poor's 500-Stock Index, an unmanaged index
that reflects general stock market performance, achieved a total return of 13.75
percent, and includes reinvestment of all distributions. The index does not
reflect any commissions or fees that would be paid by an investor purchasing the
securities it represents.
Common Sense Growth and Income Fund Holdings by Industry
Percentage of Net Assets
4/30/96
[PIE CHART APPEARS HERE]
CONSUMER DISTRIBUTION 6%
CONSUMER NON-DURABLES 6%
CONSUMER SERVICES 5%
ENERGY 10%
FINANCE 12%
HEALTH CARE 10%
PRODUCER MANUFACTURING 8%
RAW MATERIALS/PROCESSING INDUSTRIES 8%
TECHNOLOGY 12%
UTILITIES 10%
OTHER 13%
Q. What is the outlook for stocks?
A. The outlook for the stock market continues to be promising. Favorable market
conditions such as moderate economic growth, low inflation, and acceptable
interest rate levels should support the positive market scenario. We will
continue to look for stocks that offer solid fundamentals-such as rising earning
expectations and economic resilience-regardless of changing economic conditions.
/s/ Alan T. Sachtleben /s/ Stephen L. Boyd /s/ James A. Gilligan
Alan T. Sachtleben Stephen L. Boyd James A. Gilligan
Executive Vice President Portfolio Manager Portfolio Manager
Equity Investments Common Sense Growth Fund Common Sense Growth
and Income Fund
4
<PAGE>
The following is an interview with the portfolio management team of the Common
Sense Trust fixed-income funds. The team includes: John R. Reynoldson, Common
Sense Government Fund; David C. Johnson, Common Sense Municipal Bond Fund;
David R. Troth, Common Sense Money Market Fund; Robert C. Peck, Jr., executive
vice president, co-chief investment officer of fixed-income investments, and
Peter W. Hegel, executive vice president, co-chief investment officer of fixed-
income investments.
Q. What factors had the greatest impact on the performance of the Common Sense
Trust fixed-income funds during the six months ended April 30, 1996?
A. The assets in the Common Sense fixed-income funds are primarily investment
grade credit quality. Changes in the values of these portfolios are highly
correlated to changes in interest rates. The reporting period can be
divided into two distinct investment environments--the first being November
1995 through January 1996, and the second being February 1996 through April
1996.
The first time period was characterized by positive market fundamentals.
These included: moderate domestic economic growth; inflation rates that
remained at a low 3 percent level; slow global economic expansion--
particularly in Japan and Western Europe; and a rising U.S. dollar against
the German mark and the Japanese yen. These elements worked together to
encourage the Federal Reserve Board to lower its key lending rate by one-
quarter of a percentage point in December 1995, and another lowering again
in January 1996. Generally, when interest rates fall, prices of bonds and
the net asset value of bond funds rise. Thus, the Fed's effort to spur the
lackluster economy helped to fuel the bond markets into a strong year-end,
as bond prices rose and yield levels declined.
In contrast, the bond market experienced increased volatility and an
abrupt end to the rally in bond prices during the second time period
(February 1996 through April 1996). This volatility was triggered by three
main factors: First, the federal government shut down twice, along with the
realization that balanced budget legislation was not imminent. Second,
several economic indicators demonstrated that growth rates could be
accelerating. Of key interest was February's employment report, which
showed a significant increase in employment. Finally, inflationary concerns
grew as agricultural commodity and oil prices rose to their highest levels
in years.
As a consequence, the Fed's policy on interest rates shifted from an
accommodative mode to a more neutral mode--stabilizing its key lending rate
(the fed funds rate) at 5.14 percent.
To see the effect of changing interest rate levels on 10-Year Treasury
Notes, see the chart above. U.S. Government securities, backed by the full
faith and credit of the United States, are considered to be among the
safest investments available. The U.S. Government guarantee does not apply
to the shares of the Fund.
Yields on 10-Year Treasury Notes
11/3/95 - 5/3/96
[GRAPH APPEARS HERE]
Nov. 1996 5.934
Dec. 1996 5.706
Jan. 1996 5.673
Feb. 1996 5.668
Mar. 1996 5.959
Apr. 1996 6.551
May. 1996 6.895
Source: Bloomberg
<PAGE>
Q. What changes did you make to the portfolios to meet the changing economic
conditions?
A. The Common Sense Government Fund took advantage of the positive bond market
environment from November 1995 through January 1996 by maintaining the
Fund's average maturity and duration at slightly higher-than-average
levels. Duration measures the Fund's sensitivity to changes in interest
rates, and longer durations mean more sensitivity to interest rates, and
vice-versa. In a falling interest rate environment, an extended duration
allows the Fund to capture the capital gains opportunities offered by
falling yields, because the value of the Fund's securities increase.
Conversely, we took defensive measures during the latter part of the
reporting period to help protect the Fund from volatility in a rising rate
environment by reducing its average duration. Also, we reduced the Fund's
percentage of mortgage-backed securities from 70 percent down to 55 percent
by late January. This action permitted the Fund to increase its exposure to
U.S. Treasury obligations, and maximize its participation in the bond rally
at year end.
Common Sense Municipal Bond Fund Quality Rating
Percentage of the Portfolio
4/30/96
[PIE CHART APPEARS HERE]
AAA 54%
AA 11%
A 12%
BBB 14%
BB 2%
NOT RATED 7%
The Common Sense Municipal Bond Fund had previously extended its
duration from 6 1/2 years to 8 years at the beginning of this reporting
period. This enabled the Fund to take advantage of market appreciation,
while still maintaining an acceptable level of risk. However, as a
defensive measure against increasing interest rates in February, we
decreased the Fund's overall duration to 7.22 years as of April 30, 1996.
The Fund held a significant portion of its net assets (22 percent) in
healthcare industry issuers. This sector continued to provide higher yield
opportunities for the Fund, and we believe that our large research staff
was able to seek out those securities which offered the greatest relative
value. The quality of the portfolio is illustrated by the chart above.
We held maturities in the 19 to 53 day level throughout this reporting
period for the Common Sense Money Market Fund portfolio. Portfolio assets
were maintained at a high-quality level, including federal agency discount
notes, and the highest-grade commercial paper.
Q. How did the Funds perform during the six months ended April 30, 1996?
A. Common Sense Government Fund achieved a total return at net asset value
(without a sales charge) of -0.18 percent, including reinvestment of
dividends totaling $.3731 per share. By comparison, the Lehman Brothers
General U.S. Government Index achieved a total return of 0.03 percent.
Common Sense Municipal Bond Fund achieved a total return at net asset
value (without a sales charge) of 0.96 percent, including reinvestment of
dividends totaling $.4182 per share. By comparison, the Lehman Brothers
Municipal Bond Index achieved a total return of 1.11 percent.
Unmanaged indexes are used as benchmarks for many government and
municipal funds, but they do not reflect any commissions or fees that would
be paid by an investor purchasing the securities they represent, or to
rebalance a portfolio over time.
The Common Sense Money Market Fund achieved a total return at net asset
value of 2.28 percent.
6
<PAGE>
Q. What is the outlook for fixed-income securities?
A. Looking ahead, we believe the bond market will remain in a trading range of
6 1/2 and 7 1/4 percent, as measured by long-term U.S. Treasury bonds over
the near term. At current rates of economic growth and inflation--
approximately 3 percent each--we expect the Fed to await further economic
evidence before considering any changes in Federal funds rates. Given the
cautious attitude of many fixed-income investors, any positive economic
developments will likely serve to buoy the market modestly through the
summer. We will continue to monitor closely, among other things, global
economic growth rates; trends in energy and commodity prices; and election
developments as they unfold and adjust portfolio holdings accordingly.
The municipal market, in particular, will be watching the upcoming
presidential election, as discussion of tax reform may resurface. Municipal
bond yields continue to remain attractive relative to Treasuries, and of
course, still maintain their tax-free advantage.
/s/ Robert C. Peck, Jr. /s/ Peter W. Hegel
Robert C. Peck, Jr. Peter W. Hegel
Executive Vice President Executive Vice President
Co-Chief Investment Officer Co-Chief Investment Officer
Fixed Income Investments Fixed Income Investments
/s/ David C. Johnson /s/ David R. Troth /s/ John R. Reynoldson
David C. Johnson David R. Troth John R. Reynoldson
Portfolio Manager Portfolio Manager Portfolio Manager
Common Sense Common Sense Common Sense
Municipal Bond Fund Money Market Fund Government Fund
7
<PAGE>
Growth Fund Statements of Net Assets
April 30, 1996 (Unaudited)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
Common Stock 94.6%
CONSUMER DISTRIBUTION 6.2%
200,000 Dayton Hudson Corp.............................. $19,100,000
383,100 Dillard Dept. Stores Inc........................ 15,371,888
204,500 Dollar General Corp............................. 5,393,687
*500,000 Eckerd Corp..................................... 23,875,000
*550,000 Federated Dept. Stores Inc...................... 18,356,250
480,000 Gap Inc......................................... 14,460,000
160,000 Home Depot Inc.................................. 7,580,000
*700,000 Kroger Co....................................... 28,787,500
300,000 May Dept Stores Co............................. 15,300,000
300,000 Sears Roebuck & Co.............................. 14,962,500
500,000 TJX Companies Inc............................... 14,750,000
-----------
177,936,825
-----------
CONSUMER DURABLES 2.5%
250,000 Chrysler Corp................................... 15,687,500
175,000 Daimler Benz, ADS............................... 9,559,375
200,000 Eastman Kodak Co................................ 15,300,000
500,000 Fiat Spa, ADR................................... 8,750,000
350,000 General Motors Corp............................. 18,987,500
77,100 Harley Davidson Inc............................. 3,402,038
-----------
71,686,413
-----------
CONSUMER NON-DURABLES 4.8%
*300,000 Adidas, ADS..................................... 11,362,500
117,400 Avon Products Inc............................... 10,433,925
150,000 Colgate Palmolive Co............................ 11,493,750
175,000 CPC International Inc........................... 12,096,875
500,000 Dial Corp....................................... 14,062,500
*265,000 Gucci Group NV, ADR............................. 14,409,375
800,000 Nabisco Holdings Corp., Class A................. 24,500,000
250,000 PepsiCo, Inc.................................... 15,875,000
150,000 Ralston Purina Group............................ 8,756,250
300,000 Tambrands Inc................................... 14,362,500
-----------
137,352,675
-----------
CONSUMER SERVICES 6.2%
*500,000 Cox Communications, Inc......................... 10,250,000
150,000 Disney (Walt) Co................................ 9,300,000
525,000 Grupo Televisa SA, ADR.......................... 16,275,000
330,000 Harcourt General Inc........................... 14,520,000
*700,000 Harrah's Entertainment Inc...................... 24,150,000
170,000 Hilton Hotels Corp.............................. 17,935,000
650,000 Host Marriott Corp............................ 8,693,750
375,000 Marriott International Inc...................... 18,281,250
400,000 Service Corp. International..................... 21,250,000
*750,000 Tele Communications, Class A.................... 14,343,750
- ------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Growth Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------------------------
<C> <S> <C>
*510,000 Tele Communications International, Class A............................ $ 10,391,250
350,000 Time Warner Inc....................................................... 14,306,250
--------------
179,696,250
--------------
ENERGY 8.8%
200,000 Amoco Corp............................................................ 14,600,000
350,000 Apache Corp........................................................... 10,150,000
300,000 Baker Hughes Inc...................................................... 9,525,000
120,000 Burlington Resources Inc.............................................. 4,470,000
550,000 Coastal Corp.......................................................... 21,793,750
300,000 Dresser Industries Inc................................................ 9,562,500
175,000 Exxon Corp............................................................ 14,875,000
155,000 Halliburton Co........................................................ 8,893,125
100,000 Louisiana Land & Exploration Co....................................... 5,412,500
125,000 Mobil Corp............................................................ 14,375,000
545,000 Occidental Petroleum Corp............................................. 14,033,750
725,000 PanEnergy Corp........................................................ 23,653,125
450,000 Repsol SA ADR......................................................... 16,650,000
105,000 Schlumberger Ltd...................................................... 9,266,250
450,000 Sonat Inc............................................................. 19,631,250
170,000 Texaco Inc............................................................ 14,535,000
527,000 Williams Companies.................................................... 26,942,875
645,000 YPF Sociedad Anonima, ADS............................................. 14,109,375
--------------
252,478,500
--------------
FINANCE 13.1%
200,000 Allmerica Financial Corp.............................................. 5,200,000
400,000 Allstate Corp......................................................... 15,550,000
180,000 American Express Co................................................... 8,730,000
300,000 Bank of Boston Corp................................................... 14,512,500
300,000 BankAmerica Corp...................................................... 22,725,000
225,000 Baybanks Inc.......................................................... 23,568,750
225,000 Chase Manhattan Corp.................................................. 15,496,875
220,000 Corestates Financial Corp............................................. 8,580,000
46,400 Donaldson Lufkin & Jenrette Inc....................................... 1,566,000
150,000 Federal Home Loan Mtg. Assn........................................... 12,506,250
500,000 Federal National Mtg. Assn............................................ 15,312,500
400,000 First Bank System Inc................................................. 24,100,000
440,000 Green Tree Financial Corp............................................. 14,850,000
775,000 Greenpoint Financial Corp............................................. 22,378,125
125,000 Merrill Lynch & Co. Inc............................................... 7,546,875
160,000 Morgan Stanley Group Inc.............................................. 8,040,000
350,000 NationsBank Corp...................................................... 27,912,500
39,300 Student Loan Marketing Assn........................................... 2,878,725
170,000 SunAmerica Inc........................................................ 9,265,000
7,689,250 Van Kampen American Capital Small Capitalization Fund (see Note 2).... 102,574,595
66,666 Wells Fargo & Co...................................................... 16,174,838
--------------
379,468,533
--------------
- --------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Growth Fund Statements of Net Assets, continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------------------------
HEALTH CARE 6.7%
<C> <S> <C>
125,000 American Home Products Corp........................................ $ 13,187,500
*275,000 Amgen, Inc......................................................... 15,812,500
325,000 Astra AB ADR, Series A............................................. 14,300,000
170,000 Becton Dickinson & Co.............................................. 13,706,250
180,000 Bristol Myers Squibb Co............................................ 14,805,000
600,000 Caremark International, Inc........................................ 16,575,000
*130,000 Genzyme Corp....................................................... 7,312,500
200,000 Guidant Corp....................................................... 11,225,000
*500,000 Healthsouth Rehabilitation......................................... 18,562,500
150,000 Johnson & Johnson.................................................. 13,875,000
90,900 Mallinckrodt Group, Inc............................................ 3,579,188
180,000 Medtronic, Inc..................................................... 9,562,500
270,000 Schering-Plough Corp............................................... 15,491,250
200,000 U.S. Healthcare, Inc............................................... 10,425,000
145,000 Warner Lambert Co.................................................. 16,203,750
--------------
194,622,938
--------------
PRODUCER MANUFACTURING 9.0%
375,000 Allied Signal Inc.................................................. 21,796,875
300,000 Browning Ferris Industries Inc..................................... 9,675,000
200,000 Case Corp.......................................................... 10,100,000
200,000 Cooper Industries Inc.............................................. 8,500,000
750,000 Corning Inc........................................................ 26,062,500
50,000 Deere & Co......................................................... 1,943,750
225,000 Fluor Corp......................................................... 14,878,125
185,000 General Electric Co................................................ 14,337,500
400,000 Honeywell, Inc..................................................... 21,050,000
175,000 Illinois Tool Works, Inc........................................... 11,768,750
200,000 ITT Corp........................................................... 12,175,000
*250,000 Litton Industries Inc.............................................. 11,343,750
250,000 Rockwell International Corp........................................ 14,625,000
*550,045 Thermo Fibertek, Inc............................................... 12,582,279
150,000 TRW, Inc........................................................... 14,081,250
135,000 United Technologies Corp........................................... 14,917,500
600,000 Westinghouse Electric Corp......................................... 11,325,000
850,000 WMX Technologies, Inc.............................................. 29,537,500
--------------
260,699,779
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 7.8%
250,000 Air Products & Chemicals Inc....................................... 14,281,250
175,000 Aluminum Co. of America............................................ 10,915,625
412,600 Boise Cascade Corp................................................. 19,185,900
300,000 Champion International Corp........................................ 14,475,000
250,000 Dow Chemical Co.................................................... 22,218,750
315,000 Freeport McMoRan Copper & Gold Inc., Series B...................... 10,355,625
200,000 Georgia Pacific Corp............................................... 15,550,000
150,000 Grace (W.R.) & Co.................................................. 11,625,000
525,000 International Paper Co............................................. 20,934,375
380,000 Mead Corp.......................................................... 21,137,500
100,000 Monsanto Co........................................................ 15,150,000
- --------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Growth Fund Statements of Net Assets, continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Number Market
of Shares Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
405,000 Praxair Inc........................................................ $ 15,643,125
175,000 Rohm & Haas Co..................................................... 11,615,625
300,000 Union Carbide Corp................................................. 13,650,000
150,000 Willamette Industries Inc.......................................... 9,225,000
-------------
225,962,775
-------------
TECHNOLOGY 21.1%
*260,000 Adaptec Inc........................................................ 14,950,000
*200,000 ADC Telecommunications Inc......................................... 8,400,000
*200,000 Analog Devices Inc................................................. 5,150,000
*185,000 Applied Materials Inc.............................................. 7,400,000
*250,000 Ascend Communications Inc.......................................... 15,375,000
*110,000 Aspect Telecommunications Corp..................................... 6,325,000
*225,000 ATMEL Corp......................................................... 9,000,000
*225,000 Bay Networks Inc................................................... 7,087,500
*325,000 BMC Software Inc................................................... 19,784,375
175,000 Boeing Co.......................................................... 14,371,875
*300,000 Cadence Design Systems Inc......................................... 15,675,000
*150,000 Cascade Communications............................................. 15,037,500
*375,000 Cisco Systems Inc.................................................. 19,453,125
*150,000 Compaq Computer Corp............................................... 6,993,750
315,000 Computer Associates International Inc.............................. 23,113,125
*275,000 Digital Equipment Corp............................................. 16,431,250
*300,000 DSC Communications Corp............................................ 9,450,000
*280,000 DST Systems Inc.................................................... 10,290,000
350,000 Ericsson LM, ADR, Class B.......................................... 7,131,250
150,000 First Data Corp.................................................... 11,400,000
*250,000 General Instruments Corp........................................... 8,187,500
150,000 General Motors Corp, Class E....................................... 8,456,250
190,200 General Motors Corp, Class H....................................... 11,625,975
210,000 Hewlett Packard Co................................................. 22,233,750
*125,000 In Focus Systems Inc............................................... 6,312,500
750,000 Intel Corp......................................................... 50,812,500
325,000 Linear Technology Corp............................................. 11,171,875
500,000 Loral Space & Communications....................................... 7,187,500
*215,000 LSI Logic Corp..................................................... 7,740,000
450,000 Lucent Technologies Inc............................................ 15,806,250
200,000 Micron Technology Inc.............................................. 7,275,000
*225,000 Microsoft Corp..................................................... 25,509,375
350,000 Motorola Inc....................................................... 21,437,500
*300,000 Newbridge Networks Corp............................................ 19,312,500
*322,500 Oracle System Corp................................................. 10,884,375
*150,000 Peoplesoft Inc..................................................... 9,450,000
*235,000 Seagate Technology................................................. 13,630,000
*300,000 Structural Dynamics Research Corp.................................. 9,562,500
*485,000 Sun Microsystems Inc............................................... 26,311,250
*300,000 Tellabs Inc........................................................ 16,575,000
250,000 Texas Instruments Inc.............................................. 14,125,000
*325,000 3Com Corp.......................................................... 14,990,625
*125,000 U.S. Robotics Corp................................................. 19,562,500
60,000 Xerox Corp......................................................... 8,790,000
-------------
609,768,475
-------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Growth Fund Statements of Net Assets, continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------------------------
<S> <C>
TRANSPORTATION 2.0%
*115,000 AMR Corp. ......................................................... $ 10,263,750
500,000 Canadian National Railway Co. ..................................... 9,500,000
200,000 Conrail Inc. ..................................................... 13,950,000
350,000 Southwest Airlines Co. ............................................ 10,412,500
200,000 Union Pacific Corp. ............................................... 13,625,000
--------------
57,751,250
--------------
UTILITIES 6.4%
155,000 Ameritech Corp. .................................................... 9,048,125
250,000 Bellsouth Corp. .................................................... 10,000,000
360,000 DTE Energy Co. ..................................................... 11,160,000
125,000 Empresa Nacional SA, ADR ........................................... 7,828,125
700,000 Frontier Corp. ..................................................... 22,137,500
213,900 GTE Corp. .......................................................... 9,277,913
* 98,900 LCI International Inc. ............................................. 2,571,400
500,000 MCI Communications Corp. ........................................... 14,718,750
395,000 NYNEX Corp. ........................................................ 19,404,375
*141,000 PT Telekomuniskasi Indonesia, ADR .................................. 4,811,625
375,000 Sprint Corp. ....................................................... 15,796,875
350,000 Telefonica de Espana SA, ADR ....................................... 18,418,750
400,000 Texas Utilities Co. ................................................ 16,100,000
*500,000 WorldCom Inc. ...................................................... 23,500,000
--------------
184,773,438
--------------
TOTAL COMMON STOCK (Cost $2,318,286,614) ....................... 2,732,197,851
--------------
- --------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Growth Fund Statements of Net Assets, continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Investments 6.1%
REPURCHASE AGREEMENTS+ 3.1%
**$45,000,000 BankAmerica Securities, 5.31%, repurchase proceeds $45,006,638.......................... $ 45,000,000
**1,445,000 BankAmerica Securities, 5.35%, repurchase proceeds $1,445,215........................... 1,445,000
43,075,000 Lehman Government Securities, 5.30%, repurchase proceeds $43,081,342.................... 43,075,000
--------------
89,520,000
--------------
UNITED STATES AGENCIES & GOVERNMENT OBLIGATIONS 3.0%
**20,000,000 Federal Home Loan Banks, 5.11%, 7/18/96................................................. 19,773,000
**12,775,000 Federal National Mtg. Association, 5.53%, 5/10/96....................................... 12,755,908
**25,000,000 Treasury Bills, 5.13% 7/11/96........................................................... 24,751,500
30,000,000 Treasury Bills, 4.98%, 7/25/96.......................................................... 29,642,400
--------------
86,922,808
--------------
TOTAL SHORT-TERM INVESTMENTS (Cost $176,458,245)..................................... 176,442,808
--------------
TOTAL INVESTMENTS (Cost $2,494,744,859) 100.7%......................................... 2,908,640,659
Other assets and liabilities, net (0.7%)............................................... (20,389,093)
--------------
NET ASSETS, equivalent to $16.84 per share 100%........................................ $2,888,251,566
==============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par $.01 per share; unlimited shares authorized;
171,483,346 shares outstanding............................................................................ $ 1,714,833
Capital surplus............................................................................................. 2,310,838,167
Undistributed net realized gain on securities............................................................... 148,069,871
Net unrealized appreciation of securities
Investments............................................................................................. 413,895,800
Futures contracts....................................................................................... 2,393,764
Undistributed net investment income......................................................................... 11,339,131
--------------
NET ASSETS.................................................................................................. $2,888,251,566
==============
*Non-income producing security.
**Securities with a market value of approximately $95.0 million were placed as
collateral for futures contracts (see Note 1B).
+ Dated 4/30/96, due 5/01/96, collateralized by U.S. Government obligations in
a pooled cash account.
See Notes to Financial Statements.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Growth Fund Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Statement of Operations
Six Months Ended
April 30, 1996
----------------
Investment Income
Dividends................................................................................................. $ 23,336,950
Interest.................................................................................................. 7,524,524
--------------
Investment income....................................................................................... 30,861,474
--------------
Expenses
Advisory fees............................................................................................. 8,352,883
Shareholder service agent's fees and expenses............................................................. 4,025,682
Accounting services....................................................................................... 227,093
Trustees' fees and expenses............................................................................... 84,013
Audit fees................................................................................................ 16,267
Custodian fees............................................................................................ 64,607
Legal fees................................................................................................ 5,992
Reports to shareholders................................................................................... 274,800
Registration and filing fees.............................................................................. 37,756
Insurance................................................................................................. 118,105
Miscellaneous............................................................................................. 26,615
--------------
Total expenses.......................................................................................... 13,233,813
--------------
Net investment income................................................................................... 17,627,661
--------------
Realized and Unrealized Gain on Securities
Net unrealized gain on securities
Investments............................................................................................. 136,580,619
Futures contracts....................................................................................... 17,591,228
Net unrealized appreciation of securities during the period
Investments............................................................................................. 147,595,127
Futures contracts....................................................................................... 2,354,446
--------------
Net realized and unrealized gain on securities.......................................................... 304,121,420
--------------
Increase in net assets resulting from operations........................................................ $ 321,749,081
==============
- -----------------------------------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
---------------- ----------------
NET ASSETS, beginning of period..................................................... $2,611,504,909 $2,169,907,302
-------------- --------------
Operations
Net investment income............................................................. 17,627,661 24,386,716
Net realized gain on securities................................................... 154,171,847 358,190,994
Net unrealized appreciation of securities during the period....................... 149,949,573 130,227,400
-------------- --------------
Increase in net assets resulting from operations............................... 321,749,081 512,805,110
-------------- --------------
Distributions to shareholders from
Net investment income............................................................. (27,239,333) (22,053,177)
Net realized gain on securities................................................... (358,760,096) (147,259,430)
-------------- --------------
Total distributions............................................................ (385,999,429) (169,312,607)
-------------- --------------
Capital transactions
Proceeds from shares sold......................................................... 161,932,231 294,906,458
Proceeds from shares issued for distributions reinvested.......................... 383,846,940 168,462,102
Cost of shares redeemed........................................................... (204,782,166) (365,263,456)
-------------- --------------
Increase in net assets resulting from capital transactions..................... 340,997,005 98,105,104
-------------- --------------
Increase in Net Assets.............................................................. 276,746,657 441,597,607
-------------- --------------
NET ASSETS, end of period........................................................... $2,888,251,566 $2,611,504,909
============== ==============
CAPITAL TRANSACTIONS
Shares sold....................................................................... 9,693,621 19,019,524
Shares issued for distributions reinvested........................................ 24,542,677 12,278,591
Shares redeemed................................................................... (12,286,329) (23,505,333)
-------------- --------------
Increase in shares outstanding................................................. 21,949,969 7,792,782
============== ==============
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
Growth and Income Fund Statement of Net Assets
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Number Market
of Shares Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stock and Equivalents 86.3%
CONSUMER DISTRIBUTION 6.4%
72,000 Dillard Dept Stores Inc........................................................... $ 2,889,000
*308,000 Federated Dept Stores Inc......................................................... 10,279,500
178,000 Gap Inc........................................................................... 5,362,250
106,000 Home Depot Inc.................................................................... 5,021,750
264,000 May Dept Stores Co................................................................ 13,464,000
103,000 Nordstrom Inc..................................................................... 5,240,125
163,000 Sears Roebuck & Co................................................................ 8,129,625
*197,000 Toys R Us Inc..................................................................... 5,491,375
*85,000 Vons Companies Inc................................................................ 2,720,000
------------
58,597,625
------------
CONSUMER DURABLES 3.4%
208,000 Chrysler Corp..................................................................... 13,052,000
29,000 Eastman Kodak Co.................................................................. 2,218,500
143,000 General Motors Corp............................................................... 7,757,750
90,000 Magna International Inc, Class A.................................................. 4,173,750
298,100 Sunbeam-Oster, Inc................................................................ 4,136,137
------------
31,338,137
------------
CONSUMER NON-DURABLES 6.0%
*208,000 Adidas, ADS....................................................................... 7,878,000
29,000 Avon Products Inc................................................................. 2,577,375
65,000 Campbell Soup Co.................................................................. 4,062,500
103,000 Coca Cola Co...................................................................... 8,394,500
90,300 Coca Cola Femsa SA, ADS........................................................... 2,426,810
44,000 Colgate Palmolive Co.............................................................. 3,371,500
*129,000 Donnkenny Inc..................................................................... 2,563,875
377,000 Nabisco Holdings Corp, Class A.................................................... 11,545,625
142,000 Ralston Purina Group.............................................................. 8,289,250
134,000 Rubbermaid Inc.................................................................... 3,785,500
------------
54,894,935
------------
CONSUMER SERVICES 3.8%
84,000 Block H & R Inc................................................................... 2,950,500
122,000 Deluxe Corp....................................................................... 4,270,000
61,000 Disney (Walt) Co.................................................................. 3,782,000
72,000 Dun & Bradstreet Corp............................................................. 4,383,000
102,000 McDonald's Corp................................................................... 4,883,250
150,142 Omnicom Group Inc................................................................. 6,512,409
87,000 Time Warner Inc................................................................... 3,556,125
253,000 Wendy's International Inc......................................................... 4,838,625
------------
35,175,909
------------
ENERGY 9.6%
62,000 Amerada Hess Corp................................................................. 3,510,750
150,000 Apache Corp....................................................................... 4,350,000
177,000 Exxon Corp........................................................................ 15,045,000
156,000 Mobil Corp........................................................................ 17,940,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Growth and Income Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------------------
<S> <C> <C>
226,000 Pacific Enterprises.......................................... $ 5,819,500
163,000 Panhandle Eastern Corp....................................... 5,317,875
57,000 Royal Dutch Petroleum Co, ADR................................ 8,165,250
223,000 Texaco Inc................................................... 19,066,500
115,000 Williams Companies Inc, $3.50, Convertible Preferred Stock... 9,358,125
------------
88,573,000
------------
FINANCE 11.7%
132,000 Allstate Corp................................................ 5,131,500
81,000 American International Group Inc............................. 7,401,375
167,000 Argenteria Bancaria Espana, ADR.............................. 3,381,750
150,000 BankAmerica Corp............................................. 11,362,500
59,000 Beacon Property Corp......................................... 1,511,875
135,000 Beneficial Corp.............................................. 7,458,750
109,000 Chase Manhattan Corp......................................... 7,507,375
70,000 Citicorp..................................................... 5,512,500
140,000 Comerica Inc................................................. 6,090,000
126,000 Debartolo Realty Corp........................................ 1,953,000
70,000 Duke Realty Investments Inc.................................. 2,073,750
229,000 Federal National Mtg Assn.................................... 7,013,125
95,000 First Bank System Inc........................................ 5,723,750
45,000 Health Care Property Investors Inc........................... 1,417,500
180,000 Horace Mann Educators Corp................................... 5,917,500
49,000 MBIA Inc..................................................... 3,497,375
70,000 NationsBank Corp............................................. 5,582,500
160,000 Norwest Corp................................................. 5,780,000
175,000 Prudential Reinsurance Holdings.............................. 3,981,250
66,000 SCI Finance, LLC, NV, 6.25%, Convertible Preferred Stock..... 5,676,000
42,000 Student Loan Marketing Assn.................................. 3,076,500
36,000 Weingarten Realty Investors.................................. 1,264,500
------------
108,314,375
------------
HEALTH CARE 7.3%
120,000 Abbott Laboratories Inc...................................... 4,875,000
15,000 American Home Products Corp.................................. 1,582,500
*153,000 Amgen Inc.................................................... 8,797,500
162,000 Astra AB, ADR, Series A...................................... 7,128,000
74,000 Baxter International Inc..................................... 3,274,500
*121,000 Magellan Health Services Inc................................. 2,601,500
77,000 Merck & Co Inc............................................... 4,658,500
126,000 Pfizer Inc................................................... 8,678,250
201,000 Pharmacia & Upjohn Inc....................................... 7,688,250
91,000 Schering Plough Corp......................................... 5,221,125
166,000 Tenet Healthcare Corp........................................ 3,403,000
88,000 Teva Pharmaceutical Ltd, ADR................................. 3,949,000
39,000 United Healthcare Corp....................................... 2,281,500
93,000 Vencor Inc................................................... 3,138,750
------------
67,277,375
------------
- --------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Growth and Income Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------------------
<C> <S> <C>
PRODUCER MANUFACTURING 7.7%
133,000 Allied Signal Inc........................................... $ 7,730,625
216,000 Canadian Pacific Ltd........................................ 4,401,000
146,000 Fluor Corp.................................................. 9,654,250
126,000 Foster Wheeler Corp......................................... 5,827,500
151,000 General Electric Co......................................... 11,702,500
157,000 Honeywell Inc............................................... 8,262,125
78,000 Illinois Tool Works Inc..................................... 5,245,500
127,000 Stewart & Stevenson Services Inc............................ 3,730,625
37,000 TRW Inc..................................................... 3,473,375
198,000 WMX Technologies Inc........................................ 6,880,500
91,000 York International Corp..................................... 4,368,000
------------
71,276,000
------------
RAW MATERIALS/PROCESSING INDUSTRIES 7.7%
76,000 Aluminum Co. of America..................................... 4,740,500
78,000 Crown Cork & Seal Inc....................................... 3,675,750
54,000 Georgia Pacific Corp........................................ 4,198,500
107,000 Grace (WR) & Co............................................. 8,292,500
57,000 Imperial Chemical Industries PLC, ADR....................... 3,135,000
121,000 James River Corp............................................ 3,236,750
104,000 Mead Corp................................................... 5,785,000
99,000 Monsanto Co................................................. 14,998,500
32,000 Olin Corp................................................... 2,832,000
50,000 Phelps Dodge Corp........................................... 3,675,000
145,000 Praxair Inc................................................. 5,600,625
83,000 Sigma Aldrich Corp.......................................... 4,482,000
131,000 Union Carbide Corp.......................................... 5,960,500
------------
70,612,625
------------
TECHNOLOGY 12.0%
*94,000 BMC Software Inc............................................ 5,722,250
129,000 Boeing Co................................................... 10,594,125
*119,000 Cisco Systems Inc........................................... 6,173,125
185,000 Computer Associates International Inc....................... 13,574,375
*77,000 Digital Equipment Corp...................................... 4,600,750
*107,000 DSC Communications Corp..................................... 3,370,500
*113,000 Dynatech Corp............................................... 2,909,750
*60,000 General Instruments Corp.................................... 1,965,000
158,000 General Signal Corp......................................... 6,004,000
93,000 Harris Corp................................................. 5,742,750
32,000 Hewlett Packard Co.......................................... 3,388,000
74,000 Intel Corp.................................................. 5,013,500
213,000 Loral Space & Communications................................ 3,061,875
17,000 McDonnell Douglas Corp...................................... 1,640,500
*48,000 Microsoft Corp.............................................. 5,442,000
*130,000 Newbridge Networks Corp..................................... 8,368,750
135,000 Perkin Elmer Corp........................................... 7,408,125
*150,000 Softkey International Inc................................... 4,200,000
- --------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Growth and Income Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Number Market
of Shares Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
*83,000 Tellabs Inc .................................................... $ 4,585,750
50,000 Xerox .......................................................... 7,325,000
------------
111,090,125
------------
TRANSPORTATION 1.3%
35,350 Canadian National Railway ...................................... 671,650
108,000 Conrail Inc .................................................... 7,533,000
60,000 Union Pacific Corp ............................................. 4,087,500
------------
12,292,150
------------
UTILITIES 9.4%
130,000 Allegheny Power Systems Inc .................................... 3,802,500
104,000 Ameritech Corp ................................................. 6,071,000
188,000 AT & T Corp .................................................... 11,515,000
140,000 Cincinnati Bell Inc ............................................ 6,895,000
189,000 Frontier Corp .................................................. 5,977,125
77,000 GTE Corp ....................................................... 3,339,875
154,000 Lucent Technologies Inc ........................................ 5,409,250
201,000 MCI Communications Corp ........................................ 5,916,935
216,000 National Power, ADR ............................................ 5,697,000
83,000 NYNEX Corp ..................................................... 4,077,375
311,000 Pacificorp ..................................................... 6,220,000
146,000 Peco Energy Co ................................................. 3,631,750
247,400 PowerGen PLC, ADR .............................................. 6,308,700
89,000 Southern New England Telecommunications ........................ 3,960,500
218,000 Telefonos de Mexico SA, ADR .................................... 7,412,000
------------
86,234,010
------------
TOTAL COMMON STOCK AND EQUIVALENTS (Cost $661,157,930) ..... 795,676,266
------------
</TABLE>
<TABLE>
<CAPTION>
Par
Amount
- ----------- Convertible Corporate Obligations 6.7%
<C> <S> <C>
CONSUMER SERVICES 1.5%
$15,000,000 ADT Operations Inc, LYON, Zero Coupon, 7/06/10 ................. 7,725,000
12,000,000 News America Holdings Inc, LYON, Zero Coupon, 3/11/13 .......... 5,865,000
------------
13,590,000
------------
FINANCE 0.6%
5,000,000 MBL International, 3.00%, 11/30/02 ............................. 5,787,500
------------
HEALTH CARE 3.0%
4,200,000 Ciba Geigy Corp, 6.25%, 3/15/16 ................................ 4,284,000
23,000,000 Roche Holdings Inc, LYON, 4/20/10 .............................. 2,827,250
2,510,000 Sandoz, Ltd, 2.00%, 10/06/02 ................................... 10,120,000
2,630,000 Tenet Healthcare Corp, 6.00%, 12/01/05 ......................... 2,673,150
6,000,000 United Technologies Corp, PEN, Zero Coupon, 9/08/97 ............ 7,965,000
------------
27,869,400
------------
- -----------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Growth and Income Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION 0.6%
$5,000,000 Continental Airlines Inc, 6.75%, 4/15/06.......................................... $ 5,525,000
------------
UTILITIES 1.0%
115,000 Sprint Corp., DECS, 8.25%, 3/31/00................................................ 4,847,650
12,500,000 U.S. Cellular Corp, LYON, 6/15/15................................................. 4,375,000
------------
9,222,650
------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS (Cost $53,283,143)...................... 61,994,550
------------
Short-Term Investments 6.4%
REPURCHASE AGREEMENT 3.3%
**30,260,000 BankAmerica Securities, dated 4/30/96, 5.31%, due 5/01/96 (Collateralized by U.S.
Government obligations in a pooled cash account) repurchase proceeds $30,264,463.. 30,260,000
------------
UNITED STATES GOVERNMENT AND AGENCY OBLIGATIONS 3.1%
**26,385,000 Federal Home Loan Mtg Corp, 5.21%, 5/28/96........................................ 26,278,493
2,000,000 Treasury Bills, 4.84%, 5/02/96.................................................... 1,999,467
------------
28,277,960
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $58,537,960)................................. 58,537,960
------------
TOTAL INVESTMENTS (Cost $772,979,033) 99.4%...................................... 916,208,776
Other assets and liabilities, net 0.6%............................................ 5,688,817
------------
NET ASSETS, equivalent to $17.20 per share 100%.................................. $921,897,593
============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par $.01 per share; unlimited shares authorized;
53,590,750 shares outstanding................................................................. $ 535,908
Capital surplus................................................................................ 697,606,001
Undistributed net realized gain on securities.................................................. 77,574,536
Net unrealized appreciation of securities
Investments.................................................................................. 143,229,743
Futures contracts............................................................................ 552,283
Undistributed net investment income............................................................ 2,399,122
------------
NET ASSETS..................................................................................... $921,897,593
============
</TABLE>
DECS - dividend enhanced convertible stock
LYON - liquid yield option note, zero coupon
PEN - pharmaceutical exchange note
*Non-income producing security.
**Securities with a market value of approximately $38.3 million were placed as
collateral for futures contracts (see Note 1B).
See Notes to Financial Statements
- ------------------------------------------------------------------------------
19
<PAGE>
Growth and Income Fund Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Statement of Operations
Six Months Ended
April 30, 1996
----------------
<S> <C>
INVESTMENT INCOME
Dividends......................................................................... $ 8,227,371
Interest.......................................................................... 3,121,158
------------
Investment income............................................................... 11,348,529
------------
EXPENSES
Advisory fees..................................................................... 2,905,423
Shareholder service agent's fees and expenses..................................... 906,346
Accounting services............................................................... 94,986
Trustees' fees and expenses....................................................... 33,283
Audit fees........................................................................ 10,900
Custodian fees.................................................................... 25,650
Legal fees........................................................................ 2,098
Reports to shareholders........................................................... 62,100
Registration and filing fees...................................................... 50,301
Insurance......................................................................... 37,444
Miscellaneous..................................................................... 9,121
------------
Total expenses.................................................................. 4,137,652
------------
Net investment income........................................................... 7,210,877
------------
REALIZED AND UNREALIZED GAIN ON SECURITIES
Net realized gain on securities
Investments..................................................................... 75,155,283
Futures contracts............................................................... 3,053,250
Net unrealized appreciation of securities during the period
Investments..................................................................... 26,817,296
Futures contracts............................................................... 108,158
------------
Net realized and unrealized gain on securities.................................. 105,133,987
------------
Increase in net assets resulting from operations................................ $112,344,864
============
- ----------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
---------------- ----------------
NET ASSETS, beginning of period............................... $828,318,800 $712,895,284
------------ ------------
OPERATIONS
Net investment income........................................ 7,210,877 17,273,261
Net realized gain on securities.............................. 78,208,533 84,851,910
Net unrealized appreciation of securities during the period.. 26,925,454 53,004,855
------------ ------------
Increase in net assets resulting from operations............ 112,344,864 155,130,026
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income........................................ (10,295,739) (14,344,183)
Net realized gain on securities.............................. (85,264,668) (71,729,488)
------------ ------------
Total distributions......................................... (95,560,407) (86,073,671)
------------ ------------
CAPITAL TRANSACTIONS
Proceeds from shares sold.................................... 53,707,452 94,833,007
Proceeds from shares issued for distributions reinvested..... 94,086,203 84,847,579
Cost of shares redeemed...................................... (70,999,319) (133,313,425)
------------ ------------
Increase in net assets resulting from capital transactions.. 76,794,336 46,367,161
------------ ------------
INCREASE IN NET ASSETS........................................ 93,578,793 115,423,516
------------ ------------
NET ASSETS, end of period..................................... $921,897,593 $828,318,800
============ ============
CAPITAL TRANSACTIONS
Shares sold.................................................. 3,139,663 6,095,770
Shares issued for distributions reinvested................... 5,734,041 6,153,341
Shares redeemed.............................................. (4,144,961) (8,600,756)
------------ ------------
Increase in shares outstanding.............................. 4,728,743 3,648,355
============ ============
See Notes to Financial Statements.
- ----------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
Government Fund Statement of Net Assets
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States Government Agencies 44.6%
Federal Home Loan Mortgage Corp.
$4,974,088 6.500% 5 yr. Pools, various maturities............................................ $ 4,952,351
645,722 7.000% 5 yr. Pools, various maturities............................................ 648,344
4,830,834 7.000% 30 yr. Pools, various maturities........................................... 4,661,755
23,029,467 7.500% 30 yr. Pools, various maturities........................................... 22,777,525
8,347,713 8.000% 30 yr. Pools, various maturities........................................... 8,436,450
Federal National Mortgage Association
9,523,314 7.000% Pools, various maturities.................................................. 9,178,094
16,857,492 7.500% Pools, various maturities.................................................. 16,657,394
6,605,346 8.000% Pools, various maturities.................................................. 6,669,352
Government National Mortgage Association
3,184,617 7.000% Pools, various maturities.................................................. 3,064,206
6,726,378 7.500% Pools, various maturities.................................................. 6,646,536
5,212,479 8.000% Pools, various maturities.................................................. 5,277,635
20,476,102 8.500% Pools, various maturities.................................................. 21,279,780
24,874,732 9.000% Pools, various maturities.................................................. 26,351,793
13,577 10.000% Pools, various maturities................................................. 14,892
------------
Total United States Government Agencies (Cost $135,393,734)....................... 136,616,107
------------
United States Treasury Notes 54.0%
**9,000,000 6.500%, 8/15/97................................................................... 9,068,940
500,000 6.500%, 8/15/05................................................................... 493,125
**10,000,000 7.750%, 12/31/99.................................................................. 10,453,100
5,000,000 7.875%, 7/15/96................................................................... 5,025,000
15,000,000 7.875%, 1/15/98................................................................... 15,447,600
10,000,000 8.000%, 1/15/97................................................................... 10,165,600
10,000,000 8.000%, 8/15/99................................................................... 10,500,000
**10,000,000 8.000%, 5/15/01................................................................... 10,667,200
**30,000,000 8.500%, 4/15/97................................................................... 30,773,400
**20,000,000 8.500%, 5/15/97................................................................... 20,550,000
**20,000,000 8.875%, 2/15/99................................................................... 21,340,600
**20,000,000 9.000%, 5/15/98................................................................... 21,106,200
------------
Total United States Treasury Notes (Cost $166,831,252)............................ 165,590,765
------------
Forward Purchase Commitments 14.3%
*10,000,000 Federal National Mortgage Association, 6.500%, settling May 96...................... 9,368,800
Government National Mortgage Association
*10,000,000 6.500%, settling July 96.......................................................... 9,323,400
*26,000,000 7.000%, settling May 96........................................................... 25,016,940
------------
Total Forward Purchase Commitments (Cost $45,143,750)............................. 43,709,140
------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
Government Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement 1.6%
$4,820,000 BankAmerica Securities, dated 4/30/96, 5.35%, due 5/01/96
(collateralized by U.S. Government obligations in a pooled cash account)
repurchase proceeds $4,820,716 (Cost $4,820,000)................................ $ 4,820,000
------------
TOTAL INVESTMENTS (Cost $352,188,736) 114.5%...................................... 350,736,012
Receivable for investments sold 18.0%............................................. 55,217,843
Other assets and liabilities, net 0.8%............................................ 2,545,230
Payable for investments purchased (28.4%)......................................... (87,091,706)
Payable for forward sale commitments (4.9%)....................................... (15,152,870)
------------
NET ASSETS, equivalent to $10.28 per share 100%................................... $306,254,509
============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par $.01 per share; unlimited shares authorized;
29,786,859 shares outstanding.................................................................. $ 297,869
Capital surplus.................................................................................. 340,910,854
Accumulated net realized loss on securities...................................................... (30,442,891)
Net unrealized depreciation of securities
Investments.................................................................................... (1,452,724)
Forward commitments............................................................................ (1,170,513)
Futures contracts.............................................................................. (1,954,436)
Undistributed net investment income.............................................................. 66,350
------------
NET ASSETS....................................................................................... $306,254,509
============
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Non-income producing security.
**Securities with a market value of approximately $117.7 were placed as
collateral for futures contracts and forward commitments (see Note 1B).
See Notes to Financial Statements.
22
<PAGE>
Government Fund Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Statement of Operations
Six Months Ended
April 30, 1996
---------------
<S> <C>
Investment Income
Interest..................................................................... $ 12,189,519
------------
Expenses
Advisory fees................................................................ 970,873
Shareholder service agent's fees and expenses................................ 223,440
Accounting services.......................................................... 61,097
Trustees' fees and expenses.................................................. 18,274
Audit fees................................................................... 6,773
Custodian fees............................................................... 18,785
Legal fees................................................................... 1,313
Reports to shareholders...................................................... 16,542
Registration and filing fees................................................. 14,663
Insurance.................................................................... 14,803
Miscellaneous................................................................ 5,529
------------
Total expenses............................................................. 1,352,092
------------
Net investment income...................................................... 10,837,427
------------
Realized and Unrealized Gain (Loss) on Securities
Net realized gain (loss) on securities
Investments................................................................ 1,650,847
Forward commitments........................................................ 822,740
Futures contracts.......................................................... (55,700)
Net unrealized depreciation of securities during the period
Investments................................................................ (9,183,682)
Forward commitments........................................................ (1,630,424)
Futures contracts.......................................................... (2,712,334)
------------
Net realized and unrealized loss on securities............................. (11,108,553)
------------
Decrease in net assets resulting from operations........................... $ (271,126)
============
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
NET ASSETS, beginning of period.............................................. $329,014,955 $334,961,646
------------ ------------
Operations
Net investment income....................................................... 10,837,427 22,579,674
Net realized gain on securities............................................. 2,417,887 542,878
Net unrealized appreciation (depreciation) of securities during the period.. (13,526,440) 20,974,048
------------ ------------
Increase (decrease) in net assets resulting from operations................ (271,126) 44,096,600
------------ ------------
Distributions to shareholders from net investment income..................... (11,314,527) (22,389,062)
------------ ------------
Capital transactions
Proceeds from shares sold................................................... 19,572,738 40,107,323
Proceeds from shares issued for distributions reinvested.................... 9,731,618 19,322,483
Cost of shares redeemed..................................................... (40,479,149) (87,084,035)
------------ ------------
Decrease in net assets resulting from capital transactions................. (11,174,793) (27,654,229)
------------ ------------
Decrease in Net Assets....................................................... (22,760,446) (5,946,691)
------------ ------------
NET ASSETS, end of period.................................................... $306,254,509 $329,014,955
============ ============
CAPITAL TRANSACTIONS
Shares sold................................................................. 1,835,969 3,887,096
Shares issued for distributions reinvested.................................. 915,957 1,865,887
Shares redeemed............................................................. (3,805,012) (8,448,288)
------------ -----------
Decrease in shares outstanding............................................. (1,053,086) (2,695,305)
============ ===========
</TABLE>
See Notes to Financial Statements.
- ------------------------------------------------------------------------------
23
<PAGE>
Municipal Bond Fund Statement of Net Assets
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Municipal Bonds 96.4%
EDUCATION 13.7%
$1,840,000 Brecksville-Broadview Heights, Ohio, City School District, FGIC, 6.50%, 12/01/16..... $ 1,947,051
500,000 Connecticut State Health & Educational Facilities Authority Rev.
(University of Hartford) Series S, 6.75%, 7/01/12.................................. 492,220
500,000 Cook County, Illinois, Community College District #508, Certificates of
Participation, FGIC, 8.75%, 1/01/07................................................ 634,910
500,000 District of Columbia Rev (Howard University)Series A, MBIA, 8.00%, 10/01/07.......... 527,970
500,000 Erie, Pennsylvania, Higher Education Building Authority, College Rev,
Series A, 8.50%, 6/01/15........................................................... 565,715
Frenship, Texas, Independent School District, Refunding
500,000 5.50%, 2/15/03..................................................................... 513,405
500,000 5.50%, 2/15/04..................................................................... 510,885
200,000 Huron Valley, Michigan, School District, FGIC, 7.10%, 5/01/08........................ 223,874
1,920,000 Jackson County, Oregon, School District #549C, FSA, 6.00%, 6/01/04................... 2,042,381
1,120,000 King County, Washington, School District #412, Series A, FSA, 6.00%, 12/01/05........ 1,190,381
500,000 Merrillville, Indiana, Multi-School Building Corp, 1st Mtg., 7.50%, 7/15/09.......... 562,090
350,000 New York City, New York, Industrial Development Agency, Civil
Facility Rev (Marymount Manhattan College Project) 7.00%, 7/01/23.................. 361,172
New York State Dormitory Authority Rev
500,000 City University System, 6.00%, 7/01/16............................................. 488,525
750,000 State University Education Facilities, Series A, 7.70%, 5/15/12.................... 848,812
2,000,000 New York State Urban Development Corp. Rev, Refunding (University
Facilities Grants) 5.50%, 1/01/15.................................................. 1,856,660
2,000,000 Oregon Health Sciences University Rev, Series A, MBIA, 5.25%, 7/01/28................ 1,761,460
Pennsylvania State Higher Educational Facilities Authority Rev.
500,000 Hahnemann University Project, Series 1989, MBIA, 7.20%, 7/01/19.................... 540,070
250,000 Medical College of Pennsylvania, Series A, 8.375%, 3/01/11......................... 268,962
150,000 Thomas Jefferson University, 8.00%, 1/01/18........................................ 161,630
500,000 Shenandoah Valley Pennsylvania, School District, Series B, Zero Coupon, 2/01/12...... 186,480
1,000,000 Wisconsin State Health & Educational Facilities Rev, Marquette
University Project, FGIC, 6.45%, 12/01/19.......................................... 1,037,200
-----------
16,721,853
-----------
GENERAL OBLIGATION 7.5%
250,000 Berry Creek Metropolitan District, Eagle, Colorado, Refunding & Improvement,
8.25%, 12/01/11.................................................................... 267,712
500,000 Chicago, Illinois, Metropolitan Water District, 7.00%, 1/01/11....................... 580,850
500,000 Cook County, Illinois, MBIA, 7.00%, 11/01/10......................................... 555,375
2,000,000 Dade County, Florida, Refunding, MBIA, 5.125%, 10/01/26.............................. 1,770,340
1,000,000 Hawaii State, Series-CD, 5.00%, 2/01/03.............................................. 1,005,610
Highlands Ranch, Colorado, Refunding & Improvement
500,000 Metropolitan District #1, Series A, 7.30%, 9/01/12................................. 577,165
1,000,000 Metropolitan District #2, FSA, 6.50%, 6/15/10...................................... 1,078,830
1,500,000 Irving, Texas, Flood Control District, Section #3, AMBAC, Zero Coupon, 9/01/08....... 782,040
500,000 Milwaukee County, Wisconsin, Refunding, Series A, 5.25%, 9/01/00..................... 511,035
1,000,000 Mojave, California, Water Agency, Refunding, FGIC, 5.80%, 9/01/22.................... 971,020
1,000,000 New York, New York, Series B, 7.00%, 8/15/16......................................... 1,036,960
-----------
9,136,937
-----------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
Municipal Bond Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HEALTH CARE 22.2%
$ 500,000 Bexar County, Texas, Health Facilities Development Rev, 7.90%, 5/01/18......................... $ 588,015
500,000 Boston, Massachusetts, Rev (Boston City Hospital) FHA, 7.625%, 2/15/21......................... 565,335
660,000 Delaware County, Ohio, Health Care Rev (Centrum at Willowbrook)
FHA, 6.55%, 2/01/35.......................................................................... 647,176
250,000 Delaware State, Economic Development Authority Rev (Osteopathic
Hospital Association) Series A, 6.75%, 1/01/13............................................... 274,850
500,000 Ector County, Texas, Hospital District (Medical Center Hospital) 7.125%, 4/15/02............... 531,025
250,000 Erie County, Pennsylvania, Hospital Authority Rev (Metro Health Center)
Series 1992, 7.25%, 7/01/12.................................................................. 230,147
Harris County, Texas, Health Facilities Development Corp.
250,000 Memorial Hospital System Project, 7.125%, 6/01/15............................................ 266,890
1,250,000 TECO Project, Series A, AMBAC, 7.25%, 2/15/15................................................ 1,337,050
250,000 Illinois Development Finance Authority Rev, Refunding
(Columbus-Cuneo-Cabrini Medical Center) 8.50%, 2/01/15....................................... 286,975
Illinois Health Facilities Authority Rev
5,000 Community Pooled Program, Series A, MBIA, 7.90%, 8/15/03..................................... 5,159
40,000 Community Pooled Program, Series A, MBIA, 7.90%, 8/15/03..................................... 46,139
100,000 Community Pooled Program, Series A, MBIA, 7.90%, 8/15/03..................................... 102,898
500,000 Delnor Community Hospital, 8.00%, 5/15/19.................................................... 557,950
500,000 Lutheran Health Systems,Series B, MBIA, 6.00%, 4/01/18....................................... 500,000
500,000 Masonic Medical Center, Series 1989-B, 7.70%, 10/01/19....................................... 558,750
250,000 Memorial Hospital, 7.25%, 5/01/24............................................................ 253,933
300,000 Mercy Center For Health Care Services, 6.625%, 10/01/12...................................... 305,004
500,000 Northwestern Memorial Hospital, 6.75%, 8/15/11............................................... 528,470
1,000,000 Indiana Health Facilities Finance Authority, MBIA, 6.85%, 7/01/22.............................. 1,120,330
500,000 Kent Hospital Finance Authority, Michigan (Butterworth Hospital)
Series A, 7.25%, 1/15/12..................................................................... 552,200
100,000 Leesburg, Florida, Hospital Rev, 8.40%, 7/01/08................................................ 102,779
2,000,000 Massachusetts State Health & Educational Facilities Authority Rev
(Cape Cod Health System) Series A, CONN, 5.625%, 11/15/23.................................... 1,850,120
1,450,000 Massachusetts State, Series B, 6.50%, 7/01/15.................................................. 1,339,525
Michigan State, Hospital Finance Authority Rev
195,000 Detroit Medical Center, Refunding, Series A, 8.125%, 8/15/12................................. 214,609
500,000 7.50%, 10/01/07.............................................................................. 517,405
Mississippi, Hospital Equipment and Facilities, Series A
500,000 Magnolia Hospital Project, 7.375%, 10/01/21.................................................. 500,800
250,000 Wesley Health System Inc., CONN, 6.05%, 4/01/12.............................................. 250,147
Missouri State Health and Educational Facilities Authority Rev
500,000 Heartland Health Systems Project, 6.875%, 11/15/04........................................... 535,925
250,000 Heartland Health Systems Project, 8.125%, 10/01/10........................................... 279,503
500,000 Lake of the Ozarks Hospital, 8.00%, 2/15/11.................................................. 529,920
520,000 New Hampshire Higher Education & Health, 7.50%, 6/01/05........................................ 568,651
500,000 New York State Medical Care Facilities Agency Rev (Montifore Medical Center)
FHA, 7.25%, 2/15/24.......................................................................... 531,030
250,000 Newton, Kansas, Hospital Rev (Newton Healthcare Corp.) Series A,
7.375%, 11/15/14............................................................................. 256,993
1,000,000 Norfolk, Virginia, IDR, Hospital Authority Rev, Refunding (Sentara
Hospitals)Series A, 6.50%, 11/01/13.......................................................... 1,048,070
250,000 North Carolina, Medical Care Community, Health Care Facility Rev
(Stanley Memorial Hospital Project) 7.80%, 10/01/19.......................................... 266,752
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Municipal Bond Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Northeastern Pennsylvania, Hospital Authority Rev
$ 100,000 Nesbitt Memorial Hospital, Series A, 7.50%, 7/01/12................................................ $ 112,331
500,000 Wilkes Barre General Hospital, 8.375%, 7/01/06..................................................... 535,120
250,000 Rusk County, Texas, Health Facilities Corp., Hospital Rev
(Henderson Memorial Hospital Project) 7.75%, 4/01/13............................................... 261,420
250,000 Scranton-Lackawanna, Pennsylvania, Health & Welfare Authority Rev
(Moses Taylor Hospital Project) Series B, 8.50%, 7/01/20........................................... 270,855
2,675,000 South Carolina Jobs Economic Development Authority, Hospital Facilities Rev
(Toumey Regional Medical Center) Series A, MBIA, 5.50%, 11/01/20................................... 2,524,050
South Dakota, State Health & Educational Facility Authority Rev
20,000 7.625%, 11/01/13................................................................................... 21,621
500,000 Huron Regional Medical Center, 7.25%, 4/01/20...................................................... 502,060
230,000 Sioux Valley Hospital, 7.625%, 11/01/13............................................................ 252,071
500,000 St. Joseph County, Indiana, Hospital Authority, Rev (Memorial Hospital
South Bend Project) MBIA, 6.25%, 8/15/22........................................................... 507,025
500,000 St. Petersburg, Florida, Health Facilities Authority Rev, Allegany Health
System (St. Mary's Hospital) Series B, 7.75%, 12/01/15............................................. 563,535
500,000 Tarrant County, Texas, Health Facilities Development Corp, Hospital Rev,
Refunding & Improvement (Fort Worth Osteopathic Hospital) 7.00%, 5/15/28........................... 517,560
500,000 Tulsa, Oklahoma, Industrial Authority, Hospital Rev (Tulsa Regional Medical Center)
7.20%, 6/01/17..................................................................................... 575,215
500,000 Warren County, Pennsylvania, Hospital Authority Rev (Warren General
Hospital Project) Series A, 6.90%, 4/01/11......................................................... 507,125
1,000,000 Weslaco, Texas, Health Facilities Development (Knapp Medical
Center Project) Series A, CONN, 5.25%, 6/01/16..................................................... 927,370
1,000,000 Wisconsin State Health & Educational Facilities Rev, (Waukesha
Memorial Hospital) Series A, AMBAC, 5.25%, 8/15/19................................................. 890,390
-----------
27,018,273
-----------
HOUSING 6.7%
685,000 Austin, Texas, Housing Finance Corp., Multi-Family Housing Rev, 6.50%, 10/01/10...................... 685,445
1,000,000 Greater Cincinnati, Ohio (FHA Cambridge Apartments) Series A, FSA, 6.60%, 8/01/25.................... 1,008,750
500,000 Knox County, Tennessee, Industrial Development Board, Multi-Family
Rev, Refunding (Waterford Apartments) Series A, FNMA, 5.95%, 3/01/28............................... 491,540
500,000 Lynchburg, Virginia, Redevelopment & Housing Authority Rev (Waldon
Pond III) Series A, GNMA, 6.20%, 7/20/27........................................................... 503,875
250,000 Maine State Housing Authority, Mtg Purchase Rev, Series B, 7.90%, 11/15/06........................... 262,678
400,000 Maricopa County, Arizona, IDR, Multi-Family Rev, Refunding (Laguna
Point Apartments Project) 6.50%, 7/01/09........................................................... 415,328
250,000 Massachusetts State, Single Family, Series 31, 6.45%, 12/01/16....................................... 253,125
500,000 Ridgeland, Mississippi, Urban Renewal (The Orchard Ltd Project)
Series A, 7.75%, 12/01/15.......................................................................... 503,890
500,000 South Carolina State Housing Finance and Development Authority,
Homeownership Mtg, Series A, 7.625%, 7/01/16....................................................... 523,125
1,500,000 Sullivan County, Tennessee, IDR, Mtg (Brandy Mill I) Series A, GNMA,
6.35%, 7/20/27..................................................................................... 1,536,090
930,000 Tennessee Housing Development Agency, 6.80%, 7/01/17................................................. 969,469
485,000 Texas Housing Agency, Residential Development Rev, Adjustable
Mtg, Series A, GNMA, 7.60%, 7/01/16................................................................ 497,353
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
Municipal Bond Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 280,000 Texas Housing Agency, Single Family Mtg, Refunding, Series A,
7.15%, 9/01/12............................................................................. $ 287,498
80,000 Utah State Housing Finance Agency, Single Family Mtg, Series G-1, 8.10%, 7/01/16............. 82,700
150,000 Wisconsin Housing & Economical Development Authority Rev, 8.00%, 11/01/18.................... 151,188
----------
8,172,054
----------
LEASE REVENUE/CERTIFICATES OF PARTICIPATION 4.8%
Brevard County, Florida, Certificates of Participation, Series B, AMBAC
1,000,000 5.50%, 7/01/16............................................................................. 955,360
1,000,000 5.50%, 7/01/21............................................................................. 942,810
100,000 California Special District Finance Authority, Certificates of Participation,
Rev, Series A, 8.50%, 7/01/18.............................................................. 107,353
500,000 Compton, California, Certificates of Participation, Refunding, Series B,
7.50%, 8/01/15............................................................................. 535,105
Dade County, Florida, Professional Sports Franchise Facilities, Tax Rev, MBIA,
1,160,000 Zero Coupon, 10/01/19...................................................................... 273,226
1,155,000 Zero Coupon, 10/01/21...................................................................... 242,238
1,000,000 Florida State Correctional Privatization Community, Certificates of Participation,
AMBAC, 5.00%, 8/01/17...................................................................... 890,590
1,000,000 Kansas City, Missouri, Refunding, MBIA, 5.00%, 4/15/20....................................... 874,880
250,000 Oklahoma State Capital Improvement Authority, State Agency Facility
Rev, FSA, 5.30%, 12/01/15.................................................................. 235,747
250,000 Utah State Building Ownership Authority Lease Rev (Department of
Employment Security) 7.80%, 8/15/10........................................................ 268,878
480,000 Volusia County, Florida, School Board, Certificates of Participation
(Florida Master Lease Program) FSA, 5.30%, 8/01/10......................................... 466,862
----------
5,793,049
----------
MISCELLANEOUS 6.1%
250,000 Crestwood, Illinois, Tax Increment Rev, Refunding, 7.25%, 12/01/08......................... 248,350
2,000,000 Detroit, Michigan, Tax Increment (Development Area #1) Series C, 6.25%, 7/01/25............ 1,944,940
500,000 Detroit, Michigan, Tax Increment (Development Area #1) Series A, 7.60%, 7/01/10............ 527,595
500,000 District of Columbia, Series A, AMBAC, 7.50%, 6/01/10...................................... 560,735
500,000 DuPage County, Illinois, Alternative Rev (Stormwater Project) 6.55%, 1/01/21............... 549,270
1,000,000 El Paso County, Texas, Parking Facilities Rev, 6.50%, 8/15/11.............................. 1,077,750
250,000 Emmaus, Pennsylvania, General Authority, Local Government Pool Program Rev,
Series A, BIG, 8.15%, 5/15/18............................................................ 265,495
1,500,000 Mercer County, New Jersey, Improvement, Zero Coupon, 4/01/11............................... 634,575
50,000 Pocahontas, Iowa, IDR (International Harvester Co.) 10.25%, 10/01/00....................... 50,152
Texas General Services, Community Partner Interests (Office Building
and Land Acquisition Project)
130,000 7.00%, 8/01/14........................................................................... 134,043
330,000 7.00%, 8/01/24........................................................................... 340,286
1,000,000 Valdez, Alaska, Marine Term Rev, Refunding (Sohio Pipeline) 7.125%, 12/01/25............... 1,101,650
----------
7,434,841
----------
NURSING HOMES 4.7%
100,000 Carmel, Indiana, Retirement Rent Housing Rev, Refunding, (Beverly
Enterprises Inc. Project) Series 1992, 8.75%, 12/01/08................................... 111,625
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Municipal Bond Fund Statement of Net Assets, continued
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 500,000 Lebanon County, Pennsylvania, Health Facilities (United Church of
Christ Homes Project) Series A, 6.75%, 10/01/10................................................ $ 504,045
1,000,000 Loma Linda, California Hospital Rev (Loma Linda University Medical Center)
Series C, MBIA, 5.375%, 12/01/22............................................................... 908,140
230,000 Louisiana Public Facilities Authority, IDR, Refunding (Beverly Enterprises
Inc. Project) 8.25%, 9/01/08................................................................... 241,709
250,000 Massachusetts, Industrial Finance Agency, IDR, Refunding (Beverly
Enterprises/Gloucester and Lexington Projects) Series 1992, 8.00%, 5/01/02..................... 265,342
150,000 Minneapolis, Minnesota, Health Care Facility (Ebenezer Society Project)
Series A, 7.00%, 7/01/12....................................................................... 146,582
280,000 Montgomery County, Pennsylvania, IDR (Pennsburg Nursing & Rehabilitation Center)
7.625%, 7/01/18................................................................................ 267,042
370,000 New Hampshire Higher Educational & Health Facilities Authority
Rev, 1st Mtg (Odd Fellows Home) 9.00%, 6/01/14................................................. 412,702
3,000,000 New York, State Dormitory Authority Rev, Department of Health, 5.50%, 7/01/25.................... 2,666,580
225,000 Scottsdale, Arizona, Industrial Development, Series A, 8.25%, 6/01/15............................ 241,034
----------
5,764,801
----------
POLLUTION CONTROL REVENUE (PCR) 5.4%
2,000,000 Clark County, Nevada (Nevada Power Co. Project) IDR, AMBAC,
7.20%, 10/01/22................................................................................ 2,204,200
250,000 County of Coshocton, Ohio, Solid Waste Disposal Rev, Refunding
(Stone Container Corp. Project) Series 1992, 7.875%, 8/01/13................................... 257,895
1,000,000 Farmington, New Mexico, PCR, Refunding, 7.20%, 4/01/21........................................... 1,084,500
570,000 Ohio State Air Quality Development Authority Rev, PCR (Cleveland Co. Project)
FGIC, 8.00%, 12/01/13.......................................................................... 661,895
1,000,000 Ohio State Water Development Authority Facilities Rev, PCR
(Ohio Edison Co. Project) 5.95%, 5/15/29....................................................... 901,920
1,000,000 Petersburg, Indiana, PCR, Refunding (Indianapolis Power & Lighting)
Series 1993-A, 6.10%, 1/01/16.................................................................. 995,360
500,000 Sweetwater County, Wyoming, PCR (Idaho Power Co.) Series C, 7.625%, 12/01/13..................... 519,575
----------
6,625,345
----------
RESOURCE RECOVERY REVENUE 1.5%
425,000 Broward County, Florida (North Project) 7.95%, 12/01/08.......................................... 471,737
1,000,000 Orange County, Florida, Development Tax Rev, Refunding, Series A,
FGIC, 6.00%, 6/01/09........................................................................... 1,040,470
250,000 Regional Waste Systems Inc., Maine, Solid Waste, 7.95%, 7/01/10.................................. 266,887
----------
1,779,094
----------
SALES TAX REVENUE 1.3%
500,000 Arvada, Colorado, Refunding & Improvement, FGIC, 6.25%, 12/01/12................................. 519,615
400,000 Edgewater, Colorado, Redevelopment Authority Tax Increment Rev,
Refunding (Edgewater Development Project) 6.75%, 12/01/08...................................... 411,616
100,000 Jefferson County, Colorado, Southeast Jefferson County Local Improvement District,
8.20%, 12/01/13................................................................................ 109,443
500,000 Rhode Island Depositors' Economic Corp, Special Obligation, Series A,
FSA, 6.625%, 8/01/19........................................................................... 554,605
----------
1,595,279
----------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Municipal Bond Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION 4.3%
Arapahoe County, Colorado, Local Public Improvement
$1,000,000 7.00%, 8/31/26........................................................................... $1,040,130
7,000,000 Zero Coupon, 8/31/26..................................................................... 765,660
500,000 Cleveland, Ohio, Parking Facilities Improvement Rev, 8.00%, 9/15/12........................ 520,310
1,000,000 Des Moines, Iowa, Parking Facilities Rev, FGIC, 7.25%, 7/01/15............................. 1,083,740
1,000,000 New Jersey State Turnpike Authority, New York, Rev, MBIA, 6.50%, 1/01/16................... 1,085,090
Triborough Bridge & Tunnel Authority, New York, Rev
150,000 Series A, 8.00%, 1/01/18................................................................. 161,183
500,000 Series R, 7.375%, 1/01/16................................................................ 553,470
----------
5,209,583
----------
UTILITIES 18.2%
250,000 Brazoria County, Texas, MUD #2, Refunding, 7.00%, 9/01/08.................................. 265,808
500,000 Brownsville, Texas, Utility System Rev, AMBAC, 6.50%, 9/01/17.............................. 544,100
500,000 Chicago, Illinois, Wastewater Transmission, Rev, FGIC, 6.30%, 1/01/12...................... 546,615
1,065,000 Green Bay, Wisconsin, Waterworks Rev, 4.85%, 11/01/07...................................... 1,027,672
500,000 Houston, Texas, Water System Rev, 7.25%, 12/01/07.......................................... 535,305
Intermountain Power Agency, Utah
500,000 1st Crossover Series, Special Obligation, 7.875%, 7/01/14................................ 512,625
1,000,000 Power Supply Rev, Series B, 7.00%, 7/01/21............................................... 1,066,450
250,000 Jefferson, Wisconsin, Sewer System, Waterworks, 7.40%, 7/01/16............................. 280,027
1,000,000 Los Angeles, California, Department of Water &Power, Electric Plan
Rev, 5.375%, 9/01/23..................................................................... 900,950
5,000 Massachusetts Municipal Wholesale Electric Co, Power Supply System
Rev, Series A, 8.75%, 7/01/18............................................................ 6,285
500,000 Massachusetts State Water Resource Authority, Series A, 7.50%, 4/01/16..................... 558,845
2,855,000 Nebraska Public Power District Rev, Electric Systems, Series A, MBIA,
5.25%, 1/01/22........................................................................... 2,614,438
500,000 New York City Municipal Water Finance Authority, New York, Water &
Sewer System Rev, Series C, 7.75%, 6/15/20.............................................. 575,845
North Carolina Eastern Municipal Power Agency, Power System Rev
500,000 Series A, 4.50%, 1/01/24................................................................. 404,605
400,000 8.00%, 1/01/21........................................................................... 431,688
250,000 North Carolina Municipal Power Agency, Catawba Electric, Rev, 7.875%, 1/01/19.............. 269,288
1,000,000 Northern Minnesota Municipal Power Agency, Series A, AMBAC, 7.25%, 1/01/16................. 1,070,670
Puerto Rico, Electric Power Authority Rev, Series Z
2,650,000 5.25%, 7/01/21........................................................................... 2,337,168
2,250,000 5.50%, 7/01/16........................................................................... 2,099,272
775,000 Sam Rayburn, Texas, Municipal Power Agency, Refunding, Series A,
6.75%, 10/01/14.......................................................................... 702,390
500,000 Texas Water Resource, Finance Authority Rev, AMBAC, 7.50%, 8/15/13......................... 529,365
1,250,000 Toledo, Ohio, Waterworks & Sewer Rev, FGIC, 5.50%, 11/15/16................................ 1,192,312
</TABLE>
29
<PAGE>
Municipal Bond Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Washington State Public Power Supply System Rev
$ 250,000 Nuclear Project #1, Series B, FGIC, 7.125%, 7/01/16......................... $ 282,158
250,000 Nuclear Project #2, Series 1990-C, 7.625%, 7/01/10.......................... 283,725
3,000,000 Series C, FGIC, 5.375%, 7/01/15............................................. 2,741,520
250,000 Winters, Texas, Waterworks & Sewer Rev, 8.50%, 8/01/17........................ 304,353
------------
22,083,479
------------
Total Municipal Bonds (Cost $114,266,877)................................... 117,334,588
------------
Municipal Variable Rate Demand Note+ 0.2%
300,000 Burke County, Georgia, Pollution Control Development, 4.00%, 7/01/24
(Cost $300,000)............................................................. 300,000
------------
Contracts (per
$100,000 par) Put Options Purchased 0.1%
- --------------
102 United States Treasury Bond Futures (exercise month June/exercise price $110)
(Cost $117,167)............................................................. 76,500
------------
TOTAL INVESTMENTS (Cost $114,684,044) 96.7%................................... 117,711,088
Other Assets and liabilities, net 3.3%........................................ 4,005,542
------------
NET ASSETS, equivalent to $13.49 per share 100%............................... $121,716,630
============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.01 per share; unlimited shares authorized;
9,024,488 shares outstanding................................................................... $ 90,245
Capital surplus.................................................................................. 118,186,387
Undistributed net realized gain on securities.................................................... 449,692
Net unrealized appreciation of investments....................................................... 3,027,044
Accumulated net investment loss.................................................................. (36,738)
------------
NET ASSETS....................................................................................... $121,716,630
============
</TABLE>
+Interest rate is as of April 30, 1996
FHA--Federal Housing Administration
Rev--Revenue Bond
IDR--Industrial Development Revenue Bond
Insurers:
AMBAC--AMBAC Indemnity Corp
BIG--Bond Investors Guaranty Insurance Co
CONN--Connie Lee
FGIC--Financial Guaranty Insurance Corp
FSA--Financial Security Assurance Inc
MBIA--Municipal Bond Investor's Assurance Corp
See Notes to Financial Statements.
- ------------------------------------------------------------------------------
30
<PAGE>
Municipal Bond Fund Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Statement of Operations
Six Months Ended
April 30, 1996
--------------
<S> <C> <C>
Investment Income
Interest........................................................................................ $ 3,739,870
------------
Expenses
Advisory fees................................................................................... 366,270
Shareholder service agent's fees and expenses................................................... 124,587
Accounting services............................................................................. 63,740
Trustees' fees and expenses..................................................................... 14,046
Audit fees...................................................................................... 8,600
Custodian fees.................................................................................. 12,833
Legal fees...................................................................................... 778
Reports to shareholders......................................................................... 10,326
Registration and filing fees.................................................................... 21,882
Insurance....................................................................................... 5,360
Miscellaneous................................................................................... 2,217
------------
Total expenses................................................................................ 630,639
------------
Net investment income......................................................................... 3,109,231
------------
Realized and Unrealized Gain (Loss) on Securities
Net realized gain (loss) on securities
Investments................................................................................... 484,537
Option contracts.............................................................................. (35,285)
Net unrealized depreciation of securities during the period..................................... (2,511,893)
------------
Net realized and unrealized loss on securities................................................ (2,062,641)
------------
Increase in net assets resulting from operations.............................................. $ 1,046,590
============
- -------------------------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
---------------- ----------------
NET ASSETS, beginning of period.............................................. $119,122,920 $112,088,419
------------ ------------
Operations
Net investment income...................................................... 3,109,231 6,314,995
Net realized gain on securities............................................ 449,252 401,050
Net unrealized appreciation (depreciation) of securities during the period. (2,511,893) 6,922,298
------------ ------------
Increase in net assets resulting from operations......................... 1,046,590 13,638,343
------------ ------------
Distributions to shareholders from (See Note 1F)
Net investment income...................................................... (3,109,231) (6,187,572)
Net realized gain on securities............................................ (373,837) --
Excess of book-basis net investment income................................. (195,319) --
------------ ------------
Total Distributions...................................................... (3,678,387) (6,187,572)
------------ ------------
Capital transactions
Proceeds from shares sold.................................................. 17,526,578 26,976,160
Proceeds from shares issued for distributions reinvested................... 3,183,542 5,355,586
Cost of shares redeemed.................................................... (15,484,613) (32,748,016)
------------ ------------
Increase (decrease) in net assets resulting from capital transactions.... 5,225,507 (416,270)
------------ ------------
Increase in Net Assets....................................................... 2,593,710 7,034,501
------------ ------------
NET ASSETS, end of period.................................................... $121,716,630 $119,122,920
============ ============
CAPITAL TRANSACTIONS
Shares sold................................................................ 1,264,144 2,026,724
Shares issued for distributions reinvested................................. 229,574 402,352
Shares redeemed............................................................ (1,119,083) (2,471,996)
------------ ------------
Increase (decrease) in shares outstanding................................ 374,635 (42,920)
============ ============
</TABLE>
See Notes to Financial Statements.
- ------------------------------------------------------------------------------
31
<PAGE>
Money Market Fund Statement of Net Assets
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States Agencies Obligations 47.9%
$3,000,000 Federal Farm Credit Bank, 5.21%, 7/03/96...................................... $ 2,972,907
Federal Home Loan Banks
2,000,000 5.12%, 7/10/96.............................................................. 1,980,278
2,000,000 5.20%, 7/08/96.............................................................. 1,980,565
2,000,000 5.21%, 7/01/96.............................................................. 1,982,502
2,500,000 5.27%, 9/19/96.............................................................. 2,449,117
3,000,000 5.28%, 9/12/96.............................................................. 2,941,837
Federal National Mortgage Association
3,000,000 5.25%, 7/03/96.............................................................. 2,972,267
2,000,000 5.29%, 10/22/96............................................................. 1,949,930
5,000,000 5.35%, 5/01/96.............................................................. 4,999,261
2,000,000 5.38%, 6/13/96.............................................................. 1,987,191
4,000,000 5.42%, 6/14/96.............................................................. 3,973,650
-----------
Total United States Agencies Obligations (Cost $30,189,505)............... 30,189,505
-----------
Commercial Paper 28.3%
3,000,000 Associates Corp. of North America, 5.31%, 5/16/96............................. 2,992,947
3,000,000 Chevron Oil Finance Co., 5.28%, 5/09/96....................................... 2,996,047
3,000,000 General Electric Capital Corp., 5.33%, 7/22/96................................ 2,963,618
2,900,000 General Electric Co., 5.31%, 6/28/96.......................................... 2,875,381
3,000,000 MetLife Funding Inc., 5.36%, 5/02/96.......................................... 2,999,112
3,000,000 Toronto Dominion Holdings, 5.29%, 5/23/96..................................... 2,989,899
-----------
Total Commercial Paper (Cost $17,817,004)................................. 17,817,004
-----------
Repurchase Agreements* 24.0%
5,030,000 BankAmerica Securities, 5.35%, repurchase proceeds $5,030,748................. 5,030,000
5,025,000 Lehman Government Securities, 5.30%, repurchase proceeds $5,025,740........... 5,025,000
5,025,000 SBC Capital Markets Inc., 5.31%, repurchase proceeds $5,025,741............... 5,025,000
-----------
Total Repurchase Agreements (Cost $15,080,000)............................ 15,080,000
-----------
TOTAL INVESTMENTS (Cost $63,086,509) 100.2%.................................. 63,086,509
Other assets and liabilities, net (0.2%)...................................... (105,063)
-----------
NET ASSETS, equivalent to $1.00 per share 100%............................... $62,981,446
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par value $.01 per share; unlimited shares authorized;
62,977,381 shares outstanding.................................................................. $ 629,774
Capital surplus.................................................................................. 62,347,359
Undistributed net investment income.............................................................. 4,313
-----------
NET ASSETS....................................................................................... $62,981,446
===========
</TABLE>
*dated 4/30/96, due 5/01/96, collaterallized by U.S. Government obligations in a
pooled cash account.
See Notes to Financial Statements.
- ------------------------------------------------------------------------------
32
<PAGE>
Money Market Fund Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Statement of Operations
Six Months Ended
April 30, 1996
--------------
<S> <C> <C>
Investment Income
Interest........................................................................................ $ 1,707,296
------------
Expenses
Advisory fees................................................................................... 154,560
Shareholder service agent's fees and expenses................................................... 259,073
Accounting services............................................................................. 42,046
Trustees' fees and expenses..................................................................... 11,228
Audit fees...................................................................................... 5,860
Custodian fees.................................................................................. 9,801
Legal fees...................................................................................... 838
Report to shareholders.......................................................................... 11,400
Registration and filing fees.................................................................... 30,218
Insurance....................................................................................... 2,715
Miscellaneous................................................................................... 1,480
Expense reimbursement........................................................................... (220,098)
------------
Total expenses................................................................................ 309,121
------------
Net investment income......................................................................... 1,398,175
------------
Increase in net assets resulting from operations.............................................. $ 1,398,175
============
- -------------------------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
---------------- ----------------
NET ASSETS, beginning of period.............................................. $ 60,304,899 $ 56,401,350
------------ ------------
Operations
Net investment income...................................................... 1,398,175 2,753,676
------------ ------------
Distributions to shareholders from net investment income..................... (1,395,008) (2,753,721)
------------ ------------
Capital transactions
Proceeds from shares sold.................................................. 36,518,015 63,147,486
Proceeds from shares issued for distributions reinvested................... 1,373,799 2,705,499
Cost of shares redeemed.................................................... (35,218,434) (61,949,391)
------------ ------------
Increase in net assets resulting from capital transactions............... 2,673,380 3,903,594
------------ ------------
Increase in Net Assets....................................................... 2,676,547 3,903,549
------------ ------------
NET ASSETS, end of period.................................................... $ 62,981,446 $ 60,304,899
============ ============
CAPITAL TRANSACTIONS
Shares sold................................................................ 36,518,015 63,147,478
Shares issued for distributions reinvested................................. 1,373,799 2,705,499
Shares redeemed............................................................ (35,218,434) (61,949,391)
------------ ------------
Increase in shares outstanding........................................... 2,673,380 3,903,586
============ ============
</TABLE>
See Notes to Financial Statements.
- ------------------------------------------------------------------------------
33
<PAGE>
Notes to Financial Statements
(Unaudited)
- ------------------------------------------------------------------------------
Note 1--Significant Accounting Policies
Common Sense Trust (the "Trust"), is registered under the Investment Company Act
of 1940, as amended, as a diversified open-end management investment company
which offers shares in ten separate portfolios, five of which are described in
this report: Growth Fund ("Growth"), Growth and Income Fund ("Growth and
Income"), Government Fund ("Government"), Municipal Bond Fund ("Municipal Bond")
and Money Market Fund ("Money Market").
The investment goals of each Fund are as follows: Growth seeks capital
appreciation by investing in common stocks. Growth & Income seeks reasonable
growth and income by primarily investing in equity securities that provide
dividend income and securities that are convertible into common or preferred
stocks. Government seeks high current return consistent with preservation of
capital by primarily investing in debt securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Municipal Bond seeks as high
a level of current income exempt from federal income tax as is consistent with
preservation of capital. Money Market seeks protection of capital and income
through investments in short-term money market instruments.
Each Fund is accounted for as a separate entity. The following is a summary of
significant accounting policies consistently followed by the Trust in the
preparation of its financial statements. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported. Actual
amounts may differ from the estimates.
A. Investment Valuations
Securities listed or traded on a national securities exchange are valued at
the last sales price. Unlisted securities and listed securities for which the
last sales price is not available are valued at the most recent bid price.
U.S. Government securities are valued at the last reported bid price.
Municipal bonds are valued at the last quoted bid prices or at bid prices
based on a matrix system (which considers such factors as security prices,
yields, maturities and ratings) furnished by dealers and an independent
pricing service. Variable rate securities are valued at par; periodic rate
changes reflect current market conditions. Securities for which market
quotations are not readily available are valued at fair value under a method
approved by the Board of Trustees.
Short-term investments with a maturity of more than 60 days when purchased
are valued based on market quotations until the remaining days to maturity
become less than 61 days. From such time, until maturity, such investments
are valued at amortized cost. For Money Market, all investments are valued at
amortized cost.
Municipal Bond investments include lower rated debt securities which may be
more susceptible to adverse economic conditions than other investment grade
holdings. These securities are often subordinated to the prior claims of
other senior lenders and uncertainties exist as to an issuer's ability to
meet principal and interest payments. At the end of the period, debt
securities rated below investment grade and comparable unrated securities
represented approximately 9% of Municipal Bond's investment portfolio.
Issuers of certain securities owned by Municipal Bond have obtained insurance
guaranteeing their timely payment of principal at maturity and interest. The
insurance reduces financial risk but not market risk of the securities.
B. Futures Contracts, Forward Commitments, and Options
General--Transactions in futures contracts, forward commitments, and options
are utilized in strategies to manage the market risk of the Trust's
Investments. The purchase of a futures contract, forward commitment or call
option (or the writing of a put option) increases the impact on net asset
value of changes in the market price of investments. Forward commitments have
a risk of loss due to nonperformance of counterparties. There is also a risk
that the market movement of such instruments may not be in the direction
forecasted. Note 3--Investment Activity contains additional information.
Futures Contracts--Upon entering into futures contracts, the Trust maintains,
in a segregated account with its custodian, securities with a value equal to
its obligation under the futures contracts. A portion of these funds is held
as collateral in an account in the name of the broker, the Trust's agent in
acquiring the futures position. During the period the futures contract is
open, changes in the value of the contract ("variation margin") are
recognized by marking the contract to market on a daily basis. As unrealized
gains or losses are incurred, variation margin payments are received from or
made to the broker. Upon the closing or cash settlement of a contract, gains
and losses are realized. The cost of securities acquired through delivery
under a contract is adjusted by the unrealized gain or loss on the contract.
- ------------------------------------------------------------------------------
34
<PAGE>
Notes to Financial Statements, continued
- ------------------------------------------------------------------------------
Forward Commitments--The Trust trades certain securities under the terms of
forward commitments, whereby the settlement for payment and delivery occurs
at a specified future date. Forward commitments are privately negotiated
transactions between the Trust and dealers. Upon executing a forward
commitment and during the period of obligation, the Trust maintains
collateral of cash or securities in a segregated account with its custodian
in an amount sufficient to relieve the obligation. If the intent of the Trust
is to accept delivery of a security traded under a forward purchase
commitment, the commitment is recorded as a long-term purchase. For forward
purchase commitments, which security settlement is not intended by the Trust
and all forward sales commitments, changes in the value of the commitment are
recognized by marking the commitment to market on a daily basis. During the
commitment, the Trust may either resell or repurchase the forward commitment
and enter into a new forward commitment, the effect of which is to extend the
settlement date. In addition, the Trust may occasionally close such forward
commitments prior to delivery. Gains and losses are realized upon the
ultimate closing or cash settlement of forward commitments.
Call and Put Options--Options purchased are recorded as investments; options
written (sold) are accounted for as liabilities. When an option expires the
premium (original option value) is realized as a gain if the option was
written or realized as a loss if the option was purchased. When the exercise
of an option results in a cash settlement, the difference between the premium
and the settlement proceeds is realized as a gain or loss. When securities
are acquired or delivered upon exercise of an option, the acquisition cost or
sale proceeds are adjusted by the amount of the premium. When an option is
closed, the difference between the premium and the cost to close the position
is realized as a gain or loss.
C. Repurchase Agreements
A repurchase agreement is a short-term investment in which the Trust acquires
ownership of a debt security and the seller agrees to repurchase the security
at a future time and specified price. The Trust may invest independently in
repurchase agreements, or transfer uninvested cash balances into a pooled
cash account along with other investment companies advised by Van Kampen
American Capital Asset Management, Inc. (the "Adviser"), the daily aggregate
of which is invested in repurchase agreements. Repurchase agreements are
collateralized by the underlying debt security. The Trust will make payment
for such securities only upon physical delivery or evidence of book entry
transfer to the account of the custodian bank. The seller is required to
maintain the value of the underlying security at not less than the repurchase
proceeds due the Trust.
D. Federal Income Taxes
No provision for federal income taxes is required because the Trust has
elected to be taxed as a "regulated investment company" under the Internal
Revenue Code and intends to maintain this qualification by annually
distributing all taxable net investment income and taxable net realized
capital gains to its shareholders. It is anticipated that no distributions of
capital gains will be made until tax basis capital loss carryforwards, if
any, expire or are offset by net realized capital gains.
The net realized capital loss carryforward at October 31, 1995 for Government
was approximately $31.3 million, which will expire in 2002. Money Market had
a capital loss carryforward of approximately $4,100, which will expire in
2002 and 2003. The net realized capital loss carryforwards may be utilized to
offset current or future capital gains until expiration.
E. Investment Transactions and Related Investment Income
Investment transactions are accounted for on the trade date. Realized gains
and losses on investments are determined on the basis of identified cost.
Dividend income is recorded on the ex-dividend date. Interest income is
accrued daily.
F. Dividends and Distributions
The Trust, excluding Money Market, declares annual distributions from long-
term gains. Dividends from net investment income are declared daily for
Government, Municipal Bond and Money Market, quarterly for Growth and Income
and annually for Growth. Dividends and distributions to shareholders are
recorded on the record date.
The Trust distributes tax basis earnings in accordance with the minimum
distribution requirements of the Internal Revenue Code, which may differ from
generally accepted accounting principles. Such dividends or distributions may
exceed financial statement earnings.
- ------------------------------------------------------------------------------
35
<PAGE>
Notes to Financial Statements, continued
- ------------------------------------------------------------------------------
Municipal Bond intends to continue to invest principally in tax-exempt
obligations sufficient in amount to qualify it to pay "exempt-interest
dividends" as defined in the Internal Revenue Code. However, a portion of
such dividends may represent tax preference items subject to alternative
minimum tax.
G. Debt Discount or Premium
For financial reporting purposes, debt discounts or premiums are accounted
for on the same basis as is used for federal income tax reporting.
Accordingly, original issue discounts on long-term debt securities purchased
are amortized over the life of the security. For Money Market and Municipal
Bond, all premiums are amortized. Market discounts and premiums are
recognized at the time of sale as realized gains and realized losses,
respectively, for book purposes, and ordinary income and ordinary loss,
respectively, for tax purposes.
Note 2--Advisory Fees and Other Transactions with Affiliates
The Adviser serves as investment manager of the Trust. Advisory fees to Adviser
are paid monthly, based on the average daily net assets of each fund at an
annual rate as indicated by the following graduated fee schedules.
<TABLE>
<CAPTION>
Growth Fund &
Growth and Income Government Municipal Bond Money Market
- --------------------------- --------------------------- --------------------------- ---------------------------
Average Daily Annual Average Daily Annual Average Daily Annual Average Daily Annual
Net Assets Rate Net Assets Rate Net Assets Rate Net Assets Rate
- ---------------- ------ ---------------- ------ ---------------- ------ ---------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
First $1 billion .65% First $1 billion .60% First $1 billion .60% First $2 billion .50%
Next $1 billion .60% Next $1 billion .55% Next $1 billion .55% Next $2 billion .475%
Next $1 billion .55% Next $1 billion .50% Next $1 billion .50% Over $4 billion .45%
Next $1 billion .50% Next $1 billion .45% Over $3 billion .45%
Over $4 billion .45% Next $1 billion .40%
Over $5 billion .35%
</TABLE>
The Adviser has voluntarily elected to reimburse Money Market for any ordinary
business expenses in excess of 1.00% of its average daily net assets. The
Adviser may modify or terminate this election at any time without prior notice.
During the period, the Adviser reimbursed $220,098 of Money Market's expenses.
Accounting services include the salaries and overhead expenses of the Trust's
Chief Accounting Officer and the personnel operating under his direction.
Charges are allocated among investment companies advised by the Adviser. These
charges include the employee costs attributable to the Trust's accounting
officers. A portion of the accounting services expense was paid to the Adviser
in reimbursement of personnel, facilities and equipment costs attributable to
the provision of accounting services. The services provided by the Adviser are
at cost.
PFS Distributors, a wholly owned subsidiary of Travelers Group, Inc., serves as
Distributor of the Trust's shares. The Distributor has an exclusive selling
agreement with PFS Investments Inc. to sell shares of the Trust. During the
period, the Trust paid brokerage commissions of $125,627 to companies which are
deemed affiliates of the Distributor's parent because it owns more than 5% of
the companies' outstanding voting securities. Certain officers and trustees of
the Trust are officers and trustees of the Adviser or its affiliates.
Amounts paid by the Trust to affiliates during the period were as follows:
<TABLE>
<CAPTION>
Growth Municipal Money
Growth and Income Government Bond Market
---------- ---------- ---------- --------- ------
<S> <C> <C> <C> <C> <C>
Accounting services............................. $ 15,270 $ 6,580 $ 3,923 $ 2,949 $2,657
Sales of Trust shares, Distributor commissions.. 1,940,683 499,587 98,639 71,807 --
</TABLE>
- ------------------------------------------------------------------------------
36
<PAGE>
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
At the end of the period, Growth owned approximately 51% of the Van Kampen
American Capital Small Capitalization Fund, ("Small Cap"), an investment company
managed by the Adviser. Small Cap comprised approximately 3.6% of Growth's total
net assets.
Note 3--Investment Activity
During the period, the cost of purchases and proceeds from sales and maturities
of investments, excluding short-term investments, forward commitments and
variable rate demand notes were:
<TABLE>
<CAPTION>
Growth Municipal
Growth and Income Government Bond
-------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Purchases.................................... $2,886,696,195 $471,964,834 $398,737,698 $39,966,834
Sales........................................ 2,833,923,536 484,864,908 410,890,190 38,523,658
</TABLE>
Money Market held only short-term investments.
The following table presents the identified cost of investments at the end of
the period for federal income tax purposes with the associated net unrealized
appreciation (depreciation).
<TABLE>
<CAPTION>
Growth Municipal
Growth and Income Government Bond
-------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Identified cost.............................. $2,496,585,204 $773,141,124 $352,242,056 $114,684,044
============== ============ ============ ============
Gross unrealized appreciation................ $ 431,434,953 $150,461,052 $ 2,682,934 $ 4,380,985
Gross unrealized depreciation................ (19,379,498) (7,393,400) (4,188,978) (1,353,941)
-------------- ------------ ------------ ------------
Net unrealized appreciation
(depreciation).............................. $ 412,055,455 $143,067,652 $ (1,506,044) $ 3,027,044
============== ============ ============ ============
</TABLE>
At the end of the period, the Trust held the following futures contracts,
forward commitments for which delivery was not intended, and options contracts:
<TABLE>
<CAPTION>
FUTURES CONTRACTS
Unrealized
Number of Market Appreciation
Fund Contracts Description Value (Depreciation)
----------------- --------- ------------------------------- ------------ --------------
<S> <C> <C> <C> <C>
Growth 179 Standard & Poor's 500 Index,
expiring 6/96 (long) $ 58,609,075 $ 958,079
415 Simex Nikkei 225 Index (Japan),
expiring 6/96 (long) 43,676,913 1,435,685
------------ -----------
$102,285,988 $ 2,393,764
============ ===========
Growth and Income 110 Standard & Poor's 500 Index,
expiring 6/96 (long) $ 36,016,750 $ 566,654
32 Simex Nikkei 225 Index (Japan),
expiring 6/96 (long) 3,367,858 (14,371)
------------ -----------
$ 39,384,608 $ 552,283
============ ===========
Government 345 U.S. Treasury Bonds,
expiring 6/96 (long) $ 37,658,906 $(1,954,809)
20 U.S. Treasury Notes,
expiring 6/96 (short) (2,118,438) 373
------------ -----------
$ 35,540,468 $(1,954,436)
============ ===========
- -----------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
FORWARD COMMITMENTS
<TABLE>
<CAPTION>
Unrealized
Par Amount Market Appreciation
Fund (000) Description Value (Depreciation)
------------------ ---------- ---------------------------------- ------------ --------------
<S> <C> <C> <C> <C>
Government $ 8,000 Federal Home Loan Mtg Corp, 8.00%,
settling 5/96 (sale) $(8,085,040) $ 22,460
7,000 Federal National Mtg Assn, 8.00%,
settling 5/96 (sale) (7,067,830) 21,858
10,000 U.S. Treasury Notes, 5.75%,
settling 5/96 (purchase) 9,745,300 (460,950)
10,000 U.S. Treasury Notes, 6.50%,
settling 5/96 (purchase) 9,859,400 (753,881)
----------- -----------
(Net obligation $5,622,343) $ 4,451,830 $(1,170,513)
=========== ===========
OPTIONS CONTRACTS PURCHASED
Number of
Fund Contracts Premiums
------------------ ----------- -----------
Municipal Bond Beginning of the period balance 0 $ 0
Purchased 227 267,622
Closed (125) (150,455)
---- ---------
End of the period balance 102 $ 117,167
==== =========
</TABLE>
Note 4--Trustee Compensation
Trustees who are not affiliated with the Adviser are compensated by the Trust at
the annual rate of $19,240 plus a fee of $1,285 per day for the Board meetings
attended.
<TABLE>
<CAPTION>
Growth
and Municipal Money
Growth Income Government Bond Market
------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Trustees' fees for the period........... $79,297 $31,413 $17,123 $13,327 $10,600
======= ======= ======= ======= =======
</TABLE>
The Trustees of the Trust instituted a Retirement Plan effective April 1, 1996.
The Plan is not funded, and obligations under the Plan will be paid solely out
of the Trust's general accounts. The Trust will not reserve or set aside funds
for the payment of its obligations under the Plan by any form of trust or
escrow. For the current Trustees not affiliated with the Adviser, the annual
retirement benefit payable per year for a ten year period is based upon the
highest total annual compensation received in any of the three calendar years
preceding retirement. Trustees with more than five but less than ten years of
service at retirement will receive a prorated reduced benefit. Under the Plan,
for the Trustees retiring with the effectiveness of the Plan, the annual
retirement benefit payable per year for a ten year period is equal to 75% of the
total compensation received from the Trust during the 1995 calendar year.
Note 5--Proposed Trust Reorganization
The Trustees of the Trust approved an Agreement and Plan of Reorganization
between the Trust on behalf of Common Sense II Growth Fund ("Growth II") and
Growth, Common Sense II Growth and Income Fund ("Growth and Income II") and
Growth and Income, and Common Sense II Government Fund ("Government II") and
Government, providing for the transfer of assets and liabilities of Growth II,
Growth and Income II and Government II to Growth, Growth and Income and
Government, in exchange for shares of Growth, Growth and Income and Government,
respectively, at their net asset value per share (the "Reorganization").
Each Reorganization, which is scheduled to occur on or before July 31, 1996, is
subject to approval by the holders of a majority of the outstanding shares of
each Growth II, Growth and Income II and Government II.
38
<PAGE>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
April 30, Year Ended October 31
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991
---------- -------- -------- -------- -------- --------
Growth Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................. $17.46 $15.31 $16.26 $16.02 $15.47 $11.26
---------- -------- -------- -------- -------- --------
Income from investment operations
Investment income..................................... .19 .32 .29 .281 .30 .36
Expenses.............................................. (.08) (.16) (.16) (.165) (.17) (.17)
---------- -------- -------- -------- -------- --------
Net investment income................................. .11 .16 .13 .116 .13 .19
Net realized and unrealized gain (loss)
on securities........................................ 1.8559 3.18 .2075 2.0065 1.3925 4.2425
---------- -------- -------- -------- -------- --------
Total from investment operations...................... 1.9659 3.34 .3375 2.1225 1.5225 4.4325
---------- -------- -------- -------- -------- --------
Less distributions from (See Note 1F)
Net investment income................................. (.1825) (.155) (.1125) (.115) (.17) (.2225)
Net realized gain on securities....................... (2.4034) (1.035) (1.175) (1.3996) (.8025) --
Excess of book-basis net realized gain on securities.. -- -- -- (.3679) -- --
---------- -------- -------- -------- -------- --------
Total distributions................................... (2.5859) (1.19) (1.2875) (1.8825) (.9725) (.2225)
---------- -------- -------- -------- -------- --------
Net asset value, end of period........................ $16.84 $17.46 $15.31 $16.26 $16.02 $15.47
========== ======== ======== ======== ======== ========
TOTAL RETURN(1)....................................... 12.33% 24.01% 2.04% 14.27% 9.83% 39.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).................. $2,888.3 $2,611.5 $2,169.9 $2,065.7 $1,648.0 $1,311.5
Average net assets (millions)......................... $2,764.7 $2,352.1 $2,123.1 $1,894.0 $1,479.7 $1,127.8
Ratios to average net assets (annualized)
Expenses............................................. .96% 1.00% 1.09% 1.14% 1.18% 1.26%
Net investment income................................ 1.28% 1.04% .89% .80% .91% 1.44%
Portfolio turnover rate.............................. 114% 230% 164% 166% 134% 100%
Average commission rate per equity stock traded....... $ .045 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................. $16.95 $15.77 $17.13 $15.54 $14.70 $11.49
---------- -------- -------- -------- -------- --------
Income from investment operations
Investment income..................................... .22 .51 .45 .46 .435 .46
Expenses.............................................. (.08) (.15) (.16) (.17) (.16) (.155)
---------- -------- -------- -------- -------- --------
Net investment income................................. .14 .36 .29 .29 .275 .305
Net realized and unrealized gain (loss)
on securities........................................ 2.07 2.715 (.2125) 1.8775 1.2875 3.2225
---------- -------- -------- -------- -------- --------
Total from investment operations...................... 2.21 3.075 .0775 2.1675 1.5625 3.5275
---------- -------- -------- -------- -------- --------
Less distributions from
Net investment income................................. (.205) (.30) (.275) (.2775) (.295) (.3175)
Net realized gain on securities....................... (1.755) (1.595) (1.1625) (.30) (.4275) --
---------- -------- -------- -------- -------- --------
Total distributions................................... (1.96) (1.895) (1.4375) (.5775) (.7225) (.3175)
---------- -------- -------- -------- -------- --------
Net asset value, end of period........................ $17.20 $16.95 $15.77 $17.13 $15.54 $14.70
========== ======== ======== ======== ======== ========
TOTAL RETURN(1)....................................... 13.64% 22.45% .51% 14.13% 10.85% 31.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).................. $921.9 $828.3 $712.9 $712.4 $591.0 $499.6
Average net assets (millions)......................... $894.0 $759.6 $707.5 $659.5 $545.0 $449.4
Ratios to average net assets (annualized)
Expenses............................................. .93% .96% 1.02% 1.05% 1.09% 1.14%
Net investment income................................ 1.61% 2.27% 1.84% 1.76% 1.84% 2.29%
Portfolio turnover rate............................... 57% 117% 88% 51% 32% 42%
Average commission rate per equity stock traded....... $ .045 -- -- -- -- --
</TABLE>
(1)Total return for a period less than one year is not annualized. Total return
does not consider the effect of sales charges.
See Notes to Financial Statements.
39
<PAGE>
Financial Highlights, continued
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Six Months Year Ended October 31
Ended -------------------------------------------------
Government Fund April 30, 1996 1995 1994 1993 1992 1991
-------------- ----- ----- ----- ------ -----
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................... $ 10.67 $ 9.99 $ 11.80 $ 11.56 $11.47 $ 10.79
--------- --------- --------- -------- -------- ---------
Income from investment operations
Investment income...................................... .40 .79 .78 .8536 .97 1.012
Expenses............................................... (.04) (.09) (.09) (.0920) (.11) (.107)
--------- --------- -------- -------- -------- ---------
Net investment income.................................. .36 .70 .69 .7616 .86 .905
Net realized and unrealized gain (loss) on securities.. (.3769) .6779 (1.358) .4249 .1639 .6788
--------- --------- -------- -------- -------- ---------
Total from investment operations....................... (.0169) 1.3779 (.668) 1.1865 1.0239 1.5838
--------- --------- -------- -------- -------- ---------
Less distributions from (see Note 1F)
Net investment income.................................. (.3731) (.6979) (.6878) (.7615) (.8639) (.9038)
Net realized gain on securities........................ - - - (.185) (.07) -
Excess of book-basis net realized gain on securities... - - (.4542) - - -
--------- -------- -------- -------- -------- ----------
Total distributions.................................... (.3731) (.6979) (1.142) (.9465) (.9339) (.9038)
--------- -------- -------- -------- -------- ----------
Net asset value, end of period......................... $ 10.28 $ 10.67 $ 9.99 $ 11.80 $11.56 $ 11.47
========= ========= ========= ========= ======== ==========
TOTAL RETURN (1) (.18%) 14.27% (5.45%) 10.55% 9.32% 15.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................... $ 306.3 $ 329.0 $ 335.0 $ 370.2 $ 282.0 $ 189.0
Average net assets (millions).......................... $ 323.6 $ 329.9 $ 353.8 $ 330.1 $ 229.5 $ 161.2
Ratios to average net assets (annualized)
Expenses.............................................. .84% .83% .89% .89% .95% .96%
Net investment income................................. 6.70% 6.84% 7.06% 7.35% 7.46% 8.15%
Portfolio turnover rate................................ 147% 214% 256% 218% 112% 39%
</TABLE>
(1)Total return for a period less than one year is not annualized. Total return
does not consider the effect of sales charges.
See Notes to Financial Statements.
40
<PAGE>
Financial Highlights, continued
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Six Months
Ended
April 30, Year Ended October 31
------------------------------------------------------
1996 1995 1994 1993 1992 1991
Municipal Bond Fund -------- -------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................... $ 13.77 $ 12.89 $ 14.07 $ 13.03 $ 12.84 $ 12.18
---------- --------- -------- ------- ------- -------
Income from investment operations
Investment income...................................... .42 .87 .84 .859 .875 .905
Expenses............................................... (.07) (.13) (.13) (.141) (.15) (.145)
Expense reimbursement(2)............................... - - - .01 - -
---------- --------- -------- ------- ------- -------
Net investment income.................................. .35 .74 .71 .728 .725 .76
Net realized and unrealized gain (loss) on securities.. (.2118) .867 (1.182) 1.038 .2175 .648
---------- --------- -------- ------- -------- -------
Total from investment operations....................... .1382 1.607 (.472) 1.766 .9425 1.408
---------- --------- -------- ------- -------- -------
Less Distributions from (See Note 1F)
Net investment income.................................. (.35) (.727) (.708) (.726) (.7525) (.748)
Net realized gain on securities........................ (.0432) - - - - -
Excess of book-basis net investment income............. (.025) - - - - -
---------- --------- -------- -------- -------- -------
Total Distributions.................................... (.4182) (.727) (.708) (.726) (.7525) (.748)
---------- --------- -------- -------- -------- --------
Net asset value, end of period........................ $ 13.49 $ 13.77 $ 12.89 $ 14.07 $ 13.03 $ 12.84
========== ========= ======== ========= ======== ========
TOTAL RETURN(1)........................................ .96% 12.72% (3.38%) 13.84% 7.57% 11.79%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................... $ 121.7 $ 119.1 $ 112.1 $ 95.9 $ 60.3 $ 42.5
Average net assets (millions).......................... $ 122.1 $ 113.1 $ 106.6 $ 77.1 $ 50.0 $ 39.2
Ratios to average net assets(2) (annualized)
Expenses.............................................. 1.03% .96% .99% .96% 1.14% 1.15%
Expenses, without expense reimbursement............... - - - 1.04% - -
Net investment income................................. 5.09% 5.58% 5.27% 5.29% 5.56% 6.08%
Net investment income, without expense
reimbursement........................................ - - - 5.21% - -
Portfolio turnover rate................................ 32% 49% 4% 4% 6% 1%
- ------------------------------------------------------------------------------------------------------------------------------
Money Market Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------
Income from investment operations
Investment income...................................... .0275 .0593 .0388 .033 .0424 .0647
Expenses............................................... (.0085) (.0172) (.0184) (.0174) (.016) (.014)
Expense reimbursement(2)............................... .0035 .0071 .0084 .0074 .006 .0041
--------- --------- ---------- -------- -------- --------
Net investment income.................................. .0225 .0492 .0288 .023 .0324 .0548
--------- --------- ---------- -------- -------- --------
Distributions from net investment income............... (.0225) (.0492) (.0288) (.023) (.0324) (.0548)
--------- ---------- --------- -------- -------- --------
Net asset value, end of period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========== ========= ========= ========= =========
TOTALRETURN(1)......................................... 2.28% 5.01% 2.91% 2.31% 3.29% 5.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)................... $ 63.0 $ 60.3 $ 56.4 $ 59.2 $ 72.5 $ 84.8
Average net assets (millions).......................... $ 61.8 $ 56.3 $ 56.6 $ 65.8 $ 77.9 $ 92.6
Ratios to average net assets(2) (annualized)
Expenses.............................................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses, without expense reimbursement............... 1.71% 1.71% 1.84% 1.74% 1.60% 1.41%
Net investment income................................. 4.52% 4.89% 2.87% 2.30% 3.27% 5.53%
Net investment income, without expense
reimbursement........................................ 3.81% 4.18% 2.03% 1.56% 2.67% 5.12%
</TABLE>
(1)Total return for a period less than one year is not annualized. Total return
does not consider the effect of sales charges.
(2)See Note 2.
See Notes to Financial Statements.
41
<PAGE>
Common Sense Trust
Board of Trustees
Donald M. Carlton
A. Benton Cocanougher
Stephen R. Gross
Jeffrey B. Lane
Alan G. Merten
Steven Muller
F. Robert Paulsen
R. Richardson Pettit
Don G. Powell
Alan B. Shepard, Jr.
- -----------------------------------------------------
Officers
Don G. Powell
President
Dennis J. McDonnell
Executive
Vice President
Edward C. Wood, III
Vice President and
Chief Financial Officer
Curtis W. Morell
Vice President and
Chief Accounting Officer
Gerald Baxter
William N. Brown
Robert C. Peck, Jr.
Gregory Pitts
Alan T. Sachtleben
D. Richard Williams
Paul R. Wolkenberg
Vice Presidents
Nori L. Gabert
Ronald A. Nyberg
Vice Presidents and
Secretaries
Tanya M. Loden
Controller
John L. Sullivan
Treasurer
Huey P. Falgout, Jr.
Assistant Secretary
Steven M. Hill
Assistant Treasurer
M. Robert Sullivan
Assistant Controller
- -----------------------------------------------------
Investment Adviser
Van Kampen American Capital Asset Management, Inc.
One Parkview Plaza, Oakbrook Terrace, Illinois 60181
- -----------------------------------------------------
Distributor
PFS Distributors
3100 Breckinridge Blvd., Duluth, Georgia 30199-0001
- -----------------------------------------------------
Shareholder Service Agent
PFS Shareholder Services
3100 Breckinridge Blvd., Duluth, Georgia 30199-0062
- -----------------------------------------------------
Custodian
State Street Bank and Trust Co.
225 Franklin Street, Boston, Massachusetts 02110
- -----------------------------------------------------
Counsel
Sullivan & Worcester LLP
1025 Connecticut Avenue N.W., Washington, D.C. 20036
- -----------------------------------------------------
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of the
Trust. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Trust
which contains additional information on how to purchase shares, the sales
charge, and other pertinent data.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shareholder inquiries should be directed in writing to the Shareholder Service
Agent. PFS Shareholder Services, 3100 Breckinridge Blvd., Duluth, Georgia 30199-
0062, or by calling (800) 544-5445.
- --------------------------------------------------------------------------------
<PAGE>
[LOGO OF COMMON SENSE TRUST] BULK RATE
U.S. POSTAGE
Common Sense Shareholder Services PAID
3120 Breckinridge Blvd. Permit No. 747
Duluth, Georgia 30199-0001 Atlanta, GA
If you have any questions, please contact
one of our Customer Service Representatives
1-800-544-5445
PRINTED MATTER
Printed in U.S.A. ###-##-####
<PAGE>
Semiannual
Report
---------------
April 30, 1996
(Unaudited)
[LOGO OF COMMON SENSE TRUST]
COMMON SENSE(R) II
<PAGE>
Shareholders' Message
June 1, 1996
Dear Shareholder,
During the six-month period covered by this report, November 1, 1995 through
April 30, 1996, we saw the end of a solid year for the financial markets--and
the beginning of a new year that promises to offer investment challenges and
opportunities.
The Trustees of Common Sense Trust have proposed for shareholder approval the
mergers of Common Sense II Growth Fund, Common Sense II Growth and Income Fund
and Common Sense II Government Fund into the respective Common Sense Growth
Fund, Common Sense Growth and Income Fund and Common Sense Government Fund. Upon
the completion of the mergers, currently anticipated on or before July 31, 1996,
the investment choices within the Common Sense Family of Funds will be expanded
by the addition of a Municipal Bond Fund and a Money Market Fund. Common Sense
Trust provides you numerous investment options, making it easier to allocate the
assets in your investment portfolio. Asset allocation--dividing your investments
among different asset categories such as stocks, bonds and money market
instruments--may help you achieve your long-range goals and add diversification
to your holdings. Your representative can help you design a portfolio of Common
Sense funds to help meet your specific investment objectives.
- ------------------------------------------------------------------------------
Common Sense Trust II Funds Available Through Restructuring Proposal
. Emerging Growth Fund . International Fund
. Government Fund . Money Market Fund
. Growth Fund . Municipal Bond Fund
. Growth & Income Fund
- ------------------------------------------------------------------------------
Market Overview
The stock market demonstrated solid performance during the reporting period.
From November 1, 1995 to April 30, 1996, the total return of the Standard &
Poor's 500 Stock Index was 13.75 percent, including reinvestment of all
distributions. However, not all sectors kept pace with the larger indexes.
Technology stocks, for instance, showed some signs of weakness after leading the
market for several months.
When Federal Reserve Board Chairman Alan Greenspan indicated in early February
of this year that economic growth remained on track, stocks moved downward--
similar to the bond market's reaction. The markets interpreted Mr. Greenspan's
comments to mean that a further near-term cut in interest rates by the Fed was
unlikely. His comments were substantiated by strong employment statistics in
early March, which precipitated a slump in the stock and bond markets. While
bonds have not recovered, stocks did.
[PHOTO OF DON G. POWELL]
1
<PAGE>
MARKET OUTLOOK
The economy rebounded in the first quarter of 1996 despite poor weather in the
East and the remnants of a slow fourth quarter in 1995, which was hurt by weak
construction activity, two government shutdowns and a strike at Boeing. We
believe the momentum of the first quarter can carry into the second, due in part
to renewed auto production in the aftermath of the strike at several General
Motors plants and an end to the budget stalemate between the White House and
Congress. We expect a modest slowdown in the summer months, as higher interest
rates could slow activity in interest-sensitive sectors of the economy, such as
housing.
The Fed's protracted period of easing, and still relatively neutral stance on
interest rates, favors the growth we are currently experiencing. Given the
strong employment situation and recent commodity price increases, we believe the
Fed will await further economic evidence before acting again--probably
summertime at the earliest. So far, guides such as the Consumer Price Index
continue to demonstrate relatively modest levels of inflation. More importantly,
we continue to see little sign of emerging inflation in either unit labor costs,
hourly earnings or the employment cost index, all of which have tended to be
important drivers of inflation.
We expect corporate earnings, which gave stocks a boost in 1995, to slow this
year. Sluggish demand and a tougher pricing environment continue to squeeze
profit margins. Profit margins may have peaked in the fourth quarter of 1995.
However, the long-term outlook for the stock market remains positive. Steady and
moderate growth is always welcome--and is more comforting to the markets than
big moves up or down.
Falling interest rates and strong earnings helped drive the market in 1995.
While there are positive signs for 1996, it will be difficult to match the
outstanding stock market performance of last year. We expect 1996 will be a good
year--just not as good as 1995.
Throughout this report, you can read more about your Fund's performance during
the past six months. We hope this information is helpful as you review your
investment in Common Sense Trust II. We look forward to communicating with you
on a regular basis about your Fund's performance. We appreciate your continued
confidence in your portfolio management team.
Sincerely,
/s/ Don G. Powell
Don G. Powell
President
2
<PAGE>
Portfolio Perspective
- --------------------------------------------------------------------------------
The following is an interview with the portfolio management team of the Common
Sense Trust II stock funds. The team includes: Stephen L. Boyd, Common Sense II
Growth Fund; James A. Gilligan, Common Sense II Growth and Income Fund; Gary M.
Lewis, Common Sense II Emerging Growth Fund; James B. Conheady and Jeffrey
Russell, Common Sense II International Equity Fund; and Alan T. Sachtleben,
executive vice president, equity investments.
- --------------------------------------------------------------------------------
Q. What factors had the greatest impact on the performance of the stock funds
during the six months ended April 30, 1996?
A. Stock market averages posted solid gains during the reporting period. As
the press has reported, monthly inflows into equity mutual funds were at
record levels--$99 billion in the first four months of 1996 according to
The Wall Street Journal. These cash flows helped sustain the bull market,
as the broad market indexes (including Standard & Poor's 500, NASDAQ, and
others) reached new highs.
The equity market as a whole was further propelled over the last six
months as interest rates continued to fall. Rates declined early in the
reporting period, catalyzed by a lowering of short-term rates by the
Federal Reserve Board in December. Lower interest rates often contribute to
stock market increases because they reduce a corporation's cost to borrow
money. This has tended to provide a direct boost to profits and
price/earnings ratio, a measure of expected earnings growth.
The stock market experienced a brief slowdown in mid-February but has
since resumed its strong pace. This minor setback was triggered by economic
reports in February and March that pointed to a strengthening economy and
perhaps higher inflation. Specifically, the February U.S. employment report
showed a significant increase in employment rates, and this news was seen
as a sign of a healthy economy, which dampened hopes for an interest rate
cut in March. As a result, interest rates climbed, and the upward momentum
of stock prices was temporarily interrupted. However, contradictory
economic information in the following months calmed inflationary fears, and
the stock market responded accordingly by resuming its advance.
Q. What changes did you make to the portfolios to meet the changing economic
conditions?
A. The Common Sense II Growth Fund made three notable changes during the
reporting period:
. We increased technology holdings to take advantage of bargain prices that
resulted from unexpectedly weak performance at the end of 1995. This
sector's performance has since shown improvement, and as of the date of
this report, the Fund's technology holdings have performed well.
. We increased the Fund's holdings in smaller company stocks throughout the
period and diversified across many industries to help control risk.
. We increased our focus on energy stocks, especially those related to
natural gas. Last winter's severe weather caused gas demand and prices to
rise, making this sector increasingly attractive.
3
<PAGE>
Due to a strengthening U.S. economy and higher yields in the bond market,
the Common Sense II Growth and Income Fund reduced its percentage of holdings in
financial services companies (such as banks), consumer services, and health care
companies. We subsequently increased the Fund's holdings in cyclical companies
(automobile manufacturers and industrial firms), which are most responsive to
changing economic conditions. Examples of the Fund's cyclical holdings currently
include Phelps Dodge, Union Carbide and TRW. We also added to our holdings in
technology stocks such as General Instruments.
The diversification of both Funds is shown by the charts at right.
The Common Sense II Emerging Growth Fund continued to follow its
disciplined stock selection approach. Rather than trying to time the market or
making risky sector bets, the Fund focused on selecting companies whose earnings
expectations were rising and whose valuations were improving. Over the past six
months, this strategy continued to serve the Fund well. Although the Fund
invested in the technology sector, it was not negatively affected by year-end
price fluctuations. This was due to three factors: our careful stock selection
approach; the Fund's high level of diversification; and our sell-off of some of
the Fund's technology stocks late in 1995, when their valuation no longer made
them attractive. At this time, we remain fully invested, and we feel some of the
best stock sectors are energy and retail.
Common Sense II
Growth Fund
Holdings by Industry
Percentage of Net Assets
4/30/96
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
Consumer Distribution 6%
Consumer Non-Durables 5%
Consumer Services 6%
Energy 8%
Finance 13%
Health Care 6%
Producer Manufacturing 9%
Raw Materials/Processing Industries 7%
Technology 21%
Utilities 6%
Other 13%
</TABLE>
Common Sense II
Growth and Income Fund
Holdings by Industry
Percentage of Net Assets
4/30/96
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
Consumer Distribution 7%
Consumer Non-Durables 6%
Consumer Services 4%
Energy 10%
Finance 11%
Health Care 7%
Producer Manufacturing 9%
Raw Materials/Processing Industries 8%
Technology 13%
Utilities 10%
Other 15%
</TABLE>
4
<PAGE>
The Common Sense II International Equity Fund is diversified both in terms
of industries and countries. Currently, economic activity in Western Europe and
Japan is on the upswing, and this Fund has invested in strong performers from
these countries. As of April 30, 1996, about 45 percent of the Fund's portfolio
is invested in European stocks, with the largest exposures in Italy (10.5
percent), Sweden (5.3 percent) and the United Kingdom (5.6 percent). About one-
third of the Fund is invested in the Far East, with the highest concentration in
Japan at 11.6 percent. Overall, the Fund's portfolio is broadly diversified,
with investments currently in over 20 countries and several industries.
The diversification of the Common Sense II Emerging Growth Fund and Common
Sense II International Equity Fund is shown by the charts at left.
In general, we look for companies with stock earnings at least 25 percent
higher than other companies in their local markets.
Q. How did the Funds perform during the six months ended April 30, 1996?
A. Common Sense II Growth Fund Class A shares achieved a total return at net
asset value (without a sales charge) of 11.54 percent, while Class B shares
achieved a total return at net asset value of 11.17 percent.
Common Sense II Growth and Income Fund Class A shares achieved a total
return at net asset value of 13.67 percent, including reinvestment of dividends
totaling $.335 per share, while Class B shares achieved a total return at net
asset value of 13.28 percent, including reinvestment of dividends totaling
$.2875 per share. By comparison, the Standard & Poor's 500-Stock Index, an
unmanaged index that reflects general stock market performance, achieved a total
return of 13.75 percent, and includes reinvestment of all distributions.
Common Sense II Emerging Growth Fund Class A shares achieved a total return
at net asset value of 19.97 percent, and Class B shares achieved a total return
at net asset value of 19.55 percent. Over the same period, the S&P 500 achieved
a total return of 13.75 percent and the Russell 2000 Index, an unmanaged index
that reflects the performance of smaller company stocks, achieved a total return
of 18.42 percent. Please note that none of the indexes referenced above reflect
any commissions or fees that would be paid by an investor purchasing the
securities they represent.
The Common Sense II International Equity Fund Class A shares achieved a
total return at net asset value of 17.89 percent, and Class B shares achieved a
total return at net asset value of 17.62 percent as of April 30, 1996. By
comparison, the Morgan Stanley Capital International EAFE Index, which reflects
the general performance of the major international stock markets, achieved a
total return of 12.34 percent. Please note that none of the indexes referenced
above reflect any commissions or fees that would be paid by an investor
purchasing the securities they represent.
Common Sense II
Emerging Growth Fund
Holdings by Industry
Percentage of Net Assets
4/30/96
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
Consumer Distribution 8%
Consumer Non-Durables 5%
Consumer Services 11%
Energy 6%
Finance 8%
Health Care 20%
Producer Manufacturing 5%
Technology 23%
Other 14%
</TABLE>
Common Sense II
International Equity Fund
Holdings by Country
Percentage of Net Assets
4/30/96
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
Ireland 6%
Austria 4%
Japan 12%
Germany 4%
Hong Kong 4%
Italy 11%
United Kingdom 6%
Malaysia 5%
Mexico 6%
Netherlands 5%
Singapore 7%
Sweden 5%
Other 25%
</TABLE>
5
<PAGE>
Q. What is the outlook for stocks?
A. We believe the forecast for the stock market worldwide continues to be
promising. Favorable market conditions such as moderate economic growth,
low inflation, and acceptable interest rate levels support the positive
market scenario. In managing all four funds, we will continue to look for
stocks that offer solid fundamentals-such as rising earning expectations
and economic resilience-regardless of changing economic conditions.
/s/ Alan T. Sachtleben /s/ Stephen L. Boyd /s/ James A. Gilligan
Alan T. Sachtleben Stephen L. Boyd James A. Gilligan
Executive Vice President Portfolio Manager Portfolio Manager
Equity Investments Common Sense II Growth Fund Common Sense II
Growth and Income Fund
/s/ Gary M. Lewis /s/ James B. Conheady /s/ Jeffrey Russell
Gary M. Lewis James B. Conheady Jeffrey Russell
Portfolio Manager Portfolio Co-Manager Portfolio Co-Manager
Common Sense II Common Sense II Common Sense II
Emerging Growth Fund International Equity Fund International Equity Fund
6
<PAGE>
- --------------------------------------------------------------------------------
The following is an interview with the portfolio management team of the Common
Sense Trust II Government Fund. The team includes John R. Reynoldson, portfolio
manager, and Robert C. Peck, Jr., executive vice president, fixed-income
investments.
- --------------------------------------------------------------------------------
Q. What factors had the greatest impact on the performance of the Common Sense
II Government Fund during the six months ended April 30, 1996?
A. As of the date of this report, the assets in the Common Sense II Government
Fund are high credit quality. Changes in the net asset values of the
portfolio is highly correlated to changes in interest rates. The reporting
period can be divided into two distinct investment environments--the first
being November 1995 through January 1996, and the second being February
1996 through April 1996.
The first time period was characterized by positive market fundamentals.
These included: moderate domestic economic growth; inflation rates that
remained at a low 3 percent level; slow global economic expansion--
particularly in Japan and Western Europe; and a rising U.S. dollar against
the German mark and the Japanese yen. These elements worked together to
encourage the Federal Reserve Board to lower its key lending rate by one-
quarter of a percentage point in December, and another like lowering again
in January. Generally, when interest rates fall, prices of bonds and the
net asset value of bond funds increase. Thus, the Fed's effort to spur the
lackluster U.S. economy helped to fuel the bond markets into a strong year-
end, as bond prices rose and yield levels declined.
In contrast, the bond market experienced increased volatility and an
abrupt end to the rally in bond prices during the second time period
(February 1996 through April 1996). This volatility was triggered by three
main factors: First, the federal government shut down twice, along with the
realization that balanced budget legislation was not imminent. Second,
several economic indicators demonstrated that growth rates could be
accelerating. Of key interest was February's employment report, which
showed a significant increase in employment. Finally, inflationary concerns
grew as agricultural commodity and oil prices rose to their highest levels
in years.
As a consequence, the Fed's policy on interest rates shifted from an
accommodative mode to a more neutral mode--stabilizing its key lending rate
(the fed funds rate) at 5.14 percent.
To see the effect of changing interest rate levels on 10-Year Treasury
Notes, see the chart below. U.S. Government securities, backed by the full
faith and credit of the United States, are considered to be among the
safest investments available. The U.S. Government guarantee does not apply
to the shares of the Fund.
Q. What changes did you make to the portfolio to meet the changing economic
conditions?
A. The Common Sense II Government Fund took advantage of the positive bond
market environment from November through January by maintaining the
portfolio's average maturity and duration at slightly higher-than-average
levels. Duration measures the Fund's sensitivity to changes in interest
rates, and longer durations mean more sensitivity to interest rates, and
vice-versa. In a falling interest rate environment, an extended duration
allows the Fund to capture the capital gains opportunities offered by
falling yields, because the value of the Fund's securities increase.
Yields on 10-Year Treasury Notes
11/3/95 - 5/3/96
[GRAPH APPEARS HERE]
Nov. 1995 5.934
Dec. 1995 5.706
Jan. 1996 5.673
Feb. 1996 5.668
Mar. 1996 5.959
Apr. 1996 6.551
May. 1996 6.895
7
<PAGE>
Conversely, we took defensive measures during the latter part of the
reporting period to help protect the Fund from higher levels of interest
rates by reducing its average duration. Also, we reduced the Fund's
percentage of mortgage-backed securities from 70 percent down to 55 percent
by late January. This action permitted the Fund to increase its exposure to
U.S. Treasury obligations, and maximize its participation in the bond rally
at year end.
Q. How did the Fund perform during the six months ended April 30, 1996?
A. Common Sense II Government Fund Class A shares achieved a total return at
net asset value (without a sales charge) of -0.68 percent, including
reinvestment of dividends totaling $.3554 per share, while Class B Shares
achieved a total return at net asset value of -1.12 percent, including
reinvestment of dividends totaling $.2673 per share. By comparison, the
Lehman Brothers General U.S. Government Index achieved a total return of
0.03 percent.
Unmanaged indexes are used as benchmarks for many government and
municipal funds, but they do not reflect any commissions or fees that would
be paid by an investor purchasing the securities they represent, or to
rebalance a portfolio over time.
Q. What is the outlook for fixed-income securities?
A. Looking ahead, we believe the bond market will remain in a trading range,
of 6-1/2 and 7-1/4 percent, as measured by long-term U.S. Treasury bonds
over the near term.
At current rates of economic growth and inflation--approximately 3
percent each--we expect the Fed to await further economic evidence before
considering any changes in Federal funds rates. Given the cautious attitude
of many fixed-income investors, any positive economic developments will
likely serve to buoy the market modestly through the summer. We will
continue to closely monitor global economic growth rates; trends in energy
and commodity prices; and election developments as they unfold and adjust
portfolio holdings accordingly.
/s/ Robert C. Peck, Jr. /s/ John R. Reynoldson
Robert C. Peck, Jr. John R. Reynoldson
Executive Vice President Portfolio Manager
Fixed Income Investments Common Sense II Government Fund
8
<PAGE>
Growth II Fund Statement of Net Assets
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Number Market
of Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock 91.7%
CONSUMER DISTRIBUTION 6.1%
7,000 Dayton Hudson Corp.................................... $ 668,500
12,500 Dillard Dept Stores Inc............................... 501,563
5,625 Dollar General Corp................................... 148,359
*15,000 Eckerd Corp........................................... 716,250
*18,000 Federated Dept Stores................................. 600,750
16,500 Gap Inc............................................... 497,062
5,600 Home Depot Inc........................................ 265,300
22,000 Kroger Co............................................. 904,750
10,000 May Dept. Stores Co................................... 510,000
12,000 Sears, Roebuck & Co................................... 598,500
17,000 TJX Companies Inc..................................... 501,500
-----------
5,912,534
-----------
CONSUMER DURABLES 2.6%
8,500 Chrysler Corp......................................... 533,375
6,000 Daimler Benz AG, ADS.................................. 327,750
6,600 Eastman Kodak Co...................................... 504,900
20,000 Fiat Spa, ADR......................................... 350,000
13,000 General Motors Corp................................... 705,250
2,500 Harley Davidson Inc................................... 110,313
-----------
2,531,588
-----------
CONSUMER NON-DURABLES 4.7%
*12,500 Adidas, ADS........................................... 473,437
4,000 Avon Products Inc..................................... 355,500
5,000 Colgate Palmolive Co.................................. 383,125
4,600 CPC International Inc................................. 317,975
17,000 Dial Corp............................................. 478,125
*8,600 Gucci Group NV, ADR................................... 467,625
25,000 Nabisco Holdings Corp., Class A....................... 765,625
8,000 PepsiCo Inc........................................... 508,000
5,000 Ralston Purina Group.................................. 291,875
10,000 Tambrands Inc......................................... 478,750
-----------
4,520,037
-----------
CONSUMER SERVICES 6.1%
*15,000 Cox Communications, Inc............................... 307,500
5,000 Disney (Walt) Co...................................... 310,000
16,800 Grupo Televisa SA, ADR................................ 520,800
11,500 Harcourt General Inc.................................. 506,000
*24,500 Harrah's Entertainment Inc............................ 845,250
5,500 Hilton Hotels Corp.................................... 580,250
25,000 Host Marriott Corp.................................... 334,375
11,000 Marriott International Inc............................ 536,250
13,000 Service Corp. International........................... 690,625
*20,500 Tele-Communications, Class A.......................... 392,063
*16,500 Tele-Communications International, Class A............ 336,187
12,000 Time Warner Inc....................................... 490,500
-----------
5,849,800
-----------
</TABLE>
- ------------------------------------------------------------------------------
9
<PAGE>
Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Number Market
of Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
ENERGY 8.4%
6,000 Amoco Corp............................................ $ 438,000
13,000 Apache Corp........................................... 377,000
10,000 Baker Hughes Inc...................................... 317,500
3,500 Burlington Resources Inc.............................. 130,375
17,000 Coastal Corp.......................................... 673,625
10,000 Dresser Industries Inc................................ 318,750
6,000 Exxon Corp............................................ 510,000
5,000 Halliburton Co........................................ 286,875
3,000 Louisiana Land Exploration Co......................... 162,375
4,300 Mobil Corp............................................ 494,500
17,100 Occidental Petroleum Corp............................. 440,325
21,000 Pan Energy Corp....................................... 685,125
13,700 Repsol SA, ADR........................................ 506,900
3,500 Schlumberger Ltd...................................... 308,875
15,500 Sonat Inc............................................. 676,188
5,500 Texaco Inc............................................ 470,250
17,200 Williams Companies Inc................................ 879,350
20,500 YPF Sociedad Anonima, ADS............................. 448,438
-----------
8,124,451
-----------
FINANCE 12.6%
5,500 Allmerica Financial Corp.............................. 143,000
13,000 Allstate Corp......................................... 505,375
6,700 American Express Co................................... 324,950
10,000 Bank of Boston Corp................................... 483,750
9,000 BankAmerica Corp...................................... 681,750
5,500 Baybanks Inc.......................................... 576,125
7,000 Chase Manhattan Corp.................................. 482,125
8,000 Corestates Financial Corp............................. 312,000
900 Donaldson Lufkin & Jenrette Inc....................... 30,375
5,000 Federal Home Loan Mtg Corp............................ 416,875
16,000 Federal National Mtg Assn............................. 490,000
15,000 First Bank System Inc................................. 903,750
14,000 Green Tree Financial Corp............................. 472,500
26,000 Greenpoint Financial Corp............................. 750,750
3,900 Merrill Lynch & Co Inc................................ 235,463
5,000 Morgan Stanley Group Inc.............................. 251,250
11,000 NationsBank Corp...................................... 877,250
1,300 Student Loan Markerting Assn.......................... 95,225
5,500 SunAmerica Inc........................................ 299,750
249,063 Van Kampen American Capital Small
Capitalization Fund (see Note 2).................... 3,322,497
2,000 Wells Fargo & Co...................................... 485,250
-----------
12,140,010
-----------
HEALTH CARE 6.3%
4,000 American Home Products Corp........................... 422,000
*9,000 Amgen Inc............................................. 517,500
10,000 Astra AB, ADR, Series A............................... 440,000
5,000 Becton Dickinson & Co................................. 403,125
5,500 Bristol Myers Squibb Co............................... 452,375
</TABLE>
- ------------------------------------------------------------------------------
10
<PAGE>
Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Number Market
of Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
16,000 Caremark International Inc............................ $ 442,000
*3,700 Genzyme Corp.......................................... 208,125
6,000 Guidant Corp.......................................... 336,750
*17,000 Healthsouth Rehabilitation............................ 631,125
5,000 Johnson & Johnson..................................... 462,500
3,100 Mallinckrodt Group Inc................................ 122,063
5,500 Medtronic Inc......................................... 292,188
9,000 Schering Plough Corp.................................. 516,375
6,500 U S Healthcare Inc.................................... 338,813
4,500 Warner Lambert Co..................................... 502,875
-----------
6,087,814
-----------
PRODUCER MANUFACTURING 8.5%
11,500 Allied Signal Inc..................................... 668,437
10,000 Browning Ferris Industries Inc........................ 322,500
6,000 Case Corp............................................. 303,000
7,000 Cooper Industries Inc................................. 297,500
24,000 Corning Inc........................................... 834,000
3,500 Deere & Co............................................ 136,062
7,000 Fluor Corp............................................ 462,875
6,000 General Electric Co................................... 465,000
12,000 Honeywell Inc......................................... 631,500
4,500 Illinois Tool Works Inc............................... 302,625
6,000 ITT Corp.............................................. 365,250
*6,500 Litton Industries Inc................................. 294,937
7,400 Rockwell International Corp........................... 432,900
*12,000 Thermo Fibertek Inc................................... 274,500
5,000 TRW Inc............................................... 469,375
4,500 United Technologies Corp.............................. 497,250
22,000 Westinghouse Electric Corp............................ 415,250
29,000 WMX Technologies Inc.................................. 1,007,750
-----------
8,180,711
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 7.5%
8,000 Air Products & Chemicals Inc.......................... 457,000
6,000 Aluminum Co of America................................ 374,250
13,000 Boise Cascade Corp.................................... 604,500
9,500 Champion International Corp........................... 458,375
8,000 Dow Chemical Co....................................... 711,000
7,500 Freeport McMoRan Copper & Gold Inc, Series B.......... 246,562
6,500 Georgia Pacific Corp.................................. 505,375
4,500 Grace (WR) & Co....................................... 348,750
17,000 International Paper Co................................ 677,875
13,000 Mead Corp............................................. 723,125
3,200 Monsanto Co........................................... 484,800
12,200 Praxair Inc........................................... 471,225
5,000 Rohm & Haas Co........................................ 331,875
10,000 Union Carbide Corp.................................... 455,000
7,000 Willamette Industries Inc............................. 430,500
-----------
7,280,212
-----------
</TABLE>
- ------------------------------------------------------------------------------
11
<PAGE>
Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Number Market
of Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY 20.5%
*8,500 Adaptec Inc........................................... $ 488,750
*6,000 ADC Telecommunications Inc............................ 252,000
*12,000 Analog Devices Inc.................................... 309,000
*6,000 Applied Materials Inc................................. 240,000
*8,000 Ascend Communications Inc............................. 492,000
*3,600 Aspect Telecommunications Corp........................ 207,000
*7,500 Atmel Corp............................................ 300,000
*7,500 Bay Networks Inc...................................... 236,250
*11,000 BMC Software Inc...................................... 669,625
5,500 Boeing Co............................................. 451,687
*10,000 Cadence Design Systems Inc............................ 522,500
*5,000 Cascade Communications................................ 501,250
*11,500 Cisco Systems Inc..................................... 596,562
*5,000 Compaq Computer Corp.................................. 233,125
9,000 Computer Associates International Inc................. 660,375
*10,000 Digital Equipment Corp................................ 597,500
*9,200 DSC Communications Corp............................... 289,800
*8,000 DST Systems Inc....................................... 294,000
12,000 Ericsson LM, ADR, Class B............................. 244,500
4,500 First Data Corp....................................... 342,000
*8,000 General Instruments Corp.............................. 262,000
4,500 General Motors Corp, Class E.......................... 253,687
6,000 General Motors Corp, Class H.......................... 366,750
7,500 Hewlett Packard Co.................................... 794,062
*4,000 In Focus Systems Inc.................................. 202,000
24,000 Intel Corp............................................ 1,626,000
9,500 Linear Technology Corp................................ 326,562
12,000 Loral Space & Communications.......................... 172,500
*7,000 LSI Logic Corp........................................ 252,000
14,500 Lucent Technologies Inc............................... 509,313
6,300 Micron Technology Inc................................. 229,163
*7,700 Microsoft Corp........................................ 872,988
12,500 Motorola Inc.......................................... 765,625
*10,000 Newbridge Networks Corp............................... 643,750
*9,000 Oracle System Corp.................................... 303,750
*5,000 Peoplesoft Inc........................................ 315,000
*7,500 Seagate Technology.................................... 435,000
*10,000 Structural Dynamics Research Corp..................... 318,750
*16,000 Sun Microsystems Inc.................................. 868,000
*10,000 Tellabs Inc........................................... 552,500
8,100 Texas Instruments Inc................................. 457,650
*10,500 3Com Corp............................................. 484,313
*3,800 U.S. Robotics Corp.................................... 594,700
2,000 Xerox Corp............................................ 293,000
-----------
19,826,987
-----------
TRANSPORTATION 2.0%
*4,000 AMR Corp.............................................. 357,000
12,500 Canadian National Railway Co.......................... 237,500
</TABLE>
- ------------------------------------------------------------------------------
12
<PAGE>
Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Number Market
of Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
6,500 Conrail Inc...................................... $ 453,375
11,000 Southwest Airlines Co............................ 327,250
8,000 Union Pacific Corp............................... 545,000
-----------
1,920,125
-----------
UTILITIES 6.4%
5,000 Ameritech Corp................................... 291,875
10,000 Bellsouth Corp................................... 400,000
11,500 DTE Energy Co.................................... 356,500
7,500 Empresa Nacional SA, ADR......................... 469,687
23,500 Frontier Corp.................................... 743,187
5,600 GTE Corp......................................... 242,900
*3,400 LCI International Inc............................ 88,400
17,500 MCI Communications Corp.......................... 515,156
12,300 NYNEX Corp....................................... 604,238
*6,000 PT Telekomuniskasi Indonesia, ADR................ 204,750
12,200 Sprint Corp...................................... 513,925
11,300 Telefonica de Espana SA, ADR..................... 594,663
12,800 Texas Utilities Co............................... 515,200
*14,000 WorldCom Inc..................................... 658,000
-----------
6,198,481
-----------
Total Common Stock (Cost $78,572,465)............ 88,572,750
-----------
Par
Amount Short-Term Investments 8.3%
- ------------
REPURCHASE AGREEMENT 3.1%
**$3,025,000 Lehman Government Securities, dated 4/30/96,
5.30%, due 5/01/96
(Collateralized by U.S. Government obligations in
a pooled cash account) repurchase proceeds
$3,025,445....................................... 3,025,000
-----------
UNITED STATES AGENCY and GOVERNMENT OBLIGATIONS 5.2%
**3,500,000 Federal National Mtg Assn, 5.35%, 5/01/96........ 3,499,483
1,500,000 Treasury Bills, 4.86%, 7/11/96................... 1,485,090
-----------
4,984,573
-----------
Total Short-Term Investments (Cost $8,010,203). 8,009,573
-----------
TOTAL INVESTMENTS (Cost $86,582,668) 100.0%..... 96,582,323
Other assets and liabilities, net 0.0%.......... (22,181)
-----------
NET ASSETS, equivalent to $15.55 per share for
Class A and $15.31 per share for Class B
shares 100%.................................... $96,560,142
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 2,404,458 Class A and
3,865,447 Class B shares outstanding.......................... $ 62,699
Capital surplus................................................. 85,292,932
Undistributed net realized gain on securities................... 1,259,036
Net unrealized appreciation of securities
Investments................................................... 9,999,655
Future contracts.............................................. 163,888
Accumulated net investment loss................................. (218,068)
-----------
NET ASSETS...................................................... $96,560,142
===========
</TABLE>
* Non-income producing security
**Securities with a market value of approximately $6.5 million were placed as
collateral for futures contracts (see Note 1D)
See Notes to Financial Statements.
- ------------------------------------------------------------------------------
13
<PAGE>
Growth II Fund Statement of Operations
Six Months Ended April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
<S> <C>
Investment Income
Dividends.................................................... $ 562,514
Interest..................................................... 290,835
----------
Investment income.......................................... 853,349
----------
Expenses
Advisory fees................................................ 240,458
Shareholder service agent's fees and expenses................ 390,901
Accounting services.......................................... 40,530
Service fees--Class A........................................ 35,577
Distribution and service fees--Class B....................... 227,628
Trustees' fees and expenses.................................. 11,275
Audit fees................................................... 6,000
Legal fees................................................... 549
Reports to shareholders...................................... 19,750
Registration and filing fees................................. 26,032
Miscellaneous................................................ 72,717
----------
Total expenses............................................. 1,071,417
----------
Net investment loss........................................ (218,068)
----------
Realized and Unrealized Gain on Securities
Net realized gain on securities
Investments................................................ 821,699
Futures contracts.......................................... 734,679
Net unrealized appreciation of securities during the period
Investments................................................ 6,260,980
Futures contracts.......................................... 92,195
----------
Net realized and unrealized gain on securities............... 7,909,553
----------
Increase in net assets resulting from operations............. $7,691,485
==========
</TABLE>
See Notes to Financial Statements.
- -------------------------------------------------------------------------
14
<PAGE>
Growth II Fund Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
NET ASSETS, beginning of period..................................... $54,423,788 $10,163,636
----------- -----------
Operations
Net investment loss................................................. (218,068) (334,181)
Net realized gain on securities..................................... 1,556,378 3,123,944
Net unrealized appreciation of securities during the period......... 6,353,175 3,522,427
----------- -----------
Increase in net assets resulting from operations................. 7,691,485 6,312,190
----------- -----------
Distributions to shareholders from net realized gain on securities
Class A............................................................. (1,099,973) ----
Class B............................................................. (1,791,254) ----
----------- -----------
(2,891,227) ----
----------- -----------
Capital transactions
Proceeds from shares sold
Class A............................................................. 15,943,091 17,139,771
Class B............................................................. 23,791,730 25,723,932
----------- -----------
39,734,821 42,863,703
----------- -----------
Proceeds from shares issued for distributions reinvested
Class A............................................................. 1,098,889 ----
Class B............................................................. 1,788,812 ----
----------- -----------
2,887,701 ----
----------- -----------
Cost of shares redeemed
Class A............................................................. (2,680,509) (2,973,033)
Class B............................................................. (2,605,917) (1,942,708)
----------- -----------
(5,286,426) (4,915,741)
----------- -----------
Increase in net assets resulting from capital transactions.......... 37,336,096 37,947,962
----------- -----------
Increase in Net Assets.............................................. 42,136,354 44,260,152
----------- -----------
NET ASSETS, end of period........................................... $96,560,142 $54,423,788
=========== ===========
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
15
<PAGE>
Growth & Income II Fund Statement of Net Assets
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Number Market
of Shares Value
- ---------------------------------------------------------------------
<C> <S> <C>
Common Stock and Equivalents 88.2%
CONSUMER DISTRIBUTION 7.1%
5,500 Dillard Dept Stores Inc......................... $ 220,688
*23,000 Federated Dept Stores Inc....................... 767,625
13,000 Gap Inc......................................... 391,625
9,100 Home Depot Inc.................................. 431,113
20,500 May Dept Stores Co.............................. 1,045,500
8,500 Nordstrom Inc................................... 432,438
14,900 Sears Roebuck & Co.............................. 743,138
*11,900 Toys R Us Inc................................... 331,713
*6,300 Vons Companies Inc.............................. 201,600
-----------
4,565,440
-----------
CONSUMER DURABLES 3.3%
13,600 Chrysler Corp................................... 853,400
2,700 Eastman Kodak Co................................ 206,550
8,200 General Motors Corp............................. 444,850
7,000 Magna International Inc, Class A................ 324,625
21,200 Sunbeam Oster Inc............................... 294,150
-----------
2,123,575
-----------
CONSUMER NON-DURABLES 5.5%
*10,200 Adidas, ADS..................................... 386,325
1,700 Avon Products Inc............................... 151,087
4,000 Campbell Soup Co................................ 250,000
7,000 Coca Cola Co.................................... 570,500
6,800 Coca Cola Femsa SA, ADS......................... 182,750
3,300 Colgate Palmolive Co............................ 252,862
*8,000 Donnkenny Inc................................... 159,000
23,800 Nabisco Holdings Corp, Class A.................. 728,875
10,300 Ralston Purina Group............................ 601,262
8,500 Rubbermaid Inc.................................. 240,125
-----------
3,522,786
-----------
CONSUMER SERVICES 3.6%
6,500 Block H & R Inc................................. 228,312
7,000 Deluxe Corp..................................... 245,000
4,500 Disney (Walt) Co................................ 279,000
5,600 Dun & Bradstreet Corp........................... 340,900
6,700 McDonald's Corp................................. 320,762
8,500 Omnicom Group Inc............................... 368,687
5,500 Time Warner Inc................................. 224,812
14,500 Wendy's International Inc....................... 277,312
-----------
2,284,785
-----------
ENERGY 9.5%
5,000 Amerada Hess Corp............................... 283,125
11,800 Apache Corp..................................... 342,200
13,000 Exxon Corp...................................... 1,105,000
11,400 Mobil Corp...................................... 1,311,000
</TABLE>
- ---------------------------------------------------------------------
16
<PAGE>
Growth & Income II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Number Market
of Shares Value
- ----------------------------------------------------------------------------------
<C> <S> <C>
15,200 Pacific Enterprises......................................... $ 391,400
11,700 Panhandle Eastern Corp...................................... 381,713
3,800 Royal Dutch Petroleum Co, ADR............................... 544,350
16,600 Texaco Inc.................................................. 1,419,300
3,700 Williams Companies Inc, $3.50, Convertible Preferred Stock.. 301,087
-----------
6,079,175
-----------
FINANCE 11.1%
9,400 Allstate Corp............................................... 365,425
5,800 American International Group Inc............................ 529,975
12,700 Argenteria Bancaria Espana, ADR............................. 257,175
10,000 BankAmerica Corp............................................ 757,500
3,300 Beacon Property Corp........................................ 84,563
9,100 Beneficial Corp............................................. 502,775
6,800 Chase Manhattan Corp........................................ 468,350
5,000 Citicorp.................................................... 393,750
9,000 Comerica Inc................................................ 391,500
7,000 Debartolo Realty Corp....................................... 108,500
4,100 Duke Realty Investments Inc................................. 121,463
17,100 Federal National Mtg Assn................................... 523,688
6,000 First Bank System Inc....................................... 361,500
1,900 Health Care Property Investors.............................. 59,850
12,400 Horace Mann Educators Corp.................................. 407,650
3,100 MBIA Inc.................................................... 221,263
5,000 NationsBank Corp............................................ 398,750
11,000 Norwest Corp................................................ 397,375
12,200 Prudential Reinsurance Holdings............................. 277,550
2,000 SCI Finance, NV, LLC, 6.25%, Convertible Preferred Stock.... 172,000
3,200 Student Loan Marketing Assn................................. 234,400
1,700 Weingarten Realty Investors................................. 59,713
-----------
7,094,715
-----------
HEALTH CARE 7.0%
8,000 Abbott Laboratories Inc..................................... 325,000
1,100 American Home Products Corp................................. 116,050
*9,600 Amgen Inc................................................... 552,000
7,000 Astra AB, ADR, Series A..................................... 308,000
4,500 Baxter International Inc.................................... 199,125
*11,400 Magellan Health Services Inc................................ 245,100
5,800 Merck & Co Inc.............................................. 350,900
8,100 Pfizer Inc.................................................. 557,887
14,400 Pharmacia & Upjohn Inc...................................... 550,800
6,500 Schering Plough Corp........................................ 372,938
11,800 Tenet Healthcare Corp....................................... 241,900
6,400 Teva Pharmaceutical Ltd, ADR................................ 287,200
3,200 United Healthcare Corp...................................... 187,200
5,700 Vencor Inc.................................................. 192,375
-----------
4,486,475
-----------
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
Growth & Income II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Number Market
of Shares Value
- ---------------------------------------------------------------------
<C> <S> <C>
PRODUCER MANUFACTURING 8.5%
14,000 Allied Signal Inc............................... $ 813,750
15,300 Canadian Pacific Ltd............................ 311,737
11,700 Fluor Corp...................................... 773,662
7,500 Foster Wheeler Corp............................. 346,875
11,700 General Electric Co............................. 906,750
10,300 Honeywell Inc................................... 542,037
5,600 Illinois Tool Works Inc......................... 376,600
6,200 Stewart & Stevenson Services Inc................ 182,125
3,000 TRW Inc......................................... 281,625
13,800 WMX Technologies Inc............................ 479,550
8,800 York International Corp......................... 422,400
-----------
5,437,111
-----------
RAW MATERIALS/PROCESSING INDUSTRIES 8.2%
7,100 Aluminum Co of America.......................... 442,862
4,900 Crown Cork & Seal Inc........................... 230,912
4,000 Georgia Pacific Corp............................ 311,000
8,300 Grace (WR) & Co................................. 643,250
4,000 Imperial Chemical Industries PLC, ADR........... 220,000
8,300 James River Corp................................ 222,025
7,300 Mead Corp....................................... 406,062
7,000 Monsanto Co..................................... 1,060,500
2,500 Olin Corp....................................... 221,250
4,000 Phelps Dodge Corp............................... 294,000
11,000 Praxair Inc..................................... 424,875
6,200 Sigma Aldrich Corp.............................. 334,800
9,400 Union Carbide Corp.............................. 427,700
-----------
5,239,236
-----------
TECHNOLOGY 13.1%
*7,200 BMC Software Inc................................ 438,300
9,500 Boeing Co....................................... 780,187
*8,400 Cisco Systems Inc............................... 435,750
15,400 Computer Associates International Inc........... 1,129,975
*6,500 Digital Equipment Corp.......................... 388,375
*7,200 DSC Communications Corp......................... 226,800
*7,800 Dynatech Corp................................... 200,850
*4,500 General Instruments Corp........................ 147,375
11,000 General Signal Corp............................. 418,000
8,200 Harris Corp..................................... 506,350
2,400 Hewlett Packard Co.............................. 254,100
5,500 Intel Corp...................................... 372,625
16,300 Loral Space & Communications.................... 234,313
2,000 McDonnell Douglas Corp.......................... 193,000
*4,000 Microsoft Corp.................................. 453,500
*9,200 Newbridge Networks Corp......................... 592,250
8,500 Perkin Elmer Corp............................... 466,438
*12,000 Softkey International Inc....................... 336,000
</TABLE>
- ---------------------------------------------------------------------
18
<PAGE>
Growth & Income II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Number Market
of Shares Value
- ------------------------------------------------------------------------------------------
<C> <S> <C>
*5,700 Tellabs Inc...................................................... $ 314,925
3,400 Xerox Corp....................................................... 498,100
-----------
8,387,213
-----------
TRANSPORTATION 1.5%
1,400 Canadian National Railway........................................ 26,600
8,000 Conrail Inc...................................................... 558,000
5,800 Union Pacific Corp............................................... 395,125
-----------
979,725
-----------
UTILITIES 9.8%
9,400 Allegheny Power Systems Inc...................................... 274,950
6,400 Ameritech Corp................................................... 373,600
11,900 AT & T Corp...................................................... 728,875
10,200 Cincinnati Bell Inc.............................................. 502,350
9,200 Duke Power Co.................................................... 432,400
21,200 Frontier Corp.................................................... 670,450
4,900 GTE Corp......................................................... 212,537
8,900 Lucent Technologies Inc.......................................... 312,613
13,800 MCI Communications Corp.......................................... 406,238
8,300 National Power, ADR.............................................. 218,913
5,900 NYNEX Corp....................................................... 289,838
28,300 Pacificorp....................................................... 566,000
6,300 Peco Energy Co................................................... 156,713
7,600 PowerGen PLC, ADR................................................ 193,800
7,400 Southern New England Telecommunications Corp..................... 329,300
17,300 Telefonos de Mexico SA, ADR...................................... 588,200
-----------
6,256,777
-----------
Total Common Stock and Equivalents (Cost $50,405,953).......... 56,457,013
-----------
Par
Amount Convertible Corporate Obligations 3.4%
- --------
$600,000 ADT Operations Inc, LYON, 7/06/10................................ 309,000
100,000 Ciba Geigy, 6.25%, 3/15/16....................................... 102,000
200,000 Continental Airlines Inc, 6.75%, 4/15/06......................... 221,000
300,000 MBL International, 3.00%, 11/30/02............................... 347,250
300,000 News America Holdings Inc, LYON, 3/11/13......................... 146,625
500,000 Roche Holdings Inc, LYON, 4/20/10................................ 220,000
90,000 Sandoz Ltd, 2.00%, 10/06/02...................................... 95,850
5,000 Sprint Corp, DECS, 8.25%, 3/31/00................................ 210,733
140,000 Tenet Healthcare Corp, 6.00%, 12/01/05........................... 150,500
150,000 United Technologies Corp, PEN, Zero Coupon, 9/08/97.............. 199,125
500,000 U.S. Cellular Corp, LYON, 6/15/15................................ 175,000
-----------
Total Convertible Corporate Obligations (Cost $1,895,630)..... 2,177,083
-----------
</TABLE>
- -------------------------------------------------------------------------------
19
<PAGE>
Growth & Income II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Short-Term Investments 7.6%
REPURCHASE AGREEMENT 6.0%
**$3,850,000 Lehman Government Securities, dated 4/30/96, 5.30%, due 5/01/96
(Collateralized by U.S. Government obligations in a pooled cash account) repurchase
proceeds $3,850,567.................................................................. $ 3,850,000
-----------
UNITED STATES GOVERNMENT OBLIGATIONS 1.6%
1,000,000 Treasury Bills, 4.84%, 5/02/96....................................................... 999,734
-----------
Total Short-Term Investments (Cost $4,849,734)..................................... 4,849,734
-----------
TOTAL INVESTMENTS (Cost $57,151,317) 99.2%........................................... 63,483,830
Other assets and liabilities, net 0.8%............................................... 485,984
-----------
NET ASSETS, equivalent to $15.47 per share for Class A and $15.41 per share for
Class B shares 100%.................................................................. $63,969,814
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 1,523,756 Class A and 2,621,013 Class B shares outstanding.. $ 41,448
Capital surplus.................................................................................... 56,242,638
Undistributed net realized gain on securities...................................................... 1,407,584
Net unrealized appreciation of securities
Investments...................................................................................... 6,332,513
Futures contracts................................................................................ 26,562
Accumulated net investment loss.................................................................... (80,931)
-----------
NET ASSETS......................................................................................... $63,969,814
===========
</TABLE>
*Non-income producing security.
**Securities with a market value of approximately $1.6 million were placed as
collateral for futures contracts (see Note 1D).
DECS--dividend enhanced convertible stock
LYON--liquid yield option note, zero coupon
PEN--pharmaceutical exchange note
See Notes to Financial Statements
- -------------------------------------------------------------------------------
20
<PAGE>
Growth & Income II Fund Statement of Operations
Six Months Ended April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Investment Income
<S> <C>
Dividends................................................................... $ 416,284
Interest.................................................................... 162,802
----------
Investment income......................................................... 579,086
----------
Expenses
Advisory fees............................................................... 158,207
Shareholder service agent's fees and expenses............................... 114,006
Accounting services......................................................... 41,921
Service fees--Class A....................................................... 22,560
Distribution and service fees--Class B...................................... 153,153
Trustees' fees and expenses................................................. 8,715
Audit fees.................................................................. 6,000
Legal fees.................................................................. 574
Reports to shareholders..................................................... 6,600
Registration and filing fees................................................ 29,348
Insurance................................................................... 1,563
Miscellaneous............................................................... 49,429
Expense reimbursement (see Note 2).......................................... (26,000)
----------
Total expenses............................................................ 566,076
----------
Net investment income..................................................... 13,010
----------
Realized and Unrealized Gain on Securities
Net realized gain on securities
Investments............................................................... 1,339,244
Futures contracts......................................................... 82,425
Net unrealized appreciation of securities during the period
Investments............................................................... 3,995,169
Futures contracts......................................................... 31,587
----------
Net realized and unrealized gain on securities.............................. 5,448,425
----------
Increase in net assets resulting from operations............................ $5,461,435
==========
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
21
<PAGE>
Growth & Income II Fund Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
NET ASSETS, beginning of period................................ $34,666,924 $ 7,111,500
----------- -----------
Operations
Net investment income........................................ 13,010 65,276
Net realized gain on securities.............................. 1,421,669 922,616
Net unrealized appreciation of securities during the period.. 4,026,756 2,255,307
----------- -----------
Increase in net assets resulting from operations........... 5,461,435 3,243,199
----------- -----------
Distributions to shareholders from (see Note 1H)
Net investment income
Class A.................................................... (47,825) (60,588)
Class B.................................................... - (4,688)
----------- -----------
(47,825) (65,276)
----------- -----------
Net realized gain on securities
Class A.................................................... (297,442) -
Class B.................................................... (501,493) -
----------- ----------
(798,935) -
----------- ----------
Excess of book-basis net investment income
Class A.................................................... (24,482) (19,387)
Class B.................................................... (21,634) (32,885)
----------- ----------
(46,116) (52,272)
----------- ----------
Total distributions........................................ (892,876) (117,548)
----------- ----------
Capital transactions
Proceeds from shares sold
Class A.................................................... 9,848,720 11,271,055
Class B.................................................... 17,952,492 17,102,298
----------- ----------
27,801,212 28,373,353
----------- ----------
Proceeds from shares issued for distributions reinvested
Class A.................................................... 357,616 78,007
Class B.................................................... 518,364 37,331
----------- ---------
875,980 115,338
----------- ---------
Cost of shares redeemed
Class A.................................................... (1,860,241) (2,680,200)
Class B.................................................... (2,082,620) (1,378,718)
----------- -----------
(3,942,861) (4,058,918)
----------- -----------
Increase in net assets resulting from capital transactions. 24,734,331 24,429,773
----------- -----------
Increase in Net Assets......................................... 29,302,890 27,555,424
----------- -----------
NET ASSETS, end of period...................................... $63,969,814 $34,666,924
=========== ===========
See Notes to Financial Statements.
- ---------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
Government II Fund Statement of Net Assets
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States Treasury Obligations 48.6%
$**1,000,000 Bonds, 7.125%, 2/15/23.......................................... $ 1,006,410
Notes
**700,000 6.500%, 5/15/05............................................... 690,704
**400,000 7.250%, 11/15/96.............................................. 403,688
**5,000,000 7.875%, 7/15/96............................................... 5,025,000
**600,000 8.000%, 8/15/99............................................... 630,000
1,000,000 8.000%, 5/15/01............................................... 1,066,720
**1,300,000 8.500%, 4/15/97............................................... 1,333,513
600,000 8.875%, 2/15/99............................................... 640,218
-----------
Total United States Treasury Obligations (Cost $11,070,489). 10,796,253
-----------
United States Government Agencies 20.7%
Federal Home Loan Mortgage Corp.
183,421 7.000%, 10/01/24............................................. 177,001
702,876 7.500%, pools, various maturities............................ 695,186
861,900 8.000%, pools, various maturities............................ 871,063
Federal National Mortgage Association
361,275 7.000%, pool, 5/01/24......................................... 348,179
626,291 7.500%, pools, various maturities............................. 618,857
75,779 8.000%, pool, 8/01/25......................................... 76,513
Government National Mortgage Association
252,844 7.000%, pools, various maturities............................. 243,284
784,762 7.500%, pools, various maturities............................. 775,447
769,581 8.000%, pools, various maturities............................. 779,201
-----------
Total United States Government Agencies (Cost $4,451,676)... 4,584,731
-----------
Forward Purchase Commitments 18.9%
*100,000 Federal Home Loan Mortgage Corp., 7.500%, settling July 96..... 98,500
*600,000 Federal National Mortgage Association, 6.500%, settling May 96. 562,128
Government National Mortgage Association
*600,000 6.500%, settling July 96..................................... 559,404
*3,100,000 7.000%, settling May 96...................................... 2,982,789
-----------
Total Forward Purchase Commitments (Cost 4,367,539)........ 4,202,821
-----------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Government II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Investments 29.8%
UNITED STATES GOVERNMENT AGENCIES 17.9%
Federal National Mortgage Association
$2,000,000 5.249%, 7/03/96................................................ $ 1,981,680
2,000,000 5.347%, 5/01/96................................................ 1,999,704
------------
3,981,384
------------
REPURCHASE AGREEMENT 11.9%
2,640,000 Lehman Government Securities, dated 4/30/96, 5.30%, due 5/01/96
(collateralized by U.S. Government obligations in a pooled
cash account) repurchase proceeds $2,640,389................... 2,640,000
-----------
Total Short-Term Investments (Cost $6,621,215).............. 6,621,384
-----------
TOTAL INVESTMENTS (Cost $26,510,919) 118.0%..................... 26,205,189
Receivable for investments sold 6.8%............................ 1,504,116
Other assets and liabilities, net (2.1%)........................ (462,668)
Payable for investments purchased (22.7%)....................... (5,042,425)
-----------
NET ASSETS, equivalent to $11.77 per share for Class A and
Class B shares 100%............................................ $22,204,212
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 828,971 Class A and 1,057,657 Class B shares
outstanding............................................................................. $ 18,866
Capital surplus.......................................................................... 22,452,635
Undistributed net realized gain on securities............................................ 197,878
Net unrealized depreciation of securities
Investments............................................................................ (305,730)
Forward commitments.................................................................... (82,636)
Futures contracts...................................................................... (68,149)
Accumulated net investment loss.......................................................... (8,652)
-----------
NET ASSETS............................................................................... $22,204,212
===========
*Non-income producing security
**Securities with a market value of approximately $9.1 million were placed as
collateral for forward commitments and futures contracts (see Note 1D)
See Notes to Financial Statements.
- --------------------------------------------------------------------------------------------------------
24
</TABLE>
<PAGE>
Government II Fund Statement of Operations
Six Months Ended April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
<S> <C>
Investment Income
Interest..................................................... $708,528
---------
Expenses
Advisory fees................................................ 60,641
Shareholder service agent's fees and expenses................ 41,401
Accounting services.......................................... 39,535
Service fees--Class A........................................ 10,834
Distribution and service fees--Class B....................... 57,731
Trustees' fees and expenses.................................. 9,987
Audit fees................................................... 6,000
Legal fees................................................... 678
Reports to shareholders...................................... 4,400
Registration and filing fees................................. 30,154
Insurance.................................................... 867
Miscellaneous................................................ 42,587
---------
Total expenses............................................. 304,815
---------
Net investment income...................................... 403,713
---------
Realized and Unrealized Gain (Loss) on Securities
Net realized gain on securities
Investments................................................ 77,785
Forward commitments........................................ 66,015
Futures contracts.......................................... 120,824
Net unrealized depreciation of securities during the period
Investments................................................ (677,033)
Forward commitments........................................ (95,949)
Futures contracts.......................................... (130,001)
---------
Net realized and unrealized loss on securities............... (638,359)
---------
Decrease in net assets resulting from operations............. $(234,646)
=========
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
Government II Fund Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months Year Ended
Ended April 30, October 31,
1996 1995
--------------- -----------
<S> <C> <C>
NET ASSETS, beginning of period................................................ $19,319,203 $ 7,342,156
----------- -----------
Operations
Net investment income........................................................ 403,713 566,204
Net realized gain on securities.............................................. 264,624 26,327
Net unrealized appreciation (depreciation) of securities during the period... (902,983) 593,246
----------- -----------
Increase (decrease) in net assets resulting from operations................ (234,646) 1,185,777
----------- -----------
Distributions to shareholders from (see Note 1H)
Net investment income
Class A.................................................................... (191,048) (328,298)
Class B.................................................................... (212,665) (237,906)
----------- -----------
(403,713) (566,204)
----------- -----------
Net realized gain on investments
Class A.................................................................... (17,863) --
Class B.................................................................... (26,306) --
----------- -----------
(44,169) --
----------- -----------
Excess of book-basis net investment income
Class A.................................................................... (3,198) (10,291)
Class B.................................................................... (5,454) (8,419)
----------- -----------
(8,652) (18,710)
----------- -----------
Total distributions...................................................... (456,534) (584,914)
----------- -----------
Capital transactions
Proceeds from shares sold
Class A.................................................................... 4,778,258 6,491,908
Class B.................................................................... 5,006,364 7,373,364
----------- -----------
9,784,622 13,865,272
----------- -----------
Proceeds from shares issued for distributions reinvested
Class A.................................................................... 202,080 331,815
Class B.................................................................... 236,125 237,404
----------- -----------
438,205 569,219
----------- -----------
Cost of shares redeemed
Class A.................................................................... (4,784,429) (1,866,580)
Class B.................................................................... (1,862,209) (1,191,727)
----------- -----------
(6,646,638) (3,058,307)
----------- -----------
Increase in net assets resulting from capital transactions.................. 3,576,189 11,376,184
----------- -----------
Increase in Net Assets......................................................... 2,885,009 11,977,047
----------- -----------
NET ASSETS, end of period...................................................... $22,204,212 $19,319,203
=========== ===========
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
Emerging Growth II Fund Statement of Net Assets
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C> <C>
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stock and Equivalents 94.1%
CONSUMER DISTRIBUTION 8.1%
5,000 Alco Standard Corp.................................... $ 289,375
*6,500 Bed, Bath & Beyond Inc................................ 383,906
*4,000 Boise Cascade Office Products Corp.................... 313,000
*4,000 Borders Group Inc..................................... 128,000
6,000 Casey's General Stores Inc............................ 129,375
*7,000 Consolidated Stores Corp.............................. 252,000
*9,000 Corporate Express Inc................................. 336,375
*4,000 Eckerd Corp........................................... 191,000
*4,000 Gadzooks Inc.......................................... 202,000
4,000 Gap Inc............................................... 120,500
*3,000 Garden Ridge Corp..................................... 166,500
*3,000 Just For Feet Inc..................................... 143,625
*6,000 Kroger Co............................................. 246,750
*6,000 Petco Animal Supplies................................. 172,500
4,000 Richfood Holdings, Inc................................ 130,500
3,200 Ross Stores Inc....................................... 110,400
*8,500 Safeway Inc........................................... 286,875
*15,000 Staples Inc........................................... 285,000
*5,000 Sunglass Hut International Inc........................ 146,250
3,000 Tiffany & Co.......................................... 195,750
5,000 TJX Companies Inc..................................... 147,500
*5,500 U. S. Office Products Company......................... 198,000
*3,500 Viking Office Products................................ 207,813
*4,000 Vons Companies Inc.................................... 128,000
*8,000 Zale Corp............................................. 149,000
----------
5,059,994
----------
CONSUMER DURABLES 0.8%
*4,000 Beazer Homes USA Inc.................................. 64,000
4,000 Harman International Industries Inc................... 189,000
2,000 Lennar Corp........................................... 50,000
2,000 Oakwood Homes Corp.................................... 89,250
3,000 Snap On Inc........................................... 144,000
----------
536,250
----------
CONSUMER NON-DURABLES 4.5%
4,000 Coca Cola Enterprises Inc............................. 118,000
5,000 Fila Holdings, ADR.................................... 341,250
8,000 First Brands Corp..................................... 212,000
5,000 Liz Claiborne Inc..................................... 181,875
*6,000 Nautica Enterprises Inc............................... 279,000
6,000 Nike Inc., Class B.................................... 525,000
*3,500 Nu Kote Holding Inc., Class A......................... 61,687
*3,000 Quiksilver Inc........................................ 114,000
3,500 St. John Knits Inc.................................... 207,813
*8,000 Tommy Hilfiger Corp................................... 364,000
*6,000 USA Detergents Inc.................................... 246,000
6,000 Wolverine World Wide Inc.............................. 185,250
----------
2,835,875
----------
- -------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Emerging Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Number Market
of Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES 10.7%
*17,000 Accustaff Inc......................................... $ 505,750
*1,400 APAC TeleServices Inc................................. 108,394
*5,000 Apollo Group Inc., Class A............................ 220,000
*5,000 Boston Chicken Inc.................................... 160,000
*5,500 Career Horizons Inc................................... 193,875
*7,500 Clear Channel Communications.......................... 508,125
*4,250 Corestaff Inc......................................... 164,687
*12,000 Corrections Corp. of America.......................... 765,000
5,000 Evergreen Media Corp., Class A........................ 196,250
*14,000 Gartner Group Inc..................................... 479,500
*3,000 HA LO Industries Inc.................................. 102,000
*9,500 Hospitality Franchise Systems Inc..................... 488,063
*12,000 Infinity Broadcasting Corp............................ 348,000
4,000 Interpublic Group Companies Inc....................... 187,000
6,000 Meredith Corp......................................... 272,250
*10,000 Mirage Resorts Inc.................................... 523,750
1,200 National Data Corp.................................... 42,300
*2,000 National Media Corp................................... 36,000
6,000 Omnicom Group......................................... 260,250
*4,000 Outback Steakhouse Inc................................ 160,500
*2,000 Planet Hollywood International Inc., Class A.......... 50,750
*2,000 Primark Corp.......................................... 71,000
*5,000 Promus Hotel Corp..................................... 141,875
*8,500 Regal Cinemas Inc..................................... 346,375
5,000 Reynolds & Reynolds Co................................ 231,250
*2,000 Sitel Corp............................................ 110,500
----------
6,673,444
----------
ENERGY 6.4%
4,000 Baker Hughes Inc...................................... 127,000
*5,000 BJ Services Co........................................ 191,875
*60 BJ Services Co., Warrants expiring 4/13/00............ 893
*7,000 Chesapeake Energy Corp................................ 495,250
*4,500 Diamond Offshore Drilling............................. 223,875
*3,000 Ensco International Inc............................... 90,000
*13,000 Global Marine Inc..................................... 147,875
*12,000 Input/Output Inc...................................... 417,000
5,000 Kerr McGee Corp....................................... 319,375
*6,000 Marine Drilling Co. Inc............................... 59,250
*5,000 Noble Drilling Corp................................... 75,000
8,000 Pogo Producing Co..................................... 289,000
*11,000 Pride Petroleum Services Inc.......................... 180,125
*6,000 Reading & Bates Corp.................................. 147,000
*16,000 Rowan Companies Inc................................... 236,000
*7,000 Smith International Inc............................... 208,250
8,000 Sonat Offshore Drilling Inc........................... 439,000
7,000 Tidewater Inc......................................... 297,500
1,000 Williams Companies.................................... 51,125
----------
3,995,393
----------
</TABLE>
- ------------------------------------------------------------------------------
28
<PAGE>
Emerging Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Number Market
of Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
FINANCE 8.2%
5,000 AAMES Financial Corp.................................. $ 220,625
*12,000 American Travellers Corp.............................. 234,000
6,000 Bank of Boston Corp................................... 290,250
2,500 Berkley (W. R.) Corp.................................. 107,500
5,000 CMAC Investment Corp.................................. 280,000
2,000 Cullen Frost Bankers Inc.............................. 98,500
6,000 EXEL Ltd.............................................. 432,000
7,500 FINOVA Group Inc...................................... 416,250
3,000 First Bank System Inc................................. 180,750
7,000 Firstar Corp.......................................... 325,500
12,000 Green Tree Financial Corp............................. 405,000
10,000 Money Store Inc....................................... 252,500
5,000 North Fork Bancorporation............................. 118,750
*6,000 Oxford Resources Corp., Class A....................... 177,000
6,000 Peoples Heritage Financial Group Inc.................. 125,250
3,000 Star Banc Corp........................................ 197,625
5,000 Student Loan Marketing Association.................... 366,250
8,000 TCF Financial Corp.................................... 283,000
5,000 TIG Holdings Inc...................................... 151,875
6,000 Vesta Insurance Group Inc............................. 192,750
9,000 Washington Mutual Inc................................. 249,750
----------
5,105,125
----------
HEALTH CARE 20.2%
*2,000 ABR Information Services Inc.......................... 125,000
*6,000 Access Health Inc..................................... 332,250
*4,000 Advanced Technology Labs Inc.......................... 130,000
*2,500 Biochem Pharma Inc.................................... 113,750
*3,000 Biogen Inc............................................ 197,625
*4,500 Chronimed Inc......................................... 111,938
*900 Clintrials Research Inc............................... 37,800
*3,000 CNS Inc............................................... 59,250
*4,000 Coherent Inc.......................................... 214,500
*4,000 CompDent Corp......................................... 177,000
*3,000 Conmed Corp........................................... 89,250
*2,000 Curative Technologies Inc............................. 44,750
*3,000 CyCare Systems Inc.................................... 109,500
*8,000 Dura Pharmaceuticals Inc.............................. 428,000
*3,000 Elan PLC, ADR......................................... 198,375
*4,000 Genesis Health Ventures Inc........................... 118,500
*4,000 Genetics Institute Inc................................ 284,000
12,000 Guidant Corp.......................................... 673,500
*3,000 Gulf South Medical Supply Inc......................... 121,500
11,000 HBO & Co.............................................. 1,306,250
*10,000 Health Management Associates Inc., Class A............ 320,000
*8,000 Health Management Systems Inc......................... 206,000
*5,000 Healthcare Compare Corp............................... 235,625
*5,000 Healthsource Inc...................................... 170,625
*12,000 Healthsouth Rehabilitation............................ 445,500
*5,000 Hologic Inc........................................... 147,500
*3,000 HPR Inc............................................... 129,000
*3,000 IDX Systems Corp...................................... 110,250
</TABLE>
- ------------------------------------------------------------------------------
29
<PAGE>
Emerging Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Number Market
of Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
2,750 Invacare Corp......................................... $ 71,500
3,000 Jones Medical Industries Inc.......................... 156,750
*4,000 Liposome Inc.......................................... 98,000
*1,000 Lunar Corp............................................ 42,250
*5,000 Medaphis Corp......................................... 230,625
*6,500 Medic Computer Systems Inc............................ 607,750
*4,000 Medisense Inc......................................... 180,000
*7,000 Medpartners/Mullikin Inc.............................. 202,125
4,000 Medtronic Inc......................................... 212,500
7,000 Mentor Corp........................................... 165,375
*5,000 Minimed Inc........................................... 102,500
10,000 Omnicare Inc.......................................... 600,000
*4,000 Orthodontic Centers of America........................ 158,000
*3,500 Parexel International Corp............................ 172,375
*3,000 Phycor Inc............................................ 147,750
*4,000 Physician Reliance Network............................ 173,000
*9,000 Physician Sales & Service Inc......................... 243,000
*2,500 Quintiles Transnational Corp.......................... 183,125
*9,000 Renal Treatment Centers Inc........................... 261,000
*4,000 Respironics Inc....................................... 87,437
*3,000 Spine Tech Inc........................................ 87,000
*6,000 Target Therapeutics Inc............................... 325,500
*5,000 Tenet Healthcare Corp................................. 102,500
*4,000 Thermedics Inc........................................ 121,000
*4,000 Total Renal Care Holdings............................. 153,000
*2,000 Transition Systems Inc................................ 48,500
*3,000 United Dental Care Inc................................ 117,750
3,000 United Healthcare Corp................................ 175,500
*3,500 Universal Health Services Inc., Class B............... 194,250
*6,000 Veterinary Centers of America......................... 183,000
*7,000 Watson's Pharmaceuticals Inc.......................... 332,500
------------
12,572,800
------------
PRODUCER MANUFACTURING 4.9%
6,500 BMC Industries Inc.................................... 173,875
*4,300 Cable Design Technologies............................. 141,900
5,000 Camco International Inc............................... 178,125
3,000 Case Corp............................................. 151,500
7,000 Danaher Corp.......................................... 275,625
4,000 Foster Wheeler Corp................................... 185,000
7,500 Granite Construction Inc.............................. 148,125
3,000 Greenfield Industries Inc............................. 114,000
4,000 Harnischfeger Industries Inc.......................... 162,000
*8,000 Kent Electronics Corp................................. 337,000
2,000 LSI Industries Inc.................................... 37,000
*2,500 Mueller Industries Inc................................ 100,625
3,500 Precision Castparts Co................................ 151,813
*5,000 Sanifill Inc.......................................... 216,875
*2,000 Thermo Instrument Systems Inc......................... 66,000
*6,000 United Waste Systems Inc.............................. 330,000
*6,000 U.S. Filter Corp...................................... 184,500
*4,000 USA Waste Services Inc................................ 104,000
------------
3,057,963
------------
</TABLE>
- ------------------------------------------------------------------------------
30
<PAGE>
Emerging Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Number Market
of Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 3.0%
3,200 Agrium Inc............................................ $ 41,200
*2,000 Fort Howard Corp...................................... 44,000
7,000 Goodrich (B.F.) Co.................................... 278,250
3,000 Hercules Inc.......................................... 181,500
6,000 Millipore Corp........................................ 251,250
5,000 Pentair Inc........................................... 136,250
2,500 Potash Corp. Saskatchewan Inc......................... 176,250
7,000 Praxair Inc........................................... 270,375
3,500 Raychem Corp.......................................... 272,562
*2,500 Sealed Air Corp....................................... 88,438
*3,000 UCAR International Inc................................ 123,000
----------
1,863,075
----------
TECHNOLOGY 23.1%
5,000 America Online Inc.................................... 320,000
*5,000 Applix Inc............................................ 195,000
*24,000 Ascend Communications Inc............................. 1,476,000
*7,000 Aspect Telecommunications Corp........................ 402,500
*5,000 Aspen Technology Inc.................................. 277,500
*4,000 Astea International Inc............................... 118,000
*4,000 Auspex Systems Inc.................................... 77,500
*5,000 BMC Software Inc...................................... 304,375
*13,000 Cadence Design Systems Inc............................ 679,250
*400 California Amplifier Inc.............................. 14,200
*3,500 Cambridge Technology Partners Inc..................... 235,375
*7,000 Cascade Communications................................ 701,750
*300 CBT Group Limited, ADR................................ 22,200
*6,000 C Cube Microsystems Inc............................... 297,000
*10,000 Cisco Systems Inc..................................... 518,750
2,000 Computer Associates International Inc................. 146,750
*2,000 Concord EFS Inc....................................... 67,000
*6,000 Data General Corp..................................... 92,250
*10,000 DSP Communications Inc................................ 397,500
7,000 ECI Telecom Ltd....................................... 182,875
*4,500 INSO Corp............................................. 244,125
*6,000 Integrated Systems Inc................................ 175,500
4,000 Lucent Technologies Inc............................... 140,500
*10,500 McAfee Associates Inc................................. 643,125
*3,000 Microcom Inc.......................................... 73,125
*6,000 Mylex Corp............................................ 146,250
*3,000 Network General Corp.................................. 132,375
*4,000 Newbridge Networks Corp............................... 257,500
*7,500 Oracle System Corp.................................... 253,125
*8,000 Pairgain Technologies Inc............................. 764,000
*9,000 Parametric Technology Corp............................ 362,250
5,000 Paychex Inc........................................... 338,750
*6,000 Peoplesoft Inc........................................ 378,000
*4,000 Picturetel Corp....................................... 136,000
*4,000 Project Software & Development Inc.................... 140,000
*6,000 Proxim Inc............................................ 167,250
*3,000 SCI Systems Inc....................................... 128,625
*6,000 Security Dynamics Technologies Inc.................... 507,000
</TABLE>
- ------------------------------------------------------------------------------
31
<PAGE>
Emerging Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Number Market
of Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
*4,000 Shiva Corp............................................ $ 239,000
*2,500 Solectron Corp........................................ 111,250
*13,000 Structural Dynamics Research Corp..................... 414,375
*11,000 Sun Microsystems Inc.................................. 596,750
6,000 Sundstrand Corp....................................... 220,500
*8,000 Sunguard Data Systems Inc............................. 266,000
*6,000 U.S. Robotics Corp.................................... 939,000
*3,000 Vitesse Semiconductor................................. 89,625
-----------
14,389,775
-----------
TRANSPORTATION 1.8%
5,000 America West Airlines, Class B........................ 105,000
4,000 Comair Holdings Inc................................... 148,000
1,500 Conrail Inc........................................... 104,625
*2,500 Continental Airlines Inc., Class A.................... 136,875
*7,000 Continental Airlines Inc., Class B.................... 397,250
*3,000 Fritz Companies Inc................................... 110,250
*3,000 Northwest Airlines Inc., Class A...................... 136,500
-----------
1,138,500
-----------
UTILITIES 2.4%
*3,000 ACC Corp.............................................. 100,500
7,000 AT&T Capital Corp..................................... 272,125
*1,500 Cellular Communications Inc., Class A................. 78,656
7,500 Cincinnati Bell Inc................................... 369,375
9,000 Frontier Corp......................................... 284,625
*11,000 LCI International Inc................................. 286,000
*4,000 Paging Network Inc.................................... 94,000
-----------
1,485,281
-----------
Total Common Stock and Equivalents
(Cost $45,589,909)................................ 58,713,475
-----------
</TABLE>
- ------------------------------------------------------------------------------
32
<PAGE>
Emerging Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Par Market
Amount Value
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Repurchase Agreement 7.1%
$4,410,000 SBC Capital Markets, Inc., dated 4/30/96, 5.31%, due 5/01/96
(Collateralized by U.S. Government obligations in a pooled cash account)
repurchase proceeds $4,410,650 (Cost $4,410,000).................................... $ 4,410,000
-----------
TOTAL INVESTMENTS (Cost $49,999,909) 101.2%.......................................... 63,123,475
Other assets and liabilities, net (1.2%)............................................. (758,470)
-----------
NET ASSETS, equivalent to $18.14 per share for Class A and
$17.98 per share for Class B shares 100%........................................... $62,365,005
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 1,902,990 Class A and 1,548,420 Class B shares outstanding.. $ 34,514
Capital surplus.................................................................................... 51,518,967
Accumulated net realized loss on securities........................................................ (1,891,478)
Net unrealized appreciation of securities.......................................................... 13,123,566
Accumulated net investment loss.................................................................... (420,564)
-----------
NET ASSETS......................................................................................... $62,365,005
===========
*Non-income producing security.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
Emerging Growth II Fund Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Statement of Operations Six Months
Ended
April 30, 1996
--------------
<S> <C>
Investment Income
Dividends..................................................................................... $ 87,368
Interest...................................................................................... 79,813
-----------
Investment income........................................................................... 167,181
-----------
Expenses
Advisory fees................................................................................. 134,318
Shareholder service agent's fees and expenses................................................. 212,594
Accounting services........................................................................... 52,234
Service fees--Class A......................................................................... 29,494
Distribution and service fees--Class B........................................................ 88,665
Trustees' fees and expenses................................................................... 11,053
Audit fees.................................................................................... 5,000
Reports to shareholders....................................................................... 8,074
Registration and filing fees.................................................................. 41,663
Organization.................................................................................. 2,084
Insurance..................................................................................... 1,194
Miscellaneous................................................................................. 1,372
-----------
Total expenses.............................................................................. 587,745
-----------
Net investment loss......................................................................... (420,564)
-----------
Realized and Unrealized Gain (Loss) on Securities
Net realized loss on securities............................................................... (1,861,486)
Net unrealized appreciation of securities during the period................................... 10,956,801
-----------
Net realized and unrealized gain on securities.............................................. 9,095,315
-----------
Increase in net assets resulting from operations............................................ $ 8,674,751
===========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months February 21, 1995*
Ended through
April 30, 1996 October 31, 1995
-------------- ------------------
<S> <C> <C>
NET ASSETS, beginning of period............................................. $26,743,573 $ 200
----------- -----------
Operations
Net investment loss....................................................... (420,564) (142,765)
Net realized loss on securities........................................... (1,861,486) (29,992)
Net unrealized appreciation of securities during the period............... 10,956,801 2,166,765
----------- -----------
Increase in net assets resulting from operations........................ 8,674,751 1,994,008
----------- -----------
Capital transactions
Proceeds from shares sold
Class A................................................................. 15,282,620 15,664,882
Class B................................................................. 14,386,178 10,338,125
----------- -----------
29,668,798 26,003,007
----------- -----------
Cost of shares redeemed
Class A................................................................. (1,639,303) (1,038,319)
Class B................................................................. (1,082,814) (215,323)
----------- -----------
(2,722,117) (1,253,642)
----------- -----------
Increase in net assets resulting from capital transactions................ 26,946,681 24,749,365
----------- -----------
Increase in Net Assets...................................................... 35,621,432 26,743,373
----------- -----------
NET ASSETS, end of period................................................... $62,365,005 $26,743,573
=========== ===========
</TABLE>
*Commencement of operations
See Notes to Financial Statements.
- ------------------------------------------------------------------------------
34
<PAGE>
International Equity II Fund Statement of Net Assets
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
Common Stock and Equivalents 95.8%
AUSTRALIA 3.1%
40,237 Coca-Cola Amatil........................................ $ 423,231
----------
AUSTRIA 3.9%
900 Austria Micro System.................................... 109,438
2,000 Wolford, AG............................................. 434,742
----------
544,180
----------
BELGIUM 2.2%
2,500 BAAN Company, NV........................................ 150,000
*7,000 Xeikon, NV, ADR......................................... 155,875
----------
305,875
----------
CANADA 0.9%
*25,000 Wescam, Inc............................................. 123,944
----------
CHILE 1.3%
5,000 Embotelladora Andina, SA, ADR........................... 175,000
----------
DENMARK 0.9%
*7,000 Scandinav Mobility...................................... 130,464
----------
FINLAND 0.6%
2,100 Nokia (AB) OY, Series A................................. 75,025
400 Nokia (AB) OY, Series K................................. 14,200
----------
89,225
----------
FRANCE 3.4%
667 Castorama Dubois........................................ 127,656
1,000 Ecco, SA................................................ 224,673
500 Sidel, SA............................................... 119,013
----------
471,342
----------
GERMANY 3.5%
500 Sap, AG................................................. 64,831
1,000 Sap, AG, Preferred Stock................................ 132,798
3,000 SGL Carbon.............................................. 283,167
----------
480,796
----------
HONG KONG 3.7%
30,000 Hutchison Whampoa....................................... 186,155
20,000 Sun Hung Kai Props...................................... 190,679
15,000 Swire Pacific........................................... 127,981
----------
504,815
----------
</TABLE>
35
<PAGE>
International Equity II Fund Statement of Net Assets, continued
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
INDONESIA 3.1%
400,000 Apac Centertex.......................................... $ 428,541
----------
IRELAND 6.1%
30,577 Bank of Ireland......................................... 220,892
12,076 CRH..................................................... 108,671
30,000 Independent News........................................ 249,883
53,342 Greencore Group......................................... 258,488
----------
837,934
----------
ITALY 10.5%
*10,000 De Rigo, SPA............................................ 307,500
5,000 Fila Holding SPA, ADR................................... 341,250
6,000 Gucci Group, NV......................................... 326,250
4,000 Luxottica Group SPA, ADR................................ 322,000
70,000 Telecom Italia, Mobile.................................. 154,609
----------
1,451,609
----------
JAPAN 11.6%
11,550 Bank of Tokyo........................................... 267,205
8,000 Bunkyodo Co............................................. 197,314
25,000 Cannon Copier Sales..................................... 308,303
6,000 Noritsu Koki Co......................................... 244,348
6,600 Ohmoto Gumi Co.......................................... 149,534
7,700 Sato Corp............................................... 197,275
4,400 Trans Cosmos, Inc....................................... 239,759
----------
1,603,738
----------
MALAYSIA 5.0%
60,000 Sungei Way Holdings..................................... 276,742
25,000 Sunway Building Tech.................................... 124,333
30,000 Telekom Malaysia........................................ 282,758
----------
683,833
----------
MEXICO 5.7%
60,400 Gruma, Series B......................................... 243,876
*35,000 Grupo Carso, Series A1.................................. 266,151
15,000 Kimberly Clark, Mexico.................................. 274,562
----------
784,589
----------
NETHERLANDS 4.7%
3,500 Getronics, NV........................................... 243,070
4,000 IHC Caland, NV.......................................... 157,105
4,000 Randstad Holdings....................................... 256,318
----------
656,493
----------
</TABLE>
36
<PAGE>
International Equity II Fund Statement of Net Assets, continued
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
NORWAY 2.3%
*2,100 Mulitsoft, AS........................................... $ 79,913
1,900 Spectec, ASA............................................ 49,166
20,000 Tomra Systems, AS....................................... 184,182
-----------
313,261
-----------
SINGAPORE 6.7%
25,000 Cerebos Pacific......................................... 225,850
18,000 Fraser & Neave.......................................... 199,744
75,000 QAF..................................................... 101,899
30,000 Sembawang Maritime...................................... 78,959
100,000 Singapore Tech Industries............................... 230,474
100,000 Steamers Maritime....................................... 84,649
-----------
921,575
-----------
SOUTH AFRICA 2.6%
30,000 Nampak LTD, ADR......................................... 157,500
7,025 South African Breweries................................. 201,969
-----------
359,469
-----------
SWEDEN 5.3%
5,000 Astra, AB, Series A..................................... 222,292
3,500 Autoliv, AB............................................. 190,958
6,000 Ericsson (LM) Telephone, Series B....................... 121,653
6,000 Hoganas, AG............................................. 199,068
-----------
733,971
-----------
SWITZERLAND 2.3%
200 Ciba Geigy, AG.......................................... 232,120
1,000 Roche Holdings, Ltd..................................... 79,750
-----------
311,870
-----------
THAILAND 0.8%
30,000 Quality Houses Co....................................... 109,331
-----------
UNITED KINGDOM 5.6%
11,000 British Biotech......................................... 484,344
10,000 HSBC Holdings........................................... 148,051
25,000 Rentokil Group.......................................... 144,137
-----------
776,532
-----------
Total Common Stocks and Equivalents (Cost $10,718,975).. 13,221,618
-----------
</TABLE>
37
<PAGE>
International Equity II Fund Statement of Net Assets, continued
April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Par Market
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
Repurchase Agreement 4.4%
$610,000 State Street Bank & Trust Co, dated 4/30/96, 2.00%,
due 5/01/96 (collateralized by $490,000 U.S. Govt.
Treasury Bond, 11.125%, 8/15/03) repurchase
proceeds $610,034 (Cost $610,000)................... $ 610,000
-----------
TOTAL INVESTMENTS (Cost $11,328,975) 100.2%.......... 13,831,618
Foreign currency (Cost $208,540) 1.5%................ 207,827
Other assets and liabilities, net (1.7%)............. (228,992)
-----------
NET ASSETS, equivalent to $16.34 per share for
Class A and $16.22 per share for Class B
shares 100%........................................ $13,810,453
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 476,873 Class A and
371,131 Class B shares outstanding............................. $ 8,480
Capital surplus.................................................. 11,414,201
Undistributed net realized gain on securities.................... 15,942
Net unrealized appreciation (depreciation) of securities
Investments.................................................... 2,502,643
Foreign currency............................................... (713)
Other foreign denominated assets and liabilities............... 457
Accumulated net investment loss.................................. (130,557)
-----------
NET ASSETS....................................................... $13,810,453
===========
</TABLE>
*Non-income producing security
See Notes to Financial Statements.
38
<PAGE>
<TABLE>
<CAPTION>
International Equity II Fund Financial Statements
(Unaudited)
- -----------------------------------------------------------------------------------------------
Statement of Operations
Six Months Ended
April 30, 1996
----------------
<S> <C>
Investment Income
Dividends (net of $5,622 of foreign taxes withheld at source)............... $ 42,957
Interest.................................................................... 11,034
----------
Investment Income.......................................................... 53,991
----------
Expenses
Advisory fees............................................................... 51,040
Shareholder service agent's fees and expenses............................... 31,992
Accounting services......................................................... 14,400
Service fees--Class A....................................................... 7,619
Distribution and service fees--Class B...................................... 20,565
Trustees' fees and expenses................................................. 9,361
Audit fees.................................................................. 8,420
Custodian fees.............................................................. 51,646
Legal fees.................................................................. 448
Reports to shareholders..................................................... 7,245
Registration and filing fees................................................ 37,061
Organization................................................................ 2,072
Miscellaneous............................................................... 1,461
Expense reimbursement (see Note 2).......................................... (58,782)
----------
Total expenses............................................................. 184,548
----------
Net investment loss........................................................ (130,557)
----------
Realized and Unrealized Gain (Loss) on Securities
Net realized gain (loss) on securities
Investments................................................................ 23,103
Foreign currency........................................................... (7,161)
Net unrealized appreciation (depreciation) of securities during the period
Investments................................................................ 1,896,028
Foreign currency........................................................... (169)
Other foreign denominated assets and liabilities........................... 1,038
----------
Net realized and unrealized gain on securities.............................. 1,912,839
----------
Increase in net assets resulting from operations............................ $1,782,282
==========
- -----------------------------------------------------------------------------------------------
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months February 21,1995*
Ended through
April 30, 1996 October 31, 1995
-------------- ----------------
<S> <C> <C>
NET ASSETS, beginning of period............................... $ 9,321,729 $ 200
----------- -----------
Operations
Net investment loss.......................................... (130,557) (59,847)
Net realized gain on securities.............................. 15,942 13,225
Net unrealized appreciation of securities during the period.. 1,896,897 605,490
----------- -----------
Increase in net assets resulting from operations............ 1,782,282 558,868
----------- -----------
Capital transactions
Proceeds from shares sold
Class A...................................................... 2,798,628 6,176,592
Class B...................................................... 2,974,078 2,722,626
----------- -----------
5,772,706 8,899,218
----------- -----------
Cost of shares redeemed
Class A...................................................... (280,855) (94,421)
Class B...................................................... (2,785,409) (42,136)
----------- -----------
(3,066,264) (136,557)
----------- -----------
Increase in net assets resulting from capital transactions.... 2,706,442 8,762,661
----------- -----------
Increase in Net Assets........................................ 4,488,724 9,321,529
----------- -----------
NET ASSETS, end of period..................................... $13,810,453 $ 9,321,729
=========== ===========
*Commencement of operations
See Notes to Financial Statements
- -----------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
Notes to Financial Statements
(Unaudited)
Note 1--Significant Accounting Policies
Common Sense Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended, as a diversified open-end management investment company
which offers shares in ten separate portfolios, five of which are described in
this report: Common Sense II Growth Fund ("Growth II"), Common Sense II Growth
and Income Fund ("Growth and Income II"), Common Sense II Government Fund
("Government II"), Common Sense II Emerging Growth Fund ("Emerging Growth II")
and Common Sense II International Equity Fund ("International Equity II").
The investment goals of each Fund are as follows: Growth II seeks capital
appreciation by investing in common stocks. Growth and Income II seeks
reasonable growth and income by primarily investing in equity securities that
provide dividend income and securities that are convertible into common or
preferred stocks. Government II seeks a high current return consistent with
preservation of capital by primarily investing in debt securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. Emerging
Growth II seeks capital appreciation by primarily investing in common stock of
small and medium sized companies. International Equity II seeks growth and
income by investing at least 65% of its assets in non United States equity
securities.
Each Fund is accounted for as a separate entity. Investments in foreign
securities involve certain risks not ordinarily associated with investments in
securities of domestic issuers, including fluctuations in foreign exchange
rates, future political and economical developments, and the possible imposition
of exchange controls or other foreign governmental laws or restrictions. The
following is a summary of significant accounting policies consistently followed
by the Trust in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported. Actual amounts may differ from the estimates.
A. Investment Valuations
Securities listed or traded on a national securities exchange are valued at
the last sale price. Unlisted securities and listed securities for which the
last sale price is not available are valued at the most recent bid price.
U.S. Government securities are valued at the last reported bid price.
Securities for which market quotations are not readily available are valued
at fair value under a method approved by the Board of Trustees.
Short-term investments with a maturity of more than 60 days when purchased
are valued based on market quotations until the remaining days to maturity
become less than 61 days. From such time, until maturity, the investments are
valued at amortized cost.
B. Foreign Currency Translation
The market values of foreign securities, forward currency exchange contracts,
foreign future contracts, and other assets and liabilities stated in foreign
currency are translated into U.S. dollars based on quoted exchange rates as
of Noon Eastern Time. The cost of securities is determined using historical
exchange rates. Income and expenses are translated at prevailing exchange
rates when accrued or incurred. Gains and losses on the sale of securities
are not segregated for financial reporting purposes between amounts arising
from changes in exchange rates and amounts arising from changes in the market
prices of securities. Realized gain and loss on foreign currency includes the
net realized amount from the sale of currency and the amount realized between
trade date and settlement date on security transactions.
C. Forward Currency Exchange Contracts
International Equity II enters into forward currency exchange contracts in
order to hedge its exposure to changes in foreign currency exchange rates on
its foreign portfolio holdings or settle transactions. A forward currency
exchange contract is a commitment to buy or sell a foreign security at a set
price on a future date. Changes in the value of the contract are recognized
by marking the contract to market on a daily basis to reflect current
currency translation rates. The Fund realizes gains or losses at the time the
forward currency exchange contract is closed. Risks may arise as a result of
the potential inability of the 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.
D. Futures Contracts and Forward Commitments
General--Transactions in futures contracts and forward commitments are
utilized in strategies to manage the market risk of the Trust's investments.
The purchase of a futures contract or forward commitments increases the
impact on net asset value of changes in the market price of investments.
Forward commitments have a risk of loss due to non
40
<PAGE>
Notes to Financial Statements, Continued
performance of counterparties. There is also a risk that the market movement
of such instruments may not be in the direction forecasted. Note 3--
Investment Activity contains additional information.
Futures Contracts--Upon entering into futures contracts, the Trust maintains
in a segregated account with its custodian, securities with a value equal to
its obligation under the futures contracts. A portion of these funds is held
as collateral in an account in the name of the broker, the Trust's agent in
acquiring the futures position. During the period the futures contract is
open, changes in the value of the contract ("variation margin") are
recognized by marking the contract to market on a daily basis. As unrealized
gains or losses are incurred, variation margin payments are received from or
made to the broker. Upon the closing or cash settlement of a contract, gains
and losses are realized. The cost of securities acquired through delivery
under a contract is adjusted by the unrealized gain or loss on the contract.
Forward Commitments--The Trust trades certain securities under the terms of
forward commitments, whereby the settlement for payment and delivery occurs
at a specified future date. Forward commitments are privately negotiated
transactions between the Trust and dealers. Upon executing a forward
commitment and during the period of obligation, the Trust maintains
collateral of cash or securities in a segregated account with its custodian
in an amount sufficient to relieve the obligation. If the intent of the Trust
is to accept delivery of a security traded under a forward purchase
commitment, the commitment is recorded as a long-term purchase. For forward
purchase commitments which security settlement is not intended by the Trust
and all forward sales commitments, changes in the value of the commitment are
recognized by marking the commitment to market on a daily basis. During the
commitment, the Trust may either resell or repurchase the forward commitment
and enter into a new forward commitment, the effect of which is to extend the
settlement date. In addition, the Trust may occasionally close such forward
commitments prior to delivery. Gains and losses are realized upon the
ultimate closing or cash settlement of forward commitments.
E. Repurchase Agreements
A repurchase agreement is a short-term investment in which the Trust acquires
ownership of a debt security and the seller agrees to repurchase the security
at a future time and specified price. The Trust may invest independently in
repurchase agreements, or transfer uninvested cash balances into a pooled
cash account along with other investment companies advised by Van Kampen
American Capital Asset Management, Inc. (the "Adviser"), the daily aggregate
of which is invested in repurchase agreements. Repurchase agreements are
collateralized by the underlying debt security. The Trust will make payment
for such securities only upon physical delivery or evidence of book entry
transfer to the account of the custodian bank. The seller is required to
maintain the value of the underlying security at not less than the repurchase
proceeds due the Trust.
F. Federal Income Taxes
No provision for federal income taxes is required because each Fund intends
to elect to be taxed as a "regulated investment company" under the Internal
Revenue Code and intends to maintain this qualification by annually
distributing all taxable net investment income and taxable net realized
capital gains to shareholders. It is anticipated that no distributions of
capital gains will be made until tax basis capital loss carryovers, if any,
expire or are offset by net realized capital gains.
At the end of October 31, 1995, Emerging Growth II had a net realized capital
loss carryforward of approximately $20,000 for federal income tax purposes
and may be utilized to offset current or future capital gains until
expiration in 2003.
G. Investment Transactions and Related Investment Income
Investment transactions are accounted for on the trade date. Realized gains
and losses on investments are determined on the basis of identified cost.
Dividend income is recorded on the ex-dividend date or when information
becomes available, whichever is later. Interest income is accrued daily.
Under the applicable foreign tax laws, a tax may be imposed on interest,
dividends, and realized gains generated from foreign investments. Such taxes
are generally reflected on the Statement of Operations as a reduction of the
related income or gains.
41
<PAGE>
Notes to Financial Statements, continued
H. Dividends and Distributions
The Trust declares annual distributions from net capital gains. Dividends
from net investment income are declared daily for Government II, quarterly
for Growth and Income II and annually for Growth II, Emerging Growth II, and
International Equity II. Dividends and distributions to shareholders are
recorded on the record date.
The Trust distributes tax basis earnings in accordance with the minimum
distribution requirements of the Internal Revenue Code, which may differ from
generally accepted accounting principles. Such dividends or distributions may
exceed financial statement earnings.
I. Debt Discount or Premium
The Trust accounts for debt discounts and premiums on the same basis as is
used for federal income tax reporting. Accordingly, original issue discounts
on debt securities purchased are amortized over the life of the security.
Premiums on debt securities are not amortized. Market discounts are
recognized at the time of sale as realized gains for book purposes, and
ordinary income for tax purposes.
Note 2--Advisory Fees and Other Transactions with Affiliates
The Adviser serves as investment manager of the Trust. Advisory fees to Adviser
are paid monthly, based on the average daily net assets of each Fund at an
annual rate as indicated by the following graduated fee schedules:
<TABLE>
<CAPTION>
Emerging Growth II, Growth II
& Growth and Income II Government II
----------------------------- ---------------------------
Average Daily Annual Average Daily Annual
Net Assets Rate Net Assets Rate
------------------ --------- ------------------ -------
<S> <C> <C> <C>
First $1 billion .65% First $1 billion .60%
Next $1 billion .60% Next $1 billion .55%
Next $1 billion .55% Next $1 billion .50%
Next $1 billion .50% Next $1 billion .45%
Over $4 billion .45% Next $1 billion .40%
Over $5 billion .35%
</TABLE>
The Adviser has entered into a subadvisory agreement with Smith Barney Mutual
Funds Management, Inc. (the "Subadviser"), who provides advisory services to the
International Equity II Fund and the Adviser with respect to its investments in
foreign securities. Advisory fees for the International Equity II Fund are
calculated monthly, based on the average daily net assets of the Fund at the
annual rate of 1.00%. The Adviser pays 50% of its advisory fee to the
Subadviser.
The Adviser has agreed that it will reimburse the Trust for any expenses
(including the advisory fee, but excluding interest, brokerage commissions,
distribution and service fees, and other extraordinary expenses) in excess of
the most restrictive limitation imposed by state securities commissions. The
most restrictive expense limitation is presently believed to be 2.5% of the
Fund's average daily net assets up to $30 million, 2.0% of the next $70 million
of such net assets and 1.5% of the Fund's net assets in excess of $100 million.
The Trust received from California a waiver which allows each Fund to exclude
shareholder service costs from the calculation of the expense limitation. The
Adviser and, in the case of the International Equity II Fund, the Subadviser
may, from time to time, agree to waive their respective investment advisory fees
or any portion thereof or elect to reimburse a Fund for ordinary business
expenses in excess of an agreed upon amount. For the period, the entire expense
reduction amount for Growth & Income II was voluntary. For International Equity
II, $51,090 of the expense reduction was voluntary and $7,692 was reimbursed due
to the contractual expense limitation. The Adviser prepaid the Trust's initial
registration and filing expenses. Emerging Growth II and International Equity II
amortized their portion of such expenses over a ten month period that ended
December 1995.
Accounting services include the salaries and overhead expenses of the Trust's
Chief Accounting Officer and the personnel operating under his direction.
Charges are allocated among investment companies advised by the Adviser. These
charges include the employee costs attributable to the Trust's accounting
officers. A portion of the accounting services expense was paid to the Adviser
in reimbursement of personnel, facilities and equipment costs attributable to
the provision of accounting services. The services provided by the Adviser are
at cost.
PFS Distributors (the "Distributor"), a wholly owned subsidiary of Travelers
Group, Inc., serves as Distributor of the Trust's shares. The Distributor has an
exclusive selling agreement with PFS Investments, Inc. to sell shares of the
Trust.
42
<PAGE>
Notes to Financial Statements, continued
During the period, the Trust paid brokerage commissions of $125,627 to companies
which are deemed affiliates of the Distributor's parent because it owns more
than 5% of the companies' outstanding voting securities. Certain officers and
trustees of the Trust are officers and trustees of the Adviser or its
affiliates.
Under the Distribution Plans, each class of shares pays .25% per annum of its
average daily net assets to the Distributor as a service fee. The service fee is
intended to cover personal services provided to the shareholders by
representatives of PFS Investments, Inc. Class B shares pay an additional fee of
.75% per annum of their average daily net assets to reimburse the Distributor
for its distribution costs. Actual distribution expenses incurred by the
Distributor for Class B shares may exceed the amounts reimbursed to the
Distributor by the Fund. At the end of the period, the unreimbursed expenses
incurred by the Distributor under the Class B plan are as shown in the following
table and may be carried forward and reimbursed through either the collection of
the contingent deferred sales charges from share redemptions or, subject to the
annual renewal of the plans, future Trust reimbursements of distribution fees.
Amounts paid by the affiliates during the period were as follows:
<TABLE>
<CAPTION>
Growth & Emerging International
Growth II Income II Government II Growth II Equity II
--------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Accounting services............................ $ 2,719 $ 2,597 $ 2,454 $ 2,565 $ --
Sales of Fund shares, Distributor commissions.. 107,532 63,954 30,106 92,413 15,711
Class B unreimbursed expenses (approximately).. 1,900,000 1,300,000 535,000 819,000 185,000
</TABLE>
At the end of the period, Growth II owned approximately 1.65% of the Van Kampen
American Capital Small Capitalization Fund ("Small Cap"), an investment company
managed by the Adviser. Small Cap comprised approximately 3.4% of Growth II's
total net assets.
Note 3--Investment Activity
During the period, the cost of purchases and proceeds from sales and maturities
of investments, excluding short-term investments and forward commitments were:
<TABLE>
<CAPTION>
Growth & Emerging International
Growth II Income II Government II Growth II Equity II
----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Purchases................. $98,632,214 $43,052,078 $19,462,357 $41,434,192 $7,294,319
Sales..................... 64,177,181 22,721,857 21,894,505 17,204,722 3,985,674
</TABLE>
At the end of the period, the Trust held the following futures contracts:
<TABLE>
<CAPTION>
Unrealized
Number of Market Appreciation
Fund Contracts Description Value (Depreciation)
------------ -------- ------------------------------------------------- ------------- --------------
<S> <C> <C> <C> <C>
Growth II 17 Standard & Poor's 500 Index expiring 6/96 (long) $5,566,225 $ 86,439
14 Simex Nikkei 225 (Japan) expiring 6/96 (long) 1,473,438 77,449
------------- ------------
$7,039,663 $163,888
============= ============
Growth & Income II 5 Standard & Poor's 500 Index expiring 6/96 (long) $1,637,125 $ 26,562
============= ============
Government II 15 U.S. Treasury Bond, expiring 6/96 (long) $1,637,344 $(66,251)
3 U.S. Treasury Note, five years expiring 6/96 (long) 317,766 (8,522)
5 U.S. Treasury Note, ten years expiring 6/96 (short) (537,500) 6,624
============= ============
$1,417,610 $(68,149)
============= ============
</TABLE>
43
<PAGE>
Notes to Financial Statements, continued
At the end of the period, Government II held the following forward commitments
for which delivery is not intended:
<TABLE>
<CAPTION>
Unrealized
Par Market Appreciation
Amount Security Value (Depreciation)
- -------- -------------------------------------------------------------------------- --------- --------------
<S> <C> <C> <C>
$800,000 Federal Home Loan Mortgage, 8.00%, settling 5/96 (sale)................... $(808,504) $ 2,246
50,000 Federal National Mortgage Association, 8.00%, settling 5/96 (sale)........ (50,485) 156
United States Treasury Notes
700,000 5.75%, settling 5/96 (purchase)......................................... 682,171 (32,266)
700,000 6.50%, settling 5/96 (purchase)......................................... 690,158 (52,772)
--------- --------
(Net obligation $595,976)................................................. $ 513,340 $(82,636)
========= ========
</TABLE>
The following table presents the identified cost of investments (and foreign
currency for International Equity II) at the end of the period for federal
income tax purposes and the associated net unrealized appreciation
(depreciation).
<TABLE>
<CAPTION>
Growth Emerging International
Growth II & Income II Government II Growth II Equity II
----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Identified cost................ $86,623,118 $57,164,455 $26,510,919 $50,002,938 $11,537,515
=========== =========== =========== =========== ===========
Gross unrealized appreciation.. $10,674,286 $ 6,916,380 $ 134,979 $13,596,887 $ 2,780,258
Gross unrealized depreciation.. (715,081) (597,005) (440,709) (476,350) (278,328)
----------- ----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation)............... $ 9,959,205 $ 6,319,375 $ (305,730) $13,120,537 $ 2,501,930
=========== =========== =========== =========== ===========
</TABLE>
Note 4--Capital
Each Fund offers two classes of shares at their respective net asset values per
share, plus a sales charge which is imposed either at the time of purchase
(Class A) or at the time of redemption on a contingent deferred basis (Class B).
All classes of shares have the same rights, except that Class B shares bear the
cost of distribution fees and certain other class specific expenses. Class B
shares automatically convert to Class A shares six years after purchase, subject
to certain conditions. Realized and unrealized gains or losses, investment
income and expenses (other than class specific expenses) are allocated daily to
each class of shares based upon the relative proportion of net assets of each
class.
The Trust has an unlimited number of each class of shares of $.01 par value
beneficial interest authorized. Transactions in shares of beneficial interest
for the period were as follows:
<TABLE>
<CAPTION>
Growth II Growth & Income II Government II
------------------------------- ------------------------------- -------------------------------
Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Year Ended
April 30, 1996 Oct. 31, 1995 April 30, 1996 Oct. 31, 1995 April 30, 1996 Oct. 31, 1995
-------------- ------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold
Class A............ 1,059,483 1,296,305 652,732 870,371 395,937 545,888
Class B............ 1,602,218 1,972,519 1,199,266 1,317,260 412,037 618,905
--------- --------- --------- --------- ------- ---------
2,661,701 3,268,824 1,851,998 2,187,631 807,974 1,164,793
--------- --------- --------- --------- ------- ---------
Shares reinvested
Class A............ 75,733 -- 24,149 6,227 16,631 27,873
Class B............ 124,917 -- 35,295 3,076 19,419 19,868
--------- --------- --------- --------- ------- ---------
200,650 -- 59,444 9,303 36,050 47,741
--------- --------- --------- --------- ------- ---------
Shares redeemed
Class A............ (177,948) (217,699) (123,322) (202,866) (393,528) (158,374)
Class B............ (175,136) (146,988) (138,808) (106,128) (154,635) (99,822)
--------- --------- --------- --------- ------- ---------
(353,084) (364,687) (262,130) (308,994) (548,163) (258,196)
--------- --------- --------- --------- ------- ---------
Increase in shares
outstanding........ 2,509,267 2,904,137 1,649,312 1,887,940 295,861 954,338
========= ========= ========= ========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
Emerging Growth II International Equity II
------------------------------- -------------------------------
Six Months Feb. 21, 1995 Six Months Feb. 21, 1995
Ended through Ended through
April 30, 1996 Oct. 31, 1995 April 30, 1996 Oct. 31, 1995
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Shares sold
Class A............ 948,304 1,125,630 201,504 480,871
Class B............ 898,032 732,333 190,458 202,578
--------- --------- --------- ---------
1,846,336 1,857,963 391,962 683,449
--------- --------- --------- ---------
Shares reinvested
Class A............ -- -- -- --
Class B............ -- -- -- --
--------- --------- --------- ---------
-- -- -- --
--------- --------- --------- ---------
Shares redeemed
Class A............ (100,108) (70,836) (198,656) (6,846)
Class B............ (67,332) (14,613) (18,825) (3,080)
--------- --------- --------- ---------
(167,440) (85,449) (217,481) (9,926)
--------- --------- --------- ---------
Increase in shares
outstanding........ 1,678,896 1,772,514 174,481 673,523
========= ========= ========= =========
</TABLE>
44
<PAGE>
Notes to Financial Statements, continued
Note 5--Trustee Compensation
Trustees who are not affiliated with the Adviser are compensated by the Trust at
the annual rate of $5,320 plus a fee of $360 per day for the Board meeting
attended.
<TABLE>
<CAPTION>
Growth Emerging International
Growth II & Income II Government II Growth II Equity II
--------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Trustees' fees for the period...... $10,700 $8,140 $9,412 $10,560 $8,840
======= ====== ====== ======= ======
</TABLE>
The Trustees of the Trust instituted a Retirement Plan effective April 1, 1996.
The Plan is not funded, and obligations under the Plan will be paid solely out
of the Trust's general accounts. The Trust will not reserve or set aside funds
for the payment of its obligations under the Plan by any form of trust or
escrow. For the current Trustees not affiliated with the Adviser, the annual
retirement benefit payable per year for a ten year period is based upon the
highest total annual compensation received in any of the three calendar years
preceding retirement. Trustees with more than five but less than ten years of
service at retirement will receive a prorated reduced benefit. Under the Plan,
for the Trustees retiring with the effectiveness of the Plan, the annual
retirement benefit payable per year for a ten year period is equal to 75% of the
total compensation received from the Trust during the 1995 calendar year.
Note 6--Proposed Trust Reorganization
The Trustees of the Trust approved an Agreement and Plan of Reorganization
between the Trust on behalf of Common Sense II Growth Fund ("Growth II") and
Growth, Common Sense II Growth and Income Fund ("Growth and Income II") and
Growth and Income, and Common Sense II Government Fund ("Government II") and
Government, providing for the transfer of assets and liabilities of Growth II,
Growth and Income II and Government II to Growth, Growth and Income and
Government, in exchange for shares of Growth, Growth and Income and Government,
respectively, at their net asset value per share (the "Reorganization").
Each Reorganization, which is scheduled to occur on or before July 31, 1996, is
subject to approval by the holders of a majority of the outstanding shares of
each Growth II, Growth and Income II and Government II.
45
<PAGE>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
periods indicated. (Unaudited)
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------- ---------------------------------------
Six Months Year May 3, 1994(1) Six Months Year May 3, 1994(1)
Ended Ended through Ended Ended through
April 30, October 31, October 31, April 30, October 31, October 31,
1996 1995(2) 1994(2) 1996 1995(2) 1994(2)
---------- ----------- -------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.............. $14.57 $11.89 $11.81 $14.41 $11.85 $11.81
------ ------ ------ ------ ------ ------
Income from investment operations
Investment income............................... .13 .28 .29 .13 .27 .28
Expenses(4)..................................... (.14) (.37) (.29) (.18) (.46) (.32)
------ ------ ------ ------ ------ ------
Net investment income (loss)...................... (.01) (.09) .00 (.05) (.19) (.04)
Net realized and unrealized gain on securities.... 1.654 2.77 .08 1.614 2.75 .08
------ ------ ------ ------ ------ ------
Total from investment operations.................. 1.644 2.68 .08 1.564 2.56 .04
------ ------ ------ ------ ------ ------
Less distributions from net realized
gain on securities............................... (.664) -- -- (.664) -- --
------ ------ ------ ------ ------ ------
Net asset value, end of period.................... $15.55 $14.57 $11.89 $15.31 $14.41 $11.85
====== ====== ====== ====== ====== ======
TOTAL RETURN(3)................................... 11.54% 22.44% .76% 11.17% 21.50% .42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).............. $37.4 $21.1 $4.4 $59.2 $33.3 $5.8
Average net assets (millions)..................... $28.5 $11.5 $2.1 $45.5 $17.6 $2.1
Ratios to average net assets (annualized)(4)
Expenses........................................ 2.44% 2.75% 4.89% 3.18% 3.50% 5.79%
Expenses, without expense reimbursement......... -- 2.90% -- -- 3.65% -
Net investment loss............................. (.13%) (.68%) (.05%) (.87%) (1.45%) (.78%)
Net investment loss, without expense
reimbursement.................................. -- (.83%) -- -- (1.60%) -
Portfolio turnover rate........................... 101% 193% 151% 101% 193% 151%
Average commission rate per equity stock traded... $.04 -- -- $.04 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income II Fund
PER SHARE OPERATING PERFORMANCE(2)
Net asset value, beginning of period.............. $13.92 $11.71 $11.81 $13.88 $11.70 $11.81
------ ------ ------ ------ ------ ------
Income from investment operations
Investment income............................... .18 .41 .42 .18 .42 .42
Expenses(4)..................................... (.14) (.31) (.21) (.20) (.41) (.25)
------ ------ ------ ------ ------ ------
Net investment income (loss)...................... .04 .10 .21 (.02) .01 .17
Net realized and unrealized gain (loss) on
securities....................................... 1.845 2.255 (.26) 1.8375 2.234 (.251)
------ ------ ------ ------ ------ ------
Total from investment operations.................. 1.885 2.355 (.05) 1.8175 2.244 (.081)
------ ------ ------ ------ ------ ------
Less distributions from (see Note 1H)
Net investment income........................... (.04) (.10) (.05) -- (.01) (.029)
Realized gain on securities..................... (.2775) -- -- (.2775) -- --
Excess of book-basis net investment income...... (.0175) (.045) -- (.01) (.054) --
------ ------ ------ ------ ------ ------
Total distributions............................... (.335) (.145) (.05) (.2875) (.064) (.029)
------ ------ ------ ------ ------ ------
Net asset value, end of period.................... $15.47 $13.92 $11.71 $15.41 $13.88 $11.70
====== ====== ====== ====== ====== ======
TOTAL RETURN(3)................................... 13.67% 20.20% (.42%) 13.28% 19.19% (.68%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).............. $23.6 $13.5 $3.5 $40.4 $21.2 $3.6
Average net assets (millions)..................... $18.0 $7.5 $1.9 $30.6 $10.2 $1.5
Ratios to average net assets (annualized)(4)
Expenses........................................ 1.85% 2.44% 3.37% 2.60% 3.15% 4.42%
Expenses, without expense reimbursement......... 1.96% 2.59% 3.40% 2.71% 3.30% 4.45%
Net investment income (loss).................... .53% .81% 3.38% (.23%) .05% 3.00%
Net investment income (loss), without expense
reimbursement.................................. .42% .66% 3.35% (.33%) (.10%) 2.97%
Portfolio turnover rate........................... 51% 108% 215% 51% 108% 215%
Average commission rate per equity stock traded... $.04 -- -- $.04 -- --
</TABLE>
(1) Commencement of operations
(2) Based on average shares outstanding
(3) Total return does not consider the effect of sales charges. Total return
for a period of less than one year is not annualized.
(4) See Note 2
See Notes to Financial Statements
46
<PAGE>
Financial Highlights, continued
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
Class A(2) Class B(2)
----------------------------------------- ----------------------------------------
Six Months Year May 3, 1994(1) Six Months Year May 3, 1994(1)
Ended Ended through Ended Ended through
April 30, October 31, October 31, April 30, October 31, October 31,
1996 1995 1994 1996 1995 1994
---------- ----------- -------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Government II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........ $12.14 $11.54 $11.91 $12.14 $11.54 $11.91
------ ------ ------ ------ ------ ------
Income from investment operations
Investment income........................... .43 .93 .38 .42 .93 .38
Expenses.................................... (.16) (.32) (.15) (.20) (.42) (.18)
------ ------ ------ ------ ------ ------
Net investment income....................... .27 .61 .23 .22 .51 .20
Net realized and unrealized gain (loss)
on securities............................... (.2846) .6366 (.40) (.3227) .6523 (.41)
------ ------ ------ ------ ------ ------
Total from investment operations............ (.0146) 1.2466 (.17) (.1027) 1.1623 (.21)
------ ------ ------ ------ ------ ------
Less distributions from (see Note 1H)
Net investment income....................... (.27) (.61) (.20) (.22) (.51) (.16)
Net realized gain on securities............. (.029) - - (.029) - -
Excess of book-basis net investment income.. (.0564) (.0366) - (.0183) (.0523) -
------ ------ ------ ------ ------ ------
Total distributions......................... (.3554) (.6466) (.20) (.2673) (.5623) (.16)
------ ------ ------ ------ ------ ------
Net asset value, end of period.............. $11.77 $12.14 $11.54 $11.77 $12.14 $11.54
====== ====== ====== ====== ====== ======
TOTAL RETURN(3)............................. (.68%) 11.20% (1.53%) (1.12%) 10.42% (1.83%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)........ $9.8 $9.8 $4.6 $12.4 $9.5 $2.8
Average net assets (millions)............... $8.7 $6.4 $3.9 $11.5 $5.5 $1.1
Ratios to average net assets (annualized)
Expenses................................... 2.62% 2.74% 2.32% 3.32% 3.48% 3.25%
Net investment income...................... 4.41% 5.11% 3.54% 3.68% 4.32% 3.49%
Portfolio turnover rate..................... 115% 113% 155% 115% 113% 155%
</TABLE>
(1) Commencement of operations
(2) Based on average shares outstanding
(3) Total return does not consider the effect of sales charges. Total return
for a period of less than one year is not annualized.
See Notes to Financial Statements.
47
<PAGE>
Financial Highlights, continued
Selected data for a share of beneficial interest outstanding throughout the
periods indicated. (Unaudited)
<TABLE>
<CAPTION>
Class A(2) Class B(2)
-------------------------------------- --------------------------------------
Six Months February 21, 1995(1) Six Months February 21, 1995(1)
Ended through Ended through
April 30, 1996 October 31, 1995 April 30, 1996 October 31, 1995
-------------- -------------------- -------------- --------------------
<S> <C> <C> <C> <C>
Emerging Growth II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............. $15.12 $11.81 $15.04 $11.81
------ ------ ------ ------
Income from investment operations
Investment income.............................. .07 .15 .07 .15
Expenses(4).................................... (.21) (.39) (.27) (.50)
------ ------ ------ ------
Net investment loss.............................. (.14) (.24) (.20) (.35)
Net realized and unrealized gain on securities... 3.16 3.55 3.14 3.58
------ ------ ------ ------
Total from investment operations................. 3.02 3.31 2.94 3.23
------ ------ ------ ------
Net asset value, end of period................... $18.14 $15.12 $17.98 $15.04
====== ====== ====== ======
TOTAL RETURN(3).................................. 19.97% 28.11% 19.55% 27.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............. $ 34.5 $ 15.9 $ 27.9 $ 10.8
Average net assets (millions).................... $ 23.6 $ 6.1 $ 17.7 $ 3.7
Ratios to average net assets (annualized)(4)
Expenses........................................ 2.52% 2.75% 3.28% 3.49%
Expenses, without expense reimbursement......... -- 3.37% -- 4.11%
Net investment loss............................. (1.71%) (1.65%) (2.47%) (2.45%)
Net investment loss, without expense
reimbursement.................................. -- (2.27%) -- (3.07%)
Portfolio turnover rate.......................... 43% 83% 43% 83%
Average commission rate per equity stock traded.. $ .03 -- $ .03 --
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............. $13.86 $11.81 $13.79 $11.81
------ ------ ------ ------
Income from investment operations
Investment income.............................. .08 .19 .08 .19
Expenses(4).................................... (.25) (.33) (.30) (.40)
------ ------ ------ ------
Net investment loss.............................. (.17) (.14) (.22) (.21)
Net realized and unrealized gain on securities... 2.65 2.19 2.65 2.19
------ ------ ------ ------
Total from investment operations................. 2.48 2.05 2.43 1.98
------ ------ ------ ------
Net asset value, end of period................... $16.34 $13.86 $16.22 $13.79
====== ====== ====== ======
TOTAL RETURN(3).................................. 17.89% 16.28%(5) 17.62% 15.69%(5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............. $ 7.8 $ 6.6 $ 6.0 $ 2.7
Average net assets (millions).................... $ 6.1 $ 3.7 $ 4.1 $ 1.0
Ratios to average net assets (annualized)(4)
Expenses........................................ 3.32% 3.64% 4.04% 4.33%
Expenses, without expense reimbursement......... 4.47% 5.97% 5.19% 6.67%
Net investment loss............................. (2.27%) (1.40%) (2.98%) (2.80%)
Net investment loss, without expense
reimbursement.................................. (3.42%) (3.73%) (4.13%) (5.13%)
Portfolio turnover rate.......................... 42% 17% 42% 17%
Average commission rate per equity stock traded.. $ .03 -- $ .03 --
</TABLE>
(1) Commencement of operations
(2) Based on average shares outstanding
(3) Total return does not consider the effect of sales charges. Total return
for a period less than one year is not annualized.
(4) See Note 2
(5) Total return from March 17, 1995 (date the Fund's investment strategy was
implemented) through October 31, 1995.
See Notes to Financial Statements.
48
<PAGE>
Common Sense Trust II
Board of Trustees
Donald M. Carlton
A. Benton Cocanougher
Stephen R. Gross
Jeffrey B. Lane
Alan G. Merten
Steven Muller
F. Robert Paulsen
R. Richardson Pettit
Don G. Powell
Alan B. Shepard, Jr.
- -----------------------------------------------------
Officers
Don G. Powell
President
Dennis J. McDonnell
Executive
Vice President
Edward C. Wood, III
Vice President and
Chief Financial Officer
Curtis W. Morell
Vice President and
Chief Accounting Officer
Gerald Baxter
William N. Brown
Robert C. Peck, Jr.
Gregory Pitts
Alan T. Sachtleben
D. Richard Williams
Paul R. Wolkenberg
Vice Presidents
Nori L. Gabert
Ronald A. Nyberg
Vice Presidents and
Secretaries
Tanya M. Loden
Controller
John L. Sullivan
Treasurer
Huey P. Falgout, Jr.
Assistant Secretary
Steven M. Hill
Assistant Treasurer
M. Robert Sullivan
Assistant Controller
- -----------------------------------------------------
Investment Adviser
Van Kampen American Capital Asset Management, Inc.
One Parkview Plaza, Oakbrook Terrace, Illinois 60181
- -----------------------------------------------------
Investment Subadviser
Smith Barney Mutual Fund Management, Inc.
388 Greenwich St., New York, New York 10013
- -----------------------------------------------------
Distributor
PFS Distributors
3100 Breckinridge Blvd., Duluth, Georgia 30199-0001
- -----------------------------------------------------
Shareholder Service Agent
PFS Shareholder Services
3100 Breckinridge Blvd., Duluth, Georgia 30199-0062
- -----------------------------------------------------
Custodian
State Street Bank and Trust Co.
225 Franklin Street, Boston, Massachusetts 02110
- -----------------------------------------------------
Counsel
Sullivan & Worcester LLP
1025 Connecticut Avenue N.W., Washington, D.C. 20036
- -----------------------------------------------------
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of the
Trust. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Trust
which contains additional information on how to purchase shares, the sales
charge, and other pertinent data.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shareholder inquiries should be directed in writing to the Shareholder Service
Agent. PFS Shareholder Services, 3100 Breckinridge Blvd., Duluth, Georgia 30199-
0062, or by calling (800) 544-5445.
- --------------------------------------------------------------------------------
<PAGE>
[LOGO OF COMMON SENSE TRUST] BULK RATE
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Common Sense Shareholder Services PAID
3120 Breckinridge Blvd. Permit No. 747
Duluth, Georgia 30199-0001 Atlanta, GA
If you have any questions, please contact
one of our Customer Service Representatives
1-800-544-5445
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